Lok'nStore Group Plc
Annual Report 2023

Plain-text annual report

Lok’nStore Group plc Annual Report and Accounts For the year ended 31 July 2023 L o k ’ n S t o r e G r o u p p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 2 3 Overview 02 Highlights 04 Chair’s Statement 10 Key Performance Indicators 12 Group at a Glance Strategic Report 16 The UK Self-Storage Market at a Glance 18 Our Business Model 20 Our Strategy 21 Managing Director’s Review 28 Property Review 34 Financial Review 43 Section 172 Statement 44 Principal Risks and Uncertainties Environmental and Social 51 Environmental Targets and Commitments 52 Environmental Management Performance 54 Our Environmentally Progressive Stores 55 Social Governance 62 Board of Directors and Advisers 64 Corporate Governance 72 Directors’ Report 77 Remuneration Report 81 Statement of Directors’ Responsibilities Independent Auditor’s Report to the 82 Members of Lok’nStore Group plc Financial Statements 90 Consolidated Statement of Comprehensive Income 91 Consolidated Statement of Changes in Equity 92 Company Statement of Changes in Equity 93 Consolidated and Company Statements of Financial Position 94 Consolidated Statement of Cash Flows 95 Accounting Policies 106 Notes to the Financial Statements 142 Glossary 144 Our Store Locations Lok’nStore Group plc Annual Report and Accounts 2023 Dynamic new store opening schedule driving future growth. We are a leading Company in the fast-growing UK self-storage market. We opened our first store in February 1995 and have grown consistently over the last 28 years with 42 stores operating across England and Wales. We have been listed on the AIM market since June 2000. We operate both our Owned Stores and Managed Stores for third party owners. Storage services are available to both household and business customers at Lok’nStore’s highly branded and visually prominent buildings. To find out more visit: www.loknstore.co.uk/investors 01 Strategic ReportEnvironmental and SocialOverviewGovernanceFinancial StatementsHighlights Lok’nStore, the AIM listed self-storage company, is pleased to announce its Preliminary Results for the year ended 31 July 2023. SAME STORE SELF STORAGE REVENUE £25.30m £22.57m ADJUSTED TOTAL ASSETS4* £370.9m £395.4m up 12.1% up 6.4% 22 23 SAME STORE SELF STORAGE ADJUSTED EBITDA £13.9m £14.5m ADJUSTED NET ASSET VALUE5* PER SHARE up 4.0% up 1.5% 22 23 PRICING PER SQ. FT. £25.62 £27.37 up 6.8% 22 23 ANNUAL DIVIDEND PER SHARE up 10.1% 22 23 £9.72 £9.87 22 23 19.00p 17.25p 22 23 “Lok’nStore’s business has once again moved ahead with Same Store Self Storage revenue up 12.1%. Demand for UK self-storage assets remains strong, and this, coupled with our new store openings, has driven our Net Asset Value up by 1.4% to £9.86 per share. We are proposing a 10.1% increase in the annual dividend, the twelfth year of increased dividends in a row. The net debt is low and LTV is only 3.7%.” “Trading since the year-end continues to be in line with expectations. We have opened two new Landmark stores and are on site at three more which will open within the next 12 months which can be completed using cash. These new stores will add further momentum to sales, earnings and net asset growth.” Andrew Jacobs Chair of Lok’nStore Group plc 02 Lok’nStore Group plc Annual Report and Accounts 2023SOLID GROWTH OF SAME STORE REVENUE INCREASE IN NET ASSET VALUE PER SHARE DYNAMIC NEW STORE OPENING SCHEDULE DRIVING FUTURE GROWTH We sold four stores on a sale and manage-back arrangement on 31 January 2022 adding circa £37 million to cash, reinforcing our strong financial footing. (‘the Sale’) STRONG REVENUE GROWTH NET ASSET VALUE UP • Same Store Self Storage Revenue15 £25.30 million up 12.1% (2022: £22.57 million) • Adjusted Net Asset Value5 per share up 1.4% to £9.86 per share (2022: £9.72 per share) • Same Store Self Storage Adjusted EBITDA1 £14.5 million up 4.0% (2022: £13.9 million) • Group Revenue £27.1 million up 0.9% (2022: £26.9 million) • Group Adjusted EBITDA1 £15.1 million down 7.9% (2022: £16.3 million) DRIVEN BY SOLID OPERATING METRICS • Pricing up 6.8% to £27.37 per sq. ft. (2022: £25.62 per sq. ft.) • Closing occupancy in stores over 3 years old 80.6% (2022: 82.9%) • Move-ins up 4.9% year-on-year • Managed Store recurring revenue £1.5 million up 11.9% (2022: £1.3 million) MANAGEMENT OF COSTS • External cost increases experienced in year, specifically in energy, insurance and interest charges – we expect the rate of these cost increases to abate • Same Store store15 EBITDA margins although lower remain robust at 57.2% (2022: 61.3%) TWELFTH CONSECUTIVE YEAR OF DIVIDEND INCREASE • Annual dividend increased by 1.75 pence to 19.00 pence per share up 10.1% (2022: 17.25 pence per share) – covered 1.5x by CAD DISCIPLINED CAPITAL ALLOCATION UNDERPINS OUR STRONG BALANCE SHEET AND LOW NET DEBT • £20.5 million (gross) equity raised in July 2023 • £42.1 million cash at year-end (2022: £46.5 million) • Net debt (excluding lease liabilities and deferred finance costs) reduced to £12.3 million (2022: £20.3 million) • Loan to Value Ratio6 (net of cash) down to 3.7% (2022: 6.6%) DYNAMIC PIPELINE8 OF NEW LANDMARK STORES WILL DELIVER FURTHER GROWTH • Two new Landmark stores opened – 108,890 sq. ft. of new owned space added up 9.7% • Three new Landmark stores on site will add over 162,000 sq. ft. of new trading space WELL POSITIONED FOR THE FUTURE • Trading momentum continues post year-end with stores revenue up 6.3% for August and September 2023 compared to the same corresponding two-month period last year • Flexibility to respond to market circumstances This Same Store analysis and all other Alternative Performance Measures (APMs) denoted by superscripts are explained in the key performance indicators (KPIs) definitions on page 10. 03 Strategic ReportEnvironmental and SocialOverviewGovernanceFinancial StatementsChair’s Statement “ Solid trading, increased Asset Values and low net debt” Andrew Jacobs Chair I am delighted to be reporting another year of good results for Lok’nStore, delivering a strong operating and financial performance. These results can be summarised as: • Solid growth of Same Store14 revenue • Increase in Net Asset Value per share • Rate of cost increases abating • 10.1% increase in annual dividend • Low net debt and LTV • Dynamic new store opening schedule driving future growth – Two new Landmark stores opened – Three further Landmark stores to open in FY24 These results demonstrate Lok’nStore’s delivery of growth in long-term shareholder return through all stages of the economic cycle. The significant and continued investor interest in the UK self-storage sector demonstrated by market transactions underpins the increased value of our assets and our strategy to open more Landmark stores. The detail behind these results is discussed further in our Financial Review. Further Strengthening the Balance Sheet On 7 July 2023, the Company raised total gross proceeds of approximately £20.5 million through the issue of 2,679,739 new Ordinary Shares via a Placing and REX Retail Offer, at a price of 765 pence per Ordinary Share. The Fundraising Shares represented approximately 8.9% of the Company’s issued share capital. As a result, we have new shareholders as well as existing institutional shareholders who have increased their shareholdings. We are also particularly pleased that existing smaller retail shareholders participated via the REX offer. I would like to thank existing shareholders for their support and welcome our new shareholders to the Company. In the previous financial year 2022, the Group completed the Sale. This transaction added sales proceeds of c. £37 million to cash balances. These two strategic actions reinforced the Company’s excellent financial position with low net debt. A conservative capital structure and a strong Balance Sheet remain a key focus. We report a year-end LTV ratio (net of cash) of only 3.7% (2022: 6.6%) and a low level of net debt of only £12.3 million, down from £20.3 million in the previous year (refer to note 29b). Continued Revenue Growth Driven by Strong Demand In the year we have replaced all the revenue generated from the four established stores sold last year, which is a great performance and at a headline level we report a 0.9% increase in Group Revenue. Same Store Group Revenue remains strong with growth of 6.6% over last year. Customer demand remains significantly above levels seen pre-pandemic and this year has continued to move ahead with total move-ins up 4.9% compared to last year. This continuing strong demand from new customers combined with our dynamic pricing management has resulted in a total increase in pricing over the past three years of 31.2%. Our pricing moved forward by 6.8% in the last 12 months. Management of Cost Increases At a headline level, total Group Operating Costs amounted to £11.8 million for the period (2022: £10.4 million) up by 14.2%. On a Same Store basis costs have increased by 17.8% compared to last year. As previously reported at the half year, we have seen significant external cost increases primarily through energy costs, which have risen in the year by £1.2 million compared to the same period last year, a trebling of the previous year’s energy costs. 04 Lok’nStore Group plc Annual Report and Accounts 2023ANNUAL DIVIDEND 19 PENCE PER SHARE UP 10.1% £17.3m INVESTED IN NEW STORES THIS YEAR 1.4% INCREASE IN NET ASSET VALUE PER SHARE TO £9.86 In the coming year we expect this major change in energy costs to abate and then decline in FY25. Interest costs have also risen significantly. The cash costs of bank interest paid (before capitalisation of interest costs, non-utilisation fees and loan amortisation fees) in the year was £3.1 million compared to £1.3 million last year. The average costs of debt over the year was 4.77%. With rates rising throughout the year the Group’s current cost of debt at year-end was 6.19%. Currently, interest on our active drawn loans is 6.68%. We now have clarity on future business rates, following the publishing of the revaluation listing which took effect from April 2023. This will result in our business rates increasing £0.49 million per annum from April 2023 and by a further £0.20 million per annum from April 2024. We have robust EBITDA margins which provide a shelter to the business against these external cost increases. This is supported by our ability to move our own pricing forward. We have a strong record of disciplined cost control. In FY24 we expect Same-Store operating costs to increase more modestly, driven mainly by revised business rates with other costs increases more muted. From FY25, we expect operating costs to increase more slowly with cost increases mainly being driven by the expansion of store numbers so revenue growth flows into earnings. Increase In Net Asset Value I am pleased to report an increase of 1.4% in the Adjusted Net Asset Value per share to £9.86 per share (2022: £9.72 per share) (31 January 2023 £9.15 per share). Since the last year-end at 31 July 2022 we have seen significant changes in the debt markets. As a result, Jones Lang LaSalle (JLL), consider that the yields and discount rates which were applied at the July 2022 year-end have changed. On our owned freehold trading stores we have seen exit yields increase on average by 33 basis points to 5.79%, with discount rates increasing by 45 basis points to 7.47%. These changes have been fully offset by improved cash flows and the extension of the lease at our Eastbourne store. This demonstrates the impact operating performance has on asset values and why one of our key objectives remains to fill existing stores and continue improving pricing. The Exit Yield and Discount Rates applied in the valuations are validated by transactional evidence. There is continued strong institutional investor appetite in the UK self-storage sector. JLL comment that “The self-storage market has had strong market activity since July 2022 which reflects the continued appetite for the sector but the higher cost of debt in the present finance market is having an impact. The sector’s operational resilience in the current climate is making it a popular asset class with investors – this is accentuated with its structural undersupply”. Our new Bedford and Peterborough Landmark stores had their maiden external valuation in July 2023, which were accretive to asset value. We have two further Owned Stores in Staines and Basildon opening in FY24 and expect these to add momentum to Net Assets with their maiden external valuations at July 2024. More details on the valuation of our trading stores can be found on page 31 and in note 12(a) of the financial statements on page 112. 05 Strategic ReportEnvironmental and SocialOverviewGovernanceFinancial StatementsChair’s Statement continued Further Dividend Growth The Directors are proposing a final dividend of 13.25 pence per share an increase of 8.2% (2022: 12.25 pence) following the interim dividend payment of 5.75 pence per share in June 2023, bringing the total distribution for the year to 19 pence per share, an increase of 1.75 pence per share up 10.1% (2022: 17.25 pence per share) and our twelfth year of increase in a row. Subject to approval at the Company’s AGM on 7 December 2023 the final dividend will be paid on 5 January 2024 to shareholders on the register on 24 November 2023. The ex- dividend date will be 23 November 2023. The final deadline for Dividend Reinvestment Election by investors is 8 December 2023. Investment In New Stores This year we invested £17.3 million in new store development adding 12% to our owned stores trading space. We opened two new owned stores in Bedford and Peterborough. Trading at our new stores continues to meet expectations and this underpins our confidence that our pipeline will add further to sales and earnings growth. We are on site at three Stores, in Staines, Basildon, and Kettering (managed) which will all open in the coming 12 months. The remaining capital expenditure required to complete the Staines and Basildon stores is £12.7 million, all of which can be paid out of cash. We are due to go on site shortly at Bromborough, Wirral on behalf of a third party Managed Store client. Self-storage generally benefits from the short lead time between breaking ground and store opening of around twelve months. We have only committed future capital expenditure at the two owned stores where we are on site, both of which will be open within the next 12 months. We have a high degree of flexibility regarding start dates for further building at other sites. We can therefore adapt our development programme quickly to react to changing economic circumstances. The pipeline progress is discussed further in the Property Review on pages 29 and 30. 06 Lok’nStore Group plc Annual Report and Accounts 2023Managed Stores Our strategy includes growing the number of stores we manage for third party owners. This enables the Group to earn revenue without having to commit capital, to amortise fixed central costs over a wider operating base and drive further traffic to our website which benefits our entire operation. During the year, we generated total Managed Store income of £1.66 million, with recurring fees of £1.47 million (2022: £1.31 million) up 11.9%. This was driven by increased revenues generated from the Managed Stores and also the four stores we sold on manage back contracts on 31 January 2022. In the management fees table on page 25 we separate recurring management fees from non-recurring fees. Non-recurring fees relate to one off fees generated from planning, store opening, construction and advisory and supplementary fees. Lok’nStore manages 16 stores for third party owners. Our current new store pipeline includes two Managed Stores, taking the total number to 18. Cash Flow, Debt and Bank Covenants At 31 July 2023, the Group had cash balances of £42.1 million. Cash inflow from operating activities before investing and financing activities was £15.8 million in the year to 31 July 2023 (2022: £18.6 million). The Group has a £100 million five- year Revolving Credit Facility which, together with cash, provides all the financing needs for the current secured pipeline and runs until April 2026. The Group is not obliged to make any repayments on its loan facility prior to its expiration in April 2026. The average cost of bank debt on drawn facilities for the year was 4.77% (2022: 1.71%). All of the Group’s total drawn bank debt of £54.4 million (2022: £66.8 million) is unhedged. At the date of this Report the Group’s current cost of debt is running at 6.68% as rates have moved higher since the year-end. At the year-end senior interest cover was 4 times finance charges on gross debt tested on a 12-month rolling basis, against a bank covenant of 2.5 times. At the year-end our loan-to-value ratio based on net bank debt was 3.7% versus a bank covenant of 60% providing a large cushion of comfort. Post Balance Sheet: On 11 August 2023, the Group paid down £19.02 million out of its recent equity placing proceeds reducing the balance on its Revolving Credit Facility, pending redrawing over time for its future deployment on the Group’s pipeline stores. Our Team We rely on our amazing people to deliver these impressive results and I would like to thank them for all of their hard work and dedication. I am delighted to say that all of our colleagues continue to benefit from the success of the business and we continue to promote equity ownership to our colleagues through our Shares in Partnership Equity Ownership scheme and the granting of share options. I am proud that during the year we introduced a comprehensive non- contributory Employee Assistance Program which has a death in service life insurance for all colleagues combined with an associated package of benefits. These include direct access to a GP and availability of confidential counselling services, as well as access to a range of online tools covering tax and legal advice, childcare, fitness and personal coaching advice. Board Changes The Board was delighted to announce the appointment of Tom Lampard, the Group’s Property Director, to the Board of Directors of the Group with effect from 6 February 2023. Tom joined Lok’nStore in March 2012, and has worked in a variety of roles across the Group. Since July 2017, Tom has worked in the Group’s property acquisitions team, most recently as Director of Acquisitions, sourcing and securing land and buildings to expand the Group’s significant new store pipeline. Tom is an integral member of the management team significantly contributing to the Group’s growth over recent years. 07 Strategic ReportEnvironmental and SocialOverviewGovernanceFinancial StatementsChair’s Statement continued As part of the board’s ongoing review of governance and with immediate effect, Jeff Woyda will become chair of the Audit Committee with Charles Peal becoming a member of the committee. I would like to thank Charles for his hard work and dedication as chair of the Audit Committee over the last few years. Post Balance Sheet: The Board was delighted to announce the appointment of Bridget Barker to the Board of Directors of the Group with effect from 14 September 2023. Bridget is an experienced lawyer having gained over 35 years’ experience at Macfarlanes, a leading and well-established City of London law firm, where she specialised in investment funds, financial services and regulatory legal work with a focus on private equity and real estate funds. Latterly she was head of the Investment Management Group at Macfarlanes. Since leaving Macfarlanes, Bridget has pursued various non-executive roles and consulting appointments at organisations such as Praesidium, Mirabaud 1819 Advisory Group and Mainspring Fund Services. Bridget is currently the CEO of Race Against Dementia, a charity established to raise money to fund breakthrough and innovative dementia research. Share Trading Volumes and Liquidity It has been a feature for some time that high shareholder concentration in our shares has contributed to lower share transaction volumes and has limited their market liquidity. In addition, prospective and existing investors have sometimes been unable to secure a meaningful sized holding. In May 2023, I sold 1,250,000 Ordinary Shares of 1p each (‘Ordinary Shares’) in the Company at a price of 800 pence per Ordinary Share. As a result of this transaction and following the Placing in July 2023 I, along with persons closely associated with me, still own, in aggregate, 4,359,550 Ordinary Shares representing 14.5 per cent of the Company’s total voting rights. In May 2023, Simon Thomas sold 100,000 Ordinary Shares at a price of 815 pence per Ordinary Share resulting in his beneficial interest in the Company decreasing to 1,292,800 Ordinary Shares representing 4.3 per cent of the Company’s total voting rights. These transactions have broadened the Group’s institutional shareholder base and potentially increased the liquidity in the trading of the Group’s shares. I remain the largest shareholder and Simon Thomas remains the fifth largest shareholder, demonstrating our continued support for the business. Environmental, Social and Governance We are committed to decarbonising our business with an Operational Net Zero target of 2040. In recent years, the Lok’nStore Environmental committee, consisting of colleagues in various roles across the business, including four Board members, has been focused on practical improvements we can make to our environmental footprint. We are working hard to create an environmentally sustainable business for all our customers, our colleagues, local communities and the wider environment. We have made good progress on all of our environmental targets this year and these are discussed in detail in our Environmental and Social Report from page 49. Our Objectives Our objectives are to: • Fill existing stores and improve pricing • Steadily increase the dividend from a strong asset base with conservative levels of debt • Develop our pipeline into new Landmark stores • Acquire more sites to build new Landmark stores • Increase the number of stores we manage for third parties 08 Lok’nStore Group plc Annual Report and Accounts 2023Outlook This year’s results are good and trading since the year-end remains in line with management expectations. Lok’nStore continues to experience year to year revenue growth on a Same Store basis and this will be enhanced by the three stores opened in FY22 and two stores opened this year. The opening of another two new owned stores over the coming year will provide further momentum. We expect the rate of external cost increases that we have experienced this year to abate and we expect operating costs to revert to a position where cost increases are mostly driven by the expansion of the number of stores meaning that revenue growth flows into earnings. We have an exciting period of growth ahead. With Lok’nStore’s resilient and flexible business model enabling the business to manage its conservative debt structure the Board is confident the Group will continue to thrive. This strength enables Lok’nStore to look confidently through the current external market turbulence. Andrew Jacobs Chair 27 October 2023 09 Strategic ReportEnvironmental and SocialOverviewGovernanceFinancial Statements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 explain how the underlying business is performing. Here we identify those measures and explain what we mean when we use them and, importantly, why we use them: 1. 2. 3. 4. Group Adjusted EBITDA (Group Adjusted Earnings before interest, tax, depreciation and amortisation) – Adjusted EBITDA is defined as EBITDA before losses or profits on disposal, share- based payments, acquisition costs, non-underlying items and which demonstrates the cash generative qualities of the business. Non-underlying items – Refers to one-off items of a non-operational nature which arose during the year, and which may relate to asset disposals, abortive site acquisition costs, or other costs and which are likely to be material and infrequent events. (Refer to note 4 of the Financial Statements). Cash Available for Distribution (CAD) – Is calculated as Adjusted EBITDA less total net finance cost, less capitalised maintenance expenses, New Works Team costs and current tax. This measures the capacity of the business to pay dividends or pay down debt. The Cash Available for Distribution per share is CAD divided by the number of shares in issue less shares held in the Employee Benefit Trust (EBT) which do not attract a dividend. The calculation of the CAD and the CAD per share is set out in the Financial Review. Adjusted Total Group Assets – The value of adjusted total assets of £392.9 million (2022: £370.9 million) is calculated by adding the independent valuation of the leasehold properties of £27.2 million (2022: £24.2 million) less their corresponding net book value (NBV) £6.9 million (2022: £7.2 million) to the total assets in the Statement of Financial Position of £372.6 million (2022: £353.9 million). This provides clarity on the significant value of the leasehold stores as trading businesses which, under the Group’s accounting policy on leases, are only presented at their book values within the Statement of Financial Position. 5. 6. 7. 8. Adjusted Net Asset Value per share (NAV per share) – Adjusted Net Asset Value per share is the net assets adjusted for the valuation of leasehold stores (properties held under 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. Loan to Value ratio (LTV) – Measures the net 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 (excluding deferred finance costs) of £12.3 million expressed as a percentage of the total freehold and leasehold properties independently valued by JLL of £301.9 million (2022: £279.0 million) and development land assets of £30.6 million (2022: £29.2 million) totalling £332.5million (2022: £308.2 million) as set out in the Financial Review in the Analysis of Total Property Value table. Average Cost of Debt – The average cost of debt is calculated by taking the total interest paid on the Group’s Revolving Credit Facility in the quarterly/ weekly charging periods throughout the year and taking an average based on the whole financial year. Apart from the Group’s Revolving Credit Facility, the Group has no other bank debt. The average cost of debt 4.77% (2022: 1.71%). Pipeline Sites – Sites for new stores that either we have exchanged contracts on or have agreed heads of terms and are progressing with our lawyers towards a contract exchange. We have 13 pipeline sites of which 11 are contracted and two are progressing with lawyers. We currently have 26 Owned Stores trading with an additional 16 Managed Stores trading. When these 13 sites are fully developed, we will have a total of 55 stores – 37 will be owned by the Group and 18 will be Managed Stores managed on behalf of third party owners. 10 Lok’nStore Group plc Annual Report and Accounts 202313. Cost Ratio calculates the ratio of the total operating costs of the business as set out in the Financial Review, expressed as a percentage of total Group revenue (note 1), giving a perspective on the cost efficiency of the business when compared to the cost ratio of the previous year. The Cost Ratio has increased to 43.6% (2022: 38.5%). 14. Same Store Group – This measure is used to give transparency on improvements in the operating business in the year unrelated to the opening of new stores, closure of old stores, and more particularly in the previous financial year, the Sale, commenting on stores that were open and trading at both 31 July 2022 and 31 July 2023 financial year-ends. The Same Store key performance measure helps to illustrate the performance of the underlying business. 15. Same Store Self-Storage – This measure is the Same Store Group performance but less management income received from the management of the Managed Store portfolio. This is used to give transparency on the underlying trading of the self-storage business. See also the glossary on page 142. 9. Secured Pipeline Sites – The eleven sites for new stores on which we have exchanged legal contracts. Of these nine stores are Lok’nStore Owned Stores and two will be Managed Stores. 10. Adjusted Store EBITDA is Group Adjusted EBITDA (see 1 above) before the deduction of central and Head Office costs. Unlike Group Adjusted EBITDA this measure excludes the impact of IFRS 16 and includes property rentals payable as normal operating costs of each store. The measure is designed to give clarity on the recurring operating cash flow of the business and provides important information on 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 (after leasing costs) 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 Financial Review. 11. Gearing refers to the level of debt compared to 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 17 of the Financial Statements. 12. Group Adjusted EBITDAR is Group Adjusted EBITDA before the deduction of rent. The measure is designed to give clarity on the effect of the rent payable by leasehold stores and how its elimination enables a comparison between the operating performance of freehold stores (which do not pay rent) and leasehold stores which pay rent. This analysis is set out in a table in the Financial Review. 11 Strategic ReportEnvironmental and SocialOverviewGovernanceFinancial StatementsGroup at a Glance Lok’nStore Group plc is one of the leading companies in the UK self-storage market. We opened our first store in 1995 and have grown consistently over the last 28 years, and currently have 42 stores trading across England and one in Wales. We have been listed on the AlM Market since June 2000 and the Board accounts for 20.8% of the Total Voting Rights (TVR) in the Ordinary Shares of the Company (2022: 28.6%). We offer self-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 stores. HOUSEHOLD STORAGE BUSINESS STORAGE • Storage rooms • Vehicle storage • Storage rooms • Pallet storage • Student packages • Document archiving • Forces and services • Flexible space packages • Commercial vehicle storage REVENUE BY CUSTOMER TYPE NUMBER OF TRADING STORES BY TYPE NUMBER OF PIPELINE STORES BY TYPE 69.7% Household customers 30.3% Business customers 26 Owned stores 16 Managed stores 42 Total trading stores 8 Owned Stores 2 Managed Stores 1 Leased Store 12 Lok’nStore Group plc Annual Report and Accounts 202342 STORES TRADING 17,500 CUSTOMERS 193 TEAM MEMBERS Our Locations Stores Aldershot Ashford Basingstoke Bristol Broadstairs Cardiff Chichester Crawley Crayford Dover Eastbourne Exeter Fareham Farnborough Gillingham Gloucester Harlow Hedge End Hemel Hempstead Horsham Ipswich Leicester Luton Maidenhead Milton Keynes Northampton Central Northampton Riverside Oldbury Poole Portsmouth Reading Salford Stevenage Southampton Sunbury Swindon Tonbridge Warrington Wellingborough Wolverhampton New Stores Bedford Peterborough Pipeline Stores Altrincham Barking Basildon Bolton Bournemouth Bromborough Cheshunt Eastbourne Kettering Milton Keynes Staines To find out more about our store locations visit: www.loknstore.com 13 Strategic ReportEnvironmental and SocialOverviewGovernanceFinancial Statements14 Lok’nStore Group plc Annual Report and Accounts 2023Strategic Report 16 The UK Self-Storage Market at a Glance 18 Our Business Model 20 Our Strategy 21 Managing Director’s Review 28 Property Review 34 Financial Review 43 Section 172 Statement 44 Principal Risks and Uncertainties LANDMARK STORE BEDFORD 56,000 LETTABLE SQUARE FEET NOW OPEN OPEN Located on the very busy Cardington Road in Bedford. This new Landmark Store is situated directly adjacent to St John’s Retail Park and walking distance from a large Tesco Extra superstore. Surrounding the area are various retail establishments and dense housing. Positioned to overhang the Cardington roundabout, the store enjoys a constant flow of traffic throughout the day, ensuring maximum visibility to the local population, which exceeds 170,000 residents. Since its opening in February 2023, the store has experienced good early trading. 15 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsThe UK Self-Storage Market at a Glance The Self-Storage Association (SSA UK) UK Annual Industry Survey 2023 reported that the UK self-storage industry is made up of sites offering 55.5 million sq. ft. of space. Market Overview As reported in the SSA UK Annual Industry Survey 2023 the UK self-storage market continues to grow but remains under-developed relative to Australia and the United States. Number of self-storage stores Square feet of self-storage (millions) Square feet of self-storage per population UK Australia 2,231 55.5 0.82 1,300 43.59 1.75 US 54,100 3,067 9.39 In the UK there are an estimated 1,492 self-storage facilities, plus an additional 739 containerised sites, providing a total of 55.5 million sq. ft. of storage space. With a population of c. 68 million people in the UK this equates to only 0.82 sq. ft. per person. Occupancy rates across the UK industry at 31 December 2022 of built space was stable at 83.3%. The structure of the UK industry is changing. When the industry first emerged companies were predominantly single owner sites often located in industrial areas, but larger operators (defined as operators managing ten 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, larger operators now own or manage around 30% of all facilities which translates to 40% of market share in terms of space. Currently, Lok’nStore is the fifth largest operator in the UK by number of stores, currently owing or managing 42 trading stores. There remains strong market sentiment towards the sector with strong inflation-proofed characteristics, a structurally under supplied market and a sector maturity providing investable assets of suitable scale. • Self-storage performs well in times of economic uncertainty compared to other sectors • The robust nature of the business model/sector throughout the economic cycle has proved its ability to withstand exogenous shocks • Potential for increased allocation to self-storage as other sectors are impacted by volatility • An inflation hedge with low usage of utilities will favour the sector • Investors in the sector include those with low leverage • Debt markets should remain liquid due to income generation • Pricing corrections in land will create buying opportunities • Yield gap with US and AsiaPac markets remains wide • Still structurally undersupplied compared to demand drivers Drivers of Demand for Self-Storage Demand for self-storage by both household and business 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 turn a box room into a home office, but increasingly householders are using storage on a semi-permanent basis to free up space at home or store belongings they do not 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 office moves or refurbishments. During the pandemic, many of our customers were providing critical services distributing medical and other essential supplies. We include the NHS, GP surgeries, care and home support services and government departments amongst our customers. 16 Lok’nStore Group plc Annual Report and Accounts 2023Lok’nStore’s Opportunity in the Market The SSA UK Annual Industry Survey 2023 noted that public awareness of and demand for self-storage is increasing. We know that on average customers chose a store within five miles of their home or business. With a secured pipeline of eleven stores, and a continuing programme of evaluating further site opportunities, Lok’nStore is well placed to attract new customers and add further momentum to the growth of our sales and profits. The Group has a number of competitive strengths: recognised brand, excellent customer service, rigorous cost control, and the attractive market dynamics of the storage sector. With a growing sector, an under-supplied market, embedded resilience during economic downturns combined with our strong balance sheet and flexible operating and ownership model (see our portfolio strategy), we believe Lok’nStore can take advantage of the opportunities presented and continue its growth without significantly increasing risk. Lok’nStore Warrington 17 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsOur Business Model WHAT WE DO HOW WE CREATE VALUE • Buy or lease prominent sites • Take a strategic and tactical approach to • Build highly visible orange Landmark stores • Offer clean, dry, secure storage to business and household customers • Offer managed storage services to third party owners site selection • Increase our asset base • Careful cost control • Drive store EBITDA growth through a closely managed occupancy and pricing strategy • Earn fees from managing stores on behalf of others • Carefully balanced use of leverage 42 UK STORES CURRENTLY TRADING (INCLUDING 16 MANAGED STORES) £27.1m GROUP REVENUE (2022: £26.9 MILLION) 18 Lok’nStore Group plc Annual Report and Accounts 2023Our overriding objective is to increase the Cash Available for Distribution (CAD) enabling a predictable growth of the dividend from a rising asset base while maintaining a conservatively geared balance sheet. SHARING VALUE WITH OUR STAKEHOLDERS SHAREHOLDERS CUSTOMERS OUR PEOPLE • High-quality earnings • Easy to locate stores • Growing NAV per share • Friendly and high-quality • Progressive dividend policy customer service • Wide range of storage solutions • Transparent and open contracts 19p ANNUAL DIVIDEND PER SHARE Rated ‘Excellent’ ON GOOGLE WITH AN AVERAGE SCORE OF 4.8 OUT OF 5 FROM ALMOST 8,000 REVIEWS • Personal development through the Lok’nStore Academy • Regular opportunities for career progression through our expanding store portfolio • Uncapped bonus scheme • Share ownership plans • Regular gifts and rewards for all colleagues £0.64m PAID OUT IN BONUSES TO STORE TEAMS (2022: £0.73 MILLION) 19 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsOur Strategy OUR OBJECTIVES ACHIEVEMENTS IN 2023 STRATEGY IN ACTION FILL EXISTING STORES AND IMPROVE PRICING Closing occupancy in stores over 3 years old, which strips out the effect of the 108,890 sq. ft. of new space added in the year, was 80.6% compared to 82.9% at 31 July 2022 Self-storage pricing up 6.8% SELF-STORAGE PRICING UP 6.8% STEADILY INCREASE THE DIVIDEND FROM A STRONG ASSET BASE WITH CONSERVATIVE LEVELS OF DEBT Total annual dividend 19.00 pence per share up 10.14% (2022: 17.25 pence per share) Net debt reduced to £12.3 million LTV net of cash 3.7% 10.1% INCREASE IN ANNUAL DIVIDEND TO 19 PENCE PER SHARE (2022: 17.25 PENCE PER SHARE) DEVELOP OUR SECURED PIPELINE INTO NEW LANDMARK STORES Two Landmark stores opened during the year Planning permissions achieved at our Bolton site 2 STORES OPENED DURING 2023 ACQUIRE MORE SITES TO BUILD NEW LANDMARK STORES New sites acquired in Milton Keynes and Eastbourne this financial year 11 11 stores secured in planning or development STORES SECURED IN PLANNING OR DEVELOPMENT 2 SITES CURRENTLY AT LAWYERS INCREASE THE NUMBER OF STORES WE MANAGE FOR THIRD PARTIES One Managed Store under development in Kettering RECURRING MANAGED STORE FEES UP A development site in Bromborough, Wirral acquired by a third party investor 11.9% 20 Lok’nStore Group plc Annual Report and Accounts 2023Managing Director’s Review “ High quality cash flow generation and new store openings drive strong asset values.” Neil Newman-Shepherd Managing Director Lok’nStore Group has had another successful year. In the coming year, our 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. The Performance of Our Stores Same Store Headline • Group Revenue £27.1 million up 1% (2022: £26.9 million) • Group Adjusted EBITDA1 £15.1 million down 7.9% (2022: £16.3 million) • Group Operating Profit before non-underlying2 items £8.9 million down 21.9% (2022: £11.4 million) • Price up 6.8% • Store EBITDA Margins 56.1% Revenue Momentum Continues (refer to performance table on page 22) Revenue growth in FY23 has remained strong with self-storage revenue up 5.3%. Same-store self- storage revenue was up 12.1% on the previous year. H2 self-storage revenue increased by 11.2% against the previous year, slightly ahead of expectations. • Same Store Group Revenue (2022: 61.6%) • Managed Store revenue – recurring fees £1.5 million up 11.9% £27.1 million up 6.6% (2022: £25.4 million) • Same Store Adjusted EBITDA1 £14.5 million up 4.0% (2022: £13.9 million) • Same Store Group Adjusted EBITDA1 £15.2 million down 1% (2022: £15.4 million) • Same Store Group Operating Profit before non-underlying2 items £9.2 million down 13.4% (2022: £10.6 million) Price per sq. ft. of occupied space was up a further 6.8% in the year driven by continued strong demand and higher than previous levels of occupied space. Closing occupancy in stores over 3 years old, which strips out the effect of the 108,890 sq. ft. of new space added in the year, was 80.6% compared to 82.9% at 31 July 2022. Total occupied unit space was level with last year. 21 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsManaging Director’s Review continued Performance – Same Store Analysis14 Headline Store Performance 31 July 2023 Same Store Performance 31 July 2023 31 July 2022 £’000 27,147 25,364 14,294 15,056 Increase % 0.9 5.3 (4.0) (7.9) £’000 27,085 25,302 14,468 15,229 Increase % Headline £’000 Same Store £’000 6.6 12.1 4.0 (1.0) 26,902 24,076 14,884 16,349 25,403 22,577 13,911 15,376 8,916 (21.9) 9,162 (13.4) 11,421 10,581 8,598 11,838 (49.9) 14.2 8,843 11,602 (45.8) 17.8 17,160 10,365 16,317 9,850 Group revenue Self-storage revenue Store Adjusted EBITDA Group Adjusted EBITDA Operating profit (before non-underlying items2) Operating profit (after non-underlying items) Operating costs As a result of the external cost increases we have seen in the year, particularly around energy the overall Adjusted EBITDA margin across all stores decreased to 56.1% from 61.6%. Adjusted Store EBITDA margins of the freehold stores decreased to 61.8% (2022: 66.5%). On a Same Store basis, the overall Adjusted EBITDA margin across all stores decreased to 57.2% from 61.3%. The leasehold stores decreased to 46.1% (2022: 53.3%). Going forward, we expect these cost increases to abate and in the absence of external factors, we expect margins to move ahead again over time as new Landmark stores continue to fill and new stores open, resulting in gains in revenue falling to earnings. As the business develops the balance of the stores continues to shift towards freehold Landmark stores and Managed Stores which have a higher-than-average Adjusted Store EBITDA margin at 61.8% and 100% respectively, versus 56.1% across all stores. The medium-term impact of this will be to continue to increase the average EBITDA margin of the Group overall. This effect is accentuated by operating more stores from a relatively fixed central cost base. In this context, the new stores in the pipeline will make a larger than average contribution to Group profits as they become established trading units. The freehold stores produce 70.2% (2022: 71.8%) of the Adjusted Store EBITDA and account for 91.8% (2022: 91.4%) of valuations (including secured pipeline stores). Leaseholds trade on lower margins due to the rent payable, but nevertheless the 46.1% margin 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. This mix of tenures with their different risk and return characteristics provides flexibility in the balance sheet and opportunities to create value throughout the property and economic cycle. Ancillary Sales Ancillary sales consisting of boxes, packaging materials, insurance and other sales were £2.49 million (2022: £2.49 million) accounting for 10.8% (2022: 10.3%) of self-storage revenues. 22 Lok’nStore Group plc Annual Report and Accounts 202312.1% INCREASE IN TOTAL SAME STORE SELF STORAGE 4.0% INCREASE IN ADJUSTED SAME STORE EBITDA 6.8% INCREASE IN PRICE PER OCCUPIED SQUARE FOOT Portfolio Analysis and Performance Breakdown As at 31 July 2023 In the table below, we show how the performance of the stores varies between freehold and leasehold stores. Currently, 46% of Lok’nStore branded trading space is Owned freehold, 19.5% is leasehold and 34.5% is Managed Stores. Number of Stores % of Valuation % of Adjusted Store EBITDA Adjusted Store EBITDA Margin (%) When Fully Developed % Lettable Space Number of Stores Total % Lettable Space Freehold Leaseholds Managed Stores Total Stores Trading Pipeline Stores (secured)* Owned – Freehold Owned – Leasehold Managed Stores Total Secured Pipeline Stores Total Stores 17 9 16 42 8 1 1 11 53 * Applies to the 11 contracted stores only. Analysis of Stores As at 31 July 2023 Freeholds Leaseholds Pipeline (Freehold) Pipeline (Leasehold) Subtotal ‘Owned Stores’ Managed Stores (Trading) Managed Stores (Pipeline) Subtotal ‘Managed Stores’ Total No. of Stores MLA sq. ft. 82.6 8.2 – – 9.2 – – – 100 70.2 29.8 – – – – – 61.8 46.1 100 – – – – 46.0 19.5 34.5 – – – – 25 10 18 53 – – – 52.2 14.7 33.1 100 – – – 100 56.1 100 53 100 No. of Stores/Sites Stores Trading Lok’nStore Stores Trading Managed Secured Pipeline 17 9 8 1 35 16 2 18 53 17 9 – – 26 – – – 26 – – – – – 16 – 16 16 – – 8 1 9 – 2 2 11 2,778,515 1,372,766 774,800 630,949 Over time as new stores and pipeline sites go through their life cycle, they will progress towards similar margins adding substantially to revenues and profits. 23 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsManaging Director’s Review continued Operating Performance by Age of Store (Lok’nStore Owned Stores Only) In the Operating Performance table below, we show how the performance breaks down across the stores, based on the age of store. Older stores have had more time to fill-up and produce higher EBITDA returns. Weeks Old Pipeline Under 100 100 to 250 Over 250 Total Year Ended 31 July 2023 Sales £’000 Store Adjusted EBITDA £'000 EBITDA Margin (%) Store Adjusted EBITDAR £'000 EBITDAR Margin (%) As at 31 July 2023 ('000 sq. ft.) Maximum Net Area Freehold/Long Leasehold (‘000 sq. ft.) Short Leasehold ('000 sq. ft.) Number of Stores Freehold Short Leasehold Total Stores 881 (215) (24.4%) (170) (19.3%) 217 217 – 4 – 4 2,263 1,170 51.7% 1,170 51.7% 161 161 – 3 – 3 22,320 13,339 59.8% 15,111 67.7% 994 559 435 10 9 19 25,464 14,294 56.1% 16,111 63.3% 1,907 1,422 485 25 10 35 535 485 50 8 1 9 1 In respect of the Farnborough Store (over 250 weeks), the total store revenue includes a £100,000 contribution receivable from Group Head Office. Marketing New customers are typically drawn to Lok’nStore by three key drivers: • Our distinctive Landmark stores • Google and other search engines • Existing or previous customers and customer referrals Store visibility remains pivotal to our marketing efforts. With their prominent positions, distinctive design, and bright orange elevations our stores raise the profile of the Lok’nStore brand and help to generate a substantial proportion of our business. Our Landmark stores are in highly prominent locations, and we continually 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 and mobile 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. New Landmark Stores We have invested £17.3 million (2022: £12.2 million) in new store development this year. On 17 February 2023, our new Landmark store opened in Bedford. The store is in a prominent location on the busy western side of the town, directly accessed from a busy roundabout servicing all arterial routes to Tesco, the town centre and neighbours Costa, Lidl and other retailers. Our new freehold Landmark store in Peterborough opened on 27 June 2023. The site occupies a central location in the city, prominently positioned on the access route to a large and busy retail park with neighbouring occupiers including B&Q, Aldi, Currys and Argos. Early trading at both stores has been good. We are on-site at three Stores: Staines (long leasehold), Basildon (leasehold) and Kettering (managed), all of which will be open in the next 12 months, adding a further 162,100 sq. ft. of trading space to the undersupplied UK self-storage market. The Board anticipates that Staines and Basildon will be NAV accretive at their first-time valuation in July 2024. We have a total new store pipeline of eleven secured 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. Further details on this pipeline can be found in the Property Review on pages 29 and 30. 24 Lok’nStore Group plc Annual Report and Accounts 2023Managed Stores Recurring Revenue Increasing Total Managed Store revenue in the year was £1.66 million (2022: £2.79 million). Last year, we received non – recurring management fees of £1.47 million from Managed Store owners following asset transactions. These fees are positive for Lok’nStore but are irregular in their nature and have not been repeated this year. Stripping out the impact of this, recurring management fees were up by 11.9% to £1.47 million as we saw the full-year effect of the four sale and manage-back stores executed on 31 January 2022 last year. At the year-end, we had 16 Managed Stores operating, with the Kettering store currently on site and the Bromborough (Wirral) site due on site in the coming months. These two sites will add to recurring management fees in the coming years. Income from non-recurring fees was down in the year to £0.19 million (2022: £1.47 million). Although these fees are irregular in nature, this demonstrates the contractually embedded value in the Managed Stores income stream. Non-recurring fees come from various sources such as including planning success fees, construction and advisory fees and fees crystallised when an asset transaction occurs. In 2022, the Group benefited from one- off asset transaction fees from three stores in the portfolio which did not recur this year. Management Fees Recurring fees Base management fees Administration and compliance fees Management performance fees Recurring fees – Subtotal Construction & advisory fees Supplementary fees Non-recurring fees – Subtotal Total management fees Percentage Increase/ (decrease) % Group Year Ended 31 July 2022 £ Group Year Ended 31 July 2021 £ 929,810 105,000 434,280 11.9% 1,469,090 30,000 160,000 190,000 1,659,090 (87.1%) (40.4%) 722,084 86,916 504,379 1,313,379 12,500 1,459,177 1,471,677 2,785,056 The graph below shows how our historical management fees have grown and indicates a strong correlation between the recurring management fee income and the number of stores under management. Management Fees £3,000,000 £2,500,000 £2,000,000 s ’ £ £1,500,000 £1,000,000 £500,000 £0 Recurring Non-Recurring Number of Managed Stores * For all of the definitions of the terms used in the highlights above refer to the notes section on pages 10 and 11. N u m b e r o f M a n a g e d S t o r e s 18 16 14 12 10 8 6 4 2 0 25 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements “ I would personally like to thank our team members throughout the business for the hard work, enthusiasm and dedication in achieving these results.” Neil Newman-Shepherd Managing Director Managing Director’s Review continued Future Lok’nStore has had a good year, with revenue moving ahead steadily, demonstrating the strength of the self- storage business model throughout the economic cycle. Trading has remained good and in line with expectations since the year-end. We are currently experiencing some cost increases, but the business is sheltered from this effect by high EBITDA margins and our ability to raise rates charged. These cost increases are now starting to slow and in some areas, reverse. Against the background of a strong performance from our existing stores, we have a secured pipeline of eleven new stores all of which will add considerable momentum to sales and earnings growth in the future. Our flexible model allows us to develop these new Landmark stores when market circumstances and planning permissions dictate. We will continue to deliver increasing returns from a secure asset and capital base leveraging from our established business model and operational expertise and digital platform. We will continue our focus on delivering the highest levels of service. Neil Newman-Shepherd Managing Director 27 October 2023 Our Store Colleagues The Group’s progress that I have reported above could not have been achieved without the commitment and dedication of our team members who have worked extremely hard throughout this year. We did see elevated levels of colleague turnover post-Covid but we now see levels of colleague turnover settle to pre-Covid levels and the level of vacancies in the business is now at normal levels. Our Business Model Provides Strength and Adapts Quickly in an Uncertain World We operate with a high EBITDA margin, sheltering the business from cost increases. Debt and leverage are low, and we have considerable cash on hand. Importantly, the Company can pause capital expenditure quickly if market conditions dictate and the ongoing business requires little maintenance capital expenditure. At the year-end, we are on-site at three stores (one Managed) where the capex required to complete the two Owned Store projects is £12.7 million, compared to the £42.1 million of cash on hand. The Company has c.17,500 customers who come from a diverse social and economic background and whose reasons for storing are widely diverse. Customers pay on a rolling four weekly up-front basis. As a result, bad debt continues to be low at 0.3% of revenue. Each customer is relatively small with no self-storage customer accounting for more than 1% of revenue. Additionally, the UK self-storage market remains under-supplied, and demand remains strong. 26 Lok’nStore Group plc Annual Report and Accounts 2023Lok’nStore Wellingborough 27 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsProperty Review Store and Portfolio Strategy Our strategy is to continue to increase the number of stores we operate without stretching our balance sheet, capitalising on a UK self-storage market which is in a state of under- supply and comparative infancy. The core focus of this strategy is the acquisition of highly prominent freehold locations in busy towns and cities in England where we will build well-branded Landmark stores. Lok’nStore’s rising 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 decisions are always driven by the requirements of the trading business. The net proceeds of the equity fundraising in July 2023 will support the continued development of the secured pipeline as well as providing valuable liquidity with which to position Lok’nStore favourably as a strong buyer in future site acquisition negotiations whilst maintaining the Group’s conservative approach to debt. Flexible Approach to Site Acquisition All the projects noted 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 are focused on allocating capital in the most efficient manner to achieve our objectives. 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 life cycle. Sale and Manage-Back of Stores We also consider selling established stores on sale and manage-back contracts in order to recycle the capital into the development of new Landmark stores and manage the balance sheet as part of our successful growth strategy and disciplined capital allocation. Indeed, some of our stores have been freehold, leasehold, and Managed Stores during their operating life cycle. The table below illustrates the rapid growth of store numbers and the changing tenure mix over time including the growth of Managed Stores over recent years. Lok’nStore Number of Stores Trading Since Inception 60 50 40 30 20 10 0 28 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 e n i l e p P i Freehold Leasehold Managed . l c n I Lok’nStore Group plc Annual Report and Accounts 2023 42 STORES NOW TRADING 11 NEW LANDMARK STORES SECURED 29.4% ADDED BY NEW STORES TO TRADING SPACE Our most important consideration is always the trading potential of the store rather than the property tenure and sale and manage-backs have these additional advantages: i) The critical mass of store numbers benefits the business (e.g. through Google search and sharing of other marketing costs) ii) It spreads the central management costs iii) Through the performance and exit fees we are exposed to the trading and capital upside without committing capital At 31 July 2023, Lok’nStore operated 26 of its own stores. Of these Lok’nStore owns 17 freehold and nine leasehold stores. All nine leasehold stores are inside the Landlord and Tenant Act providing us with security of tenure. The average unexpired term of the Group’s leaseholds valued by JLL is 12 years and 10 months as at 31 July 2023. We operate 16 further stores under management contracts. Our Exciting Landmark Store Pipeline We are on-site at three stores that will open during 2024 and we have two new store opportunities which are progressing with lawyers. Our current pipeline of eleven contracted stores will add 29.4% of extra trading space to the overall portfolio, 39% to our Owned portfolio and 12.3% to the Managed portfolio. All 11 stores in our Secured Pipeline9 are in prominent locations with large catchment areas and demonstrate the Group’s ability to source high- quality sites adding to future sales and earnings growth. These eye-catching buildings, with their distinctive orange Lok’nStore branded livery and prominent signage, create highly visible landmarks, which continue to be a big source of new customers. The lease on the Sunbury store expired on the 30 July 2022. We are in dialogue with the landlord regarding a new lease on the existing site or in a new site. In the meantime, we continue to trade from the current store which benefits from being protected by the provisions of the Landlord and Tenant Act. Acquisitions During the Year Milton Keynes: New Freehold On 4 October 2022, we exchanged contracts, subject to planning, on a freehold development opportunity in Watling Street, Milton Keynes. This new highly visible roadside location in the north-west of the city complements our existing leasehold store, seven miles to the south-east. Once developed, the Landmark store will add circa 60,000 sq. ft. of lettable area. Eastbourne: New Freehold Contracts have been exchanged on a freehold site in Eastbourne, Sussex where we intend to submit planning for a 60,000 sq. ft. Landmark store shortly. Completion is due by the end of the year upon vacation of the current occupier. This prominent location, adjacent to supermarkets and retail, is close to our existing leasehold store. The initial land cost will be £5.53 million and total net project costs are expected to be c.£12.0 million. Eastbourne: Existing Leasehold Site We recently announced the signing of a new lease at our existing Eastbourne store which runs for twenty years. We have the valuable opportunity to improve profitability in the Eastbourne market via a tenant only break clause after five years. As with all other leased stores within the Group’s portfolio, the new lease benefits from being within the terms of the 1954 Landlord and Tenant Act. The current store has been trading successfully since its opening in 2003. Bolton: Purchase Completed At the end of May 2023, the Group completed the purchase of a site in Bolton for £1.8 million, for a new 57,578 sq. ft. Landmark store. Further New Store Pipeline Progress Following the Eastbourne freehold purchase our total secured pipeline of 11 secured new stores will result in the Group operating 53 stores when fully developed, increasing the Owned Store trading space by 37.7%. This pipeline of new stores will add considerable momentum to sales and earnings growth once developed. Building work continues at three of our new Landmark store developments in Staines (long leasehold), Basildon and Kettering (managed), all of which will be open in the next 12 months and where the remaining capital expenditure as at 31 July 2023 was £12.7 million, adding a further 162,100 sq. ft. of trading space. 29 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsProperty Review continued Planning Permissions Update Lok’nStore’s highly experienced management team continues to progress the new store pipeline despite the planning system remaining lengthy and unpredictable. We have received an indicative intention to formally grant planning permission under delegated powers in Barking, Greater London, subject to the agreement of planning conditions. At c.84,000 sq. ft, when it opens this freehold Landmark store will be our biggest store to date. In January 2023, we were granted planning consent to build a Landmark store in Bolton, Greater Manchester. We are now in the process of tendering for the construction of this store which will provide 57,578 sq. ft. of new space. Located on land on the east side of Manchester Road, Bolton, this site will be in due course likely transferred to an existing Managed Store client and subsequently developed by Lok’nStore and operated on their behalf. We have also received a grant from the Planning Committee for our updated planning permission at our freehold site in Cheshunt, Hertfordshire, subject to the agreement of planning conditions. With this permission we intend to build a c.60,000 sq. ft. Landmark store along with retail space for a discount food retailer. The discount food retailer will pay a lease premium to Lok’nStore on completion of planning matters and a further payment to Lok’nStore on completion of the building. The net remaining capital expenditure to complete this project is c.£6.5 million. Managed Stores Bromborough: Contracts have been exchanged on a site for a new 49,500 sq. ft. Landmark store in Bromborough, Wirral. The site, which already benefits from planning permission, will be owned by an existing Managed Store client. Through our well-established Managed Store programme, Lok’nStore will receive one-off fees for finding and securing the site, development advice and use of the Lok’nStore brand. Once open, we will receive a recurring monthly management fee as a percentage of revenue plus a valuable additional recurring performance fee once returns reach an agreed level. The developer went on-site in September 2023. The store is expected to open in late 2024. Kettering: Building work continues at the new Landmark store development in Kettering which is on track to open in spring 2024. Summary of our Current Pipeline at 31 July 2023: Store Basildon Staines Kettering Leasehold Long Leasehold Managed Bromborough Managed Bolton Cheshunt Barking Freehold Freehold Freehold Bournemouth Freehold Altrincham Freehold Milton Keynes Freehold Eastbourne Freehold Size sq. ft. 49,700 66,500 45,900 49,500 57,578 60,300 84,200 75,100 63,900 60,000 60,000 Status On site – opening late 2023 On site – opening Spring 2024 On site– opening Spring 2024 Planning consent granted – on-site Autumn 2023 Planning consent granted Planning Committee resolution to grant consent received Planning application submitted – Indicative intention to formally grant planning received Further planning application submitted Planning appeal submitted Planning application submitted In Design On site at 31 July 2023 sq. ft. 49,700 66,500 45,900 Total 11 stores 672,678 162,100 During the year, we opened two new stores in Bedford and Peterborough. Early trading in all new stores has been very encouraging. We acquired two new sites during the year and have a further two sites progressing with lawyers. 30 Lok’nStore Group plc Annual Report and Accounts 2023 On our Owned freehold trading stores we have seen exit yields increase on average by 33 basis points, with discount rates increasing by 45 basis points. These changes had the effect of reducing the valuation by £15.45 million. Improved cash flows in the stores that were valued last year added £14.20 million, which materially reversed the effects from the changing capitalisation rates. The remaining £24.15 million of valuation comes from the maiden valuations of our Bedford and Peterborough stores and the regearing of the Eastbourne lease. It remains the Group’s established policy to undertake a comprehensive external valuation at each year-end and we will do so at the next year end at 31 July 2024. Valuations It is not the current intention of the Directors to make any further significant disposals of trading stores, although individual asset disposals may be considered where value can more easily be added by recycling the capital into new stores. The valuations of our freehold property assets are included in the Statement of Financial Position at their fair value. The value of our leasehold stores in the valuation totals £27.2 million (2022: £24.3 million) but they are held at cost less accumulated depreciation in the Statement of Financial Position. Growing Store Property Assets and Net Asset Value • Adjusted Total Assets £392.9 million4 up 5.9% on last year (2022: £370.9 million) • Adjusted Net Asset Value of £9.86 pence per share up 1.4% on last year (2022: £9.72 per share) • Value of operating stores £301.9 million up 8.2% on last year (2022: £279.0 million) • Total property assets £334.0 million up 7.8% on last year (2022: £309.7 million) • Investment in new stores £17.3 million (including capitalised interest) (2022: £12.2 million) Market Valuation of Freehold and Leasehold Land and Buildings It is the Group’s policy to commission an independent external valuation of its properties at each financial year- end. Our freehold stores have been independently valued by JLL at £274.7 million (2022: £254.8 million). Accordingly, Adjusted Total Group Assets4 have moved up in the year to £392.9 million, up 5.9% on 31 July (2022: £370.9 million). A significant contributor to this increase was the uplift from the external valuation at 31 July 2023 combined with the trading strength of our business, as well as our investment in new stores. In this 12 month period, we saw a 0.8% same-store uplift in the valuations of our freehold and leasehold trading stores of £2.23 million. This comparison excludes the maiden valuations on our new stores in Bedford and Peterborough. Our freehold and leasehold stores have been independently valued by JLL at £301.9 million (2022: £279.0 million). The value of adjusted total assets of £392.9 million (2022: £370.9 million) is calculated by adding the valuation of the leasehold properties less their corresponding net book value to the other assets in the business. This provides clarity on the significant value of the leasehold stores as trading businesses which under the Group’s accounting policy rules on leases are only presented at their book values within the Statement of Financial Position. At the year-end, Lok’nStore had 42 stores trading. Of these, 26 stores are Owned with 17 freeholds, nine leasehold and 16 under management contracts. The average unexpired term of the Group’s operating leaseholds valued by JLL is approximately 12 years and 10 months at 31 July 2023. All of our leasehold stores are inside the Landlord and Tenant Act providing us with a strong degree of security of tenure. A deferred tax liability arises on the revaluation of the properties and on the rolled-over gain arising from the disposal of some properties. It is not envisaged that any tax will become payable in the foreseeable future on these disposals due to the availability of rollover relief. We have reported by way of a note the underlying value of these leasehold stores in revaluations and adjusted our Net Asset Value (NAV) calculation accordingly to include their value. This ensures comparable NAV calculations. An analysis of the valuations achieved is set out in the table on page 32. 31 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsProperty Review continued Analysis of Total Property Value Freeholds3 valued by JLL1 Leaseholds valued by JLL2 Subtotal Sites in development at cost3 Subtotal4 Freehold land & buildings at Director valuation Total 1 Includes related fixtures and fittings (refer to note 12a). No of Stores/ Sites 31 July 2023 Valuation £’000 No of Stores/ Sites 31 July 2022 Valuation £’000 17 9 26 9 35 1 36 274,725 27,200 301,925 30,605 332,530 1,500 334,030 15 9 24 9 33 1 34 254,775 24,250 279,025 29,215 308,240 1,500 309,740 2 The nine 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 12 years and 10 months at the date of the 2023 valuation. 3 4 Includes £1.54 million of capitalised interest during the period. (2022: £0.59 million). Loan to Value calculation based on these property values. Total freehold properties account for 91.8% of all property values (2022: 92.2%). Adding our stores under development at cost, and land and buildings held at Director valuation, our total property valuation is up 7.8% to £334.0 million (2022: £309.7 million). The increase in the values of properties which were also valued by JLL last year was 8.2% (2022: 22.6%). The change in the property valuation is referred to further in the Financial Review section of the Strategic Report and is detailed in note 12(a) of the notes to the financial statements. The principal drivers for this increase are: • The trading stores have continued to trade at high occupancy. The stabilised occupancy assumed by JLL is materially unchanged at 87.79% (2022: 88.23%). • Discount Rates and Exit Yields applied by JLL have increased this year reflecting changes in the debt market. • The increases in these capitalisation rates are lower than seen in other sectors of the property industry over the past 12 months. There is a significant amount of capital looking to access the self-storage market with major private equity and institutions having entered the market in recent years, including Schroders, Legal and General, The Carlyle Group, Angelo Gordon, GIC, Heitman and Nuveen. The Board is aware of a number of other institutions looking to enter the market either through direct acquisition or by funding new store developments. • Transactional activity in the UK and across Europe remains strong. JLL reported in its 2023 Valuation report: “Self-storage is widely viewed as an inflation hedge. The sector has proved itself as a resilient asset class that generally performs well during economic stress events as was seen during the Global Financial Crisis and the Covid-19 pandemic”. Further changes in interest rates, risk free rates or changes in the macro-economic outlook may affect the capitalisation rates applied by External Valuers. In note 12a we set out the likely effects of a 50 bps and a 100 bps increase/decrease in Discount Rate and Exit Yield used in this year’s valuations. 32 Lok’nStore Group plc Annual Report and Accounts 2023“ Self-storage is widely viewed as an inflation hedge. The sector has proved itself as a resilient asset class that generally performs well during economic stress events as was seen during the Global Financial Crisis and the Covid-19 pandemic.” Jones Lang LaSalle (JLL) 2023 Valuation report Managed Stores • Circa £150 million of store assets under management • 11.9% increase in recurring management fees earned Lok’nStore manages an increasing number of stores for third party owners. Under this model, Lok’nStore can provide a turnkey package for investors wishing to own trading self- storage assets. The investor supplies 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. For Managed Stores Lok’nStore receives a standard monthly management fee, a performance fee based on certain return hurdles and fees on a successful exit. We also charge acquisition, planning and branding fees. This allows Lok’nStore to earn revenue from our expertise and knowledge of the self-storage industry without committing our capital. We can amortise various fixed central costs over a wider operating base and drive more visits to our website, moving it up the internet search rankings and benefiting all the stores we both own and manage. This strategy improves the risk adjusted return of the business by increasing the operating footprint, revenues and profits without committing capital. There is a strong correlation between the total management fee income and the number of stores under management. We now manage in excess of £150 million of assets under this structure on which we generated managed store income of £1.66 million this year (2022: £2.79 million). Within this, recurring fees were up 11.9% and we expect recurring fees to continue increasing steadily over the coming years as more Managed Stores are opened. Second half income was stronger and includes additional fees from store openings and non- recurring fees contributed to benefit additional supplementary fees (initial branding fees etc). Managed Store income is generated from our existing platform and central management, resulting in an effective margin from this activity of 100%. 33 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsFinancial Review “ Prudent balance sheet management and continuing investment into Landmark stores.” Ray Davies Finance Director The Group has reported higher revenue and strong profits. Same Store • Same Store14 Group Revenue £27.1 million up 6.6% (2022: £25.4 million) • Same Store Group Adjusted EBITDA1 £15.2 million down 1% (2022: £15.4 million) • Same Store Group Operating Profit before non-underlying2 items £9.2 million down 13.4% (2022: £10.6 million) Headline • Group Revenue £27.1 million up 0.9% (2022: £26.9 million) • Group Adjusted EBITDA1 £15.1 million down 7.9% (2022: £16.3 million) • Group Operating Profit before non-underlying2 items £8.9 million down 21.9% (2022: £11.4 million) • Store EBITDA Margins 56.1% (2022: 61.6%) • Operating Profit £8.6 million down 49.9% (2022: £17.2 million) • Cash available for Distribution (CAD)3 £9.13 million down 19.8% (2022: £11.39 million) • Cash available for Distribution (CAD) per share 28.4 pence (2022: 38.7 pence) • Final dividend up 8.2% to 13.25 pence per share (2022: 12.25 pence per share) • Cash balance £42.1 million (2022: £46.5 million) • £100 million Bank RCF runs to April 2026. Revenue Total Group Revenue for the year was £27.1 million, an increase of £0.2 million (0.9%) from £26.9 million in the prior year. Same Store Revenue for the year was £27.1 million, an increase of 6.6% (2022: £25.4 million). Post-Balance Sheet. In FY24, the Group will change the way it provides contents protection to its customers and during the course of the year will transition to an Enhanced Liability Protection Service (ELPS) for our customers. Prior to this change, IPT at 12% will continue to be paid to our insurance provider based on our total insurance revenue and will continue to be paid to us by our customers. After the change, ELPS will be subject to VAT and not Insurance Premium Tax (‘IPT’). As we transition to the ELPS scheme, we have decided not to pass the entirety of the 8% differential uplift on to our customers immediately, and hence, gross ELPS revenue next year will be lower but not materially so and will be recovered completely over the next year or two. Operating Costs Group operating costs amounted to £11.8 million for the year (2022: £10.4 million) up by 14.2%. Historically, overall cost increases have been mainly driven by the expansion of the business. As previously reported at our interim results in January 2023, we are now seeing some short term but significant external cost pressures. At a headline level, total Group operating costs amounted to £11.8 million for the year (2022: £10.4 million) up by 14.2%, which includes the profit and loss costs of opening new stores in Bedford, Peterborough, Warrington and Stevenage; offset by the reduction in costs from the Sale. On a Same Store basis, costs have increased by 17.8% against last year (refer store analysis of Group operating costs in the table opposite). We saw significant external cost pressure in property costs this year, with total property costs increasing by £1.45 million. Energy cost accounted for £1.2 million of this uplift with a further £0.25 million from increased Insurance costs. Our largest cost area, staff costs, increased by 1.9% as we staffed the new stores which was offset by lower performance bonuses to our store colleagues. On a Same Store basis this increase was just 0.1%. 34 Lok’nStore Group plc Annual Report and Accounts 2023£27.1m SAME STORE GROUP REVENUE UP 6.6% 57.2% SAME STORE EBITDA MARGIN 3.7% NET LTV There was also a lower national insurance cost because of the combined effects of lower bonuses paid and fewer share options exercised by management and staff in the year. The 9.0% increase in overhead costs is due to a combination of factors. There has been a stepped increase in audit fees as the audit profession adjusts its fee rates in response to higher regulatory costs. Legal and professional costs related to work on rent reviews, corporate tax, and increased valuation costs for additional work commissioned by the Group for valuation work completed by JLL. Bank charges which now contain a full year amortisation charge (non-cash) in respect of bank fees charged last year for the £25 million accordion and the one-year RCF extension also increased costs. Amortisation charges for 2023 were £0.24 million (2022: £0.22 million). Other administrative costs (computer support, telephones, printing postage and stationery and marketing costs etc) show no material cost increases. Looking forward, in FY24, we estimate that Same Store operating costs to increase by around 6.0% or £0.75 million, driven materially by revised business rates which will result in our 2023-24 business rates increasing £0.49 million with transitional relief and by a further £0.20 million plus future inflationary increases in FY25. This step change in business rates will be offset in part by the reduction in medium term energy costs we are seeing through our hedged purchasing and by improvements in our insurance costs achieved during the renewal process for 2023-24. We have a strong record of disciplined control of our costs. From FY25, we fully expect operating costs to revert to a low growth position with cost increases driven by the expansion of the business. Group Operating Costs Group Operations Property costs Adjustment for property lease rentals Property and premises costs Staff costs Overheads Total Group Operations Same Store Analysis Property costs Adjustment for property lease rentals Restated property and premises costs Staff costs Overheads Total Increase/(decrease) in Costs % 28.6 4.1 40.7 1.9 9.0 14.2 Increase/(decrease) in Costs % 32.9 4.1 18.1 0.1 12.5 17.8 Year Ended 31 July 2023 £’000 Year Ended 31 July 2022 £’000 6,821 (1,817) 5,004 5,267 1,567 5,304 (1,746) 3,558 5,369 1,438 11,838 10,365 Year Ended 31 July 2023 £’000 Year Ended 31 July 2022 £’000 6,698 (1,817) 4,881 5,177 1,544 11,602 5,062 (1,746) 3,316 5,176 1,358 9,850 35 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsFinancial Review continued Strong Balance Sheet, Efficient Use of Capital, Low Debt • RCF of £100 million and runs to April 2026 • £17.3* million invested in new store pipeline (2022: £12.2 million) Interest Expense and Bank Borrowings The Group pays a margin of 1.5% on its Interest and the all-in effective rate is calculated by reference to SONIA (Sterling Over Night Indexed Average) plus margin. • Net debt (excluding leases) • Average cost of debt 4.8% £12.3 million (2022: £20.3 million) (2022: 1.71%) • Loan to Value ratio (LTV) net of cash 3.7% (2022: 6.6%) • Cost of debt averaged 4.8% in the year (2022: 1.71%) on £54.4 million debt (2022: £66.8 million) • Average cost of debt (on active revolving loans at 31 July 2023) 6.2% (2022: 2.71%) • Current cost of debt at date of this Report 6.8% * Includes £1.54 million of capitalised interest. The Group’s RCF of £100 million is a joint agreement with ABN AMRO NV and NatWest Bank plc participating equally and runs until April 2026 providing funding for more Landmark site acquisitions. The Group is fully compliant with the two principal bank covenants (LTV and Senior Interest). Management of Interest Rate Risk Lok’nStore generates an increasing cash flow from its strong asset base with a low LTV net of cash of 3.7% and an average cost of debt of 4.8%. The value of the Group’s assets underpins a resilient business model with stable and rising cash flows and low credit risk giving the business a firm base to fund future growth. Post Balance Sheet – Temporary Reduction of Debt (RCF) On 11 August 2023, the Group paid down £19.02 million out of its recent equity placing proceeds reducing the balance on its RCF, pending redrawing over time for its future deployment on the Group’s pipeline stores. With £54.4 million of gross debt currently drawn against the £100 million bank facility, the Group is not committed to enter into interest rate hedged instruments but continues to keep the matter under review. It is not the current intention of the Group to commit to a hedged instrument at this time given our low level of net debt, low Loan to Value ratio and high interest cover. The gross bank interest expense (before capitalisation of interest costs, non-utilisation fees and loan amortisation fees) for the year was £3.1 million (2022: £1.30 million), due to higher average debt and higher average costs of borrowing. These average costs of borrowing have continued to rise after the year-end and the Group’s current cost of debt is running at 6.8%. The Group continues to monitor closely the effects of rising interest rates on its Senior Interest covenant, which is tested on a 12-month rolling basis, and the Group’s flexible business model will enable it to take appropriate steps to mitigate its effects should it be required. Capitalised interest in the year on our store development programme was £1.54 million (2022: £0.59 million). Total finance costs in the Statement of Comprehensive Income increased to £2.56 million (2022: £1.33 million). Lok’nStore will continue to report on the Cash Available for Distribution (CAD) which aims to look through the statutory accounts and give a clear picture of the ongoing ability of the Company to generate cash flow from the operating business that can be used to pay dividends, make investments in new stores, or pay down debt. As agreed with the banks, both the Loan to Value and Senior Interest covenants set out in our bank facility continue to be tested excluding the effects of IFRS 16. For covenant calculation purposes, debt/LTV will continue to exclude right of use assets and the corresponding lease liabilities created by IFRS 16. When testing the Senior Interest Covenant, property lease costs will continue to be a deduction in the calculation of EBITDA, in accordance with the accounting principles in force prior to 1 January 2019. Cash Flow and Financing At 31 July 2023, the Group had cash balances of £42.1 million (2022: £46.5 million). Cash inflow from operating activities before investing and financing activities was £15.81 million (2022: £18.57 million). As well as using cash generated from operations to fund some capital expenditure, the Group’s £100 million five-year Revolving Credit Facility provides sufficient liquidity for the Group’s current needs. Undrawn committed facilities at the period-end amounted to £45.6 million (2022: £33.2 million). Cash plus undrawn committed facilities amounts to £87.7 million, leaving the business with plenty of headroom. 36 Lok’nStore Group plc Annual Report and Accounts 2023Earnings Per Share The calculations of earnings per share are based on the following profits and numbers of shares. Group Year Ended 31 July 2023 £’000 Group Year Ended 31 July 2022 £’000 Total profit for the financial year attributable to owners of the Parent 4,692 12,078 Weighted average number of shares for basic earnings per share Dilutive effect of share options1 For diluted earnings per share 2023 No. of Shares 2022 No. of Shares 29,518,911 29,287,451 467,137 29,986,048 549,321 29,836,772 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 21 to 25. Total basic earnings per share Total diluted earnings per share Group 2023 Pence 15.90p 15.65p Group 2022 Pence 41.24p 40.48p High Quality Cash Flow The Group’s high quality cash flow is demonstrated by: • Sound operating fundamentals – • Diversified customer base • Other features – 17,500 customers with a – Operates in 42 different wide mix of businesses and households covering many sectors and geographies – No customer concentration risk – no customer accounts for more than 0.5% of Group revenue localised markets – Very low inventory required – Very low capital re-investment required once initial build and fit-out has been completed – Low staffing requirements per store – High store EBITDA margins 56.1% (freeholds 61.8%) – Excellent credit model – bad debts in FY23 less than c. 0.3% of Group revenue – Minimum of four weeks storage paid in advance and every 28 days thereafter – Over 90% of new customers pay by Direct Debit – Contractual lien operates over customer goods in the event of serious payment default 37 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsFinancial Review continued Increasing Cash Flow Supports a 10.1% Annual Dividend Increase • Annual dividend 19 pence per share up 10.1% (2022: 17.25 pence per share) • Cash Available for Distribution of 28.4 pence per share (2022: 38.7 pence per share) • Cash Available for Distribution £9.13 million (2022: £11.39 million) CAD provides a clear picture of ongoing cash flow available for dividends, new store development or debt repayment. Analysis of Cash Available for Distribution (CAD) Group Adjusted EBITDA (Per Statement of Comprehensive Income) Property lease rents Net finance costs paid (excluding re-financing costs) Capitalised maintenance expenses New Works Team Current tax (note 9) Cash Available for Distribution (Decrease)/Increase in CAD over last year £ (Decrease)/Increase in CAD over last year % Closing shares in issue (less shares held in EBT) CAD per share (Decrease)/Increase in CAD per share over last year Group Year Ended 31 July 2023 £’000 Group Year Ended 31 July 2022 £’000 15,056 (1,817) (2,664) (121) (76) (1,245) (5,923) 9,133 (2,258) (19.8%) 16,349 (1,746) (1,395) (120) (125) (1,572) (4,958) 11,391 3,149 38.2% Number Number 32,144,246 29,380,333 28.4p (26.6%) 38.7p 36.7% Analysis of the Underlying Business After Adjustment for Non-underlying Items When comparing 31 July 2023 with last year, the Group benefited last year from a higher than usual level of exceptional gains principally resulting from the Sale totalling £5.9 million in the prior year. In the table opposite we separate these non-underlying items and non-recurring management fee income to show the performance of the underlying business. 38 Lok’nStore Group plc Annual Report and Accounts 2023Revenue Total property, staff, distribution, and general costs Adjusted EBITDA1 Depreciation Equity-settled share-based payments Non-underlying items Operating profit Finance income Finance cost Profit before taxation Underlying Business 27,147 (12,091) 15,056 (5,690) (450) – (6,140) 8,916 665 (2,562) 7,019 2023 £’000 Non-underlying Items and Non-recurring Management Fee Income –1 – – – – (318)2 (318) (318) – – (318) 2022 £’000 Non-underlying Items and Non-recurring Management Fee Income Underlying Business Total 25,430 1,4721 26,902 (10,553) 14,877 (4,727) (201) – (4,928) 9,949 42 (1,328) 8,663 – 1,472 – – 5,7392 5,739 7,211 – – 7,211 (10,553) 16,349 (4,727) (201) 5,739 811 17,160 42 (1,328) 15,874 Total 27,147 (12,091) 15,056 (5,690) (450) (318) (6,458) 8,598 665 (2,562) 6,701 1 Represents non-recurring management fees. 2 Refer note 4 of the notes to the financial statements for the analysis of non-underlying items. Taxation The Group has made a current tax provision against earnings in this period of £1.2 million (2022: £1.7 million) based on a blended corporation tax rate of 8 months at 19%, and 4 months at 25%. (2022: 19%). The deferred tax provision which is calculated at forward corporation tax rates of 25% is substantially a tax provision against the potential crystallisation (sales) of revalued properties and past ‘rolled over’ gains, and amounts to £66.3 million (2022: £63.2 million). The external revaluation of the trading stores at 31 July 2023 is the principal contributor to the uplift in the total deferred tax provision at the year-end (See note 20). 39 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsFinancial Review continued Gearing11 (Excluding IFRS16 Lease Liabilities) At 31 July 2023, the Group had £54.4 million of gross bank borrowings (2022: £66.8 million) and cash of £42.1 million (2022: £46.5 million) representing gearing of 5.3% (2022: 9.9%) on net assets of £230.5 million (2022: £205 million) – after adjusting for the uplift in value of short leaseholds which are stated at depreciated historic cost in the Statement of Financial Position gearing is 4.9% (2022: 9.1%). Gearing11 (Including IFRS16 Lease Liabilities) At 31 July 2023, the Group had £54.4 million of gross bank borrowings (2022: £66.8 million) and cash of £42.1 million (2022: £46.5 million) with £14.7 million of lease liabilities (2022: £10.9 million) representing gearing of 11.7% (2022:15.2%) on net assets of £230.5 million (2022: £205 million) – after adjusting for the uplift in value of short leaseholds which are stated at depreciated historic cost in the Statement of Financial Position gearing is 12.7% (2022: 17.0%). Capital Expenditure The Group has an active new store development programme. The Group has grown through a combination of building new stores, existing store improvements and relocations. We have concentrated on extracting value from existing assets and developing through collaborative projects and management contracts. Capital expenditure during the period totalled £17.3 million (2022: £12.2 million). This was primarily the contract exchange of the Milton Keynes site, the purchase of the Bolton site and the exchange of contracts on the Eastbourne site. There are ongoing construction and fit out works at our sites in Staines and Basildon, final costs on Bedford and Peterborough prior to opening, as well as the completion of construction works at our Stevenage and Warrington stores. Planning and pre-development works at our Bournemouth, Altrincham, Barking and Cheshunt sites also featured. A significant contributor to this increase was the uplift from the external valuation at 31 July 2023 combined with the trading strength of our business, as well as our investment in new stores. The Group has capital expenditure contracted but not provided for in the financial statements of £13.1 million (2022: £11.2 million). We carefully evaluate the ongoing economic and trading position before making any further capital commitments and can reduce capex quickly if the market deteriorates. Lok’nStore has a good credit model, with low debt and gearing and which is strongly cash generative from an increasing asset base. Increased bank facilities, on competitive margins, and extended to April 2026, positions the business well for the future. Statement of Financial Position Group net assets at the year-end were £230.5 million, up 12.3% (2022: £205.3 million). The Parent Company’s net assets have increased because of the £7.0 million dividend paid up from Lok’nStore Limited, the principal operating business of the Group. Market Valuation of Freehold and Leasehold Land and Buildings It is the Group’s policy to commission an independent external valuation of its properties at each financial year-end. Our freehold stores have been independently valued by JLL at £274.7 million (2022: £254.8 million), up 7.8%. Please refer to the table of property values on page 32. Accordingly, Adjusted Total Group Assets4 have moved upwards sharply in the year to £392.9 million, up 5.9% (2022: £370.9 million). In this 12 month period, we saw a Same Store uplift in valuations of £2.6 million in our freehold and leasehold trading stores, a 0.94% increase. The like-for-like comparison excludes the Sale, and the maiden valuations on our new stores in Bedford and Peterborough. It remains the Group’s established policy to undertake a comprehensive external valuation at each year-end and we will do so at the next year-end at 31 July 2024. Valuations It is not the intention of the Directors to make any further significant disposals of trading stores, although individual disposals may be considered where value can more easily be added by recycling the capital into new stores. The valuations of our freehold property assets are included in the Statement of Financial Position at their fair value. The value of our leasehold stores in the valuation totals £27.2 million (2022: £24.3 million) but they are held at cost less accumulated depreciation in the Statement of Financial Position. A deferred tax liability arises on the revaluation of the properties and on the rolled-over gain arising from the disposal of some properties. It is not envisaged that any tax will become payable in the foreseeable future on these disposals due to the availability of rollover relief. We have reported by way of a note, the underlying value of these leasehold stores in revaluations and adjusted our Net Asset Value (NAV) calculation accordingly to include their value. This ensures comparable NAV calculations. An analysis of the valuations achieved is set out in the table opposite. 40 Lok’nStore Group plc Annual Report and Accounts 2023Increase in Adjusted Net Asset Value Per Share 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 31 July 2023, the Adjusted Net Asset Value per share (before deferred tax) increased 1.4% to £9.86 from £9.72 last year. This increase is a result of higher property values on our existing stores as the strength of our Landmark stores is recognised, combined with cash generated from operations less dividend payments, offset in part by an increase in the shares in issue due to the exercise of a small number 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 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 Shares issued from the primary placing 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 (see above) 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 31 July 2023 £’000 31 July 2022 £’000 230,472 205,346 27,200 (6,952) 250,720 (5,062) 245,658 Number (‘000s) 30,004 83 2,680 32,767 (623) 32,144 £7.64 24,250 (7,224) 222,372 (4,256) 218,116 Number (‘000s) 29,687 317 – 30,004 (623) 29,381 £7.42 31 July 2023 £’000 31 July 2022 £’000 245,658 66,290 5,062 317,010 32,144 £9.86 218,116 63,214 4,256 285,586 29,381 £9.72 1 A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included, calculated by applying the substantively enacted corporation tax rate of 25% (2022: 25%). 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. 41 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsFinancial Review continued Move to SETS Trading Platform In February 2023, the Board approved a transition for trading of the Company’s shares on AIM from the London Stock Exchange’s SETSqx (Stock Exchange Electronic Trading Service: Quotes and Crosses) trading platform to its SETS (Stock Exchange Electronic Trading System) platform, effective 7 February 2023. This move is intended to provide investors with access to the entire SETS system, providing liquidity via traditional order book trades, as well as firm two-way quotes from market makers. Summary Lok’nStore Group operates within the UK self-storage industry which is still an immature sector with strong growth prospects. With a low Loan to Value ratio and plenty of headroom on our bank facilities, this market presents an excellent opportunity for further growth of Lok’nStore’s business. Recently opened Landmark stores and our ambitious new store pipeline demonstrate the Group’s ability to use those strengths to exploit the opportunities available throughout the economic cycle. Our high margins, strong balance sheet and flexible business model enables Lok’nStore to confidently look through the current external market turbulence. We look to the future with confidence. Ray Davies Finance Director 42 Lok’nStore Group plc Annual Report and Accounts 2023Section 172 Statement Section 172 of the Companies Act 2006 requires a director of a company to act in a way he or she considers, in good faith, would be the most likely to promote the success of the company for the benefit of its members as a whole. In doing this, Section 172 requires a director to have regard to: • • • • the likely consequences of any decision in the long-term; the interests of the company’s employees; the need to foster the company’s business relationships with suppliers, customers and others; the impact of the company’s operations on the community and the environment; • maintaining a reputation for high standards of business conduct; and • the need to act fairly with members of the company. The Directors give careful consideration to the factors set out above in discharging their duties under Section 172, details of which are contained throughout this Report. The Board’s obligations under Section 172 are considered at Board meetings within each relevant section of the Board pack. We consider in this regard our team members, our customers, our shareholders, our suppliers and the environment to be our stakeholders. The Board recognises that building good relationships with our stakeholders will help us to deliver our strategy in line with our long-term values and operate the business in a sustainable way. The Board regularly receives reports from management on issues concerning customers, the environment, suppliers, employees and investors, which are discussed and incorporated into decision- making particularly with respect to the Board’s Section 172 obligations. In July 2023, the Board raised £20.5 million (gross) of equity and with its £100 million bank facility, has increased the Group’s liquidity and working capital to pursue its growth strategy for shareholders. This cash is now available to be recycled into new state-of-the-art Landmark stores. These new stores will in due course generate more growth in revenue, profits and dividends for shareholders but will also have a positive environmental effect as the new stores will have solar PV and be generally more energy efficient. Further information on our approach to Section 172 is to be found in the following sections of our Annual Report: Employees Customers • Chair’s Statement • Managing Director’s Review • Environmental and Social • Chair’s Statement • Managing Director’s Review • Environmental and Social Suppliers and Partners • Environmental and Social Investors Environment & Sustainability Longer Term • Governance • Chair’s Statement • Managing Director’s Review • Financial Review • Governance • Chair’s Statement • Managing Director’s Review • Environmental and Social Report • Chair’s Statement • Managing Director’s Review • Financial Review • Principal Risks and Uncertainties • Page 4 • Page 21 • Page 49 • Page 4 • Page 21 • Page 49 • Page 49 • Page 61 • Page 4 • Page 21 • Page 34 • Page 61 • Page 4 • Page 21 • Page 49 • Page 4 • Page 21 • Page 34 • Page 44 43 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsPrincipal Risks and Uncertainties 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 team members 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, communities, team members, 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 58. 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 numerically 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. Risk Management Team Ray Davies, 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. 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 the Board consider risk at next scheduled Board Meeting (or earlier, if necessary) CAPEX COMMITTEE PROPERTY RISK COMMITTEE Meets Monthly Meets Periodically Manages proposed capital expenditure, actual spend, rolling capex requirements Considers: Risks associated with properties including Health and Safety Environmental Impact 44 Lok’nStore Group plc Annual Report and Accounts 2023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 17). Tax Risk Treasury Risk 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 Group. The Group has faced increased costs from adverse interest rate movements. The Bank of England has raised base rates (BOEBR) fourteen times since December 2021 and BOEBR is currently 5.25% up from 0.1% in March 2020. • Regular review by the Board (full details are set out in the Financial Review, from page 34). • Debt and interest are low relative to assets and earnings. With interest rates rising, this risk per se is increasing, however the Executive and the Board monitor this position carefully through the Group’s detailed operating reports produced on a weekly basis and detailed financial and accounting reports produced on a monthly basis. • Could reduce debt, if required, by executing sale and manage- back arrangements on mature stores or slow the rate of site development. • Regular monitoring of changes in legislation. • Use of appointed professional advisers and trade bodies. • The Group has a £100 million Revolving Credit Facility which runs until April 2026 providing funding for future Landmark site stores. The two principal bank covenants (LTV and Senior Interest) are covenant compliant. • Lok’nStore is a robust business which generates an increasing cash flow from its strong asset base with a low LTV net of cash of 3.7% (2022: 6.6%). The value of the Group’s assets underpins a flexible business model with stable and rising cash flows and low credit risk giving the business a firm base for growth. • Average cost of debt 4.77% (2022: 1.71%). • Average cost of debt (active revolving loans) 6.2% (2022: 2.71%). • Current cost of debt 6.8%. • With £54.4million of gross debt currently drawn against the £100 million bank facility, the Group is not committed to enter into hedging instruments although recognising that interest rates have risen significantly. The Group continues to regularly monitor this risk. • The Group monitors compliance with its bank covenants closely and during the year it complied with all of its bank covenants. • The Group has the ability to pay down debt which it did by repaying £19 million post-balance sheet. • The Group can raise equity to finance growth. On 7 July 2023, the Company raised total gross proceeds of approximately £20.5 million through the issue of 2,679,739 new Ordinary Shares via a Placing and REX Retail Offer, at a price of 765 pence per Ordinary Share. 45 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsPrincipal Risks and Uncertainties continued Risk Description Key Mitigation Property Valuation Risk The external independent valuations of the stores are sensitive to both operational trading performance of the stores and also wider market conditions. It follows that a reduction in operational performance or a deterioration of market conditions could have a material adverse impact on the Net Asset Value (NAV) of the Group. • Regular monitoring of any changes in market conditions and transactions occurring within our marketplace. • Use of independent professional valuers who are experts in the self-storage sector. There is regular contact with the current valuer JLL and discussions around market values and transactions within the sector, including post year-end. • Previous experience of downturns, such as the Dotcom and Global Financial crises, has demonstrated that Self-Storage has considerable resilience. • Stores are predominantly Landmark stores in prime locations and are all UK based and predominantly located in the affluent South of England. The Group is therefore not exposed to overseas/ international currency risks, etc. • Operational management teams with the skills, experience, and motivation to continue to drive operational performance. Environmental Risk Flooding. • Flood risk due diligence undertaken on all prospective Increased requirement to reduce waste and greenhouse gas emissions and reduce environmental impact on the environment. site acquisitions. • Flood protection measures in place at all stores. • Group has been measuring environmental impact since 2005 and is committed to manage waste effectively and control polluting emissions. • All new construction has solar power on the roofs of its buildings. Property Acquisition 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. • 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. Planning approval is increasingly dependent on Social or Environmental enhanced features such as BREEAM standards, as well as local planners’ demands for green spaces, cycle and footpaths, etc. all adding cost and complexity to a planning project. • 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 in obtaining planning consents for our stores. Construction Poor construction may affect the value of the property and/or the efficient operation of the store. Rising costs of developing a store may mean site opportunities which do not meet management’s return on investment criteria may not be taken up. Availability of ‘Grid Capacity’. • We use a design and build contract with a variety of established contractors. • We use external project managers. • All projects are overseen by our property team which has over 20 years’ experience. • Construction projects are subject to a tender process. • Rising costs are factored into our financial modelling to ensure the required returns are achievable. • Ensure sufficient due diligence undertaken to ensure supply. • Contracts to be subject to availability of Grid Capacity as a condition. 46 Lok’nStore Group plc Annual Report and Accounts 2023Risk Description Key Mitigation Maintenance/ Damage Damage to properties through poor maintenance or flood or fire could render a store inoperable. • Regular site checks by team members. • Rolling maintenance plan for all stores. • Comprehensive disaster recovery plan. • Appropriate insurance cover. Increased Competition An increasing number of competitors in the industry may negatively impact Lok’nStore’s existing operations (e.g. pricing/available sites). Colleague Retention Loss of team members may affect our ability to operate our stores and provide the high levels of customer service expected. Cyber Security and IT System Breach A breach of our IT systems might adversely affect the operations and income of the business resulting in potential fines, customer compensation and causing reputational damage to the Group. Future Pandemic Risk A spread of the virus and social protection measures which may be introduced by Government may adversely affect the operations and financial performance of the business and adversely impact on the health of team members. • Established criteria for site selection including: – Prominent locations – High visibility – Distinctive designs and bright orange elevations and signage to attract customers. • Continued investment in the Group’s website and internet marketing. • Ensure high levels of customer service through training and monitoring. • 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 within the Lok’nStore Academy (for further information see page 57. • Intranet for improved communications. • Established colleague rewards programme. • Regularly reviewed IT security systems. • Well communicated policies and procedures for handling and managing a systems breach. • The Group has a well-defined policy and response developed and executed throughout the recent Covid-19 pandemic. • Our Covid-19 Group Safe Response has been documented in detail in the Managing Director’s Review on page 21 in the 2021 Annual Report and is not repeated here. The Strategic Report as set out in pages 15 to 47 was approved by the Board of Directors and authorised for issue on 27 October 2023 and signed on its behalf by: Andrew Jacobs Ray Davies Chair Finance Director 27 October 2023 27 October 2023 47 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements48 Lok’nStore Group plc Annual Report and Accounts 2023Environmental and Social 51 Environmental Targets and Commitments 52 Environmental Management Performance 54 Our Environmentally Progressive Stores 55 Social ENVIRONMENTAL MATTERS Key Highlights • Commitment to install Photovoltaic (PV) generation on all new stores • Operational GHG emissions down 93% since 2005 • The proportion of total electricity needs provided on site with PV is 16% of the total electricity need • Gas use down 39% this year • Waste down 6% this year • Water use down 19% this year 49 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsEnvironmental Our Stores Generating Renewable Energy • Stores with PV • Stores without PV Lok’nStore in the year had a c.£300k displaced grid energy saving from solar energy generated and used in its own stores. RENEWABLE ELECTRICITY NUMBER OF TRADING STORES WITH PV NUMBER OF STORES WITH AN EPC OF B OR ABOVE 100% of portfolio 57% 46% 5050 Lok’nStore Group plc Annual Report and Accounts 2022 Lok’nStore Group plc Annual Report and Accounts 2023ENVIRONMENTAL TARGETS AND COMMITMENTS Our Drive to Net Zero Operational GHG Emissions We continue to monitor and implement strategies to minimise this very small tail of our direct emissions. The global scientific and governmental community has identified a need to achieve Net Zero global carbon emissions by 2050. This year, Lok’nStore has set a target to achieve Operational Net Zero carbon emissions by 2040. Lok’nStore’s Greenhouse Gas (GHG) emissions from direct operational sources are limited to natural gas use, used for heating and hot water only, and transport related fuel use. Lok’nStore decreased its natural gas use by 39% in the year. This comparatively low generation of GHGs and our efforts since 2005 to monitor and reduce our operational GHG emissions, Scope 1 and 2, have resulted in a significant decrease over that time, even as the business has grown to 42 stores. Lok’nStore Environmental Commitments and Targets Lok’nStore remains committed to positively impacting the environment. Our Environmental Committee is led by Andrew Jacobs, Chair, as well as a Non-Executive Director and two Executive Board Directors. The committee abides by three key strategic themes: • To be the ‘Big Friendly Storage Company’ to both our customers and the environment • Provide environmentally excellent buildings for colleagues and customers • Plan and deliver a sustainable business Our Targets FY22/23 Result Our Progress To obtain Energy Performance Certificates for all Owned Stores All Owned Stores have an EPC rating ranging from A-E. Of this 46% are a B or above. To complete a feasibility study on battery storage to complement future PV systems To increase the number of stores with PV systems Complete a feasibility study to retrofit all stores that are suitable for PV A feasibility study has been completed. Having assessed the value of installing battery storage against electricity exported back to the Grid, the Environmental Committee have concluded that battery storage is currently uneconomic. We will continue to keep this under review. PV was installed on Bedford and Peterborough within the year. We have identified all the stores that have the potential to have PV installed on existing roofs. We are working with a third party to progress installations. Review the benefit of swapping diesel van to an electric van Findings show that the extremely low use of our single company van means it is most appropriate to change to an electric van at the current van’s end of life. To trial the retrofitting of LED lighting in place of lower efficiency fittings We completed trials at one Owned and two Managed Stores. Results make a clear case for continued roll out across the few remaining stores that have fluorescent tubes. OUR TARGETS FY23/24 OUR COMMITMENTS • Decarbonise our business to be Net Zero in operations in 2040 • Assess recommended improvements from current EPCs and action as appropriate • Trial the installation of a battery at one store • To increase the number of stores with PV systems • Continue the roll out of LED lights for all stores • Obtain BREEAM at one store • Determine a route to eliminate waste destined for landfill Install EV charging across all new stores • • Optimise energy usage in stores • Engage with our colleagues and customers about our Green Credentials • Review internal processes to continuously make green improvements Install PV on all new stores • 51 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsEnvironmental continued Environmental Management and Performance Lok’nStore is committed to its environmental strategy and sustainability policy. We have been actively monitoring and measuring our environmental impacts since 2005. By monitoring environmental key performance indicators including greenhouse gas emissions (GHG), water use and waste, and reviewing them against our stated policy, we continue to achieve our stated aims; to control polluting emissions, manage water and waste effectively, 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 Directors’ Report) Regulations 2013. As in previous years, Lok’nStore engaged S&P Global Intelligence, a leading company in environmental, carbon data and risk, to review the Group’s reporting of environmental impacts for the financial year ended 31 July 2023. Highlights for the Year Ended 31 July 2023 Impact Result Comment A summary of their findings is included below. S&P Global Intelligence found that Lok’nStore assessed and disclosed all material environmental impacts – GHG emissions, water consumption and waste generation for its own facilities. The full operational footprint report containing comprehensive metrics, key ratios and their methodology can be found on our website. Operational GHG Emissions Intensity During FY22/23 Lok’nStore decreased operational GHG emission intensity by 27% from 4.14 to 3.03 tCO2e per million (£m) revenue. Direct Operational GHG Emissions (Scope 1) Indirect Operational GHG Emissions (Scope 2) During FY22/23 Lok’nStore’s Scope 1 emissions decreased by 8% to 81.9 tCO2e from 89.4 tCO2e. We experienced a decrease of 23% in total electricity intensity across all of our sites. Renewable Energy Generation 20% increase in energy generated at our sites. Water Consumption In the year 22/23, we have seen a 19% decrease in water consumption. Waste Generation and Recycling In the year 22/23, total waste generation decreased by 6%. Improvement in environmental performance year on year Direct Operational GHG Emissions (Scope 1) This year, we had a 19% decrease in direct GHG emissions from fuel used in travel. We also saw a 39% decrease in natural gas consumption. The decrease is as a result of decarbonisation reflecting our progress towards our aim to remove natural gas boilers at the end of their useful life and replace with electric boilers, which takes advantage of our electricity from 100% renewable sources. Indirect Operational GHG Emissions (Scope 2) We continue to emit no indirect operational GHG emissions due to long-standing supply contracts for renewable electricity and our own on-site photovoltaic. Renewable Energy Generation Generation of electricity from our solar panels installed on our buildings is dependent on both the number of panels fitted and sunshine hours; and a 20% increase in energy generated at our sites is reflective of more sunshine hours during the period and two new sites added in the period. PV solar panels will continue to be installed on new stores to increase electricity generated by our operations. 57% of trading stores have photovoltaic panels, of which 58% are Owned Stores. Water Consumption Though the total number of stores trading has increased, water intensity decreased by 35%. Lok’nStore has undertaken a comprehensive review of its water meters using a third party and has put in place stringent monitoring processes to ensure accurate billing and reporting on water use. This ensures expected water use is recorded and easily identifies potential leaks or excessive use. 52 52 Lok’nStore Group plc Annual Report and Accounts 2022 Lok’nStore Group plc Annual Report and Accounts 2023 SUSTAINABLE PROGRESS ON OUR TARGETS Waste Generation and Recycling The total number of trading sites increased and when adjusted for intensity saw a 25% decrease in landfill waste. Lok’nStore have closely monitored waste for 4 years which has led to a significant reduction in waste to landfill within that period. Through engagement with our supplier, we now have management systems in place where the destination of our waste can be reported in greater detail. In addition to this, our supplier has confirmed Lok’nStore’s landfill diversion rate currently is 97.45% due to how the waste is treated at its final disposal point and these facilities’ effectiveness. Our supplier sources the best disposal facilities available to each store and, where possible, ensures that no waste should go directly to landfill. In the coming financial year, we hope to be able to provide even better reporting now that we have increased knowledge of how our waste is treated once it leaves our stores. This is further evidence of our improved environmental management systems. Biodiversity We target net biodiversity gain and create wild habitats on our sites. When building a new storage centre we leave areas behind and around the side of the building for trees, wild-growing flowers and insects. Flowers in these areas will help the local wildlife thrive and encourage pollinators to visit. The Board considers the impact our operations have on the environment with a view to minimising them wherever possible. We will continue to monitor and report our environmental impacts in line with government guidelines. 2005 VS 2023 93% Reduction in GHG Emissions Lok’nStore began reporting on environmental factors in 2005. Since then, Lok’nStore has been making conscious decisions to make a positive environmental impact, especially targeting lower GHG emissions. Lok’nStore has made a series of impactful decisions to reduce its environmental footprint, prior to the known importance of Net Zero. The graph below shows how Lok’nStore’s emissions would look if the same environmental decisions of 2005 had been continued over the 17 years alongside its current portfolio of stores. Employee Engagement In the year, we have employed a two-pronged approach to waste and energy savings, introducing energy saving LED lights on a store-by- store basis and providing a range of recycling bins for our teams – whilst engaging with colleagues to update them on the Group’s energy use and to promote energy and waste conservation amongst our teams. How it could have been – if Lok’nStore had taken no action to limit it’s impact on the environment e 2 O C s e n n o t c i r t e M 3,000 2,500 2,000 1,500 1,000 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 If Lok’nStore made no environmental changes Lok’nStore actual outcome 53 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements Environmental continued OUR ENVIRONMENTALLY PROGRESSIVE STORES 54 Lok’nStore Group plc Annual Report and Accounts 2023Social Our Team At 31 July 2023, we had 193 colleagues (2022: 178 colleagues). We treat our colleagues with dignity and respect and are committed to providing a positive attitude and an enjoyable working environment. We have a professional, open and customer first focused culture. Colleagues can exchange ideas, share best practice and offer suggestions for improvement through regular meetings with managers and Directors. Our Central Support Team is visiting and in daily telephone communication with our store colleagues to promote the Company’s objectives, review performance, celebrate success and manage risk factors. Our recruitment process allows us the flexibility to recruit new team members based on a number of desirable characteristics including: personality, work ethic and previous employment. Lok’nStore fosters an inclusive environment where diversity and equality thrive. At Lok’nStore, we do not permit discrimination in any form. Lok’nStore has a responsibility to respect the human rights of our colleagues and customers, and we are committed to ensuring that our supply chain upholds the same values. We uphold clear standards for issues including: health and safety, freedom of association, preventing discrimination, no forced labour, political influence, working hours and working conditions. Male Female Store Colleagues 41% 59% Head Office/CST 48% 52% The Board Total 89% 11% 56% 44% At Lok’nStore, we believe colleagues are our most valuable asset and we recognise that the cost-of-living crisis has had an effect amongst our teams. To assist colleagues, Lok’nStore made two cost-of-living payments totalling £400 per person. Feedback from our teams was very positive. As of March 2023, Lok’nStore introduced Help at Hand, a completely confidential digital health and wellbeing service which provides our colleagues and their immediate family with access to key health and wellbeing services via an app. In addition to this, Lok’nStore has an employee benefits scheme called Rewards Locker where colleagues have access to exclusive rewards and savings across a variety of retailers. From January 2023, all colleagues received a new Death in Service benefit, providing peace of mind for our colleagues and their loved ones. For more information, please see page 77. We encourage our team members to build on their skills, through the Lok’nStore Academy and regular performance reviews. Training courses and team meetings are held regularly at the Group’s Head Office where our store colleagues are joined for lunch by our Central Support Team, Head Office colleagues and the Executive Directors. This gives the senior management team an opportunity to monitor and assess the culture throughout the business. During the year, Lok’nStore hosted a mental health awareness training session for an initial group of colleagues through a third party provider. During this session, our team learnt how to engage in conversations around mental health, how to support colleagues effectively, correctly spot indicators and create action plans to improve both their team’s and their own mental health. Lok’nStore conducts internal audits of all of its stores to uphold and monitor procedures, standards, mitigate risks and enhance the overall customer experience. In addition to this, we have engaged a third party supplier to conduct first impression audits to uphold presentational standards. Similarly, we continue to monitor and improve customer experience and service standards through a third party mystery shop supplier, which are also reviewed in meetings with our colleagues to further their skills and drive standards. We promote and underpin our customer first focused culture and celebrate success constantly through a variety of channels including regular email communication to colleagues, the Lok’nStore intranet and through monthly bonus letters sent to all store colleagues. All of these are fully branded and use positive language to promote Company values. Remuneration of all Group colleagues is reviewed annually to ensure all of our team members are paid fairly and to ensure we can attract and retain the correct talent to support our expansion. The Board would like to thank all colleagues for their commitment to our customers and for their hard work and efforts over the year. 55 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsSocial continued Employee Benefit Trust The Employee Benefit Trust owns 623,212 shares (2022: 623,212 shares), the costs of which are shown as a deduction from shareholders’ funds. Full details are provided in note 28 – Own Shares. Social Initiatives Bonus Schemes Opportunity to Buy and Receive Shares Colleague Engagement Activities Comment We are delighted to say that all of our colleagues continue to benefit from the success of the business through our bonus schemes. During the year, we paid over £0.64 million in bonuses to those colleagues. Lok’nStore has a share incentive plan (SIP) in which all colleagues are eligible to participate. 82% of our colleagues are enrolled members of our share scheme, with 58% of colleagues being investing members. Colleagues are given the opportunity to take part in internal competitions run via our engaging intranet with a chance to win a variety of prizes. Every colleague receives a Christmas hamper gift as a token of the Company’s appreciation. We also celebrate Company and individual successes throughout the year. Social Activities Lok’nStore hosts Company parties for all colleagues to attend. Internal Progression Routes and Career Management At Lok’nStore, we aim to fill most positions through internal promotions. We are extremely proud that 57% of our current store managers have been promoted internally. Development and Training Contributing to Society All colleagues are supported to learn and develop through internal and external training. We provide internal training workshops, process update training as well as apprenticeships, and National Vocational Qualifications. During this financial year, the Group has made significant cash payments in relation to Corporation Tax, Insurance Premium Tax (IPT), Employer National Insurance contributions, VAT and Business (Rates) totalling over £6.68 million. The Lok’nStore Environmental Committee In recent years, we have introduced an Environmental Committee that meets quarterly to review and discuss practical steps we can take as a business to further reduce our impact on the environment. The Committee members consist of stakeholders at all levels of the business whose roles all have a direct link to our environmental performance. The Environmental Committee includes two Executive Board Directors and a Non-Executive Director, Simon Thomas, who has special responsibility on the Board for environmental matters. We regularly discuss our successes and environmental projects with colleagues through internal communications. This gives all colleagues the opportunity to raise ideas of how we can further improve our environmental performance and the engagement with all areas of the business. Cyber Security The environment around cyber threat remains and arguably is growing, as more companies succumb to malicious or ransom-ware attacks. Although our firewalls have never been penetrated, throughout this financial year we have undertaken a comprehensive cyber project to strengthen our defences against such attacks. The scope of the project has been extensive and includes an external audit of our IT processes, an upgrade of our IT policy, email policy, password policy, and incident response plan. Layers of additional penetration security have been put in place to further strengthen our ‘firewall’ as well as multi-factor authentication on Microsoft Office 365 accounts. Potential vulnerabilities have been evaluated and unsupported software removed. Penetration testing has been completed using GCHQ approved external agents who were unable to penetrate our systems. Executive Directors have additional VPN security when accessing public Wi-Fi networks via laptops/mobile devices. This is supported by a mandated cyber security training for all colleagues who have access to information resources. 56 Lok’nStore Group plc Annual Report and Accounts 2023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 and providing personal development opportunities to all of our team members. During the year, the Academy offered a number of training courses which have been delivered via virtual training sessions. Our continuing growth and dynamic pipeline of new stores allows our colleagues to grow as the business grows. Development of our teams through the Academy supports our strategic aim to fill future Store Manager roles internally. Today, 57% (2022: 55%) of our Store Managers are internal appointments having all developed from a Customer Service Assistant role. We aim to improve this percentage as the business grows, giving us committed and talented team members 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. Our third party mystery shopping company, Performance in People (‘PIP’), hosted a Customer Experience Event (CX Day 2023) that brings together Senior CX Professionals from world class brands to discuss and showcase innovative approaches around customer excellence. Performance in People presented some awards to celebrate, and reward some of the very best in the industry, and we are pleased to report that Lok’nStore picked up two awards: BMS Champion 2022 and Top BMS performer. Mike Dalloz – Managing Director of PIP said, “This is a massive achievement, the call was a perfect example of exhibiting telephone behaviours necessary to deliver an exceptional customer experience, which was why it was selected as the winner in front of tens of thousands of other mystery shopping calls”. Our Customers We believe in clarity and transparency when communicating with our customers. Our website is informative yet engaging and, where necessary, clearly explains 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. We have a responsibility to our customers to offer products and services that meet the high standards they expect of a company that is charged with looking after their possessions. Customer Reviews Google Feefo (Movein Reviews) Feefo (Vacation Reviews) Trustpilot Rating 4.8 out of 5 4.9 out of 5 4.8 out of 5 4.5 out of 5 57 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsSocial continued Our Communities At Lok’nStore, our objective is to engage in philanthropy by making positive and meaningful contributions to the local communities surrounding our stores. We have over 50 charities storing with us at a reduced rate and provide over 1,000 sq. ft. of free space to our partner charities. Whenever feasible, where there is a need, we distribute Lok’nStore boxes to the community. Charity and Community Engagement Free space donated to charity use Discounted space for charity use £28,329 £21,668 One off donations* £365 * Matching colleague donations for Christmas Jumper Day. Our 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. Lok’nStore is proud to have worked with a number of its suppliers for many years and have achieved long-standing relationships to the benefit of both parties. 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 38 days (2022: 39 days). FY ended 31 July 23 Within 30 days Between 30 and 60 days Over 60 days Average time to pay an invoice 40% 57% 3% 38 days Health and Safety The Board recognises the prime importance of maintaining high standards of Health and Safety and healthy working conditions for our teams, customers, visitors, contractors, and other people who interact with our business activities. Lok’nStore has a Property Risk Committee which meets periodically 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 this 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 Managing Director, managers, and all colleagues within the Group. Customer, Contractor and Visitor Health and Safety FY22/23 Number of colleagues at 31 July 2023 200 Number of minor injuries Of which were customers, contractors, and visitors Of which were minor cuts Of which were team members 13 9 9 4 RIDDOR reportable events 0 58 Lok’nStore Group plc Annual Report and Accounts 202359 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements60 Lok’nStore Group plc Annual Report and Accounts 2023Governance 62 Board of Directors and Advisers 64 Corporate Governance 72 Directors’ Report 77 Remuneration Report 81 Statement of Directors’ Responsibilities 82 Independent Auditor’s Report to the Members of Lok’nStore Group plc LANDMARK STORE PETERBOROUGH 45,000 SQUARE FEET OF MAXIMUM LETTABLE AREA NOW OPEN OPEN Lok’nStore acquired and developed this four-storey Landmark store situated prominently along the main road leading to the well occupied Maskew Avenue Retail Park. Its strategic location next to various food, retail, and leisure premises makes it a convenient choice for the sizeable population it serves in Peterborough. The facility opened in June 2023, and the store has experienced good early trading. 61 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsBoard of Directors and Advisers EXECUTIVE DIRECTORS Andrew Jacobs (64) Chair Ray Davies (66) Finance Director Neil Newman-Shepherd (46) Managing Director Tom Lampard (41) Property Director Experience Andrew established Lok’nStore 27 years ago after eight 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 a Fellow of the Institute of Chartered Secretaries and 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, operations, marketing and people. Experience Tom joined Lok’nStore in March 2012, and has worked in a variety of roles across the Group. Since 2017, Tom has worked in the Group’s property team, as Director of Acquisitions becoming Property Director in 2023, where he is responsible for sourcing and securing land and buildings, ensuring planning permissions and the eventual construction and fit-out of the properties. 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. Key Areas of Expertise Property, acquisitions, planning, construction, and Managed Store services. DIRECTORS The Board of Directors is supported by an Assistant Company Secretary who assists the Chair 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. A. Jacobs R. Davies N. Newman-Shepherd T. Lampard J. Woyda C S. Thomas R. Holmes C. Peal C B. Barker Chair Finance Director Managing Director Property Director (Appointed 6 February 2023) Senior Independent Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director (Appointed 14 September 2023) Following the conclusion of the FY23 audit formalities Jeff Woyda will become Chair of the Audit Committee. Audit Committee Remuneration Committee C Chair Find out more about the Company’s committees on page 66. 62 Lok’nStore Group plc Annual Report and Accounts 2023 THE BOARD HAS OVER 100 YEARS OF SELF-STORAGE EXPERIENCE NON-EXECUTIVE DIRECTORS Jeff Woyda (61) Senior Independent Non-Executive Director Experience Jeff joined the Board on 1 September 2020 as an independent Non-Executive Director. Jeff, a qualified accountant, has held a number of senior executive positions and is currently Chief Financial Officer and Chief Operating Officer of Clarkson plc, a FTSE 250 company and the world’s leading provider of integrated shipping services and investment banking capabilities to the shipping and offshore markets. Key Areas of Expertise Finance and technology, strategic development, financial management, investor relations and corporate governance. Simon Thomas (63) Non-Executive Director Richard Holmes (63) Non-Executive Director Charles Peal (68) Non-Executive Director Experience Richard joined Lok’nStore in 2000, having held senior marketing and commercial roles at Unilever, Boots (as Marketing Director and Commercial Director) and latterly, Specsavers (as Group Marketing 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. 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 particularly interested in environmental economics and natural capital. He is a member of Defra’s Council for Sustainable Business. Bridget Barker (65) Non-Executive Director (appointed 14 September 2023) Experience Bridget joined the Lok’nStore Board on 14 September 2023. Bridget is an experienced lawyer with over 35 years’ experience at Macfarlanes, a leading City of London law firm, latterly as head of the Investment Management Group. Since leaving, Bridget has pursued various non-executive roles and consulting appointments at organisations such as Praesidium, Mirabaud 1819 Advisory Group and Mainspring Fund Services. Key Areas of Expertise Corporate finance and environmental performance. Key Areas of Expertise Marketing including digital marketing and customer experience. Key Areas of Expertise Strategy, Capital Markets and Fund Management. Key Areas of Expertise Legal, Private Equity and Real Estate Funds. ADVISERS In addition, the Board is advised by: Secretary and Registered Office: Dentons Secretaries Limited, One Fleet Place, London, EC4M 7WS Nominated Adviser and Brokers: Cavendish Capital Markets Limited, One Bartholomew Close, London, EC1A 7BL Nominated Adviser and Brokers: Peel Hunt LLP, 100 Liverpool Street, London, EC2M 2AT Statutory Auditor: RSM UK Audit LLP, 25 Farringdon Street, London, EC4A 4AB Registrars: Link Group, Central Square, 29 Wellington Street, Leeds, LS1 4DL Solicitors: Dentons UKMEA LLP, One Fleet Place, London, EC4M 7WS Solicitors: RWK Goodman LLP, 69 Carter Lane, London, EC4V 5EQ Solicitors: Russell-Cooke, 2, Putney Hill, London, SW15 6AB Direct and Indirect Tax Advisors: BDO LLP, 55 Baker Street, London, W1U 7EU To find out more visit: www.loknstore.com/investors/the-board 63 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsCorporate Governance Corporate Governance Statement 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. The Group applies the Quoted Companies Alliance’s Corporate Governance Code (‘QCA Code’). As Chair it is my responsibility to ensure the Company complies with the QCA Code and where the Company deviates to explain why the Directors believe this to be in the best interests of the Company. In this section, we 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 ten principles of the QCA Code on the corporate governance page in the investor section on our website. These are also summarised below and referenced to the relevant content within the Annual Report. QCA Code Principle Reporting Location 1 Establish a strategy and business model which promotes long-term value for shareholders Our business model is set out on page 18 and our strategic objectives and achievements in the year are set out on page 20. The principal risks associated with the business model are set out in the Principal Risks and Uncertainties section on pages 44 to 47. 2 Seek to understand and meet shareholder needs and expectations Under Shareholder Relations on page 71, we discuss how we seek to understand and meet shareholder needs and expectations. Compliant With Code Andrew Jacobs, Chair, is responsible for shareholder liaison. We consider communication and shareholder engagement to be high and cite two recent examples: 1) 2) The retail offer to smaller (retail) investors who were invited to participate in the recent Company equity placing via a dedicated REX platform. Regular communication with larger institutional shareholders in order to foster and achieve greater mutual understanding of respective positions on ESG issues. How we work with and take into account wider stakeholder interests is detailed in the Environmental and Social section on pages 49 to 59. 3 Take into account wider stakeholder and social responsibilities and their implications for long-term success 4 Embed effective risk management, considering both opportunities and threats, throughout the organisation Our approach to risk management is detailed on page 44 and our principal risks are outlined on pages 44 to 47. Our approach to internal control and specifically internal audit is set out on page 67. 5 Maintain the Board as a well-functioning, The Board structure is reported on pages 62 to 76. balanced team led by the Chair 6 Ensure that between them the Directors have the necessary up-to-date experience, skills, and capabilities 7 Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement 8 Promote a corporate culture that is based on ethical values and behaviours Our committees are detailed in this section of the Annual Report but can also be found on our website: https://www.loknstore.co.uk/investors/ The Directors maintain their knowledge through a combination of reading of technical and market bulletins. We strive to maintain an overall balance of experience, skills, and knowledge to ensure the Board operates effectively and to create long-term sustainable value for the Group and its shareholders. Our Directors’ biographies can be found on pages 62 to 63 and further information on the balance of skills and capabilities within our Board can be found in the commentary on Board Evaluation on page 70. We set out this year’s information in the Corporate Governance section on page 70. The Board of Lok’nStore have embedded a culture which is professional, open and customer focused. This underpins our core strategy and objective of growth, both through increased occupancy of existing sites and through the opening of new Landmark stores. Our culture drives the experience of the customer, ensuring that they receive a high quality service which then leads to repeat business/referrals via word of mouth/positive google reviews etc. Please see our Environmental and Social matters on pages 49 to 59. 9 Maintain governance structures and Please see the Corporate Governance section from page 61. processes that are fit for purpose and support good decision-making by the Board 10 Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders 64 Please see the Corporate Governance section, specifically page 71. Results of voting at our AGMs can be found on the announcements page of our website: https://www.loknstore.co.uk/investors/announcements/ Lok’nStore Group plc Annual Report and Accounts 2023Our Governance Structure THE BOARD Typically meets at least 5 times a year, Chair: Andrew Jacobs • Leading role in determining the composition and structure of the Board (with Remuneration Committee acting as Nomination Committee) • Incentivising, managing and mentoring the Senior Executive Management team • Setting the strategic direction and main goals of the business • Approving significant changes to the Group’s business model • Setting the standards, culture and values of the Group • Overseeing the internal control system of the Group and its risk management • Approving the annual business plan for the Group • Approving site and store acquisitions and major items of capital expenditure • Approving the Group’s financing structure • Ensuring a positive dialogue with our stakeholders is maintained • Creating and maintaining the conditions necessary for overall individual director engagement • Managing relations and ensure effective communication with shareholders Environmental Committee Meets quarterly, chaired by Andrew Jacobs • Monitoring sustainability performance • Overseeing the Group’s environmental targets, commitments and strategy • Providing guidance on emerging environmental issues, including environmental risks, and their impact on the Group’s business • Overseeing the Group’s ESG reporting, including external audit/assurance mechanisms See page 51 for more information Remuneration Committee Meets once a year, chaired by Jeff Woyda Audit Committee Meets three times a year, chaired by Charles Peal • Setting, reviewing and recommending the policy on the remuneration of the Executive Directors • Overseeing the senior management team and Company wide remuneration approach • Monitoring the implementation of the Remuneration policy • Overseeing the alignment of reward, incentives, and culture • Considers proposals from the Chair on the remuneration of the operational management team especially in relation to bonus share option awards under the long-term performance-related pay schemes See page 66 for more information • Monitoring the integrity of the financial statements any formal announcements relating to the group’s financial performance and reviewing significant financial reporting judgements thereto • Reviewing the Group’s internal control and risk management systems, together with the relationship with the Group’s external auditor and the review of the Group’s financial reporting and internal controls • Consider the Auditor’s Findings Report and any corresponding recommendations • Assess and provide necessary challenge to estimates and judgements contained within the financial statements including, but not limited to, discussion and review the findings of the external JLL Valuation Report prior to the Group’s year-end results • The committee would also convene prior to the Group’s interim financial results and at other times should it be necessary See page 66 for more information EXECUTIVE BOARD COMMITTEE Chaired by Andrew Jacobs Meets monthly • Considers: Management Accounts, Store Operations and Performance, Human Resources • Implementing the Group’s business plan and strategy • Managing the risk of the business • Focusing on financial performance See page 44 for more information Property Committee Meets Weekly, Chaired by Andrew Jacobs Property Risk Committee Meets Periodically Considers: Sites under Development and New Acquisitions Considers: Risks Associated with Properties including HSE 65 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsCorporate Governance continued The Board Committees The following section introduces the Group’s committees, members and the terms of reference. The Audit Committee also undertakes a formal assessment of the auditor’s independence each year, which includes: Nomination Committee A Nomination Committee would oversee the appointment of a new Director. Due to the relatively small size of the Company, the Board does 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 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. There are appropriate performance criteria which apply for the grant of future share options to Directors and senior managers in the business as part of their participation in 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 8 in the financial statements and in the Remuneration Report on page 77. Audit Committee The Company has an Audit Committee, to whom the external auditor, RSM UK Audit LLP, reports. The Committee consists of Charles Peal (Chair of the Committee) and Jeff Woyda and has recently been joined by Bridget Barker. Charles Peal is the Committee’s Nominated Financial Expert and for details of Charles’ experience please see his biography on page 63. 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. • a review of non-audit services provided to the Group and related fees ensuring that only those services provided by the Ethical Standard of the FRC are permitted • 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, objectivity and effectiveness of the audit process, and the partners and team members involved in the audit, including the regular rotation of the audit partner every five years • obtaining written confirmation from the auditor that, in their professional judgement, they are independent of the Group. 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 7 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. The Audit Committee is required to report its findings to the Board identifying any matters on which it considers that action or improvement is needed and make recommendations on any steps to be taken. This year, the Committee has continued to focus on the narrative reporting and governance disclosures contained in the Annual Report and to ensure that it represents a fair, balanced and understandable picture of the Group’s performance, strategy, viability and business model. 66 Lok’nStore Group plc Annual Report and Accounts 2023The Audit Committee and Critical Matters of Judgement The Committee focuses on matters it considers important and where there is a high degree of complexity and/or judgement. A particular example is the valuation of the Group’s trading properties. This is carried out by external valuers, but by its nature is subjective with significant judgement applied to the Valuation. The Audit Committee members meet with the external valuers, the auditors, the Managing Director and the Finance Director to discuss and review the key judgements. This review included challenge on assumptions made on stabilised occupancy, exit yields and discount rates, revenue and occupancy growth. Management also have processes in place to review the external valuations. In addition, the external auditors use separate valuation specialists to review the Valuations prepared by the Group’s external valuer. Non-Audit Work The Committee’s policy, reflecting the FRC’s Ethical Standard on Non-Audit services is that the Group’s auditors will not be commissioned to undertake non- audit work. More generally, the external auditors may not provide services, which places them in a conflict- of-interest position in relation to their statutory audit work. Such activities will include financial system design, tax compliance and advisory services, etc. A list of the advisors is set out on page 63, noting the separation of accountant’s responsibilities between audit (RSM) and direct and indirect tax work (BDO). Risk Management and Internal Control The Committee and the Board reviewed the internal control processes of the business and the Group’s Risk Register during the year. The risks and uncertainties facing the Group are considered in the Strategic Report on pages 44 to 47. Overview Based on all of the above, the Committee has concluded that, taken as a whole, the disclosures contained in the Annual Report provide a fair, balanced and understandable picture for shareholders to assess the Group’s performance, strategy, viability and business model. The Chair of the Audit Committee will be available at the forthcoming Annual General Meeting on 7 December 2023, to answer any questions about the work of the Committee. 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 employee handbook, which is issued to all colleagues. All colleagues may raise concerns about malpractice or improper or potentially illegal behaviour in confidence without concern of victimisation or disciplinary action. 67 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsCorporate Governance continued The Board Four Executive Directors and Four Non-Executive Directors Meets: Considers: Receives: Meets regularly throughout the year (nine times in the current year). See page 70 for table recording Board attendance. • Financial strategy • Detailed management accounts against budgets • Company performance • A current trading appraisal • Major investments • Minutes of all subcommittees • Capital resources • The Risk Register • Risk management • The Conflicts Register • Reporting to shareholders The Directors Following the appointment of Tom Lampard on 6 February 2023, the Board consists of four Executive Directors and five 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 Chair 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. Accountability and Audit The Board believes that the audited Annual Report and Accounts plays an important part in presenting all shareholders with an assessment of the Group’s position and prospects. The Strategic Report contains a detailed consideration of the Group’s position and prospects. 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 Group Directors hold in other Companies and Trusts both inside and outside the Group: Jeff Woyda Clarkson (Trustees) Limited Clarkson Capital Limited Clarkson Dry Cargo Limited Clarkson Holdings Limited Clarksons Overseas Shipbroking Limited Clarkson PLC Clarkson Property Holdings Limited Clarkson Research Holdings Limited Clarkson Research Services Limited Clarkson Sale and Purchase Limited Clarkson Shipbrokers Limited Clarkson Shipbroking Group Limited Clarkson Tankers Limited Clarksons Platou Legal Services Limited Clarksons Structured Asset Finance Limited H. Clarkson & Company Limited Halcyon Shipping Limited International Transport Intermediaries Club Limited – (Non-Executive Chair and Director) J.O. Plowright & Co. (Holdings) Limited LevelSeas Limited Maritech Development Limited Maritech Holdings Limited Maritech Limited Maritech Services Limited Recap Manager Limited (appointed 31/03/2023) Seafix Limited 68 Lok’nStore Group plc Annual Report and Accounts 2023Jeff Woyda Overseas Directorships Afromar Properties (PTY) Limited Clarkson Shipping Services Acquisition USA LLC Clarksons Shipping Services USA LLC Clarkson Shipping Services India Private Limited Clarksons Hong Kong Limited Clarksons Norway AS Clarksons South Africa (Pty) Ltd Clarksons Shipping Services USA LLC Clarksons Singapore Pte. Limited Clarksons USA Inc. Directorships held by Jeff Woyda in the last five years: Oilfield Publications Limited LNG UK PLC Clarkson Logistics Limited Clarksons Platou Futures Limited Overseas directorships held by Jeff Woyda in the last 5 years Bonus Plus Investments Limited Diligent Challenger Limited Clarksons Logistics (HK) Limited Trusteeships held by Jeff Woyda The Clarkson Foundation CIO The Clarkson PLC Pension Scheme J.O. Plowright & Co. (Holdings) Limited Pension and Assurance Scheme Andrew Jacobs Andrew Jacobs (UK) Limited Andrew Jacobs LLP Lok’nStore Limited* The Box Room (Self-Storage) Ltd* Ray Davies Ash Road SS Limited Davies Elise Consulting Limited Lok’nStore Limited* Lok’nStore Trustee Limited* ParknCruise Limited* Semco Engineering Limited* Semco Machine Tools Limited* Southern Engineering and Machinery Co. Limited* The Box Room (Self-storage) Ltd* Gypsy Moth Storage Limited (formerly Chichester Storage Limited) Broadstairs Storage Limited Simon Thomas Lok’nStore Limited* Simon Thomas (UK) Limited Storelab Limited Richard Holmes Lok’nStore Limited* Lok’nStore Trustee Limited* Moorfield Eye Hospital NHS Foundation Trust The Schiehallion Fund Limited ** Charles Peal No other directorships Tom Lampard No other directorships Neil Newman-Shepherd Lok’nStore Limited* Bridget Barker Bridget Barker Services Limited Heritage Collins Ltd Mainspring Fund Services Limited Mainspring Nominees Limited MSCT Trustee Limited RAD Commercial Limited TSO Holdings (UK) Limited York House (Chelsea) Porter’s Flat Limited Directorships held by Bridget Barker in the last five years: Hero Inc. Limited Zedra Fund Managers (Guernsey) Limited Overseas directorships held by Bridget Barker Praesidium S.A. Praesidium Investment Advisers Limited * Lok’nStore Group Companies. ** Guernsey registered Companies. 69 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial 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 conflict. 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 set out in detail in note 31 Directors’ interests and also confirm that there were no reportable related party transactions in this financial year. Additionally, 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. We therefore report on the Lok’nStore Group plc dividends received by all Directors, including Non-Executive Directors, and do not consider these to be material business relationships which would impair their independence. Board Evaluation, Composition and Attendance Board Attendance during the year is set out in the table below. Meetings have often been a mix of physical attendees with occasions when Directors have dialled in via Zoom/Teams in order to participate. Board Attendance Total Number of Meetings in 2022-2023 Board 7 Executive Directors Andrew Jacobs Ray Davies Neil Newman-Shepherd Tom Lampard Non-Executive Directors Simon Thomas Charles Peal Richard Holmes Jeff Woyda 7 7 7 4 7 7 7 7 Audit Committee Remuneration Committee Annual General Meeting % Attendance 1 n/a 1 n/a n/a n/a 1 n/a 1 1 1 n/a n/a n/a n/a n/a 1 1 1 1 1 1 n/a 1 1 1 1 100% 100% 100% 100% 100% 100% 100% 100% Bridget Barker was appointed to the Board on 14 September 2023. Tom Lampard attended all four of the Board Meetings subsequent to his appointment during the year. 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 the number of new properties acquired or revenue growth. Our Non-Executives were evaluated informally within this year’s review of our Board composition, and we report on this as follows. The UK Corporate Governance Code’s requirement is that a smaller company should have at least two Non- Executive Directors that are deemed independent. Three of our Non-Executive Directors have served for longer than nine years and were therefore no longer deemed independent under this Code. However, our adopted 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’. 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. 70 Lok’nStore Group plc Annual Report and Accounts 2023We established that the broad range of skills, expertise, and attitude amongst the Executive and Non- Executive Directors includes all the matters that the Group deals with – strategy, property, finance, human resources, marketing and organisation. Furthermore, the long experience of Board Members continues to be considered an asset and all express challenges freely and robustly. In September 2020, we appointed Jeff Woyda, who has considerable skills and a wealth of knowledge and experience held in senior roles across multiple disciplines, to contribute to the Group for its next stage of growth. He is our current Senior Independent Non- Executive Director and Chairman of the Remuneration Committee. During this current financial year, we have also met with potential Non-Executive Directors to explore what expertise they might bring to the Board and discussed the balance between new experiences, diversity and increasing costs. After careful consideration, we concluded that while the current composition of the Board remains effective and appropriate for the time being, we considered that the appointment of an additional Independent Director would add value and enable the key Committees of Audit and Remuneration to be refreshed. After the year-end, the Board was pleased to announce the appointment of Bridget Barker who joined the Board on 14 September 2023. Bridget joins us with a wealth of knowledge and is an experienced lawyer having gained over 35 years’ experience at Macfarlanes, a leading and well-established City of London law firm, where she specialised in investment funds, financial services and regulatory legal work with a focus on private equity and real estate funds. Latterly, she was Head of the Investment Management Group at Macfarlanes. Bridget will be appointed to the Company’s Audit and Remuneration Committees in the coming year providing a second Independent Non-Executive Director on each Committee. When making a Board appointment we interview a number of candidates, and we select the best candidate for the position. Our firm belief is that we should always act in the best interest of shareholders in these matters, while of course continuing to recognise that diversity is important. Although Non-Executive Directors who have served over nine years must offer themselves for re-election at every Annual General Meeting, and accordingly Simon Thomas, Charles Peal and Richard Holmes offer themselves for re-election at every AGM, the Group nevertheless considers these Non-Executive Directors to be independent and therefore compliant with the Code. Richard Holmes and Charles Peal’s deep and broad experience are important assets to our business and the committees they sit on. Additionally, Tom Lampard, who was appointed to the Board in February 2023, will also offer himself for election at the forthcoming Annual General Meeting. Bridget Barker who was appointed to the Board on 14 September 2023, will also offer herself for election at the forthcoming Annual General Meeting. 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 straightforward capital structure with only one class of shares and one bank facility. 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 gives 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. Frequent 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 2023 January February April July August H1 Period- End Pre-close Trading Statement (H1) Interim Results Announced Financial Year-End Pre-close Trading Statement End October Preliminary Statement December AGM On behalf of the Board. Andrew Jacobs Chair 27 October 2023 71 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsDirectors’ Report 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 2023. 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 prospects are set out in the Chair’s Statement on pages 4 to 9 and the Strategic Report on pages 15 to 47. The key performance indicators are set out in the Highlights on page 2 and discussed in more detail in the Financial Review on page 34 and the Managing Director’s Review on page 21. Commentary on financial risk management is included on page 44 and disclosures on financial instruments are provided in note 17. The Carbon energy reporting disclosures have been provided in the Environmental Report on pages 49 to 59. Capital Structure Details of the authorised share capital, together with details of the movements in the Company’s issued share capital during the year are shown in note 21. The Company has one class of Ordinary Share which carry no right to any fixed income. Each share carries the right to one vote at General Meetings of the Company. There are no specific restrictions on the size of the holding nor on the transfer of share. Details of Employee Share Schemes are set out in note 22 to 25 of the notes to the financial statements and details of the shares held by the Company’s Employee Benefit Trust are set out in note 28. No person has any special rights of control over the Company’s share capital and all issued share capital is fully paid. 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 is 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, Statement of Cash Flows and corresponding notes and policies contained within the financial statements. 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 (See note 17). The Directors can report that, based on the Group’s budgets and financial projections, which include a recognition of the inflationary effect of rising costs and the expected impact on the Group, they have satisfied themselves that the business is a going concern. The Group operates a Revolving Credit Facility of £100 million. The facility continues to provide funding for future Landmark stores to support the Group’s ambitious growth plans. The facility is a joint agreement with ABN AMRO N.V. and NatWest Bank plc participating equally and runs until April 2026. The interest rate is set at the Sterling Overnight Index Average (SONIA) plus a 1.50% -1.75% margin based on a Loan to Value covenant test. The Group is fully compliant with all bank covenants and undertakings and is not obliged to make any repayments prior to expiration. Further details are provided in note 18 (Borrowings). 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 £42.1 million, undrawn committed facilities at 31 July 2023 of £45.6 million and cash generated from operations of £15.8 million. 72 Lok’nStore Group plc Annual Report and Accounts 2023Directors The following Directors held office during the year and subsequently: With interest rates rising, this risk per se is increasing, however the Executive and the Board monitor this position carefully through the Group’s detailed operating reports produced on a weekly basis and detailed financial and accounting reports produced on a monthly basis. The Group’s bank covenant compliance is reviewed as part of this process. The Bank’s Senior Interest covenant is tested quarterly on a 12-month rolling basis. Executive A. Jacobs (Chair) R. Davies (Finance Director) 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. N. Newman-Shepherd (Managing Director) T. Lampard (Property Director) Non-Executive J. Woyda (Senior Non-Executive) S. Thomas (Non-Executive) R. Holmes (Non-Executive) C. Peal (Non-Executive) B. Barker (Non-Executive) – Appointed 14 September 2023 Dividend The Directors propose that a final dividend of 13.25 pence per share will be paid to the shareholders (2022: 12.25 pence per share). The total annual dividend payout of 19.00 pence represents a 10.14% increase (2022 17.25 pence). The total estimated dividend to be paid is £4.34 million based on the number of shares in issue at 13 October 2023 as adjusted for shares held in the Employee Benefit Trust. This is subject to approval by shareholders at the Annual General Meeting on 7 December 2023 and has not been included as a liability in these financial statements. The ex-dividend date will be 23 November 2023; the record date 24 November 2023; with an intended payment date of 5 January 2023. The final deadline for Dividend Reinvestment Election (DRIP) is 8 December 2023. From April 2018, dividend tax credits have been replaced by an annual tax-free allowance on dividend income across an individual’s entire share portfolio. Above this threshold tax is paid by reference to their individual tax bracket and personal circumstances. It is the shareholder’s responsibility to include all dividend income when calculating their tax liability. Lok’nStore will continue to provide confirmations of the dividends it has paid to registered shareholders. Events after the Reporting Date Reportable events after the reporting date are set out in note 34 in the financial statements. 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 8 of the financial statements. Biographical details of the Directors are set out on pages 62 to 63. Reappointment of Directors Richard Holmes and Charles Peal who have over 19 and 16 years tenure respectively as Non-Executives are required 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. Andrew Jacobs and Jeff Woyda now retire by rotation and offer themselves for re-election. Tom Lampard, appointed during this financial year, also offers himself for election at the forthcoming AGM. Bridget Barker, who was appointed as an additional independent Non-Executive Director of the Company on 14 September 2023, is required to offer herself up for reappointment in accordance with Article 103 of the Company’s Articles of Association. The biographical details of Bridget are set out on page 63 of this Report. Directors’ and Officers’ Liability Insurance A qualifying third-party indemnity provision for the benefit of the Directors and Officers of the Company and its subsidiaries throughout the financial year and as at the date of approval of the Directors’ Report. 73 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial 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 13 October 2023: Current Rank % at 13 Oct 2023 Number of Shares Total Shares % at in Issue 15 Oct 2022 Number of Shares Total Shares in Issue Andrew Jacobs Canaccord Genuity Wealth Management (inst) Investec Wealth & Investment BlackRock Simon Thomas Hargreaves Lansdown Interactive Investor 1 2 3 4 5 8 9 12.06 3,953,600 17.34 5,203,600 7.93 2,598,000 7.70 2,523,764 6.79 2,224,156 3.91 1,282,800 3.10 1,015,764 3.07 1,006,161 9.02 2,706,550 7.36 5.07 4.77 3.04 3.36 2,207,997 1,552,510 1,430,000 912,593 1,007,354 Represents total shares in issue  32,769,563 30,008,099 As at 13 October 2023, the Board of Directors either directly or indirectly hold 20.8% of the total issued share capital of the Group and 20.8% of the Voting shares of the Group. Group Director Shareholdings as at 31 July 2023 A. Jacobs S. Thomas R. Davies R. Holmes C. Peal N. Newman-Shepherd J. Woyda T. Lampard Total Notes 1 and 3 2, 4 and 5 6 8 7 and 9 10 Number of Ordinary Shares: Beneficial Number of Ordinary Shares: Non-Beneficial Percentage held 3,953,600 1,292,800 81,807 279,606 318,816 30,739 2,419 100 95,600 12.36% 17,589 180,485 1,988 3.95% 0.25% 0.91% 1.52% 0.10% 0.01% 0.00% 5,959,887 295,662 19.09% 74 Lok’nStore Group plc Annual Report and Accounts 2023      Major Shareholders Andrew Jacobs Shares held by Andrew Jacobs LLP Shares held by Andrew Jacobs’ wife, daughters and son Shares held by his pension fund Andrew Jacobs and connected persons Simon Thomas Shares held by Simon Thomas LLP Shares held by his pension fund Rhys Warren-Thomas – Simon Thomas’ brother (Note 1) Simon Thomas and connected persons Total Ordinary Shares held by Major Shareholders * Rounded to two decimal places. 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 2023 are shown in note 12(a) to the Financial Statements. Further commentary on the property portfolio is contained in the Property Review on page 28 and in the Financial Review on page 40. Share Buy-back Authority Authority will be sought at the Company’s AGM on 7 December 2023 from shareholders to approve a share buy-back 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. Number of Ordinary Shares Percentage Held* 3,953,600 95,600 310,350 4,359,550 1,292,800 253,390 57,319 1,603,509 5,963,059 12.07 0.29 0.95 13.30 3.95 0.77 0.18 4.89 18.20 Stakeholder Engagement Effective engagement with stakeholders at Board level and throughout our business is crucial to fulfilling the Group’s strategic objectives. We continue to be collaborative with all stakeholder groups including customers, colleagues, suppliers, local authorities, regulators, funders and investors. This approach necessarily involves listening to and taking account of their views and feedback, while also being open to change. Colleague Consultation The Group seeks to ensure our teams are committed to our objectives in a number of ways. Strategic changes are communicated directly to all colleagues who are encouraged to address queries to the Executive Directors. There are regular team meetings at store level to provide team members with information about the performance of, and initiatives in their stores. A wide range of information is also communicated across the Group’s intranet, including dissemination of the Group’s financial results and press releases, and regular updates from each department. Colleagues are encouraged to participate in the Group’s performance through colleague share schemes and performance related bonuses. 53% of eligible employees participate in the Group’s SIP Share Save Scheme. 75 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsBribery and Corruption The Group adheres to a range of policies, which include anti-bribery and corruption. Our bribery policy, including corruption, has been reviewed with no changes made. This has been signed off by the Group Managing Director. Political Contributions The Group made no political contributions during the year (2022: nil). Corporate Governance The Group’s statement on Corporate Governance can be found in the Corporate Governance Report on pages 61 to 87. The Corporate Governance Report forms part of the Directors’ Report and is incorporated into it by cross-reference. Annual General Meeting The Board considers the Annual General Meeting an important opportunity to present to shareholders the Company’s performance and intends to hold its Annual General Meeting at 5.30 pm on 7 December 2023 to be held at the offices of Cavendish Financial, One Bartholomew Close, London EC1A 7BL. 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 Finance Director 27 October 2023 Directors’ Report continued Non-Discrimination The Group’s recruitment policy is committed to promote equality, judging neither by race, nationality, religion, age, gender, disability, sexual orientation, nor political opinion and to treat all stakeholders fairly. In the event of a team member becoming disabled, every effort is made to ensure their employment with the Group continues, reasonable adjustments are made, and that appropriate training is arranged. It is the policy of the Group that the training, career development and portion of disabled persons should, as far as possible, be identical to that of other team members. Human Rights Lok’nStore is a Company that respects human rights and aims to provide assurance to internal and external stakeholders that we are committed to human rights and the principles of the universal declaration of human rights. We are committed to creating and maintaining a positive and professional work environment that reflects and respects the basic rights of freedom to lead a dignified life, free from fear or want, and where stakeholders are free to express their independent beliefs. Our employment policies and practices reflect a culture where decisions are made solely on the basis of individual capability and potential in relation to the needs of the business. Modern Slavery The Group is committed to ensuring that there is no modern slavery or human trafficking in our supply chains or in any part of our business. Lok’nStore has not at this time reached the hurdle for the requirement to publish a Modern Slavery Compliance Statement but it recognises its responsibilities in this area. To that end, we propose to further develop our due diligence process for identifying modern slavery. If we become aware that any of our suppliers have modern slavery or human trafficking related issues, we will address those situations as appropriate. We will further review our business terms to ensure that they reflect our commitment to operating our business in a responsible and ethical way, including by developing a code of conduct that we will require our suppliers to adhere to. 76 Lok’nStore Group plc Annual Report and Accounts 2023Remuneration Report 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 team members and reflect their level of skill, experience and expertise, scope of responsibilities and performance in the context of the role and set by reference to the market but taking into account business performance, economic climate, market conditions and inflation. The base salary is normally set annually and effective from 1 August. Annual and Monthly Bonuses: Aligns reward to key Group strategic objectives and drives short-term performance against the Group’s business plan for each financial year. Revenue growth from the trading business and strategic growth through the growth in the number of stores/sites are the key drivers of the Annual Bonus. Long Term Incentive Plans: Following strict performance criteria aligns Executive Director interests with those of shareholders and rewards achievement of the long-term plan. The awards are granted subject to performance conditions to be met over a performance period of five years. (See below and note 24(b) and 24(c) of the financial statements for details of the Schemes). Certain senior managers who are in a position to significantly influence the performance of the Group also participate in the Schemes. All Employee Scheme: The Group operates an HMRC approved Share Incentive Plan (SIP). This encourages share ownership by all team members and allows them to share in the long-term success of the Group. R. Davies, N. Newman-Shepherd and T. Lampard, Executive Directors, also participate in this scheme. Pension Entitlements: The Group pays pension contributions into the Executive Directors’ personal pension plans calculated at 4% of base salary. The Group does not participate in any defined benefit 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 basic salary. The Group recently introduced a comprehensive non-contributory Employee Assistance Program for all employees which has a death in service life insurance at four times base salary for all colleagues, combined with an associated package of benefits, such as direct access to a GP and availability of confidential counselling services, as well as access to a range of online tools covering tax and legal advice, childcare, fitness and personal coaching advice. The Executive Directors participate in this scheme. Service Contracts: Executive Directors’ service contracts operate on a rolling basis without a specific end-date providing for up to one year’s notice on the part of the Company and six months’ notice on the part of the Director. Non-Executive Directors do not have service contracts with the Company but rather their appointments are governed by letters of appointment. 77 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsRemuneration Report continued Directors’ Remuneration Directors’ Remuneration 2023 Salary £ Bonuses £ Benefits £ Sub Total £ Pension £ Executive: A. Jacobs R. Davies 235,035 182,792 N. Newman-Shepherd 102,397 T. Lampard# 32,099 Non-Executive: J. Woyda S. Thomas R. Holmes C. Peal 31,345 25,075 25,075 25,075 32,250 20,627 70,715 20,417 – – – – 8,235 5,587 2,912 1,253 – 5,914 – – 275,520 209,006 176,024 53,769 31,345 30,989 25,075 25,075 – 7,312 4,096 1,284 – – – – Gains on Share Options £ – 326,687 30,222 – – – – – Total £ 275,520 543,005 210,342 55,053 31,345 30,989 25,075 25,075 658,893 144,009 23,901 826,803 12,692 356,909 1,196,404 Directors’ Remuneration 2022 Salary £ Bonuses £ Benefits £ Sub Total £ Pension £ Gains on Share Options £ Total £ Executive: A. Jacobs R. Davies 223,842 174,087 N. Newman-Shepherd 97,521 Non-Executive: J. Woyda S. Thomas R. Holmes C. Peal E. Luker 27,364 23,881 23,881 9,950 23,881 146,500 49,287 100,523 – – – – – 7,387 5,587 2,793 – 5,570 – – – 377,729 228,961 200,837 27,364 29,451 23,881 9,950 23,881 – 1,360,277 1,738,006 6,963 3,901 456,995 692,919 11,058 215,796 – – – – – – – – – – 27,364 29,451 23,881 9,950 23,881 604,407 296,310 21,337 922,054 10,864 1,828,330 2,761,248 # Tom Lampard, the Group’s Property Director, joined the Board of Directors of the Group with effect from 6 February 2023. The highest paid Director received contributions during the year of £7,312 (2022; £nil). 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 (2022: two). 78 Lok’nStore Group plc Annual Report and Accounts 2023The following table shows a summary of the options held by Directors under all schemes. Refer to notes 22 to 25 for details. 2023 Executive Directors A. Jacobs – Unapproved A. Jacobs – PPP (2018) A. Jacobs – PPP (2023) A. Jacobs – total R. Davies – Unapproved R. Davies – CSOP R. Davies – PPP (2018) R. Davies – PPP (2023) R. Davies total N. Newman – Unapproved N. Newman – CSOP N. Newman – PPP (2018) N. Newman – PPP (2023) N. Newman total T. Lampard – Unapproved T. Lampard – CSOP T. Lampard – PPP (2018) T. Lampard – PPP (2023) T. Lampard total All Directors total 2022 Executive Directors A. Jacobs – Unapproved A. Jacobs – PPP (2018) A. Jacobs – total R. Davies – Unapproved R. Davies – CSOP R. Davies – PPP (2018) R. Davies total N. Newman – Unapproved N. Newman – CSOP N. Newman – PPP (2018) N. Newman-Shepherd total Total at 31 July 2022 Options Granted Options Exercised Unapproved Scheme Approved CSOP Share Options Total at 31 July 2023 – 200,000 – 200,000 181,977 2,941 198,236 – 383,154 135,599 8,182 299,422 – 443,203 11,840 8,984 250,000 – 270,824 – – 40,000 40,000 – – 40,000 40,000 – – – 60,000 60,000 – – 60,000 60,000 – – – – (50,000) – – – (50,000) (2,420) (1,600) – 200,000 40,000 240,000 131,977 – – – – – – 2,941 198,236 40,000 370,213 133,179 – – 299,422 60,000 (4,020) 492,601 – – – – – 11,840 – 250,000 60,000 321,840 – – 2,941 – 6,582 – – 6,582 – 8,984 – – – 200,000 40,000 240,000 131,977 2,941 198,236 40,000 373,154 133,179 6,582 299,422 60,000 499,183 11,840 8,984 250,000 60,000 8,984 330,824 1,297,181 200,000 (54,020) 1,424,654 18,507 1,443,161 Total at 31 July 2021 Options Granted Options Exercised Unapproved Scheme Approved CSOP Share Options Total at 31 July 2022 206,087 160,000 366,087 246,977 7,742 160,000 414,719 135,599 8,618 240,000 384,217 – (206,087) 40,000 40,000 – (206,087) – 200,000 200,000 – (65,000) 181,977 2,941 38,236 41,177 – 964 59,422 60,386 (7,742) – (72,742) – (1,400) – (1,400) – 198,236 380,213 135,599 – 299,422 435,021 – – – – 2,941 – 2,941 – 8,182 – 8,182 – 200,000 200,000 181,977 2,941 198,236 383,154 135,599 8,182 299,422 443,203 All Directors total 1,165,023 141,563 (280,229) 1,015,234 11,123 1,026,357 79 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements Remuneration Report continued The grant of options to Executive Directors and senior management is recommended by the Remuneration Committee based on their contribution to the Group’s success. The options vest after two-and-a-half, three or five years, subject to the performance criteria attached to the options. Unapproved Share Options – 2018 Long- Term Partnership Performance Plan (PPP) On 2 July 2018, the Group adopted the Company Long-Term Partnership Performance Plan (PPP). The Plan is a discretionary benefit offered by the Company for the benefit of selected key team members including Executive Directors. Its main purpose is to increase the commitment and interest of colleagues in the Group’s long-term business goals and performance through share ownership. It contains specific performance criteria. Further details are set out in note 24(b) of the financial statements. Unapproved Share Options – 2023 Long- Term Partnership Performance Plan (PPP) In July 2023, the Group adopted a follow-on scheme from the 2018 scheme, the former having completed its five-year annual award allocation last July 2022. The new 2023 Company Long-Term Partnership Performance Plan (PPP) is also a discretionary benefit offered by the Company for the benefit of selected key team members including Executive Directors and is similarly constructed to its predecessor, albeit with new and challenging performance targets. Further details are set out in note 24(c) of the financial statements. Its purpose is to continue to reward the senior management for their effort in the achievement of the Group’s long-term business goals and performance through share ownership. On behalf of the Board and signed on its behalf by: Jeff Woyda Richard Holmes Chairman of the Remuneration Committee Member of the Remuneration Committee 80 Lok’nStore Group plc Annual Report and Accounts 2023 Statement of Directors’ Responsibilities The Directors are responsible for preparing the Strategic Report, the Directors’ Report, and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Company financial statements for each financial year. The Directors have elected under company law and are required by the AIM Rules of the London Stock Exchange to prepare the Group financial statements in accordance with UK-adopted International Accounting Standards and have elected under company law to prepare the company financial statements in accordance with UK-adopted International Accounting Standards and applicable law. The Group and Company financial statements are required by law and UK-adopted International Accounting Standards 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 each of the Group and Company financial statements, the Directors are required to: a) select suitable accounting policies and then apply them consistently; b) make judgements and accounting estimates that are reasonable and prudent; c) state whether they have been prepared in accordance with UK-adopted International Accounting Standards and; d) 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. 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 requirements of 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 included on the Lok’nStore Group plc website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 81 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements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 2023 which comprise of the consolidated statement of comprehensive income, the consolidated and company statements of changes in equity, the consolidated and company statements of financial position, the consolidated statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted International Accounting Standards 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 2023 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards; • • the parent company financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards 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 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 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. Summary of Our Audit Approach Key audit matters Group • Valuation of property, plant Parent Company • None Materiality and equipment – Freehold stores Group • Overall materiality: £755,000 (2022: £916,000) Parent Company • Overall materiality: £679,000 (2022: £554,000) • Performance materiality: £566,000 • Performance materiality: £509,000 (2022: £687,000) (2022: £415,000) Scope Our audit procedures covered 100% of revenue, 100% of total assets and 100% of profit before tax. 82 Lok’nStore Group plc Annual Report and Accounts 2023Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group and parent company 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 group and parent company financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of Property, Plant and Equipment – Freehold Stores Key audit matter description At 31 July 2023, the fair value of freehold stores was £255.6m (2022: £239.8m). Disclosures in respect of the property valuations are included in note 12a) of the financial statements. How the matter was addressed in the audit Property valuation is inherently subjective in nature and the Group employs external valuers to apply professional judgement concerning market conditions and factors impacting the valuation of individual freehold properties. Fair values are calculated using actual and forecast inputs such as store occupancy, maximum lettable area, net revenue by square foot, expenses, forecast expenditure and exit yields by property as at 31 July 2023. The valuation of freehold properties is deemed to be a Key Audit Matter due to the importance of these assets to the group’s financial statements, the degree of estimation uncertainty inherent in the valuation and the allocation of resource in the audit. Our approach to auditing the valuations included the following: • We evaluated the qualifications, objectivity and independence of those involved in preparing the external valuation report. • We tested the integrity of the initial information provided to the external valuer through agreeing inputs such as actual occupancy, capital expenditure and profitability to underlying documentation tested elsewhere in our audit work. • We discussed the valuations with the external valuation expert and challenged them on key inputs, including the assumed fill-up rate of the portfolio and the stabilised occupancy rates used. • We utilised an independent auditor’s expert in property valuation to assist the audit team in assessing the appropriateness of the methodology used by the external valuer – this included reviewing a specific sample of properties within the portfolio. • We challenged management on the valuation movement during the year focusing on occupancy rates and exit yields. • We audited the disclosures relating to the property valuation, including disclosure of the critical estimates and judgements by management. Key Observations Based on our audit work, we are satisfied that the judgements and assumptions used in arriving at the fair value of the freehold properties are appropriate and supported by evidence obtained during the course of the audit. 83 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsIndependent Auditor’s Report continued to the Members of Lok’nStore Group plc 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. When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. Based on our professional judgement, we determined materiality as follows: Overall materiality £755,000 (2022: £916,000) £679,000 (2022: £554,000) Group Parent company Basis for determining overall materiality Rationale for benchmark applied 5% of Adjusted EBITDA Benchmark is considered to represent the trading performance of the business and potential return to investors. 2% of gross assets – capped at 90% of group materiality (2022: 10% of profit before tax) Benchmark is considered to represent the value of the underlying business. Performance materiality £566,000 (2022: £687,000) £509,000 (2022: £415,000) Basis for determining performance materiality Reporting of misstatements to the Audit Committee 75% of overall materiality 75% of overall materiality Misstatements in excess of £38,000 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. Misstatements in excess of £34,000 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. An Overview of The Scope of Our Audit The group is deemed to consist of one component which provides self-storage solutions. All subsidiaries are based in the UK. Full scope audit procedures were completed on the consolidated and parent company financial statements. The scope of our audit covered 100% of revenue, 100% of total assets and 100% of profit before tax included in the consolidated financial statements and no component auditors were used. Conclusions Relating to Going Concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting included: • Reviewing management’s going concern assessment covering the 12 month period from the date of approval of the financial statements Subsidiaries that were subject to audit exemption were audited to group materiality as part of the audit of the consolidated financial statements. • Checking the mathematical accuracy of the underlying financial model • Assessing management’s sensitivity analysis, including considering the impact on bank loan covenants • Reviewing covenant compliance calculations, with specific consideration to the current increasing interest rate movements and market volatility. • Reviewing the appropriateness of going concern disclosures in the financial statements 84 Lok’nStore Group plc Annual Report and Accounts 2023Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s or the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Other Information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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. 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 their 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. 85 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsIndependent Auditor’s Report continued to the Members of Lok’nStore Group plc Responsibilities of Directors As explained more fully in the directors’ responsibilities statement set out on page 81, 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. The Extent to Which The Audit Was Considered Capable of Detecting Irregularities, Including Fraud Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufficient appropriate audit evidence regarding compliance with laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements, to perform audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the financial statements, and to respond appropriately to identified or suspected non-compliance with laws and regulations identified during the audit. In relation to fraud, the objectives of our audit are to identify and assess the risk of material misstatement of the financial statements due to fraud, to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud through designing and implementing appropriate responses and to respond appropriately to fraud or suspected fraud identified during the audit. However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure that the entity’s operations are conducted in accordance with the provisions of laws and regulations and for the prevention and detection of fraud. In identifying and assessing risks of material misstatement in respect of irregularities, including fraud, the group audit engagement team: • obtained an understanding of the nature of the industry and sector, including the legal and regulatory framework that the group and parent company operate in and how the group and parent company are complying with the legal and regulatory framework; • inquired of management, and those charged with governance, about their own identification and assessment of the risks of irregularities, including any known actual, suspected or alleged instances of fraud; • discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment of how and where the financial statements may be susceptible to fraud. 86 Lok’nStore Group plc Annual Report and Accounts 2023The most significant laws and regulations were determined as follows: Legislation/Regulation Additional audit procedures performed by the audit engagement team included: IFRS/UK-adopted IAS and Companies Act 2006 • Review of the financial statement disclosures and testing to supporting documentation; • Completion of disclosure checklists to identify areas of non-compliance. Tax compliance regulations • Inspection of any advice received from tax advisors • Consideration of whether any matters identified in the audit required reporting to an appropriate authority outside of the entity. The areas that we identified as being susceptible to material misstatement due to fraud were: Risk Audit procedures performed by the audit engagement team: Revenue recognition – Cut off and existence • Checking the timing of revenue recognised around the year end on a sample basis by checking contract start dates to occupancy reports. Management override of controls • Reconciling revenue recorded in the financial statements to the group’s occupancy management system and cash received. We checked a sample of customers from the occupancy management system to signed contracts and evidence of customer identification checks. • Testing a sample of one-off management fees to check that the period in which they were recognised aligned with the conditions in the underlying agreement. This sample was agreed back to bank statement receipt. • Testing the appropriateness of journal entries and other adjustments; • Assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and • Evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. 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. David Hough (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants 25 Farringdon Street London EC4A 4AB 27 October 2023 87 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements88 Lok’nStore Group plc Annual Report and Accounts 2023Financial Statements 90 Consolidated Statement of Comprehensive Income 91 Consolidated Statement of Changes in Equity 92 Company Statement of Changes in Equity 93 Consolidated and Company Statements of Financial Position 94 Consolidated Statement of Cash Flows 95 Accounting Policies 106 Notes to the Financial Statements 142 Glossary 144 Our Stores CASE STUDY: PROUD PARTNERS OF SCHOOLS AND LOCAL COMMUNITIES 38% OF STORES HAVE A SCHOOL STORING Lok’nStore is proud to be the local storage company of choice for schools and communities across the UK. We understand that space within schools is always at a premium, so we offer a range of storage solutions to help schools rationalise their space and focus on education. As a Group, Lok’nStore is pleased to be the storage partner for 26 schools within those communities, for which we store all manner of equipment, furniture and archive paperwork for schools, freeing up valuable space that can be used for teaching and learning. In addition to schools, Lok’nStore stores for hundreds of clubs, societies, institutions, not-for-profit organisations, local councils and government agencies. We know that customers choose Lok’nStore because of our scale as a national service provider, but we also take great care to be a friendly face and a reliable partner in the communities in which we operate. We are committed to supporting the local communities we serve. 89 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements Consolidated Statement of Comprehensive Income For the year ended 31 July 2023 Revenue Total property, staff, distribution, and general costs Adjusted EBITDA1 Depreciation Equity-settled share-based payments Non-underlying items Operating profit Finance income Finance cost Profit before taxation Income tax expense Group Year ended 31 July 2023 £’000 27,147 (12,091) 15,056 (5,690) (450) (318) (6,458) 8,598 665 (2,562) 6,701 (2,009) Group Year ended 31 July 2022 £’000 26,902 (10,553) 16,349 (4,727) (201) 5,739 811 17,160 42 (1,328) 15,874 (3,796) Notes 1 2 7 26a 4 5 6 9 Profit for the year attributable to Owners of the Parent 27a 4,692 12,078 Other comprehensive income Items that will not be reclassified to profit and loss Fair value movement in property valuation Deferred tax relating to change in property valuation Other comprehensive income Total comprehensive income for the year attributable to Owners of the Parent Earnings per share attributable to owners of the Parent Basic Total basic earnings per share Diluted Total diluted earnings per share 12 20 11 11 7,819 (1,954) 5,865 60,171 (14,284) 45,887 10,557 57,965 15.90p 41.24p 15.65p 40.48p 1 Adjusted EBITDA is defined in the accounting policies section of the notes to this Report. 90 Lok’nStore Group plc Annual Report and Accounts 2023 Consolidated Statement of Changes in Equity For the year ended 31 July 2023 Attributable to owners of the Parent Share Capital £’000 Share Premium £’000 Other Reserves £’000 Revaluation Reserve £’000 Retained Earnings £’000 Total Equity £’000 31 July 2021 298 10,815 9,138 104,736 26,272 151,259 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 Reserve transfer on disposal of assets Transfer additional depreciation on revaluation net of deferred tax Total transactions with owners – – – – – – – 3 – – 3 – – – – – – – 576 – – – – – – 201 (180) (57) – – – – 12,078 12,078 45,887 45,887 – 12,078 45,887 57,965 (4,601) (4,601) – – – – – – 180 – – (20,258) 20,258 (821) 821 201 – (57) 579 – – 576 (36) (21,079) 16,658 (3,878) 31 July 2022 301 11,391 9,102 129,544 55,008 205,346 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 Primary equity placing (gross) Transaction costs of primary placing Exercise of share options Transfer additional depreciation on revaluation net of deferred tax – – – – – – – 27 – 1 – – – – – – – – 20,473 (889) 160 – – – – – 450 (47) (358) – – – – Total transactions with owners 28 19,744 45 – 4,692 4,692 5,865 5,865 – 5,865 4,692 10,557 – – – – – – – (5,295) (5,295) – 47 – – – – 450 – (358) 20,500 (889) 161 (1,095) (1,095) 1,095 – (4,153) 14,569 31 July 2023 329 31,135 9,147 134,314 55,547 230,472 91 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsCompany Statement of Changes in Equity For the year ended 31 July 2023 31 July 2021 298 10,815 16,604 2,004 29,721 Share Capital £’000 Share Premium £’000 Retained Earnings £’000 Other Reserves £’000 Total Equity £’000 Profit and total comprehensive income for the year Transactions with owners: Equity settled share-based payments Transfer in relation to share-based payments Exercise of share options Dividends paid Total transactions with owners – – – 3 – 3 – – – 576 – 576 5,756 – 5,756 – 180 – (4,601) 1,335 201 (180) – – 21 201 – 579 (4,601) (1,935) 31 July 2022 301 11,391 17,939 2,025 31,656 Profit and total comprehensive income for the year Transactions with owners: Equity settled share-based payments Transfer in relation to share-based payments Primary equity placing Transaction costs of primary placing Exercise of share options Dividends paid Total transactions with owners – – – 27 – 1 – 28 – – – 20,473 (889) 160 – 19,744 6,701 – 6,701 – 47 – – – (5,295) 1,453 450 (47) – – – – 403 450 – 20,500 (889) 161 (5,295) 21,628 31 July 2023 329 31,135 19,392 2,428 53,284 92 Lok’nStore Group plc Annual Report and Accounts 2023Consolidated and Company Statements of Financial Position 31 July 2023 Company Registration No. 04007169 Assets Non-current assets Property, plant and equipment Investments Other receivables Right of use assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Obligations under lease liabilities Taxation Non-current liabilities Borrowings Obligations under lease liabilities 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 Group 31 July 2023 £’000 Group 31 July 2022 £’000 Company 31 July 2023 £’000 Notes Company 31 July 2022 Restated £’000 12a 13 15 12b 14 15 17c 16 19 18 19 20 21 26a 27 314,013 292,848 – – 13,769 327,782 145 2,585 42,132 44,862 – – 10,424 303,272 143 3,988 46,465 50,596 372,644 353,868 (7,180) (826) – (8,006) (54,046) (13,830) (66,290) (134,166) (142,172) 230,472 329 31,135 9,147 55,547 134,314 230,472 (7,229) (1,612) (989) (9,830) (66,196) (9,282) (63,214) (138,692) (148,522) 205,346 301 11,391 9,102 55,008 129,544 205,346 – 3,321 42,963 – 46,284 – 7,000 – 7,000 53,284 – – – – – – – – – – 2,871 22,785 – 25,656 – 6,000 – 6,000 31,656 – – – – – – – – – 53,284 31,656 329 31,135 2,428 19,392 – 53,284 301 11,391 2,025 17,939 – 31,656 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 2023 was £6.7 million (2022: £5.8 million). Approved by the Board of Directors and authorised for issue on 27 October 2023 and signed on its behalf by: Andrew Jacobs Chair Ray Davies Finance Director 93 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements Consolidated Statement of Cash Flows For the year ended 31 July 2023 Operating activities Cash generated from operations Income tax paid Net cash inflow from operating activities Investing activities Proceeds of sale & manage-back stores Purchase of property, plant and equipment Interest received Net cash generated by investing activities Financing activities Proceeds of bank borrowings utilised for store development and bank refinancing Repayment of bank borrowings Finance costs paid Lease liabilities paid Primary equity placing (net of placing costs) Equity dividends paid Proceeds from exercise of share options Net cash used in 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 Notes 29a 12a Group Year ended 31 July 2023 £’000 Group Year ended 31 July 2022 £’000 15,815 (1,960) 13,855 – (15,803) 665 15,138 – (12,386) (3,324) (1,817) 19,611 (5,295) 161 (3,050) (4,333) 46,465 42,132 18,569 (1,060) 17,509 37,922 (11,961) 13 25,974 1,386 – (1,741) (1,746) – (4,601) 579 (6,123) 37,360 9,105 46,465 No statement of cash flows is presented for the Company as it had no cash flows in either year. 94 Lok’nStore Group plc Annual Report and Accounts 2023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 and the nature of its operations are described in the Strategic Report. Basis of Accounting The financial statements for the year ended 31 July 2023 have been prepared in accordance with UK-adopted International Accounting Standards (IFRS) as adopted by the UK Endorsement Board and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretation Committee applicable to companies reporting under UK adopted IFRS relevant to its operations and effective for accounting periods beginning on or after 1 August 2022. There was no material impact on the adoption of these. The statutory accounts for the year ended 31 July 2023 will be delivered to the Registrar of Companies following the Company’s Annual General Meeting and will be available from the investor section of the Company’s website at http://www.loknstore.co.uk. The financial statements have been prepared on the historic cost basis except that certain trading properties and non-current financial assets are stated at fair value. Standards, Amendments, Improvements & Interpretations Applicable1 At the date of authorisation of these financial statements the following standards, which have not been applied in these financial statements, were in issue but not yet effective. New pronouncement IFRS 17 Insurance Contracts Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2 Definition of Accounting Estimates – Amendments to IAS 8 Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12 International Tax Reform – Pillar Two Model Rules – Amendments to IAS 12 Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants – Amendments to IAS 1 Lease Liability in a Sale and Leaseback – Amendments to IFRS 16 Disclosures: Supplier Finance Arrangements – Amendments to IAS 7 and IFRS 7 Effective date* 1 Jan 2023 1 Jan 2023 1 Jan 2023 1 Jan 2023 Note 1 1 Jan 2024 1 Jan 2024 1 Jan 2024 * Effective for annual periods beginning on or after this date. 1 The amendments are effective immediately upon issuance. The disclosure of the current tax expense related to Pillar Two income taxes and the disclosures in relation to periods before the legislation is effective are required for annual reporting periods beginning on or after 1 January 2023, but are not required for any interim period ending on or before 31 December 2023. The Directors do not anticipate that the adoption of these revised standards, amendments and interpretations will have a significant impact on the figures included in the financial statements in the period of initial application. 95 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsAccounting Policies continued 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. Going Concern The Directors can report that, based on the Group’s budgets and financial projections, which include a recognition of the inflationary effect on rising costs, on the Group they have satisfied themselves that the business is a going concern. The impact of rising costs and increasing bank interest rates and the measures the Directors have taken to mitigate its effects are set out in the Managing Director’s Review on page 21. 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 £42.1 million (2022: £46.5 million), undrawn committed bank facilities at 31 July 2023, based on the Group’s facility of £100 million, of £45.6 million (2022: £33.2 million – based on £100 million facility), and cash generated from operations in the year ended 31 July 2023 of £15.8 million (2022: £18.6 million). With interest rates rising, interest risk per se is increasing, however the Executive and the Board monitor this position carefully through the Group’s detailed operating reports produced on a weekly basis and detailed financial and accounting reports produced on a monthly basis. The Directors continually review and update the Group’s ‘Rolling Forecast Model’ which projects forward for a minimum of three years. After taking into account the Group’s operating plan and budget for the year ending 31 July 2024 and beyond, and reviewing these projected cash flows, applying reasonable sensitivity analysis, together with the Group’s available cash balances, borrowing facilities, and potential property valuation movements over that period, the Directors consider that the Group has sufficient funds to meet its liabilities and commitments as they fall due and for a period of at least twelve months from the date of approval of these financial statements. 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 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. The opening offer discount of 50% (eight weeks for the price of four) is spread evenly over the term of the discount period. a) Self-storage revenue Self-storage revenue is recognised over the period for which the space is occupied by the customer on a time apportionment 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). Revenue is recognised evenly over the period of self-storage. b) Retail sales The Group operates a packaging shop within each of its stores 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. 96 Lok’nStore Group plc Annual Report and Accounts 2023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 and therefore insurance risk. 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. Fees are invoiced monthly based on revenue performance. Additional performance fees may be earned if an individual Managed Store’s EBITDA performance exceeds agreed thresholds. Periodic fees may also be earned for additional specific services provided and are invoiced when that service has been completed. Revenue is recognised for each performance condition once the condition has been met. Segmental Information In accordance with the requirements of IFRS 8 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 and the Group has determined that there is one operating segment. Alternative Performance Measures (APMs) In addition to International Financial Reporting Standards, (IFRS) accounting performance measures, we use some Alternative Performance Measures (APMs) to help us explain to the users of these Financial Statements how the underlying business is performing. Such APMs are Key Performance Indicators for our business and include, for example, Adjusted Store EBITDA, Cash Available for Distribution (CAD), Loan to Value (LTV), Adjusted Net Asset Value (NAV) and others. We identify these measures on page 10 and explain what we mean when we use them and, importantly, why we use them. They are intended to supplement and not substitute those financial measures prepared in accordance with IFRS. Operating Profit Operating profit is defined as profit after all costs except finance income, finance costs and taxation. Non-underlying Items Refers to one-off items of a non-operational nature which arose during the year, and which may relate to asset disposals, abortive site acquisition costs, or other costs and which are likely to be material and infrequent events. (Refer to note 4 of the Financial Statements). 97 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsAccounting Policies continued Cashflow The parent entity does not hold a bank account and payments made on behalf of the parent entity are made by the subsidiary undertaking on direction by the parent. The parent company accounts for this as a non-cash transaction, as there is no direct exchange of cash to or from the company and accordingly no parent company cashflow statement is presented. 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 except for when the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amounts of deferred tax assets are 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. Deferred tax is recognised directly in equity in relation to depreciation transfers on revalued assets. 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 Settled Share-Based Payments The Group issues equity-settled share-based payments to certain colleagues. These are measured at fair value at the date of grant. The fair value determined at the grant date and therefore the cost of the share-based payment to employees is expensed to profit or loss on a straight-line basis 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 charge is adjusted to reflect expected and actual levels of vesting. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recovered in the statement of comprehensive income such that the cumulative expense reflects the revised estimate with a corresponding adjustment to equity reserves. 98 Lok’nStore Group plc Annual Report and Accounts 2023For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is re-measured, with any changes in fair value recognised in the statement of comprehensive income for the year. Property, Plant and Equipment Freehold properties 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 Other Comprehensive Income for the period in which they arise unless a decrease in fair value exceeds the cumulative valuation surplus for a particular asset, in which case the excess is recognised in profit or loss. A comprehensive external valuation is performed annually at each reporting date. 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 (excluding land) commences when the assets are ready for their intended use. 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 over 50 years straight line Long leasehold property over unexpired lease period or renewal term Short leasehold improvements over unexpired lease period or renewal term Fixtures, fittings, and equipment 5% to 15% reducing balance Computer equipment Motor vehicles over 2 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 £1,459,366 (2022: £1,094,722) 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. Impairment of Property, Plant and Equipment At each reporting date the Group reviews the carrying amounts of its property, and plant and equipment assets which have not been revalued 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. 99 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsAccounting Policies continued Leases – the Group as Lessee Initial and subsequent measurement of the right of use asset A right of use asset is recognised at commencement of the lease and initially measured at the amount of the lease liability, plus any incremental costs of obtaining the lease and any lease payments made at or before the leased asset is available for use by the Group. The right of use asset is subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. The depreciation methods applied are as follows: • Leased property – on a straight-line basis over the shorter of the lease term or useful life. The right of use asset is adjusted for any re-measurement of the lease liability and lease modifications, as set out below. Initial recognition of the lease liability On commencement of a contract (or part of a contract) which gives the Group the right to use an asset for a period of time in exchange for consideration, the Group recognises a right of use asset and a lease liability unless the lease qualifies as a ‘short-term’ lease or a ‘low-value’ lease. Where the lease term is 12 months or less and the lease does not contain an option to purchase the leased asset, lease payments are recognised as an expense on a straight-line basis over the lease term. For leases where the underlying asset is ‘low-value’, lease payments are recognised as an expense on a straight-line basis over the lease term. Initial measurement of the lease liability The lease liability is initially measured at the present value of the lease payments during the lease term discounted using the interest rate implicit in the lease, or the incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined. The lease term is the non-cancellable period of the lease plus extension periods that the Group is reasonably certain to exercise and termination periods that the Group is reasonably certain not to exercise. Lease payments include fixed payments, less any lease incentives receivable, variable lease payments dependant on an index or a rate (such as those linked to SONIA) and any residual value guarantees. Variable lease payments are initially measured using the index or rate when the leased asset is available for use. Subsequent measurement of the lease liability The lease liability is subsequently increased for a constant periodic rate of interest on the remaining balance of the lease liability and reduced for lease payments. Interest on the lease liability is recognised in profit or loss, unless interest is directly attributable to qualifying assets, in which case it is capitalised in accordance with the Group’s policy on borrowing costs. Re-measurement of the lease liability The lease liability is adjusted for changes arising from the original terms and conditions of the lease that change the lease term, the Group’s assessment of its option to purchase the leased asset, the amount expected to be payable under a residual value guarantee and/or changes in lease payments due to a change in an index or rate. The adjustment to the lease liability is recognised when the change takes effect and is adjusted against the right of use asset, unless the carrying amount of the right of use asset is reduced to zero, when any further adjustment is recognised in profit or loss. Adjustments to the lease payments arising from a change in the lease term or the lessee’s assessment of its option to purchase the leased asset are discounted using a revised Discount Rate. The revised Discount Rate is calculated as the interest rate implicit in the lease for the remainder of the lease term, or if that rate cannot be readily determined, the Group’s incremental borrowing rate at the date of reassessment. 100 Lok’nStore Group plc Annual Report and Accounts 2023Lease modifications A lease modification is a change that was not part of the original terms and conditions of the lease and is accounted for as a separate lease if it increases the scope of the lease by adding the right to use one or more additional assets with a commensurate adjustment to the payments under the lease. For a lease modification not accounted for as a separate lease, the lease liability is adjusted for the revised lease payments, discounted using a revised Discount Rate. The revised Discount Rate used is the interest rate implicit in the lease for the remainder of the lease term, or if that rate cannot be readily determined, the lessee company’s incremental borrowing rate at the date of the modification. Where the lease modification decreases the scope of the lease, the carrying amount of the right of use asset is reduced to reflect the partial or full termination of the lease. Any difference between the adjustment to the lease liability and the adjustment to the right of use asset is recognised in profit or loss. For all other lease modifications, the adjustment to the lease liability is recognised as an adjustment to the right of use asset. 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. Financial Instruments Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument. IFRS 9 covers the classification, measurement and derecognition of financial assets and liabilities. The impairment model under IFRS 9 requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses. The significant financial assets held by the Group that are affected by the impairment losses recognised under IFRS 9 are trade and other receivables. The Company holds intercompany loan and receivables balances with the subsidiaries of the Group as disclosed in note 15. The Directors do not estimate there to be a material impact on the Company only Financial Statements from the recognition of impairment provisions for the loans and receivables. 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, typically when the store opens for trade. 101 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsAccounting Policies continued Leases – the Group as lessee continued The Group has an active store development programme and in accordance with IAS 23 (borrowing costs) 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 for the year 2023: 4.77% (2022: 1.71%). When an individual store development is complete, and the store has opened, capitalisation of attributable borrowing costs ceases. In the current year £1.54 million (2022: £0.59 million) interest was capitalised in respect of ten qualifying development assets. Derivative Financial Instruments and Hedge Accounting The Group’s activities expose it to interest rate risk. The Group has historically used interest rate swap contracts to hedge these exposures. There were no financial derivatives held by the Group at 31 July 2023 or at 31 July 2022. 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. Trade Receivables For trade receivables, expected credit losses are measured by applying an expected loss rate to the gross carrying amount. The expected loss rate comprises the risk of a default occurring and the expected cash flows on default based on the ageing of the receivable. The risk of a default occurring always takes into consideration all possible default events over the expected life of those receivables (the lifetime expected credit losses). Trade receivables as indicated in note 15 are £1.3 million (2022: £1.20 million). As described in note 15 the Group’s exposure to credit risk is low and the Group’s credit model is solid. The Directors have assessed the impact of future impairment losses recognised for trade receivables under IFRS 9 at 31 July 2023 based on actual losses experienced over the past five years and concluded that the impact on impairment losses recognised under IFRS 9 is immaterial. 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 as 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 comprise 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 and other debtors and amounts due from Group undertakings 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. 102 Lok’nStore Group plc Annual Report and Accounts 2023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, the financial asset is presented as a non-current asset. Where the amounts are now due and payable and have been invoiced accordingly, the amount is treated as a debtor. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is written off. Impairment of Financial Assets A financial asset is credit-impaired when events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. The expected credit loss recognised in profit or loss for a credit impaired financial asset is the difference between the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. 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. Dividends Dividends are recognised when declared during the financial year. Critical Accounting Estimates a) and Judgements b) c) and d) The preparation of financial statements under 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. The Group employs expert external valuers, JLL, who report on the value of the Group’s stores on an annual basis. The principal assumptions underlying management’s estimation of the fair value are those relating to stabilised occupancy levels, expected future growth in storage fees 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 12(a) together with estimation sensitivities undertaken. The carrying value of land and buildings held at valuation at the reporting date was £255.6 million (2022: £239.8 million) as shown in the table in note 12(a). 103 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsAccounting Policies continued Critical Accounting Estimates a) and Judgements b) c) and d) continued 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 lettable storage space that it can achieve in its planning negotiations, together with the time it will take to achieve maturity. In addition, assumptions are made on the storage fees 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 therefore justify the proposed 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 £30.6 million (2022: £29.2 million). Please see note 12(a) for more details. c) 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 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 Group continues to develop its managed stores’ business where it uses its operational and logistic expertise to provide a full range of services to customers in stores we manage for third-party owners. In recent years the Group has developed many new managed stores all of which are owned by third-party investors and managed by Lok’nStore. Previously owned sites at Woking, Ashford, Swindon and Crayford, have historically 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. In FY2022, another four trading stores were the subject of sale and manage-back transactions by which Lok’nStore has retained the management of the business. All of this trading activity, including active management and marketing 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 28 for the changing ownership structure of the stores. The Group has always and continues to comply with all of the usual accounting and tax protocols consistent with a trading business. As at the year-end, Lok’nStore operates 42 stores mainly in southern England, although in recent years we have expanded our historically southern England focused geographic footprint into the Southwest (Exeter), Wales (Cardiff) and the Northwest (Salford, Warrington, and Altrincham). Of the 42 stores, Lok’nStore owns the freehold interest in 17 stores, nine of the stores are held under commercial leases. There are a further 16 managed stores operating under management contracts for third-party owners making a total of 42 stores trading under the Lok’nStore brand. In addition, there is a secured pipeline of a further 11 stores (nine owned and two managed). When fully developed the Group will operate 53 trading stores. 104 Lok’nStore Group plc Annual Report and Accounts 2023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 2023 (net deferred of tax) of £5.9 million (2022: £45.9 million) in Other Comprehensive Income rather than the Income Statement. d) Application of IFRS 16 The Group uses judgement to assess whether the interest rate implicit in the lease is readily determinable. When the interest rate implicit in the lease is not readily determinable, the Group estimates the incremental borrowing rate based on its external borrowings secured against a similar asset, adjusted for the term of the lease. 105 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsNotes to the Financial Statements For the year ended 31 July 2023 1 Revenue Analysis of the Group’s revenue is shown below: Stores trading Self-storage revenue Insurance revenue Retail sales (packing materials etc.) Subtotal self-storage revenue – owned stores Management fees – managed stores Subtotal Non-storage income Total revenue per statement of comprehensive income Segmental information Group 2023 £’000 22,873 2,251 240 25,364 1,659 27,023 124 27,147 Group 2022 £’000 21,585 2,239 252 24,076 2,785 26,861 41 26,902 IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. Given the nature of the Group’s business, there is one segment, which is the provision of self-storage and related services which all arise in the UK. 2 Property, Staff, Distribution and General Costs Property and premises costs Property rentals* Net property and premises costs Staff costs General overheads Subtotal operating costs Retail products cost of sales (see note 3) Total Group 2023 £’000 6,821 (1,817) 5,004 5,267 1,567 11,838 253 12,091 Group 2022 £’000 5,304 (1,746) 3,558 5,369 1,438 10,365 188 10,553 * This adjustment relates to lease payments in the period which are treated as a reduction in lease liabilities. The property and premises costs are presented with this figure included to present the underlying costs associated with lease rentals. 3 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 Total cost of sales of retail products 106 Group 2023 £’000 110 97 46 253 Group 2022 £’000 113 23 52 188 Lok’nStore Group plc Annual Report and Accounts 20234 Non-underlying items Profit on sale of trading stores1 Liquidated damages received on development2 Abortive site costs3 Recognition of additional Share Incentive Plan (SIP) liability Additional follow-on costs relating to the sale and manage-back of four trading stores located at Basingstoke, Cardiff, Horsham, and Portsmouth Total non-underlying items Group 2023 £’000 – 195 (63) (369) (81) (318) Group 2022 £’000 5,936 175 (372) – – 5,739 1 Profit arising on the sale and manage-back of four trading stores located at Basingstoke, Cardiff, Horsham and Portsmouth. 2 3 Liquidated damages received on the late delivery of a new store development which has subsequently opened. The Group’s active search for suitable development sites for new Landmark stores has resulted in some abortive costs - mainly around planning and associated professional costs. 5 Finance Income Bank interest Other interest Total finance income Interest receivable arises on cash and cash equivalents (see note 17). 6 Finance Costs Interest on bank borrowings Capitalised interest Net bank interest Non-utilisation fees Amortisation of bank loan arrangement fees Interest on obligations under lease liabilities Total finance costs Group 2023 £’000 660 5 665 Group 2023 £’000 3,112 (1,544) 1,568 212 235 547 2,562 Group 2022 £’000 42 – 42 Group 2022 £’000 1,296 (589) 707 166 216 239 1,328 107 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements7 Profit before Taxation Profit before taxation is stated after charging: Depreciation and amounts written off property, plant and equipment: Depreciation based on cost Depreciation based on revalued assets Depreciation of property, plant and equipment (note 12a) Depreciation of right of use assets Loss on disposal of fixed assets Total Audit services – UK statutory audit of the Company and consolidated accounts Other services – Interim Review – agreed upon procedures Comprising: Audit services Non-audit services Amounts payable to RSM UK Audit LLP 8 Employees Group 2023 £’000 2,550 1,452 4,002 1,688 – 5,690 Group 2023 £’000 144 12 156 144 12 156 Group 2022 £’000 2,316 1,094 3,410 1,314 3 4,727 Group 2022 £’000 125 9 134 125 9 134 Group 2023 No. Group 2022 No. The average monthly number of persons (including Directors) employed by the Group during the year was: Store management* Administration 163 30 193 * Of the 163 store employees, 64 (2022:54) are directly deployed in Managed Stores and the corresponding employee costs are recharged to the third party owners. Costs for the above persons: Wages and salaries Social security costs Pension costs Share-based remuneration (options) 108 Group 2023 £’000 4,060 530 109 4,699 450 5,149 151 27 178 Group 2022 £’000 4,174 702 98 4,974 201 5,175 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023Share-based remuneration is separately disclosed in the statement of comprehensive income. Wages and salaries of £92,572 (2022: £154,920) 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 £19,938 (2022: £32,807) outstanding at the year-end. There were no employees employed by Lok’nStore Group plc in the year other than the Directors (2022: nil). Directors’ Remuneration 2023 Executive: A. Jacobs R. Davies N. Newman-Shepherd T. Lampard Non-Executive: J. Woyda S. Thomas R. Holmes C. Peal Directors’ Remuneration 2022 Executive: A. Jacobs R. Davies N. Newman-Shepherd Non-Executive: J. Woyda S. Thomas R. Holmes E. Luker C. Peal Salary £ Bonuses £ Benefits £ Sub Total £ Pension £ 235,035 182,792 102,397 32,099 31,345 25,075 25,075 25,075 32,250 20,627 70,715 20,417 – – – – 8,235 5,587 2,912 1,253 – 5,914 – – 275,520 209,006 176,024 53,769 31,345 30,989 25,075 25,075 – 7,312 4,096 1,284 – – – – Gains on Share Options £ – 326,687 30,222 – – – – – Total £ 275,520 543,005 210,342 55,053 31,345 30,989 25,075 25,075 658,893 144,009 23,901 826,803 12,692 356,909 1,196,404 Salary £ Bonuses Benefits Sub Total £ £ £ Pension £ Gains on Share Options £ Total £ 223,842 174,087 97,521 27,364 23,881 23,881 9,950 23,881 146,500 49,287 100,523 – – – – – 7,387 5,587 2,793 – 5,570 – – – 377,729 228,961 200,837 27,364 29,451 23,881 9,950 23,881 – 1,360,277 1,738,006 6,963 3,901 456,995 11,058 692,919 215,796 – – – – – – – – – – 27,364 29,451 23,881 9,950 23,881 604,407 296,310 21,337 922,054 10,864 1,828,330 2,761,248 Details of the Directors’ remuneration are shown above. The highest paid Director received contributions during the year of £7,312 (2022; £nil). 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 (2022: two). 109 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements9 Taxation Current tax: UK corporation tax – current year UK corporation tax – adjustment in respect of prior period Total UK corporation tax Deferred tax: Origination and reversal of temporary differences Total deferred tax Total 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 21% (2022: 19%) Depreciation of non-qualifying assets Share-based payment charges in excess of corresponding tax deduction Adjustments in respect of prior periods – corporation tax Tax effect of rolled over gains on sale of property Other Income tax expense for the year Effective tax rate Group 2023 £’000 1,283 (38) 1,245 764 764 2,009 2023 £’000 6,701 1,423 482 94 (38) – 48 2,009 30% Group 2022 £’000 1,572 111 1,683 2,113 2,113 3,796 2022 £’000 15,874 3,016 377 (337) 111 432 197 3,796 24% 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 £1.95 million (2022: £14.3 million) has been recognised directly in other comprehensive income (see note 20 on deferred tax). The current year tax charge is a blended rate of 21% based on a pro-rata calculation of eight months at 19% and four months at 25%. The deferred tax balances are measured at the substantively enacted rates of corporation tax being 19% until 31 March 2023 and a rate of 25% thereafter. 110 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 202310 Dividends Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 July 2021 (10.67 pence per share) Interim dividend for the year to 31 July 2022 (5.00 pence per share) Final dividend for the year ended 31 July 2022 (12.25 pence per share) Interim dividend for the year to 31 July 2023 (5.75 pence per share) 2023 £’000 – – 3,602 1,693 5,295 2022 £’000 3,132 1,469 – – 4,601 In respect of the current year the Directors paid an interim dividend of 5.75 pence per share to shareholders on 10 June 2023. The Directors propose that a final dividend of 13.25 pence per share will be paid to the shareholders. The total estimated final dividend to be paid is approximately £4.34 million based on the number of shares in issue at 13 October 2023 as adjusted for shares held in the Employee Benefits Trust. This is subject to approval by shareholders at the Annual General Meeting on 7 December 2023 and has not been included as a liability in these financial statements. The ex-dividend date will be 23 November 2023; the record date 24 November 2023; with an intended payment date of 5 January 2023. The final deadline for Dividend Reinvestment Election (DRIP) is 8 December 2023. 11 Earnings per Share The calculations of earnings per share are based on the following profits and numbers of shares. Total 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 2023 £’000 4,692 Group 2022 £’000 12,078 2023 2022 No. of Shares No. of Shares 29,518,911 29,287,451 467,137 549,321 29,986,048 29,836,772 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 22 to 25. Earnings per share Basic Total basic earnings per share Diluted Total diluted earnings per share Group 2023 Pence 15.90p Group 2022 Pence 41.24p 15.65p 40.48p 111 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements12a) Property, Plant and Equipment Group Cost or valuation 1 August 2021 Additions Transfers Disposals Revaluations 31 July 2022 Depreciation 1 August 2021 Depreciation Disposals Revaluations 31 July 2022 Cost or valuation 1 August 2022 Additions Transfers Disposals Revaluations 31 July 2023 Depreciation 1 August 2022 Depreciation Disposals Revaluations 31 July 2023 Development Property Assets at Cost £’000 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 33,676 10,611 (15,072) – – 199,617 756 11,234 (30,101) 58,299 7,557 158 – – – 30,420 10 271,280 663 3,838 (3,615) – – – – – 12,188* – (33,716) 58,299 29,215 239,805 7,715 31,306 10 308,051 – – – – – – 1,872 – (1,872) – 29,215 13,260 (11,870) – – 239,805 38 10,186 – 5,570 – – – – – – 2,249 – (2,249) – 2,509 296 – – 2,805 4,910 7,715 173 – – – 13,109 1,242 (1,963) – 12,388 18,918 31,306 3,877 1,684 – – 2,805 301 – – 3,106 4,782 12,388 1,452 – – 13,840 23,027 10 – – – 10 – 10 – – – – 10 10 – – – 10 – 15,628 3,410 (1,963) (1,872) 15,203 292,848 308,051 17,348* – – 5,570 330,970 15,203 4,002 – (2,249) 16,956 314,013 30,605 255,599 7,888 36,867 Net book value at 31 July 2022 29,215 239,805 Net book value at 31 July 2023 30,605 255,599 * Including talised interest costs of £1,544,229 (2022: £589,843). The Group has an active store development programme and in accordance with IAS 23 (borrowing costs) has material assets that take a substantial period of time to develop from acquisition to ultimate store opening. Accordingly borrowing costs of £1,54 million (2022: £0.59 million) have been capitalised that are directly attributable to the acquisition, construction and fit-out of these qualifying store assets. £332,529 of this amount relates to development stores which opened during the year leaving a balance of £1,211,700 carried in development property assets. If all property, plant and equipment were stated at historic cost the carrying value would be £124.9 million (2022: £111.4 million). 112 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023Capital expenditure during the period totalled £17.3 million. (2022: £12.2 million). This was primarily the contract exchange of the Milton Keynes site, the purchase of the Bolton site and the exchange of contracts on the Eastbourne site. There are ongoing construction and fit out works at our sites in Staines and Basildon, final costs on Bedford and Peterborough prior to opening, as well as and the completion of construction works at our Stevenage and Warrington stores. Also, planning and pre-development works at our Bournemouth, Altrincham, Barking and Cheshunt sites featured. Property, plant and equipment (non-current assets) with a carrying value of £314.0 million (2022: £292.8 million) are pledged as security for bank loans. Independent External Market Valuation of Freehold and Leasehold Land and Buildings Fair Value Measurement The fair value hierarchy within which the fair value measurements are categorised is level 3, in accordance with IFRS 13 (fair value measurement). On 31 July 2023, an independent professional valuation was prepared by JLL in respect of 15 freehold, and nine leasehold stores operated by Lok’nStore. The valuation was prepared in accordance with the RICS Valuation – Global Standards 2022 – UK national supplement, 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 has confirmed that: • This is the eighth 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 £301.9 million (2022: £279 million) of which £274.7 million (2022: £254.8 million) relates to freehold properties, and £27.2 million (2022: £24.2 million) relates to properties held under leases. Full details are set out in the property review in the table of property values on page 32. Freehold land and buildings are carried at valuation in the Statement of Financial Position. Short leasehold improvements at properties held under 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 £274.7 million (2022: £254.8 million) valuation of the freehold properties £20.9 million (2022: £16.6 million) relates to the net book value of fixtures, fittings and equipment, and the remaining £253.8 million (2022: £238.2 million) relates to freehold properties. The 2023 valuation includes and reflects movements in value which have resulted from the operational performance of the stores and market movements in the investment environment. 113 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements12a) Property, Plant and Equipment continued Valuation Methodology JLL has 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. The carrying value of freehold land and buildings of £255.3 million also includes £1.5 million of assets held at Directors’ valuation (see below). 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 contract units to new customers. In the valuation the assumed stabilised occupancy level for the 26 trading stores (both freeholds and leaseholds) averages 87.79% (2022: 88.23%). 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. The assumptions used by JLL include: • The cash flow for freeholds runs for an explicit period of ten 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 7.62% (2022: 7.21%). • The Discount Rates used in the freehold valuation ranges from 6.75% to 9.00% (2022: 6.50% to 8.75%). • The yield arising from the first year of the projected cash flow is 4.90% (2022: 5.30%), rising to 7.13% (2022: 6.79%) in year five. • JLL has assumed purchasers’ costs of 6.80% (2022: 6.80%). • The average assumed stabilised occupancy is 87.79% (2022: 88.23%). • The average Exit Yield assumed is 6.51% (2022: 6.16%). 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. The Group has reported that the Lok’nStore trading stores have performed very well in terms of increasing pricing while maintaining occupancy over the course of the year. 114 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023For leaseholds, the same methodology has been used as for freehold property, except that no sale of the assets in the tenth year is assumed, but the discounted cash flow is extended to the expiry of the lease. The average unexpired term of the Group’s operating leaseholds valued by JLL is approximately twelve years and ten months as at 31 July 2023 (ten years and one month: 31 July 2022). Valuations for stores held under 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 ten years is exercised. This is consistent with the approach taken in previous years. Self-storage valuations are complex and involve a degree of judgement. As a guide and assuming all other factors are constant, improvements in a store’s EBITDA would lead to an increase in that store’s valuation. Conversely, an increase in Exit Yield and Discount Rate would result in a lower valuation and vice-versa. The effect of a change in more than one input would magnify the impact on the valuation. Inputs moving in opposite directions, such as price and occupancy improving but capitalisation rates increasing could result in no net impact on valuations. Further changes in interest rates, risk free rates or changes in the macro-economic outlook may affect the capitalisation rates applied by External Valuers in future independent valuations. As an example of the sensitivity of capitalisation rates: • A 50bpts decrease in the Exit Yields and Discount Rate would result in a £28.3 million increase in this year’s valuation. • A 100bpts decrease in the Exit Yields and Discount Rate would result in a £62.8 million increase in this year’s valuation. • A 50bpts increase in the Exit Yield and Discount Rate would result in a £23.8 million decrease in this year’s valuation. • A 100bpts increase in the Exit Yield and Discount Rate would result in a £44.1 million decrease in this year’s valuation. It is the Company’s policy to conduct independent valuations of all trading assets at the end of each financial year. At the interim half year stage, the Directors will consult with JLL to consider whether there has been any material change in market conditions. If there has been then the Directors will instruct an Independent Valuation at this point. Directors’ valuation of land and property Land & Buildings at the rear of the new Salford trading store Following the opening of the new Salford store in 2022, there is available land and building at the rear of the new store which is suitable for rent on commercial terms to third party users. Based on negotiated rents with tenants, the Directors continue to place a Directors’ valuation of £1.5 million (2022: £1.5 million) on this land and building. The total value of land and property carried at Directors’ valuation at 31 July 2023 is £1.5 million (2022: £1.5 million). 115 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements12b) Right of use assets (ROU) The Group accounts for the value of its property leases on the balance sheet by the recognition of a right of use asset (the right to use the leased item) and a corresponding financial liability to pay rentals due over the property lease term. This treatment relates to the Group’s property leases. The Group has no leases on any other types of assets. The Group recognises right of use assets (ROU) of £13.8 million at 31 July 2023 (2022: £10.4 million) and total lease liabilities of £14.7 million, (2022: £10.9 million) with depreciation charges of £1.7 million (2022: £1.3 million) and lease interest charges of £0.5 million (2022: £0.2 million). Detailed analysis is provided in the tables below: At 31 July 2022 Additions Depreciation At 31 July 2023 Property rentals Depreciation of right of use asset (ROU) Interest charged on lease liability Impact on Comprehensive Income Group 31 July 2023 £’000 10,424 5,032 (1,688) 13,768 Group 31 July 2023 £’000 1,817 (1,688) (547) (418) Group 31 July 2022 £’000 10,503 1,235 (1,314) 10,424 Group 31 July 2022 £’000 1,746 (1,314) (239) 193 The right of use assets represents the present value of minimum lease payments for the Group’s property leases. The Group has no leases on any other types of assets. The Present Value of all future operating lease payments on existing leases is calculated using 2.2% (2022: 2.2%) and on the two new leases executed in the current year at 6.43% as an incremental borrowing rate as the single Discount Rate. The right of use assets are depreciated based on the individual lease term of the separate leases. The significant increase in the right of use asset relates to the execution of a new 20-year lease at our Eastbourne Store and a new 25 year lease on our Basildon store. 13 Investments Company investments in subsidiary undertakings 31 July 2021 Capital contributions arising from share-based payments 31 July 2022 Capital contributions arising from share-based payments 31 July 2023 £’000 2,670 201 2,871 450 3,321 116 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023The Company holds more than 20% of the share capital of the following companies, all of which are incorporated in England and Wales: Company Name Lok’nStore Limited* # Lok’nStore Trustee Limited ¥ † Southern Engineering and Machinery Company Ltd ¥* # Semco Machine Tools Limited ≠ # Semco Engineering Limited ≠ # ParknCruise Limited ¥ † The Box Room (Self-storage) Limited ¥* † % of Shares and Voting Rights Company Registration No. 02902717 03788705 00381670 01025573 01164294 10329934 06840417 Class of Shareholding Directly Indirectly Nature of Entity Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 – Self-storage – – – – – – 100 100 100 100 100 100 Trustee Self-storage Dormant Dormant Dormant Self-storage ¥ 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. 14 Inventories Consumables and goods for resale Group 2023 £’000 145 Group 2023 £’000 143 The amount of inventories recognised in Group cost of sales as an expense during the year was £109,106 (2022: £112,887) (see note 3). The Company had no inventory in either year. 117 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements15 Trade and Other Receivables Trade receivables Other receivables Taxation Prepayments and accrued income Group 2023 £’000 1,342 779 27 437 2,585 Group 2022 £’000 1,198 2,318 – 472 3,988 The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. Other receivables include monies receivable from the managed stores for services provided by the Group. The following balances existed between the Company and its subsidiaries at 31 July: Current receivables Non-current receivables (restated) Net amount due from Lok’nStore Limited Company 2023 £’000 7,000 42,963 49,963 Company 2022 Restated £’000 6,000 22,785 28,785 The non-current receivables represent amounts which are not expected to be repaid within one year notwithstanding that the balance is repayable on demand. Previously the entire balance was included in current receivables and therefore the comparative balance has been restated to present £22.8m as a non-current receivable which has decreased the previously presented current receivables by the same amount. There is no impact on the previously reported result for the period ended 31 July 2022 or net assets at that date of the parent entity. The Directors have determined it is not necessary to re-present the balance sheet for the year ended 31 July 2021 as doing so would not improve a user’s understanding of the adjustment. Receivables from group undertakings are interest free. These have been considered for impairment using the twelve- month expected credit loss model because there have been no changes in credit risk since initial recognition. The expected credit losses on amounts owed by Group companies is insignificant (2022: insignificant). 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 ten 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 Group 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 expected credit losses. 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. Before accepting a new business customer who wishes to use a number of the Group’s stores, the Group uses an external credit rating to assess the potential customer’s credit quality and defines credit limits by customer. There are no customers who represent more than 5% of the total balance of trade receivables. Included in the Group’s trade receivables balance are receivables with a carrying amount of £0.14 million (2022: £0.1 million) 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 53 days past due (2022: 55 days past due). The Group does not expect credit losses on intra-group balances. 118 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023Ageing of past due but not impaired receivables 0–30 days 30–60 days 60+ days Total Movement in the allowance for credit losses Balance at the beginning of the year Impairment losses recognised Amounts written off as uncollectible Balance at the end of the year Group 2023 £’000 28 13 95 136 2023 £’000 100 32 4 136 Group 2022 £’000 22 8 70 100 2022 £’000 147 30 (77) 100 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 16 Trade and Other Payables Trade payables Taxation and social security costs Other payables Accruals and deferred income Group 2023 £’000 – – 136 136 Group 2023 £’000 1,326 453 549 4,852 7,180 Group 2022 £’000 – – 100 100 Group 2022 £’000 1,849 1,014 588 3,778 7,229 The Group has financial risk management policies in place to ensure that all payables are paid within credit terms. The Directors consider that the carrying amount of trade and other payables approximates fair value. The Company had no trade and other payables in either year. The Group invoices its customers in advance, and therefore any deferred income balance is primarily related to amounts paid by customers for storage services beyond the Balance Sheet date. 119 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements17 Financial Instruments Capital management and gearing 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 debt, which include the borrowings disclosed in note 18, 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 with hedging forming a Board agenda item for discussion at each Board meeting. 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: Gearing – Bank borrowings Gross debt – bank borrowings* Cash and cash equivalents Net debt Total equity – balance sheet Net debt to equity ratio Total Gearing – Bank borrowings and lease liabilities Gross debt – bank borrowings* Gross debt – lease liabilities Cash and cash equivalents Net debt Total equity – balance sheet Net debt to equity ratio Group 2023 £’000 (54,399) 42,132 (12,267) 230,472 5.3% Group 2023 £’000 (54,399) (14,656) 42,132 (26,923) 230,472 11.7% Group 2022 £’000 (66,785) 46,465 (20,320) 205,346 9.9% Group 2022 £’000 (66,785) (10,894) 46,465 (31,214) 205,346 15.2% * Gross debt is the total amount of bank debt drawn before any amortisation of bank arrangement fees. The movement of the Group’s gearing ratio arises principally through the combined effect of an increase in the value of its trading properties, and the cash generated from operations also enhanced by loan repayments during the year reducing the RCF by £12.4 million. The Group’s operating cash was also applied to ongoing planning, construction and fit out works at other sites, this expenditure during the period totalled £17.3 million (2022: £12.2 million). This was primarily the contract exchange of the Milton Keynes site, the purchase of the Bolton site and the exchange of contracts on the Eastbourne site. There are ongoing construction and fit out works at our sites in Staines and Basildon, final costs on Bedford and Peterborough prior to opening, as well as and the completion of construction works at our Stevenage and Warrington stores. Also, planning and pre-development works at our Bournemouth, Altrincham, Barking and Cheshunt sites featured. Exposure to credit and interest rate risk arises in the normal course of the Group’s business. 120 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023A Derivative financial instruments and hedge accounting The Group’s activities expose it primarily to the financial risks of interest rates. The Group previously has hedged through the deployment of interest rate swaps although the Group had no such instruments in place at 31 July 2022 or 31 July 2023. 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 18. Equity includes all capital and reserves of the Group. The Group is not subject to externally imposed capital requirements. The Group borrows through a joint Revolving Credit Facility with Royal Bank of Scotland/NatWest Bank plc and ABN AMRO Bank secured on its store portfolio and other Group assets, excluding intangibles, with a net book value of £314.0 million (2022: £292.8 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 £100 million (2022: £100 million) providing undrawn committed facilities at 31 July 2023 of £45.6 million. This facility runs to April 2026, and details are provided in note 18 (Borrowings). 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 SONIA rate. With the rising level of interest rates, the Board monitors closely its effect on the business and has levers in place to mitigate the effects. Cash and cash equivalents: Cash balances and cash equivalents represent only liquid assets with a maturity of three months or less and include cash in hand deposits at call with banks (treasury deposit). Cash held in current accounts have historically earned little no interest but with rising interest rates instant access accounts now attract a rate of 3.3%. Surplus cash is transferred daily to a treasury deposit account which earns interest at the prevailing money market rates currently 3.55%. All amounts are denominated in Sterling. The balances at 31 July 2023 are as follows: Variable rate treasury deposits SIP trustee deposits Cash in operating current accounts Other cash and cash equivalents Total cash and cash equivalents Group 2023 £’000 41,238 63 826 5 42,132 As at 31 July 2023, the Group had £8 million on treasury reserve with ABN Amro Bank. Amount £4,000,000 GBP (3 months) £4,000,000 GBP (2 months) From To Interest rate 31 May 2023 31 August 2023 1 June 2023 1 August 2023 4.05% 3.77% Group 2022 £’000 45,371 63 1,031 – 46,465 Interest to maturity £40,832.88 £25,202.19 Equity Raise: On 7 July 2023, the Company raised total gross proceeds of approximately £20.5 million (gross) through the oversubscribed issue of 2,679,739 new Ordinary Shares via a Placing and REX Retail Offer. Post Balance Sheet, the Group repaid £19 million of its Revolving Credit Facility and will redraw as required as it deploys the cash required to progress its development pipeline. 121 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements17 Financial Instruments continued 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 2023, it is estimated that an increase of one percentage point in interest rates would have increased the Group’s annual interest charge by £0.54 million (2022: £0.67 million) and conversely a decrease of one percentage point in interest rates would have reduced the Group’s annual profit before tax by £0.54 million (2022: £0.67 million). 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 4.77% and applying to the variable rate borrowings of £54.4 million in the year (2022: £68.8 million/1.71%). 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 15. There has not been a significant change in credit quality. The Group has a strong credit model with customers paying four-weekly in advance for their storage. The Group has no significant concentration of credit risk, with exposure spread across 17,500 customers (2022: 17,000) and with no individual self-storage customer accounting for more than 1% of total revenue and no entities under common control (e.g., Government) accounting for more than 5% of total revenues. The Group holds a right of lien over its self-storage customers’ goods if customer debts are not paid although this is used relatively infrequently within the context of overall customer numbers and only ever as a final stage in the debt recovery process. The Group holds a right of lien over its self-storage customers’ goods if customer debts are not paid although this is used relatively infrequently within the context of overall customer numbers and only ever as a final stage in the debt recovery process. 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 2023 was £1.38 million (2022: £2.26 million) on receivables and £42.1 million (2022: £46.5 million) on cash and cash equivalents. 122 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023H Maturity analysis of financial liabilities The undiscounted contractual cash flow maturities are as follows: 2023 – 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 2022 – 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 Lease liabilities are separately disclosed in note 19. I Classification of financial instruments Categories of financial assets and financial liabilities Financial assets measured at amortised cost Trade and other receivable Cash and cash equivalents Financial liabilities measured at amortised cost Trade and other payables Lease liabilities Bank loans Trade and Other Payables £’000 Borrowings £’000 Interest on Borrowings £’000 – – – – 4,224 4,224 – 54,399 – 54,399 – 54,399 – 1,632 3,366 4,998 3,366 8,364 Trade and Other Payables £’000 Borrowings £’000 Interest on Borrowings £’000 – – – – 4,207 4,207 – 66,785 – 66,785 – 66,785 Group 2023 £’000 2,121 42,132 (4,224) (17,148) (54,046) – 3,131 1,809 4,940 1,809 6,749 Group 2022 £’000 3,516 46,465 (4,207) (10,894) (66,196) The fair values of the Group’s cash and short-term deposits and those of other financial assets equate to their carrying amounts. The amounts are presented net of provisions for doubtful receivables and allowances for impairment are made where appropriate. The fair value of financial liabilities equates to their carrying amounts. J Company’s financial instruments The Company’s financial assets are amounts owed by subsidiary undertakings amounting to £50.0 million (2022: £28.8 million) which are classified as loans and receivables, refer note 15. These amounts are denominated in Sterling. The Company has no financial liabilities. 123 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements18 Borrowings Bank borrowings Non-current 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 2023 £’000 54,399 (353) 54,046 54,046 Group 2022 £’000 66,785 (589) 66,196 66,196 The Group currently has £54.4 million drawn against its facility which is secured with RBS and ABN AMRO jointly by legal charges and debentures over the freehold and leasehold properties and other tangible assets of the business with a net book value of £314.0 million (2022: £292.8 million) together with cross-company guarantees from Group companies. The interest rate is set under the Sterling Overnight Index Average (SONIA) arrangements. The all-in debt cost on £54.4 million drawn averaged 4.77% (2022: 1.55%) in the period with the costs of debt rising to 6.19% on active revolving loans. The Group is not obliged to make any repayments prior to the facility’s expiration in April 2026. The two principal bank covenants (LTV and Senior interest) and margin are unaffected by the execution of the accordion and this extension of term. Margin/pricing is also unaffected. With current facility utilisation at £54.4 million and combined with cash balances of £42.1 million the £100 million facility provides around £87.7 million of available cash headroom. 19 Lease Liabilities The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the leases. Where this cannot be readily determined the Present Value of all future operating lease payments is calculated using 2.2% (2022: 2.2%) as an incremental borrowing rate as the Discount Rate, or 6.43% in respect of new leases entered into in the current year. After the application of a weighted depreciation charge based on the individual lease term of the separate leases and the imputation of an interest charge at 2.2% (2022: 2.2%), and on the two new leases executed in the current year at 6.43%, as part of the amortisation of the lease liability the total lease liabilities are shown below. Lease liabilities attributable to right of use assets Current lease liabilities Amounts due within one year Non-current lease liabilities Amounts due in one to two years Amounts due in three to five years Amounts due in more than five years Non-current lease liabilities Total lease liabilities 124 Group 2023 £’000 Group 2022 £’000 826 1,612 1,039 1,786 11,005 13,830 14,656 1,174 2,774 5,334 9,282 10,894 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023Lease liabilities attributable to right of use assets Balance brought forward Increase in new leases Lease repayments Lease interest (non-cash) Total lease liabilities Group 2023 £’000 10,894 5,032 (1,817) 547 14,656 Group 2022 £’000 11,166 1,235 (1,746) 239 10,894 The portfolio of property leases all have similar characteristics. Subject to periodic future rent reviews, typically every five years, there are no variable lease payments. The Group has no leases on any other types of assets. The total future commitments due under non-cancellable leases is set out in note 30 (Commitments under Property Leases). 20 Deferred Tax Deferred tax liability Liability at start of year Total charge to income for the year Tax charged directly to other comprehensive income Charge/(credit) to share-based payment reserve Liability at end of year Group 2023 £’000 63,214 764 63,978 1,954 358 66,290 Group 2022 £’000 46,760 2,113 48,873 14,284 57 63,214 The following are the major deferred tax liabilities and assets recognised by the Group and the movements during the year: Accelerated Capital Allowances £’000 Other Temporary Differences £’000 Revaluation of Properties £’000 Rolled over Gain on Disposal £’000 Share Options £’000 Total £’000 At 31 July 2021 Charge to income for the year Charge to other comprehensive income Credit to share-based payment reserve At 31 July 2022 Charge to income for the year Charge to other comprehensive income Credit to share-based payment reserve 5,128 591 – – 5,719 797 – – 609 38,163 – – – 609 (33) – – – 9,978 – 48,141 – 1,954 – 3,714 1,522 4,306 – (854) 46,760 – – 57 2,113 14,284 57 9,542 (797) 63,214 – – – – – 358 764 1,954 358 At 31 July 2023 6,516 576 50,095 9,542 (439) 66,290 The increase in the deferred tax liability arises substantially from a combination of an increase in the valuation of the Group’s stores and a provision for the gain arising on the Sale which will in due course be subject to a roll-over relief claim. The deferred tax provision is substantially a tax provision against the potential crystallisation (sales) of revalued properties and past ’rolled over’ gains and amounts to £66.3 million (2022: £63.2 million). The timing of any crystallisation of these liabilities is within the Board’s control. 125 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements21 Share Capital Authorised: 35,000,000 Ordinary Shares of 1 pence each (2022: 35,000,000) Allotted, issued and fully paid Ordinary Shares Balance at start of year Options exercised during the year Primary placing of fully paid Ordinary Shares Balance at end of year Number of shares at start of the year Options exercised during the year Primary placing of fully paid Ordinary Shares Number of shares at end of the year 2023 £’000 350 2023 £’000 301 1 27 329 2022 £’000 350 2022 £’000 298 3 – 301 Called up, Allotted and Fully Paid Number Called up, Allotted and Fully Paid Number 30,003,545 29,686,787 84,174 2,679,739 316,758 – 32,767,458 30,003,545 The share capital of the Company consists only of fully paid Ordinary Shares with a nominal par value of 1 penny per share. There are no restrictions on the ability of shareholders to receive dividends. All Ordinary Shares are equally eligible to receive dividends and represent one vote at shareholders’ meetings. The Ordinary Shares carry no right to fixed income. On 7 July 2023, the Company raised total gross proceeds of approximately £20.5 million (gross) through the oversubscribed issue of 2,679,739 new Ordinary Shares via a Placing and REX Retail Offer, at a price of 765 pence per Ordinary Share. The Fundraising Shares represented approximately 8.9% of the Company’s issued share capital. The transaction costs of the brokers associated with the equity raise were £732,561 and together with £156,459 legal and other associated costs total £889,020 and are recognised in equity. 22 Equity-Settled Share-Based Payment Plans The Group operates three equity-settled share-based payment plans: one approved and two unapproved share option schemes. The Company has granted the following share options: Granted Exercised Lapsed/ Surrendered As at 31 July 2023 No. of Options 2023 Summary Unapproved Share Options (refer note 24(a)) Unapproved Share Options (PPP Scheme) – refer note 24(b)) Unapproved Share Options (2023 PPP Scheme) – refer note 24(c)) Approved CSOP Share Options (refer note 25) Total 126 As at 31 July 2022 No. of Options 404,790 1,267,658 – – (69,559) – – – 264,000 62,583 1,735,031 20,272 284,272 (14,615) (84,174) – – – – – 335,231 1,267,658 264,000 68,240 1,935,129 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 20232022 Summary Unapproved Share Options (refer note 24(a)) Unapproved Share Options (PPP Scheme) – refer note 24(b)) Approved CSOP Share Options (refer note 25) Total As at 31 July 2021 No. of Options Granted Exercised Lapsed/ Surrendered As at 31 July 2022 No. of Options 683,950 1,163 (280,323) 990,000 277,658 – 86,476 1,760,426 12,542 291,363 (36,435) (316,758) – – – – 404,790 1,267,658 62,583 1,735,031 The following table shows options held by Directors under all schemes. 2023 Executive Directors Total at 31 July 2022 Options Granted Options Exercised Unapproved Scheme Approved CSOP Share Options Total at 31 July 2023 A. Jacobs – Unapproved – A. Jacobs – PPP (2018) 200,000 A. Jacobs – PPP (2023) A. Jacobs – total R. Davies – Unapproved R. Davies – CSOP R. Davies – PPP (2018) R. Davies – PPP (2023) R. Davies total N. Newman – Unapproved N. Newman – CSOP N. Newman – PPP (2018) N. Newman – PPP (2023) N. Newman total T. Lampard – Unapproved T. Lampard – CSOP T. Lampard – PPP (2018) T. Lampard – PPP (2023) T. Lampard total – 200,000 181,977 2,941 198,236 – 383,154 135,599 8,182 299,422 – 443,203 11,840 8,984 250,000 – 270,824 – – 40,000 40,000 – – 40,000 40,000 – – – 60,000 60,000 – – 60,000 60,000 – – – – (50,000) – – – (50,000) (2,420) (1,600) – – (4,020) – – – – – – 200,000 40,000 240,000 131,977 – – – – – – 2,941 198,236 40,000 370,213 133,179 299,422 60,000 492,601 11,840 – 250,000 60,000 321,840 – – 2,941 – 6,582 – – 6,582 – 8,984 – – 8,984 18,507 All Directors total 1,297,181 200,000 (54,020) 1,424,654 – 200,000 40,000 240,000 131,977 2,941 198,236 40,000 373,154 133,179 6,582 299,422 60,000 499,183 11,840 8,984 250,000 60,000 330,824 1,443,161 127 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements22 Equity-Settled Share-Based Payment Plans continued 2022 Executive Directors A. Jacobs – Unapproved A. Jacobs – PPP (2018) A. Jacobs – total R. Davies – Unapproved R. Davies – CSOP R. Davies – PPP (2018) R. Davies total N. Newman – Unapproved N. Newman – CSOP N. Newman – PPP (2018) N. Newman-Shepherd total Total at 31 July 2021 Options Granted Options Exercised Unapproved Scheme Approved CSOP Share Options Total at 31 July 2022 206,087 160,000 366,087 246,977 7,742 160,000 414,719 135,599 8,618 240,000 384,217 – (206,087) 40,000 40,000 – (206,087) – 200,000 200,000 – (65,000) 181,977 2,941 38,236 41,177 – 964 59,422 60,386 (7,742) – (72,742) – (1,400) – (1,400) – 198,236 380,213 135,599 – 299,422 435,021 – – – – 2,941 – 2,941 – 8,182 – 8,182 – 200,000 200,000 181,977 2,941 198,236 383,154 135,599 8,182 299,422 443,203 All Directors total 1,165,023 141,563 (280,229) 1,015,234 11,123 1,026,357 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, three or five years, subject to the performance criteria attached to the options. Under the CSOP Approved Share Option scheme (note 25) and the Unapproved Share Options scheme (note 24(a)), 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 rules governing the PPP scheme are disclosed in note 24b. Under the CSOP Approved Share Option scheme (note 25) and the Unapproved Share Options scheme (note 24a), 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 and a half years which is part way between vesting (two and a half to three years after grant) and lapse (ten 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 and a half years). Under the Partnership Performance Plan (note 24(b)), 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. There were no options granted on 31 July 2023 in respect of the 2018 Scheme. The vesting date is based upon the assumption that the CAD and/or NAV targets are met at the same time as the share price target is met, and the lapse date is the fifteenth anniversary of the grant. The risk-free rate of return is the UK gilt rate at date of grant commensurate with the expected term (i.e. 10.34 years). The total charge for the year relating to employer share-based payment schemes was £449,623 (2022: £201,385), all of which relates to equity-settled share-based payment transactions. 128 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 202323 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. 24a) 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 Exercised during the year Outstanding at 31 July Exercisable at 31 July Options 2023 Number 404,790 – (69,559) 335,231 325,460 Weighted Average Exercise Price 2023 Pence 205.93 – 135.29 220.59 204.13 Options 2022 Number 683,950 1,163 (280,323) 404,790 386,074 Weighted Average Exercise Price 2022 Pence 188.16 1020.00 165.95 205.93 183.25 The options outstanding at 31 July 2023 had a weighted average remaining contractual life of 1.8 years (2022: 2.5 years). The exercise prices for shares exercisable at 31 July 2023 ranged from 56.50 pence per share to 570.0 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 2022 Granted Exercised 31 July 2023 As at Exercise Price Pence Date from which Exercisable Expiry Date A. Jacobs R. Davies N. Newman T. Lampard Total – 181,977 135,599 11,840 329,416 – – – – – – – (50,000) 131,977 0.565 to 2.075 31/7/12 to 31/7/17 31/7/24 (2,420) 133,179 1.360 to 3.875 31/7/16 to 31/7/20 31/1/24 to 31/7/27 – 11,840 3.250 to 3.875 31/7/19 to 31/7/20 31/7/26 to 31/7/27 (52,420) 276,996 24b) Unapproved Share Options – 2018 Partnership Performance Plan (PPP) On 2 July 2018, the Group adopted the Company Partnership Performance Plan (PPP). The Plan is a discretionary benefit offered by the Company for the benefit of selected key employees. Its main purpose is to increase the commitment and interest of colleagues 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 colleagues those awards will be granted. 129 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements24b) Unapproved Share Options – 2018 Partnership Performance Plan (PPP) continued 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 £6 per share, well above the market price at inception to allow the issuance of more options increasing member returns if ambitious targets are hit. • Options are to be issued to participants in five annual tranches from July 2018 to July 2023. • Participants will have ten years to exercise from vesting dates. • Performance criteria are geared to achievement of ambitious long-term plan. • Performance targets of share price, NAV and CAD thresholds for each award. NAV and 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 or exercise and sell – paying tax arising — Group delivers net profit to participants in cash or shares Main Rules and Conditions • Conditional on participants remaining in employment with the Group. • 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 2022 Granted during the year Lapsed during the year Outstanding at 31 July 2023 Exercisable at 31 July 2023 Weighted Average Exercise Price Pence Options Number 1,267,658 600.00 – – 1,267,658 990,000 – – 600.00 – 130 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023The following unapproved share options have been granted to Directors of the Company during the year. As at As at Exercise Price Date from which Exercisable Expiry Date Performance Conditions Met 31 July 2022 Granted 31 July 2023 A. Jacobs A. Jacobs A. Jacobs A. Jacobs A. Jacobs 40,000 40,000 40,000 40,000 40,000 A. Jacobs – total 200,000 R. Davies R. Davies R. Davies R. Davies R. Davies R. Davies – total N. Newman N. Newman N. Newman N. Newman N. Newman 40,000 40,000 40,000 40,000 38,236 198,236 60,000 60,000 60,000 60,000 59,422 N. Newman – total 299,422 T. Lampard T. Lampard T. Lampard T. Lampard T. Lampard T. Lampard T. Lampard – total Total 40,000 40,000 10,000 40,000 60,000 60,000 250,000 947,658 – – – – – – – – – – – – – – – – – – – – – – – – – – 40,000 40,000 40,000 40,000 40,000 200,000 40,000 40,000 40,000 40,000 38,236 198,236 60,000 60,000 60,000 60,000 59,422 299,422 40,000 40,000 10,000 40,000 60,000 60,000 250,000 947,658 * 320,000 options were granted to senior key team members. Pence 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 31/07/2023 31/07/2033 31/07/2024 31/07/2034 31/07/2025 31/07/2035 31/07/2026 31/07/2036 31/07/2027 31/07/2037 31/07/2023 31/07/2033 31/07/2024 31/07/2034 31/07/2025 31/07/2035 31/07/2026 31/07/2036 31/07/2027 31/07/2037 31/07/2023 31/07/2033 31/07/2024 31/07/2034 31/07/2025 31/07/2035 31/07/2026 31/07/2036 31/07/2027 31/07/2037 600.00 31/07/2023 31/07/2033 600.00 31/07/2024 31/07/2034 600.00 600.00 600.00 600.00 31/07/2025 31/07/2035 31/07/2025 31/07/2035 31/07/2026 31/07/2036 31/07/2027 31/07/2037 Yes Yes Yes Yes No Yes Yes Yes Yes No Yes Yes Yes Yes No Yes Yes Yes Yes Yes No 131 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements24b) Unapproved Share Options – 2018 Partnership Performance Plan (PPP) continued The 2018 Partnership Performance Plan (PPP) was a five-year annual award plan which has now completed its annual award cycle for new awards. Set out below is the current position on which awards have had their performance conditions met in respect of each tranche of awards issued. Based on Annual Reports Performance Targets 1010 PPP Tranche & Issue Date Issued Exercise Price CAD per Share Nav per Share Share Price Earliest Period for Exercise CAD per Share Nav per Share Performance Conditions Met Share Price Tranche 1 – Issued July 2018 Tranche 2 – Issued July 2019 Tranche 3 – Issued July 2020 Tranche 4 – Issued July 2021 Tranche 5 – Issued July 2022 Yes £6.00 30 pence £6.00 £6.00 31/07/2023 No Yes Yes Yes £6.00 35 pence £7.00 £7.00 31/07/2024 No Yes Yes Yes £6.00 40 pence £8.00 £8.00 31/07/2025 No Yes Yes Yes £6.00 45 pence £9.00 £9.00 31/07/2026 No Yes Yes Yes £6.00 50 pence £10.00 £10.00 31/07/2027 No No Yes Yes Yes Yes Yes No The 2023 Partnership Performance Plan (PPP) has now opened with its first annual awards granted on 31 July 2023 (refer note 24(c) below). 24c) Unapproved Share Options – 2023 Partnership Performance Plan (PPP) On 31 July 2023, the Group adopted a new 2023 Company Partnership Performance Plan (PPP). The 2023 Plan follows on from the successful 2018 Partnership Performance Plan which has now completed its five-year award cycle with the last allocation of options issued in July 2022. The new Plan is a similar structure to its predecessor but moves the NAV and share price targets from £10 under the previous plan to £15 over the five-year award cycle. The new Plan is a discretionary benefit offered by the Company for the benefit of selected key team members. Its main purpose is to increase the commitment and interest of colleagues 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. 132 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023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 £10 per share, well above the market price at inception to allow the issuance of more options increasing member returns if ambitious targets are hit. • Options are to be issued to participants in five annual tranches from July 2023 to July 2028. • Participants will have ten years to exercise from vesting dates. • Performance criteria are challenging and are geared to achievement of an ambitious long-term plan. • Performance targets of share price, NAV and CAD thresholds for each award. NAV and CAD thresholds to be determined each year by the Remuneration Committee. • The targets for the July 2023 are as follows: July 2023 £10.00 £11.00 55p £11.00 Exercise Price Share price target CAD Target Nav Target • Alternative exercise methods can be considered by the Group: — Participants may exercise and hold or exercise and sell – paying tax arising — Group delivers net profit to participants in cash or shares Main Rules and Conditions • Conditional on participants remaining in employment with the Group. • 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: Granted during the year Lapsed during the year Outstanding at 31 July 2023 Exercisable at 31 July 2023 * 64,000 options were granted to senior key team members. Options Number 264,000* – 264,000 – Weighted Average Exercise Price Pence 1000.00 – 1000.00 – 133 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements24c) Unapproved Share Options – 2023 Partnership Performance Plan (PPP) continued The following unapproved share options have been granted to Directors of the Company during the year. As at As at 31 July 2022 Granted 31 July 2023 Exercise Price (Pence) Date from which Exercisable Expiry Date Performance Conditions Met A. Jacobs A. Jacobs – total R. Davies R. Davies – total N. Newman-Shepherd N. Newman – total T. Lampard T. Lampard – total Total – – – – – – – – – 40,000 40,000 40,000 40,000 60,000 60,000 60,000 60,000 40,000 40,000 40,000 40,000 60,000 60,000 60,000 60,000 200,000 200,000 1000.00 31/07/2028 31/07/2038 1000.00 31/07/2028 31/07/2038 1000.00 31/07/2028 31/07/2038 1000.00 31/07/2028 31/07/2038 No No No No 25 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 this CSOP Plan. 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 2023 Number Weighted Average Exercise Price 2023 Pence Options 2022 Number Weighted Average Exercise Price 2022 Pence 62,583 20,272 – (14,615) 68,240 33,150 326.78 790.00 – 453.34 212.33 437.08 86,476 12,542 – (36,435) 62,583 35,220 372.48 1020.00 – 312.97 326.78 382.85 The options outstanding at 31 July 2023 had a weighted average remaining contractual life of 7.2 years (2022: 6.6 years). The exercise prices for shares exercisable at 31 July 2023 ranged from 207.00 pence per share to 570.00 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 2022 31 July 2023 Expected Life (Years) Share Price at Date of Grant (Pence) Exercise Price (Pence) Expected Volatility (%) Expected Dividend Yield (%) 6.60 7.20 1020.00 1020.00 790.00 790.00 35.10 36.19 1.54 2.28 Risk-Free Interest Rate (%) 1.71 4.29 Fair Value Charge per Award (Pence) 322.00 271.00 134 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 2023As at 31 July 2022 2,941 R. Davies N. Newman-Shepherd 8,182 T. Lampard 8,984 20,107 26a) Other Reserves Group 31 July 2021 Share-based remuneration (options) IFRS 2 – transfer retained earnings Tax charge relating to share options The following CSOP approved share options have been granted to Directors of the Company. The expected price volatility is based on the historical volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. Granted Exercised As at 31 July 2023 Exercise Price (Pence) Date from which Exercisable Expiry Date – – – – (–) 2,941 (1,600) 6,582 (–) (1,600) 8,984 18,507 1,020.0 207.0 to 1,020.0 287.05 to 570.0 31/7/25 31/7/32 31/7/17 to 31/7/25 31/7/17 to 31/7/23 31/7/24 to 31/7/32 31/7/25 to 31/7/30 Merger Reserve £’000 6,295 Other Reserve £’000 1,294 – – – – – – Capital Redemption Reserve £’000 Share-based Payment Reserve £’000 Total £’000 9,138 201 (180) (57) 1,515 201 (180) (57) 1,479 9,102 450 (47) (358) 1,524 450 (47) (358) 9,147 34 – – – 34 – – – 34 31 July 2022 6,295 1,294 Share-based remuneration (options) IFRS 2 – transfer retained earnings Tax charge relating to share options – – – – – – 31 July 2023 6,295 1,294 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. The revaluation reserve is a non-cash non-distributable reserve that reflects the uplift between market (fair) value of the Group’s store assets and their historic book value. Share-based payment reserve 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 £46,662 (2022: £180,391). 135 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements26b) Other Reserves Company 31 July 2021 Share-based remuneration (options) IFRS 2 – transfer to/from retained earnings 31 July 2022 Share-based remuneration (options) IFRS 2 – transfer to/from retained earnings 31 July 2023 27a) Retained Earnings Group 31 July 2021 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 26a) Reserve transfer on disposal of assets Dividend paid 31 July 2022 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 26a) Dividend paid 31 July 2023 Other Reserve £’000 1,114 – – 1,114 – – Share-based Payment Reserve £’000 890 201 (180) 911 450 (47) 1,114 1,314 Retained Earnings before Deduction of Own Shares £’000 26,772 12,078 821 180 20,258 (4,601) 55,508 4,692 1,095 47 (5,295) 56,047 Own Shares (note 28) £’000 (500) – – – – – (500) – – – – (500) Total £’000 2,004 201 (180) 2,025 450 (47) 2,428 Retained Earnings Total £’000 26,272 12,078 821 180 20,258 (4,601) 55,008 4,692 1,095 47 (5,295) 55,547 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. 136 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 202327b) Retained Earnings Company 31 July 2021 Profit attributable to owners of Company for the financial year Transfer from share-based payment reserve (note 25b) Dividend paid 31 July 2022 Profit attributable to owners of Company for the financial year Transfer from share-based payment reserve (note 25b) Dividend paid 31 July 2023 28 Own Shares Retained Earnings before Deduction of Own Shares £’000 Own Shares (note 28) £’000 16,604 5,756 180 (4,601) 17,939 6,701 47 (5,295) 19,392 – – – – – – – – – Retained Earnings Total £’000 16,604 5,756 180 (4,601) 17,939 6,701 47 (5,295) 19,392 31 July 2022 and 31 July 2023 EBT Shares Number 623,212 EBT Shares £ 499,910 Treasury Shares Number – Treasury Shares £ Own Shares Total £ – 499,910 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 colleagues salaries on a monthly basis as they so instruct for purchase of shares in the Company. Shares are allocated to colleagues based on the prevailing market price when the salary deductions are made. As at 31 July 2023, the Trust held 623,212 (2022: 623,212) Ordinary Shares of 1 pence each with a market value of £4,923,375 (2022: £6,356,762). No shares were transferred out of the scheme during the year (2022: nil). No options have been granted under the EBT. The EBT waived its dividends in full. No other dividends were waived during the year. 137 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements29 Cash flows a) Reconciliation of profit before tax to cash generated from operations Profit before tax Depreciation and loss on disposal Equity-settled share-based payments Non-underlying items (note 4) Interest receivable Interest payable – bank borrowings Interest payable – lease liabilities Decrease in financial asset (Increase)/decrease in inventories Decrease in receivables (Decrease)/increase in payables Cash generated from operations Year ended 31 July 2023 £’000 6,701 5,690 450 318 (665) 2,015 547 – (2) 1,393 (632) 15,815 Year ended 31 July 2022 £’000 15,874 4,727 201 (5,739) (42) 1,089 239 509 148 285 1,278 18,569 b) Reconciliation of net cash flow to movement in net bank debt Net bank debt is defined as non-current and current borrowings, as detailed in note 18, 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 bank debt brought forward Net bank debt carried forward Group 2023 £’000 (4,333) 12,386 8,053 (20,320) (12,267) Group 2022 £’000 37,360 (1,386) 35,974 (56,294) (20,320) 30 Commitments Under Property Leases At 31 July 2023 the total future minimum lease payments as a lessee under non-cancellable leases were as follows: Land and Buildings Amounts due: Within one year Between two and five years After five years Group 2023 £’000 1,415 4,354 14,687 20,456 Group 2022 £’000 1,727 4,737 6,273 12,737 Property 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. The Group’s property leases on its leased stores are recognised as a right of use asset and as a corresponding liability at the year-end. 138 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 202331 Related Party Transactions and Directors Share Interests There were no reportable related party transactions during the year. 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 13. 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 8. 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 Social security costs – Directors Social security costs – Other key management Total Group 2023 £’000 Group 2022 £’000 827 175 13 6 450 158 43 922 259 11 8 201 370 49 1,672 1,820 The Group recognises a number of management personnel that are important to retain within the business in order for it to achieve its strategic plan. Accordingly, these are recognised as key personnel and are participants in the Long-Term Performance Plan. They are included in the table above. Group Director shareholdings – dividends received In respect of the total dividends paid during the year of £5.3 million (2022: £4.6 million), the Group Directors received the amounts set out in the table below: Final 2022 12.25 pence per Share Interim 2023 5.75 pence per Share £ £ Total 2023 £ Total 2022 £ Director’s Dividend Income Executive: A. Jacobs* R. Davies N. Newman-Shepherd Non-Executive: S.G. Thomas* R.J. Holmes C.P. Peal J. Woyda Holding No. 3,953,600 81,807 30,739 675,459 10,021 3,766 1,546,190 189,408 279,606 590,865 2,419 35,477 72,381 296 317,052 4,704 1,767 88,906 16,652 33,975 139 992,511 14,725 5,533 278,314 52,129 106,356 435 864,036 11,570 4,817 265,010 45,381 94,118 379 * Andrew Jacobs and Simon Thomas dividend income above includes their respective holdings in their individual pension funds. 6,485,226 986,808 463,195 1,450,003 1,285,311 139 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial Statements31 Related Party Transactions and Directors Share Interests continued Managed Stores – Group Director shareholdings The relationship between Lok’nStore Group plc and the Managed Stores which it manages have been reported in detail in last year’s financial statements and is not repeated here. Although the Director holdings in Managed Stores falls outside of the definition of related party transactions they are disclosed here, as in previous years, 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 Wolverhampton 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% • These shareholdings relate to three Managed Stores, each in separate corporate vehicles, which have very specific EIS tax advantages. The Directors’ respective shareholdings in these companies have remained unchanged since their initial investment. • The Lok’nStore Directors have no other shareholdings in any other Managed Stores. • Changes in UK Tax legislation mean that these EIS tax advantages no longer exist, and these reliefs are no longer available for Managed Store opportunities that may be undertaken in the future. • Under UK Takeover Panel protocols in relation to the Rule 9 Waiver agreed each year with Lok’nStore Group plc, necessary to preserve the Group’s share buy-back authority, Andrew Jacobs cannot, by agreement with the Panel, purchase any more Lok’nStore shares. As such the three EIS investment vehicles represented an opportunity for Mr Jacobs to hold additional self-storage assets in tax efficient vehicles. • Lok’nStore Group operate 16 Managed Stores, currently trading, and have two further secured Managed Stores in the pipeline in Kettering and Bromborough (Wirral) making a total of 18 Managed Stores. The Managed Store strategy is a well-developed one which enables the Group to increase the operational footprint of Lok’nStore branded stores without the balance sheet risk of ownership. • At 31 July 2023, Lok’nStore has a total of 53 stores (42 currently trading and a pipeline of 11 secured stores). • The terms of the Management Services Agreements executed between Lok’nStore and with Wolverhampton, Broadstairs and Exeter were executed at arm’s length on normal commercial terms with independent Director(s) who were not directors of Lok’nStore and therefore unconnected. The commercial terms are all similar to, and consistent with, those agreed with other third-party Managed Store owners. • The Board of Lok’nStore Group plc have governance protocols in place to ensure that there are no conflicts of interest between the Group and the shareholders of the Wolverhampton, Broadstairs and Exeter stores. Specifically, Mr Jacobs could not hold a disproportionate holding in the EIS Managed Stores not commensurate with his shareholding in Lok’nStore Group plc. 140 Lok’nStore Group plc Annual Report and Accounts 2023Notes to the Financial Statements continuedFor the year ended 31 July 202332 Capital Commitments The Group has capital expenditure contracted but not provided for in the financial statements of £13.1 million (2022: £11.21 million) relating to commitments to complete the ongoing construction of our sites in Peterborough and final contract commitments on our completed sites at Warrington and Stevenage. We are also committed on the Staines Store project in respect of the land and main build contract and the Basildon Store in respect of the lease commitment which commenced on 26 June 2023 following practical completion of the delivery of the building to us. 33 Guarantees The Company and its subsidiary Lok’nStore Limited are joint borrowers under the facility agreement disclosed in note 18. Each entity provides a guarantee to the lenders in respect of the remaining amount due under the agreement. 34 Events after the Reporting Date 1) Barking Planning Permission Grant On 21 September 2023 we received notice of the grant of planning permission for our development in Barking, further on the same date planning agreements were agreed and sealed by the Local Authority. We may now proceed to develop the site for 85,000 sq. ft. of lettable self-storage space. 2) Cheshunt Planning Permission Grant/Cheshunt Planning Agreement secured On 20 October 2023, we received notice of the grant of planning permission for our self-storage development in Cheshunt. On the same date planning agreements were agreed and sealed by the Local Authority. We may now proceed to develop the site for self-storage alongside a discount food supermarket. 3) Luton Residential Planning Permission On Tuesday 22 August 2023, Luton Borough Council Planning Committee resolved to delegate that the Head of Planning may grant planning permission, subject to satisfactory Planning Agreements, for 136 residential apartments at our existing Luton Store site. 4) Temporary Debt reduction On 11 August 2023, the Group paid down £19.02 million out of its recent equity placing proceeds reducing the balance on its RCF, pending redrawing over time for its future deployment on the Group’s pipeline stores. 5) Appointment of a new Non-Executive Director The Board is pleased to announce the appointment of Bridget Barker who joined the Board on 14 September 2023. Bridget joins us with a wealth of experience and is an experienced lawyer having gained over 35 years’ experience at Macfarlanes, a leading and well-established City of London law firm, where she specialised in investment funds, financial services and regulatory legal work with a focus on private equity and real estate funds. Latterly she was head of the Investment Management Group at Macfarlanes. Since leaving Macfarlanes, Bridget has pursued various non-executive roles and consulting appointments at organisations such as Praesidium, Mirabaud 1819 Advisory Group and Mainspring Fund Services. Bridget will be appointed to the Company’s audit and remuneration committees in the coming year providing a second independent non-executive director on each Committee. 141 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsGlossary Abbreviation APM AGM Bps Alternative performance measure Annual General Meeting Basis Points BREEAM Building Research Establishment Environmental Assessment Method Cash available for Distribution Capital Expenditure Cash-generating units Carbon Dioxide Equivalents Company Share Option Plan Dividend Reinvestment Plan Employee Benefit Trust Enterprise Investment Scheme Environmental key performance indicators Enterprise Management Incentive Scheme Employee Share Option Plan European Union Electric Vehicle Greenhouse gas His Majesty’s Revenue and Customs International Accounting Standard International Financial Reporting Interpretations Committee Insurance Premium Tax International Financial Reporting Standards International Standards on Auditing Jones Lang LaSalle Key Performance Indicator CAD Capex CGU CO2 e CSOP DRIP EBT EIS (eKPIs) EMI ESOP EU EV GHG HMRC IAS IFRIC IPT IFRS ISA JLL KPI 142 Lok’nStore Group plc Annual Report and Accounts 2023Landmark Store A large modern, purpose built, and visually prominent store positioned in a retail-facing location within its marketplace LFL LTPPP LTV Move-ins MWh NAV NBV Like for like Long Term Partnership Performance Plan Loan to Value ratio When a prospective customer has completed the sales process and moves their goods into a storage unit Megawatt Hour Net Asset Value Net Book Value Operating Profit Earnings before interest and tax (EBIT) PPP PV QCA RCF RICS Partnership Performance Plan Photovoltaic Quoted Companies Alliance Bank Revolving Credit Facility Royal Institution of Chartered Surveyors RIDDOR Reporting of Injuries, Disease and Dangerous Occurrences Regulations 2013 RNS ROU Sale SIP SME SONIA sq. ft. tCO2e TVR VAT Regulatory News Service Right of Use Asset In the previous financial year, FY22, the sale and manage-back of previously owned stores (Basingstoke, Cardiff, Horsham and Portsmouth stores) Share Incentive Plan Small and medium sized enterprises Sterling Overnight Index Average Square feet Tonnes of carbon dioxide equivalent Total voting rights Value added tax 143 Strategic ReportOverviewEnvironmental and SocialGovernanceFinancial StatementsOur Store Locations Aldershot, Hampshire Eastbourne, East Sussex Altrincham, Cheshire Eastbourne, East Sussex Ashford, Kent Barking, London Basildon, Essex Exeter, Devon Fareham, Hampshire Northampton Central, Northamptonshire Northampton Riverside, Northamptonshire Oldbury, West Midlands Farnborough, Hampshire Peterborough, Northamptonshire Basingstoke, Hampshire Gillingham, Kent Bedford, Bedfordshire Gloucester, Gloucestershire Bolton, Lancashire Harlow, Essex Bournemouth, Dorset Hedge End, Southampton Bristol, Gloucestershire Hemel Hempstead, Hertfordshire Broadstairs, Kent Horsham, West Sussex Bromborough, Cheshire Ipswich, Suffolk Cardiff, Glamorgan Kettering, Northamptonshire Cheshunt, Hertfordshire Leicester, East Midlands Chichester, West Sussex Luton, Bedfordshire Crawley, West Sussex Maidenhead, Berkshire Poole, Dorset Portsmouth, Hampshire Reading, Berkshire Salford, Lancashire Southampton, Hampshire Staines, Surrey Stevenage, Hertfordshire Sunbury, Middlesex Swindon, Wiltshire Tonbridge, Kent Warrington, Cheshire Crayford, Kent Dover, Kent Milton Keynes, Buckinghamshire Wellingborough, Northamptonshire Milton Keynes, Buckinghamshire Wolverhampton, Staffordshire Open Stores Pipeline Stores New Stores in Period 144 Lok’nStore Group plc Annual Report and Accounts 2023CBP021703 Printed by a Carbon Neutral Operation (certified: CarbonQuota) under the PAS2060 standard. Printed on material from well-managed, FSC™ certified forests and other controlled sources. This publication was printed by an FSC™ certified printer that holds an ISO 14001 certification. 100% of the inks used are HP Indigo ElectroInk which complies with RoHS legislation and meets the chemical requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset carbon emissions through the purchase and preservation of high conservation value land. Through protecting standing forests, under threat of clearance, carbon is locked-in, that would otherwise be released. L o k ’ n S t o r e G r o u p p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 2 3 Head Office Lok’nStore Group plc 112 Hawley Lane Farnborough Hampshire GU14 8JE T. 01252 521010 www.loknstore.co.uk www.loknstore.com 

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