Chairman’s Statement
We are the market leading brand, the operating platform with the largest online market share and focus on London, the South East and large metropolitan cities, where barriers to entry are at their highest.
Revenue and earnings Growth
Big Yellow Group PLC (“Big Yellow”, “the Group” or “the Company”), the UK’s brand leader in self storage, is pleased to announce results for the fourth quarter and the year ended 31 March 2014.
We have delivered occupancy, cash flow and earnings growth for the fifth year in a row following the deep recession in 2008 and 2009. This performance illustrates the resilience of the Big Yellow business model and the self storage market more generally.
We had a strong summer’s trading with occupancy growth of 5.7% in the first six months of the year in the wholly owned stores. As reported in January, we had our expected seasonal loss in occupancy of 2.8% in the third quarter. Again, as expected, we returned to growth in the final quarter to March and have increased occupancy in the wholly owned stores by 2.1%. Overall closing occupancy was 69.8%, slightly down from September’s occupancy of 70.5%.
The introduction of VAT on self storage sales on 1 October 2012 led to a reduction in our achieved net rents over the year to March 2013 by 6.9%, as we did not pass all of the VAT onto our domestic customers. In the year since 1 April 2013, we have been looking to grow rents in line with occupancy and have successfully increased our net rent per sq ft over the year by 6.1% to £26.15 (2013: £24.65).
The recently published 2014 Self Storage Association UK Survey showed that only 38% of those surveyed had a reasonable or good awareness of self storage, in line with our findings. There are no magic bullets to growing this awareness as it is not a commoditised product, but increasing use, referrals, and marketing by us and other operators should drive awareness in the coming years. The survey also indicated that new self storage facility openings had slowed dramatically in the last four years in the UK as a whole. In London in 2013, there has been a net reduction in stores and the forecast for the year ahead was a further contraction in self storage space.
While we believe that any improvement in the demand fundamentals for our product will be incremental, Big Yellow is well placed to benefit from any improvement. We are the market leading brand, the operating platform with the largest online market share and focus on London, the South East and large metropolitan cities, where barriers to entry are at their highest.
Financial results
Revenue for the year was £72.2 million (2013: £69.7 million), an increase of 4%. Store EBITDA for the wholly owned portfolio increased by £1.6 million (4%) to £45.7 million. The 54 wholly owned stores have grown in occupancy from 64.8% to 69.8% at 31 March 2014.
Cash inflows from operating activities (after finance costs) increased by £2.6 million (9%) to £32.8 million for the year (2013: £30.2 million).
The Group made an adjusted profit before tax in the year of £29.2 million (2013: £25.5 million), up 15%. This translated into a 6% increase in adjusted earnings per share to 20.5p (2013: 19.3p); the percentage increase is lower due to the full year impact of the placing in January 2013.
The Group made a statutory profit before tax for the year of £59.8 million, compared to a profit of £31.9 million last year. The revaluation gain on the investment property portfolio is £28.4 million for the year, reflecting the operating performance of the business and some yield compression, particularly in our London stores.
The Group has reduced its gearing further this year and now has net bank debt of £226.1 million at 31 March 2014 (2013: £230.5 million). This represents approximately 28% (2013: 30%) of the Group’s gross property assets totalling £804.8 million (2013: £767.5 million) and 36% (2013: 39%) of the adjusted net assets of £634.4 million (2013: £594.5 million).
The Group’s income cover for the year (expressed as the ratio of cash generated from operations against interest paid) was 4.1 times (2013: 3.5 times).
Dividends
At the time of the placing in January 2013, the Board committed to pay a dividend of 80% of full year adjusted earnings per share from this financial year. The final dividend declared is 8.4 pence per share. The interim dividend was 8 pence per share, so the full year dividend is 16.4 pence per share, representing an increase of 49% from 11 pence per share last year.
Our people
I believe that we have a unique culture with accessible management and a non-hierarchical structure which values and endeavours to reward everyone in the organisation for their contribution to our success. Our strong performance during the year was driven as always by the efforts and loyalty of our Big Yellow team, and our people remain pivotal to the achievement of our key medium term objectives of driving occupancy, revenue, and cash flow growth.
Outlook
Increasing political uncertainty and interference, combined with an exuberant housing market in London and the South East, gives scope for some trading volatility in the short term. That said, the business is performing well and we have high confidence in our core markets as we believe that a number of factors will be helpful to our continued growth.
We consider that a large part of the anticipated net immigration and population growth in the UK will continue to concentrate in London and the South East.
We also note that new housing developments in London are at a multi-decade high and as completions increase this should translate into more housing transactions. Land in London and the South East continues to be increasingly scarce for non-residential development which should benefit Big Yellow as the new supply of self storage facilities will remain constrained.
We are therefore confident about the demand and supply characteristics of our business.
Nicholas Vetch
Chairman
19 May 2014
“The business is performing well and we have high confidence in our core markets as we believe that a number of factors will be helpful to our continued growth.”