Chairman’s Statement
The objective is very simple; to grow earnings and dividend at a compelling, but sustainable rate over a long period of time, without taking undue risk.
Growth / Of Revenue and Earnings
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 2015.
We are pleased to report very strong results, with demand growth across our network reflecting improved economic growth not just in London, but within the UK as a whole. To deliver this performance we continue to innovate and maintain an unerring focus on all aspects of our business, such that we grow our market share and monetise the strength of our brand.
Financial results
Revenue for the year was £84.3 million (2014: £72.2 million), an increase of 17%. Excluding the Partnership stores consolidated from 1 December 2014, revenue was £80.6 million, an increase of 12% from the prior year. The stores have grown in occupancy over the year from 67.9% to 73.2% at 31 March 2015.
Cash inflows from operating activities (after finance costs) increased by £9.6 million (29%) to £42.4 million for the year (2014: £32.8 million).
The Group made an adjusted profit before tax in the year of £39.4 million (2014: £29.2 million), up 35%. This translated into a 32% increase in adjusted earnings per share to 27.1p (2014: 20.5p).
The Group made a statutory profit before tax for the year of £105.2 million, compared to a profit of £59.8 million last year. The revaluation gain on the investment property portfolio is £64.5 million for the year, reflecting the improved operating performance of the business and yield compression.
The Group has net bank debt of £277.1 million at 31 March 2015 (2014: £226.1 million). This represents approximately 27% (2014: 28%) of the Group’s gross property assets totalling £1,022.8 million (2014: £804.8 million) and 35% (2014: 36%) of the adjusted net assets of £801.4 million (2014: £634.4 million).
The Group’s income cover for the year (expressed as the ratio of cash generated from operations against interest paid) was 5.4 times (2014: 4.1 times). On an annualised basis at March the ratio was 5.9 times.
Placing and acquisition of Big Yellow Limited Partnership
We set up Big Yellow Limited Partnership with Pramerica Real Estate Investors in November 2007 to build out our regional portfolio, allowing us to focus the Group’s resources on developing our London sites. The Partnership had a limited life, with Big Yellow having a call option over Pramerica’s equity interest crystallising from the March 2015 balance sheet.
We were therefore very pleased to have come to an agreement with Pramerica to accelerate this process and on 1 December 2014 acquired their 66.67% share for £39.25 million and the underlying Partnership debt (£57 million) totalling £96.25 million. This was largely funded by a successful placing raising £76.4 million (net of expenses) in November 2014.
The acquisition represented an opportunity to employ more capital into prime Big Yellow branded assets and consolidate the Group’s position as the leading UK self storage brand, where the Company has detailed knowledge and visibility over the assets acquired.
Investment in new capacity
In the year we have made some progress in growing our self storage platform in key target locations, although competition for land remains high, particularly in London.
In July we acquired a freehold store in Oxford from Fort Box Self Storage for £4.1 million. The store has been rebranded as a Big Yellow, and has a current lettable area of 35,000 sq ft, with expansion space for a further 10,000 sq ft. Our existing 33,000 sq ft Oxford store averages over 85% occupied and this acquisition will allow us to drive growth in occupancy and rental yield from our larger operating platform.
We acquired the freehold of a former Royal Mail depot in Cambridge adjacent to the Cambridge Retail Park, Newmarket Road, completing in April 2015, which we intend to refurbish and convert into a 55,000 sq ft self storage centre, opening in late 2015. We expect the total investment including refurbishment to be approximately £9.3 million.
This is our first new site acquisition for construction in seven years. The acquisition is testament to our confidence in both Cambridge and our business model. It should be noted, however, that the opportunity took 14 years to present itself, despite continual searching over that time.
We opened our 60,000 sq ft store in Enfield on 1 April 2015, on a prominent location on the A10. We intend to construct our store in Central Guildford over the course of the year, and anticipate it opening in Autumn 2016.
We have acquired the freehold interest of our existing 34,000 sq ft store in Battersea, which had 12 years remaining on the occupational lease together with a 14,100 sq ft retail unit let to Halfords on an annual rent of £458,000 with 7 years unexpired, part of which is sublet to Pets at Home. The next rent review date is January 2017. The total consideration paid was £23 million. This increases the freehold ownership of our portfolio and protects our position in this important central London location. In the medium term, we will redevelop the 1.5 acre site to include a larger Big Yellow store together with other uses.
In April 2014 we acquired the Armadillo portfolio in a joint venture with an Australian consortium for a property value of £19.75 million. Our equity invested in this joint venture is £1.9 million, representing a 20% stake. The business has traded ahead of expectations since acquisition, and, in addition to the management fees earned, we have received a first year dividend of £178,000, representing a 9.3% yield.
In January 2015, the Group acquired the entire share capital of Big Storage Limited, a self storage company with five stores in the North West of England, for a property value of £24.9 million. The Group retained the store in Chester, which will be rebranded as Big Yellow. The Group subsequently sold the company with the remaining four stores to a joint venture company for a property value of £19.3 million, of which the Group owns 20% and an Australian consortium the remaining 80%. These four stores will be rebranded as Armadillos. This brings our Armadillo brand to 14 stores with a total capacity of 671,000 sq ft, and blended occupancy of 69.0% at 31 March 2015.
Dividends
The Group’s dividend policy is to distribute 80% of full year adjusted earnings per share. The final dividend declared is 11.3 pence per share. The dividend declared for the year of 21.7 pence per share represents an increase of 32% from 16.4 pence per share last year.
Our people
Success in any business is ultimately driven from within and with all making a contribution. I believe that we have a unique culture in the business 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
We make no attempt to judge the economic cycle as it is a fruitless task and never more than now. We have now positioned the Group for the long-term so that we can enjoy the benefits of a strong economy and also adequately accommodate any reverses.
The most important contribution to performance will be growing the occupancy and increasing rental rates in the existing platform of stores. In addition, there is scope to add more stores but the availability of land, and competition for it, makes this challenging. That said, there will be opportunities and we are well positioned to exploit them.
The objective is very simple; to grow earnings and dividend at a compelling, but sustainable rate over a long period of time, without taking undue risk.
Nicholas Vetch
Chairman
18 May 2015