Chairman’s Statement
If the current uncertainties throw up any new opportunities in London we will aggressively pursue them. That said, we have little doubt that these opportunities will be rare, and supply of appropriate land limited.
Growth
of Revenue and Earnings
Big Yellow Group PLC, the UK’s brand leader in self storage, is pleased to announce its results for the six months ended 30 September 2016. In this seasonally stronger six month trading period, the Group has delivered a solid performance with like-for-like revenue growth of 7% compared to the same period last year.
Closing like-for-like Group occupancy is up 2.7 percentage points to 79.0% compared to 76.3% at 31 March 2016. Occupancy growth over the six month period was 210,000 sq ft (2015: 200,000 sq ft), which includes 76,000 sq ft of occupancy acquired in the Nine Elms and Twickenham 2 stores. The growth in the closing net rent per sq ft on a like-for-like basis was 2.8% compared to 30 September last year.
Given that our central overhead and operating expense is largely embedded in the business, this reported revenue growth has led to a 12% increase in adjusted earnings per share and equally in the interim dividend.
Financial results
Revenue for the period was £54.8 million (2015: £50.2 million), an increase of 9%. Cash inflows from operating activities (after finance costs) increased by 10% to £28.9 million for the period (2015: £26.3 million).
The Group made an adjusted profit before tax in the period of £27.0 million, up 13% from £23.9 million for the same period last year (see note 6). Adjusted diluted EPRA earnings per share were 16.9 pence (2015: 15.1 pence), an increase of 12%. The Group’s statutory profit before tax for the period was £57.7 million, a decrease of 3% from £59.6 million for the same period last year, due to a slightly lower revaluation gain in the period.
The Group’s interest cover for the period (expressed as the ratio of cash generated from operations pre-working capital movements against interest paid) was 6.1 times (2015: 6.4 times). This is comfortably ahead of our internal minimum interest cover requirement of 5 times.
Investment in new capacity
Developing stores in our core area of London and the South East remains challenging. Sites are scarce, and faced with a housing shortage, policy makers are focussed on residential provision at the expense of commercial development. Despite the referendum result, we still expect London’s population to continue to grow, intensifying these pressures. This makes creation of new supply difficult and we are aware of only two stores likely to open in London in the next 12 months. We believe that this leaves our existing platform almost irreplaceable.
We continue to look for land and existing storage centres, with a focus on London, and should the current uncertainties throw up new opportunities, we will pursue them aggressively.
We will not be opening a store in the current year, but intend to commence construction on Guildford Central shortly, with a view to it opening in January 2018.
At 30 September, the future cost of the current pipeline of seven development sites and extensions, six of which are subject to planning, is estimated to be £55 million. This excludes any net proceeds that may be received on the redevelopment of our Battersea store and adjoining retail units into a mixed use scheme of residential, retail and self storage.
Dividends
The Group’s dividend policy is to distribute 80% of adjusted earnings per share. The interim dividend declared is 13.5 pence per share. This has all been declared as Property Income Dividend (“PID”). The interim dividend declared represents an increase of 12% from 12.1 pence per share for the same period last year.
Outlook
I will leave it to others to comment on the momentous political events of the last six months. Only time will tell whether this translates into economic reversals, but we are on heightened alert.
It would not come as a surprise to us for activity levels and demand in the next year or two to be more subdued than in recent years. That said, we have been planning for this eventuality since 2008, and believe that the business is well placed to face down most challenges.
We have never been much interested in the short term but are largely focussed on the long term. In that regard we have high confidence in Big Yellow’s business model and positioning. That confidence stems from our conviction that London, where we are heavily concentrated, will continue to consolidate its position as one of the world’s great city states.
If the current uncertainties throw up any new opportunities in London we will aggressively pursue them. That said, we have little doubt that these opportunities will be rare, and supply of appropriate land limited.
Whilst demand for self storage will ebb and flow, new supply in our key areas of operation, a key risk to the business, will, in our view, be constrained over the medium to longer term. We therefore look forward to future challenges with a mixture of caution and confidence.
Nicholas Vetch
Executive Chairman
21 November 2016
