Financial Review
Delivering Results
Financial results
Revenue
Total revenue for the year was £109.1 million, an increase of £7.7 million (8%) from £101.4 million in the prior year. Like-for-like revenue for the year was £107.3 million, an increase of 6% from the prior year (2016: £101.4 million). Like-for-like revenue excludes Nine Elms and Twickenham 2 which were acquired in April 2016.
Other sales (included within the above), comprising the selling of packing materials, insurance and storage related charges, represented 16.6% of storage income for the year (2016: 17.2%) and generated revenue of £15.2 million for the year, up 4% from £14.6 million in 2016.
The other revenue earned by the Group is management fee income, largely from the Armadillo Partnerships, and tenant income on sites where we have not started development.
Operating costs
Cost of sales is principally comprised of the direct store operating costs, including store staff salaries, utilities, business rates, insurance, a full allocation of the central marketing budget and repairs and maintenance.
The breakdown of the portfolio’s operating costs compared to the prior year is shown in the table below
| Category | Year ended 31 March 2017 £000 |
Year ended 31 March 2016 £000 |
% increase | % of store operating costs in 2017 |
|---|---|---|---|---|
| Cost of sales (insurance and packing materials) | 2,391 | 2,149 | 11% | 7% |
| Staff costs | 8,572 | 8,001 | 7% | 27% |
| General & Admin | 1,196 | 1,183 | 1% | 4% |
| Utilities | 1,470 | 1,406 | 5% | 5% |
| Property Rates | 10,044 | 9,544 | 5% | 32% |
| Marketing | 4,152 | 3,865 | 7% | 13% |
| Repairs / Maintenance | 2,539 | 2,240 | 13% | 8% |
| Insurance | 893 | 992 | (10%) | 3% |
| Computer Costs | 443 | 440 | 1% | 1% |
| Irrecoverable VAT | 17 | 266 | (94%) | 0% |
| Total per portfolio summary | 31,717 | 30,086 | 5% |
Operating costs per the portfolio summary have increased by £1.6 million. £0.9 million of this increase is due to new stores acquired in the year at Nine Elms and Twickenham 2, coupled with the full year impact of Cambridge. The remaining increase of £0.7 million (representing a 2.4% increase on the prior year on a like-for-like basis) is due to an increased investment in marketing and increases in property rates and repairs and maintenance, in part offset by the saving in VAT (see below).
During the year, the Group agreed a new Partial Exemption Special Method with HMRC. This method increases the Group’s VAT recoverability from 89.0% to 99.4%. This saves approximately £0.3 million per annum on the Group’s operating costs, in addition to reducing the irrecoverable VAT on construction projects. There is a credit in respect of prior years of £0.3 million from the date the application was submitted, which is an item in the adjustments to the Group’s recurring profit for the year. This credit is split between cost of sales (£278,000) and administrative expenses (£50,000).
Following the recent rating review, we have calculated that the impact on the Group’s rates bill for the year ending 31 March 2018 will increase by 9% (£0.9 million). We expect rates to increase beyond next year in line with inflation. The improvement in our VAT position mentioned above will serve to mitigate part of this increased cost.
The table below reconciles store operating costs per the portfolio summary to cost of sales in the income statement:
| Year ended 31 March 2017 £000 |
Year ended 31 March 2016 £000 |
|
|---|---|---|
| Direct store operating costs per portfolio summary (excluding rent) | 31,717 | 30,086 |
| Rent included in cost of sales (total rent payable is included in portfolio summary) | 1,196 | 967 |
| Depreciation charged to cost of sales | 489 | 478 |
| Prior period VAT recovery | (278) | – |
| Head office operational management costs charged to cost of sales | 798 | 672 |
| Other (e.g. void costs of development sites) | 153 | 429 |
| Cost of sales per income statement | 34,075 | 32,632 |
Store EBITDA
Store EBITDA for the year included in the income statement was £73.5 million, an increase of £5.6 million (8%) from £67.8 million for the year ended 31 March 2016 (see Portfolio Summary). The overall EBITDA margin for all Big Yellow stores during the year was 68.5% an improvement from 68.0% last year. The table below reconciles Store EBITDA per the portfolio summary to gross profit in the income statement.
| Year ended 31 March 2017 £000 |
Year ended 31 March 2016 £000 |
|||||
|---|---|---|---|---|---|---|
| Store EBITDA per portfolio summary |
Reconciling items |
Gross profit per income statement |
Store EBITDA per portfolio summary |
Reconciling items |
Gross profit per income statement |
|
| Revenue(1) | 107,315 | 1,755 | 109,070 | 99,822 | 1,560 | 101,382 |
| Cost of sales(2) | (31,717) | (2,358) | (34,075) | (30,086) | (2,546) | (32,632) |
| Rent(3) | (2,126) | 2,126 | – | (1,893) | 1,893 | – |
| 73,472 | 1,523 | 74,995 | 67,843 | 907 | 68,750 | |
- (1)
- See note 3, reconciling items include management fees and non-storage income.
- (2)
- See reconciliation in cost of sales section above.
- (3)
- The rent shown above is the cost associated with leasehold stores, only part of which is recognised within gross profit in line with finance lease accounting principles. The amount included in gross profit is shown in the reconciling items in cost of sales.
Administrative expenses
Administrative expenses in the income statement have increased by £0.8 million compared to the prior year. £0.3 million of the increase is as a result of the write-off of the Group’s acquisition costs for the purchase of Lock and Leave, which has been adjusted from recurring profit. The remaining difference is due principally to an increased investment in IT infrastructure and inflationary increases. In addition, it is important to note that of our total £9.7 million administrative expense for the year, £2.3 million relates to the non-cash share based payments charge.
Interest expense on bank borrowings
The gross bank interest expense for the year was £11.0 million, a reduction of £0.2 million from the prior year. This reflects slightly higher average debt levels offset by a reduction in the Group’s average cost of debt. The average cost of borrowing during the year was 3.3% compared to 3.6% in the prior year.
Capitalised interest decreased by £0.1 million from the prior year. The interest capitalised in the year is principally on our Guildford Central store and the Wandsworth extension, but interest was only capitalised on these developments in the final quarter. During the prior year, interest was capitalised on our Cambridge development for the majority of the year.
Total interest payable has decreased in the statement of comprehensive income from £11.9 million to £11.8 million due to the reduction in interest payable, partly offset by the reduction in capitalised interest.
Profit before tax
The Group made a profit before tax in the year of £99.8 million, compared to a profit of £112.2 million in the prior year.
After adjusting for the gain on the revaluation of investment properties and other matters shown in the table below, the Group made an adjusted profit before tax in the year of £54.6 million, up 11% from £49.0 million in 2016.
| Profit before tax analysis | 2017 £m |
2016 £m |
|---|---|---|
| Profit before tax | 99.8 | 112.2 |
| Gain on revaluation of investment properties | (43.7) | (58.0) |
| Movement in fair value on interest rate derivatives |
(0.7) |
– |
| Acquisition costs written off | 0.3 | – |
| Prior year VAT recovery | (0.3) | – |
| Gains on surplus land | – | (4.8) |
| Share of non-recurring gains and losses in associates | (0.8) | (0.4) |
| Adjusted profit before tax | 54.6 | 49.0 |
The movement in the adjusted profit before tax from the prior year is illustrated in the table below:
| £m | |
|---|---|
| Adjusted profit before tax – year ended 31 March 2016 |
49.0 |
| Increase in gross profit | 5.9 |
| Decrease in net interest payable | 0.2 |
| Increase in administrative expenses | (0.5) |
| Increase in share of recurring profit of associates | 0.1 |
| Decrease in capitalised interest | (0.1) |
| Adjusted profit before tax – year ended 31 March 2017 |
54.6 |
Basic earnings per share for the year was 63.6p (2016: 71.9p) and fully diluted earnings per share was 63.1p (2016: 71.6p). Diluted EPRA earnings per share based on adjusted profit after tax was up 11% to 34.5p (2016: 31.1p) (see note 12).
REIT status
The Group converted to a Real Estate Investment Trust (“REIT”) in January 2007. Since then the Group has benefited from a zero tax rate on the Group’s qualifying self storage earnings. The Group only pays tax on the profits attributable to our residual business, comprising primarily of the sale of packing materials and insurance, and fees earned from the management of the Armadillo portfolio.
REIT status gives the Group exemption from UK corporation tax on profits and gains from its qualifying portfolio of UK stores. Revaluation gains on developments and our existing open stores will be exempt from corporation tax on capital gains, provided certain criteria are met.
The Group has a rigorous internal system in place for monitoring compliance with criteria set out in the REIT regulations. On a monthly basis, a report on compliance with these criteria is issued to the Executive. To date, the Group has complied with all REIT regulations, including forward looking tests.
Taxation
There is a tax charge in the current year of £0.3 million. This compares to a charge in the prior year of £0.2 million. The current year tax charge reflects an increase in profits in our residual business, in part offset by deductions allowed for tax purposes from the exercise of share options.
Dividends
The Board is recommending the payment of a final dividend of 14.1 pence per share in addition to the interim dividend of 13.5 pence, giving a total dividend for the year of 27.6 pence, an increase of 11% from the prior year.
REIT regulatory requirements determine the level of Property Income Dividend (“PID”) payable by the Group. On the basis of the full year distributable reserves for PID purposes, a PID of 24.0 pence per share is payable (31 March 2016: 18.1 pence). The balance of the total annual dividend represents an ordinary dividend declared at the discretion of the Board, in line with our policy to distribute 80% of our adjusted earnings per share in each reporting period. The PID for the year to 31 March 2017 accounts for 87% of the total dividend, up from 73% in the prior year.
The table below summarises the declared dividend for the year:
| Dividend (pence per share) | 31 March 2017 |
31 March 2016 |
|
|---|---|---|---|
| Interim dividend | – PID | 13.5p | 12.1p |
| – discretionary | nil p | nil p | |
| – total | 13.5p | 12.1p | |
| Interim dividend | – PID | 10.5p | 6.0p |
| – discretionary | 3.6p | 6.8p | |
| – total | 14.1p | 12.8p | |
| Interim dividend | – PID | 24.0p | 18.1p |
| – discretionary | 3.6p | 6.8p | |
| – total | 27.6p | 24.9p | |
Subject to approval by shareholders at the Annual General Meeting to be held on 20 July 2017, the final dividend will be paid on 27 July 2017. The ex-div date is 22 June 2017 and the record date is 23 June 2017.
Cash flow growth
The Group is strongly cash generative and draws down from its longer term committed facilities as required to meet obligations. The Group’s cash flow from operating activities for the year was £56.0 million, an increase of 1% from £55.5 million in the prior year. There are distortive working capital items in both years, and therefore the summary cash flow below sets out the free cash flow pre working capital movements, which shows an increase of 10% to £58.3 million in the year.
| Year ended 31 March 2017 £000 |
Year ended 31 March 2016 £000 |
|
|---|---|---|
| Cash generated from operations pre working capital movements |
69,574 |
64,023 |
| Net finance costs | (11,235) | (10,748) |
| Free cash flow pre working capital movements |
58,339 |
53,275 |
| Working capital movements | (2,365) | 2,192 |
| Cash flow from operating activities |
55,974 | 55,467 |
| Capital expenditure | (20,577) | (44,575) |
| Finance lease payments | (1,196) | (967) |
| Asset sales | 300 | 7,835 |
| Receipt from Capital Goods Scheme | 2,917 | 184 |
| Dividends received from associates | 396 | 270 |
| Cash flow after investing activities |
37,814 | 18,214 |
| Ordinary dividends | (41,158) | (36,443) |
| Issue of share capital | 286 | 378 |
| (Decrease)/increase in borrowings | (7,243) | 26,864 |
| Net cash (outflow)/inflow | (10,301) | 9,013 |
| Opening cash and cash equivalents | 17,207 | 8,194 |
| Closing cash and cash equivalents | 6,906 | 17,207 |
| Closing debt | (304,955) | (312,198) |
| Closing net debt | (298,049) | (294,991) |
Net debt is defined as gross bank borrowings less cash and cash equivalents.
In the year capital expenditure outflows were £20.6 million, down from £44.6 million in the prior year. The capital expenditure during the year principally relates to the acquisition of Nine Elms and Twickenham 2 from Lock and Leave. We have commenced construction in our Guildford Central store and the extension to our existing Wandsworth store and also continued to invest in fitting out further Phase 2 space at our existing stores.
The cash flow after investing activities was a net inflow of £37.8 million in the year, compared to an inflow of £18.2 million in 2016.
Balance sheet
Property
The Group’s 73 stores and 5 stores under development at 31 March 2017, which are classified as investment properties, have been valued individually by Cushman & Wakefield (“C&W”) and this has resulted in an investment property asset value of £1,190.5 million, comprising £1,110.9 million (93%) for the 66 freehold (including two long leaseholds) open stores, £43.5 million (4%) for the seven short leasehold open stores and £36.1 million (3%) for the five freehold investment properties under construction.
| Analysis of property portfolio | Value at 31 March 2017 |
Revaluation movement in year |
|---|---|---|
| Investment property | £1,154.4m | £44.4m |
| Investment property under construction |
£36.1m | (£0.7m) |
| Total | £1,190.5m | £43.7m |
Investment property
The valuations in the current year have grown from the prior year, with a revaluation surplus of £44.4 million arising on the open Big Yellow stores. Of this increase £19.5 million is due to an improvement in the cap rate used in the valuations. £24.9 million of the increase in value is due to the growth in cash flow from the assets and the operating assumptions adopted in the valuations. The growth in cash flow has been partly offset by the increase in property rates mentioned above.
The valuation is based on an average occupancy over the 10 year cash flow period of 82.1% across the whole portfolio.
The valuation is based on an average occupancy over the 10 year cash flow period of 82.1% across the whole portfolio. The table below provides further analysis of the valuations:
| Mature Leasehold |
Mature Freehold |
Established Freehold |
Developing Freehold |
Total | |
|---|---|---|---|---|---|
| Number of stores | 7 | 57 | 6 | 3 | 73 |
| MLA capacity (sq ft) | 420,000 | 3,535,000 | 406,000 | 190,000 | 4,551,000 |
| Valuation at 31 March 2017 | £43.5m | £957.6m | £108.1m | £45.2m | £1,154.4m |
| Value per sq ft | £104 | £271 | £266 | £238 | £254 |
| Occupancy at 31 March 2017 | 81.6% | 78.3% | 77.6% | 65.8% | 78.0% |
| Stabilised occupancy assumed | 84.4% | 82.2% | 85.6% | 85.0% | 82.8% |
| Net initial yield pre-admin expenses | 12.2% | 6.3% | 6.1% | 4.8% | 6.5% |
| Stabilised yield assuming no rental growth | 12.9% | 7.0% | 7.0% | 7.4% | 7.2% |
The initial yield pre-administration expenses assuming no rental growth 6.5% (2016: 6.5%) rising to a stabilised yield of 7.2% (2016: 7.2%). The stores are assumed to grow to stabilised occupancy in 22 months on average. Note 14 contains more detail on the assumptions underpinning the valuations.
There is little transaction activity in the prime self storage market, although there has been some activity for secondary assets. As referenced in note 14, C&W’s valuation report further confirms that the properties have been valued individually but that if the portfolio was to be sold as a single lot or in selected groups of properties, the total value could differ significantly. C&W state that in current market conditions they are of the view that there could be a material portfolio premium.
Investment property under construction
The investment property under construction valuation has increased by £2.1 million in the year. Capital expenditure accounts for £2.8 million of this increase, notably on Guildford Central. This has been partly offset by a revaluation deficit of £0.7 million across a couple of the development sites, where our projected construction costs have increased due to a change in the planned schemes.
Purchaser’s cost adjustment
As in prior years, we have instructed an alternative valuation on our assets using a purchaser’s cost assumption of 2.75% (see note 14 for further details) to be used in the calculation of our adjusted diluted net asset value. This Red Book valuation on the basis of 2.75% purchaser’s costs, results in a higher property valuation at 31 March 2017 of £1,258.5 million (£68.0 million higher than the value recorded in the financial statements). With the share of uplift on the revaluation of the Armadillo stores (£0.5 million), this translates to 43.2 pence per share.
The revised valuation translates into an adjusted net asset value per share of 607.6 pence (2016: 569.1 pence) after the dilutive effect of outstanding share options.
Surplus land
During the year, the Group sold its remaining piece of land for £0.3 million, which represented its book value. In the prior year, the Group sold its surplus site in Central Manchester for £8 million. This represented a profit over book value, after selling costs, of £4.8 million, which included the release of a provision previously made against the land of £2.3 million.
Receivables
At 31 March 2017 we have a receivable of £6.8 million in respect of payments due back to the Group under the Capital Goods Scheme as a consequence of the introduction of VAT on self storage from 1 October 2012.
The debtor has been discounted in accordance with International Accounting Standards to the net present value using the Group’s average cost of debt, with £0.3 million of the discount being unwound through interest receivable in the period. The gross value of the debtor before discounting is £7.2 million.
The Group received £2.9 million under the Scheme in the year.
Movement in adjusted NAV
The year on year movement in adjusted net asset value (see note 12) is illustrated in the table below:
| Movement in adjusted NAV | Equity shareholders funds £m |
EPRA adjusted NAV per share (pence) |
|---|---|---|
| 1 April 2016 | 899.0 | 569.1 |
| Adjusted profit | 54.6 | 34.6 |
| Equity dividends paid | (41.1) | (26.1) |
| Revaluation movements (including share of associate) |
44.5 | 28.2 |
| Movement in purchaser’s cost adjustment | 4.0 | 2.5 |
| Other movements (e.g. share schemes) | 2.4 | (0.7) |
| 31 March 2017 | 963.4 | 607.6 |
Borrowings
We focus on improving our cash flows allied to a relatively conservative debt structure secured principally against the freehold estate. For the year we had healthy Group interest cover of 6.2 times (2016: 6.0 times) based on free cash flow pre working capital movements against interest paid.
Our financing policy is to fund our current needs through a mix of debt, equity and cash flow to allow us to selectively build out our development pipeline and achieve our strategic growth objectives, which we believe improves returns for shareholders. We aim to ensure that there are sufficient medium-term facilities in place to finance our committed development programme, secured against the freehold portfolio, with debt serviced by our strong operational cash flows. Treasury continues to be closely monitored and its policy approved by the Board. We maintain a keen watch on medium and long-term rates and the Group’s policy in respect of interest rates is to maintain a balance between flexibility and hedging of interest rate risk. The table below summarises the Group’s debt facilities at 31 March 2017.
| Debt | Expiry | Facility | Drawn | Average cost |
|---|---|---|---|---|
| Aviva Loan | April 2027 | £90 million | £90 million | 4.9% |
| M&G loan | June 2022 | £70 million | £70 million | 3.7% |
| Bank loan (Lloyds & HSBC) | October 2021 | £190 million | £145 million | 1.8% |
| Total | Average term 5.9 years | £350 million | £305 million | 3.2% |
The Group’s loan with Aviva is at a fixed rate and amortises to £60 million from the original loan of £100 million over the course of its 15 year term. The M&G loan is 50% fixed and 50% floating and is for a bullet seven year term.
During the year the Group extended the term of its bank loan from October 2020 to October 2021. The revolving element of the bank loan pays a margin of 125 bps and the term debt 150 bps. The Group has an option to increase the amount of the revolving loan facility by a further £60 million during the course of the loan’s term.
During the year, the Group took out an interest rate derivative of £30 million expiring in October 2021 at a pre-margin cost of 0.4%, replacing an expiring swap which was at a pre-margin cost of 2.8%. The bank loan requires 45% of all drawn debt to be hedged or fixed.
The Group was in compliance with its banking covenants at 31 March 2017. The Group currently has a net debt to gross property assets ratio of 25%, and a net debt to adjusted net assets ratio of 31%.
At 31 March 2017, the fair value on the Group’s interest rate derivatives was a liability of £3.0 million. The Group does not hedge account its interest rate derivatives. As recommended by EPRA (European Public Real Estate Association), the fair value movements are eliminated from adjusted profit before tax, diluted EPRA earnings per share, and adjusted net assets per share.
Cash deposits are only placed with approved financial institutions in accordance with the Group’s Treasury policy.
Share capital
The share capital of the Company totalled £15.8 million at 31 March 2017 (2016: £15.7 million), consisting of 157,882,867 ordinary shares of 10p each (2016: 157,369,287 shares).
Shares issued for the exercise of options during the year amounted to 0.5 million at an average exercise price of 738p (2016: 0.7 million shares at an average price of 704p).
The Group holds 1.1 million shares within an Employee Benefit Trust (“EBT”). These shares are shown as a debit in reserves and are not included in calculating net asset value per share.
| 2017 No. |
2016 No. |
|
|---|---|---|
| Opening shares | 157,369,287 | 158,055,735 |
| Cancellation of treasury shares | – | (1,418,750) |
| Shares issued for the exercise of options |
513,580 |
732,302 |
| Closing shares in issue | 157,882,867 | 157,369,287 |
| Shares held in EBT | (1,122,907) | (1,122,907) |
| Closing shares for NAV purposes | 156,759,960 | 156,246,380 |
74.9 million shares were traded in the market during the year ended 31 March 2017 (2016: 56.9 million). The average mid-market price of shares traded during the year was 735.8p with a high of 886.5p and a low of 635.0p.
Investment in Armadillo
The Group has a 20% investment in Armadillo Storage Holding Company Limited and a 20% investment in Armadillo Storage Holding Company 2 Limited. In the consolidated accounts of Big Yellow Group PLC, our investments in the vehicles are treated as associates using the equity accounting method.
The occupancy of the Armadillo stores at 31 March 2017 was 551,000 sq ft, against a total capacity of 738,000 sq ft, with growth of 74,000 sq ft over the year, including 50,000 sq ft acquired with Canterbury and West Molesey in April 2016. The stores’ occupancy at 31 March 2017 was 74.7% (31 March 2016: 70.9%). The net rent achieved at 31 March 2017 by the Armadillo stores is £16.51 per sq ft, an increase of 6% from the same time last year. The 6% increase is in part due to the acquisition of Canterbury and West Molesey which increased the average net rent of the portfolio. Revenue increased by 17% to £10.5 million for the year to 31 March 2017 (2016: £9.0 million); the like-for-like increase in revenue was 4%.
The Armadillo Partnerships made a combined operating profit of £5.2 million in the year, of which Big Yellow’s share is £1.0 million. After net interest costs, the revaluation of investment properties (valued by Jones Lang Lasalle), deferred tax on the revaluation surplus and interest rate derivatives, the profit for the year was £7.2 million, of which the Group’s share was £1.4 million.
Big Yellow has a five year management contract in place in each Partnership. For the year to 31 March 2017, the Group earned management fees of £0.8 million. The Group’s share of the declared dividend for the year is £0.4 million, representing an 11% yield on our investment for the year.
- Go to
- Revenue
- Operating costs
- Store EBITDA
- Administrative expenses
- Interest expense on bank borrowings
- Profit before tax
- REIT status
- Taxation
- Dividends
- Cash flow growth
- Balance sheet
- Investment property
- Investment property under construction
- Purchaser’s cost adjustment
- Surplus land
- Receivables
- Borrowings
- Share capital
- Investment in Armadillo
Like-for-like revenue for the year was £107.3 million, an increase of 6% from the prior year.