Big Yellow Regulatory News (BYG)

Results for the Six Months ended 30 September 2018

Strong performance driven by occupancy and rate growth

1 See note 19 for glossary of terms

First Half Highlights

Commenting, Nicholas Vetch, Executive Chairman, said:

"We have continued to grow our like-for-like occupancy to 84.9% (up 3.4 percentage points from 81.5% at 31 March 2018) and remain focussed on our core objective of 90% across the portfolio. As we have reduced vacant capacity, our pricing model is delivering improved rental growth and we are pleased to have achieved growth in average net rent of 3.7%.

It is self-evident that the current political and economic outlook is more uncertain than usual, but as a management team we cannot influence the outcomes.

We remain focused on strengthening our market leading brand and operating platform; filling stores and then driving rental growth at higher occupancy levels; and developing new high quality stores, while maintaining a conservative capital structure.

We believe this strategy positions the Group to provide a good degree of protection against adversity, and at the same time flexibility to invest in our business and exploit growth opportunities when they come along."

- Ends -

ABOUT US

Big Yellow is the UK's brand leader in self storage. Big Yellow now operates from a platform of 97 stores, including 22 stores branded as Armadillo Self Storage, in which the Group has a 20% interest. We own a further eleven Big Yellow self storage development sites (including two extension sites), of which two have planning consent. The current maximum lettable area of the existing platform (including Armadillo) is 5.6 million sq ft. When fully built out the portfolio will provide approximately 6.3 million sq ft of flexible storage space. Of the Big Yellow stores and sites, 97% by value are held freehold and long leasehold, with the remaining 3% short leasehold.

The Group has pioneered the development of the latest generation of self storage facilities, which utilise state of the art technology and are located in high profile, accessible, main road locations. Our focus on the location and visibility of our Big Yellow stores, coupled with our excellent customer service and our market leading online platform, has created the most recognised brand name in the UK self storage industry.

For further information, please contact:

Results for the Six Months ended 30 September 2018

Chairman's Statement

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 2018. In this seasonally stronger six month trading period, the Group has delivered a solid set of results with like-for-like revenue growth of 7% compared to the same period last year, and an increasing contribution from rate growth, given the higher occupancy level of the portfolio.

We have continued to grow our like-for-like occupancy to 84.9% (up 3.4 percentage points from 81.5% at 31 March 2018) and remain focussed on our core objective of 90% across the portfolio. As we have reduced vacant capacity, our pricing model is delivering improved rental growth and we are pleased to have achieved growth in average net rent of 3.7%.

The Group's central overhead and operating expense is largely embedded in the business, and as a consequence increases in revenue should deliver higher growth in earnings. In the current period we have seen a 9% increase in adjusted earnings per share compared to the same period last year.

Financial results

Revenue for the period was £62.2 million (2017: £58.1 million), an increase of 7%. We have seen strong growth in cash flow from operating activities (after net finance costs) which has increased by 16% to £34.6 million for the period (2017: £29.9 million). The Group made an adjusted profit before tax in the period of £33.3 million, up 9% from £30.6 million for the same period last year (see note 6). The period on period growth in cash flow is higher than for adjusted profit before tax as a result of favourable working capital movements.

Adjusted diluted EPRA earnings per share were 20.9 pence (2017: 19.1 pence), an increase of 9%. The Group's statutory profit before tax for the period was £61.4 million, a decrease of 22% from £78.7 million for the same period last year, due to a lower revaluation gain in the period.

The Group's interest cover for the period (expressed as the ratio of cash generated from operations against interest paid) was 7.5 times (2017: 7.1 times). This is comfortably ahead of our internal minimum interest cover requirement of five times.

Investment in new capacity

We are pleased to report the acquisition of three high quality development sites since March, in Uxbridge (West London), Queensbury (North West London) and Hove. The 25,000 sq ft extension to our Wandsworth store completed in May 2018, and we opened a 25,000 sq ft store in Wapping in July 2018.

Construction is underway on our Manchester and Camberwell stores which we anticipate will open in Summer 2019 and Spring 2020 respectively. After lengthy consultations, we have submitted planning applications on our Kings Cross, Battersea and Bracknell developments. Good progress has been made on other consultations but as always, the process is subject to the vagaries of the planning system.

Big Yellow now has a pipeline comprising eleven development sites (including the proposed increases in capacity of our Battersea and Wapping stores) with a cost to complete of approximately £100 million in addition to the £23 million of capital expenditure spent in the first half. These store openings are expected to add approximately 680,000 sq ft of storage space to the portfolio, an increase of 15% from the current maximum lettable area of the Group's portfolio.

Our current estimate of net operating income at stabilisation, at today's prices, for this increase in capacity is in excess of £17.4 million. The total development cost including cost incurred to date is estimated to be approximately £198 million implying an 8.8% net operating income return on cost.

We continue to look for land and existing storage centres in large urban conurbations, with a focus on London and the South East, and should the current uncertainties throw up new opportunities, we will pursue them aggressively. That said, developing stores in these areas remains challenging given the competition for land and the pressure to produce more housing. We anticipate reporting further acquisitions in due course.

In September, the Group issued 7.2 million shares (4.5% of the issued share capital prior to the placing) at a price of 930 pence per share, raising £65.3 million (net of expenses). The proceeds will be used to acquire new development sites in attractive locations that will allow the Company to continue to deliver a contribution to earnings from external growth whilst maintaining a strong capital structure.

Dividends

The Group's dividend policy is to distribute 80% of adjusted earnings per share. The interim dividend declared is 16.7 pence per share. This has all been declared as Property Income Distribution ("PID"). The interim dividend declared represents an increase of 9% from 15.3 pence per share for the same period last year.

Outlook

It is self-evident that the current political and economic outlook is more uncertain than usual, but as a management team we cannot influence the outcomes.

We remain focused on strengthening our market leading brand and operating platform; filling stores and then driving rental growth at higher occupancy levels; and developing new high quality stores, while maintaining a conservative capital structure.

We believe this strategy positions the Group to provide a good degree of protection against adversity, and at the same time flexibility to invest in our business and exploit growth opportunities when they come along.

Nicholas Vetch

Executive Chairman

19 November 2018

Business and Financial Review

Trading performance

We are pleased to report a solid trading performance for the six months with an increase in like-for-like occupancy of 3.4 ppts from March 2018. Revenue growth for the half year was 7%.

As we have often said, a significant risk to this business is around competition and new supply in our areas of operation. Competitor store openings remain constrained, particularly in London and our other core areas of operation, due to the scarcity of land and competition from other land users. The SSA UK Annual Industry Report (2018) refers to 29 substantial self storage centres in excess of 12,000 to 15,000 sq ft opening in 2017. Many of these openings are not in the larger conurbations where we operate and by way of example, in London, there were five store openings, but also two closures in 2017. In 2018 to date there have been three new openings in London, including our Wapping store, and three store closures.

Customer demand

Demand for self storage is largely driven by need, with security, convenience, quality of product, service and location being key drivers. Awareness remains relatively low compared to commoditised products, such as hotel rooms or airline seats, albeit it is increasing slowly year on year with increased supply, marketing spend and customer use.

We are confident that Big Yellow benefits disproportionately from this improving market for our product, due to our market-leading brand and operating platform with our focus on London, the South East and large metropolitan cities. Our digital platform now accounts for 90% of our prospects, of which over half come through our mobile site.

Customers renting storage space whilst moving within the rental or owner occupied sectors represent 42% of move-ins during the period. 10% of our customers who moved in took storage space as a spare room for decluttering. 37% of our customers used the product because some event has occurred in their lives generating the need for storage; they may be moving abroad for a job, have inherited possessions, are getting together or separating, are students who need storage during the holidays, or homeowners developing into their lofts or basements. The balance of 11% of our customer demand during the period came from businesses. These demand segments are broadly in line with the same period last year.

Of our occupied space today, customers who are longer stay lifestyle users, decluttering into small rooms as an extension to their accommodation, occupy 10% to 15%; 50% to 55% are using it for less than 12 months for largely event driven reasons, which could be inheritance, moving, carrying out building work, and the balance of 35% are businesses, typically SMEs.

There is a continuing trend towards self-employment and smaller business start-ups in the UK, dynamics that are positive for self storage. Additionally, businesses in the UK are increasingly seeking flexible, convenient office and storage space as a means of operation, shying away from longer inflexible leases. The deindustrialisation of big cities with the conversion of commercial space into residential and other uses is also a driver for demand from the SME market seeking flexible warehouse space. Our recent survey of our business customers showed that 60% of our business customers were start-ups who have never rented space anywhere else before and for approximately 50% it was their only business space.

Domestic demand represents approximately 80% of customers and 65% of space at any point in time. Given the continuing issues around the shortage of housing supply, planning continues to be focussed on the creation of more residential stock particularly in our larger conurbations. Most of this is being built with high density and a lack of storage space. Additionally, the trend to more of our customers being renters rather than owners of property where they may move more and need surplus space is also supportive to demand for our product.

Store occupancy

Prospects for the six months were slightly up on the same period last year. The table below shows the monthly move-in and move-out activity over the half year:

The performance in the prior period was a strong comparator, and hence move-ins were down 1% on the same period last year, although up 3% on the six month period to 30 September 2016. Across the period, move-outs were broadly in line with the prior period. October's move outs show a reduction on the prior year, following the lower levels of move-ins over the summer and this trend has continued into November.

Occupancy growth over the six month period was 174,000 sq ft (2017: 265,000 sq ft).

Our third quarter is historically the weakest trading quarter and in recent years, we have typically lost two to three percentage points of occupancy before a return to growth in the new year. The third quarter last year, which followed a strong summer showed a loss of 3.7 ppts of MLA, which was unusually high. However, in the current year, we have lost 56,000 sq ft (1.2% of maximum lettable area "MLA") since the end of September, compared to a loss of 86,000 sq ft (1.9% of MLA) at the same stage last year. The year-on-year like-for-like increase in occupancy at the date of these results is 2.1 ppts. We do expect to return to occupancy growth in our seasonally stronger March quarter.

The 69 mature stores are 85.0% occupied compared to 83.7% at the same time last year. The 3 established stores have grown in occupancy from 83.5% to 84.5%. The 3 developing stores added 29,000 sq ft of occupancy in the past 12 months to reach closing occupancy of 48.6%. Overall like-for-like store occupancy has increased over the 12 months from 83.4% to 84.9%, and by 3.4 ppts from 1 April 2018.

Pricing and rental yield

Our core proposition remains a high quality product, competitively priced, with excellent customer service, providing value for money to our customers. We offer a headline opening promotion of 50% off for up to the first 8 weeks, and we continue to manage pricing dynamically, taking account of room availability, customer demand and local competition.

Our pricing model reduces promotions and increases asking prices where individual units are in scarce supply. This lowering of promotions, coupled with price increases to existing and new customers, leads to an increase in net achieved rents. With higher occupancy level across the portfolio, the average net achieved rent grew by 3.7% compared to the same period last year. The closing net rent at 30 September 2018 grew by 1.7% from 31 March 2018 and by 3.5% from 30 September 2017.

The table below illustrates the growth in net rent per sq ft for the portfolio by average occupancy over the six months (on a non-weighted basis). The analysis excludes our recent openings in Guildford Central and Wapping.

Security of income

Our principal financial aims remain to grow cash flow, earnings and dividend. We believe that self storage income is essentially evergreen income with highly defensive characteristics driven from buildings with very low obsolescence risk. Although our contract with our customers is in theory as short as a week, we do not need to rely on contracts for our income security. At 30 September 2018 the average length of stay for existing customers was 26 months (2017: 24 months). For all customers, including those who have moved out of the business, the average length of stay is 8.5 months (2017: 8.4 months). 32% of our customers by occupied space have been storing with us for over two years (2017: 30%), and a further 17% of customers have been in the business for between one and two years (2017: 17%).

The location of our stores, brand, security, and most importantly customer service, together with the diversity of our 58,000 customers, serve better than any contract in providing income security.

Revenue

Total revenue for the six month period was £62.2 million, an increase of £4.1 million (7%) from £58.1 million in the prior period. Like-for-like revenue (see glossary in note 19) was £62.0 million, an increase of 7% from the prior period driven by growth in both occupancy and rate.

Other sales (included within the above), comprising the selling of packing materials, insurance and storage related charges, represented 14.5% of total store revenue for the period (2017: 14.8%) and generated revenue of £8.8 million for the period, up 4% from £8.4 million in 2017 (see Portfolio Summary).

The other revenue earned is management fee income from the Armadillo Partnerships and tenant income on sites where we have not started development.

Operating costs

Cost of sales comprises principally 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 period is shown in the table below (see Portfolio Summary):

Store operating costs have increased by £1.0 million (6%) compared to the same period last year. Of this increase £0.3 million relates to our new stores at Guildford Central and Wapping. The Group's property rates have increased by £0.3 million from the prior period, with the Group receiving rates rebates on two stores last year, which reduced last year's expense. The remaining increase of £0.4 million is largely due to an increased investment in marketing some of which is timing related, with the balance tactical to maintain the Group's online market share and enquiry levels. This investment is marketing is broadly in line with the amount spent in the second half of the last financial year, and we are projecting to invest approximately £5.3 million in marketing over the full year, most of which is digital execution.

The cost of insurance and packing materials varies with ancillary revenue. Our investment in LED lighting has contributed to a reduction in our utility expenditure, and we have received a profit-share to offset our insurance costs in the period. The other increases in store operating costs are inflationary and offsetting.

The table below reconciles store operating costs per the portfolio summary to cost of sales in the income statement:

Store EBITDA

Store EBITDA for the period was £42.5 million, an increase of £2.8 million (7%) from £39.7 million for the period ended 30 September 2017 (see Portfolio Summary).  The overall EBITDA margin for all Big Yellow stores during the period was 69.7%, up from 69.6% in 2017.

All 75 stores open at the period end are trading profitably at the Store EBITDA level, with the exception of Guildford Central which opened in March 2018.

Administrative expenses

Administrative expenses in the income statement have increased by £0.5 million. The increase is due a number of factors; an increase in the IFRS 2 charge (£150,000), an increase in donations to the Big Yellow Foundation (£30,000), increased investment in CSR (£30,000), legal costs associated with GDPR compliance (£15,000), increased staffing levels in IT, marketing and HR (£75,000) with the balance of £200,000 due to inflationary increases.

The non-cash share based payments charge represents £1.3 million of the overall £5.6 million expense.

Interest

The interest on bank borrowings during the period was £5.0 million, £0.1 million higher than the same period last year. Average debt levels were approximately 6% higher than the prior period, however the Group benefited from a lower average cost of borrowing compared to the same period last year following lower margins post refinancing in 2017 and the cancellation of interest rate swaps and associated re-hedging.

Interest capitalised in the period amounted to £0.4 million (2017: £0.2 million), principally arising on the construction of our Manchester, Camberwell and Wapping stores.

Results

The Group's statutory profit before tax for the period was £61.4 million, a decrease of 22% from £78.7 million for the same period last year. The decrease is due to the lower revaluation surplus in the period, partially offset by the increase in adjusted profit before tax (as explained below).

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 period of £33.3 million, up 9% from £30.6 million in 2017.

In the period to 30 September 2017, the Group sold land at its Richmond store to an adjoining landowner for £650,000. The valuation of the store was not impacted by this disposal, hence the full proceeds were recorded as profit on part disposal of investment property and are an adjusting item above. 

The movement in the adjusted profit before tax from the prior year is shown in the table below, with the majority of the increase being driven by the improvement in gross profit:

Diluted EPRA earnings per share was 20.9 pence (2017: 19.1 pence), an increase of 9% from the same period last year.

Cash flow

Cash flows from operating activities (after net finance costs) have increased by 16% to £34.6 million for the period (2017: £29.9 million). The period on period growth in cash flow is higher than for adjusted profit before tax as a result of favourable working capital movements. These operating cash flows are after the ongoing maintenance costs of the stores, which are on average £36,000 per store per annum. The Group's net debt has reduced over the period to £270.3 million (March 2018: £323.7 million), following the equity raise in September 2018.

The Group's interest cover for the period (expressed as the ratio of cash generated from operations against interest paid) was 7.5 times (2017: 7.1 times).

The capital expenditure in the period principally relates to the acquisitions of Uxbridge and Hove, construction costs on our new stores at Wapping and Manchester, and the completion of the extension to our Wandsworth store.

Taxation

The Group is a Real Estate Investment Trust ("REIT"). We benefit from a zero tax rate on our qualifying self storage earnings. We only pay corporation tax on the profits attributable to our residual business, comprising primarily of the sale of packing materials and insurance, and management fees earned by the Group.

There is a £0.3 million tax charge in the residual business for the period ended 30 September 2018 (six months to 30 September 2017: £0.3 million).

Dividends

REIT regulatory requirements determine the level of Property Income Distribution ("PID") payable by the Group. A PID of 16.7 pence per share is proposed as the total interim dividend, an increase of 9% from 15.3 pence per share PID for the same period last year.

The interim dividend will be paid on 7 January 2019. The ex-div date is 6 December 2018 and the record date is 7 December 2018.

Financing and treasury

Our financing policy is to fund our current needs through a mix of debt, equity and cash flow to allow us to build out, and add to, our development pipeline and achieve our strategic growth objectives, which we believe improve 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. 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.

During the period the Group extended the term of its bank loan by a further year, and retains an option to extend the loan by a further year. The Group also has an option to increase the amount of revolving loan by a further £60 million during the course of the loan's term.

The table below summarises the Group's debt facilities at 30 September 2018. The average cost has increased to 3.3% from 2.9% at 31 March 2018 following the repayment of variable rate bank debt following the placing in September, coupled with the increase in base rate in August 2018.

The Group was comfortably in compliance with its banking covenants at 30 September 2018.

The refinancing costs of £1.5 million shown in the prior period income statement relate to the unamortised loan arrangement costs of the previous bank facility, and the write-off of the costs of the new bank facility in accordance with IAS 39. This was eliminated from the Group's adjusted profit for that period. In the prior period, the Group cancelled an interest rate derivative that was in place over half of the M&G loan (2.64% expiring in June 2022) at a cost of £3.4 million and replaced it with a new derivative until June 2023 at a pre margin rate of 0.76%.

The net debt to gross property assets ratio is 20% (2017: 24%) and the net debt to adjusted net assets ratio (see net asset value section below) is 23% (2017: 30%).

Property

Investment property

The Group's investment properties are carried at the half year at Directors' valuation. They are valued externally by Cushman and Wakefield LLP ("C&W") at the year end. The Directors' valuations reflect the latest cash flows derived from each of the stores at the end of September.

In performing the valuations, the Directors consulted with C&W on the capitalisation rates used in the valuations. The Directors consider that the capitalisation rates are unchanged since the start of the financial year. C&W support this view. In the prior period there was a cap rate reduction of 15bps applied to the Group's London and South East stores. This explains the lower revaluation surplus in the current period compared to the same period last year.

The Directors consider that the other core assumptions underpinning the valuations including the stabilised occupancy assumptions used, rental growth, and discount rates used by C&W in the March 2018 valuations are still appropriate at the September valuation date (see the Group's annual report for the year ended 31 March 2018 for the full detail of the valuation methodology).

At 30 September 2018 the total value of the Group's properties is shown in the table below:

The revaluation surplus for the open stores in the period was £27.3 million, as the growth in cash flows feeds through to the valuation. There is a small surplus on the investment property under construction, due to an increase in the anticipated size on one of our schemes.

The initial yield on the portfolio before administration expenses and assuming no rental growth, is 6.6% rising to a stabilised yield of 6.9% (31 March 2018: 6.5% rising to 6.9%).

Development pipeline

The Group has acquired three development sites since March, in Uxbridge, Hove and Queensbury. These acquisitions take the total pipeline to approximately 680,000 sq ft, representing 15% of current MLA, with an estimated future cost to complete of £100 million. The status of the Group's development pipeline is summarised in the table below:

The capital expenditure forecast for the remainder of the financial year (excluding any new site acquisitions) is approximately £15 million, which principally relates to the completion of the purchase of Queensbury and construction costs incurred on Manchester and Camberwell.

The Group manages the construction and fit-out of its stores in-house, as we believe it provides both better control and quality, and we have an excellent record of building stores on time and within budget.

Capital Goods Scheme receivable

At 30 September 2018 we had a receivable of £2.9 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. To date, we have received payments under the Capital Goods Scheme of £13.1 million, receiving £1.4 million during the period and £0.4 million subsequent to the period end.

Net asset value

The adjusted net asset value is 697.7 pence per share (see note 13), up 3% from 675.5 pence per share at 31 March 2018 (rebased for the impact of the placing). The table below reconciles the movement from 31 March 2018:

Armadillo Self Storage

In 2014 we set up a joint venture with a consortium of Australian investors with the aim of acquiring existing self storage facilities as a consolidator in the secondary market. 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 portfolios at 30 September 2018 is 740,000 sq ft, against a total capacity of 965,000 sq ft representing occupancy at 30 September 2018 of 76.7% (31 March 2018: 73.9%). The revenue of the portfolio increased by 21% to £7.6 million for the six months to 30 September 2018 (2017: £6.3 million). On a like-for-like basis, the increase was 6%.

The Armadillo Partnerships made a combined operating profit of £2.7 million in the period, of which Big Yellow's share is £0.5 million. After net interest costs, the revaluation of investment properties, deferred tax on the revaluation surplus and interest rate derivatives, the profit for the period was £4.1 million, of which the Group's share was £0.8 million. 

Included within administrative expenses in Armadillo 1 is a £1 million accrual for a performance fee payable to Big Yellow in April 2019. The final fee calculation will be based on the 31 March 2019 external property valuation for the Armadillo 1 portfolio. Under revenue recognition accounting principles, Big Yellow will recognise the fee to revenue in the second half of the year should the performance conditions be met.

Big Yellow has a responsibility for operating the assets and receives a management fee from the Partnerships, which for the period to 30 September 2018 amounted to £0.6 million. The Group's share of the interim dividend declared for the period is £0.3 million, representing a 6.6% yield on our equity invested for the six months.

PORTFOLIO SUMMARY - BIG YELLOW STORES

(1) The mature stores have been open for more than six years at 1 April 2018. The established stores have been open for between three and six years at 1 April 2018 and the developing stores have been open for fewer than three years at 1 April 2018.

(2) See glossary in note 19.

(3) Rent for seven mature short leasehold properties accounted for as investment properties and finance leases under IFRS with total self storage capacity of 420,000 sq ft, and a long leasehold mature store with a capacity of 64,000 sq ft. The EBITDA margin for the 62 freehold mature stores is 72.2%, and 51.3% for the seven short leasehold mature stores.

(4) The table below reconciles Store EBITDA to gross profit in the income statement.

(1) See note 2 of the interim statement, reconciling items are management fees and non-storage income.

(2) See reconciliation in cost of sales section in Business and Financial Review.

(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.

PORTFOLIO SUMMARY - ARMADILLO STORES

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

- the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

- the interim management report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

James Gibson John Trotman

Director Director

19 November 2018

Adjusted profit before taxation is shown in note 6 and EPRA earnings per share is shown in note 8.

All items in the income statement relate to continuing operations.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2018 (unaudited)

Six months ended 30 September 2017 (unaudited)

Year ended 31 March 2018 (audited)

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Six months ended 30 September 2018

Notes to the Interim Review

1. ACCOUNTING POLICIES

Basis of preparation

The results for the period ended 30 September 2018 are unaudited and were approved by the Board on 19 November 2018. The financial information contained in this report in respect of the year ended 31 March 2018 does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

The annual financial statements of Big Yellow Group PLC are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standards 34 "Interim Financial Reporting", as adopted by the European Union.

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as were applied in the Group's latest annual audited financial statements, except that a number of new standards and amendments to standards have been issued and are now effective for the Group. The most significant of these, and their impact on the Group's accounting, are set out below:

IFRS 9 Financial Instruments (effective from 1 January 2018)

On 1 April 2018, the Group adopted IFRS 9 Financial Instruments. The standard applies to the classification and measurement of financial assets and liabilities, impairment provisioning and hedge accounting. The standard also introduced an expected credit losses model, which replaced the incurred loss impairment model. The changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively. The adoption, however, has not had a material impact on the recognition and measurement of income and costs in the Income Statement or of assets and liabilities on the Balance Sheet. The Group has not identified any significant changes in how it accounts for financial assets or liabilities under IFRS 9. The Directors have assessed the impact of impairment losses recognised for trade receivables under IFRS 9 at 30 September 2018 based on actual losses experienced over the past five years and consider the impact to the Group's bad debt provision is immaterial. The Group does not apply hedge accounting.

There will be incremental disclosures included in the Annual Report for the year ended 31 March 2019 to notes that have not been included in the interim statement.

IFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018)

On 1 April 2018, the Group adopted IFRS 15 Revenue from Contracts with Customers. The requirements of the standard have been applied retrospectively to each prior reporting period presented in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

IFRS 15 establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Applying IFRS 15, an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Prior to its adoption, and as disclosed in the Group's Annual Report for the year ended 31 March 2018, the Group completed a detailed review of the requirements of IFRS 15 against its current accounting policies. The Group concluded that there was no material change in the amounts and timing of revenue recognised following the adoption of the standard and no transition adjustments have been made. In making this assessment, the Group considered its timing of revenue recognition based on discrete performance obligations, accounting for opening offer discounts and principal versus agent relationships. Each customer licence agreement is terminable on seven days' notice by the customer at any time and in specific circumstances by the Group. Each licence has a discrete performance obligation with revenue recognised from day one. The opening offer discount and principal versus agent relationship were also assessed under IFRS 15 and the accounting for these have remained unchanged.

Refer to note 2 for the disclosure of revenue. The Group's accounting policy for revenue remains unchanged.

Amendments have also been made to IFRS 2 (Share Based Payments) and IAS 40 Investment Property. These were effective from 1 January 2018 and adopted by the Group on 1 April 2018. The impact on the Group from adopting these amendments is immaterial.

Valuation of assets and liabilities held at fair value

For those financial instruments held at fair value, the Group has categorised them into a three level fair value hierarchy based on the priority of the inputs to the valuation technique in accordance with IFRS 13. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety. The fair value of the Group's outstanding interest rate derivatives has been estimated by calculating the present value of future cash flows, using appropriate market discount rates, representing Level 2 fair value measurements as defined by IFRS 13. Investment Property and Investment Property under Construction have been classified as Level 3. This is discussed further in note 14.

Going concern

A review of the Group's business activities, together with the factors likely to affect its future development, performance and position, is set out in the Chairman's Statement and the Business and Financial Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are shown in the balance sheet, cash flow statement and accompanying notes to the interim statement. Further information concerning the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk can be found in the Strategic Report within the Group's Annual Report for the year ended 31 March 2018.

The Directors have considered carefully the Group's trading performance and cash flows in the context of the uncertain global economic environment, Brexit and the other principal risks to the Group's performance. After reviewing Group and Company cash balances, projected cash flows, and the borrowing facilities available to the Group, the Directors believe that the Group and Company have adequate resources to continue operations for the foreseeable future. In reaching this conclusion, the Directors have carefully considered the Group's operating plan and budget and projections contained in the detailed longer term business plan. For this reason, they continue to adopt the going concern basis in preparing the half year report.

2. SEGMENTAL INFORMATION

Revenue represents amounts derived from the provision of self storage accommodation and related services which fall within the Group's ordinary activities after deduction of trade discounts and value added tax. The Group's net assets, revenue and profit before tax are attributable to one activity, the provision of self storage accommodation and related services. These all arise in the United Kingdom.

Non-storage income derives principally from rental income earned from tenants of properties awaiting development.

Further analysis of the Group's operating revenue and costs are in the Portfolio Summary and the Business and Financial Review.

The seasonality of the business is discussed in note 18.

3. INVESTMENT INCOME

4. FINANCE COSTS

The refinancing costs in the prior period relate to the unamortised loan arrangement costs of the previous bank facility which was extinguished, and the write-off of the costs of the new bank facility in accordance with IAS 39.

5. TAXATION

The Group converted to a REIT in January 2007. As a result, the Group does not pay UK corporation tax on the profits and gains from its qualifying rental business in the UK if it meets certain conditions. Non-qualifying profits and gains of the Group are subject to corporation tax as normal. The Group monitors its compliance with the REIT conditions. There have been no breaches of the conditions to date.

6. ADJUSTED PROFIT BEFORE TAX

Adjusted profit before tax which excludes gains and losses on the revaluation of investment properties, changes in fair value of interest rate derivatives, net gains and losses on disposal of investment property, and material non-recurring items of income and expenditure have been disclosed as, in the Board's view, this provides a clearer understanding of the Group's underlying trading performance. 

7. DIVIDENDS

The proposed interim dividend of 16.7 pence per ordinary share will be paid to shareholders on 7 January 2019. The ex-div date is 6 December 2018 and the record date is 7 December 2018. The interim dividend is all Property Income Distribution.

8. EARNINGS PER ORDINARY SHARE

The European Public Real Estate Association ("EPRA") has issued recommended bases for the calculation of certain per share information and these are included in the following table.

The calculation of basic earnings is based on profit after tax for the period. The weighted average number of shares used to calculate diluted earnings per share has been adjusted for the conversion of share options.

EPRA earnings and earnings per ordinary share have been disclosed to give a clearer understanding of the Group's underlying trading performance.

9. NON-CURRENT ASSETS

a) Investment property

Capital commitments at 30 September 2018 were £7.4 million (31 March 2018: £13.7 million). 

During the prior period the Group sold land at its Richmond store to an adjoining landowner for £650,000. The valuation of the store was not impacted by this disposal, hence the full proceeds were recorded as profit on part disposal of investment property. This was eliminated from the Group's adjusted profit for the prior period.

b) Plant, equipment and owner-occupied property

c) Intangible assets

The intangible asset relates to the Big Yellow brand, which was acquired through the acquisition of Big Yellow Self Storage Company Limited in 1999. The carrying value of £1.4 million remains unchanged from the prior year as there is considered to be no impairment in the value of the asset. The asset has an indefinite life and is tested annually for impairment or more frequently if there are indicators of impairment.

d) Investment in associates

Armadillo Partnerships

The Group has a 20% interest in Armadillo Storage Holding Company Limited ("Armadillo 1") and a 20% interest in Armadillo Storage Holding Company 2 Limited ("Armadillo 2"). Both interests are accounted for as associates, using the equity method of accounting. 

In March 2018, Armadillo 2 raised £4.5 million of equity, which alongside additional debt from Lloyds, funded the acquisition of 1st Storage Centres. Big Yellow's equity invested was £0.9 million (20% of the total raised), with the balance funded by our partners. The Group's total subscription for partnership capital and advances in Armadillo 1 is £1,920,000 and £2,689,000 in Armadillo 2.

The figures below show the trading results of the Armadillo Partnerships, and the Group's share of the results and the net assets.