Big Yellow Regulatory News (BYG)

Results for the Six Months ended 30 September 2019

1 See note 19 for glossary of terms

First Half Highlights

·; Like-for-like revenue increased by 4.2% driven by growth in average occupancy and rate

·; Average achieved net rent per sq ft increased by 1.6% period on period, closing net rent up by 1.9% from September 2018, and currently up 3.1% from 1 April 2019

·; Cash flow from operating activities (after net finance costs) increased by 4.0% to £36.0 million

·; Adjusted profit before tax up 6.0% to £35.3 million, earnings per share impacted by the full dilutive effect of the September 2018 placing

·; 17.1 pence per share interim dividend declared

·; Acquisition of new development sites in Slough, Hayes (West London) and Harrow (North West London) taking pipeline to 13 development sites of approximately 890,000 sq ft (19% of current MLA)

·; Planning consent granted for new stores in Uxbridge (West London), Queensbury (North West London) and Hove

·; Capital structure remains secure with strong interest cover, post dividend cash flow generation and £49 million of available committed facilities

Commenting, Nicholas Vetch, Executive Chairman, said:

"The economic and political environment is currently less than helpful, however despite this we have continued to deliver growth in revenue, cash flow and profit.

We have a proven business model which we have developed over the last two decades and we will continue to innovate and optimise our marketing strategy and improve our operating performance to drive revenue. Crucially, we will also maintain our focus on managing costs such that revenue growth transmits efficiently to the bottom line.

Following the September 2018 placing raising £65.3 million, we have made good progress building the pipeline of new stores and securing planning consents, and the impact of dilution has now washed through. As we open new stores from Spring 2020, we anticipate that shareholders will see an increasing contribution in our performance from that expansive strategy."

- Ends -

ABOUT US

Big Yellow is the UK's brand leader in self storage. Big Yellow now operates from a platform of 100 stores, including 25 stores branded as Armadillo Self Storage, in which the Group has a 20% interest. We own a further thirteen Big Yellow self storage development sites, of which six have planning consent. The current maximum lettable area of the existing platform (including Armadillo) is 5.7 million sq ft. When fully built out the portfolio will provide approximately 6.6 million sq ft of flexible storage space. Of the Big Yellow stores and sites, 98% by value are held freehold and long leasehold, with the remaining 2% 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 2019

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 2019. Since December last year we have seen increased political uncertainty around Brexit, impacting business and consumer confidence and ultimately resulting in slowing economic activity. Despite this backdrop we have continued to deliver growth in revenue, cash flow and profit, whilst at the same time investing in our development pipeline.

The Group's like-for-like revenue was up 4.2% compared to the same period last year. Like-for-like occupancy increased slightly to 84.1% (up 0.3 percentage points from 83.8% at 30 September 2018). Average rate growth over the period was 1.6%, and at the date of these results net rent per sq ft is up 3.1% since 1 April 2019. Despite the slower growth and weaker backdrop we remain committed to our core objective of 90% same store occupancy across the portfolio.

Financial results

Revenue for the period was £64.3 million (2018: £62.2 million), an increase of 3.4%, including the impact of the closure of Battersea for redevelopment in March 2019 and the opening of Manchester in May 2019. We have seen growth in cash flow from operating activities (after net finance costs) which has increased by 4.0% to £36.0 million for the period (2018: £34.6 million).

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. The Group made an adjusted profit before tax in the period of £35.3 million, up 6.0% from £33.3 million for the same period last year (see note 6).

Adjusted diluted EPRA earnings per share were 21.0 pence (2018: 20.9 pence), an increase of 0.5% with the adjusted profit growth diluted following the placing of 7.2 million shares in September 2018, raising £65.3 million to fund the development of new stores. The Group's statutory profit before tax for the period was £95.8 million, an increase of 56% from £61.4 million for the same period last year, due to a higher 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 7.3 times (2018: 7.5 times). This is comfortably ahead of our internal minimum interest cover requirement of five times.

Dividends

The Group's dividend policy is to distribute 80% of full year adjusted earnings per share. Given the dilutive impact of the September 2018 placing, we have declared an interim dividend of 17.1 pence per share, which is an increase of 2.4% on the prior period. This has all been declared as Property Income Distribution ("PID"). The total dividend for the full year will be determined in line with our stated policy.

Investment in new capacity

We have spent the last four to five years building a sustainable pipeline of new stores to provide a source of external growth complementing the returns generated by the existing operating platform. We were therefore pleased to see progress in the period with three planning consents being granted and construction now under way on four new stores.

During the period the Group acquired a 6.4 acre site in Harrow, London for £20 million. The land has the benefit of an outline planning consent and Big Yellow will therefore make a reserved matters planning application for a 75,000 to 80,000 sq ft self storage centre and for approximately 110,000 sq ft of warehouse space. Upon receipt of planning the Group will decide how to deal with the five acres of land which will be surplus to requirement. The Group also completed the acquisitions of Hayes, West London and Slough during the period.

We opened our landmark 60,000 sq ft store in central Manchester in May 2019. The store has started strongly and was 28% occupied at the end of September, and we expect it to break even shortly at the EBITDA level.

The construction of our 77,000 sq ft store in Camberwell, London is progressing well and is expected to open in May 2020. We have commenced the construction of our new 71,000 sq ft Battersea store which was closed in March 2019 for demolition, and we anticipate it will re-open in Summer 2020. We have started on site at Bracknell, our 57,000 sq ft proposed store, with a view to opening in Summer 2020.

Planning permission was granted in July for a 52,000 sq ft store on our site in Uxbridge, West London. Construction is expected to commence in January 2020, with the store scheduled to open in early 2021. We also received planning permission in October for a new 55,500 sq ft store in Hove. The existing building is currently occupied by a car dealership until Summer 2020 and construction will commence during the Autumn of 2020, with a view to the store opening in Spring 2022. In addition, we obtained planning permission in November for a 58,000 sq ft store in Queensbury, North West London.

The joint application at Kings Cross with the adjoining landowner, which was subject to an appeal in July 2019, was unsuccessful. We have therefore now submitted a standalone application for a slightly smaller store of approximately 122,000 sq ft based on our detailed discussions with the London Borough of Islington and the appeal determination notice.

We have commenced our planning discussions on the recently acquired sites and will report back on our progress in due course.

Big Yellow now has a pipeline comprising thirteen development sites with a cost to complete of approximately £95 million in addition to the £49.5 million of capital expenditure spent in the first half. These store openings are expected to add approximately 890,000 sq ft of storage space to the portfolio, an increase of 19% 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 £20.7 million. The total development cost including cost incurred to date is estimated to be approximately £230 million implying a 9.0% net operating income return on cost.

We continue to look for land and existing storage centres in large urban conurbations, focussing as previously stated on London and the South East. Developing stores in these target areas remains challenging given the competition for land and the pressure to produce more housing.

During the period the Group sold the part of the Wyvern Industrial Estate in New Malden, London that it does not occupy for £11.8 million. Big Yellow acquired the entire estate for £29 million (including costs) in January 2019, giving security of tenure over our 81,000 sq ft New Malden store, and extinguishing the rental liability. The current net operating income of the Big Yellow store is approximately £1.7 million, representing a 10% yield on the net investment of £17.2 million.

Outlook

The economic and political environment is currently less than helpful, however despite this we have continued to deliver growth in revenue, cash flow and profit.

We have a proven business model which we have developed over the last two decades and we will continue to innovate and optimise our marketing strategy and improve our operating performance to drive revenue. Crucially, we will also maintain our focus on managing costs such that revenue growth transmits efficiently to the bottom line.

Following the September 2018 placing raising £65.3 million, we have made good progress building the pipeline of new stores and securing planning consents, and the impact of dilution has now washed through. As we open new stores from Spring 2020, we anticipate that shareholders will see an increasing contribution in our performance from that expansive strategy.

Nicholas Vetch

Executive Chairman 18 November 2019

Business and Financial Review

Trading performance

These results reflect a resilient trading performance for the six months given the economic and political backdrop and levels of consumer and business uncertainty which have persisted over the last three quarters. Like-for-like occupancy increased by 1.7 ppts from March 2019, and like-for-like revenue growth for the half year was 4.2%.

This business, as with many, is subject to the ebbs and flows of demand driven by economic activity, however, a key risk to the business is around supply and competition in our key markets.

Growth in new self storage centre openings, excluding container operators, over the last five years has averaged 2% to 3% of total capacity per annum, down significantly from the previous decade. Additionally, in our core markets in London and the South East, high land values driven by competing uses such as residential, and complex planning rules, are making the creation of new supply very difficult for all operators. We believe that we are in a relatively strong position given the strength of our balance sheet and our proven property development expertise, together with our ability to access funding to exploit the right opportunities.

Store occupancy

Despite prospects for the six months being slightly up on the same period last year, we are continuing to experience some hesitancy amongst our prospect base resulting in 4% lower move-ins over the six months. Move-outs were also down by 3% over the period. The table below shows the monthly move-in and move-out activity over the half year:

Occupancy growth over the six month period was 100,000 sq ft (2018: 174,000 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. In the current year, we have lost 76,000 sq ft (1.6% of maximum lettable area "MLA") since the end of September, compared to a loss of 56,000 sq ft (1.2% of MLA) at the same stage last year, and a loss of 86,000 sq ft (1.8% of MLA) in 2017. We do expect to return to occupancy growth in our seasonally stronger March quarter.

The 69 mature stores are 84.9% occupied compared to 85.1% at the same time last year (with Battersea closed for redevelopment in March 2019). The three established stores have maintained their occupancy at 83.1%. The three developing stores added 40,000 sq ft of occupancy in the past 12 months to reach closing occupancy of 40.4%.

Overall like-for-like store occupancy has increased over the 12 months from 83.8% to 84.1%, and by 1.7 ppts from 1 April 2019.

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. The average net achieved rent grew by 1.6% compared to the same period last year. The closing net rent at 30 September 2019 grew by 1.6% from 31 March 2019 and by 1.9% from 30 September 2018. At the date of these results, the Group's net rent per sq ft has increased by 3.1% since 1 April 2019.

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 opening in Manchester.

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 2019 the average length of stay for existing customers was 26 months (2018: 26 months). For all customers, including those who have moved out of the business, the average length of stay has increased slightly to 8.6 months (2018: 8.5 months). 33% of our customers by occupied space have been storing with us for over two years (2018: 32%), and a further 18% of customers have been in the business for between one and two years (2018: 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 £64.3 million, an increase of £2.1 million (3.4%) from £62.2 million in the prior period. Like-for-like revenue (see glossary in note 19) was £63.8 million, an increase of 4.2% from the prior period figure of £61.2 million. The Group closed its 34,000 sq ft Battersea store in March 2019 for redevelopment into a 71,000 sq ft store. The revenue from Battersea in the first half of the prior financial year amounted to £0.9 million.

Other sales (included within the above), comprising the selling of packing materials, insurance and storage related charges, represented 14.2% of total store revenue for the period (2018: 14.5%) and generated revenue of £8.9 million for the period, up 1% from £8.8 million in 2018 (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 £0.3 million (2%) compared to the same period last year. Our new stores at Wapping and Manchester carry incremental cost of £0.3 million. Our marketing expenditure has increased by £0.3 million some of which is timing related, including the launch of a new website, with the balance tactical to maintain the Group's online market share and enquiry levels. Our Battersea store has been closed for redevelopment saving £0.2 million of operating costs in this period. The expenditure on utilities has reduced by £0.3 million following a significant backdated recharge of electricity costs to a third-party telecoms mast provider. The other increases in store operating costs are mainly inflationary.

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

The increase in head office operational management costs includes abortive costs of £0.2 million related to investigations on potential development sites.

Store EBITDA

Store EBITDA for the period was £44.0 million, an increase of £1.5 million (3.5%) from £42.5 million for the period ended 30 September 2018 (see Portfolio Summary).  The overall EBITDA margin for all Big Yellow stores during the period was 70.2%, up from 69.7% in 2018.

The EBITDA margin for the established stores in the current period has fallen compared to the prior year. This is due to a rates rebate received of £0.1 million on one of the stores in the prior period.

74 stores are currently trading profitably at the Store EBITDA level, with Manchester expected to break even shortly.

Administrative expenses

Administrative expenses in the income statement have reduced by £0.1 million. The fall is due reduction in the IFRS 2 share-based payments charge. The non-cash share-based payments charge represents £1.2 million of the overall £5.5 million expense.

Interest

The interest on bank borrowings during the period was £5.2 million, £0.2 million higher than the same period last year. Average debt levels were approximately 3% higher than the prior period, with the balance of the increase due to a slightly higher average cost of debt following the increase in base rate in August 2018.

Interest capitalised in the period amounted to £0.6 million (2018: £0.4 million), principally arising on the construction of our Camberwell, Battersea and Bracknell stores.

Results

The Group's statutory profit before tax for the period was £95.8 million, an increase of 56% from £61.4 million for the same period last year. The increase is due to a higher revaluation surplus in the period, which is discussed further 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 £35.3 million, up 6% from £33.3 million in 2018.

During the period the Group sold the part of the Wyvern Industrial Estate in New Malden, London that it does not occupy for £11.8 million. In April 2019, the Group acquired a property in Slough for a new self storage centre. The Group also sold an existing plot of land in Slough on the same date for £2.4 million. The net profit on disposal from the sale of these two sites was £0.1 million.

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 21.0 pence (2018: 20.9 pence), an increase of 0.5% from the same period last year, with the adjusted profit growth diluted following the placing of 7.2 million shares in September 2018, raising £65.3 million to fund the development of new stores. There has also been increased dilution from the issuance of 0.9 million of shares in respect of the Long Term Bonus Performance Plan which vested at the end of July 2018, coupled with other share options.

Cash flow

Cash flows from operating activities (after net finance costs) have increased by 4% to £36.0 million for the period (2018: £34.6 million). These operating cash flows are after the ongoing maintenance costs of the stores, which are on average £38,000 per store per annum. The Group's net debt has increased over the period to £344.8 million (March 2019: £319.7 million), following investment in growth capital expenditure in the period.

The Group's interest cover for the period (expressed as the ratio of cash generated from operations against interest paid) was 7.3 times (2018: 7.5 times).

Of the capital expenditure in the period £37.9 million is the cost of the acquisitions of Harrow, Hayes and Slough, with an additional £11.6 million relating to build costs of the new stores.

At 30 September 2018, the Group's net debt was £270.3 million, after the placing which raised £65.3 million. In the past 12 months we have spent £109 million on capital expenditure, acquiring six new development sites, the freehold of our New Malden store, coupled with construction spend across five sites. We have received £14.1 million from the sale of land and property (including the part of New Malden that we do not occupy), and retained net operating cash flow after dividends of £18.3 million. After other net cash inflows of £2.1 million, the Group's net debt at 30 September 2019 is £344.8 million.

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 £0.4 million tax charge in the residual business for the period ended 30 September 2019 (six months to 30 September 2018: £0.3 million).

Dividends

REIT regulatory requirements determine the level of Property Income Distribution ("PID") payable by the Group. A PID of 17.1 pence per share is proposed as the total interim dividend, an increase of 2.4% from 16.7 pence per share PID for the same period last year.

The interim dividend will be paid on 10 January 2020. The ex-div date is 5 December 2019 and the record date is 6 December 2019.

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. The Group also increased the quantum of the bank loan by £30 million during the period, with Bank of Ireland joining the facility taking this additional debt.

The Group has an option to increase the amount of revolving loan by a further £30 million during the loan's term.

The table below summarises the Group's debt facilities at 30 September 2019. The average cost has remained at 2.9% since 31 March 2019.

The Group was comfortably in compliance with its banking covenants at 30 September 2019.

The net debt to gross property assets ratio is 22% (2018: 20%) and the net debt to adjusted net assets ratio (see net asset value section below) is 27% (2018: 23%).

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, as advised by C&W, consider that the capitalisation rates have reduced by 12.5 bps since the start of the financial year, given recent transactional evidence and the weight of money looking to invest in the self storage sector.

The Directors consider that the other core assumptions underpinning the valuations including the stabilised occupancy levels (of 84.7% across the 75 open stores) and rental growth used by C&W in the March 2019 valuations are still appropriate at the September valuation date. See the Group's annual report for the year ended 31 March 2019 for the full detail of the valuation methodology.

At 30 September 2019 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 £55.7 million, with 43% of the increase due to the adjustment in cap rates and the balance from growth in the store cash flows. There is a revaluation uplift of £5.2 million on the investment property under construction, due to the change in cap rates, coupled with the beneficial impact of the Group obtaining planning consents during the period.

The initial yield on the portfolio before administration expenses and assuming no rental growth, is 6.4% rising to a stabilised yield of 6.5% (31 March 2019: 6.6% rising to 6.9%).

Development pipeline

The Group has acquired three development sites since March, in Slough, Hayes and Harrow. These acquisitions take the total pipeline to approximately 890,000 sq ft, representing 19% of current MLA, with an estimated future cost to complete of £95 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 £14 million, which principally relates to construction costs on Camberwell, Battersea, Bracknell and Uxbridge.

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.

Net asset value

The adjusted net asset value is 770.4 pence per share (see note 13), up 6% from 724.4 pence per share at 31 March 2019. The table below reconciles the movement from 31 March 2019:

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. 

During the period, Armadillo acquired three existing stores in Daventry, Grimsby and Liverpool, with a combined capacity of 97,000 sq ft.

The occupancy of the portfolios at 30 September 2019 is 836,000 sq ft, against a total capacity of 1,062,000 sq ft representing occupancy at 30 September 2019 of 78.7% (31 March 2019: 75.1%). The revenue of the portfolio increased by 9% to £8.3 million for the six months to 30 September 2019 (2018: £7.6 million). On a like-for-like basis, the increase was 4%.

The Armadillo Partnerships made a combined operating profit of £4.0 million in the period, of which Big Yellow's share is £0.8 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 £4.5 million, of which the Group's share was £0.9 million. 

Big Yellow has a responsibility for operating the assets and receives a management fee from the Partnerships, which for the period to 30 September 2019 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.

18 November 2019

PORTFOLIO SUMMARY - BIG YELLOW STORES

(1) The mature stores have been open for more than six years at 1 April 2019. The established stores have been open for between three and six years at 1 April 2019 and the developing stores have been open for fewer than three years at 1 April 2019. The Group's mature Battersea store was closed for redevelopment in March 2019.

(2) See glossary in note 19.

(3) Rent under IFRS 16 for six mature short leasehold properties accounted for as investment properties and finance leases under IFRS with total self storage capacity of 339,000 sq ft, a long leasehold mature store with a capacity of 64,000 sq ft, and a long leasehold developing store with a capacity of 60,000 sq ft. The EBITDA margin for the 63 freehold mature stores is 72.9%, and 46.3% for the six 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

18 November 2019

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.

Notes 1 to 19 are an integral part of these condensed consolidated interim financial statements

Notes 1 to 19 are an integral part of these condensed consolidated interim financial statements

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2019 (unaudited)

Six months ended 30 September 2018 (unaudited)

Year ended 31 March 2019 (audited)

Notes 1 to 19 are an integral part of these condensed consolidated interim financial statements

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Six months ended 30 September 2019

Notes to the Interim Review

1. ACCOUNTING POLICIES

Basis of preparation

The results for the period ended 30 September 2019 are unaudited and were approved by the Board on 18 November 2019. The financial information contained in this report in respect of the year ended 31 March 2019 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 is IFRS 16 Leases which has been adopted by the Group. Its impact is set out below:

IFRS 16 Leases (effective from 1 January 2019)

The Group's adoption of the standard has not impacted the Group's financial position as a lessor or the accounting for the rental income from the Group's investment properties. The standard requires lessees to recognise, for each lease, a right-of-use asset and related lease liability representing the obligation to make lease payments. Interest expense on the lease liability and depreciation on the right-of-use asset is recognised in the consolidated statement of comprehensive income.

Included within the scope of the standard are the Group's current operating leases for its six short leasehold stores and two long leasehold stores, on which the Group pays rent. These leases are already disclosed on the consolidated balance sheet and accounted for in accordance with the requirements of IFRS 16, with the exception of one long leasehold store where the lease has now been recognised, amounting to £188,000. The Group also has operating leases in place on its head office and distribution warehouse.

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17. Until this financial year, the payments made under the operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight line basis over the period of the lease.

The Group has applied the modified retrospective approach in adopting IFRS 16 to the smaller operating leases. This method includes the calculated lease liabilities and right-of-use assets to be recognised in the consolidated balance sheet on the Group's transition date of 1 April 2019, without the requirement to restate prior periods. Under the standard, the Group also has the option to set the balance of the right-of-use assets, on transition, at an amount equal to the lease liabilities. This option has been taken.

Impact on financial position from the adoption of IFRS 16:

The Balance Sheet impact of recognising the additional lease liabilities and associated assets upon adoption of IFRS 16 at 1 April 2019 is shown below:

The reconciliation of the balance sheet movement is shown in the table below:

The Group has presented two right-of-use assets as property, plant and equipment as they do not meet the definition of investment property.

The standard changes the allocation of lease payments over the length of the lease, resulting in the rental payments being more front ended in the statement of comprehensive income. Adjusted profit after tax reduced by £0.2 million and adjusted earnings per share reduced by 0.1 pence as a result of the adoption of IFRS 16 for the 6 month period ended 30 September 2019.

There are no other Standards or Interpretations yet to be effective that would be expected to have a material impact on the financial statements of the Group.

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 2019.

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

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 17.1 pence per ordinary share will be paid to shareholders on 10 January 2020. The ex-div date is 5 December 2019 and the record date is 6 December 2019. 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 2019 were £13.1 million (31 March 2019: £7.4 million). 

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. 

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.

The loans within Armadillo 1 and Armadillo 2 are shown as current as their terms expire in July 2020. 

10. TRADE AND OTHER RECEIVABLES