Big Yellow Regulatory News (BYG)

Big Yellow Group PLC

Results for the YEAR ended 31 MARCH 2018

CONTINUED GROWTH IN ALL KEY METRICS 

1 See note 28 for glossary of terms

Highlights

· Strong occupancy performance driving 7% revenue growth

· Closing net rent up 2.7% from 31 March 2017, average rate up 0.8% year on year and up 1.5% in the second half;

· Cash flow from operating activities (after net finance costs) increased by 13% to £63.0 million

· Adjusted profit before tax up 12% to £61.4 million

· 12% increase in total dividend to 30.8 pence per share

· Acquisition of new development sites in Wapping (London), Uxbridge (London), Bracknell, Hove and Slough taking pipeline to approximately 640,000 sq ft (14% of current MLA)

· Planning consent obtained at Manchester for a landmark city centre store of 60,000 sq ft

· Planning consent obtained at Camberwell, London for a 72,000 sq ft store

· Refinancing extending the term of the Group's debt and reducing the average cost

Nicholas Vetch, Executive Chairman of Big Yellow, commented:

"We remain focussed on our core objective of increasing occupancy to 90%. As we have previously indicated, higher levels of occupancy deliver more traction on pricing and drive rate growth and indeed we have seen that materialise in the second half of the year.

As our vacant capacity has reduced we have been more aggressively pursuing an expansion strategy. There are very few existing stores that are of sufficient quality available to purchase and brand as Big Yellow. We continue therefore to acquire raw land and develop our own stores, and are pleased to have secured a number of quality sites during the year. The development process however, of which we have unparalleled experience, remains long, does carry risk, and is increasingly complex.

Risks external to our business remain, and there will no doubt be setbacks in economic growth. It is for that reason that we keep the business very conservatively financed thus enabling us to plan and execute the next phase of growth."

ABOUT US

Big Yellow is the UK's brand leader in self storage. Big Yellow now operates from a platform of 96 stores, including 22 stores branded as Armadillo Self Storage, in which the Group has a 20% interest. We own a further ten Big Yellow self storage development sites (including one extension site), of which three 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 6.2 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:

Chairman's Statement

Big Yellow Group PLC ("Big Yellow", "the Group" or "the Company"), the UK's brand leader in self storage, is pleased to announce its results for the year ended 31 March 2018.

We have delivered another year of occupancy, revenue and earnings growth. In May 2017, along with our year end results, we set out our ambition to see material growth in occupancy towards our long held target of 85%. In November, with our interim results, we adjusted our occupancy target for the business as a whole to 90%. We are therefore pleased to be reporting significant progress in occupancy with these results. Like-for-like closing Group occupancy is up 3.9 percentage points to 81.9% compared to 78.0% at 31 March 2017. Closing net rent was £26.74, an increase of 2.7% from the same time last year. Average rental growth was up 0.8% year-on-year and up 1.5% in the second half. 

We would expect to see further growth in occupancy over the summer, peaking at or above 85%, providing there are no significant external shocks. It remains our firm belief that occupancy gains are hard won and are of significant value to drive long term increases in average rent. As our occupancy rises, rate growth will come through driven by our yield management systems, and we have seen that in the second half of the year, and expect to see more of a contribution to revenue from rate growth in the current year.

Financial results

Revenue for the year was £116.7 million (2017: £109.1 million), an increase of 7%. Like-for-like revenue growth (excluding Nine Elms and Twickenham 2 acquired in April 2016 and Guildford Central opened in March 2018) was 7%.

Operating cash flow increased by £7.0 million (13%) to £63.0 million for the year (2017: £56.0 million). During the year we spent £42.0 million on growth capital expenditure, more than double the £20.6 million in 2017. The Group's operating profit before property revaluations increased by £5.6 million (9%) to £70.9 million. The Group's statutory profit before tax was £134.1 million, an increase of 34% from £99.8 million in the prior year due to the increase in operating profit and an increased revaluation gain on our investment properties in the year. 

Given that our central overhead and operating expense is largely embedded in the business, this revenue growth has delivered an increase of 12% in the adjusted profit before tax in the year of £61.4 million (2017: £54.6 million). Adjusted earnings per share increased by 12% to 38.5p (2017: 34.5p) with an equivalent 12% increase in the dividend per share for the year. 

The Group has net debt of £323.7 million at 31 March 2018 (2017: £298.0 million). This represents approximately 25% (2017: 25%) of the Group's gross property assets totalling £1,303.3 million (2017: £1,190.5 million) and 31% (2017: 31%) of the adjusted net assets of £1,059.1 million (2017: £963.4 million). The Group's interest cover for the year, expressed as the ratio of cash generated from operations against interest paid was 7.6 times (2017: 6.1 times). This is comfortably ahead of our internal minimum interest cover target of 5 times.

Investment in new capacity

Our 55,000 sq ft Guildford Central store on Woodbridge Meadows opened in March 2018, and after its first two months it is 12% occupied. The 25,000 sq ft extension to our Wandsworth store has just opened. 

We have acquired five freehold development sites since 1 April 2017, increasing our pipeline to nine new stores and one extension, with a total capacity (subject to planning) of approximately 640,000 sq ft (14% of current MLA). The acquisitions in Wapping (just east of Tower Bridge), Uxbridge (West London), Hove, Bath Road in Slough, and Bracknell are all in London and the South East, and we believe when developed will be quality additions to the portfolio. 

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, an increasingly long, expensive and complex planning process and the understandable pressure to produce more housing. 

We have successfully acquired four of the six long leasehold interests within the Wapping building and are currently fitting out the available vacant space to create a self storage centre of approximately 25,000 sq ft, which will open in late summer. 

As reported in our interims, we have obtained planning consent for a landmark Manchester city centre store of 60,000 sq ft on Water Street, which is currently under construction with a scheduled opening in spring 2019. We have also recently obtained planning consent for a 72,000 sq ft store in Camberwell, London, with the store scheduled to open in spring 2020. After lengthy consultations, we have made good progress on planning at Kings Cross and Battersea and anticipate submitting applications for both schemes later this year.

We are working up the planning applications on the recently acquired schemes in Bracknell, Slough, Hove and Uxbridge and will submit them in due course following negotiations with the relevant councils. As always, this process is subject to the vagaries of the planning system. At 31 March 2018, the future cost of the current pipeline of ten development sites and extensions, seven of which are subject to planning, is estimated to be £110 million. 

Dividends

The Group's dividend policy is to distribute 80% of full year adjusted earnings per share. The final dividend declared is 15.5 pence per share. The dividend declared for the year of 30.8 pence per share represents an increase of 12% from 27.6 pence per share last year. 

Our people

A business will only succeed if it has a fully motivated and engaged team. From the start we have always aimed to create a culture which is accessible, apolitical, non-hierarchical, socially responsible, and very importantly, a fun and enjoyable place to work. Some of you may have seen that we formally launched The Big Yellow Foundation in February, supporting six charities who focus on the rehabilitation of adults through work. This is a further step in the evolution of Big Yellow as a business, which has received very positive feedback and support from our people and customers. More details on the Foundation can be found online and in the CSR report.

In addition, we focus on customer service and engagement, measuring and responding to their feedback. There has been a further improvement in our customer net promoter scores ("NPS") to an average of 80.1 over the year. NPS scores at these levels are highly unusual and a good reflection of the culture of this business.

I would like to thank all our people for their efforts in contributing to another year of growth.

Board

Tim Clark has announced that he is stepping down as a Non-Executive Director at the Group's next AGM. He joined the Company in 2008 and over the past ten years has been a valuable Senior Independent Director, and Chair of the Remuneration and Nomination Committees. I will miss his sound advice, judgement, and considerable brainpower and along with the Board, would like to thank him for his significant contribution to Big Yellow's success. 

Vince Niblett joined the Board as a Non-Executive Director and Chairman of the Audit Committee in June 2017. Vince was previously the Global Managing Partner Audit for Deloitte, and held a number of senior leadership roles there before his retirement in May 2015.

Anna Keay joined the Board as a Non-Executive Director in March 2018. Anna has been the CEO of the Landmark Trust since 2012, having started her career at Historic Royal Palaces, and then from 2002 to 2012 she was Curatorial Director of English Heritage.

I am delighted to welcome Vince and Anna. I consider it a plaudit that we can attract such high quality people to our Board.

Outlook

We remain focussed on our core objective of increasing occupancy to 90%. As we have previously indicated, higher levels of occupancy deliver more traction on pricing and drive rate growth and indeed we have seen that materialise in the second half of the year.

As our vacant capacity has reduced we have been more aggressively pursuing an expansion strategy. There are very few existing stores that are of sufficient quality available to purchase and brand as Big Yellow. We continue therefore to acquire raw land and develop our own stores, and are pleased to have secured a number of quality sites during the year. The development process however, of which we have unparalleled experience, remains long, does carry risk, and is increasingly complex.

Risks external to our business remain, and there will no doubt be setbacks in economic growth. It is for that reason that we keep the business very conservatively financed thus enabling us to plan and execute the next phase of growth.

Nicholas Vetch, Executive Chairman

21 May 2018

Strategic Report

OUR STRATEGY AND BUSINESS MODEL

Our Strategy

Our strategy from the outset has been to develop Big Yellow into the market leading self storage brand, delivering excellent customer service, with a great culture and highly motivated employees. We continue to be the market leading brand, with unprompted awareness of seven times that of our nearest competitor (source: YouGov survey, April 2018). We concentrate on developing our stores in main road locations with high visibility, where our distinctive branding generates high awareness of Big Yellow. Our accreditation in 2016 for the Best 100 Companies to work for was pleasing as an independent assessment of our employee engagement, and our customer satisfaction survey scores remain very high, with an average customer net promoter score of 80 in the year, and average Trustpilot scores of 9.5 out of 10. 

Self storage demand from businesses and individuals at any given store is linked in part to local economic activity, consumer and business confidence, all of which are inter-related. Fluctuations in housing activity whether in the rented or owner occupied sector, are also a factor and in our view influence the top slice of demand over and above a core occupancy. The performance of our stores was relatively resilient during the collapse in housing activity and GDP over the period 2007 to 2009, with London and the South East proving to be less volatile.

Local GDP and hence business and housing activity are greatest in the larger urban conurbations and in particular London and the South East. Furthermore, people and businesses are space constrained in these more densely populated areas. Barriers to entry in terms of competition for land and difficulty around obtaining planning are also highest in more urbanised locations. 

Over the last 19 years we have built a portfolio of 74 Big Yellow self storage centres, largely freehold, purpose-built and focussed on London, the South East and large metropolitan cities. We believe that by owning a predominantly freehold estate we are insulating ourselves against adverse rent reviews and in the long term possible redevelopment of key stores by the landlord. We currently have a pipeline of ten freehold development opportunities (including one extension) and are looking to expand that pipeline with a view to growing the Big Yellow platform to 100 stores.

65% of our current annualised store revenue derives from within the M25; for London and the South East, the proportion of current annualised store revenue is 83%. Any future external growth will be executed in a way that is likely to maintain a balance of 80% in London and the South East and 20% in regional cities.

Our Big Yellow stores are on average 62,000 sq ft, compared to an industry average of approximately 46,000 sq ft (source: The Self Storage Association 2018 UK Annual Survey). The upside from filling our larger than average sized stores is, in our view, only possible in large metropolitan markets, where self storage demand from domestic and business customers is the highest. As the operating costs of our assets are relatively fixed, larger stores in bigger urban conurbations, particularly London, drive higher revenues and higher operating margins.

We continue to believe that the medium term opportunity to create shareholder value will be achieved principally by increasing occupancy and net rent per sq ft in our existing platform to drive revenue, the majority of which flows through to the bottom line. Our key objectives remain:

- leveraging our market leading brand position to generate new prospects, principally from our digital, mobile and desktop platforms;

- focusing on training, selling skills, and customer satisfaction to maximise prospect conversion and referrals;

- growing occupancy and net rent so as to drive revenue optimally at each store;

- maintaining a focus on cost control, so revenue growth is transmitted through to earnings growth;

- increasing the footprint of the Big Yellow platform to 100 stores principally through new site development and where possible existing prime freehold stores that meet our quality criteria; 

- selectively acquiring existing self storage assets into the Armadillo platform;

- maintaining a conservative capital structure in the business with Group interest cover of a minimum of five times; and

- producing sustainable returns for shareholders through a low leverage, low volatility, high distribution REIT.

In the eighteen years since flotation in May 2000, Big Yellow has delivered a Total Shareholder Return ("TSR"), including dividends reinvested, of 15.0% per annum, in aggregate 1,128% at the closing price of 853p on 31 March 2018. This compares to 6.5% per annum for the FTSE Real Estate Index and 5.0% per annum for the FTSE All Share index over the same period. This demonstrates the power of compounding over the longer term.

Our business model

The self storage market

In the recently published 2018 Self Storage Association UK Survey, only 46% of those surveyed had a reasonable or good awareness of self storage. Furthermore, only 6% of the 2,083 adults surveyed were currently using self storage, or were thinking of using self storage, in the next year. This indicates a continued opportunity for growth and with increasing use of self storage, together with the ongoing marketing efforts of everyone in the industry, we anticipate awareness will grow.

Self storage is not a commoditised product and awareness is driven largely by businesses and individuals using self storage. Consequently, the increase in awareness over time has been relatively slow, with good awareness of self storage increasing from 38% in 2014 to 46% in 2018 across the UK (source: UK SSA Survey 2018). Our YouGov Survey carried out in April 2018 showed higher levels of awareness in London of 63%, up from 58% in 2014. 

Growth in new facilities across the industry has been largely in regional areas of the UK and in particular in smaller towns. In London in the year to 31 March 2018, we believe there were five new store openings offset by three closures. 

The Self Storage Association ("SSA") estimates that the UK industry is made up of approximately 1,504 self storage facilities (of which 345 are purely container operations), providing 44.6 million sq ft of self storage space, equating to 0.7 sq ft per person in the UK. This compares to 9.5 sq ft per person in the US, 1.8 sq ft per person in Australia and 0.1 sq ft for mainland Europe, where the roll-out of self storage is a more recent phenomenon (source: FEDESSA European Self Storage Annual Survey 2017). 393 self storage facilities in the UK are held by large operators (defined as those managing 10 facilities or more), which represents 34% of the total number of self storage centres (excluding container operations), but the SSA estimate over 40% of total capacity. Given the dominance of the larger brands in the South East, we would expect the proportion of revenue earned by the top five operators to be in excess of 40% of the annual industry turnover of £750 million.

Big Yellow is well placed to benefit from the growing self storage market, given the strength of our brand, and our online platform which delivers 88% of our prospect enquiries. Our portfolio is strategically focussed on London, the South East and large metropolitan cities, where barriers to entry and economic activity are at their highest.

Operational and Marketing Review

Overview

We now have a portfolio of 74 open and trading Big Yellow stores, with a further ten development sites including one extension opportunity. The current maximum lettable area of the 74 stores is 4.6 million sq ft. When fully built out the portfolio will provide approximately 5.3 million sq ft of flexible storage space.

In addition we part-own and manage 22 Armadillo stores which are principally located in northern UK towns and cities, and operate from a platform of 1.0 million sq ft.

Growth in new self storage centre openings, excluding container operators, over the last six years has averaged 1% to 2% 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.

Operations

The Big Yellow store model is well established. The "typical" store has 60,000 sq ft of MLA and takes some three to four years to achieve 85% plus occupancy. The average room size occupied in the portfolio is currently 68 sq ft, in line with last year. The store is open seven days a week and is initially run by three staff, with a part time member of staff added once the store occupancy justifies the need for the extra administrative and sales workload.

The drive to improve store operating standards and consistency across the portfolio remains a key focus for the Group. Excellent customer service is at the heart of our business objectives, as a satisfied customer is our best marketing tool. We measure customer service standards through a programme of mystery shopping and online customer reviews, which are externally managed. Over the year, we have achieved an average net promoter score of 80. 

We have a team of nine area managers in place who have on average worked for Big Yellow for 13 years. They develop and support the stores to drive the growth of the business.

The store bonus structure rewards occupancy performance, sales growth and cost control through quarterly targets based on occupancy and store profitability, including the contribution from ancillary sales of insurance and packing materials. Information on bonus build up is circulated monthly and stores are consulted in preparing their own targets and budgets each quarter, leading to improved visibility, a better understanding of sales lines and control of operating costs.

We believe, that as a consumer-facing branded business, it is paramount to maintain the quality of our estate and customer offering. We therefore continue to invest in preventative maintenance, store cleaning and the repair and replacement of essential equipment, such as lifts and gates. The ongoing annual expenditure is approximately £35,000 per store, which is included within cost of sales. This excludes our rolling programme of store makeovers, which typically take place every five years, at a cost of approximately £20,000 per store. Over the last five years we have invested £12 million in the upkeep and maintenance of our stores, all of which has been expensed in the income statement.

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 88% 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 year (2017: 43%). 11% of our customers who moved in took storage space as a spare room for decluttering (2017: 11%). 35% 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 married or divorced, are students who need storage during the holidays, or homeowners developing into their lofts or basements (2017: 34%). The balance of 12% of our customer demand during the year came from businesses (2017: 12%). 

There is a growing 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 office and storage space rather than 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.

During the year, the Group commissioned an external survey to assess the impact the average Big Yellow store generates for its local economy. 35% of the Group's space is occupied by business customers, and the average store is home to 105 different businesses who between them employ 300 people as a direct result of their occupation. 60% of the businesses that occupy our stores are start-ups who have never rented space anywhere else before. For over half of the businesses, this is the only space they rent, for others this complements their other space. The report estimated that across Big Yellow over 23,000 jobs are created working for over 7,700 businesses. In addition, average local Gross Value Added generated by Big Yellow's business customers in each store is approximately £17 million per annum, or over £1 billion nationally.

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 largely event driven, which could be inheritance, moving in the owner occupied or rental sector, home improvements, travelling; and the balance of 35% are businesses.

We have a dedicated national accounts team for business customers who wish to occupy space in multiple stores. These accounts are billed and managed centrally. We have four full time members of staff working on growing and managing our national account customers. The national accounts team can arrange storage at short notice at any location for our customers. In smaller towns where we do not have representation, we have negotiated sub-contract arrangements with other operators who meet certain operating standards. 

Marketing and ecommerce

Our marketing strategy focuses on driving enquiries and customer satisfaction through our digital platforms.

For the last 12 years, we have commissioned a YouGov survey to help us monitor our brand awareness. In our most recent survey conducted in April 2018, we used a statistically robust sample size of 1,000 respondents in London and 2,003 for the rest of the UK. The survey has shown our prompted awareness to be at 71% in London, over two and a half times higher than our nearest competitor and 46% for the rest of the UK, over three times higher than our nearest competitor.

For unprompted brand awareness, our recall in London is 46%, six and a half times higher than our nearest competitor and for the rest of the UK it is 23%, nearly eight times higher than our nearest competitor. The UK Self Storage Association ("SSA") has also conducted a brand awareness survey with similar results. According to their YouGov survey conducted in January 2018, Big Yellow's unprompted brand awareness across the UK is seven times higher than our nearest competitor. These surveys continue to prove we are the UK's brand leader in self storage.

The Big Yellow website, whether accessed by desktop, tablet or smartphone, delivers the largest share of our prospects, accounting for 88% of all sales leads across the year ended 31 March 2018. Telephone is the first point of contact for 8% of our prospects and walk in enquiries, where we have had no previous contact with a prospect, represent 4%.

We have the largest online market share of web visits to self storage company websites in the UK. Across the year ended 31 March 2018, our online market share of web visits ranged from 28% to 34%. Our nearest competitor ranged from 18% to 24% online market share for the same period (source: Connexity Hitwise 35 largest UK self storage operators).

We monitor and improve the website user journeys on an ongoing basis. We are committed to making the experience as easy, intuitive and informative as possible for our customers. Both the mobile specific website and our desktop site are designed with helpful and time saving online tools such as Check-in Online, online FAQs, video store tours, online chat, BoxShop and a Click and Collect service for packing materials. These all help the customer to make an informed choice about their self storage requirements.

Online customer reviews

Consistent with our strategy of putting the customer at the heart of our business, our online customer reviews generate real-time feedback from customers as well as providing positive word of mouth referral to our web visitors. Through our 'Big Impressions' customer feedback programme, we ask our new customers to rate our service. With the users' permission, we then publish these independent reviews on the Big Yellow website. There are currently over 23,000 of these customer reviews published averaging 4.8 out of 5.

The Big Impressions programme also generates customer feedback on their experience when they move out of a Big Yellow store and also from those prospects who decided not to store with us. This programme reinforces best practice of customer service at our stores where customer reviews and mystery shop results are transparently accessible at all levels.

We also gain real-time customer insight from over 3,800 Google Reviews averaging 4.5 out of 5 and 1,100 TrustPilot Reviews currently averaging 9.5 out of 10.

We regularly monitor any mentions of Big Yellow within all customer reviews, on social media, external blogs, news sites and across the web generally. We use this insight to monitor our brand and continually improve our service offering.

Driving online traffic

Self storage is a consumer facing business and the development of strong, sustainable brands is multi-layered and requires a consistency of product, customer service and interaction at all touch points, particularly online, which represents 88% of our total enquiries. 

Search engines are the most important acquisition tool for us, accounting for the majority of traffic to our website. We continue to invest in search engine optimisation ("SEO") techniques both on and off the site. This helps us to maintain high positions for the most popular and most searched for self storage related search terms in the organic listings on Google. Of the top 100 self storage search terms, 47 feature brands, representing approximately 50% of the search traffic (source: Connexity Hitwise, 12 weeks ended 12 May 2018). This clearly indicates, that although self storage is a relatively immature industry with 70% to 75% of customers using it for the first time, brand is important in driving higher levels of prospects and customer referrals, leading to improved operational performance. We have demonstrated this through significant improvements in performance of existing storage centres following their acquisition, rebranding and assimilation into our business. 

The sponsored search listings remain the largest source of paid for traffic and we ensure our prominence in these listings is balanced with effective landing pages to maximise website conversion.

Efficiencies in online spend are continuing into the year ending 31 March 2019, ensuring the return on investment is maximised from all of our different online traffic sources. Online marketing budgets will continue to remain focussed on the media with the best return on investment.

Social media

Social media continues to be complementary to our existing marketing channels. Our activity is most focussed on Twitter and Facebook, not only monitoring and answering queries regarding self storage, but also publishing our own creative posts, advice, news and CSR initiatives.

The Big Yellow YouTube channel is used to showcase our stores to web prospects through a video store tour. We use both domestic and business versions to help prospects experience the quality of the product without the need for them to visit the store in person. Our online blog is updated regularly with tips and advice for homeowners and businesses, as well as summaries of our charitable and CSR initiatives. We have also developed our LinkedIn profile to help promote Big Yellow as an inviting and engaging place to work and as a direct recruitment channel.

PR

We have been developing regional PR stories throughout the year to help raise the awareness of Big Yellow and the benefits of self storage across the UK. We have been highlighting newsworthy stories of charitable endeavours from Big Yellow staff or the support we provide to the local charities through offering free storage.

Budget

During the year the Group spent approximately £4.7 million on marketing (4% of total store revenue). We have increased the budget for the year ahead to £5.3 million with a focus on delivering and converting more prospects to our stores from our digital channels.

Cyber security

The Group receives specialist advice and consultancy in respect of cyber security and we have dedicated in-house monitoring. We continue to invest in and review our security systems and we limit the retention of customer data to the minimum requirement. Some of the changes include more frequent penetration testing of internet facing systems, adding components such as anti-ransomware as well as the maintenance and replacement of components (such as firewalls) to the latest technology and specification. Policies and procedures are under regular review and benchmarked against industry best practice by our consultants. These policies also include defend, detect and response policies. We have aligned our policies and procedures to ensure our compliance with the new EU General Data Protection Regulation ("GDPR") which comes into effect on 25 May 2018.

Store Performance

PORTFOLIO SUMMARY - BIG YELLOW STORES

(1) The mature stores have been open for more than six years at 1 April 2017. The established stores have been open for between three and six years at 1 April 2017 and the developing stores have been open for fewer than three years at 1 April 2017.

(2) See glossary in note 28.

(3) Packing materials, insurance and other storage related fees.

(4) 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 lease-up store with a capacity of 64,000 sq ft. The EBITDA margin for the 60 freehold mature stores is 72%, and 49% for the seven leasehold mature stores.

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

(1) See note 3 of the financial statements, reconciling items are management fees and non-storage income.

(2) See reconciliation in cost of sales section in 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

(1) Armadillo acquired three stores in April 2017 from Quickstore in Exeter, Torquay and Plymouth, one store in December 2017 from Store it 4U in Stockton, and two stores in March 2018 from 1st Storage Centres in Newcastle and Gateshead.

(2) Store earnings before interest, tax, depreciation, amortisation, and management fees charged by Big Yellow to the Armadillo portfolios (see note 27).

Prospects for the year were broadly in line with last year, but we converted a higher proportion of those prospects into customers, with move-ins up 3% on the prior year. This reflects the occupancy focus over the period, with continued innovation and investment in our digital platform and operations.

The table below shows the quarterly move-in and move-out activity over the year. 

In the quarter to June, we saw a solid increase in move-in activity of 4%. Move-outs were down year on year, following lower activity levels in the second half of the year ended 31 March 2017. Move-ins continued to outperform year-on-year in the second and third quarters, although move-outs also increased following the earlier improvement in move-in activity, with a high volume of student move-outs in September and October. In the fourth quarter, move-in activity was impacted by the poor weather coupled with an early Easter delaying some activity into April.

In all Big Yellow stores, the occupancy growth in the current year was 179,000 sq ft, against an increase of 112,000 sq ft in the prior year. 

We had a strong quarter to June with an increase in occupancy of 183,000 sq ft, significantly up on the prior year, which had been affected by uncertainty in the run-up to the Brexit referendum. The second quarter peaked in August and then many of our students and short term house movers vacated in September and October, leading to a net loss in occupied rooms and sq ft occupancy. The third quarter showed a higher loss in occupancy than the prior year due to the strong summer's trading which led to an increase in move-out numbers. In the final quarter we have seen a return to growth in net occupied rooms and increased occupancy in the stores by 84,000 sq ft, which was slightly softer than the prior year for the reasons explained above. 

The 67 mature stores are 82.2% occupied compared to 78.7% at the same time last year. The four established stores have grown in occupancy from 78.6% to 82.3%. The three developing stores added 23,000 sq ft of occupancy in the year to reach closing occupancy of 50.6%. Overall store occupancy has increased in the year from 78.0% to 81.0%. On a like-for-like basis, excluding Guildford Central, which opened in March 2018, closing occupancy was 81.9%, an increase of 3.9 percentage points.

With the exception of Guildford Central (which opened in March 2018), all of the stores open at the year end are trading profitably at the EBITDA level. The table below shows the average key metrics across the store portfolio (from the Portfolio Summary) for the year ended 31 March 2018:

Pricing and net rent per sq ft

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. 

Over the past eighteen months we have been more aggressive with our pricing strategy to drive occupancy growth, which led to a reduction in net achieved rent per sq ft in the second half of the prior financial year. Following this fall in the period to March 2017, and hence a lower starting point in this financial year, rate stabilised in the first half of the financial year with no average rate growth. In the second half, we achieved period on period average rate growth of 1.5% and as a result the average increase for the financial year was 0.8%. Net achieved rent per sq ft at 31 March 2018 grew by 2.7% over the financial year.

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 achieved net rents. Rental growth can also be driven through sub-dividing larger rooms into smaller rooms, which yield a higher net rent per sq ft. The table below shows the growth in net rent per sq ft for the portfolio over the year (excluding Guildford Central).

Armadillo Self Storage

The Group has a 20% investment in Armadillo Self Storage, with the balance of 80% held by an Australian consortium. During the year Armadillo acquired six stores, three stores in April 2017 from Quickstore in Exeter, Torquay and Plymouth, one store in December 2017 from Store it 4U in Stockton, and two stores in March 2018 from 1st Storage Centres in Newcastle and Gateshead.

This takes the Armadillo platform to 22 stores and 963,000 sq ft of MLA. As with the other existing store acquisitions, the intention will be to upgrade and reconfigure the stores through additional investment to drive cash flow growth. In the year to 31 March 2018, £1.5 million of capital expenditure has been invested to upgrade and fit out additional capacity in the Armadillo stores.

Armadillo is a lower-frills brand, with largely freehold conversions of existing buildings. They are located in towns where we would not typically locate a Big Yellow, and have an average capacity of 44,000 sq ft (lower than the 62,000 sq ft average for Big Yellow stores). Armadillo provides a number of operational advantages to the Group, such as a wider platform to sell to national accounts, more opportunities for staff promotion, and more efficient use of the Company's marketing and central overhead costs. The Group continues to look for opportunities to add to the Armadillo platform.

Development pipeline

We opened our 55,000 sq ft Guildford Central store in March 2018, and the 25,000 sq ft extension to our Wandsworth store has recently opened. We own a further ten development sites for which planning is to be negotiated, including an existing store where planning is being sought to extend and redevelop. The status of the Group's development pipeline is summarised in the table below:

The capital expenditure currently committed for the financial year ended 31 March 2019 is approximately £22 million, which includes the completion of the acquisitions of Hove and Uxbridge, and construction costs on Manchester, Camberwell and Wapping.

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.

Financial Review

Financial results

Revenue

Total revenue for the year was £116.7 million, an increase of £7.6 million (7%) from £109.1 million in the prior year. Like-for-like revenue for the year was £114.7 million, an increase of 7% from the prior year (2017: £107.3 million), principally driven by an increase in the average occupancy of the Group's stores. Like-for-like revenue excludes Nine Elms and Twickenham 2, which were acquired in April 2016 and Guildford Central, which opened in March 2018.

Other sales (included within the above), comprising the selling of packing materials, insurance and storage related charges, represented 16.9% of storage income for the year (2017: 16.6%) and generated revenue of £16.5 million for the year, up 9% from £15.2 million in 2017.

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

Operating costs

Cost of sales principally comprise 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:

Operating costs per the portfolio summary have increased by £1.4 million (5%), £0.5 million of which relates to our continued investment in marketing to maintain the Group's online market share and enquiry levels. Following the 2017 rating review, we calculated in May 2017 that the impact on the Group's rates bill for the year ending 31 March 2018 would be an increase of 9% (£0.9 million). The actual increase for the year at 4% is lower as a result of rates rebates received at two of our stores in respect of the previous rating period to March 2017.

The cost of insurance and packing materials varies with sales and has increased by 11%, 9% of which is the increase in sales volume, with the balance due to an increase in IPT, and some cost inflation. Our investment in LED lighting has contributed to a reduction in our utility expenditure. The other increases in store operating costs are inflationary.

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 year was £79.5 million, an increase of £6.0 million (8%) from £73.5 million for the year ended 31 March 2017 (see Portfolio Summary). The overall EBITDA margin for all Big Yellow stores during the year was 69.3%, an improvement from 68.5% last year. 

Administrative expenses

Administrative expenses in the income statement have increased by £0.4 million compared to the prior year. The prior year administrative expenses contained non-recurring costs of £0.2 million (the write-off of the Group's acquisition costs for the purchase of Lock and Leave in part offset by prior year VAT recovery), hence the like-for-like increase is £0.6 million. £0.4 million of this increase relates to an increase in the share based payments charge and an increase in national insurance contributions on the vesting of share options (following the increase in the Company's share price). The remaining difference is due principally to an increased investment in IT and other inflationary increases. Of our total £10.1 million administrative expense for the year, £2.5 million relates to the non-cash share based payments charge. 

Interest expense on bank borrowings

The gross bank interest expense for the year was £9.8 million, a reduction of £1.1 million from the prior year. This reflects the Group's lower average cost of debt for the year, following an amendment to the bank loan to change the term debt to variable debt at a lower margin, coupled with the cancellation of an interest rate derivative over half of the M&G loan, which was extended during the year, and its subsequent re-hedging at a lower cost. The lower average cost was in part offset by slightly higher average debt levels. The average cost of borrowing during the year was 2.9% compared to 3.3% in the prior year.

Capitalised interest increased by £0.2 million from the prior year. The interest capitalised in the year is on our Guildford Central store and the Wandsworth extension. In the prior year interest was only capitalised on these developments in the final quarter. 

Total finance costs in the income statement increased to £12.0 million from £11.8 million in the prior year, despite the reduction in interest payable, with refinancing costs incurred in the year of £1.5 million (see Borrowings section below).

Profit before tax

The Group made a profit before tax in the year of £134.1 million, compared to a profit of £99.8 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 £61.4 million, up 12% from £54.6 million in 2017. 

The movement in the adjusted profit before tax from the prior year is illustrated in the table below:

The share of adjusted profit in the associates was in line with the prior year. The Group's share of adjusted profit before tax of the associates was up £0.2 million, however there was an increase in the current tax charge as tax losses have now been fully utilised.

Basic earnings per share for the year was 85.0p (2017: 63.6p) and fully diluted earnings per share was 84.4p (2017: 63.1p). Diluted EPRA earnings per share based on adjusted profit after tax was up 12% to 38.5p (2017: 34.5p) (see note 12). EPRA earnings per share equates to the Company's adjusted earnings per share in the current year. 

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 chargeable 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 £0.6 million. This compares to a charge in the prior year of £0.3 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 15.5 pence per share in addition to the interim dividend of 15.3 pence, giving a total dividend for the year of 30.8 pence, an increase of 12% 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 27.5 pence per share is payable (31 March 2017: 24.0 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 2018 accounts for 89% of the total dividend, up from 87% in the prior year. The table below summarises the declared dividend for the year:

Subject to approval by shareholders at the Annual General Meeting to be held on 19 July 2018, the final dividend will be paid on 27 July 2018. The ex-div date is 21 June 2018 and the record date is 22 June 2018.

Cash flow growth

The Group is strongly cash generative and draws down from its longer term committed facilities as required to meet its obligations. The Group's cash flow from operating activities for the year was £63.0 million, an increase of 13% from £56.0 million in the prior year. 

In the year capital expenditure outflows were £42.0 million, up from £20.6 million in the prior year. The capital expenditure during the year principally relates to the acquisition of sites in Wapping, Bracknell and Slough, coupled with construction costs on Guildford Central and the extension to our existing Wandsworth store. 

The cash flow after investing activities was a net inflow of £24.0 million in the year, down from an inflow of £39.0 million in 2017, with the growth in operating cash flow being more than offset by the increased investment in capital expenditure.

Balance sheet

Property

The Group's 74 stores and seven stores under development owned at 31 March 2018, 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 £1,303.3 million, comprising £1,201.8 million (92%) for the 67 freehold (including three long leaseholds) open stores, £43.3 million (3%) for the seven short leasehold open stores and £58.2 million (5%) for the seven freehold investment properties under construction.

Investment property

The valuations in the current year have grown from the prior year, with a revaluation surplus of £72.9 million arising on the open Big Yellow stores (see note 15 for the detailed valuation methodology). Of this increase 69% is due to an improvement in the cap rate used in the valuations. The average exit capitalisation rate used in the valuations was 6.3% in the current year, compared to 6.6% in the prior year, with the discount rate adopted also reducing from 9.7% to 9.4%. The remaining 31% of the increase in value is due to the growth in cash flow from the assets and changes to the operating assumptions adopted in the valuations.

The valuation is based on an average occupancy over the 10 year cash flow period of 83.1% across the whole portfolio. 

The initial yield pre-administration expenses assuming no rental growth is 6.5% (2017: 6.5%) rising to a stabilised yield of 6.9% (2017: 7.2%). The stores are assumed to grow to stabilised occupancy in 16 months on average. Note 15 contains more detail on the assumptions underpinning the valuations.

As referred to in note 15 C&W observe that there is less transaction activity in the prime self storage market compared to other property markets, although there has been some activity for secondary assets. The capitalisation rates are therefore subject to higher levels of uncertainty than for other property sectors.

C&W's valuation report further confirms that the properties have been valued individually but that if the portfolio were 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 £22.0 million in the year. Capital expenditure accounts for £33.0 million of this increase, notably on Bracknell, Slough, Wapping and Hove. This has been partly offset by Guildford Central transferring to open stores and a revaluation deficit of £1.3 million, where our projected construction costs have increased due to a change in the planned schemes on a couple of sites which are subject to planning.

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 15 for further details) to be used in the calculation of our adjusted diluted net asset value. This Red Book valuation on the basis of the special assumption of 2.75% purchaser's costs, results in a higher property valuation at 31 March 2018 of £1,380.3 million (£77.0 million higher than the value recorded in the financial statements). With the share of uplift on the revaluation of the Armadillo stores (£0.7 million), this translates to 48.8 pence per share. 

This revised valuation translates into an adjusted net asset value per share of 665.0 pence (2017: 607.6 pence) after the dilutive effect of outstanding share options. 

Receivables

At 31 March 2018 we have a receivable of £4.3 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 receivable relates to VAT to be recovered on historic store development expenditure.

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 £0.2 million of the discount being unwound through interest receivable in the period. The gross value of the debtor before discounting is £4.6 million. 

The Group received has received £11.3 million to date under the Scheme, of which £2.8 million was received in the year. 

Net asset value

The adjusted net asset value is 665.0 pence per share (see note 13), up 9% from 607.6 pence per share at 31 March 2017. The table below reconciles the movement from 31 March 2017:

Borrowings

Our financing policy is to fund our current needs through a mix of debt, equity and cash flow to allow us to build out 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 year, the Group further reduced its average cost of debt, whilst increasing the available facilities and extending the average term of its debt.

The Group extended its £70 million loan with M&G by a year, pushing its expiry out to June 2023. All other terms and conditions of the loan remained the same, hence it was not a material modification of the loan under IAS 39. At the same time, the Group cancelled the existing 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 Group also amended the terms of its existing £190 million bank facility, which was treated as an extinguishment of the loan under IAS 39. The £85 million term loan, which attracted a margin of 150bps, was converted to revolving loan at a lower margin of 125 bps. The term of the loan was extended to October 2022 with an option in place to extend the loan by a further two years. The Group also has an option to increase the amount of revolving loan by a further £80 million during the course of the loan's term. The Group exercised its option over £20 million of this debt in March 2018, resulting in the overall bank facility being £210 million at the balance sheet date.

The refinancing costs of £1.5 million shown in the 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.

The table below summarises the Group's debt facilities at 31 March 2018. The average cost of debt has reduced to 2.9% from 3.2% at 31 March 2017:

The Group was comfortably in compliance with its banking covenants at 31 March 2018. For the year we had Group interest cover of 7.6 times (2017: 6.1 times) based on pre-interest operating cash flow against interest paid. The net debt to gross property assets ratio is 25% (2017: 25%) and the net debt to adjusted net assets ratio (see net asset value section above) is 31% (2017: 31%). 

At 31 March 2018, the fair value on the Group's interest rate derivatives was an asset of £1.7 million. The Group does not hedge account its interest rate derivatives. As recommended by EPRA, 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 £15.9 million at 31 March 2018 (2017: £15.8 million), consisting of 158,570,574 ordinary shares of 10p each (2017: 157,882,867 shares). 0.7 million shares were issued for the exercise of options during the year at an average exercise price of 725p (2017: 0.5 million shares at an average price of 738p).

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.

77.4 million shares were traded in the market during the year ended 31 March 2018 (2017: 74.9 million). The average mid-market price of shares traded during the year was 801.5p with a high of 900p and a low of 722p.

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. 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 occupancy of the Armadillo stores at 31 March 2018 was 73.9% (31 March 2017: 74.7%). The occupancy growth in the year was 161,000 sq ft, including 141,000 sq ft of occupancy acquired in the six store purchases made in the year. The net rent achieved at 31 March 2018 by the Armadillo stores is £16.97 per sq ft, an increase of 2.8% from the same time last year. Revenue increased by 22% to £12.8 million for the year to 31 March 2018 (2017: £10.5 million); the like-for-like increase in revenue was 10%.

The Armadillo Partnerships made a combined operating profit of £6.2 million in the year, of which Big Yellow's share is £1.2 million. After net interest costs, the revaluation of investment properties (valued by Jones Lang LaSalle), deferred tax on the revaluation surplus and movement in interest rate derivatives, the profit for the year was £4.6 million, of which the Group's share was £0.9 million. 

Big Yellow has a five year management contract in place in each Partnership. For the year to 31 March 2018 the Group earned management fees of £1.0 million. The Group's share of the declared dividend for the year is £0.4 million, representing a 12% yield on our original equity invested.

Principal risks and uncertainties

The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

The section below details the principal risks and uncertainties that are considered to have the most material impact on the Group's strategy and objectives. These key risks are monitored on an ongoing basis by the Executive Directors, and considered fully by the Board in its annual risk review.

GOING CONCERN

A review of the Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. 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 in the financial statements. 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 this Report and in the notes to the financial statements.

After reviewing Group and Company cash balances, borrowing facilities, forecast valuation movements and projected cash flows, 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 had regard to the Group's operating plan and budget for the year ending 31 March 2019 and projections contained in the longer-term business plan which covers the period to March 2022. The Directors have carefully considered the Group's trading performance and cash flows as a result of the uncertain global economic environment and the other principal risks to the Group's performance and are satisfied with the Group's positioning. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

VIABILITY STATEMENT

The Directors have assessed the Group's viability over a four year period to March 2022. This period is selected based on the Group's long term strategic plan to give greater certainty over the forecasting assumptions used.

In making their assessment, the Directors took account of the Group's current financial position, including committed capital expenditure. The Directors carried out a robust assessment of the principal risks and uncertainties facing the business and their potential financial impact on the Group's cash flows, REIT compliance and financial covenants and the likely effectiveness of the mitigating options detailed. The Directors have assumed that funding for the business in the form of equity, bank and insurance debt will be available in all reasonably plausible market conditions.

Based on this assessment the Directors have a reasonable expectation that the Company and the Group will be able to continue operating and meeting all their liabilities as they fall due to March 2022.

Statement of Directors' Responsibilities

Directors' responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements on the same basis. 

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the Directors are required to: 

· select suitable accounting policies and then apply them consistently; 

· make judgements and estimates that are reasonable, relevant and reliable; 

· state whether they have been prepared in accordance with IFRSs as adopted by the EU; 

· assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

· use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 

Responsibility statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge: 

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and 

· the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy. 

This responsibility statement was approved by the Board of Directors on 21 May 2018 and is signed on its behalf by:

Consolidated Statement of Comprehensive Income

Year ended 31 March 2018

EPRA earnings per share are shown in Note 12.

All items in the consolidated statement of comprehensive income relate to continuing operations.

Consolidated Balance Sheet

31 March 2018

The financial statements were approved by the Board of Directors and authorised for issue on 21 May 2018. They were signed on its behalf by:

James Gibson, Director John Trotman, Director

Company Registration No. 03625199

Consolidated Statement of Changes in Equity

Year ended 31 March 2018

The other non-distributable reserve arose in the year ended 31 March 2015 following the placing of 14.35 million ordinary shares.

Year ended 31 March 2017

Consolidated Cash Flow Statement

Year ended 31 March 2018

Notes to the financial statements

Year ended 31 March 2018

1. General information

Big Yellow Group PLC is a Company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is 2 The Deans, Bridge Road, Bagshot, Surrey, GU19 5AT. The nature of the Group's operations and its principal activities are set out in note 4.

2. BASIS OF PREPARATIOn

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The statutory accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretations Committee relevant to its operations and effective for accounting periods beginning on 1 April 2017. The same accounting policies as applied in the Group's statutory accounts for the year ended 31 March 2017 have been applied in this condensed set of financial statements. 

Going concern

A review of the Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Operating 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 financial statements. 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 and in the notes to the financial statements.

After reviewing Group and Company cash balances, borrowing facilities, forecast valuation movements and projected cash flows, 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 had regard to the Group's operating plan and budget for the year ending 31 March 2019 and projections contained in the longer term business plan which covers the period to March 2022. The Directors have carefully considered the Group's trading performance and cash flows as a result of the uncertain global economic environment and the other principal risks to the Group's performance, and are satisfied with the Group's positioning. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

3. Revenue

Analysis of the Group's operating revenue can be found below and in the Portfolio Summary.

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

4. Segmental Information

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. Given the nature of the Group's business, there is one segment, which is the provision of self storage and related services.

Revenue represents amounts derived from the provision of self storage 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 and related services. These all arise in the United Kingdom in the current year and prior year.

5. PROFIT for the year

a) Profit for the year has been arrived at after charging/(crediting):

b) Analysis of auditor's remuneration:

Fees payable to KPMG LLP and their associates for non-audit services to the Company are not required to be disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis. Fees charged by KPMG LLP to the Group's associates, Armadillo Storage Holding Company Limited and Armadillo Storage Holding Company 2 Limited in the year amounted to £45,000 which all related to audit services. The prior year audit fees and non-audit fees disclosed were payable to Deloitte LLP.

6. Employee costs

The average monthly number of full-time equivalent employees (including Executive Directors) was:

7. INVESTMENT income

8. Finance costs

The refinancing costs 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.

9. 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 provided that 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.

Finance (No.2) Bill 2015 provides that the rate of corporation tax for the 2017 Financial Year (commencing 1 April 2017) would be 19% and that the rate from 1 April 2020 will be 18%. At Budget 2016, the government announced a further reduction to the Corporation Tax main rate (for all profits except ring fence profits) for the year starting 1 April 2020, setting the rate at 17%. This rate was incorporated in Finance Act 2016 which was fully enacted on 15 September 2016.

A reconciliation of the tax charge is shown below:

At 31 March 2018 the Group has unutilised tax losses of £32.1 million (2017: £32.6 million) available for offset against certain types of future taxable profits. All losses can be carried forward indefinitely.

10. Adjusted Profit

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 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.

The refinancing costs of £1.5 million 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.

11. Dividends

Subject to approval by shareholders at the Annual General Meeting to be held on 19 July 2018, the final dividend will be paid on 27 July 2018. The ex-div date is 21 June 2018 and the record date is 22 June 2018.

The Property Income Dividend ("PID") payable for the year is 27.5 pence per share (2017: 24.0 pence per share). 

12. Earnings per share

The calculation of basic earnings is based on profit after tax for the year. 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.

13. NET ASSETS PER SHARE

The European Public Real Estate Association ("EPRA") has issued recommended bases for the calculation of net assets per share information and this is shown in the table below:

Net assets per share are equity shareholders' funds divided by the number of shares at the year end. The shares currently held in the Group's Employee Benefit Trust are excluded from both net assets and the number of shares. Adjusted net assets per share include the effect of those shares issuable under employee share option schemes and the effect of alternative valuation methodology assumptions (see note 15).

14. Non-Current Assets

a) Investment property, investment property under construction and interests in leasehold property