Big Yellow Regulatory News (BYG)

Big Yellow Group PLC

Results for the YEAR ended 31 MARCH 2019

Highlights

STRONG PERFORMANCE DRIVEN BY OCCUPANCY AND RATE GROWTH 

1 See note 28 for glossary of terms

Highlights

Nicholas Vetch, Executive Chairman of Big Yellow, commented:

"We have delivered another year of growth, with revenue up 7% and adjusted profit before tax up 10% year-on-year. Although activity levels in the final quarter were impacted by consumer uncertainty in the build-up to the UK's original proposed exit date from the EU, we are pleased to have delivered further improvements in rate and occupancy over the year as a whole.

This performance has been delivered alongside the continued delivery of our expansion strategy. In addition to opening an extension at our Wandsworth store, and new stores in Wapping and Manchester, we have acquired a further seven development sites. 

It has taken us time to build a sustainable pipeline of new stores. That is now accomplished and will provide a steady increase in capacity over the next few years. We will continue to add to this pipeline as sites become available, albeit the supply of appropriate property is limited. These new stores will make a significant contribution to future revenue growth, enhancing the performance we anticipate being generated by the existing operating platform.

Looking ahead, we remain focussed on our core objective of increasing occupancy to 90%, which in turn should drive traction on pricing and further rate growth. We have a proven strategy and remain confident about the long-term prospects for the Group."

ABOUT US

Big Yellow is the UK's brand leader in self storage. Big Yellow now operates from a platform of 99 stores, including 24 stores branded as Armadillo Self Storage, in which the Group has a 20% interest. We own a further 12 Big Yellow self storage development sites of which three 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 6.5 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.

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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 2019.

This has been another year of revenue, cash flow and adjusted earnings growth, driven by a combination of improvements in occupancy and rate. Following our seasonally weaker third quarter, we continued to grow occupancy in the final quarter, but this growth was more muted than in recent years, with prospect numbers and move-ins slightly lower year-on-year. This in someways was not surprising given the heightened uncertainty in the run up to 29 March, the UK's original proposed exit date from the EU, which has now been delayed until 31 October. Since the year end our book of reservations has grown to similar levels seen last year and we anticipate further growth in occupancy over our seasonally stronger summer period. 

Like-for-like closing Group occupancy is up 2.2 percentage points to 82.7% compared to 80.5% at 31 March 2018. Average rental growth was up 2.9% year-on-year compared to 0.8% last year. Although our closing occupancy was at the lower end of our expectations at the start of the year, we delivered better than anticipated rate growth.

We expect to see occupancy growth over our seasonally stronger summer trading period, providing there are no significant external shocks, and we should peak at over 85%. The key risk to our business is supply, and this remains constrained, particularly in London and the South East, with four store openings in the year offset by three store closures. We remain focussed on our core objective of 90% occupancy across the portfolio, and as we further reduce vacant capacity, our pricing model will continue to deliver improved rental growth.

Financial results

Revenue for the year was £125.4 million (2018: £116.7 million), an increase of 7%. Like-for-like revenue growth (see note 28) was 7%.

Operating cash flow increased by £8.8 million (14%) to £71.8 million for the year (2018: £63.0 million). During the year we spent £83.0 million on growth capital expenditure, compared to £42.0 million in 2018. The Group's operating profit before property revaluations increased by £5.7 million (8%) to £76.7 million. The Group's statutory profit before tax was £126.9 million, a decrease of 5% from £134.1 million in the prior year with the increase in operating profit offset by a slightly lower 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 10% in the adjusted profit before tax in the year of £67.5 million (2018: £61.4 million). Adjusted earnings per share increased by 8% to 41.4p (2018: 38.5p) with an equivalent 8% increase in the dividend per share for the year. The increase in earnings per share is lower than that reported for adjusted profit before tax as a result of the dilution from the equity placing in September 2018.

The Group has net debt of £319.7 million at 31 March 2019 (2018: £323.7 million). This represents approximately 22% (2018: 25%) of the Group's gross property assets totalling £1,445.5 million (2018: £1,303.3 million) and 26% (2018: 31%) of the adjusted net assets of £1,209.8 million (2018: £1,059.1 million). The Group's interest cover for the year, expressed as the ratio of cash generated from operations against interest paid was 8.2 times (2018: 7.6 times). This is comfortably ahead of our internal minimum interest cover of 5 times.

Investment in new capacity

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

We are therefore pleased to report progress in this regard with the acquisition of seven high quality development sites since March 2018. Five of the sites were in London, in Uxbridge (West London), Queensbury (North West London), Hayes (West London), Wembley (North West London), and North Kingston (South West London). The remaining two were in Slough (just outside the M25, west of London) and Hove (west of Brighton). 

The 25,000 sq ft extension to our Wandsworth store completed in May 2018, we opened a 25,000 sq ft store in Wapping in July 2018, and in May 2019 we opened our 60,000 sq ft store on Water Street, central Manchester. 

We have commenced construction of our Camberwell store which we anticipate will open in Spring 2020. We also received planning consent for our Battersea scheme which will provide a new 72,000 sq ft net Big Yellow store, 168 flats and 18,500 sq ft of offices, retail and artists' studios. Our existing 34,000 sq ft Battersea store was closed in March 2019 for demolition, and we anticipate the new store will re-open in Summer 2020. The 57,000 sq ft proposed store at Bracknell received planning consent in January 2019, and we hope to be on site shortly, with a view to opening in Summer 2020. 

After lengthy consultations, we submitted a planning application on our Kings Cross development in July 2018, which is now the subject of an appeal due to be determined this summer. 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 12 development sites with a cost to complete of approximately £109 million. These store openings are expected to add approximately 820,000 sq ft of storage space to the portfolio, an increase of 18% 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 £19 million per annum. The total development cost including cost incurred to date is estimated to be approximately £212 million implying a 9.0% net operating income return on cost.

During the year, the Group acquired the Wyvern Industrial Estate in New Malden, London for £28 million excluding purchaser's costs. Big Yellow occupies approximately half of the estate, with an 81,000 sq ft net lettable area store, on an occupational lease which expired in 2026. The acquisition removed two material risks; there was no certainty that the lease would have been renewed at its expiry, and the liability of future rent increases on this property could have been significant given its prime location in London. We intend to sell the remainder of the estate in due course.

We continue to look for land and existing storage centres in large urban conurbations, focussing as previously stated on London and the South East. Should the current uncertainties throw up new opportunities, we will continue as we have been to pursue them aggressively. However, developing stores in these target areas remains challenging given the competition for land and the pressure to produce more housing. 

Dividends

The Group's dividend policy is to distribute 80% of full year adjusted earnings per share. The final dividend declared is 16.5 pence per share. The dividend declared for the year of 33.2 pence per share represents an increase of 8% from 30.8 pence per share last year. 

Our people

We continue to believe that any successful business requires a motivated and engaged workforce, and the creation of a fully engaged culture has always been a key focus within Big Yellow. An increasingly important aspect of this is social responsibility, particularly as it relates to local communities around our stores. This has been the first full year of operation of The Big Yellow Foundation, supporting six charities which focus on the rehabilitation of vulnerable adults into work. I am delighted that in its first year we have succeeded in raising some £160,000, with the strong support and help of our employees.

In February 2019, we were named as one of the Sunday Times 100 Best Companies to Work For, which is a pleasing testament to the culture of the business given that it is based entirely on the views of our employees.

In addition, we focus on customer service and engagement, measuring and responding to their feedback. Our customer net promoter scores ("NPS") were an average of 79.1 over the year (2018: 80.1). Although marginally lower than last year, NPS scores at these levels are highly unusual and reflect our efforts to deliver excellent and consistent customer service.

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

Outlook

It has taken us time to build a sustainable pipeline of new stores. That is now accomplished and will provide a steady increase in capacity over the next few years. We will continue to add to this as sites become available but the supply of appropriate property is limited. These new stores will make a significant contribution to future revenue growth, enhancing the performance we anticipate being generated by the existing operating platform.

Looking ahead, we remain focussed on our core objective of increasing occupancy to 90%, which in turn should drive traction on pricing and further rate growth. We have a proven strategy and remain confident about the long-term prospects for the Group.

Nicholas Vetch, Executive Chairman20 May 2019

Strategic Report

OUR STRATEGY AND INVESTMENT CASE

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 six times that of our nearest competitor (source: YouGov survey, April 2019). 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 the year for The 100 Best 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 79.1 in the year, and average Trustpilot scores of 9.6 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. In the last 12 years since April 2007, we have added 2.1 million sq ft of capacity and 2.0 million sq ft of occupancy.

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 20 years we have built a portfolio of 75 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 twelve freehold development opportunities and are looking to expand that pipeline with a view to growing the Big Yellow platform to 100 stores over the next seven to ten years.

66% 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 so as to maintain a proportion of 80% or more in London and the South East with the balance in regional cities.

Our Big Yellow stores are on average 62,000 sq ft, compared to an industry average of approximately 44,000 sq ft (source: The Self Storage Association 2019 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:

In the nineteen years since flotation in May 2000, Big Yellow has delivered a Total Shareholder Return ("TSR"), including dividends reinvested, of 15.3% per annum, in aggregate 1,380% at the closing price of 991.5p on 31 March 2019. This compares to 6.1% per annum for the FTSE Real Estate Index and 5.1% per annum for the FTSE All Share index over the same period. We feel this illustrates the power of compounding of consistent incremental returns over the longer term.

Our investment case

The self storage market

In the recently published 2019 Self Storage Association UK Survey, only 48% of those surveyed had a reasonable or good awareness of self storage. Furthermore, only 9% of the 2,170 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 48% in 2019 across the UK (source: UK SSA Survey 2019). Our YouGov Survey carried out in April 2019 showed higher levels of awareness in London of 65%, 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 December 2018, there were four new store openings offset by three closures. We are aware of only two planned store openings in London in 2019.

The Self Storage Association ("SSA") estimates that the UK industry is made up of approximately 1,582 self storage facilities (of which 381 are purely container operations), providing 45.6 million sq ft of self storage space, equating to 0.68 sq ft per person in the UK. This compares to 9.4 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 2018). 30% of the self storage facilities in the UK are held by large operators (defined as those managing 10 facilities or more), 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 approximately 50% of the annual industry turnover of £720 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 approximately 90% 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 75 open and trading Big Yellow stores (with Manchester having opened in May 2019), with a further 12 development sites. The current maximum lettable area of the 75 stores is 4.7 million sq ft. When fully built out the portfolio will provide approximately 5.5 million sq ft of flexible storage space.

In addition we part-own and manage 24 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 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.

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 support.

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 79.1. 

We have a team of ten area managers in place who have on average worked for Big Yellow for 12 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 £37,000 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 statement of comprehensive income.

Demand

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

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

Customers renting storage space whilst moving within the rental or owner occupied sectors represent 41% of move-ins during the year (2018: 42%), split evenly between the homeowners and renters. 12% of our customers who moved in took storage space as a spare room for decluttering (2018: 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 (2018: 35%). The balance of 12% of our new customer demand during the year came from businesses (2018: 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 prior year, the Group commissioned an external survey to assess the value the average Big Yellow store generates for its local economy. 36% 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 overall occupied space today, customers who are longer stay lifestyle users, decluttering into small rooms as an extension to their accommodation, occupy 10% to 15% of our space; approximately 50% of the space is customers using it for less than 12 months, for reasons which are largely event driven, which could be inheritance, moving in the owner occupied or rental sector, home improvements, travelling; the balance of 36% of our space is businesses. Businesses occupy larger rooms on average than domestic customers and, despite being in 36% of the occupied space only represent 21% of customer numbers.

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 13 years, we have commissioned a YouGov survey to help us monitor our brand awareness. In our most recent survey conducted in April 2019, we used a statistically robust sample size of 1,008 respondents in London and 3,806 for the rest of the UK. The survey has shown our prompted awareness to be at 72% in London, nearly two and a half times higher than our nearest competitor and 41% for the rest of the UK, nearly three times higher than our nearest competitor.

For unprompted brand awareness, our recall in London is 48%, five and a half times higher than our nearest competitor and for the rest of the UK it is 20%, nearly six 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 2019, Big Yellow's unprompted brand awareness across the UK is over five times higher than our nearest competitor. These surveys continue to confirm our brand leading position in self storage.

The Big Yellow website, whether accessed by desktop, tablet or smartphone, delivers the largest share of our prospects, accounting for 90% of all sales leads across the year ended 31 March 2019, with the balance coming from telephone or walk-in enquiries as the first point of contact.

Across the year ended 31 March 2019, our online market share of weekly web visits remained strong, ranging from 22% to 32% (source: Connexity Hitwise recording visits to 59 UK self storage operators). This results from our continued investment and innovation across our mobile and desktop digital platforms driving both paid and SEO search.

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 28,000 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 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 5,800 Google Reviews averaging 4.6 out of 5 and 1,354 TrustPilot Reviews currently averaging 9.6 out of 10.

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

Driving online traffic

Self storage is a consumer facing business and the development of a strong and sustainable brand is multi-layered and requires a consistency of product, customer service and interaction at all touch points, particularly online, which represents 90% 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 which helps us achieve high positions for the most popular self storage related search terms in the organic listings on Google. Of the top 100 self storage search terms, 32 feature brands, representing approximately 42% of the search traffic (source: Connexity Hitwise, 12 weeks ended 30 March 2019). 

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 our largest source of paid for web traffic. Ongoing website optimisation helps ensure we maximise the conversion of this web traffic into prospects. 

We continue to drive efficiencies so as to maximise the return on investment 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 and Big Yellow can be found across Twitter, Facebook and Instagram. LinkedIn is also being used to communicate company achievements, CSR initiatives and to present an honest and engaging picture of what it is like to work for Big Yellow. LinkedIn is central in our drive towards more direct recruitment.

The Big Yellow YouTube channel is used to allow web prospects to experience our stores online through our video guides to self storage. The online blog is updated regularly with tips and advice for homeowners and businesses, as well as summaries of our charitable and CSR initiatives. 

PR

We have continued to produce regional press stories throughout the year to help raise awareness of Big Yellow in the local communities where we operate. These will often highlight the charitable endeavours of our team members or the support we provide to local charities and organisations through the donation of free storage space.

Budget

During the year the Group spent approximately £5.3 million on marketing (4.2% of total revenue). We have increased the budget for the year ahead to £5.5 million with a focus on delivering and converting more prospects 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. We carry out frequent penetration testing of internet facing systems, use components such as anti-ransomware as well maintaining and replacing components (such as firewalls) with 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 aligned our policies and procedures to ensure our ongoing compliance with the new EU General Data Protection Regulation ("GDPR") which came into effect in May 2018.

Store Performance

PORTFOLIO SUMMARY - BIG YELLOW STORES

(1) The mature stores have been open for more than six years at 1 April 2018. The established stores have been open for between three and six years at 1 April 2018 and the developing stores have been open for fewer than three years at 1 April 2018. The Group's mature Battersea store was closed for redevelopment in the year. It is excluded from occupancy, but its revenue and costs up to the date of closure are included in the above. 

(2) See glossary in note 28.

(3) Insurance, packing materials and other storage related fees.

(4) Rent 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, and a long leasehold lease-up store with a capacity of 64,000 sq ft. The EBITDA margin for the 62 freehold mature stores is 71%, and 52% for the six leasehold mature stores. During the year the Group acquired the freehold of its mature New Malden store.

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

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

(7) See reconciliation in cost of sales section in Financial Review.

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

(2) The Group has a 20% interest in Armadillo. The figures shown above represent 100% of Armadillo's performance.

Prospects for the year were slightly down on last year. The table below shows the quarterly move-in and move-out activity over the year.

The performance in the prior year was a strong comparator, and hence move-ins were down 1% on last year, although up 2% on the year to 31 March 2017. Activity levels in the quarter to March were affected by consumer uncertainty in the run-up to the UK's original proposed exit date from the EU. Across the year move-outs were up 1% on the prior year; partly as a result of closing our Battersea store for redevelopment in the fourth quarter. 

In all Big Yellow stores, the occupancy growth in the current year was 80,000 sq ft, against an increase of 179,000 sq ft in the prior year. 

We had a good quarter to June with an increase in occupancy of 131,000 sq ft, albeit lower growth than the prior year. 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. In our seasonally weakest third quarter the occupancy loss represented 2.7% of MLA, compared to 3.7% of the MLA in the prior year, which had had a stronger summer trading period. In the final quarter we have seen a return to growth in occupancy in the stores of 32,000 sq ft, which was softer than the prior year given the consumer uncertainty referred to above.

The 68 mature stores are 83.2% occupied compared to 81.6% at the same time last year. The 3 established stores have grown in occupancy from 83.0% to 85.9%. The three developing stores added 33,000 sq ft of occupancy in the year to reach closing occupancy of 53.5%. Overall store occupancy has increased in the year from 80.5% to 82.4%. On a like-for-like basis, excluding Wapping, which opened July 2018, and Battersea which closed in March 2019, closing occupancy was 82.7%, an increase of 2.2 percentage points.

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 2019:

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. 

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 average rate growth in the year was 2.9%. Net achieved rent per sq ft at 31 March 2019 grew by 2.0% over the financial year. The table below shows the growth in net rent per sq ft for the portfolio over the year (excluding Battersea, Guildford Central and Wapping).

Armadillo Self Storage

The Group has a 20% investment in Armadillo Self Storage, with the balance of 80% held by an Australian consortium. Subsequent to the year end Armadillo acquired two stores in Daventry and Grimsby.

This takes the Armadillo platform to 24 stores and 1.0 million 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 2019, £2.2 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 43,000 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 the 25,000 sq ft extension to our Wandsworth store in May 2018 and our 25,000 sq ft store in Wapping in July 2018. Our new 60,000 sq ft store in Manchester opened on 1 May 2019. We own a further 12 development sites, of which three have planning consent. 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 2020 is approximately £33 million, which includes the completion of the acquisitions of Hayes and Slough, and construction expenditure on Camberwell, Battersea and Bracknell.

The Group acquired a site in Slough in October 2017 for future development. The Group subsequently acquired a more prominent and usable site opposite in April 2019 and simultaneously sold the original site acquired.

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 on budget.

Financial Review

Financial results

Revenue

Total revenue for the year was £125.4 million, an increase of £8.7 million (7.5%) from £116.7 million in the prior year. Like-for-like revenue for the year was £123.2 million, an increase of 7.2% from the prior year (2018: £114.9 million), driven by a combination of an increase in the average occupancy of the Group's stores and an increase in net achieved rent per sq ft. Like-for-like revenue excludes Guildford Central and Wapping, which opened in March 2018 and July 2018 respectively, and Battersea, which was closed for redevelopment in the year.

Other sales (included within the above), comprising the selling of insurance, packing materials and storage related charges, represented 14.1% of total store revenue for the year (2018: 14.4%) and generated revenue of £17.1 million for the year, up 4% from £16.5 million in 2018.

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. During the year, the Group recognised in revenue a £1 million performance fee due from Armadillo Storage Holding Company Limited, for the performance of the fund over its initial five year term. This fee was paid in May 2019.

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:

Store operating costs have increased by £2.5 million (7%) compared to the same period last year. Of this increase £0.6 million relates to our new stores at Guildford Central and Wapping. The Group's property rates have increased by £0.9 million from the prior year, with the Group receiving significant rates rebates on two stores in the prior year, which reduced last year's expense, coupled with the reduction of transitional arrangements for the new rates listing. We have increased our investment in marketing by £0.6 million to maintain the Group's online market share and enquiry levels. 

Our investment in LED lighting has contributed to a reduction in our utility expenditure of £0.1 million. We have increased our investment in our IT systems and cyber security by £0.1 million. The other increases in store operating costs of £0.4 million are largely inflationary.

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

Store EBITDA

Store EBITDA for the year was £84.1 million, an increase of £4.6 million (6%) from £79.5 million for the year ended 31 March 2018 (see Portfolio Summary). The overall EBITDA margin for all Big Yellow stores during the year was 69.1%. 

Administrative expenses

Administrative expenses in the statement of comprehensive income have increased by £542,000. The increase is due to a number of factors; an increase of £250,000 in salaries, which includes the annual salary review to head office employees and the increase to Directors' pay as approved at the last AGM. We have also increased staffing levels in IT, marketing and HR (£150,000), there has been an increase in donations to the Big Yellow Foundation (£50,000), increased investment in CSR (£35,000). These increases have been partly offset by a reduction in the share based payments charge of £125,000 with the balance of the increase of £182,000 due to inflationary increases. 

The non-cash share based payments charge represents £2.3 million of the overall £10.6 million expense.

Interest expense on bank borrowings

The gross bank interest expense for the year was £9.9 million, an increase of £0.1 million from the prior year. The average cost of borrowing during the year was 2.9% in line with the prior year, with the change in base rate in August 2018 being offset by a higher proportion of the drawn debt being variable rate bank debt, which is lower cost. Average debt levels were slightly higher than in the prior year.

Capitalised interest increased by £0.4 million from the prior year. The interest capitalised in the year is principally on our Manchester and Camberwell developments. 

Total finance costs in the statement of comprehensive income decreased to £11.2 million from £12.0 million in the prior year. Refinancing costs of £1.5 million were incurred in the prior year.

Profit before tax

The Group made a profit before tax in the year of £126.9 million, compared to a profit of £134.1 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 £67.5 million, up 10% from £61.4 million in 2018. 

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

Basic earnings per share for the year was 78.3p (2018: 85.0p) and fully diluted earnings per share was 78.0p (2018: 84.4p). Diluted EPRA earnings per share based on adjusted profit after tax was up 8% to 41.4p (2018: 38.5p) (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 £0.4 million. This compares to a charge in the prior year of £0.6 million. The current year tax charge reflects an increase in profits in our residual business, which has been more than 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 16.5 pence per share in addition to the interim dividend of 16.7 pence, giving a total dividend for the year of 33.2 pence, an increase of 8% 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 29.2 pence per share is payable (31 March 2018: 27.5 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 2019 accounts for 88% of the total dividend. 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 2019, the final dividend will be paid on 26 July 2019. The ex-div date is 20 June 2019 and the record date is 21 June 2019.

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 £71.8 million, an increase of 14% from £63.0 million in the prior year. 

In the year capital expenditure outflows were £83.0 million, up from £42.0 million in the prior year. The capital expenditure during the year principally relates to the acquisition of the freehold of our New Malden store and adjoining industrial estate (£29 million including costs), the purchase of land for new stores (£35 million), and construction capital expenditure (£19 million). 

The cash flow after investing activities was a net outflow of £8.8 million in the year, down from an inflow of £24.0 million in 2018, with the growth in operating cash flow being more than offset by the increased investment in capital expenditure.

Balance sheet

Property

The Group's open stores and stores under development owned at 31 March 2019, 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 £1,445.5 million, comprising £1,317.1 million (91%) for the freehold (including three long leaseholds) open stores, £37.3 million (3%) for the short leasehold open stores and £91.1 million (6%) for the freehold investment properties under construction.

Investment property

The valuations in the current year have grown from the prior year, with a revaluation surplus of £59.0 million arising on the open Big Yellow stores (see note 15 for the detailed valuation methodology). Of this increase 27% is due to an improvement in the cap rate used in the valuations. The average exit capitalisation rate used in the valuations was 6.2% in the current year, compared to 6.3% in the prior year, with the discount rate adopted also reducing from 9.4% to 9.3%. The remaining 73% 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 84.3% across the whole portfolio. 

(1) Excluding Battersea which was closed in the year for redevelopment, but in line with the Group's accounting policy has been shown in investment property at the year end.

The initial yield pre-administration expenses assuming no rental growth is 6.4% (2018: 6.5%) rising to a stabilised yield of 6.7% (2018: 6.9%). 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 £33.0 million in the year. Capital expenditure accounts for £47.6 million of this increase, notably on the site purchases discussed above, and construction expenditure, principally on Manchester and Camberwell. This has been partly offset by Wapping transferring to open stores. The valuation movement on the investment property under construction was flat year-on-year.

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 2019 of £1,528.6 million (£83.1 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 50.2 pence per share. 

This revised valuation translates into an adjusted net asset value per share of 724.4 pence (2018: 665.0 pence) after the dilutive effect of outstanding share options. 

Receivables

At 31 March 2019 we have a receivable of £2.5 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 £0.1 million of the discount being unwound through interest receivable in the year. The Group has received £13.2 million to date under the Scheme, of which £1.9 million was received in the year. 

Net asset value

The adjusted net asset value is 724.4 pence per share (see note 13), up 7% from 675.5 pence per share at 31 March 2018 (rebased for the impact of the placing). The table below reconciles the movement from 31 March 2018:

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

The table below summarises the Group's debt facilities. The average cost at 31 March 2019 is 2.9% (March 2018: 2.9%) with a higher proportion of lower cost variable rate bank debt drawn at March 2019, offset by the increase in base rate in August 2018.

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

The Group was comfortably in compliance with its banking covenants at 31 March 2019. For the year we had Group interest cover of 8.2 times (2018: 7.6 times) based on pre-interest operating cash flow against interest paid. The net debt to gross property assets ratio is 22% (2018: 25%) and the net debt to adjusted net assets ratio (see net asset value section above) is 26% (2018: 31%). 

At 31 March 2019, the fair value on the Group's interest rate derivatives was an asset of £0.6 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 £16.7 million at 31 March 2019 (2018: £15.9 million), consisting of 166,665,158 ordinary shares of 10p each (2018: 158,570,574 shares). In September, the Group issued 7.2 million shares (4.5% of the issued share capital prior to the placing) at a price of 930 pence per share, raising £65.3 million (net of expenses). 0.9 million shares were issued for the exercise of options during the year at an average exercise price of 910p (2018: 0.7 million shares at an average price of 725p).

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.

79.2 million shares were traded in the market during the year ended 31 March 2019 (2018: 77.4 million). The average mid-market price of shares traded during the year was 929.5p with a high of 998.5p and a low of 852.5p.

Investment in Armadillo

The Group has a 20% investment in Armadillo Storage Holding Company Limited and a 20% investment in Armadillo Storage Holding Company 2 Limited. In the consolidated accounts of Big Yellow Group PLC, our investments in the vehicles are treated as associates using the equity accounting method.

The occupancy of the Armadillo stores at 31 March 2019 was 75.1% (31 March 2018: 73.9%). The occupancy growth in the year was 11,000 sq ft. The net rent achieved at 31 March 2019 by the Armadillo stores is £17.50 per sq ft, an increase of 3.1% from the same time last year. Revenue increased by 18% to £15.1 million for the year to 31 March 2019 (2018: £12.8 million); the like-for-like increase in revenue was 6%.

Included within administrative expenses in Armadillo 1 is a £1 million accrual for a performance fee paid to Big Yellow in April 2019. The fee calculation has been based on the 31 March 2019 external property valuation for the Armadillo 1 portfolio. 

The Armadillo Partnerships made a combined operating profit of £6.1 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 £11.6 million, of which the Group's share was £2.3 million. 

Big Yellow has a five year management contract in place in each Partnership. For the year to 31 March 2019 the Group earned management fees of £2.1 million, including the performance fee referred to above. The Group's share of the declared dividend for the year is £0.6 million, representing a 13% yield on our equity invested.

Principal risks and uncertainties

The Directors have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. The Group maintains a low appetite to risk, in line with our strategic objectives of providing a low volatility, high distribution, business.

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.

Internal audit

The Group does not have a formal internal audit function because the Board has concluded that the internal controls systems are sufficient for the Group at this time. However, the Group employs a Store Compliance Manager responsible for reviewing store operational and financial controls. He reports to the Chief Financial Officer, and also meets with the Audit Committee at least once a year. This role is supported by an Assistant Store Compliance Manager, enabling additional work and support to be carried out across the Group's store portfolio. The Store Compliance team will visit each operational store once to twice per year to carry out a detailed store audit. These audits are unannounced and the Store Compliance team carry out detailed tests on financial management, administrative standards, and operational standards within the stores. Part of the store staff's bonus is based on the scores they achieve in these audits. The results of each audit are reviewed by the Chief Financial Officer, the Financial Controller and the Head of Store Operations. 

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 2020 and projections contained in the longer-term business plan which covers the period to March 2023. 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 2023. 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, 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 company 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 2023.

EPRA earnings per share are shown in Note 12.

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

The financial statements were approved by the Board of Directors and authorised for issue on 20 May 2019. 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 2019

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 2018

Notes to the financial statements

Year ended 31 March 2019

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 and in the Strategic Report.

2. BASIS OF PREPARATION

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the registrar of companies, and those for 2019 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 2018. The same accounting policies as applied in the Group's statutory accounts for the year ended 31 March 2018 have been applied in this condensed set of financial statements, with the exception of the adoption of IFRS 9, IFRS 15 and Amendments to IFRS 2 and IAS 40. The adoption of these standards has not had a material impact on the Group's 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 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 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 2020 and projections contained in the longer term business plan which covers the period to March 2023. 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 £51,000 (2018: £45,000) which all related to audit services. 

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 in the prior year related 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 per 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 provided 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 2019 the Group has unutilised tax losses of £34.2 million (2018: £34.2 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.

11. Dividends

Subject to approval by shareholders at the Annual General Meeting to be held on 19 July 2019, the final dividend will be paid on 26 July 2019. The ex-div date is 20 June 2019 and the record date is 21 June 2019.

The Property Income Dividend ("PID") payable for the year is 29.2 pence per share (2018: 27.5 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

The interest in leasehold properties represents the present value of minimum lease payments for leasehold properties - see note 21 for further details of the finance lease creditor.

During the year, the Group acquired the freehold of its New Malden store. The acquisition of the freehold causes an extinguishment of the interest in leasehold property which is shown as a credit in the table above.

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

The income from self storage accommodation earned by the Group from its investment property is disclosed in note 3. Direct operating expenses, which are all applied to generating rental income, arising on the investment property in the year are disclosed in the Portfolio Summary. Included within additions is £0.8 million of capitalised interest (2018: £0.4 million), calculated at the Group's average borrowing cost for the year of 2.9%. 56 of the Group's investment properties are pledged as security for loans, with a total external value of £1,111.2 million.

b) Plant, equipment and owner occupied property