Lok N Store Regulatory News (LOK)

LOK'NSTORE GROUP PLC

("Lok'nStore" or "the Group")

Interim results

For the six months to 31 January 2015

Lok'nStore Group Plc, a leading company in the UK self-storage market announces results for six months to 31 January 2015.

Group Financial Highlights

Revenue £7.63 million up 13.6% (31.1.2014: £6.71 million)

Adjusted EBITDA1 £2.92million up 33.8% (31.1.2014: £2.18 million)

Operating profit £2.03 million up 38.2% (31.1.2014: £1.47m)

Profit before taxation £1.48 million up 61.9% (31.01.14: £0.92 million)

Net debt down to £24.3 million (31.1.2014: £25.4 million)

Interim dividend 2.33 pence per share up 16.5% (31.1.2014: 2 pence per share)

Adjusted Net Asset Value per share2 £2.69 up 9.0% (31.1.2014: £2.47)

Operational Highlights

Self-storage:

Unit occupied sq.ft up 5.5%

Unit pricing up 6.7%

Self-storage revenue £6.71 million up 15.9% (31.1.2014: £5.79 million).

Store EBITDA £3.65million up 27.4% (31.1.2014: £2.86 million)

Store EBITDA margins up 5% to 54.6% (31.1.2014: 49.6%) `

Document storage:

Revenue £0.92 million up 4.3% (31.1.2014: £0.88 million)

Boxes stored up 33.6% year-on-year

Tapes stored up 7.3% year-on-year 

Property Highlights

Completion of Sale of old Reading store for residential development for £2.9 million

New Reading store opened October 2014

New Aldershot managed store will open in May 2015

Bristol and Southampton stores due to open in early 2016

New store in Chichester for management contract

Key Metrics

Loan to value ratio down to 27.5%3 (31.1.2014: 30.9%)

Funds from Operations (FFO) 4 £2.52 million up 37.2% (31.1.2014: £1.84 million)

Annualised FFO per share of 20.1 pence per share up 33.1% (31.1.2014: 15.1 pence per share)

1 Adjusted EBITDA is defined as profits before depreciation, amortisation, losses or profits on disposal, share-based payments, acquisition costs, non-recurring professional costs, finance income, finance costs and taxation

2 Adjusted net asset value per share is the net assets adjusted for the valuation of leasehold stores and deferred tax divided by the number of shares at the period end. The shares held in the Group's employee benefits trust and treasury are excluded from the number of shares.

3 Calculation based on net debt, excluding deferred finance costs of £24.3 million (31.1.2014: £25.4million) and total property value of £88.4 million (31.1.2014: £82.3 million).

4 Funds from Operations (FFO) is calculated as EBITDA minus net finance cost on operating assets

Commenting on the Group's results, Andrew Jacobs CEO of Lok'nStore Group said,

"We are delighted to report these impressive results. We have built on the strong growth of last year with a 5.5% increase in units occupied and a 6.7% increase in prices delivering a 13.6% growth in revenue.

With tight cost control group EBITDA profit margins have expanded to 38.3% from 32.4% last year. As well as increasing our turnover, margins and profits, we continue to invest in the future growth of the business. We opened our new store in Reading last October, transferring all of the existing customers before completing the sale of our old Reading Store for £2.9 million. Trading at the new Reading and Maidenhead stores has been good underpinning our confidence that the further new stores in Aldershot, Chichester, Southampton and Bristol opening over the coming eighteen months will add further impetus to sales and profit growth.

The strength of the existing business, good asset management and Lok'nStore's conservative debt means that this major expansion can be financed out of cash flow and our existing bank facility. This will enable the business to continue to deliver increasing dividends for our shareholders."

Enquiries:

Chairman's Statement

Rapid growth, increased dividend and strong new store opening programme

Building on our success over recent years, Lok'nStore Group has capitalised on its firm foundations with impressive growth during the first half of financial 2015. A robust 13.6% growth in revenue resulted from both strong occupancy and solid price growth. With operating and finance costs firmly under control margins have increased both at the store level and the group level. As a result profits have grown sharply with EBITDA up 33.8%, net profit up 61.9%, and FFO up 37.2%.

We are midway through a store development programme that will lead to an increase in new and purpose built space from 39.6% to 57.9% and increase space by 12% in our own portfolio. Recently opened stores in Crawley, Maidenhead and Reading grew strongly in the period with plenty of capacity to continue contributing to growth during the coming years. The new store development programme will also continue with the management stores opening in Aldershot in May 2015 and Chichester opening late in 2015, and the new stores in Southampton and Bristol opening in 2016. This new store growth will build on a robust performance from the existing portfolio.

With our innovative approach to financing our strong balance sheet and our growing cash flows we are achieving all this whilst reducing our gearing from its existing modest level and increasing dividends.

Impressive Trading

Group revenue grew rapidly in the period to £7.63 million, up 13.6% year on year (31.1.2014: £6.71 million) driven by self-storage unit occupancy which is up 5.5% and prices achieved for rented self-storage units which are up 6.7%. This strong revenue growth has resulted in a 33.8% increase in a Group Adjusted EBITDA of £2.92 million (31.1.2014: £2.18 million) and a 58% increase in net profit to £1.1 million (31.1.2014: £0.7 million). With finance costs also firmly under control this translates into Funds from Operations (FFO) per share growing by 33.1% to 20.1 pence per share (annualised).

Tight control over operating costs has pushed margins and profits to record levels. Group EBITDA margin increased from 32.4% to 38.3% and the store EBITDA margins increased by 5% points to 54.6%.

Properties

Following on from our Maidenhead store which opened in December 2013 and which continues to trade well, we have completed the disposal of the old Reading store on 31 October 2014. This has largely funded the development of the new store there which opened in November 2014. Trading has been encouraging since it opened.

The new Aldershot store will open in May 2015. The new Southampton and Bristol stores will open in 2016.  We have also signed a Management Services Agreement with an external investor to manage a new storage facility in Chichester, West Sussex which will open late in 2015.

Dividend

It is intended that the Company's future dividend payments will reflect the growth in the underlying cash generated by the business. At the interim stage we intend to pay approximately one third of the previous year's total annual dividend which equates to 2.33 pence per share, up 16.5% on the 2 pence per share interim dividend last year. This interim dividend will be paid on 15June 2015. The final dividend will be declared when the Group's full year results are announced.

Outlook

Lok'nStore is a dynamic business with a record of consistent profit growth and cash generation and is well positioned for the coming years. Recent strong trading will be reinforced by our programme of new, modern, purpose-built store openings and upgrades.

With the high barriers to entry to the self-storage industry created by the strong demand for property in South-East England and the difficulties of the local planning process, we believe there is the opportunity for significant further growth and we will continue to focus our efforts on five key areas:

Ø Filling existing stores and improving pricing

Ø Developing new stores on a self-funded basis

Ø Opportunistic site acquisitions

Ø Increasing the number of stores we manage for third parties

Ø Developing our document storage offering through organic growth

Simon G Thomas

Chairman

24 April 2015

Business and Financial Review

The Performance of our Stores

Sales, Profits and Occupancy growing sharply

Trading

Total group revenue for the period grew 13.6% to £7.63 million (31.1.2014: £6.71 million). Group operating profit for the year is up 38.2% to £2.03 million(31.1.2014: £1.47 million). Document storage revenue was £0.92 million up 4.3% (31.1.2014: £0.88 million).

Occupancy of the self-storage units increased 5.5% year on year to 63.6% (31.1.2014: 63.8%) of current lettable area (CLA) as we filled up space and fitted new space. This was combined with year on year price increases of 6.7%. Self-storage revenue for the period was £6.71 million up 15.9% (31.1.2014: £5.79 million).

With costs firmly under control this revenue growth translates into strong profit growth. We again managed to increase the overall adjusted EBITDA margin across all stores by 5 percentage points from 49.6% to 54.6%. The adjusted EBITDA margins of the freehold stores were 63.9% (31.1.2014: 61.6%) and the leasehold store margins rose to 42.2% (31.1.2014: 34.5%).

Total store EBITDA in the self-storage business, a key performance indicator of profitability and cash flow of the business, increased 27.4% to £3.65 million (31.1.2014: £2.86 million).

At the end of January 2015 33.4% of Lok'nStore's self-storage revenue was from business customers (31.1.2014: 33.7%) with the remainder from household customers, (31.1.2014: 66.3%). By number of customers 20.0% of our customers were business customers (31.1.2014: 20.1%).

The average unexpired term of the Group's operating leaseholds is approximately 13 years and 2 months as at 31 January 2015 (14 years and 2 months: 31 January 2014). Total freeholds and long leasehold stores account for 82.8% of total property values. (Long leaseholds are those with over 50 years remaining term)

Ancillary Sales

Ancillary sales consisting of boxes and packaging materials, insurance and other sales increased 10.1% over the year accounting for 10.7% of self-storage revenues (31.1.2014: 11.3%). We continue to promote our insurance to new customers with the result that 93% (31.1.2014: 93%) of our new customers purchased our insurance over the year, and this has resulted in an increase in the percentage of our customers who are insured through Lok'nStore to 78% (31.1.2014: 76%).

Document storage business

In our document storage business revenue and earnings have improved slightly, and we are pleased to report that the operating metrics are improving quickly in response to the Company's more customer facing approach. These changes have resulted in excellent customer feedback and put us in a good position to win new business, with boxes stored increasing by 33.6% and tapes stored by 7.3% year on year.

Following the fit-out of new warehouse racking we have the capacity to significantly increase the number of boxes stored within our existing premises. As part of this strategy additions of £0.44 million were made in the current year to Saracen's fixtures, fittings and equipment. 

Property

Lok'nStore has 24 freehold, leasehold and managed stores trading. Of these 21 stores are owned with 12 freehold or long leasehold, nine leasehold and three further sites operate under management contracts. With Aldershot opening in May 2015 this will increase the number of stores we operate under management contracts to four and the total to 25. Lok'nStore is attracting a steady stream of investment partners to help drive the growth of the operating business.

Acquisition of site for new store in Bristol

In January 2014 Lok'nStore acquired a site in Longwell Green, Bristol. The site of approximately 0.9 acres is in a busy retail park and has planning permission to build a 50,000 sq. feet self-storage centre in Lok'nStore's modern and distinctive design. The total cost of the store when built and fitted-out, will be around £4 million and will add to Lok'nStore's high-quality portfolio of purpose built self-storage centres in prominent trading locations.

Sale of previous Reading store and opening new Reading store

On 31 October 2014, the Company sold its former storage site in Reading to a residential developer. The Company has received a cash payment of £2.9m for the site and further payments may be received depending on the value of residential sales achieved on the site. The existing customers have now been transferred into the adjacent new store which provides 48,000 square feet of space in a highly prominent location on the main A33 relief road.

Portsmouth North Harbour

On 24 November 2014 the Company announced the sale of the Company's undeveloped site at Portsmouth North Harbour for £3 million. The disposal is conditional on the buyer achieving appropriate planning permission which could take up to 18 months.

Aldershot

In 2012 Lok'nStore signed an agreement to develop and manage a new self-storage centre in Aldershot, Hampshire, located in a prominent location on the main Aldershot roundabout above the A331 with significant levels of passing traffic.

The store will be managed for outside investors under the Lok'nStore brand. Lok'nStore has contributed approximately £2.5 million of development funds of the estimated £4.5 million total cost of development and will manage the building and operation of the store. Building and fit-out works to the store are almost complete and the store will open in May 2015.

Lok'nStore will generate a return by charging a return on the development capital, and a management fee for the construction, operation and branding of the store. This project is consistent with Lok'nStore's strategy of expanding the operating footprint of the business while maintaining tight control on debt.

Financial

Lok'nStore is a robust business which generates an increasing cash flow from its strong asset base. With a low LTV of 27.5% and interest rate risks substantially hedged through to October 2016 the business has a firm base for growth. The value of the Group's property assets underpin a flexible business model with stable and rising cash flows, low credit risk and tightly controlled operating costs.

Taxation

The Group has made a tax provision against earnings in this period of £0.29 million.

Earnings per share

Basic earnings per share were 4.39 pence (31.1.2014: 2.87 pence per share) and diluted earnings per share were 4.29 pence (31.1.2014: 2.81 pence per share). Operating profit is 38.2% higher year on year.

Management of interest rate risk

Lok'nStore has £27.7 million of gross debt currently drawn against its £40 million revolving credit facility. £20 million is at a fixed interest rate with £10 million fixed rate swap at a fixed 1 month sterling LIBOR rate of 1.2% and £10 million swap at a fixed 1 month sterling LIBOR rate of 1.15%. With 1 month LIBOR around 0.5%, this leaves a balance of £7.7 million floating at a current all-in rate of around 2.85% and results in an overall weighted average rate of 3.34%. The £20 million fixed rate is treated as an effective cash flow hedge and its fair value on a mark-to-market basis has fluctuated historically. Its current fair value of £0.19 million is currently stated as a non-current asset (31.1.2014: £0.05 million). (See Note 15).

Operating costs

Group operating costs amounted to £4.55 million for the period, a 4.8% increase year on year (31.1.2014: £4.34 million). Overall operating costs as a percentage of revenue have decreased and represent 59.7% as a cost ratio. (31.1.2014: 64.7%). This disciplined approach to costs ensures that as much as possible of the revenue growth achieved contributes to increasing our profits. For the previous five years we have reduced our group operating costs each year. Although this is increasingly challenging while delivering strong growth, we have again in this period, through disciplined management, contained property costs with underlying property costs up 2.5% excluding the higher rates charges from the Maidenhead and Reading stores. Overhead costs have been reduced. Staff costs increased by 7.3% through a combination of higher sales bonuses driven off strong sales growth and additional national insurance costs arising on the exercise of employee share options. Progress continues on reducing Saracen's operating costs with a 3.4% decrease year on year.

Cash flow

At 31 January 2015 the Group had cash balances of £3.4 million (31.1.2014: £2.4 million). Cash inflow from operating activities before investing and financing activities was £1.4 million (31.1.2014: £1.6 million). As well as using cash generated from operations to fund some capital expenditure, the Group has a five year revolving credit facility. This provides sufficient liquidity for the Group's current needs. Undrawn committed facilities at the period-end amounted to £12.3 million (31.1.2014: £12.3 million).

Gearing

There was £27.7 million of gross borrowings (31.1.2014: £27.7 million) representing gearing of53.2% (31.1.2014: 62.2%) on net debt of £24.3 million (31.1.2014: £25.4 million). After adjusting for the uplift in value of leaseholds which are stated at depreciated historic cost in the statement of financial position, gearing is 42.8% (31.1.2014: 50.4%). After adjusting for the deferred tax liability carried at period end of £11.0 million gearing drops to 35.8% (31.1.2014: 42.1%).

Funds from Operations (FFO)

By excluding £0.16 million (31.1.2014: £0.21 million) of the interest costs of carrying the development sites from the total net interest charge of £0.55 million (31.1.2014: £0.55 million) the interest on the operating portfolio is £0.39 million for the period (31.1.2014: £0.34 million). Funds from operations (FFO) represented by EBITDA minus interest on the operating portfolio is therefore £2.52 million up 37.2% (31.1.2014: £1.84 million) equating to 20.1 pence per share annualised, up 33.1% on last year (31.1.2014: 15.1 pence per share annualised).

Capital expenditure and capital commitments

The Group has grown through a combination of new site acquisition, existing store improvements and relocations, and has concentrated on extracting value from its existing assets and developing through collaborative projects and management contracts. Capital expenditure during the period totalled £1.9 million (31.1.2014: £3.4 million). This was primarily the completion of construction and fitting out works at Maidenhead and Reading, demolition works at our Southampton and Portsmouth North Harbour sites, and some professional and other costs incurred in the preparation of our site in Bristol. The Group also invested a further £0.44 million in additional racking at the Saracen Olney warehouse to increase box capacity.

The Company has no further capital commitments beyond final amounts due on its Reading store, its £1.32 million investment commitment at Aldershot, (£1.18 million already spent) and some minor works to existing properties. (Refer note 25: Capital Commitments).

Market Valuation of Freehold and Operating Leasehold Land and Buildings

On 31 July 2014 professional valuations were prepared by Cushman and Wakefield (C&W) in respect of eleven freehold, one long leasehold and seven operating leasehold properties. This valuation has been adopted for the 31 January 2015 period-end. The valuation was prepared in accordance with the RICS Valuation - Professional Standards, published by The Royal Institute of Chartered Surveyors (the "Red Book"). The valuation has been provided for accounts purposes and, as such, is a Regulated Purpose Valuation as defined in the Red Book.

A deferred tax liability arises on the revaluation of the properties and on the rolled-over gain arising from the disposal of the Kingston and Woking sites in 2007. It is not envisaged that any tax will become payable in the foreseeable future on these disposals due to the availability of rollover relief. The existing Reading store was sold with the benefit of its permission for residential development and the proceeds will be reinvested in our new store pipeline. It is not the intention of the Directors to make any other significant disposals of trading stores, although individual disposals may be considered where it is clear that added value can be created by recycling the capital into other opportunities.

The Board will continue to commission independent valuations on its trading stores annually to coincide with its year-end reporting.

The valuations of our freehold property assets are included in the Statement of Financial Position at their fair value, but under applicable accounting standards, no value is included in respect of our leasehold stores to the extent that they are classified as operating leases. The value of our operating leases in the valuation totals £14.6 million (31.1.2014: £13.2 million). Instead we have reported by way of a note the underlying value of these leasehold stores in future revaluations and adjusted our Net Asset Value (NAV) calculation accordingly to include their value. This will ensure comparable NAV calculations.

Analysis of Total Property Value

1 Two leasehold stores were not valued as their remaining unexpired terms were insufficient to yield a value under the Cushman & Wakefield valuation methodology.

Adjusted Net Asset Value per Share

Adjusted net assets per share is the net assets of the Group business adjusted for the valuation of leasehold stores and deferred tax divided by the number of shares at the period-end. The shares currently held in the Group's employee benefits trust (own shares held) and in treasury are excluded from the number of shares.

At January 2015 the adjusted net asset value per share increased to £2.69 from £2.47 year on year, up 9.0%. This increase is a result of higher property values, cash generated from operations, offset in part by an increase in the shares in issue due to the exercise of share options by management and staff during the period and an increased dividend pay-out.

1 The seven leaseholds valued by Cushman & Wakefield are all within the terms of the Landlord and Tenant Act (1954) giving a degree of security of tenure. The average length of the leases on the leasehold stores valued was 13 years and 8 months at the date of the 2014 valuation (2013 valuation: 14 years and 8 months).

2 A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included. Although this is a memorandum adjustment as leasehold properties are included in the Group's financial statements at cost and not at valuation, this deferred tax adjustment is included in the adjusted net asset value calculation in order to maintain a consistency of tax treatment between freehold and leasehold properties.

Corporate and Social Responsibilities

Lok'nStore conducts its business in a manner that reflects honesty, integrity and ethical conduct. We believe that the long-term success of the business is best served by respecting the interests of all our stakeholders. Management of social, environmental and ethical issues is of high importance to Lok'nStore. These issues are dealt with on a day-to-day basis by the Group's managers with principal accountability lying with the Board of Directors. We look for opportunities to address our responsibility to the environment, and we pay close attention to our energy use, carbon dioxide emissions, water use and waste production. At each year-end Lok'nStore commissions a full assessment of the Group's environmental impact.

Customers

We believe in clarity and transparency towards our customers. Brochures and literature are written in plain English, explaining clearly our terms of business without hiding anything. We are open and honest about our products and services and do not employ pressure selling techniques or attempt to take advantage of any vulnerable groups. If we make a mistake we acknowledge it, deal with the problem quickly, and learn from our error. We listen to our customers as we know that they can help us improve our service to them. In return 21% of our move-ins in the period came from previous customers, existing customers taking more space, and customer referrals.

Consolidated Statement of Comprehensive Income

For the six months ended 31 January 2015

1  Adjusted EBITDA and operating profit are defined in the accounting policies section of the notes to the interim report.

Consolidated Statement of Changes in Equity

For the six months ended 31 January 2015

Consolidated Statement of Financial Position

31 January 2015 Company Registration No. 04007169

Approved by the Board of Directors and authorised for issue on 24 April 2015 and signed on its behalf by:

Consolidated Statement of Cash Flows

For the six months ended 31 January 2015

No statement of cash flows is presented for the Company as it had no cash flows in either year.

Accounting Policies

General Information

Lok'nStore Group plc is an AIM listed company incorporated and domiciled in England and Wales. The address of the registered office is One London Wall, London EC2Y 5AB, UK. Copies of this Interim Report and Accounts may be obtained from the Company's head office at 112 Hawley Lane, Farnborough, Hants, GU14 8JE, or from the investor section of the Company's website at http://www.loknstore.co.uk.

Basis of preparation

The interim results for the six months ended 31 January 2015 have been prepared on the basis of the accounting policies expected to be used in the 2015 Lok'nStore Group Plc Annual Report and Accounts and in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union ('EU') ('IFRS').

The same accounting policies, presentation and methods of computation are followed in these interim condensed set of financial statements as have been applied in the Group's latest annual audited financial statements.

The interim results, which were approved by the Directors on 24 April 2015, are unaudited. The interim results do not constitute statutory financial statements within the meaning of section 435 of the Companies Act 2006.

Comparative figures for the year ended 31 July 2014 have been extracted from the statutory accounts for the Group for that period, which carried an unqualified audit report, did not include a reference to any matters to which the auditor drew attention by way of emphasis of matter, did not contain a statement under section 498(2) or (3) of the Companies Act 2006 and have been delivered to the Registrar of Companies.

Going concern

The Directors can report that, based on the Group's budgets and financial projections, they have satisfied themselves that the business is a going concern. The Board has a reasonable expectation that the Company and the Group have adequate resources and facilities to continue in operational existence for the foreseeable future based on Group cash balances and cash equivalents of £3.4 million (31.01.2014: £2.3 million), undrawn committed bank facilities at 31 January 2014 of £12.3 million (31.01.2014: £12.3 million), and cash generated from operations in the period to 31 January 2015 of £1.4 million (31.01.2014: £1.6 million). The Group continues to operate its five year £40 million revolving credit facility with Lloyds TSB plc. The facility has been in place since 20 October 2011 and runs until 19 October 2016. The Group is fully compliant with all bank covenants and undertakings and is not obliged to make any repayments prior to expiration. The financial statements are therefore prepared on a going concern basis.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for goods and services provided in the ordinary course of the Group's activities, net of discount, VAT and after eliminating sales within the Group.

The Group recognises revenue when the amount of the revenue can be reliably measured and when goods are sold and title has passed. Revenue from services provided is recognised evenly over the period in which the services are provided.

a) Self-storage revenue

Self-storage services are provided on a time basis. The price at which customers store their goods is dependent on size of unit and store location. Customers are invoiced on a four-weekly cycle in advance and revenue is recognised based on time stored to date within the cycle. When customers vacate they are rebated the unexpired portion of their four weekly advance payment (subject to a seven day notice requirement).

b) Retail sales

The Group operates a 'pack shop' within each of its storage centres for selling storage related goods such as boxes, tape and bubble-wrap. Sales include sales to the public at large as well as self-storage customers. Sales of goods are recognised at point of sale when the product is sold to a customer.

c) Insurance

Customers may choose to insure their goods in storage. The weekly rate of insurance charged to customers is calculated based on the tariff per week for each £1,000 worth of goods stored by the customer. This charge is retained by Lok'nStore and covers the cost of the block policy and other costs. Customers are invoiced on a four-weekly basis for the insurance cover they use and revenue is recognised based on time stored to date within the cycle.

d) Management fee income

Management fees earned for managing stores not owned by the Group are recognised over the period for which the services are provided.

e) Serviced archive and records management

Typically Customers are invoiced monthly in advance for the storage of their archive boxes, tapes and files and revenue is recognised based on time stored to date within the monthly cycle. In respect of the provision of additional services, such as document box or tape collection and retrieval from archive, customers are invoiced typically monthly in arrears and revenue is recognised in line with the provision of these services.

Adjusted EBITDA

Earnings before interest, tax, depreciation and amortisation (EBITDA) is defined as profits from operations before all depreciation and amortisation charges, share-based payments and other non-recurring costs, finance income, finance costs and taxation.

Store adjusted EBITDA

Store adjusted EBITDA is defined as adjusted EBITDA (see above) but before central and head office costs.

Operating profit

Operating profit is defined as profit after all costs except finance income, finance costs and taxation.

Critical accounting estimates and judgements

The preparation of consolidated financial statements under EU-IFRS requires management to make estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual outcomes may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

a) Estimate of fair value of trading properties

The Group values its self-storage centres using a discounted cash flow method which is based on current and projected net operating income. Principal assumptions underlying management's estimation of the fair value are those relating to stabilised occupancy levels, expected future growth in storage rents and operating costs, maintenance requirements, capitalisation rates and discount rates. A more detailed explanation of the background and methodology adopted in the valuation of the Group's trading properties is set out in note 9b. The carrying value of freehold land and buildings held at valuation at the reporting date was £65.9 million (31.01.2014: £54.5 million) as shown in the Analysis of Total Property Value table in the Chairman's Statement.

b) Assets in the course of construction and land held for pipeline store development ('Development property assets')

The Group's development property assets are held in the statement of financial position at historic cost and are not valued externally. When acquiring sites for redevelopment into self-storage facilities, the Group estimates and makes judgements on the potential net lettable storage space that it can achieve in its planning negotiations, together with the time it will take to achieve mature occupancy levels. In addition, assumptions are made on the prices that can be achieved at the store by comparison with other stores within the portfolio and within the local area. These judgements, taken together with estimates of operating costs and the projected construction cost, allow the Group to calculate the potential net operating income at maturity, projected returns on capital invested and hence to support the purchase price of the site at acquisition. Following the acquisition, regular reviews are carried out taking into account the status of the planning negotiations, and revised construction costs or capacity of the new facility, for example, to make an assessment of the recoverable amount of the development property. The Group reviews all development property assets for impairment at each reporting date in the light of the results of these reviews. Once a store is opened, it is valued as a trading store.

The carrying value of development property assets at the reporting date was £7.8 million (31.01.2014: £14.6 million - £4.6 million of which was classified as property lease premiums).  Please see note 9c for more details.

c) Estimate of fair value of intangible assets acquired in business combination

The relative size of the Group's intangible assets, excluding goodwill, makes the judgements surrounding the estimated useful lives important to the Group's financial position. At 31 January 2015 intangible assets, excluding goodwill, amounted to £2.73 million (31.01.2014: £2.90 million).

The valuation method used and key assumptions are described in note 9a.

The useful life used to amortise intangible assets relates to the expected future performance of the assets acquired and management's judgement of the period over which economic benefit will be derived from the asset. The estimated useful life of customer relationships principally reflects management's view of the average economic life of the customer base and is assessed by reference to customer churn rates. Typically, the customer base for a serviced archive business is relatively inert. Corporate customers do not tend to switch service providers and indeed they incur box withdrawal charges should they do so. An increase in churn rates may lead to a reduction in the estimated useful life and an increase in the amortisation charge.

d) Non-current assets held for sale

Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable.

Notes to the Financial Statements

For the six months ended 31 January 2015

1a Revenue

Analysis of the Group's revenue is shown below:

1b Segmental information

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board to allocate resources to the segments and to assess their performance.

All of the Group's activities occur in the United Kingdom.

Financial information is reported to the Board with revenue and profit analysed between self-storage activity and serviced archive and records management activity.

Segment revenue comprises of sales to external customers and excludes gains arising on the disposal of assets and finance income. Segment profit reported to the Board represents the profit earned by each segment before acquisition costs and other non-recurring set-up costs, finance income, finance costs and tax. For the purposes of assessing segment performance and for determining the allocation of resources between segments, the Board uses a measure of adjusted EBITDA (as defined in the accounting policies) and reviews the non-current assets attributable to each segment as well as the financial resources available. All assets are allocated to reportable segments. Assets that are used jointly by segments are allocated to the individual segments on a basis of revenues earned. All liabilities are allocated to individual segments other than borrowings and tax. Information is reported to the Board of Directors on a product basis as management believe that the activity of self-storage and the activity of serviced archive and records management expose the Group to differing levels of risk and rewards due to the length, nature, seasonality and customer base of their respective operating cycles. 

The amounts presented to the Board with respect to total assets and total liabilities are measured in a manner consistent with the financial statements and are allocated based on the operations of the segment. Borrowings are managed centrally on a Group basis and are therefore not allocated to segments.

Corporate transactions and the treasury function are managed centrally and therefore are not allocated to segments. Sales between segments are carried out at arm's length. The serviced archive segment with over 340 customers has a greater customer concentration with its ten largest corporate customers accounting for 32.5% (31.01.2014: 32.9%) of revenue its top 50 accounting for 63.0% (31.01.2014: 64.2%) and its top 100 accounting for 79.9% (31.01.2014: 80.9%) of revenue. The self-storage segment with over 8,000 customers has no individual self-storage customer accounting for more than 1% of total revenue and no group of entities under common control (e.g. Government) accounts for more than 10% of total revenues.

The segment information for the period ended 31 January 2015 is as follows:

1 Capital expenditure includes fixed asset additions (note 9b) and additions to property lease premiums (note 9c)

2b Cost of sales of retail products

Cost of sales represents the direct costs associated with the sale of retail products (boxes, packaging etc.), the ancillary sales of insurance cover for customer goods and the provision of van hire services, all of which fall within the Group's ordinary activities.

2c Other costs

3 Finance income

All interest receivable arises on cash and cash equivalents.

4 Finance costs

Most interest payable arises on bank loans classified as financial liabilities measured at amortised cost.

5 Profit before taxation

6 Taxation