Lok N Store Regulatory News (LOK)

29th October 2012

LOK'NSTORE GROUP PLC

 ("Lok'nStore" or "the Group")

Preliminary results

for the year ended 31 July 2012

Lok'nStore Group Plc, a leading company in the UK self-storage market announces results for the year ended 31 July 2012.

Financial Highlights

·; Revenue £12.77 million up 18% (2011: £10.85 million)  

·; Group EBITDA £3.97million up 21% (2011: £3.28 million)

·; Operating profit up 36% to £2.14 million (2011: £1.57 million)

·; Profit before interest up 35% to £1.94 million (2011: £1.44 million)

·; Annual dividend 5 pence per share up 67% (2011: 3 pence per share)

·; Successful refinancing of £40 million bank facility with interest on £20 million of debt fixed at 3.525% 

Operational Highlights

Self-storage:

·; Store EBITDA £4.97million up 3% (2011: £4.85 million)

·; Store EBITDA profit margins up 1 percentage point to 46.5% (2011: 45.5%)

·; Ancillary sales up 6% year-to-year

Document storage: (business acquired on 30 June 2011)

·; EBITDA profit £474,062 (2011: £43,493 loss)

Property Highlights

·; Planning permission obtained for new Maidenhead store incorporating Lidl discount food retailer - to open 2013

·; New management contract for a new store in Aldershot (construction and opening in 2013)

·; Planning permissions renewed at Southampton, Portsmouth and both of our Reading sites

·; Acquisition of Swindon freehold reducing rental cost

Post Balance Sheet

·; Management contract on new Crawley store due to commence trading in Q4 2012

Key Metrics

·; Loan to value ratio of 32.3%1 (2011: 30.7%)

·; Funds from operations ('FFO')2 £3.24 million = 13.0 pence per share (2011: 12.0 pence per share)

·; Adjusted NAV £2.28 per share 3 (2011: £2.29 per share)

1 Calculation based on net debt of £25.7 million (2011: £24.4 million) and total property value of £79.7 million

2 Funds from Operations ('FFO') calculated as EBITDA minus Net Finance Cost on operating assets

3 2012 Adjusted NAV £2.29 per share on a like for like basis (after adjusting for 'fair value' liability of Interest rate swaps taken out during the year)

Commenting on the Group's results, Andrew Jacobs CEO of Lok'nStore Group said,"This has been another year of very solid underlying trading for the Group, during which we have secured an attractive new bank facility and fixed the interest rate on the majorityof our current debt securing our funding costs at a historically low level.

At an operating level we have continued to demonstrate an innovative approach to asset management, enabling the Group to increase its operational footprint while maintaining a strong balance sheet. With further valuable planning permissions obtained and renewed and the opening of the Aldershot and Maidenhead stores scheduled for 2013, we are poised to move ahead strongly over the next couple of years. Our new document storage business has made a good contribution in its first full year.

The Board has decided to significantly increase the dividend to 5p for the full year, and it is intended that the Company's future dividend payments will reflect the growth in the underlying cash generated by the business.

We have a secure financial base, an excellent development pipeline and robust trading which gives the Board the confidence to propose this step change in the dividend".

Chairman's Review

Strong Performance

We are pleased to report good results for Lok'nStore Group for the year ended 31 July 2012. The Group has again increased revenue and reduced operating costs in our self-storage business. Margins, operating profits and cash flow have all increased to record levels.

With another period of solid underlying trading and a significant contribution from our document storage business in its first year the Board is confident of the Group's trading outlook over the coming years.

The development of the new Maidenhead store is now moving forward, the Swindon East freehold has been acquired on favourable terms and a number of lease extensions and rent reductions have been agreed. Recently two more management contracts were signed for new stores in Aldershot and Crawley. 

Your Board continues to focus on optimising the performance of the existing stores and sites within our existing portfolio, capital expenditure remains tightly controlled and interest costs have now been secured at a low level so cash flow continues to grow.

Our operational progress has been enhanced by the launch of our new state of the art website which is already performing very well.

Dividend

Increasing cash flow, positive news on operational developments and security of funding has prompted a re-evaluation of the dividend policy. Over the past few years we have maintained a steady, if modest dividend pay-out of one penny per share which was increased to 3 pence per share last year. The dividend this year is to be increased by 67% to 5 pence (a final dividend of 4 pence per share) and we will adopt a progressive forward looking dividend policy following this step change. It is intended that the Company's future dividend payments will reflect the growth in the underlying cash generated by the business and will be declared at the interim and final stage, the interim dividend representing approximately one-third of the total for the year. 

New £40 million five year facility with Lloyds TSB plc

Underlining the strength of the cash flow and the asset base,the Group has signed a new five year £40 million revolving credit facility with Lloyds TSB plc during the year. Effective from 20 October 2011, the facility runs until 19 October 2016. The facility is flexible and does not require any amortisation prior to maturity. The loan currently bears interest at the London Inter-Bank Offer Rate (LIBOR) plus 2.35%. The interest cover and loan to value covenants are broadly in line with the previous facility.

The net interest charge in the coming year will rise to reflect the increase in the margin on this facility. Nevertheless the Group's margin of 2.35% already looks very attractive against the current market, and our all-in cost of funds of around 3.34% puts us in a very strong competitive position.

Additionally, over recent months Lok'nStore has fixed the interest rate on 70% of its debt at 3.525% creating even greater certainty on future funding costs. Since the middle of 2008 management has been aggressively managing down the interest payable and now feel it is appropriate to lock in to these historically low levels of interest.

During the year the Group complied with all banking covenants. At 31 July 2012, we had £10.3 million of the facility undrawn and £4.0 million of cash (2011: £3.8 million). This new banking facility allows us to plan with certainty for the next five year period. The details are explained in the Financial Review section of this Report.

VAT

In the Government's Annual Budget on 21 March 2012 the Chancellor announced proposals to correct certain anomalies in the VAT regime including in its application to self-storage. Previously some self-storage companies operated within the VAT regime while others were outside it. With effect from 1 October 2012 VAT was extended to include all self-storage operations.

Unlike many operators in the self-storage industry who have dis-applied VAT, Lok'nStore has always remained within the regime and 'opted to tax' VAT on its storage services. Therefore this change will have no direct impact on the Group or its customers. However most of our larger competitors who were de-registered are responding to this change either by increasing prices to help them absorb the tax or by reducing margins. This clearly has and will continue to have a positive effect on Lok'nStore's competitive position.

New document storage business

Following the purchase of Saracen Datastore Limited, a serviced document storage company, on 30 June 2011, Lok'nStore has now consolidated the accounting and other back office systems at its Farnborough Head Office. Marketing and HR functions have also been integrated into Lok'nStore's head office structures. More details of progress achieved are explained in the Chief Executive's Operating Review.

Properties and Net Asset Value

The year-end property valuation equates to a total value of properties held of £79.7 million (2011: £79.5 million).

Your Board continues to examine Lok'nStore's property portfolio for asset management opportunities as demonstrated by its recent agreement to extend the term on another of the Group's leasehold stores, the fourth such transaction over the last two years. Our property team remains alert to the opportunities that can appear in the current unsettled property market and an update of the current property opportunities is set out in the Property Review and in Note 26, Events after the Reporting Date.

The new venture at Aldershot and the new store in Maidenhead are expected to commence trading in 2013. The managed store in Crawley will open this year. These will increase the number of stores we manage to 25 and will capitalise on our efficient operating systems and growing internet marketing presence. These agreements also demonstrate Lok'nStore's ability to attract investment partners and create innovative ownership to drive the growth of the operating business.

The UK self-storage market

In the UK self-storage market there are an estimated 815 self-storage facilities. This equates to approximately 29.6 million square feet of storage space. With a population of 62 million people in the UK, this equates to 0.5 square feet per person, compared to 7.4 square feet per person in the USA (2012 US Self-Storage Almanac) and 1.1 square feet per person in Australia (2011 Australasian Self-Storage Association).

The sector remains in good health, however new development has slowed down. The Drivers Jonas Deloitte 2012 report for the Self-Storage Association says "the total annual turnover for the UK self-storage industry in 2011 was £355 million from approximately 400 different operators, and they employed in excess of 2,000 staff (full time equivalent) in their self-storage facilities. Only 15% of operators intend to open a new facility in 2012 - down from 24% in 2011". Operators have paused their expansion plans whilst they concentrate on growing income from their existing outlets. This reduction in the rate of increased supply is beneficial to incumbent operators such as Lok'nStore, which is the fourth largest operator in the UK.

Environmental Performance

Since 2005 Lok'nStore has measured its environmental performance. We are proud of our success in this important area and some of the highlights of this year's environmental report are:

·; Indirect greenhouse gas (GHG) emissions intensity now down 81% since 2005

·; Total waste sent to landfill reduced for eighth successive year, now just a quarter of 2005 levels

·; Total water use again reduced, now halved from 2005 levels with intensity down by 70%

For details please see our full environmental report in the Directors' Report.

Outlook

Lok'nStore is a strong business with a record of consistent profit growth and cash generation and has built a strong platform for the coming years. We will seek to continue to grow revenue against tightly controlled costs, and this will provide continued momentum to EBITDA. With Group EBITDA of £4.0 million up 21% on the previous year, the strength of the Group's business model has been proven. Increasing the annual dividend by 67% and initiating a progressive dividend policy shows the Board's confidence.

Our target is to continue to increase EBITDA per share over the coming years. We have carefully evaluated the opportunities and believe there is significant further growth focused on five key areas:

1. Developing new stores on a self-funded basis as at Reading and Maidenhead

2. Developing the other new sites we already own when appropriate

3. Opportunistic site acquisitions (as some banks look to reduce their exposure to property in the future)

4. Increasing the number of stores we manage for third parties

5. Building our document storage offering

These are growth opportunities where we have the operating experience to execute effectively and that we can fund from our existing cash flow and our new £40 million bank facility.

Lok'nStore's efficient operating business, strong cash flow, and secure asset base ensures it is well placed to grow and prosper over the coming years. We have a dedicated and dynamic executive management team which remains committed to working for the interest of all shareholders, and providing steady growth in the value of Lok'nStore.

Simon G Thomas

Chairman

26 October 2012

Chief Executive's Operating Review

Sales and Earnings Up, Costs Down

Revenue for the year was £12.77 million, up 18% year on year (2011: £10.85 million), which resulted from an improved performance from the self-storage business combined with the first substantial contribution from the acquisition of the document storage business.

With costs firmly under control this turnover growth translates into strong operating profit growth. Total store EBITDA in the self-storage business, a key performance indicator of profitability and cash flow, increased 3% to £4.97 million (2011: £4.85 million). Group operating profit for the year is up 36% to £2.14 million (2011: £1.57 million).

Performance of Self-Storage Centres

During the year occupancy increased by 2.9% while pricing decreased 1.5%. We again managed to lower costs increasing the overall EBITDA margin across all stores by 1 percentage point from 45.5% to 46.5%. The EBITDA margins of the freehold stores were 59.1% (2011: 58.8%) and the leasehold stores achieved margins of 30.8% (2011: 29.0%). The occupancy of the stores was up 2.9 percentage points to 58.3% (2011: 56.4%) of current lettable area.

At the end of July 2012 38.1% of Lok'nStore's revenue was from business customers (2011: 36.2%) and 61.9% was from household customers, (2011: 63.8%). By number of customers this breakdown was 22.4% business customers (2011: 22.5%) and 77.6% household customers (2011: 77.5%).

Operational Performance of owned Stores

 * In respect of the Farnborough store revenue includes a contribution receivable from Group Head Office in respect of the space and facilities the store provides for the Head Office function. This income to the store and the corresponding charge to Head Office is netted down in the Group revenue figures. Revenue from sites under development is excluded.

Ancillary Sales

Ancillary sales which consists of boxes and packaging materials, insurance and other sales, increased by 6.0% over the year (2011: 1.2%) accounting for 10.1% of self-storage revenues (2011: 9.9%). These ancillary sales are increasingly focused on insurance which increases the overall margin of these sales.

We continue to promote our insurance to new customers with the result that over 87% (2011: 86%) of new customers took our insurance over the year. This compares with 71% (2011: 68%) of our total customer base who buy our insurance, and this provides us with built-in growth in our insurance sales as our customer base turns over.

Marketing

During the year our marketing efforts were increasingly focused on the internet with approximately 2.7% of revenue spent on advertising and marketing (including postage, printing and stationery) (2011: 3.1%). The internet produces an increasing proportion of our enquiries (54% in the year) and printed directories a decreasing proportion. For this year, internet enquiries were up 71.5% year on year and total enquiries up 20.7%. We will continue to manage our marketing budget with a strong focus on cost control and value for money.

Despite the inexorable rise of internet marketing, around 43% (2011: 46%) of our business still comes from passing traffic and signage, so work on the visibility of our stores is also very important in our marketing effort. With their prominent positions, distinctive design and bright orange elevations, our stores help raise the profile of the whole Lok'nStore brand.

Our store personnel are closely involved with sales and marketing initiatives and work with our head office team to ensure our marketing expenditure remains targeted and effective.

New Website

The internet is rapidly taking over as one of the main media channels for advertising and Lok'nStore is determined to respond to this change. Our new website at www.loknstore.co.uk was launched in the last week of February 2012 and for the year 54% of enquiries were from this source.

The new site has a much clearer navigation, making it easier for customers to find their way around the site and customers visiting the site are encouraged to book online to take advantage of our new online reservation system launched last year. We have also added a new "state of the art" space estimator to the site which is a key tool for customers booking online, enabling them to make an informed choice about the size of unit required.

This is a very dynamic area and we are committed to continued development. We believe the internet particularly provides a strong competitive advantage for the major operators with many stores and large marketing budgets compared with those of the smaller operators. This also creates a selling point for our third party store management services by driving much more traffic to the website than can an individual operator at a manageable cost.

Integration of our Document Storage Business

Lok'nStore has for some years earned around 10% of its revenue from self-serviced document storage, and we are keen to grow this stable and profitable area of the business. Following the purchase of Saracen Datastore Limited, a serviced document storage company, on 30 June 2011, we have broadened the offering to our customers delivering an excellent entry point to a wider market segment complementing Lok'nStore's existing self-storage activities. In its first full year the Saracen business added £2 million to Group revenue and £474,062 of EBITDA before inter-company management charges.

The integration of our new document storage business into our existing accounting and reporting systems is complete with the Lok'nStore Head office team having taken on most of the corporate and head office functions of Saracen including finance, marketing, HR & payroll. Our stores and head office are connected via a web-enabled system to deliver more automated and integrated processes and this has delivered cost efficiencies particularly in areas such as petty cash and expenses handling, as well as invoice processing and stock reporting and these are now also available to our document storage business.

There are further property cost savings to be targeted in 2013 as the Saracen business consolidates its warehouse capacity. As part of this strategy additions of £0.33 million were made in the current period to fixtures, fittings and equipment.

Security

The safety and security of our customers and their goods remains our highest priority. We invest in CCTV, intruder and fire alarm systems and the remote monitoring of our stores out of hours. Importantly all of our stores are manned during opening hours.

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. Each year Lok'nStore commissions a full assessment of the Group's environmental impact and this is included elsewhere in the Director's Report.

Customers

We believe in clarity and transparency. Brochures and literature are written in plain English, explaining clearly our terms of business without hiding anything in the 'small print'. 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, 33% (2011: 34%) of our business comes from previous customers, existing customers taking more space, and customer referrals.

Suppliers

We are committed to conducting our business with suppliers in a fair and honest manner, with openness and integrity, operating in accordance with the terms and conditions agreed upon. We expect our suppliers to operate to these same principles.

Employees

At 31 July 2012 we had 133 employees (2011: 128).

We treat our employees with dignity and respect and are committed to providing a positive attitude in the business and an enjoyable working environment. We have a professional, open culture where staff can exchange ideas and offer suggestions for work and business improvement. This encourages our staff to build on their skills, through appropriate training and regular performance review. Regular training courses at our Farnborough Head Office support these objectives where we have a large conference room which can accommodate all our training requirements for the foreseeable future. This reduces outgoings and increases and improves contact between Head Office and the stores by bringing staff into Head Office for their training. This in turn contributes to attracting and retaining the right people which is key to the success of Lok'nStore.

All employees are eligible to participate in share ownership plans. Lok'nStore operates a Share Incentive Plan with 71% of employees participating in the Scheme (2011: 73%). This high level of participation is testament to the loyalty and commitment of our staff. Our personnel are committed and motivated and help maintain the exemplary levels of friendly service that Lok'nStore provides to its customers. I would like to thank all of our staff for their commitment to our business and for their hard work and efforts over the year to which the Group owes its continuing success.

Andrew Jacobs

Chief Executive Officer

26 October 2012

Strong Cash Flows and Asset Base Underpin Opportunities

Lok'nStore's strong cash flow and tactical approach to its property portfolio provides the Group with opportunities to improve the terms of its property usage in all stages of the economic cycle. Lok'nStore has both freehold and leasehold properties, and manages stores for third parties.

On 31 July 2012, Lok'nStore acquired the freehold interest of its existing Swindon East store for a consideration of £925,000. This was financed by drawing on the Company's existing credit facility. The store has been trading since 2001 in leasehold premises which carried an annual rent payable of £108,050. There will be a corresponding £108,050 positive impact to the Company's EBITDA for the coming year. The implied yield at purchase of 11.7% is very attractive and with a current average cost of debt of just over 3% it will be immediately cash flow enhancing, increasing the financial strength of the Company while decreasing the operational gearing.

After this transaction 65% of Lok'nStore's own self-storage sq. ft. space is freehold and 35% is leasehold. Following the opening of 3 new stores over the coming year, Lok'nStore's self-storage business will be operating from 13 freehold sites, 9 leasehold sites and 3 managed stores.

Lower lease costs

Given the current property market weakness and Lok'nStore's strong covenant, some landlords are keen to extend lease terms providing them with greater security on their future income stream in return for rent-free periods, reduced rents and capped rent increases.

During the year we extended the lease on one of our existing stores while also reducing the rent and service charges. The agreement will extend the lease by up to ten years and will produce an annual saving of around £60,000 in rent and service charge over the coming five years, increasing the operating income of the store by approximately 25%.

The average length of the 7 leases which have been valued at the year-end is 14 years and 6 months, (2011: 15 years and 2 months). 8 out of the 9 of our leasehold stores are inside the Landlord and Tenant Act providing us with a strong security of tenure. The leasehold sites produced 30% of the store EBITDA in the year to July 2012 (2011: 28%).

Our property team will continue to pursue further value creating asset management opportunities to secure our trading operations, to improve cash flow and to reduce or cap our property costs.

Management Contracts

Aldershot: In June 2012, Lok'nStore signed an agreement to develop and manage a new self-storage centre in Aldershot, Hampshire. It is the second store management contract for the Company and will be the first store managed for outside investors under the Lok'nStore brand. Lok'nStore will contribute 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. The other investors, including the original land owner have invested the remaining £2 million.

The property already has the benefit of a planning permission for a self-storage facility and will be held in a separate limited liability partnership. The store will be located in a prominent location on the main Aldershot roundabout above the A331 with significant levels of passing traffic, and is expected to commence trading in 2013.

Lok'nStore will generate a return by charging 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 its strong balance sheet. The investors were attracted by Lok'nStore's strong track record and the tax benefits of investing in self-storage.

Crawley: In July 2012, the Group signed an agreement to manage a new self-storage centre in Crawley, Sussex on behalf of an investor. Completion of the transaction took place after the year-end on 10 August 2012. This new larger site follows the same investor's already successful store in Woking, Surrey which has been managed by Lok'nStore since 2007. It is the third store management contract for Lok'nStore.

Lok'nStore will manage the fit-out and the operation of the store under the Lok'nStore brand which will commence trading later in 2012. The store is located in a prominent location and faces on to a busy roundabout on Gatwick Road in the centre of the Manor Royal business area.

Lok'nStore will generate a return by charging the company a management fee with performance incentives.

Development Sites

Lok'nStore owns four development sites all with relevant planning permissions, two of which are for replacement stores at Reading and Southampton, and two are new locations in Maidenhead and Portsmouth North Harbour. All of these permissions have been renewed during the year. The Group has no immediate plans to progress development works at Portsmouth North Harbour and Southampton.

Maidenhead: This is a long leasehold site (the lease term runs until April 2076) of 1.6 acres for which we originally secured planning permission for a store of up to 83,000 sq. ft. of self-storage. Following discussions to improve the value of the property further we signed an agreement to share the site with Lidl subject to planning permission. Lok'nStore's application to build a new self-storage facility incorporating a Lidl store received planning consent on 29 December 2011.

Lok'nStore will now build a new state of the art self-storage centre which provides space on the ground floor for Lidl's food store. The new self-storage centre will have around 60,000 sq. ft. of self-storage space. Lidl will share the ground floor space with Lok'nStore's operation, increasing the traffic by an estimated 1,000 cars a day. Lok'nStore will occupy its share of the ground floor and the entirety of the three floors above. The store will open in 2013.

The site is close to Maidenhead town centre and railway station and is very prominent to the retail park on the main road joining the town centre with the M4 motorway. The store will be of similar style and appearance to other recently opened Lok'nStore sites, with Lok'nStore's strong branding adding to the visual attractiveness of the site. This collaboration will increase the visual prominence, brand recognition, passing traffic and footfall of the storage centre which are key criteria for success.On completion of the new development Lok'nStore will manage 1,143,000 sq. ft. of lettable self-storage space over 23 stores. 

The innovative financing of the scheme agreed with Lidl, will require only a modest capital input from Lok'nStore and so allows us to continue to expand the Group's operating footprint without stretching the balance sheet. This transaction is typical of the type of opportunity your Board is pursuing, and we believe validates our strategy of a prudent but active approach. We believe Maidenhead is an excellent location for us, an affluent town right in the middle of our geographic coverage with little local competition. The town is also set to benefit from its position as the western terminal of Crossrail.

Reading: On 8 January 2008, Lok'nStore obtained planning permission for high-density residential development on the freehold site of its existing Reading store. The permission is for 112 flats on the 0.66 hectare site. On 4 October 2011 this planning permission was renewed providing a further 3 years to execute on this project.

The Group also has planning permission for a new 53,500 sq. ft. self-storage centre on its site opposite the existing store, an increase in space of 29%. On 16 November 2011 this planning permission was also renewed providing a further 3 years to execute on this project. When market circumstances are appropriate the site of the existing store will be sold with the benefit of its permission for residential development and the proceeds will largely fund the development of the new store. The existing business will be transferred to the new store when it is complete. The prominence and modern look of the new store with its distinctive orange livery will position Lok'nStore in a highly visible and easily accessible location adjacent to the A33 at the gateway to Reading.

Portfolio

These projects are part of our strategy of actively managing our operating portfolio to ensure we are maximising its value for shareholders. This includes strengthening our distinctive brand, increasing or decreasing the size and number of our stores and moving or selling stores or sites when it will increase shareholder value.

We currently own and operate 21 stores with capacity of around 1.1 million sq. ft. of storage space when fully fitted. Twelve stores are held freehold or long leasehold and nine are leasehold. One further store is run under a management contract. With Crawley, Aldershot and Maidenhead opening this coming financial year this will total 25 stores under Lok'nStore's management. With the un-developed freehold sites at Portsmouth North Harbour, and Southampton and Maidenhead total capacity of owned stores rises to around 1.2 million sq. ft. Of this 65% will be held freehold and 35% leasehold. By valuation 85% of the total property portfolio is freehold and 15% Leasehold. We prefer to acquire freeholds if possible, and where opportunities arise we will seek to acquire the freehold of our leasehold stores as we have done this year at Swindon. However we are happy to take leases on appropriate terms and benefit from the advantages of a lower entry cost, with further options to create value later in the store's development.

Property Assets and Net Asset Value

Lok'nStore's freehold and operating leasehold properties have been independently valued by C&W at £67.9 million as of 31 July 2012 (2011: £68.0 million) a decrease of 0.15%, compared to a historic cost value of £32.8 million (2011: £32.5 million). The increase in the freehold valuation not quite offsetting the amortised effect of the leasehold valuation (average lease length one year shorter compared to 2011). Property valuation is referred to further in the Financial Review and is detailed in note 11b of the notes to the financial statements. Adding our stores under development at cost, our total property valuation of £79.7 million (historic cost value £44.65 million) (2011: £79.5 million; historic cost value £44.08 million). This translates into an adjusted net asset value of £2.28 per share (2011: £2.29 per share).

The value of the freehold and operating leasehold properties of £67.9 million includes a valuation of £970,000 for the recently purchased freehold interest in our Swindon East store. Excluding the Swindon East store the total 2012 valuation of the portfolio decreased by 1.57% on a like for like basis compared to 2011.

Lok'nStore is committed to actively managing its portfolio and extracting further value from our prominently located development sites. The partnership with Lidl in Maidenhead and the Aldershot transactionboth of which are expected to commence trading in 2013 demonstrate our pioneering and committed approach to funding and developing new stores. Management contracts such as Aldershot and Crawley allow the Group to continue to expand the operating footprint of Lok'nStore while minimising capital outlay.

Andrew Jacobs

Chief Executive Officer

26 October 2012

Financial Review

Trading

Total revenue for the year grew to £12.77 million (2011: £10.85 million), an increase of 18%. Operating profit for the year increased to £2.14 million, up 36% (2011: £1.57 million) and pre-tax profit for the year was £926,133 (2011: £938,280). The pre-tax profit figure was held back after taking a higher finance cost charge resulting from the refinancing.

Self-storage revenue increased by 0.7% to £10.8 million (2011 £10.6 million). Self-storage EBITDA, before inter-company management charges, increased by 5.3% to £3.5 million (2011 £3.3 million).

A full years contribution of document storage revenue grew to £2.0 million (2011: £0.14 million - one month only). Document storage EBITDA, before inter-company management charges, grew to £0.47 million (2011: loss £43,493 - one month only).

There is no current corporation tax liability to pay due to the availability of tax losses. Tax losses available to carry forward for offset against future profits amount to £1.15 million.

Basic earnings per share were 2.94 pence (2011: 3.57 pence per share). Diluted earnings per share were 2.92 pence (2011: 3.54 pence per share).

New £40 million Five Year Bank Facility

The Group has signed a new five year £40 million revolving credit facility with Lloyds TSB plc underlining the strength of the cash flow and the assets of the business. The facility has been in place since 20 October 2011 and runs until 19 October 2016. The Group is not obliged to make any repayments prior to expiration. The loan bears interest at the London Inter-Bank Offer Rate (LIBOR) plus 2.35% - 2.65% margin based on the loan to value (LTV) ratio. At Lok'nStore's current LTV level this is 2.35%. The interest cover and LTV to value covenants are broadly in line with the previous facility.  

Over recent years LIBOR rates have remained at very low levels. Lok'nStore has managed its debt aggressively and the average interest rate paid since July 2011 was 2.33% compared to 1.84% for the year to 31 July 2011. However since this straddles the period of the new refinancing in October the prevailing interest rate on active loans as at 31 July 2012 is 2.91%. Therefore finance costs (including amortised arrangement fees and non-utilisation fees) for the year increased to £1,029,121 from £522,513 in 2011. Although the net interest charge in the coming year will rise to reflect a full-year charge based on the increase in the margin on this facility, nevertheless the Group's margin of 2.35% already looks very attractive against the current market, and our all-in cost of funds of around 3.34% puts us in a very strong competitive position.

Management of Interest Rate Risk

During the year LIBOR rates have been volatile and have been particularly sensitive to news flow (or lack of news flow) emanating from the EU. Following agreement of the new banking facility in October 2011, the Board's strategy has been to regularly review the Group's interest rate hedging position and to monitor prevailing LIBOR and swap rates with a view to fixing a significant proportion of its floating debt when the time was considered opportune. On 25 May 2012 the Group entered into a £10 million interest rate swap with Lloyds TSB Bank plc effective from 31 May 2012 at fixed 1 month sterling LIBOR rate of 1.2%. The swap fixes the interest rate on £10 million at an effective rate of 3.55% based on current 235 basis points (bps) margin up to the expiration of the current banking facility in October 2016. Also on 30 May 2012 the Group entered into a £10 million interest rate swap with Lloyds TSB Bank plc also effective from 31 May 2012 at fixed 1 month sterling LIBOR rate of 1.15%. Similarly this fixes a second tranche of £10 million at an effective rate of 3.5% based on current 235bps margin up to the expiration of the current banking facility in October 2016. Given the very low interest rate and the relatively small premium over our variable rate available on these swaps, the Board considered that it was a good time to lock in to these historically low interest rates. An effective interest rate of 3.525% on this portion of our debt protects our cash flow and demonstrates the Group's ability to secure market leading rates as a result of our financial strength and robust cash flow.

Lok'nStore has £29.7 million currently drawn against its £40 million revolving credit facility of which £20 million is now at a fixed interest rate. This leaves a balance of £9.7 million floating at a current all-in rate of around 2.95% and results in an overall weighted average rate of 3.34%. No arrangement fees were incurred when fixing the rates. The £20 million fixed rate is treated as an effective cash flow hedge and its fair value stated as a liability. (See Note 17b).

Operating Costs

Group operating costs (excluding cost of sales of retail products) amounted to £8.5 million for the year including a full year of post-acquisition expenses of Saracen Datastore Limited acquired on 30 June 2011. Excluding Saracen, operating costs (excluding cost of sales of retail products) amounted to £7.11 million for the year (2011: £7.17 million) a decrease of 0.8%.

* Saracen Datastore Limited comparison figures for 2011 are for a one month period only therefore no percentage increase is presented this year.

** Includes a total adjustment of (£1,503) for expenses relating to Southern Engineering and Machinery Company a wholly owned subsidiary which owns the Southampton development site.

Cash Flow, Interest and Financing

At 31 July 2012 the Group had cash balances of £4.0 million (2011: £3.8 million). Net debt increased from £24.4 million to £25.7million.

There was £29.7 million of gross borrowings (2011: £28.1 million) representing gearing of66.1% on net debt of £25.7 million (2011: 62.8%). After adjusting for the uplift in value of leaseholds which are stated at depreciated historic cost in the statement of financial position, gearing is 54.9% (2011: 52.1%). After adjusting for the deferred tax liability carried at year-end of £10.1 million gearing drops to 45.2% (2011: 42.5%).

Cash inflow from operating activities before investing and financing activities was £3.1 million(2011: £3.6 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 year-end amounted to £10.3 million (2011:£11.9 million).

From 1 August 2009 under IAS 23 ('Borrowing Costs') we are required to capitalise interest against our development pipeline in accordance with changes to International Financial Reporting Standards. The Group's date of adoption was 1 August 2009, (the first annual year commencing after the IAS 23 effective date of 1 January 2009). All of the Group's current qualifying assets predate the date of adoption and accordingly under the transitional adoption arrangements no borrowing costs have been capitalised against them in the year. A component of the interest cost incurred by the Group arises from the £11.9 million of development sites that the Group is currently carrying. The interest against this cost has not been capitalised but if it was the Group's adjusted profit would have been approximately £275,859 higher for the year (2011: £212,330) on the assumption that the £11.9 million is fully funded by borrowings.

By excluding the interest costs of carrying the development sites from the total net interest charge of £1,013,912 this means that the interest on the operating portfolio is £738,054 for the year. Funds from operations ('FFO') represented by EBITDA minus interest on the operating portfolio is therefore £3.24 million equating to 13 pence per share, up 8% on last year (2011: 12 pence per share).

The Group has grown its business 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. Consequently, capital expenditure ("capex") during the year totalled only £1.8 million. This included some limited capex at existing stores, the purchase of the freehold interest in our Swindon East store, roof renovation with solar power at the Poole store and planning and other professional costs incurred in maximising the potential of the existing planning permissions. We also invested £0.3 million in further racking fit-out at the Saracen Olney warehouse.  The Company has no further capital commitments beyond its £2.5 million development commitment at Aldershot and some minor works to existing properties.

Statement of Financial Position

Net assets at the year-end were £39.0 million (2011: £38.8 million). Freehold property values at 31 July 2012 were £56.1 million compared to £55.7 million at 31 July 2011. The total estimated final dividend to be paid in the current financial year is £999,746 (2011: £667,331) based on the number of shares currently in issue as adjusted for shares held in the Employee Benefit Trust and for shares held on treasury. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

Our twelve freehold properties are held in the statement of financial position at fair value, and have been valued externally by Cushman and Wakefield ("C&W"). Refer to note 11(b) - property, plant and equipment and also to the accounting policies for details of the fair value of trading properties. The leasehold stores are held as 'operating leases' and the valuations of these are not taken onto the statement of financial position. However seven of these have also been externally valued and these external valuations have been used to calculate the adjusted net asset value position of the Group.

On 31 July 2012 professional valuations were prepared by valuers C&W in respect of twelve freehold and seven operating leasehold properties. The valuation was prepared in accordance with RICS Appraisal and Valuation Standards Global and the UK 7th Edition. The valuation has been provided for accounts purposes and, as such, is a Regulated Purpose Valuation as defined in the Red Book. The external valuation methodology provides for a purchaser acquiring a centre incurring purchase costs of 5.8% initially and sale plus purchaser's costs totalling 7.8% are assumed on the notional sales in the tenth year in relation to the freehold stores. In practice we believe that it is unlikely that the bulk of Lok'nStore's properties would be acquired other than in a corporate structure, in which case transaction costs would likely be lower (see note 11(b) in the notes to the financial statements for a more detailed description of the valuation methodology).

The valuation report indicates a total for properties valued of £67.9 million (NBV £32.8 million) (2011: £68.0 million: NBV £32.5 million). In relation to the existing store at Reading there is a prospect of redevelopment for residential use although it has been valued as a trading store. The valuations do not account for any further investment in existing stores since 31 July 2012. The development sites at Reading, Maidenhead, Portsmouth North Harbour and Southampton have not been valued and their asset value is stated at cost of £11.9 million which combined with the C&W valuation provides an aggregate property value of £79.7 million (2011: £79.5 million).

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. It is not envisaged that any tax will become payable in the foreseeable future on these disposals due to the availability of rollover relief. In due course the site of the existing Reading store is likely to be 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 operational self-storage centres, 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.

Under IFRS the valuations of our freehold property assets are included in the Statement of Financial Position at their fair value, but the IFRS rules do not permit the inclusion of any valuation 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 £11.8 million (2011: £12.3 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

* Two Leasehold stores were not valued (2011: three) as their remaining unexpired terms were insufficient to yield a value under the Cushman & Wakefield valuation methodology.

** Includes the Swindon store previously held as leasehold (not previously valued by C&W) and now owned as a freehold.

*** Includes the current Reading store at its trading store valuation. The Reading site with planning permission for a new store is stated at cost and is included in sites in development at cost.

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 year-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.

* 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 14 years and 6 months at the date of the 2012 valuation (2011 valuation: 15 years and 2 months).

** 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.

Summary

Lok'nStore is a well controlled business which generates increasing cash flow from its strong asset base. Looking at interest rate risk, given the low prevailing rates and the small premium over our variable rate available on our executed swap, we felt that it is a good time to lock in to these historically low interest rates. An effective interest rate of 3.525% on this portion of our debt protects our cash flow and demonstrates our excellent relationship with our lenders and the Group's ability to secure market leading rates as a result of our financial strength and cash flow.

Ray Davies

Finance Director

26 October 2012

Consolidated Statement of Comprehensive Income

For the year ended 31 July 2012

* EBITDA and operating profit are defined in the accounting policies section of the notes to the financial statements.

Consolidated Statement of Changes in Equity

For the year ended 31 July 2012

Company Statement of Changes in Equity

For the year ended 31 July 2012

Statements of Financial Position

31 July 2012

Company Registration No. 4007169

Approved by the Board of Directors and authorised for issue on 26 October 2012 and signed on its behalf by:

Andrew Jacobs Ray Davies

Chief Executive Officer Finance Director

Consolidated Statement of Cash Flows

For the year ended 31 July 2012

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 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 Annual Report and Accounts may be obtained from the Company's head office at 112 Hawley Lane, Farnborough, Hants, GU14 8JE, or the investor section of the Company's website at http://www.loknstore.com. This financial information does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The above figures for the year ended 31 July 2012 are an abridged version of the Company's accounts which will be reported on by the Company's auditors before dispatch to the shareholders and filing with the Registrar of Companies.

Basis of accounting

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) Interpretations as adopted by the European Union and comply 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 Interpretation Committee relevant to its operations and effective for accounting periods beginning on or after 1 August 2011.

The financial statements have been prepared on the historic cost basis except that certain trading properties and derivative financial instruments are stated at fair value.

Adoption of new and revised standards

Standards in issue but not yet effective

At the date of approval of these financial statements, the following standards and interpretations which were in issue but not yet effective:

*Not yet endorsed by the EU.

The Directors do not anticipate that the adoption of these Standards will have a significant impact on the financial statements of the Group.

There were no other Standards or Interpretations, which were in issue but not yet effective at the date of authorisation of these financial statements, that the Directors anticipate will have a material impact on the financial statements of the Group.

Critical accounting estimates and judgements

The preparation of consolidated financial statements under 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 stores using a discounted cash flow methodology 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 11(b). The carrying value of freehold properties held at valuation at the reporting date was £56.1 million (2011: £55.7 million).

Cushman & Wakefield's ('C&W's') valuation report comments on valuation uncertainty resulting from the global banking crisis coupled with the economic downturn which has resulted in there being a low number of transactions in the market for self-storage property.

C&W note that although there were a number of transactions in 2007, the only two significant transactions since 2007 are the sale of a 51% share in Shurgard Europe which was announced in January 2008 and completed on 31 March 2008 and the sale of the former Keepsafe portfolio by Macquarie to Alligator Self-Storage which was completed in January 2010. However, C&W have reflected negative sentiment in their capitalisation rates and they have reflected current trading conditions in their cash flow projections for each property. C&W state that there is therefore greater uncertainty attached to their opinion of value than would be anticipated during more active market conditions.

The Board concur with this view.

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. In 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 maturity occupancy level. In addition, assumptions are made on the storage rent 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 Group holds planning permissions on its entire pipeline of sites as a result of the work undertaken to complete the pre-planning and planning phases required on each site. During this year it has been engaged with the four sites to examine whether the potential of the existing permissions could be further maximised. The movement in costs is as a result of this work.

The carrying value of development property assets at the reporting date was £11.9 million (2011: £11.5 million) of which £3.18 million (2011: £2.94 million) relating to the long lease at Maidenhead is classified as a property lease premium and is shown separately in the statement of financial position.

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 and performance. At 31 July 2012 intangible assets, excluding goodwill, amounted to £3.1 million (2011: £3.3m).

The valuation method used and key assumptions are described in Note 11(a).

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 of 20 years 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) Dilapidations

The Group has a number of stores operating under leasehold tenure. From time to time, in accordance with the Group's stated objective to maximise shareholder value, it may choose not to renew a lease, particularly where alternative premises have been sourced and customers can be moved into the new premises. In these circumstances the Group may incur repairing and decoration liabilities ('dilapidations') based on the tenant's obligation to the landlord to keep the leasehold premises in good repair and decorative condition. Landlords in these circumstances will normally serve a schedule of dilapidations on the tenant setting out a list of items to be remedied. This may also refer to obligations on the tenant to reinstate any alterations works previously undertaken by the tenant under a Licence for Alterations. Such claims will always be negotiated robustly by Lok'nStore and may require legal, valuation and surveyors' expertise, particularly if it can be shown that the landlord's interest in the premises has not been diminished by the dilapidations. As such, evaluations of actual liabilities are always a critical judgement and any sums provided to be set aside can only be an estimate until a settlement is concluded.

The carrying value of the provision for dilapidations at the reporting date was £nil (2011: £nil).

Notes to the Financial Statements

For the year ended 31 July 2012

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. Historically, there has been one business segment as the Group's net assets, revenue and profit before tax were attributable to one principal activity, the provision of self-storage accommodation and related services.

Following the purchase of Saracen Datastore Limited on 30 June 2011, the Group also provides offsite records storage and document and tape archiving services. The acquisition broadens the offering to clients and is seen as an excellent entry point to a wide market segment complimenting Lok'nStore'sexisting self-storage activities.

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 segment information for the year ended 31 July 2012 is as follows:

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 330 customers has a greater customer concentration with its ten largest corporate customers accounting for 39% (2011: 40%) of revenue its top 50 accounting for 68.8% (2011: 71.1%) and its top 100 accounting for 84.0% (2011: 75.7%) of revenue. The self-storage segment with over 6,700 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 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.

2a 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 Professional fees and associated costs

3 Finance income

All interest receivable arises on cash and cash equivalents (see note 16).

4 Finance costs

Most interest payable arises on bank loans classified as financial liabilities measured at amortised cost (see note 17).

5 Profit before taxation

Amounts payable to Baker Tilly UK Audit LLP and their associates for audit and non-audit services:

6 Employees