Safestore Regulatory News (SAFE)

26 June 2014

Safestore Holdings plc

Interim Results for the 6 months ended 30 April 2014

Operational Progress and improving trading trends

Key measures

Highlights

Operational Delivery

· Positive enquiry growth in the period with improving conversion, gathering momentum on new lets (up 8.8%) and closing occupancy up 2.2 ppts

· Revised pricing policy driving significant increase in move-in rates

· Operational transformation progressing well with senior team already in place

· National Account UK business customers space let up 15%

· Acquisition of St Denis, Paris freehold in May 2014

Improving Financial Performance

· Group like-for-like revenues up 1.7% and like-for-like EBITDA up 5.5%

· UK revenue up year-on-year for last three months after 8 months of improving trend

· Continuing strong French performance growing occupancy, rate and revenue

· Tight cost control across the Group

· Strengthened balance sheet and cost savings underpins 20% EPS growth

· Interim dividend of 2.15p increased by 16%

Strong and Flexible Balance Sheet

· Refinancing and equity placing completed rebalancing of capital structure in the period

· Group LTV7 lowered to 39% and finance costs reduced by at least £5m8 per annum (on a full year basis)

Frederic Vecchioli, Safestore's Chief Executive Officer, commented:

"With the rebalanced capital structure completed in the first half of the year, the focus remains on our operational transition which is well underway.

"Many of our recent operational initiatives are starting to come through with improvements in enquiries, conversion and new lets driving occupancy growth whilst our new pricing policy is resulting in a positive rental rate trend.

"As a result, our trading performance has been encouraging and, combined with the improvements to the capital structure and tight cost control, has translated into strong growth in both earnings and dividends in the half year.

"Going forward we are excited about the opportunity and, although the benefits of the recent improvements made across the business will take some time to be fully reflected in our financial performance, we are confident in delivering the strategy and generating earnings in line with the Board's expectations."

Notes

1 - Adjusted to reflect the closure of Enfield South and the loss of tenancy income following the sale and short term leaseback of our Whitechapel site

2 - Underlying EBITDA is defined as Operating Profit before exceptional items, change in fair value of derivatives, gain/loss on investment properties and contingent rent and depreciation; Underlying profit before tax is defined as underlying EBITDA less leasehold rent, depreciation charged on property, plant and equipment and net finance charges relating to bank loans, overdrafts and cash

3 - Cash tax adjusted earnings per share is defined as Profit or Loss for the period before exceptional items, change in fair value of derivatives, gain/loss on investment properties and the associated tax impacts as well as exceptional tax items and deferred tax charges, divided by the weighted average number of shares in issue (excluding shares held by the Safestore Employee Benefit Trust)

4 - Closing occupancy excludes offices but includes 74,100 sq ft of bulk tenancy as at 30 April 2014 (30 April 2013: 79,100 sq ft)

5 - RevPAF (Revenue per available square foot) is calculated as Total Revenue divided by total MLA

6 - MLA is Maximum Lettable Area- following a review of MLA in 2013 across the estate and adjusting for the closure of Enfield South, Group MLA has been adjusted to 5.08m sq ft

7 - Loan to Value is calculated as gross debt (excluding finance leases) as a proportion of the valuation of investment properties and properties under construction

8 - Based on levels of hedging concluded in Q2 2014

9 - Constant Exchange Rates

Overview

Safestore has delivered a solid performance for the first half of the year. Group like-for-like revenue is up 1.7% and underlying like-for-like EBITDA is up 5.5%, supported by tight cost control.

The operational improvement strategy is well progressed although, given the nature of the self-storage business and the relatively low customer churn, the benefits will take time to be reflected fully in our financial performance.

UK like-for-like revenue is up 0.6%1 and we are currently moving new customers in at a significantly higher rate than last year. Although our average rate in the period remains 3.4% down on the same period last year, the trends in rate are showing improvement and our Q2 rate was ahead of our Q1 rate for the first time in three years. We are confident that our new pricing policy in the UK is enabling us to reverse the previously declining rate trend and to already move the average rate back onto an upward trajectory. As a result, UK revenue has been up year-on-year for the last three months after 8 months of improvement in the year-on-year variance. Cost control in the UK has been strong, reducing head office and store costs by an aggregate £0.7m.

In France, conversion and rate improvements have driven a strong revenue performance (up 4.7% CER9). Control over costs has also been tight helping to drive the increase in French profitability.

Our improved capital structure has driven significant reductions in finance costs which have helped to generate a 20% increase in EPS in the period. In the second quarter we completed the hedging arrangements relating to our renewed facilities and now expect our underlying finance costs to reduce by at least £5m per annum (pro forma) rather than the £4m per annum previously indicated.

Our focus in recent months has been on transforming operational performance to drive improved occupancy and on selling at a more appropriate rental rate. In the period we have revised our pricing policy and discipline, implemented a new store incentive scheme, changed the operational leadership of the business and enhanced the efficiency of our online marketing efforts.

Following the disposal of our Whitechapel store in November 2013 for net proceeds of £40.5m our focus on asset management opportunities continues. In May 2014, as previously indicated, we acquired the freehold of our St Denis store in Paris for €3.8m. We intend to close and consolidate our nearby leasehold Landy site into the St Denis store during 2015. In the UK we have, in June, sold our vacant former Southend site to Lidl for £1.1m. Finally, we plan to proceed with the development of a new store on our prime Chiswick site.

The Board has declared an interim dividend of 2.15p per share, an increase of 16.2% on the prior year (2013: 1.85p).

Outlook

Our operational delivery strategy is progressing to plan but will take some time to be fully realised. The early results are encouraging and are being reflected in improving conversion and rate trends.

There will continue to be a strong focus on strengthening the operational performance of the existing business. Combined with the operational leverage offered by our business model, as well as a strengthened balance sheet, we remain confident of delivering earnings and dividend growth to shareholders.

For further information, please contact:

Safestore Holdings PLC

www.safestore.co.uk

Instinctif Partners (formerly College Hill)

A presentation for analysts will be held at 9.30am today at:Instinctif Partners, 65 Gresham Street, London, EC2V 7QP

For dial-in details of the presentation please contact:Alys Twinley (alys.twinley@instinctif.com or telephone on Tel: 020 7457 2020).

Notes to Editors

Strategy Update

In January 2014 we identified three phases to our future strategy:

· Establish a more appropriate capital structure for the business.

· Operational delivery.

· Selective portfolio management opportunities.

Capital Structure

During the period we have established a more flexible and appropriate capital structure for the business. The actions we have taken are as follows:

· Raised net proceeds of £31.6m in an equity placing in January 2014

· Sold our Whitechapel site for net proceeds of £40.5m in November 2013

· Repaid £75m of debt

· Amended and extended our bank facilities providing us with lower interest margins and a further two year term to our bank facilities whilst at the same time allowing the Group to benefit from improved covenants

· Finalised the hedging in relation to the renewed facilities resulting in an estimated effective blended rate of interest of 4.5% across all our facilities (5.3% in 2013)

· Reduced pro forma annual underlying interest charges by at least £5m compared with 2013

The above actions have enabled us to achieve a Group Loan-To-Value ratio (Group LTV) of c.39%, which we believe is an appropriate medium term level for the business.

The rebalanced capital structure will underpin an improved return on equity, provide financial flexibility and support our medium term strategic objectives.

Operational Delivery

We have a strong, fully invested estate in both the UK and France. Of our 122 stores, 83 are in London and the South East of England or in Paris and 39 in the other UK regions. We operate more self-storage sites inside the M25 than any competitor.

Whilst occupancy has improved by 2.2 ppts over the period, we still have 1.5 million sq ft of space that is currently unlet in the UK and 0.3 million sq ft in Paris. Our operational focus is on improving occupancy in our store portfolio at more appropriate rates.

Our experience is that customers requiring storage now predominantly start their journey by conducting detailed online research in their locality to assess all the available options. It is therefore important to appear on the top rankings in each location for each search entry keyword of which we manage close to 95,000 combinations in the UK. There is a clear benefit of scale and the size of our organisation allows us to employ the appropriate skills and to dedicate a significant budget to this end. The vast majority of our enquiries are generated online and our annual marketing budget of £3m, similar to last year, is mainly directed towards the generation of pay-per-click enquiries. Enquiry growth has been strong in the period and our skilled in-house marketing team has successfully decreased the average cost per enquiry.

Safestore has also invested in Search Engine Optimisation (SEO) expertise resulting in improved results in enquiries generated from organic search. Our consumer website for desktop and mobile has been further improved with richer content designed to assist online customers in establishing their storage requirements. We now have an industry leading website in the UK. We continue to monitor all channels of enquiry generation and will adapt our marketing strategy to optimise responses.

Our main focus remains to improve the operational performance of our well invested estate through a combination of strengthening of operational leadership, improving the store teams' selling and management skills and revising the pricing policy.

Our operational strategy is underpinned by the strong conviction that our store teams play a decisive role in winning the trust of customers and converting them into new lets at an appropriate rate and in the delivery of a premium, professional and friendly service that entices customers to stay longer and to refer Safestore to friends and family. Whilst Safestore benefits from a well-established and dedicated store team, actions have been initiated to further support its development.

· New executive level appointments in the UK have been made. Our new Operations Director and Head of Human Resources have joined in recent months bringing significant experience in the retail industry where they have had previous success in driving enhanced store level performance and a strong sales culture.

· Reorganised the UK regional structure of the business to add regional manager positions to enable closer store support.

· Invested in store training and sales skills to ensure performance consistency across our portfolio while maintaining our already strong customer service offering.

· Reorganised the store incentive scheme. All members of staff are now incentivised on a monthly basis that is focused on locally controllable and understandable measures such as revenue generation, net new let performance and selling prices achieved.

· Revised the pricing policy.

The above actions will take some time to become embedded in the business and reflected in the financial results. However, we are confident that they will ultimately result in improved enquiry conversion rates and higher occupancy and rental rates, consequently improving revenues and driving greater profitability due to the operating leverage in our business.

In France, internal succession has resulted in the appointment of a new CEO, Laurent Judas, who has a successful track record, over an eight year period, of driving revenue in the business.

We remain focused on business as well as domestic customers. Our national network means that we are well placed to further grow the business customer market and in particular National Accounts. Business customers in the UK now constitute 50% of our total space let and have an average length of stay of 31 months. Within our Business customer category, our centrally managed National Accounts business continues to grow with revenue increasing by 14% compared with H1 2013. The space let to National Accounts customers has increased by 15% compared with H1 2013 and, at 254k sq ft, constitutes 10% of our total occupied space in the UK business. Two thirds of the space occupied by National Accounts customers is outside London, demonstrating the importance of a national estate.

Our centrally located customer support centre in the UK provides ongoing support to the stores as well as actioning enquiries that are outside store hours and handles 18% of all enquiries. Our central pricing team is responsible for the management of our dynamic pricing policy and for the implementation of promotional offers and our centrally based National Accounts team is focused on driving growth in our base of Business customers who store at multiple locations. Our central IT and Finance teams provide day-to-day support to the store operations and ensure that our pricing and marketing policies are effectively implemented and monitored.

Cost control across our business remains a key priority. We will continue to ensure that our Head Office functions remain lean and efficient and focused on supporting the business.

Selective portfolio management opportunities

Our approach to store development in the future will be pragmatic, flexible and focused on return on equity.

In January 2014 we highlighted the possibility of realising a small number of demonstrably value creating investments from within the current estate, as well as laying the foundations for longer term growth. To realise these near term opportunities from within the estate we indicated a maximum capital expenditure of £10m-£15m over the next two years over and above our ongoing annual capital expenditure.

The growth opportunities from the existing estate will remain the Group's primary focus. As we realise the organic growth opportunity we will consider further selective and disciplined investment in our portfolio.

In Paris, we completed the acquisition of the freehold of our leasehold St Denis store for €3.8m in May 2014, as previously indicated. In addition, we have a further leasehold store in the St Denis area (Landy) which has been loss-making. We plan, in 2015, to close this store and to consolidate its customers into our freehold St Denis store.

In Southend, we operate out of a purpose built new store. We are pleased to have completed the unconditional sale of the site of the previous store to Lidl for £1.1m in June 2014.

We believe that the land we own on the A4 at Chiswick represents an attractive opportunity and we plan to proceed with the development of a new store on this site. Our other pipeline sites in Wandsworth and Birmingham continue to be evaluated for potential development.

We continue to seek other asset management opportunities in our store portfolio. Further lease re-gearing and income generation opportunities will be explored on an ongoing basis.

We believe that this strategy, combined with positive market and economic dynamics and the quality of our property portfolio, means that we are well positioned to deliver strong returns to our shareholders.

Portfolio Summary

We have a strong position in both the UK and Paris markets operating 97 stores in the UK, 58 of which are in London and the South East, and 25 stores in Paris.

In the UK, 68% of our revenue is generated by our stores in London and the South East. On average, our stores in London and the South East are smaller than in the rest of the UK but the occupancy levels and rental rate achieved are higher. In London we operate 43 stores within the M25, more than any other competitor.

In France, we have a leading position in the heart of the affluent City of Paris market under our Une Pièce en Plus ("UPP" - "A spare room") brand with more than twice the number of stores than our two major competitors combined. 76% of the UPP stores are located in a cluster within a 5 mile radius of the city centre, which provides strong operational and marketing synergies as well as options to differentiate and channel customers to the right store subject to their preference for convenience or price affordability. The Parisian market has attractive socio-demographic characteristics for self-storage and we believe that UPP enjoys unique strategic strength in such an attractive market.

Together, London, the South-East and Paris represent 68% of our owned stores, 77% of our revenues, as well as 58% of our available additional capacity.

Additionally, Safestore has the benefit of a leading national presence in the UK regions where the stores are predominantly located in the centre of key metropolitan areas such as Birmingham, Manchester, Liverpool, Bristol, Glasgow and Edinburgh. This regional strength is supporting the strong growth in National Accounts.

Trading Performance

Group

Group revenue was up 1.7% on a like-for-like basis (on a constant currency basis) and occupancy increased by 2.2 percentage points compared with a year ago. Our average rate continues to recover and is now only 2% behind the prior year on a constant currency basis.

UK - improving trends

Our UK revenue was down 2.0% on the prior year. However, after adjusting for the fact that our Enfield South store was still open in the first half of 2013 and for the impact of lost sub-let tenancy revenue at our Whitechapel store, which was sold in November 2013, like-for-like revenue was 0.6% ahead of the prior year.

EBITDA was flat compared to H1 2013 but, on a like-for-like basis, was up 3.8% driven by strong cost control.

Our UK business (owned stores) ended the period at closing occupancy of 2.55m sq ft or 63.4% of our Maximum Lettable Area ("MLA")6 which represented an increase on 2013 of 68,000 sq ft, despite the closure of Enfield South in the second half of 2013. During the second quarter of 2014 we increased occupancy by 49,000 sq ft.

We are currently moving customers in at a rate which is significantly above last year. However, due to the normal dynamics of our storage customer base, during the period older customers have still been vacating at higher rents than those paid by the customers acquired in 2012 and 2013. As a consequence, the average self-storage rate per sq ft in the UK for the period was £21.87, which is 3.4% down on 2013. However, the average rate achieved in Q2 2014 represented a small improvement on the rate achieved during Q1 2014. This is the first time that our Q2 rate has been greater than our Q1 rate in three years. We are encouraged by the positive quarter-on-quarter trends and we are confident that the pricing policy applied has enabled us to reverse the previously declining trend and to already move the average rent back onto an upward trajectory.

France - continued strong performance growing revenue, rate and occupancy

Our French business has performed strongly throughout the period. Revenue has increased by 4.7% over 2013 to €15.7m (2013: €15.0m) which equates to a 4.0% increase in sterling, reflecting the weakening of the euro against sterling.

The revenue improvements, combined with strong cost control, resulted in a 7.6% improvement in underlying EBITDA.

Closing occupancy was 0.76m sq ft, an increase of 26,000 sq ft on the closing half year position in 2013. This represents 72.1% of MLA6 at 30 April 2014.

The average self-storage rate per sq ft for 2013 in Paris was €37.86, 1.5% higher than at 30 April 2013.

Cost of Sales and Administrative Costs

During the period, further cost savings have been made in both the UK and Paris to establish a lean and efficient operational and central structure:

- Employee costs were reduced in the Head Office

- More efficient expenditure on utilities

- Reduced professional fees

Further analysis of the cost base is included in the Finance Review.

Customers

Safestore has a balanced mix of business and personal customers. Our domestic customers' need for storage is often driven by lifestyle events such as births, marriages, bereavements, divorces or by the housing market including house moves and developments and moves between rental properties.

Our business customer base includes a range of businesses from start-up online retailers through to multi-national corporates utilising our national coverage to store in multiple locations while maintaining flexibility in their cost base.

Market

The self-storage market in the UK and France remains relatively immature compared to geographies such as the USA and Australia. The recently published Self Storage Association (SSA) Annual Survey (April 2014) confirmed that, in the UK, self-storage capacity remains in line with 2013 at 0.5 square feet per head of population as compared with 7.3 square feet in the USA and 1.4 square feet in Australia. While capacity increased significantly between 2006 and 2009 with an average of 34 stores per annum being opened, new additions have been limited to an average of 9 stores per annum between 2010 and 2013.

In the Paris market, we estimate the density to be even lower at around 0.36 square feet per inhabitant.

New supply in London and Paris is likely to be limited in the short term as a result of planning restrictions and availability of suitable land. Respondents to the SSA survey indicated that the majority of the limited future anticipated development of new stores will take place outside these markets. In fact, capacity in London is expected to contract in the short term as the limited planned openings are offset by site closures as alternative use opportunities have been realised.

The supply in the UK market, according to the SSA survey, remains relatively fragmented. Safestore is the leader by number of stores with 97 wholly-owned sites, followed by Big Yellow with 67 wholly-owned and managed stores, Access with 55 stores, Storage King and Lok'n Store with 24 stores each and Shurgard with 22 stores. Altogether, the six leading brands account for less than 30% of the UK store portfolio. The remaining c.700 self-storage outlets (including 141 container based operations) are independently owned in small chains or single units.

The Paris market is significantly more concentrated with three main operators. Our French Business, UPP, is mainly present in the core wealthier and more densely populated inner Paris and first belt areas, whereas our two main competitors have a greater presence in the outskirts and second belt of Paris.

Consumer awareness of self-storage is increasing but is still low, providing an opportunity for future industry growth. The SSA survey indicated that 62% of consumers either knew nothing about the service offered by self-storage operators or had not heard of self-storage at all. The opportunity to grow awareness, combined with limited new industry supply and improving economic conditions, makes for an attractive industry backdrop.

The survey also highlighted the increasing importance for operators of a strong online presence. 67% of those surveyed confirmed that an internet search would be their chosen means of finding a self-storage unit to contact.

Industry participants in the survey demonstrated an increasing level of confidence in the trading outlook for 2014 with 79% anticipating an increase in profitability, 87% expecting increasing rental rates and 99% expecting similar or reduced levels of customer incentives in the year ahead.

Frederic Vecchioli

25 June 2014

Financial Review

Underlying Income Statement

The table below sets out the Group's underlying results of operations for the six months ended 30 April 2014 and the six months ended 30 April 2013.

Management considers the above presentation of earnings to be representative of the underlying performance of the business.

Underlying EBITDA increased by 2.4% to £25.1m (H1 2013: £24.5m) as the 0.4% reduction in revenue was more than offset by 3.5% savings in the underlying cost base (see below).

A significant reduction in finance charges, as a result of management actions taken to strengthen the Group's capital structure earlier this year, has been primarily responsible for a 27.8% increase in underlying profit before tax to £12.4m (H1 2013: £9.7m).

Given the Group's REIT status in the UK, tax is only paid in France and the current tax due in the period increased to £0.5m (H1 2013: £0.3m).

Management considers that the most representative Earnings Per Share ("EPS") measure is cash tax adjusted EPS which increased by 20.0% to 6.0p (H1 2013: 5.0p). EPRA EPS also reflects the deferred tax on underlying trading and increased by 20.5% to 5.3p from 4.4p in H1 2013.

Reconciliation of Underlying EBITDA

The table below reconciles the operating profit included in the Income Statement to Underlying EBITDA.

The main reconciling items between operating profit and underlying EBITDA are the gain or loss on investment properties which moved from a £3.1m gain in H1 2013 to a £6.8m loss in H1 2014, and exceptional items which marginally increased from a £0.4m cost in H1 2013 to £0.6m in H1 2014.

The Group's approach to the valuation of its Investment Property portfolio at 30 April 2014 is discussed below.

Underlying Profit by geographical region

The Group is organised and managed in two operating segments based on geographical region. The table below details the underlying profitability of each region.

EBITDA in the UK was flat at £16.6m (H1 2013: £16.6m). Revenue reductions of £0.7m were offset by cost savings of £0.7m.

In France, EBITDA increased by £0.6m or 7.6% to £8.5m (H1 2013: £7.9m). Revenue improvements of £0.5m as well as a cost reduction of £0.1m contributed to this improvement.

Revenue

Revenue for the Group is primarily derived from the rental of self-storage space and the sale of ancillary products such as insurance and merchandise (e.g. packing materials and padlocks) in both the UK and France.

The split of the Group's revenues by geographical segment is set out below for H1 2014 and H1 2013.

The Group's revenue decreased by 0.4% or £0.2m during the period. The Group's occupied space was 94,000 sq ft higher at 30 April 2014 (3.32 million sq ft) than at 30 April 2013 (3.22 million sq ft), with average occupancy during the period 2.8% higher at 3.29 million sq ft (H1 2013: 3.20 million sq ft). However, the average rental rate for the Group for the period was 2.1% lower at £24.14 than in H1 2013 (£24.67).

When the Group's revenue is adjusted for the closure of the Enfield South store in H2 2013 and for the loss of tenancy income subsequent to the sale of the Whitechapel store in November 2013, like-for-like revenue increased by 1.7%9.

In the UK revenue decreased by £0.7m or 2.0% although like-for-like revenue was up 0.6%. The let sq ft was 68,000 sq ft higher at 30 April 2014 than at 30 April 2013, and the average sq ft occupied during the period was up 2.4% compared with H1 2013 at 2.53 million sq ft (H1 2013: 2.47 million sq ft). However the average rental rate was down 3.4% at £21.87 (H1 2013: £22.64).

The French business continues to perform strongly, and in H1 revenue increased by 4.7% on a constant currency basis. There was a small adverse currency impact during the period, compared with the same period last year, with an average Euro exchange rate in H1 2014 of €1.204:£1, 0.7% weaker than the average rate in H1 2013 of €1.196:£1, and this decline in the exchange rate has reduced consolidated Group revenues for the period by £0.1m. In France closing occupancy at 30 April 2014 has increased by 2.7% since 30 April 2013 to 0.76 million sq ft and average occupancy for the period was up 4.1% at 0.76 million sq ft (H1 2013: 0.73 million sq ft). The rental rate in France was €37.86 for the period, an increase of 1.5% on H1 2013 (€37.30).

Analysis of Cost Base

Cost of sales

The table below details the key movements in cost of sales between H1 2013 and H1 2014.

In order to arrive at Underlying Cost of Sales adjustments are made to remove the impact of Depreciation and Contingent Rent.

During the period, management took a number of actions to reduce the cost base to mitigate the anticipated revenue reduction in the UK business. The reduction in other costs of £0.6m resulted largely from these actions.

Administrative Expenses

The table below reconciles reported administrative expenses to underlying administrative expenses and details the key movements in underlying administrative expenses between H1 2013 and H1 2014.

In order to arrive at Underlying Administrative Expenses adjustments are made to remove the impact of Exceptional Items and changes in the fair value of derivatives.

Exceptional items in the period are costs principally associated with the restructuring of the Group's senior management team during the period.

Underlying administrative expenses were reduced by 7.2% to £6.4m (H1 2013: £6.9m). The cost of share based payments (including related national insurance) of £0.5m was £0.4m higher (H1 2013: £0.1m) than last year. However, this was more than offset by underlying cost improvements, in part driven by the cost reduction programme, of £0.9m in the half year.

Investment Properties

The directors have made the decision that a full external valuation of the store portfolio shall be undertaken on an annual rather than a bi-annual basis. Therefore, at 30 April 2014, a full external valuation of the store portfolio has not been performed. For the purposes of interim financial reporting, following consultation with the Group's external valuers, Cushman & Wakefield LLP ("C&W"), the directors have concluded that the valuation of the store portfolio at 30 April 2014 is in line with the valuation as at 31 October 2013.

The gain / loss on investment properties during the period is therefore calculated as follows.

Movement on investment properties during the period represents adjustments for additions during the period which were not reflected in the values attributed to the portfolio as at 31 October 2013 and adjustments to leasehold properties to reflect that the remaining lease terms are now 6 months shorter.

Operating profit

Operating profit decreased by £6.9m from £24.7m in H1 2013 to £17.8m in H1 2014. The movement predominantly reflects the swing in the movement on Investment Properties from a gain of £3.1m to a loss of £6.8m partially offset by the change in the fair value movement in derivatives from a loss of £1.5m to a gain of £0.7m and the improvement in underlying EBITDA.

Net finance costs

Net finance costs consist of interest receivable on bank deposits, interest payable and interest on obligations under finance leases.

The decrease in bank interest payable reflects the lower blended interest rate following the January 2014 refinancing of the Group's UK bank facilities, and the reduction in borrowings after the Whitechapel property disposal and the share placing.

Exceptional finance costs of £2.1m were incurred in the rebalancing of the Group's capital structure in January 2014. In addition, hedge breakage payments of £4.9m, associated with the refinancing, were made. As a result of this restructuring of the balance sheet we expect our full year underlying finance costs to reduce by at least £5m per annum (pro forma).

Based on the drawn debt position as at 30 April 2014, the effective interest rate is analysed as follows:

The UK term loan of £156m is fully drawn as at 30 April 2014 and attracts a bank margin of 2.50%. The Group has interest rate hedge agreements in place to June 2018 swapping LIBOR on £80.0m at an effective rate of 1.64%.

As at 30 April 2014, £2.5m of the £50m UK revolver facility had been drawn, which has been repaid subsequent to the period end. The Group pays a non-utilisation fee of 1.125% on undrawn balances.

The Euro revolver of €70m has €49m (£40.3m) drawn as at 30 April 2014 and attracts a bank margin of 2.50%. The Group has interest rate hedges in place to June 2018 swapping Euribor on €45m at an effective rate of 0.8085%. Subsequent to the period end, a further €3.5m of the revolver was drawn in order to finance the acquisition of the freehold of the St Denis site.

The US Private Placement Notes are fully hedged at 5.83% for the 2019 notes and 6.74% for the 2024 notes.

The hedge arrangements provide cover for 69% of the drawn debt. Net Interest payable includes a fair value gain on derivatives of £0.7m (H1 2013: loss of £0.3m).

Overall, the Group had an effective interest rate on its outstanding borrowings of 4.5% at 30 April 2014, reflecting the benefit of the refinancing undertaken during the period, which is discussed in further detail below.

Interest on finance leases was £2.2m (H1 2013: £2.4m) and reflects part of the leasehold rental payment. The balance is charged through the gain/ loss on investment properties line and contingent rent in the income statement. Overall, the leasehold rent charge is down from £5.3m in H1 2013 to £5.0m in H1 2014 reflecting the closure of the Enfield South store and the benefit of other rent reductions negotiated during the year ended 31 October 2013.

Tax

The tax credit for the period is analysed below:

The income tax charge in the year is £2.1m (H1 2013: £61.9m credit). The decrease in the income tax credit is driven by a deferred tax credit of £65.4m arising in H1 2013 from the release of the UK deferred tax provision following the REIT conversion.

In the current year the current tax charge all relates to the French business and amounted to £0.5m (H1 2013: £0.3m). Underlying deferred tax related to the French business and amounted to a charge of £1.4m. In the prior year underlying deferred tax related to the French business and amounted to a charge of £1.2m.

Profit after tax

The profit after tax for the period was £4.8m as compared with £74.7m in H1 2013. Basic EPS was 2.4 pence (H1 2013: 39.8 pence) and diluted EPS was also 2.4 pence (H1 2013: 39.5 pence). Management considers cash tax adjusted EPS to be more representative of the underlying EPS performance of the business and this is discussed above.

Dividends

The Board has announced an interim dividend of 2.15 pence per share, an increase of 16% on the interim dividend paid last year. This will amount to £4.4m (H1 2013: £3.5m). The dividend will be paid on 15 August 2014 to shareholders who are on the Company's register at the close of business on 11 July 2014. The ex-dividend date will be 9 July 2014. The Property Income Dividend ("PID") element of the dividend payable for the period is 2.15 pence per share (April 2013: 0.18 pence).

Property Valuation

As discussed above, following consultation with external valuers the directors have taken advice and reviewed the valuation of a sample of the Group's investment property portfolio and have concluded that the valuation is in line with the full valuation performed as at 31 October 2013.