Safestore Regulatory News (SAFE)

22 January 2015

Safestore Holdings plc

("Safestore", "the Company" or "the Group")

Preliminary Results for the year ended 31 October 2014

Significant operational progress, strong earnings growth

Key measures

Highlights

Improving Financial Performance

· Group like-for-like revenue up 4.4%1 with closing occupancy up 3.5ppts at 68.8%

· Momentum continues across the UK with 4.4% growth in like-for-like revenue for the year

· Paris business continues robust performance with revenue up 4.4%1 due to further improvement in occupancy and rate1 with new lets at record levels

· Cash Tax Adjusted Earnings per Share up 21.6% at 13.5p - ahead of consensus expectations

· 36% increase in the final dividend to 5.30p (FY2013: 3.90p)

· Encouraging early trading in the new financial year with positive new lets and rate trends continuing, and Group revenue in CER up 8.6% on the prior year (UK 10.7%; France 3.1%) in the two months to 31 December 2014

Operational Delivery

· New lets growth in the UK of 19.8%, resulting from strong enquiries and improving conversion, with performance strengthening throughout the year

· Pricing policy changes driving positive UK rate growth with trend improving from -7.4% in September 2013 to +4.8% in October 2014

· National Accounts UK business customers occupancy up 17% over the year

· Costs tightly controlled across the Group and 0.9% lower than in the prior year

Strong and Flexible Balance Sheet

· Group Loan to Value ("LTV") lowered to c.37% and full year finance costs4 reduced by c.£4.7m or 25.5%

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

"I am pleased with the good progress we have made in driving operational improvements during the course of the year. Our industry leading web platform has driven 12% growth in UK enquiries and the sales team, at the same time as managing to increase the conversion rate of these enquiries, has also achieved an increase in pricing by reducing discounts. Our market leading business in Paris continues to perform well, recording its sixteenth year of uninterrupted revenue growth.

"The revenue performance has strengthened throughout the year and, combined with our continued focus on cost control and cash management, has resulted in cash tax adjusted earnings per share being ahead of consensus10 for the full year.

"As we enter the new financial year we remain focused on the long term opportunity of filling the 1.6m square feet of currently unlet space, the equivalent of 40 full stores. We will continue our strategy of driving the operational performance of the business whilst leveraging further our size and expertise in generating enquiries through the internet. We anticipate that the recent progress in the business and the renewed confidence of our sales team will continue to deliver further operational improvement as we enter the new financial year."

Notes

1 - Constant Exchange Rates.

2 - 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.

3 - Underlying EBITDA is defined as Operating Profit before exceptional items, change in fair value of derivatives, gain/loss on investment properties, contingent rent and depreciation.

4 - The underlying finance charge is defined as the interest payable on bank loans and overdrafts and the amortisation of debt issue costs, net of interest receivable from bank deposits. It excludes interest on obligations under finance leases, fair value movements of derivatives, net exchange gains/losses, discount unwind on the CGS receivable and exceptional finance income/expense.

5 - Cash tax adjusted earnings per share is defined as Profit or Loss for the Year before exceptional items, change in fair value of derivatives, gain/loss on investment properties (adjusted for leasehold depreciation), discount unwind on the CGS receivable and the associated tax impacts, as well as exceptional tax items and deferred tax charges.

6 - RevPAF (Revenue per average square foot) is calculated as Total Revenue divided by total MLA.

7 - MLA is Maximum Lettable Area- following a review of MLA in 2013 across the estate and adjusting for the closures of Enfield South and St Denis Landy, Group MLA has been adjusted to 5.03m sq ft.

8 - Closing occupancy excludes offices but includes 83,500 sq ft of bulk tenancy as at 31 October 2014 (31 October 2013 - 76,600 sq ft).

9 - Basic Earnings per Share in 2013 reflected a deferred tax credit of £59.9m resulting from the conversion of the Group to a Real Estate Investment Trust ("REIT"). The impact of this credit in Basic Earnings per Share was 31.8 pence.

10 - As of 21 January 2015, based on the forecasts of 9 analysts, the consensus for cash tax adjusted earnings per share for the year ended 31 October 2014 is 13.0p.

Summary

Safestore has delivered a good performance in the last financial year. Group revenue was up 4.4% on a like-for-like basis with similar increases in both the UK and France driven by both improved occupancy and storage rate growth. The Group's occupancy increased by 3.5 percentage points (ppts) to 68.8% with the average storage rate up 0.5%1.

Our operational progress across the UK has been significant. Enquiry growth has outpaced the market and improvements in conversion have resulted in new lets growth of 19.8% across the whole year and 35.4% in the fourth quarter. As a result, occupancy in the UK was up 3.1 ppts to 66.6%.

In Paris, despite a challenging economic environment, our performance has been robust resulting in increases in occupancy, rate and revenue. New lets, in the final quarter, were at record levels and occupancy is now 77.2%, a 5.3ppts increase compared to the prior year. This is the sixteenth consecutive year of revenue growth in Paris with average growth over the last five years of 5.8%.

Costs were tightly controlled across the Group and were 0.9% lower than the prior year reflecting reductions in head office costs delivered in both the UK and Paris.

As a result, Group underlying EBITDA, at £53.0m, increased 4.3% on the prior year despite the negative impact of the weakening Euro on Paris profitability. Cash tax adjusted EPS grew 21.6% in the period at 13.5p (2013: 11.1p) reflecting the strong EBITDA performance and reduced finance costs arising from the rebalancing of the capital structure completed in January 2014.

Our property portfolio valuation increased by 5.1% since October 2013 on a constant currency basis after taking account of the sale of Whitechapel in November 2013 for net proceeds of £40.5m. After exchange rate movements the portfolio valuation increased by 2.9% to £704.0m with the UK portfolio up £25.3m at £527.0m and the French portfolio up €11.5m to €224.5m.

The Board is pleased to recommend a 36% increase in the final dividend to 5.30p per share (2013: 3.90p) resulting in a full year dividend up 30% to 7.45p per share (2013: 5.75p).

Outlook

Our focus on operations, combined with our scale, has driven good revenue growth in the year. Additionally, our continued focus on cost control and cash management has resulted in cash tax earnings per share for the year growing by over 20% and being ahead of analyst consensus10.

We have strong market positions in both the UK and Paris and substantial scope for further operational upside, with 1.6m square feet of space to fill. We remain fully focused on continuing our strategy of improving the operational performance of the business and leveraging our scale advantage, and are encouraged by the continued improvement in occupancy and rate trends experienced since the financial year end. With more favourable economic conditions and limited new supply coming into the self-storage market, the industry is well positioned for growth.

For further information, please contact:

Safestore Holdings PLC

www.safestore.co.uk

Instinctif Partners

A presentation for analysts will be held at 9.30am today at:Investec Bank plc, 2 Gresham Street, London, EC2V 7QP

For dial-in details of the presentation please contact:Antonia Pollock (antonia.pollock@instinctif.com or telephone on Tel: 020 7457 2857).

Notes to Editors

Chairman's Statement

I am pleased to announce, on behalf of the Board of Safestore, a good set of results for the year ended 31 October 2014. The reconfigured management team has made a significant impact over the past twelve months and, after completing the rebalancing of our capital structure in the early part of the year, we have set about the task of improving the operational performance of the business in the UK. Whilst we still have work to do, I am pleased with the considerable amount of progress made to date and am confident that the foundations have been laid for continued growth in the business and value creation for our shareholders.

Financial Results

Revenue for the year was £97.9m, 1.9% ahead of last year (FY2013: £96.1m) and on a like-for-like and constant currency basis, revenue growth was 4.4%. This result was driven by improving momentum in the UK as we progressed through the year, combined with another strong performance of Une Pièce en Plus, our Parisian business.

Underlying EBITDA increased by 4.3% to £53.0m (FY2013: £50.8m). In addition to the improvements in revenue in both the UK and Paris we continued to exercise strong control over costs, delivering a 0.9% reduction compared to the prior year.

Our capital restructuring resulted in a reduction in the underlying finance charge4 of £4.7m or 25.5% to £13.7m (FY2013: £18.4m).

As a result of the above factors, cash tax adjusted earnings per share grew by 21.6% to 13.5p (FY2013: 11.1p).

Capital Structure

In the first quarter of the financial year, we completed our capital restructuring. Debt was reduced by £75m, principally financed by the sale of our Whitechapel site for net proceeds of £40.5m, the January 2014 equity placing of 18.6m new ordinary shares at 175p per share, raising net proceeds of £31.6m, and from internally generated free cash flow. In addition, our bank facilities were renegotiated which provided us with lower interest margins and a further two-year term whilst at the same time allowing the group to benefit from improved covenants.

The Group's balance sheet is now in good shape with a Group Loan-To-Value ratio ("Group LTV") of c.37%. This represents a level of gearing we feel is appropriate for the business to enable the Group to increase returns on equity, maintain financial flexibility and to achieve our medium-term strategic objectives.

Dividend

The Board is pleased to recommend a 36% increase in the final dividend to 5.30 pence per share (FY2013: 3.90 pence per share) resulting in an increase of 30% in the total dividend to 7.45 pence per share for the year (FY2013: 5.75 pence per share). This total dividend for the year is covered 1.8 times by cash tax earnings (1.9 times in 2013).

The Board remains confident in the prospects for the Group and, after a year of consolidation in 2013, will continue its progressive dividend policy in 2015 and beyond. For the current financial year and for the medium term, the Board is comfortable with dividend cover of between 1.7 and 2.0 times. Given the Group's REIT status, it is required to pay out 90% of its UK based property income in dividends. The Group estimates that the aforementioned range of dividend cover will ensure compliance with REIT requirements.

People

As previously announced, Adrian Martin, our Senior Independent Director, will be retiring from the Board as Non-executive Director at the next Annual General Meeting in March 2015.

In October 2014, Joanne Louise Kenrick was appointed to the Board as a Non-executive Director and a member of the Nomination Committee.

Jo is Marketing Director at Homebase, a subsidiary of the Home Retail Group plc, and a non-executive director of Principality Building Society where she is also a member of the Customer and Conduct and Nominations Committees.

On behalf of the Board, I'd like to put on record our gratitude to Adrian for his valuable contribution to Safestore over the last six years and wish him the best for the future. I am also delighted to welcome Jo to the Board with her significant operational, sales and marketing experience in consumer retail across a number of well-known retail brands. Her deep understanding and knowledge of marketing will help support the Group's continued development.

In a year of much change, our people continued to be the key drivers of the success of the business. I would like to take this opportunity to thank all my colleagues throughout the business for their hard work and dedication this year.

Alan Lewis

21 January 2015

Our Strategy

Our belief is that the Group has the asset base, management expertise, infrastructure, scale and balance sheet strength to exploit the improving industry dynamics and macro-economic environment. One year ago we laid out our future strategy and we are now pleased to be able to detail significant progress in the report below.

We identified three phases to our strategy:

· Establish a more appropriate capital structure for the business

· Operational delivery

· Selective portfolio management opportunities

Strategic Progress- Capital Structure

In the first quarter of the financial year we completed the targeted improvements to our capital structure to position the business better for the future. The actions taken were as follows:

· Sold our Whitechapel site for £40.5m (53% above April 2013 book value) and used the proceeds to pay down debt

· Completed an equity placing of 18.6 million new shares in January 2014 at a share price of 175p per share, raising net proceeds of £31.6m which was used to pay down debt

· Announced an Amendment and Extension of our bank facilities which provides us with lower interest margins, 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 arrangements in relation to the renewed facilities resulting in an estimated effective blended rate of interest of 4.3% across all our facilities (5.3% in 2013)

· Reduced pro forma annual underlying interest charges by at least £6m compared with 2013

The above actions, in addition to a strong financial performance during the year, have enabled us to achieve a Group Loan-To-Value ratio ("Group LTV") of c.37%, which we believe is an appropriate medium-term level for the business.

The rebalanced capital structure has significantly reduced the interest cost on our borrowings and will underpin an improved return on equity, provide financial flexibility and support our medium-term strategic objectives.

Strategic Progress- Operational Delivery

Our main focus over the past year has been to improve the operational performance of the existing business, particularly in the UK.

We have a strong, fully invested estate in both the UK and France. Of our 121 stores, 82 are in London and the South East of England or in Paris and 39 in the UK regions and we operate more stores inside the M25 than any other competitor.

However, we have 1.3m sq ft of unoccupied space in our UK stores and 0.3m sq ft in Paris. Our continued focus will be on ensuring that we drive occupancy to utilise this capacity at carefully managed rates.

Our operational team has been instrumental in turning around our trading results. In our relatively immature industry, customer service and selling skills at the point of sale are both essential in earning the trust of the customer and in driving the appropriate balance of volumes and unit price in order to optimise revenue growth in each store. Under the leadership of our new Operations Director, appointed in March, 2014 has been a year of significant operational transformation. The Company has invested in operations by:

· Significantly reorganising the structure of the business adding three Regional Manager positions, allowing closer store management oversight and development of the training and coaching of the members of the sales team. The costs of these organisational changes, which were a fundamental element of the business' strategy, have been charged to exceptional items;

· Strengthening head office support with the recruitment of a new Head of Human Resources ("HR") with a particular focus on operational HR;

· Implementing an improved store recruitment and induction process ensuring that we are attracting high calibre staff to the business;

· Increasing the focus on the consistency of performance of individual staff members;

· Investing in store training to strengthen the stores' sales and customer service teams;

· Adapting our pricing policy to ensure that each store trades competitively in its local market whilst substantially improving control and discipline in relation to store level discounting;

· Redesigning the store incentive programme so that store performance can be rewarded on a monthly basis through locally controllable and understandable measures based on our key revenue growth drivers; and

· Retaining a high level of maintenance standards and customer service to the satisfaction of both our domestic and business customer base.

In tandem with the above changes, which were implemented throughout the year, we saw steady improvement in the conversion of enquiries into new lets resulting in 35.4% year-on-year growth in new lets in the fourth quarter of the year. Simultaneously, our average storage rate improved from 7.4% down year-on-year in September 2013 to 4.8% up year-on-year in October 2014 and continues to progress as we enter the new financial year.

We are very pleased with the pace at which the above improvements have been implemented. Whilst we have more work to do and further progress to make, we are already seeing the impact of these actions not only in our results, but also in improved team morale and confidence.

Our store teams have benefited from 12% year-on-year growth in customer enquiries resulting from our continued investment in our marketing team.

Customers requiring storage now predominantly start their journey by conducting detailed online research in their locality. It is therefore important to ensure that we appear on the top rankings of searches made through the internet. This is managed by analysing around 100,000 search keyword combinations. Online enquiries now represent 79% of our enquiries and 36% of our online enquiries originate from our mobile site, a figure which has increased by 52% in the last 12 months.

There is a clear benefit of scale in the generation of customer enquiries, and the size of our organisation allows us to employ the appropriate skills and to dedicate a significant budget to achieve these results. Our annual marketing budget of over £3m is mainly directed towards the generation of enquiries through sponsored links as well as organic referencing in the search engines. Improved tools and performance have enabled us to reduce our cost per enquiry in the year, resulting in new enquiry growth of 12% from a similar level of expenditure to the prior year.

We constantly enhance our consumer website for desktop and mobile with richer content designed to assist online customers in establishing their storage requirements. We now have an industry leading website in the UK, and we continue to monitor all channels of enquiry generation and adapt our marketing strategy to optimise responses. Such initiatives will enable us to continue to improve our website enquiry capture which has grown by 4.4% over the last financial year.

Since we integrated Feefo (an independent merchant review system), which allows customers to leave their feedback on the quality of our customer service on the site, into our website in 2013, our customer satisfaction score has remained in excess of 97%.

We remain focused on business as well as domestic customers. Our national network means that we are uniquely placed to further grow the business customer market and in particular National Accounts. Business customers in the UK now constitute 49% of our total space let and have an average length of stay of 31 months. Within our business customer category, our National Accounts business continues to grow with storage revenue increasing by 12% compared with 2013. The space let to National Accounts customers has increased by 17% compared with 2013 and, at 272,000 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 our well invested national estate.

Our centrally located customer support centre in the UK provides ongoing support to the stores, in addition to actioning enquiries that are outside store hours and handling 16% 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 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.

We have continued to ensure that our Head Office functions remain lean and efficient and focused on supporting the operational performance of the business. In the year, we have reduced the underlying central cost base of the business by £1.3m.

Strategic Progress- Selective portfolio management opportunities

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

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 £10-£15m through 2014 and 2015 over and above our ongoing annual maintenance capital expenditure.

In Paris, we completed the acquisition of the freehold of our leasehold St Denis store for €3.6m in May 2014. As previously indicated, we also closed our loss-making leasehold store in the St Denis area (Landy) consolidating its occupancy where possible into the 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, resulting in a gain of £0.4m.

We believe that the land we own on the A4 in London at Chiswick represents an attractive opportunity and we are proceeding with the development of a new store on this site. The estimated cost to build this store is included in the £10-£15m guidance above and we anticipate the store opening in Q2 2016. Our other pipeline sites in Wandsworth and Birmingham continue to be evaluated for potential development.

At New Malden our landlord has now obtained planning permission for the redevelopment of the site and it is likely that the landlord will serve its option to break the lease in return for a premium significantly higher than the asset valuation as an ongoing trading store. If the landlord exercises the option then our current best estimate is that the store would most likely close in H2 2015. We anticipate relocating a significant proportion of the store's occupancy to other nearby stores in our portfolio.

On 28 October 2014 we completed the re-gear of our Edinburgh Gyle store to remove a mutual break clause operable in June 2016. The lease will now continue to June 2026 and has been valued accordingly.

Active and effective management of our property portfolio has always been a key priority. Since the financial year end we have extended leases on a further three leasehold properties at Guildford, Swanley and Harlow, providing the business with long-term tenure on these properties. It is estimated that this activity will add approximately £3.7m to our asset valuation. This follows the re-gear of six leases during 2013.

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

However, our short-term focus will be on filling the 1.6 million square feet of currently available space, which is the equivalent of 40 full stores. The operational cost of managing this space is already embedded in our relatively fixed cost base and therefore a high proportion of any incremental revenues will translate into profits.

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 for further growth and to deliver strong returns to our shareholders.

Portfolio Summary

The self-storage market has been growing in the last 15 years across many European countries but few regions offer the unique characteristic of London and Paris, both of which consist of large, wealthy and densely populated markets. In the London region, the population is 13 million inhabitants with a density of 5,200 inhabitants per square mile in the region, 11,000 per square mile in the city of London and up to 32,000 in the densest boroughs.

The population of the Paris urban area is 10.7 million inhabitants with a density of 9,300 inhabitants per square mile in the urban area but 54,000 per square mile in the City of Paris and first belt, where 75% of our French stores are located and which has one of the highest densities in the western world. 85% of the Paris region population live in the city core versus the rest of the urban area which compares with 60% in the London region. There are currently 202 storage centres within the M25 as compared to only 85 in the Paris urban area. The GDPs generated in the London and Paris conurbations are roughly equivalent and are more than twice that of any other European equivalent.

In addition, barriers to entry in these two city markets are high, due to land values and limited availability of sites as well as planning regulation. This is the case for Paris and its first belt in particular, which inhibits new development possibilities.

Our combined operations in London and Paris, with 67 stores, £65.4m revenue and £37.5m EBITDA, offer a unique exposure to the two most attractive European self-storage markets.

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 24 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 with eight stores branded as Une Pièce en Plus ("UPP") ("A spare room") with more than twice the number of stores of our two major competitors combined. 75% of the UPP stores are located in a cluster within a five-mile radius of the city centre, which facilitates 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, 76% of our revenues, as well as 55% of our available capacity.

In addition, 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.

In the UK we own three development sites with planning permission at Chiswick and Wandsworth in London and in central Birmingham. We plan to open the Chiswick site in early 2016 and continue to assess the value of the Wandsworth and Birmingham sites for self-storage and alternative purposes.

Market

The self-storage market in the UK and France remains relatively immature compared to geographies such as the USA and Australia. The 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 the 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 68 wholly-owned stores, Access with 55 stores, Storage King and Lok'n Store with 24 stores each and Shurgard with 22 stores. In aggregate, 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, Shurgard and Homebox, 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.

There are numerous drivers of self-storage growth. Most private or business customers need storage either temporarily or permanently for different reasons at any point in the economic cycle, resulting in a market depth that is in our view the reason for its exceptional resilience. The growth of the market is driven both by the fluctuation of economic conditions, which has an impact on the mix of demand, and by growing awareness of the product.

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. It is estimated that UK owner-occupied housing transactions drive around 10-15% of new lets.

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.

The SSA 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.

Safestore's customer base is resilient and diverse and consists of 48,000 domestic, business and National Accounts customers across London, Paris and the UK regions.

Business Model

As discussed above, Safestore operates in a market with relatively low consumer awareness. It is anticipated that this will increase over time as the industry matures. To date, despite the financial crisis and the implementation of VAT on self-storage in 2012, the industry has been exceptionally resilient. With more favourable economic conditions and limited new supply coming into the self-storage market, the industry is well positioned for growth.

With more stores inside London's M25 than any other operator and a strong position in central Paris, Safestore has leading positions in the two most important and demographically favourable markets in Europe. In addition, our regional presence in the UK is unsurpassed and contributes to the success of our industry leading National Accounts business. In the UK, Safestore is the leading operator by number of wholly-owned stores.

Our capital-efficient portfolio of 121 wholly owned stores in the UK and Paris consists of a mix of freehold and leasehold stores. In order to grow our business and secure the best locations for our facilities we have maintained a flexible approach to leasehold and freehold developments.

Currently, one-third of our stores in the UK are leaseholds with an average remaining lease length of 12 years. Although our property valuation for leaseholds is conservatively based on future cash flows until the next contractual lease renewal date, Safestore has a demonstrable track record of successfully re-gearing leases several years before renewal whilst at the same time achieving concessions from landlords.

In England, we benefit from the Landlord and Tenant Act that protects our rights for renewal except in case of redevelopment. The vast majority of our leasehold stores have building characteristics or locations in retail parks that make current usage either the highest and best use of the property or the only one authorised by planning. We observe that our Landlords, who are property investors, value the quality of Safestore as a tenant and typically prefer to extend the length of the leases that they have in their portfolio, enabling Safestore to maintain favourable terms.

In Paris, where 50% of stores are leaseholds, all our leases benefit from the well enshrined Commercial Lease statute that provides that tenants own the commercial property of the premises and that they are legally entitled to indefinitely renew their lease at a rent that is indexed to the National Construction Index published by the state.

In the event that a landlord wants to terminate a lease, the law in Paris requires that he has to fully indemnify the tenant for the loss of its commercial property which, in the case of UPP, given the difficulty in finding new premises in Paris, would amount to the full value of the lost business. The solidity of the Tenant protection has been tested three times in the courts by UPP resulting, in each case, in the landlords ultimately abandoning their plans. The Tenant's rights have been reinforced in 2014 with new regulations creating in most cases a statutory pre-emption right for the Tenant if a Landlord wants to transfer the Freehold interest. Taking into account the legal context, the valuer values the French leasehold based on an indefinite property tenure, similar to freeholds.

Our experience is that being flexible in its approach has enabled Safestore to operate from properties that would have been otherwise unavailable and to generate strong returns on capital invested.

Safestore excels in the generation of customer enquiries which are received through a variety of channels including the internet, telephone and 'walk-ins'. In the early days of the industry, local directories and store visibility were key driver of enquiries. The Internet is now by far the dominant channel, accounting for 79% of our enquiries in the UK and 63% in France. Telephone enquiries comprise 13% of the total (30% in France) and 'Walk-ins' amount to only 8% (12% in France). This key change is a clear benefit to the leading operators that possess the budget and the management skills necessary to generate a commanding presence in the major search engines. Safestore has developed a leading digital marketing platform that has generated 50% enquiry growth over the last four years.

Our enquiries are predominantly handled directly by the stores and, in the UK, we have a Customer Support Centre ("CSC") which now handles 16% of all enquiries, in particular when the store staff are busy handling calls or outside normal store opening hours.

Our pricing platform provides the store and CSC staff with system-generated real time prices managed by our centrally based yield management team. Local staff have certain levels of discretion to flex the system generated prices but this is continually monitored.

Customer service standards are high and customer satisfaction feedback is consistently extremely positive. Over the last 12 months we have achieved 97% customer satisfaction, based on 'excellent' or 'good' ratings as collected by Feefo via our customer website.

The key drivers of sales success are the capacity to generate enquiries in a digital world, the capacity to provide a great number of storage locations that are conveniently located close to the customers' requirements and the ability to maintain a consistently high quality, motivated retail team that is able to secure customer sales at an appropriate storage rate, all of which can be better provided by larger, more efficient organisations.

The business now has in excess of 48,000 business and domestic customers with an average length of stay of 31 months and 22 months respectively.

The cost base of the business is relatively fixed. Each store typically employs three staff. Our Group Head Office comprises business support functions such as Yield Management, Property, Marketing, HR, IT and Finance.

Since the completion of the rebalancing of our capital structure in early 2014, Safestore has secure financing, a strong balance sheet and significant covenant headroom providing the Group with financial flexibility and the ability to grow organically and via carefully selected new developments.

At 31 October 2014 we had 1.3m square feet of unoccupied space in the UK and 0.3m square feet in France, equivalent to over 40 full new stores. Our absolute focus is on filling the spare capacity in our stores at optimally yield-managed prices. The operational leverage of our business model will ensure that the bulk of the incremental revenue converts to profit given the fixed nature of our cost base.

Trading Performance

UK - strategic momentum drives significant improvement

The UK business performed strongly with like-for-like revenue up 4.4%. At the end of the year, UK occupancy was 66.6%, an increase of 3.1 percentage points on the prior year.

The table below illustrates the continuing improving revenue trends over the last 14 months.

Whilst the UK rate was up 0.1% for the full year, the improvement in the year-on-year position as the year progressed reflected the pricing policy changes made in the first half of the year and the subsequent increased discipline in relation to discounting. In October 2014, rate was up 4.8% year-on-year demonstrating the momentum in the improving rate performance.

Our key focus in the UK, throughout the year, has been on our store operational performance and on improving the conversion of enquiries at an appropriate rate to maximise revenues. New lets growth of 35.4% in the final quarter and 19.8% over the year has continued to drive performance, with 125,000 sq ft of occupancy added over the year.

Finally, control of our cost base has been a strong focus in the year. Despite an increase in the Share Based Payment charge of £1.1m in the year, the total cost base has still reduced in the year to £35.1m (2013: £35.4m).

EBITDA for the UK business was £36.7m (2013: £34.8m), an increase of £1.9m or 5.5%.

Paris - a sixteenth year of growth in revenue and profitability

Our Paris business performed strongly against the backdrop of a challenging macro-economic environment, demonstrating the quality and market leading position of our estate. Revenue on a CER basis was up 4.4%. Our average rate, on a CER basis, improved by 1.4% on the prior year. Despite the planned closure of our Landy store in October 2014, the square feet occupied was 20,000 sq ft ahead of the prior year. As a result, occupancy as a percentage of MLA increased by 5.3 percentage points to 77.2%.

Revenue growth in sterling was 0.8%. The impact of a 4% weakening in the average Euro exchange rate was partly mitigated by the foreign exchange swaps in place on €10.5m of Paris profitability, at an average rate of €1.236:£1. The benefit of these hedging arrangements is reflected within EBITDA but not in the revenue line.

Our strategy of achieving an appropriate balance of rate and occupancy growth has been successful and we are now in the seventh consecutive quarter of year-on-year rate growth and sixteenth year of uninterrupted revenue growth in local currency.

The cost base in Paris remained well controlled during the year and, despite adverse currency movements, and the fact that the prior year benefited from the recognition of €1.0m relating to an insurance claim on our Nanterre store, the cost base reduced to £9.8m (2013: £9.9m).

The improvements in revenue and underlying cost base reductions resulted in EBITDA in France of £16.3m (2013: £16.0m), an improvement of £0.3m or 1.9% on 2013. On a constant currency basis, EBITDA grew by 5.6%.

Frederic Vecchioli

21 January 2015

Financial Review

Underlying Income Statement

The table below sets out the Group's underlying results of operations for the year ended 31 October 2014 and the year ended 31 October 2013.

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

Underlying EBITDA increased by 4.3% to £53.0m (2013: £50.8m), reflecting a 1.9% increase in revenue and a 0.9% saving in the underlying cost base (see below).

The 30.7% increase in underlying profit before tax to £28.5m (2013: £21.8m) was driven by a 25.5% reduction in finance charges from £18.4m to £13.7m, which was the result of management actions taken to strengthen the Group's capital structure during the year, together with the improved operating performance of the business.

Given the Group's REIT status in the UK, tax is only paid in France and the tax due in the period increased to £1.2m (2013: £0.9m).

Management considers that the most representative Earnings per Share ("EPS") measure is Cash Tax Adjusted EPS which has increased by 21.6% to 13.5p (2013: 11.1p). EPRA EPS also reflects the deferred tax on underlying trading and increased by 26.3% to 12.5p from 9.9p in 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 on investment properties, which increased by £2.6m from £21.5m in 2013 to £24.1m in 2014, and exceptional items which increased from a net charge of £0.7m in 2013 to £1.0m in 2014.

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 increased by £1.9m or 5.5% to £36.7m (2013: £34.8m), underpinned by a £1.6m increase in revenue, driven primarily by a 4.7% increase in closing occupancy, together with a £0.3m saving in costs.

In the Parisian business, EBITDA increased by £0.3m or 1.9% to £16.3m (2013: £16.0m), driven by administrative expense savings of £0.7m. On a constant currency basis, EBITDA in France grew by 5.6%.

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 2014 and 2013.

The Group's revenue increased by 1.9% or £1.8m in the year. The Group's occupied space was 145,000 sq ft higher at 31 October 2014 (3.46 million sq ft) than at 31 October 2013 (3.32 million sq ft). However, the average rental rate for the Group was 0.6% lower in 2014 at £24.24 than in 2013 (£24.39).

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 3.4%2. The increase in like-for-like revenue on a CER basis1 was 4.4%, reflecting the weakening of the Euro during the year.

In the UK, revenue increased by £1.6m or 2.3%, and on a like-for-like basis it was up by 4.4%. The let sq ft was 125,000 sq ft higher at 31 October 2014 than at 31 October 2013, with the average rental rate increasing marginally from £22.19 in 2013 to £22.21 in 2014.

Revenue in the Parisian business increased by 4.4% on a constant currency basis. However, the weakening of the Euro during the financial year had an adverse currency impact of approximately £0.9m on translation, so the increase was only £0.2m, or 0.8%, when reported in Sterling. Closing occupancy increased by 2.6% to 0.78 million sq ft, and the rental rate was €38.01 for the year, an increase of 1.4% on 2013 (€37.49).

Analysis of Cost Base

Cost of sales

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

In order to arrive at underlying cost of sales, adjustments are made to remove the impact of depreciation and contingent rent.

The weakening of the Euro during the year resulted in a decrease in the sterling equivalent of the French cost of sales of £0.2m.

During the year ended 31 December 2013, £0.8m was credited to cost of sales, in respect of insurance proceeds relating to the fire that destroyed the Nanterre store and Head Office in December 2010, which was not repeated in the current year.

Management have taken a number of actions to reduce the cost base which, during the year, included rates appeals and greater focus on store facilities costs, which generated £0.4m of savings. In addition, a reduction in other costs of £0.3m 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 2013 and 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 and certain operational functions during the year.

Underlying administrative expenses were reduced by £0.3m to £14.3m (2013: £14.6m).

The weakening of the Euro during the year resulted in a £0.1m decrease in the sterling equivalent of French administrative expenses.

Charges for share based payments increased to £1.1m, due to improved performance against targets. This increase was offset by savings in employee costs, reflecting headcount reductions and lower advisers' fees totalling £1.1m, and other cost savings which amounted to £0.2m.

Gain on Investment Properties

The gain on investment properties consists of the revaluation gains and losses with respect to investment properties under IAS 40 and finance lease depreciation for the interests in leaseholds and other items as detailed below.

The movement in investment properties reflects the combination of yield movements within the valuations together with the impact of changes in the cash flow metrics of each store. In a normal year the key variables are rate per sq ft, stabilised occupancy, number of months to reach stabilised occupancy and the yields applied.

In the current financial year the UK business contributed £23.7m to the positive valuation movement and the French business contributed £5.3m, reflecting improving trading metrics.

Operating Profit

Operating profit increased by £6.4m from £69.2m in 2013 to £75.6m in 2014. The increase predominantly reflects the £2.2m increase in underlying EBITDA, a swing in the fair value of the forward currency contracts of £2.5m from a loss of £1.3m in 2013 to a gain of £1.2m in 2014, and a £2.6m increase in the gain on investment properties from £21.5m in 2013 to £24.1m in 2014.

Net finance costs

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

Net finance costs increased by £2.6m in 2014, to £23.2m from £20.6m in 2013. However 2014 saw a £4.7m decrease in the underlying finance charge (net bank interest payable), following the capital restructuring in January 2014, and a £0.8m saving in finance lease interest. These savings were offset by increases in non-underlying finance charges, primarily a £2.5m adverse swing in the fair value movements on derivatives (which includes the recycling of fair value movements previously reported in the hedge reserve), £3.7m of net exchange losses (predominantly following the cessation of hedge accounting) and £2.1m of exceptional finance expenses arising on the capital restructuring.

Based on the year-end drawn debt position the effective interest rate is analysed as follows:

The UK term loan of £156m is fully drawn as at 31 October 2014 and attracts a bank margin of 2.25%. 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 31 October 2014, the UK revolver of £50m was undrawn. The Group pays a non-utilisation fee of 1.0125% on undrawn balances.

The Euro revolver of €70m has €49m (£38.6m) drawn as at 31 October 2014 and attracts a bank margin of 2.25%. The Group has interest rate hedges in place to June 2018 swapping EURIBOR on €45m at an effective rate of 0.8085%.

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 70% of the Group's drawn debt. Net interest payable includes a net gain in respect of the fair value movement on derivatives (including the recycling of fair value movements previously reported in the hedge reserve) of £0.3m (2013: gain of £2.8m).

Overall, the Group has an effective interest rate on its borrowings of 4.34% at 31 October 2014, which has reduced from 5.26% since the previous year end, as a result of the capital restructuring in January 2014.

Interest on finance leases was £4.2m (2013: £5.0m) 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 for 2014 of £10.3m is broadly flat compared to £10.2m in 2013, with the benefit of the 2013 negotiated rent reductions being offset by increased contingent rent.

REIT Status

The Group converted to REIT status on 1 April 2013. Since then, the Group continues to benefit from a zero tax rate on its UK self-storage income. The Group is only liable to UK tax on the profits attributable to the residual business consisting of the sale of ancillary products such as insurance and packaging products.

The Group's French business remains liable to tax on its self-storage and ancillary businesses as it is not entitled to relief under UK REIT rules as its business does not relate to UK property income.

Tax

The tax credit for the year is analysed below: