Preliminary Results

Oct 31 2022 07:33 BSTSource: RNS

RNS Number : 6995E

Lok'nStore Group PLC

31 October 2022

LOK'NSTORE GROUP PLC
("Lok'nStore" or "the Group")

Preliminary Results for the year ended 31 July 2022

Lok'nStore, the fast-growing AIM listed self-storage company, is pleased to announce its Preliminary Results for the year ended 31 July 2022.

Highlights

v Record revenue and profits

v Significant increase in net asset value per share

v 15% increase in dividend

v Dynamic new store opening schedule driving future growth

v Low debt and LTV

Strong revenue and profit growth

ü Group Revenue £26.9 million up 22.9% (2021: £21.9 million)

ü Group Adjusted EBITDA¹ £16.4 million up 37.5% (2021: £11.9 million)

ü Operating Profit before non-underlying items £11.4 million up 49.8% (2021: £7.6 million)

ü Operating Profit after non-underlying items £17.2 million up 130.0% (2021: £7.5 million)

Driven by solid operating metrics

ü Achieved rate on occupied space up 13% to £25.6 per sq. ft (2021: £22.7 per sq. ft)

ü Managed store revenue £2.8 million up 107%

ü Cost Ratio¹³ reduced to 38.5% (2021: 44.9%)

Cash flow growth drives eleventh consecutive year of dividend increase

ü Cash Available for Distribution (CAD) ³ per share up 36.6% to 38.7 pence (2021: 28.4 pence)

ü Annual dividend increased by 2.25 pence to 17.25 pence per share up 15% (2021: 15 pence per share) - covered 2.24 times by CAD

Significant increase in net asset value

ü Adjusted Net Asset Value⁵ per share up 33% to £9.72 per share (2021: £7.31 per share)

Disciplined use of capital leads to strong balance sheet and low debt

ü Sale and manage back of four stores at a 22.8% premium to 31 July 2021 valuations delivering £37.9 million of net sale proceeds in cash

ü £46.5 million cash at year-end (2021: £9.1 million)

ü Net debt (excluding lease liabilities and deferred finance costs) reduced to £20.3 million (2021: £56.3 million)

ü Loan to value ratio⁶ down to 6.6% (2021: 21.0%)

ü £25 million accordion executed - increases bank facility to £100 million

ü Bank facility extended by one year to April 2026

Dynamic pipeline⁸ of new Landmark stores will deliver further growth

ü 4 new stores currently on site will add over 218,000 sq. ft of new trading space

ü Secured store pipeline⁹ total of 10 sites will add 44.1% to owned new space over the coming years

Well positioned for the future

ü New store openings and rate increases will lead to further revenue and profit growth

ü Trading momentum continues post year end with same-store revenue up 13.6% for August and September 2022 compared to the same period last year.

ü Strategy unchanged - increase revenue from existing stores and open more new Landmark stores

ü Flexibility to respond to market circumstances

For all of the definitions of the terms used in the highlights above refer to the notes section below.

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

"Lok'nStore's business has moved ahead significantly with revenue up 22.9% and EBITDA up 37.5% on last year. Demand for UK self-storage assets remains strong, and this has driven our Net Asset Value per share up by 33% to £9.72. Trading since the year-end has been good.

"We are on site at four new Landmark stores which will open within the next 12 months and can be completed using cash on hand. At 31 July 2022, our secured pipeline of ten new sites increases owned space by 44.1%. This pipeline of new stores will add further momentum to sales and earnings growth. We have reduced our net debt to £20.3 million and our business model enables us to build out the pipeline as market circumstances dictate.

"We aim to build more Landmark stores in the under-supplied UK market. We are growing the business from a strong financial platform that gives us great flexibility to respond to market circumstances. We have multiple levers to allocate our capital in ways which are most accretive to our shareholders through the economic cycle, and we are confident that we will continue to increase net assets, cash flows and dividends."

Enquiries:

Lok'nStore:

Andrew Jacobs, Executive Chairman

Ray Davies, Finance Director

01252 521 010

finnCap Ltd

Julian Blunt / Seamus Fricker, Corporate Finance

Alice Lane, ECM

020 7220 0500

Peel Hunt

Carl Gough, Capel Irwin, Henry Nicholls

020 7418 8900

Camarco

Billy Clegg / Tom Huddart

0203 757 4980

Notes - What we mean when we say … (and why we use these key performance indicators (KPIs))

In addition to IFRS accounting performance measures we use some Alternative Performance Measures (APMs) to help us explain how the underlying business is performing.

Here we identify those measures and explain what we mean when we use them and, importantly, why we use them: -

1. Group Adjusted Earnings before interest, tax, depreciation and amortisation Adjusted EBITDA is defined as EBITDA before losses or profits on disposal, share-based payments, acquisition costs, non-underlying items and which demonstrates the cash generative qualities of the business.

2. Non-underlying items Refers to one-off items of a non-operational nature which arose during the year, and which may relate to asset disposals, abortive site acquisition costs, or other costs and which are likely to be infrequent events. (Refer to note 4 of the Financial Statements).

3. Cash Available for Distribution (CAD) Is calculated as Adjusted EBITDA less total net finance cost, less capitalised maintenance expenses, New Works Team costs and current tax. This measures the capacity of the business to pay dividends or pay down debt. The Cash Available for Distribution per share is CAD divided by the number of shares in issue less shares held in the Employee Benefit Trust (EBT). The calculation of the CAD and the CAD per share is set out in the Financial Review.

4. Adjusted Total Group Assets - The value of adjusted total assets of £370.9 million (2021: £294.8 million) is calculated by adding the independent valuation of the leasehold properties of £24.2 million (2021: £22.1 million) less their corresponding net book value (NBV) £7.2 million (2021: £7.6 million) to the total assets in the Statement of Financial Position of £353.9 million (2021: £280.3 million). This provides clarity on the significant value of the leasehold stores as trading businesses which, under the Group's accounting policy on leases, are only presented at their book values within the Statement of Financial Position.

5. Adjusted Net Asset Value per share (NAV per share) - Adjusted Net Asset Value per share is the net assets adjusted for the valuation of leasehold stores (properties held under leases) and deferred tax divided by the number of shares at the year-end. The shares held in the Group's employee benefits trust and treasury shares are excluded from the number of shares. The calculation of the Net Asset Value per share is set out in the Financial Review.

6. Loan to Value ratio (LTV) Measures the net debt of the business expressed as a percentage of total property assets giving a perspective on the gearing of the business. The calculation is based on net debt (excluding deferred finance costs) of £20.3 million expressed as a percentage of the total properties independently valued by JLL of £279.0 million (2021: £234.9 million) and development land assets of £29.2 million (2021: £33.7 million) totalling £308.2 million (2021: £268.6 million) as set out in the Financial Review in the Analysis of Total Property Value table.

7. Average Cost of Debt - The average cost of debt is calculated by taking the total interest paid on the Group's Revolving Credit Facility in the quarterly/weekly charging periods throughout the year and taking an average based on the whole financial year. Apart from the Group's Revolving Credit Facility the Group has no other bank debt. The average cost of debt 1.71% (2021: 1.54%).

8. Pipeline Sites - Sites for new stores that either we have exchanged contracts on or have agreed heads of terms and are progressing with our lawyers towards completion. We have 14 pipeline sites of which ten are contracted and four are progressing with lawyers. We currently have 24 owned stores trading with an additional 16 managed stores trading. When these 14 sites are fully developed, we will have a total of 54 stores.

9. Secured Pipeline Sites The ten sites for new stores on which we have exchanged legal contracts. Of these nine stores are Lok'nStore owned Stores and one will be a managed store. When these ten sites are fully developed, we will have a total of 50 stores.

10. Adjusted Store EBITDA is Group Adjusted EBITDA (see 1 over) before the deduction of central and head office costs. Unlike Group Adjusted EBITDA this measure excludes the impact of IFRS 16 and includes leasing charges as normal operating costs of each store. The measure is designed to give clarity on the recurring operating cash flow of the business and provides important information on the underlying performance of the trading stores and shows the cash-generating core of the business. Use of this metric enables us to provide additional information on store EBITDA contributions (after leasing costs) and the margins analysed between freehold and leasehold stores and according to the age of the stores. This analysis is set out in a table in the Financial Review.

11. Gearing refers to the level of debt compared to equity capital, usually expressed in percentage form. It is a measure of a company's financial leverage and shows the extent to which its operations are funded by lenders versus shareholders. Gearing can be measured by a number of ratios, and we use the debt-to-equity ratio in this document. The calculation of the gearing percentage, also referred to as the net debt to equity ratio is set out in note 17 of the Financial Statements.

12. Group Adjusted EBITDAR is Group Adjusted EBITDA before the deduction of rent. The measure is designed to give clarity on the effect of the rent payable by leasehold stores and how its elimination enables a comparison between the operating performance of freehold stores (which do not pay rent) and leasehold stores which pay rent. This analysis is set out in a table in the Financial Review.

13. Cost Ratio calculates the ratio of the total operating costs of the business as set out in the Financial Review, expressed as a percentage of total Group revenue (note 1), giving a perspective on the cost efficiency of the business when compared to the cost ratio of the previous year. The Cost Ratio has been reduced further to 38.5% (2021: 44.9 %)

14. Same Store Analysis - This measure is used to give transparency on improvements in the operating business in the year unrelated to the opening of new stores, closure of old stores, and more particularly in this financial year, the sale and manage-back of previously owned stores (Basingstoke, Cardiff, Horsham and Portsmouth stores) commenting on stores that were open and trading at both financial year ends 31 July 2021 and 31 July 2022. The same store key performance measure helps to illustrate the performance of the underlying business.

See also the glossary

Chairman's Statement

I am delighted to be reporting another year of great results for Lok'nStore, delivering a strong operating and financial performance. We have seen significant growth in revenue, profits, and asset values, enabling the Group to increase the dividend.

These excellent results can be summarised as:

· 22.9% increase in Group Revenue

· 37.5% growth in Group Adjusted EBITDA

· Sale and manage back of four stores at a 22.8% premium to July 2021 valuations

· Low debt and LTV

· 33% increase in Adjusted Net Asset Value per share

· Dynamic new store opening schedule

· Increase of 15% in annual dividend

· Operational GHG emissions down 92.5% since 2005

These results demonstrate Lok'nStore's delivery of our commitment to deliver sustainable growth through all stages of the economic cycle. Continued investor interest in the UK self-storage sector demonstrated by market transactions underpins the increased value of our assets and our strategy to open more Landmark stores.

The detail behind these results is discussed further in our Financial Review.

Significant Increase in Net Asset Value

Adjusted Total Group Assets⁴ have moved upwards sharply in the year by 27.3% to £375.2 million mainly due to the trading strength of our business, as well as investor interest in self-storage assets and our investment in new stores.

Our trading assets are independently valued by Jones Lang La Salle (JLL) on 31 July each year and this year produced a total valuation of £279.0 million (2021: £234.9 million), an uplift in the value of our freehold and leasehold trading stores of £44.1 million. £30 million of this uplift comes from the maiden valuations of our new stores in Warrington and Stevenage.

The Same Store uplift in the value of our freehold and leasehold trading stores (adjusting for the disposal of the four trading stores and the new stores in Warrington and Stevenage) is £45.9 million.

£15.5 million of the same store uplift comes from the impact of improved cash flows of the same store portfolio that was valued last year. This demonstrates the impact operating performance has on asset values and why one of our key objectives remains to fill existing stores and continue improving pricing.

The balance of the same-store uplift of £30.4 million comes from improvements in the Discount Rate and Exit Yield applied to the valuations. On our owned freehold trading stores we have seen exit yields improving on average by 68 basis points, with discount rates improving by 116 basis points. This demonstrates that the UK Self-Storage Market is attracting significant interest from institutional investors.

The Exit Yield and Discount Rates applied in the valuations are validated by transactional evidence. We are well positioned to benefit from future changes with our high-quality portfolio of stores, and Landmark store development pipeline. As we enter a new interest rate cycle, rising yields and discount rates may reduce the value of the stores, but we expect any reductions will soon be offset by new store openings and the continued revenue growth of the business.

More details on the valuation of our trading stores can be found in the Property Review and in note 12(a) of the financial statements.

Further Dividend Growth

The Directors are proposing a final dividend of 12.25 pence per share (2021: 10.67 pence) following the interim dividend payment of 5.0 pence per share in June 2022, bringing the total distribution for the year to 17.25 pence per share, an increase of 2.25 pence per share up 15% (2021: 15 pence per share) and our eleventh year of increase in a row.

As announced last year, the Board has reviewed the Company's dividend policy in the context of its disciplined approach to capital allocation. Considering the cash-generative qualities of the business and noting the requirement to invest in the Landmark store opening programme, Lok'nStore will pursue a progressive dividend policy which reflects the strong long-term underlying cash flow growth of the business.

Subject to approval at the Company's AGM on 8 December 2022 the final dividend will be paid on 6 January 2023 to shareholders on the register on 25 November 2022. The ex-dividend date will be 24 November 2022. The final deadline for Dividend Reinvestment Election by investors is 9 December 2022.

Sale and Manage-Back of four stores

On 31 January 2022, the Group completed the Sale and Manage-Back of four stores for a total gross consideration of £39.0 million representing a 22.8% uplift on the independent external valuation of the stores at 31 July 2021.

Sale and manage-back of stores, when appropriate, demonstrate how the Group can manage its cash generation and control its debt. At the same time, we can increase the quality of our portfolio by investing in new more environmentally efficient Landmark stores.

This transaction was immediately accretive to Group net asset value and has provided net sales proceeds of c.£37.9 million for reinvestment into new, faster growing Landmark stores. Further detail is set out in the Financial Review.

Due to the sale of four trading stores half-way through the financial year and the opening of two new stores it has been necessary this year to provide some 'Same Store Analysis'. This quantifies the improvement in the core business in the year unrelated to the opening of new stores, and more particularly in this financial year, the sale and manage-back of previously owned stores. The same store analysis is set out in the Managing Director's Report.

Investment in new Stores

This year we invested £12.2 million in new store development.

Following the receipt of £37.9 million from the Sale and Manage-Back transaction reported above we can report a year-end LTV ratio (net of cash) of only 6.6% (2021: 21.0%) and a very low level of net debt of only £20.3 million, down from £56.3 million in the previous year (Refer to note 29b).

During the year we opened two new owned stores in Warrington and Stevenage. Early trading in these two stores has been excellent. Trading at our new stores continues to exceed expectations and this underpins our confidence that our pipeline will add further to sales and earnings growth. The Group continues to find high-quality sites for new Landmark stores. The current secured pipeline adds 44.1% more trading space to our total owned portfolio.

We are on site at four Stores, in Basildon, Bedford, Staines and Peterborough which will all open in 2023. This will mean increased capital expenditure in the coming twelve months. We are also due to go on site shortly at Kettering on behalf of a third-party Managed Store client.

Capital Expenditure

It is generally our intention to commence the construction and fit out of all our pipeline stores as soon as all planning and enabling works have been completed. Self-storage benefits from the short lead time between breaking ground and store opening of only around twelve months. We have only committed future capital expenditure at the four stores where we are on site all of which will be open and producing cash within the next 18 months. We have a high degree of flexibility regarding start dates for further building at other sites. We can therefore adapt our development programme quickly to react to changing economic circumstances.

We are seeing material cost inflation in building costs which we continue to monitor closely, particularly for future buildouts as the four developments currently on site are on fixed cost contracts. Because our own pricing achieved increased at 13% over the past year, we are not seeing input costs increase at such a level that would impact the viability of the projects we have currently under review.

We report more generally on operating/trading costs in the Financial Review.

Planning permissions

The planning process remains challenging. The system is complex, successful outcomes can take considerable time to achieve, and the process consumes a significant amount of management time. Despite its challenges, during the year we secured planning consents on the Kettering and Peterborough sites.

Managed Stores

Our strategy to grow the number of stores we manage for third party owners, enables the Group to earn revenue without having to commit capital, to amortise fixed central costs over a wider operating base and drive further traffic to our website which benefits our entire operation.

We had a particularly good year with managed stores generating managed store income of £2.79 million, up 107% from the previous year (2021: £1.35 million). In the management fees table in the Managing Director's Review, we separate recurring management fees from non-recurring fees. Recuring management fees increased by 49% in the year with non-recurring fees (planning, store opening and supplementary fees) increasing by a spectacular 217%.

Lok'nStore manages 16 trading stores for third-party owners with a property value approaching £150 million. Our current pipeline includes an additional managed store which will take the total number of managed stores to 17.

Our People

We always rely on our amazing people to deliver these impressive results. I am delighted to say that all of our colleagues continue to benefit from the success of the business with significant bonuses paid to all staff members.

We will continue to invest in training to develop and deepen the skills of our team members and create internal succession as the business continues to expand. To support our colleagues with the rising cost of living we brought forward annual pay reviews of our store teams and ensured all colleagues in the business received an annual salary review. We continue to keep salary levels under review to ensure that all of our employees are paid fairly, and we continue to promote equity ownership to our colleagues via our Share Investment Plan and the granting of options.

Board changes

At the Company Annual General Meeting in December 2021, Edward Luker retired from the board. I would like to personally thank Edward for his support, wisdom and challenge over many years.

Jeff Woyda joined the board as a Non-Executive Director in September 2021 and has now replaced Edward Luker as Senior Non-Executive Director. Jeff also now chairs the Remuneration Committee and is a member of the Audit Committee.

Liquidity and Cash Flow

At 31 July 2022, the Group had cash balances of £46.5 million, a significant increase on last year's £9.1 million following the sale-and-manage-back of four stores and strong operating cash generation. The Group has a £100 million five-year revolving credit facility which together with cash provides all the financing needs for the current secured pipeline. Following the execution of a one-year extension the facility now runs until April 2026. The Group is not obliged to make any repayments on its loan facility prior to its expiration in April 2026.

Cash inflow from operating activities before investing and financing activities was £18.6 million in the year to 31 July 2022 up 52.4% (2021: £12.2 million).

Debt and Bank Covenants

The average cost of bank debt on drawn facilities for the year was 1.71% (2021: 1.54%). All of the Group's total drawn bank debt of £66.8 million (2021: £65.4 million) is unhedged. At the date of this Report the Group's current cost of debt is running at 3.72% as rates have moved higher since the year-end.

At the year-end interest cover was ten times tested on a 12-month rolling basis, against a covenant of 2.5 times. At the year-end our loan-to-value ratio based on net bank debt was 6.6% versus a bank covenant of 60% providing a large cushion of comfort. Both the LTV and Interest covenants exclude the gearing effects of IFRS 16 as agreed with our banks.

Environmental, Social and Governance

We are working hard to create an environmentally sustainable business for all our customers, our colleagues, local communities and the wider environment. Lok'nStore have been reporting on ESG factors since 2005 and was the first listed UK self-storage company to do so. Since then, we have been continually active and our operational GHG emissions are 96.5% lower than if we had taken no action since 2005.

In recent years, the Lok'nStore Environmental committee, consisting of colleagues in various roles across the business and including three Board members have been focused on practical improvements we can make to our environmental footprint.

Details of our environmental performance along with our commitments and targets can be found in our ESG report.

Our business model provides strength and adapts quickly in an uncertain world

Looking forward during this period of economic and market uncertainty, it is worth emphasising Lok'nStore's robust business model.

We operate with a high EBITDA margin, sheltering the business from cost increases. Debt and leverage are low, and we have considerable cash on hand. Importantly the Company can pause capital expenditure quickly if market conditions dictate and the ongoing business requires little maintenance capital expenditure. At the year-end, we are onsite at four stores where the capex required to complete these projects is £22.3 million, compared to the £46.5 million of cash on hand.

The Company has 17,000 customers who come from a diverse social and economic background and whose reasons for storing are widely diverse. Customers pay on a rolling four weekly up front basis. As a result, bad debt continues to be low at 0.21% of revenue. Each customer is relatively small with no self-storage customer accounting for more than 0.3% of revenue. Additionally, the UK self-storage market remains under-supplied, and demand remains strong.

We are experiencing some cost increases in the short term, but these are largely or wholly balanced by our ability to increase our own achieved rate. We have also taken steps to mitigate the energy cost increases, for instance we now use 88% of the electricity generated in stores that have PV installed.

Our Objectives

Our objectives remain to:

· Steadily increase cash available for distribution (CAD) per share enabling a predictable growth of the dividend

· Fill existing stores and improve achieved rates

· Develop our secured pipeline of sites into new Landmark stores

· Acquire more sites and build more new Landmark stores

· Increase the number of stores we manage for third parties

Outlook

This year's results are excellent with all metrics sharply higher, and trading since the period end is good. The continued strong demand and high occupancy levels across our stores give us pricing opportunities in the coming year.

Lok'nStore continues to experience strong year to year revenue growth on a same store basis and this will be enhanced by the three stores opened this year and the opening of four new stores opening over the coming year. Our new secured store pipeline of new stores will add 44.1% more owned trading space over coming years. Over the medium to long term these factors will continue to increase revenue, profits and asset value substantially. This strength enables Lok'nStore to confidently look through the current external market turbulence.

We have an exciting period of growth ahead. With Lok'nStore's resilient and flexible business model enabling the business to manage its conservative debt structure the Board is confident the Group will continue to thrive.

Andrew Jacobs

Executive Chairman

28 October 2022

The UK Self-Storage Market

The UK Self-Storage Market at a Glance

The Self-Storage Association UK Annual Industry Survey 2022 reports that the UK self-storage industry is made up of 2050 sites offering 52 million sq. ft. of space.

Market Overview

As reported in the Self-Storage Association UK (SSA UK) Annual Industry Survey 2022 the UK self-storage market continues to grow but remains under-developed relative to Australia and the US. In the UK there are an estimated 1,429 self-storage facilities plus an additional 621 containerised sites, providing a total of 52 million sq. ft. of storage space. With a population of 68 million people in the UK this equates to only 0.76 sq. ft. per person. Occupancy rates across the UK industry at 31 December 2021 of built space was 83.3%. This has increased from 76.2% at the start of the pandemic.

The structure of the UK industry is changing. When the industry first emerged companies were predominately single owner sites often located in industrial areas, but larger operators (defined as operators managing ten or more sites), such as Lok'nStore, have recently been developing purpose-built stores in retail-facing locations offering customers a higher standard of product and service.

The main barriers to entry to the market remain the difficulty in finding and securing suitable sites as well as gaining the appropriate planning consents. As a result, larger operators now own or manage around a third of all facilities which translates to 45% of market share in terms of revenue and space. Currently Lok'nStore is the fifth largest operator in the UK by number of stores.

Drivers of Demand for Self-Storage

Demand for self-storage by both household and business customers is driven by a specific need based on changing circumstances as well as economic activity and business confidence.

For household customers their need is often linked to a life event where they will need space temporarily, for example, to turn a box room into a home office, but increasingly householders are using storage on a semi-permanent basis to free up space at home or store belongings they don't have room for.

Business customers use self-storage for a variety of purposes including storage of goods, excess or seasonal stock, document archiving or storage of equipment and tools. Businesses tend to store for longer than household customers and take larger units, although they also take advantage of self-storage for temporary periods to support seasonal sales or office moves or refurbishments.

During the pandemic many of our customers were providing critical services distributing medical and other essential supplies. We include the NHS, GP surgeries, care and home support services and government departments amongst our customers.

Lok'nStore's Opportunity in the Market

The SSA UK Annual Industry Survey 2022 notes that public awareness of and demand for self-storage is increasing. We know that on average customers chose a store within five miles of their home or business. With a secured pipeline of ten stores, a further four stores at lawyers and a continuing programme of evaluating further site opportunities, Lok'nStore is well placed to attract new customers and add further momentum to the growth of our sales and profits.

Combining the Group's competitive strengths (recognised brand, excellent customer service, rigorous cost control) and the attractive market dynamics of the storage sector (growing sector, under supply, resilience during economic downturn) with our strong balance sheet and flexible operating and ownership model (see our portfolio strategy), we believe Lok'nStore can take advantage of the opportunities presented and continue its growth without significantly increasing risk.

Our Business Model:

Our overriding objective is to increase the Cash Available for Distribution (CAD) enabling a predictable growth of the dividend from a rising asset base while maintaining a conservatively geared balance sheet.

What we do

How we create value

Sharing value with our stakeholders

· Buy or lease prominent sites

· Build highly visible orange Landmark storage centres

· Offer clean, dry, secure storage to business and household customers

· Offer managed storage services to third-party owners

· Take a strategic and tactical approach to site selection

· Increase our asset base

· Careful cost control

· Drive store EBITDA growth through a closely managed occupancy and pricing strategy

· Earn fees from managing stores on behalf of others

· Carefully balanced use of leverage

Shareholders

· High-quality earnings

· Growing NAV per share

· Progressive dividend policy

Customers

· Easy to locate stores

· Friendly and high-quality customer service

· Wide range of storage solutions

· Transparent and open contracts

Our people

· Personal development through the Lok'nStore Academy

· Regular opportunities for career progression through our expanding store portfolio

· Uncapped bonus scheme

· Share ownership plans

· Regular gifts and rewards for all colleagues

40 UK Stores currently trading

(Including 16 Managed Stores)

£26.9 million Group revenue

(2021: £21.9 million)

· Rated excellent on Google with an average score of 4.7 out of 5 from over 3,500 reviews

· £0.73 million paid out in bonuses to store teams (2021: £1.0 million)

Our strategy:

Our objectives

Achievements in 2022

Strategy in action

Steadily increase cash available for distribution (CAD) per share

CAD per share up 36.7% to 38.7 pence (2021: 28.4 pence)

Annual dividend 17.25 pence per share up 15% (2021: 15 pence per share)

Fill existing stores and improve pricing

We continued to improve our online visibility through evolution of our search engine strategy

We focused on developing our teams' sales and customer service through the Lok'nStore Academy

· 16 freehold stores over 80% occupied at year end

· Self-storage pricing up 13%

Acquire more sites to build new Landmark stores

3 landmark stores opened during the year.

10 stores secured in planning or development.

Planning permissions achieved at Peterborough and Kettering.

· We acquired one new site in this financial year: Bolton

· Four sites currently at lawyers

Increase the number of stores we manage for third parties

1 managed store in development and 1 opened during the year.

· Recurring managed store fees up 107%

· Kettering Site acquired by third party investor

Managing Director's Review:

Lok'nStore Group has had another successful year delivering against all of our strategic objectives. Once again revenue, profits and asset values have all moved sharply ahead. In coming years our pipeline of new stores will substantially increase the proportion of our store space which is new or purpose-built and will add further momentum to the growth of sales and profits.

Trading

Group revenue for the year was £26.9 million, up 22.9% year on year (2021: £21.9 million) driven by occupancy increases and improved pricing across our stores. This revenue growth led to a 37.5% increase in Group Adjusted EBITDA.

ü Total self-storage revenue £24.1 million up 17.3%

ü Adjusted Store EBITDA £14.9 million up 23.7%

ü Unit pricing up 13.0%

ü Managed store revenue £2.8 million up 107%.

ü Recurring management revenue £1.31 million up 49%.

ü £12.2 million invested in our portfolio of stores this year

Total Adjusted Store EBITDA, a key performance indicator of profitability and cash flow of the business, increased 23.7% to £14.88 million (2021: £12.03 million). The overall Adjusted EBITDA margin across all stores was higher again at 61.6% (2021: 58.3%) with the Adjusted Store EBITDA margins of the freehold stores at 65.5% (2021: 63.1%) and the leasehold stores at 53.3% (2021: 46.5%).

As the business develops the balance of the stores continues to shift towards Landmark freehold stores and managed stores which have a higher-than-average Adjusted Store EBITDA margin at 65.5% and 100% respectively versus 61.6% across all stores. The impact of this will be to continue to increase the average Adjusted Store EBITDA margin of the Group overall, and this effect is accentuated by operating more stores from a relatively fixed central cost base. In this context the new stores in the pipeline will make a larger than average contribution to Group profits and asset values as they become established trading units.

In the tables below, we show how the performance of the stores varies between freehold and leasehold stores. Currently 43.3% of Lok'nStore branded trading space is owned freehold, 20.5% is leasehold and 36.2% is managed stores.

The freehold stores produce 71.8% (2021: 76.9%) of the Adjusted Store EBITDA and account for 91.4% (2021: 91.8%) of valuations (including secured pipeline stores). Leaseholds trade on lower margins due to the rent payable, but nevertheless the 53.3% margin achieved is substantial, and leads to a higher return on capital than the freehold stores which require much larger capital expenditure to buy the land and buildings.

This mix of tenures with their different risk and return characteristics provides flexibility in the balance sheet and opportunities to create value throughout the property and economic cycle.

Performance - Same Store Analysis ¹⁴

Headline Store Performance Same Store Performance 31 July 2022 31 July 2022

FYE 31 July 2022	£'000	Percentage Increase %	£'000	Percentage Increase %
Group revenue	26,902	22.9	25,299	30.7
Self-storage revenue	24,076	17.3	22,473	24.9
Store Adjusted EBITDA	14,884	23.7	14,137	34.8
Group EBITDA	16,349	37.5	14,390	39.1
Operating profit (before non-underlying)	11,421	49.8	10,889	71.7
Operating profit (after non-underlying)	17,160	130.0	16,628	168.9
Operating costs	10,365	5.4	9,522	7.5
Profit before tax	15,874	146.2	15,343	197.0
Store EBITDA Margins	61.6%		62.9%

Portfolio Analysis and Performance Breakdown

As at 31 July 2022						When fully Developed
Portfolio Analysis and Performance Breakdown	Number of stores	% of Valuation	% of Adjusted Store EBITDA	Adjusted Store EBITDA margin (%)	% lettable space	Number of Stores	Total % lettable space
Freehold	15	80.4	71.8	65.5	43.3	23	51.8
Leaseholds	9	8.6	28.2	53.3	20.5	10	15.4
Managed Stores	16	-	-	100.0	36.2	17	32.8
Total Stores Trading	40	-	-	-	-	50	-
Pipeline Stores *
Owned - Freehold	8	11.0	-	-	-	-	-
Owned - Leasehold	1	-
Managed Stores	1	-	-	-	-	-	-
Total Stores	50	100	100	61.6	100	50	100

*Applies to the ten contracted stores only

In the table below we show how the performance breaks down across the stores based on age. Clearly older stores have had more time to fill up and produced 72.8% EBITDAR margins. Over time as new stores and pipeline sites go through their life cycle they will progress towards similar margins, adding substantially to revenues and profits.

Operating Performance by age of store (Lok'nStore owned stores only)

Weeks Old	Pipeline	Under 100	100 to 250	over 250	Total
Year Ended 31 July 2022
Sales £000		481	3,734	19,961	24,176¹
Stores Adjusted EBITDA £'000		(400)	2,504	12,780	14,884
EBITDA Margin (%)		(83.2%)	67.1%	64.0%	61.6%
Store Adjusted EBITDAR £'000		(395)	2,504	14,523	16,632
EBITDAR Margin (%)		(82.2%)	67.1%	72.8%	68.8%
As at 31 July 2022 ('000 sq. ft.)
Maximum Net Area	561	169	285	1,018	2,033
Freehold / Long Leasehold ('000 sq. ft.)	511	169	285	583	1,548
Short Leasehold ('000 sq. ft.)	50	-	-	435	485
Number of Stores
Freehold	8	3	5	11	27
Short Leasehold	1	-	-	9	10
Total Stores	9	3	5	20	37²

¹ In respect of the Farnborough Store (over 250 weeks) the total store revenue includes a £100,000 contribution receivable from Group Head Office.

² The 37 stores include performance of the four sale and manage-back stores up to 31 January 2022 prior to their disposal. At the year-end the total number of owned stores was 33.

Marketing

New customers are typically drawn to Lok'nStore by three key drivers:

· Our distinctive Landmark stores

· Google and other search engines

· Existing or previous customers and customer referrals

Store visibility remains pivotal to our marketing efforts. With their prominent positions, distinctive design, and bright orange elevations our stores raise the profile of the Lok'nStore brand and help to generate a substantial proportion of our business. Our Landmark stores are in highly prominent locations, and we continually invest in new signage and lighting at our existing stores as well as creating striking designs for our new Landmark stores, to promote and enhance their visual prominence and engage the local community.

The internet continues to be the main media channel for our advertising. Our website at www.loknstore.co.uk is one of the most established self-storage websites in the UK. The website delivers a high level of customer experience across desktop and mobile devices. Any new development of the website begins with a mobile first focus. 60% of visits to the website in the year were from a mobile device, consistent with last year. This is a very dynamic area, and we are committed to its continued development. We believe the internet provides a strong competitive advantage for the major operators such as Lok'nStore with relatively large marketing budgets.

Pipeline of New Stores

Against this background of ever improving operating performance, we have invested £12.2 million (2021: £26.9 million) in new store development this year and we have a new store pipeline of ten secured stores by the reporting date, which will take the total to 50 stores. These will all be purpose-built Landmark stores in highly prominent locations and will add substantially to the Group's capacity for revenue, profit and asset growth.

We believe that the UK self-storage market is still in its infancy with low penetration and increased consumer awareness leading to faster fill up rates.

Sale and Manage-Back of four of our freehold stores

On 31 January 2022, the Group executed the Sale and Manage-Back of four of its freehold stores for a total gross consideration of £39.0 million realising a significant premium of 22.8% to the stores valuation at 31 July 2021. The purchaser was an existing institutional managed-store client wholly independent of Lok'nStore and its Directors.

Lok'nStore continue to manage the stores located in Basingstoke, Cardiff, Horsham, and Portsmouth, as branded Lok'nStore operations maintaining the operational footprint of the business. Lok'nStore will receive management and performance fees for managing them on behalf of their new owner. The total consideration of £39 million receivable was subject to a £1.8 million downward adjustment in respect of certain committed works to be completed by Lok'nStore at two of the sites. The net proceeds of the sale will be recycled into new, fast-growing Landmark stores.

In the year to 31 July 2021, the four stores generated revenue of £2.54 million and contributed £1.54 million to Group EBITDA. In the six months to 31 January 2022, the four stores generated revenue of £1.50 million and contributed £0.97 million to Group EBITDA. In the six months post the sale in January 2022, the Group has received management fees of £0.151 million in respect of the manage-back arrangement which flow directly to Group EBITDA. The historic cost of the four stores was £13.75 million and their stated fair value at 31 July 2021 was £31.75 million.

This transaction does not impact the Group's ability to grow its annual dividend in line with market expectations and which is well covered by projected CAD profit levels of the business going forward.

Managed stores revenue increasing

Total managed store revenue in the year was up by 107% to £2.79 million.

Recurring management fees were up by 49% to £1.31 million as we increased the number of stores under management, including opening the new Landmark store in Wolverhampton in March 2022 as well as the four stores transacted to a managed store client in January 2022. At the year-end we had 16 Managed Stores operating with the Kettering store due to go on site in the coming months.

Income from non-recurring fees was up dramatically in the year to £1.47 million. Although these fees are irregular in nature, this demonstrates the contractually embedded value in the managed stores income stream. Non-recurring fees come from various sources such as including planning success fees, construction and advisory fees and fees crystallised when an asset transaction occurs.

Management fees	Percentage Increase	Group Year ended 31 July 2022	Group Year ended 31 July 2021
	%	£	£
Recurring fees
Base management fees		722,084	515,940
Administration and compliance fees		86,916	59,500
Management performance fees		504,379	307,184
Recurring fees - Sub-total	49%	1,313,379	882,624
Construction & Advisory fees		12,500	12,500
Supplementary fees		1,459,177	451,140
Non-recurring fees -sub total	217%	1,471,677	463,640
Total management fees	107%	2,785,056	1,346,264

The graph below shows how our historical management fees have grown and indicates a strong correlation between the total management fee income and the number of stores under management.

Future

Lok'nStore has had an excellent year, with all our trading and financial metrics moving ahead briskly, demonstrating the strength of the self-storage business model throughout the economic cycle. Trading has remained good since the year-end.

We are currently experiencing some cost pressure, but the business is sheltered from this effect by high EBITDA margins and our ability to raise rates charged.

Against the background of a strong performance from our existing stores, we have a secured pipeline of ten new stores plus a further four at lawyers all of which will add considerable momentum to sales and earnings growth in the future. Our flexible model allows us to develop these new stores when market circumstances dictate.

Neil Newman-Shepherd

Managing Director

28 October 2022

Property review

40 stores now trading

10 new Landmark stores secured

New stores will add 29.6% to total trading space

Store and Portfolio Strategy

Our strategy is to continue to increase the number of stores we operate without stretching our balance sheet. The core focus of this strategy is the acquisition of highly prominent freehold locations in busy towns and cities in England where we will build well-branded Landmark stores.

Lok'nStore's rising operating cash flow, solid asset base, and tactical approach to its store property portfolio provide the Group with opportunities to improve the terms of its property usage in all stages of the economic cycle. Our focus on the trading business gives us many opportunities and our property decisions are always driven by the requirements of the trading business.

Flexible Approach to Site Acquisition

All the projects noted below are part of our strategy of actively managing our operating portfolio to ensure we are maximising both trading potential and value. This includes strengthening our distinctive brand, increasing the size and number of our stores, and replacing stores or sites where it will increase shareholder value. We are focused on allocating capital in the most efficient manner to achieve our objectives.

We prefer to own freeholds if possible, and where opportunities arise, we will seek to acquire the freehold of our leasehold stores. 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 life cycle.

Sale and Manage-Back of Stores

We also consider selling established stores on sale and manage-back contracts in order to recycle the capital into the development of new Landmark stores and manage the balance sheet as part of our successful growth strategy and disciplined capital allocation. Indeed, some of our stores have been freehold, leasehold, and managed stores during their operating life cycle.

In the period we successfully completed on the sale and manage back of four older stores which raised net proceeds of £37.9 million to be recycled into new Landmark stores.

Our most important consideration is always the trading potential of the store rather than the property tenure and sale and manage-backs have the additional advantages: -

i) The critical mass of store numbers benefits the business (e.g. through Google search and sharing of other marketing costs)

ii) It spreads the central management costs

iii) Through the performance and exit fees we are exposed to the trading and capital upside without committing capital

The table below illustrates the rapid growth of store numbers and the changing tenure mix over time including the growth of managed stores over recent years.

At 31 July 2022, Lok'nStore operated 24 of its own stores. Of these Lok'nStore owns 15 freehold and nine leasehold stores. All nine leasehold stores are all inside the Landlord and Tenant Act providing us with security of tenure. The average unexpired term of the Group's leaseholds is 10 years and one month as at 31 July 2022. We operate 16 further stores under management contracts.

The lease on the Sunbury store expired on the 30/07/2022. We are in dialogue with the landlord regarding a new lease on the existing site or in a new site. In the meantime, we continue to trade from the current store which benefits from being inside the Landlord and Tenant Act.

Our Exciting Landmark Store Pipeline

· We have ten stores in our current Secured Pipeline of which eight are freehold, one is leasehold and one managed

· We are on site at four stores that will open during 2023 with a fifth site due to commence shortly

· Four new store opportunities are progressing with lawyers

· Current Pipeline of ten contracted stores adds 29.6% of extra trading space to the overall portfolio, 44.1% to our owned portfolio and 5.9% to the managed portfolio

All ten stores in our Secured Pipeline⁹ are in prominent locations with large catchment areas and little established competition and demonstrate the Group's ability to source high-quality sites adding to future sales and earnings growth. These eye-catching buildings, with their distinctive orange Lok'nStore branded livery and prominent signage, create highly visible landmarks, which continue to be a big source of new customers.

Summary of our current pipeline at 31 July 2022:

Store	Total Size sq. ft	Status	On site at 31 July 2022 sq. ft	On site at 31 October 2022 sq. ft (Additional)	On site after 31 October 2022 sq. ft (Additional)
Bedford	55,978	On site - opening early 2023	55,978
Peterborough	45,900	On site - opening spring 2023	45,900
Staines	66,500	On site - opening summer 2023	66,500
Basildon	49,700	On site - opening summer 2023	49,700
Kettering	45,900	On site autumn 2022 - opening autumn 2023		45,900
Bournemouth	75,100	Planning consent granted			75,100
Cheshunt	60,300	Planning consent granted			60,300
Altrincham	63,900	Planning application submitted			63,900
Barking	84,200	Design			84,200
Bolton	59,100	Design			59,100
Total 10 stores	606,578		218,078	45,900	342,600
Total On site at 31 July 2022					218,078
Sq. ft. Trading (including Managed Stores) at 31 July 2022					2,046,673
Trading + On site at 31 July 2022					2,264,751
% Increase from on-site sq. ft					10.60%
Total secured pipeline					606,578
Sq. ft. Trading (including Managed Stores) at 31 July 2022					2,046,673
Trading + secured pipeline at 31 July 2022					2,653,251
% Increase from secured pipeline sq. ft					29.64%

During the year we opened three new stores in Warrington, Stevenage, and Wolverhampton. Early trading in all new stores has been very encouraging. We acquired one new site during the year and have a further four sites progressing with lawyers.

Store opening programme by year

Financial Year	Store Opening Pipeline (secured)	Lok'nStore Capital Expenditure Remaining (million)	% Growth lettable area Owned Portfolio	% Cumulative growth lettable area Owned portfolio	% Growth lettable area total portfolio	% Cumulative growth lettable area Total portfolio
2023	4	£28.0	17.1%	17.1%	10.7%	10.7%
2024	3	£18.1	10.7%	27.8%	8.8%	19.5%
2025	3	£26.0	16.3%	44.1%	10.1%	29.6%
	10	£72.1	44.1%		29.6%

Portfolio breakdown

When the contracted development pipeline of ten sites has been completed Lok'nStore will operate from 50 stores including 17 managed stores. In addition, four further new store opportunities are progressing with lawyers. The secured pipeline sites represent a combination of nine owned and one managed store. These will add 606,578 sq. ft. of new capacity adding 44.1% to freehold and leasehold owned trading space and 5.9% to the managed store portfolio delivering a 29.6% increase in overall trading space.

Portfolio Breakdown
As at 31 July 2022	No of	Trading	Trading	Pipeline	Secured	With
	Stores/Sites	Lok'nStore	Managed			Lawyers
Freehold & Long Leasehold	15	15
Leaseholds	9	9
Pipeline (Freehold)	12			12	8	4
Pipeline (Leasehold)	1			1	1
Managed Stores (Trading)	16		16
Managed Stores (Pipeline)	1			1	1
Total	54	24	16	14	10	4
MLA sq. ft.	2,888,251	1,271,873	774,800	841,578	606,578	235,000

Managed Stores

· Circa £150 million of Store assets under management

· 49% increase in recurring management fees earned

Lok'nStore manages an increasing number of stores for third-party owners. Under this model Lok'nStore can provide a turnkey package for investors wishing to own trading self-storage assets. The investor supplies the capital for the project which Lok'nStore manages. Lok'nStore will buy, build and operate the stores under the Lok'nStore brand and within our current management structure.

During the period the Group opened the Wolverhampton Managed Store on 25 March 2022. The new Kettering store will be on site autumn 2022 and open in 2023.

For managed stores Lok'nStore receives a standard monthly management fee, a performance fee based on certain return hurdles and fees on a successful exit. We also charge acquisition, planning and branding fees. This allows Lok'nStore to earn revenue from our expertise and knowledge of the self-storage industry without committing our capital. We can amortise various fixed central costs over a wider operating base and drive more visits to our website, moving it up the internet search rankings and benefitting all the stores we both own and manage.

This strategy improves the risk adjusted return of the business by increasing the operating footprint, revenues and profits without committing capital. There is a strong correlation between the total management fee income and the number of stores under management.

We now manage approaching £150 million of assets under this structure on which we generated managed store income of £2,785,056 this year, up 107% (2021: £1,346,264) from the previous year. We expect this to continue increasing steadily over the coming years as more managed stores are opened. Second half income was stronger and includes additional fees from store openings and non-recurring fees contributed to benefit additional supplementary fees (Initial branding fees etc). Managed store income is generated from our existing platform and central management, resulting in an effective margin from this activity of 100%.

Growing Store Property Assets and Net Asset Value

ü Adjusted Total Assets £370.9 million⁴ up 25.8% on last year (2021: £294.8 million)

ü Adjusted Net Asset Value of £9.72 pence per share up 33% on last year (2021: £7.31 per share)

ü Value of operating stores £279.0 million up 18.8% on last year (2021: £234.9 million)

ü Total property assets £309.7 million up 14.7% on last year (2021: £270.1 million)

Our freehold and leasehold stores have been independently valued by Jones Lang LaSalle (JLL) at £279.0 million as at 31 July 2022 (2021: £234.9 million).

Adding our stores under development at cost, and land and buildings held at director valuation, our total property valuation is up 14.7% to £309.7 million (2021: £270.1 million). The increase in the values of properties which were also valued by JLL last year was 22.6% (2021: 22.8%).

The significant change in property valuation is referred to further in the Financial Review section of the Strategic Report and is detailed in note 12(a) of the notes to the financial statements. The principal drivers for this increase are: -

· The trading stores have continued to trade at high occupancy. The stabilised occupancy assumed by JLL is materially unchanged at 88.23% (2021: 88.85%)

· Discount Rates and Exit Yields applied by JLL have also compressed this year

· Transactional activity in the UK and across Europe remains strong

· There is an increasing amount of capital looking to access the self-storage market, with a real step change in the interest in the sector, with major private equity and institutions either having entered the market, (Schroders, Legal and General and the Carlyle Group) or are looking to enter the market. More recently, Angelo Gordon, GIC and Heitman have committed significant capital to the sector, with other institutions looking to enter the market either through direct acquisition or by funding new store developments.

JLL reported in their 2022 Valuation report…."Self-storage is widely viewed as an inflation hedge. The sector has proved itself as a resilient asset class that generally performs well during economic stress events as was seen during the Global Financial Crisis and the COVID-19 pandemic".

Post year-end we have seen considerable market turbulence which may have an effect on the future valuations of our stores but which may be offset to some degree by improvements in trading and trading outlook. In note 11 we set out the likely effects of a 50 bps and a 100 bps increase / decrease in Discount Rate and Exit Yield.

Financial Review:

Group Revenue

£26.9 million up 22.9%

Group Adjusted EBITDA £16.4 million up 37.5%

Operating profit £17.2 million

up 130%

"Disciplined capital allocation and investment into fast-growing Landmark assets"

Ray Davies
Finance Director

The Group has reported record revenue and profits with all KPi metrics up on the previous year.

Financial results

ü Group Revenue £26.9 million up 22.9% (2021: £21.9 million)

ü Group Adjusted EBITDA¹ £16.4 million up 37.5% (2021: £11.9 million)

ü Profit before Tax £15.9** million up 146.3% (2021: £6.5 million)

ü Operating Profit £17.2 million up 130.0% (2021: £7.5 million)

ü Cash available for Distribution (CAD) per share up 36.6% to 38.7 pence (2021: 28.4 pence)

ü Final dividend up 14.8% to 12.25 pence per share (2021: 10.67 pence per share)

ü Cash balance £46.5 million (2021: £9.1 million)

ü Bank facility extended by one year to April 2026

** A significant part of this increase in profit before tax is due to the profit of £5.94 million arising on the sale of four trading stores, which is "non-recurring" and separately disclosed in the Income Statement below "adjusted EBITDA" and in note 4 to the financial statements (non-underlying costs). Operating profit is therefore increased by this amount.

On 20 October 2021, the Group executed the accordion arrangement embedded within the Revolving Credit Facility which increases the loan facilities available to the Group from £75 million to £100 million. In addition, the Group has also agreed a one-year extension on its existing joint banking facility. The facility is a joint agreement with ABN AMRO NV and NatWest Bank plc participating equally and is closely aligned to the terms of the Group's previous facility. ABN AMRO NV replaced Lloyds Bank plc in June 2021 as one of the Group's banking partners.

The facility, which was due to expire in April 2025, will now run until April 2026 providing funding for more Landmark site acquisitions. The two principal bank covenants (LTV and Senior Interest) and margin are unaffected by the execution of the accordion and this extension of term.

Amendments to the Facility Agreement dealing with the transition from LIBOR to SONIA (Sterling Over Night Indexed Average) have also been made, fulfilling the UK regulator's requirements ahead of LIBOR's phasing out after 31 December 2021.

Management of Interest Rate Risk

Lok'nStore generates an increasing cash flow from its strong asset base with a low LTV net of cash of 6.6% and a low average cost of debt of 1.71%. The value of the Group's assets underpins a resilient business model with stable and rising cash flows and low credit risk giving the business a firm base to fund future growth.

Interest expense and bank borrowings

· Average cost of debt 1.71% (2021: 1.54%)

· Average cost of debt (on active revolving loans at 31 July 2022) 2.71% (2021: 1.55%)

With £66.8 million of gross debt currently drawn against the £100 million bank facility the Group is not committed to enter into interest rate hedged instruments but continues to keep the matter under review. It is not the current intention of the Group to do so at this time given our low level of net debt, low loan to value ratio and high interest cover. During the year the Group has continued to benefit from relatively low lending rates although it is recognised that interest rates are now rising.

The gross bank interest expense (before capitalisation of interest costs, non-utilisation fees and loan amortisation fees) for the year was £1.30 million (2021: £0.85 million), due to higher average debt and higher average costs of borrowing. These average costs of borrowing have continued to rise after the year-end and the Group's current cost of debt is running at 3.72%.

The Group continues to monitor closely the effects of rising interest rates on its senior interest covenant, which is tested on a 12-month rolling basis, and the Group's flexible business model will enable it to take appropriate steps to mitigate its effects should it be required.

Capitalised interest in the year on our store development programme was £589,983 (2021: £380,193). Total finance costs in the Statement of Comprehensive income increased to £1.33 million (2021: £1.02 million).

Lok'nStore will continue to report on the Cash available for Distribution (CAD) which aims to look through the statutory accounts and give a clear picture of the ongoing ability of the Company to generate cash flow from the operating business that can be used to pay dividends, make investments in new stores, or pay down debt. CAD was up 38.1% for the year.

As agreed with the banks, both the Loan to Value and Senior Interest covenants set out in our bank facility continue to be tested excluding the effects of IFRS 16. For covenant calculation purposes, debt / LTV will continue to exclude right of use assets and the corresponding lease liabilities created by IFRS 16. When testing the Senior Interest Covenant, property lease costs will continue to be a deduction in the calculation of EBITDA, in accordance with the accounting principles in force prior to 1 January 2019.

Earnings Per Share

The calculations of earnings per share are based on the following profits and numbers of shares.

	Group Year ended 31 July 2022 £'000	Group Year ended 31 July 2021 £'000
Total profit for the financial year attributable to owners of the parent	12,077	3,283

	2022 No. of Shares	2021 No. of shares
Weighted average number of shares
For basic earnings per share	29,287,451	29,035,104
Dilutive effect of share options¹	549,321	527,846
For diluted earnings per share	29,836,772	29,562,950

¹ Further options that could potentially dilute EPS in the future are excluded from the above because they are not dilutive in the period presented. Full details of share options are included in notes 21 to 25.

Earnings per share	Group 2022 pence	Group 2021 pence
Basic
Total basic earnings per share	41.24p	11.33p
Diluted
Total diluted earnings per share	40.48p	11.10p

Basic earnings per share were 41.24 pence (2021: 11.33 pence per share) and diluted earnings per share were 40.48 pence (2021: 11.10 pence per share).

Operating Costs

Cost Ratio

ü Group operating costs amounted to £10.4 million for the year (2021: £9.8 million) up by 5.4%

ü Cost ratio¹³ reduced further to 38.5% (2021: 44.9%)

We have a strong record of disciplined control of our Group operating costs with same store costs increasing by 7.5% (Refer to same store analysis of Group operating costs in the table below).

In the year Group operating costs at a headline level were up 5.4% year on year as we opened new Landmark stores in Warrington and Stevenage. We provide a breakdown below. Overall, the cost ratio continues to decrease as we grow revenue and continue to bear down on costs.

Future cost increases are likely to be driven by the expansion of the business in the areas of rates, staffing and marketing. Historically, overall cost increases have been mainly driven by the expansion of the business, however we are now seeing some other cost pressures through energy (significant) and some wage costs (moderate), and the insurance market has hardened considerably as it re-rates its risk/premium positions in the light of store fires in the wider self-storage sector.

Property costs increased by 10.9%. These costs mainly constitute rates, light and heat and property maintenance and have risen in recent years as we felt the effects of higher rates and energy bills and as we opened our new Landmark stores which are generally larger and therefore incur higher rates bills.

Staff costs increased by 1.9% as we staffed the new stores which was offset by lower performance bonuses to our store colleagues.

The 7.3% increase in overhead costs is principally due to a stepped increase in audit fees as the audit profession adjusts its fee rates in response to higher regulatory costs. Legal and professional costs related to work on rent reviews, corporate tax, increased valuation costs for additional work commissioned by the Group for valuation work completed by JLL, and general compliance work also increased. Peel Hunt were appointed joint broker during the year adding to the overall brokerage costs.

Bank charges which now contain a full year amortisation charge (non-cash) in respect of bank fees charged for the £25 million accordion and the one-year RCF extension also increased. Amortisation charges for 2022 were £215,845 (2021: £158,216). Other administrative costs (computer support, telephones, PPS and marketing etc) show no material cost pressures.

Group Operations	Increase in costs %	Year ended 31 July 2022 £'000	Year ended 31 July 2021 £'000
Property costs	10.9	5,304	4,783
Adjustment for property lease rentals	12.0	(1,746)	(1,559)
Property and premises costs	10.4	3,558	3,224
Staff costs	1.9	5,369	5,269
Overheads	7.3	1,438	1,341
Total	5.4	10,365	9,834

On a same store basis, excluding the financial effects of the four trading stores sold and the new stores opened in Warrington and Stevenage, the table below shows the overall Group cost increased by 7.5%.

Group Operations Same Store analysis	Increase (decrease) in costs %	Year ended 31 July 2022 £'000	Year ended 31 July 2021 £'000
Property costs	11.6	3,135	2,808
Staff costs	4.3	5,062	4,853
Overheads	10.8	1,325	1,195
Total	7.5	9,522	8,856

Cash Flow and Financing

At 31 July 2022, the Group had cash balances of £46.5 million (2021: £9.1 million) the large increase from the previous year was due to the successful sale-and-manage-back of four stores during the year for net cash proceeds of £37.9 million.

Cash inflow from operating activities before investing and financing activities was £18.57 million in the year to 31 July 2022 up 52.4% (2021: £12.19 million).

Increasing Cash Flow Supports 15% Annual Dividend Increase

ü Annual dividend 17.25 pence per share up 15% (2021: 15 pence per share)

ü Cash Available for Distribution (CAD) of 38.7 pence per share (2021: 28.4 pence per share)

ü Cash Available for Distribution (CAD) up 38.2%

CAD provides a clear picture of ongoing cash flow available for dividends, new store development or debt repayment.

Analysis of Cash Available for Distribution (CAD)	Group Year ended 31 July 2022 £'000	Group Year ended 31 July 2021 £'000
Group Adjusted EBITDA (Per Statement of Comprehensive Income)	16,349	11,890
Property lease rents	(1,746)	(1,559)
Net finance costs paid (excluding re-financing costs)	(1,395)	(969)
Capitalised maintenance expenses	(120)	(193)
New Works Team	(125)	(129)
Current tax (note 9)	(1,572)	(798)
	(4,958)	(3,648)
Cash Available for Distribution	11,391	8,242
Increase in CAD over last year £	3,149	2,069
Increase in CAD over last year %	38.2%	33.5%

	Number	Number
Closing shares in issue (less shares held in EBT)	29,380,333	29,063,575
CAD per share	38.7p	28.4p
Increase in CAD per share over last year	36.7%	33.3%

Analysis of the underlying business after adjustment for non-underlying items

During the year the Group has benefited from a higher than usual level of non-recurring management fees of £1.47 million and exceptional gains principally resulting from the sale of the four sale and manage-back stores totalling £5.74 million. In the table below we separate these non-underlying items and non-recurring management fee income to show the performance of the underlying business.

	2022 £'000	2022 £'000	2022 £'000	2021 £'000	2021 £'000	2021 £'000
	Underlying business	Non-underlying items and non-recurring management fee income	Total	Underlying business	Non-underlying items and non-recurring management fee income	Total
Revenue	25,430	1,472¹	26,902	21,428	464¹	21,892

Total property, staff, distribution, and general costs	(10,553)	-	(10,553)	(10,001)	-	(10,001)
Adjusted EBITDA¹	14,877	1,472	16,349	11,427	464	11,891
Depreciation	(4,727)	-	(4,727)	(4,149)	-	(4,149)
Equity-settled share-based payments	(201)	-	(201)	(118)	-	(118)
Non-underlying items	-	5,739²	5,739	-	(160)²	(160)
	(4,928)	5,739	811	(4,267)	(160)	(4,427)
Operating profit	9,949	7,211	17,160	7,160	304	7,464

Finance income	42	-	42	1	-	1
Finance cost	(1,328)	-	(1,328)	(1,017)	-	(1,017)

Profit before taxation	8,663	7,211	15,874	6,144	304	6,448

¹ Represents non-recurring management fees

² Refer note 4 of the notes to the financial statements for the analysis of non-underlying items

Analysis of Cash Available for Distribution (CAD) (after after adjustment for non-underlying items	2022 £'000	2021 £'000
Cash Available for Distribution	11,391	8,242
Adjustment for non-recurring management fees	(1,472)	(464)
Cash Available for Distribution on the underlying business	9,919	7,778
Increase in CAD over last year £	2,141
Increase in CAD over last year %	27.5%

	Number	Number
Closing shares in issue (less shares held in EBT)	29,380,333	29,063,575
CAD per share	33.8p	26.8p
Increase in CAD per share over last year	26.1%

Taxation

The Group has made a current tax provision against earnings in this period of £1.7 million (2021: £0.8 million) based on a corporation tax rate of 19% (2021: 19%). The deferred tax provision which is calculated at forward corporation tax rates of 25% is substantially a tax provision against the potential crystallisation (sales) of revalued properties and past 'rolled over' gains and amounts to £63.2 million (2021: £46.8 million).

The external revaluation of the trading stores and the rolled over gains made on the sale and manage-back of the four stores during the period have both contributed to the uplift in the total deferred tax provision at the year-end (See note 20).

Gearing¹¹ (excluding IFRS16 lease liabilities)

At 31 July 2022 the Group had £66.8 million of gross bank borrowings (2021: £65.4 million) representing gearing of 9.9% (2021: 37.2%) on net debt of £20.3 million (2021: £56.3 million). After adjusting for the uplift in value of short leaseholds which are stated at depreciated historic cost in the statement of financial position at £7.2 million (2021: £7.6 million), gearing is 9.1% (2021: 33.8%). After adjusting for the deferred tax liability carried at year-end of £54.2 million gearing drops to 7.1% (2021: 26.4%).

Gearing¹¹ (including IFRS16 lease liabilities)

At 31 July 2022 the Group had £66.8 million of gross bank borrowings (2021: £65.4 million) and £10.9 million of lease liabilities (2021: £11.2 million) representing gearing of 15.2% (2021: 44.6%) on net debt of £35.5 million (2021: £67.5 million). After adjusting for the uplift in value of short leaseholds which are stated at depreciated historic cost in the statement of financial position at £7.2 million (2021: £7.6 million), gearing is 17.0% (2021: 40.7%). After adjusting for the deferred tax liability carried at year-end of £63.2 million gearing drops to 12.6% (2021: 31.7%).

Capital expenditure

The Group has an active new store development programme. The Group has grown through a combination of building new stores, existing store improvements and relocations. We have concentrated on extracting value from existing assets and developing through collaborative projects and management contracts.

Capital expenditure during the period totalled £12.2 million. This was primarily the purchase of the Peterborough site, together with ongoing construction and fit out works at our sites in Stevenage, final costs on Warrington prior to opening, as well as planning and pre-development works at our Bedford, Bournemouth, Peterborough, Altrincham, Barking and Cheshunt sites.

The Group has capital expenditure contracted but not provided for in the financial statements of £11.21 million (2021: £6.16 million). We carefully evaluate the ongoing economic and trading position before making any further capital commitments and can reduce capex quickly if the market deteriorates.

Strong Balance Sheet, Efficient Use of Capital, Low Debt

ü Revolving Credit Facility (RCF) increased to £100 million

ü £12.2 million invested in new store pipeline (2021: £26.9 million)

ü Net debt (excluding leases) £20.3 million (2021: £56.3 million)

ü Loan to Value Ratio (LTV) net of cash 6.6% (2021: 21.0%)

ü Cost of debt averaged 1.71% in the year (2021: 1.54%) on £66.8 million debt (2021: £65.4 million)

Lok'nStore has a good credit model, with low debt and gearing and which is strongly cash generative from an increasing asset base. Increased bank facilities, on competitive margins, and extended to April 2026, positions the business well for the future.

Statement of Financial Position

Group net assets at the year-end were £205.3 million, up 35.7% (2021: £151.3 million). Freehold properties were independently valued at 31 July 2022 at £254.8 million up 19.7% (2021: £212.8 million). Please refer to the table of property values below.

The Parent Company's net assets have increased because of the £6.0 million dividend paid up from Lok'nStore Limited, the principal operating business of the Group.

Market Valuation of Freehold and Leasehold Land and Buildings

It is the Group's policy to commission an independent external valuation of its properties at each financial year-end.

Our freehold stores have been independently valued by Jones Lang LaSalle (JLL) at £254.8 million (2021: £212.8 million).

Accordingly, Adjusted Total Group Assets⁴ have moved upwards sharply in the year to £370.9 million up 25.8% on 31 July (2021: £294.8 million). A significant contributor to this increase was the uplift from the external valuation at 31 July 2022 combined with the trading strength of our business, as well as our investment in new stores.

In this twelve-month period, we saw a same-store uplift in valuations of £43.7 million in our freehold and leasehold trading stores, a 24.1% increase. The like for like comparison excludes the Sale and Manage-Back of four stores located in Basingstoke, Cardiff, Horsham and Portsmouth, and the maiden valuations on our new stores in Warrington and Stevenage.

£30.4 million of this valuation uplift comes from improvements in both the Discount Rate and Exit Yield applied to the valuations. On our owned freehold trading stores, we have seen exit yields compress on average from 6.15% at 31 July 2021 to 5.47% at 31 July 2022, with Average Discount rates at 7.02% compared to an average of 8.18% at 31 July 2021. These improving metrics reflect the increasing investor demand for UK Self Storage assets.

The remaining £15.5 million of valuation uplift comes from the impact of improved cash flows of the same store portfolio that were valued last year. At the full year-end in July 2021, we saw significant improvements in the cash flow assumptions applied by JLL and these have been improved further in this 2022 valuation demonstrating the impact operating performance has on asset values and why one of our key objectives remains to fill existing stores and continue improving pricing. We are well positioned to benefit from future changes with our high-quality portfolio of stores. The Exit Yield and Discount Rates applied are validated by transactional evidence.

It remains the Group's established policy to undertake a comprehensive external valuation at each year-end and we will do so at the next year end at 31 July 2023.

Valuations

It is not the intention of the Directors to make any further significant disposals of trading stores, although individual disposals may be considered where value can more easily be added by recycling the capital into new stores.

The valuations of our freehold property assets are included in the Statement of Financial Position at their fair value. The value of our leasehold stores in the valuation totals £24.3 million (2021: £22.1 million) but they are held at cost less accumulated depreciation in the Statement of Financial Position.

A deferred tax liability arises on the revaluation of the properties and on the rolled-over gain arising from the disposal of some properties. It is not envisaged that any tax will become payable in the foreseeable future on these disposals due to the availability of rollover relief.

We have reported by way of a note, the underlying value of these leasehold stores in revaluations and adjusted our Net Asset Value (NAV) calculation accordingly to include their value. This ensures comparable NAV calculations. An analysis of the valuations achieved is set out in the table below.

Analysis of Total Property Value	No of stores /sites	31 July 2022 Valuation £'000	No of stores /sites	31 July 2021 Valuation £'000
Freeholds¹ valued by JLL ²	15	254,775	17	212,800
Leaseholds valued by JLL ³	9	24,250	9	22,100
Subtotal	24	279,025	26	234,900
Sites in development at cost ¹	9	29,215	12	33,675
Subtotal ⁴	33	308,240	38	268,575
Freehold land & Buildings at Director valuation	1	1,500	1	1,500
Total	34	309,740	39	270,075

¹ Includes £440,522 of capitalised interest during the year (2021: £314,891).

² Includes related fixtures and fittings (refer note 12).

³ The nine leaseholds valued by JLL 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 ten years and one month at the date of the 2022 valuation.

⁴ Loan to value calculation based on these property values.

Total freehold properties account for 92.2% of all property values (2021: 91.8%).

Increase in Adjusted Net Asset Value per Share

ü Adjusted Net Asset Value per share up 33% to £9.72 (2021: £7.31)

Adjusted Net Assets per Share are the net assets of the Group 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 (zero) are excluded from the number of shares.

At July 2022, the Adjusted Net Asset Value per share (before deferred tax) increased 33% to £9.72 from £7.31 last year. This increase is a result of higher property values on our existing stores as the strength of our Landmark stores is recognised, combined with cash generated from operations less dividend payments, offset in part by an increase in the shares in issue due to the exercise of a small number of share options during the year.

Analysis of net asset value (NAV)	31 July 2022 £'000	31 July 2021 £'000
Net assets Adjustment to include operating/short leasehold stores at valuation	205,346	151,259
Add: JLL leasehold valuation	24,250	22,100
Deduct: leasehold properties and their fixtures and fittings at NBV	(7,224)	(7,630)
	222,372	165,729
Deferred tax arising on revaluation of leasehold properties¹	(4,256)	(3,618)
Adjusted net assets	218,116	162,111

Shares in issue	Number '000	Number '000

Opening shares in issue	29,687	29,633
Shares issued for the exercise of options	317	54
Closing shares in issue	30,004	29,687
Shares held in EBT	(623)	(623)
Closing shares for NAV purposes	29,381	29,064
Adjusted net asset value per share after deferred tax provision	£7.42	£5.58
Adjusted net asset value per share before deferred tax provision
Adjusted net assets (see above)	218,116	162,111
Deferred tax liabilities and assets recognised by the Group	63,214	46,760
Deferred tax arising on revaluation of leasehold properties¹	4,256	3,618
Adjusted net assets before deferred tax	285,586	212,489
Closing shares for NAV purposes	29,381	29,064
Adjusted net asset value per share before deferred tax provision	£9.72	£7.31

¹ A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included, calculated by applying the substantively enacted corporation tax rate of 25% (2021: 25%). 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.

Post Balance Sheet:

Acquisition of a development site in Milton Keynes

On 4^th October 2022, we exchanged contracts on a freehold development opportunity in Watling Street, Milton Keynes subject to planning. This highly visible roadside location in the north west of the city complements our existing leasehold store, 7 miles to the south east. Once developed the store will add c. 60,000 sq. ft. of lettable area.

Summary

Lok'nStore Group operates within the UK self-storage industry which is still an immature sector with strong growth prospects. With a low loan to value ratio and plenty of headroom on our bank facilities this market presents an excellent opportunity for further growth of Lok'nStore's business. Recently opened Landmark stores and our ambitious new store pipeline demonstrate the Group's ability to use those strengths to exploit the opportunities available throughout the economic cycle.

Ray Davies

Finance Director

Principal Risks and Uncertainties:

Principal Risks and Uncertainties in Operating our Business

Risk management has been a fundamental part of the successful development of Lok'nStore. The process is designed to improve the probability of achieving our strategic objectives, keeping our employees safe, protecting the interests of our shareholders and key stakeholders, and enhancing the quality of our decision-making through understanding the risks inherent in both the day-to-day operations and the strategic direction of the Group as well as their likely impact.

Management of our risks helps us protect our reputation, which is very important to the ability of the Group to attract customers, particularly with the growth of social media. We always try to communicate clearly with our customers, suppliers, local authorities, communities, employees, and shareholders, and to listen and take account of their views. We operate strict Health and Safety policies and procedures.

Our Risk Management Governance

The Board has overall responsibility for the management of the Group's risks. As the Group's strategic direction is reviewed and agreed the Board identifies the associated risks and works to reduce or mitigate them using an established risk management framework in conjunction with the executive management team. This is a continuing and evolving process as we review and monitor the underlying risk elements relevant to the business.

Risk Management Framework

The risk register covers all areas of the business including property, finance, employees, insurance, customers, strategy, governance, and disaster recovery. The risks are categorised by risk area and numerically rated based on a combination of 'likelihood' and 'consequences and impact' on the business. The combination of these two becomes the 'risk factor' and any factor with a rating over 15 is reported to the Board.

Risk Management Team

Ray Davies, Finance Director, is the Board member responsible for ensuring that the risk management and related control systems are effective, and that the communication channels between the Board and the Executive Management team are open and working correctly. The Executive Management Team is responsible for the day-to-day management of the risk factors. Responsibility for identifying, managing, and controlling the risk is assigned to an individual as shown on the risk register depending on the business area. Reporting against the risks forms part of the monthly executive management meeting and the risk factor may be amended if applicable. There are also sub-committees for particular risk areas which meet regularly. The Risk Management and Reporting Structure is shown below.

Our Risk Management and Reporting Structure

The Board
Reviews Risk Register in full twice a year Considers specific risk areas as raised by the Executive Board
Executive Board Committee
Reviews risks at monthly executive management meetings and if material, requests the Board consider risk at next scheduled Board Meeting (or earlier if necessary)
Capex Committee	Property Risk Committee
Meets Monthly Manages proposed capital expenditure, actual spend, rolling capex requirements	Meets Periodically Considers: Risks associated with properties including Health and Safety Environmental Impact

Principal Risks

The principal risks our business faces, and our key mitigations are outlined in the table below.

Risk

Description

Key Mitigation

Interest Rate and Liquidity Risk

The main risks arising from the Group's financial instruments are interest rate risk and liquidity risk (for details please see note 17).

§ Regular review by the Board (full details are set out in the Financial Review.

§ Debt and interest are low relative to assets and earnings. With interest rates rising, this risk per se is increasing, however the Executive and the Board monitor this position carefully through the Group's detailed operating reports produced on a weekly basis and detailed financial and accounting reports produced on a monthly basis.

§ Could reduce debt, if required, by executing 'Sale and Manage-Back' arrangements on mature stores or slow the rate of site development.

Tax Risk

Changes to tax legislation may impact the level of corporation tax, capital gains tax, VAT and stamp duty land tax which would in turn affect the profits of the Group.

§ Regular monitoring of changes in legislation.

§ Use of appointed professional advisers and trade bodies.

Treasury Risk

The Group may face increased costs from adverse interest rate movements. The Bank of England has raised base rates six times since February 2022 and is currently 2.25% up from 0.1% in March 2020.

§ On 20 October 2021, the Group executed the accordion arrangement embedded within the Revolving Credit Facility which increases the facilities available to the Group from £75 million to £100 million. In addition, the Group has also agreed a one-year extension on its existing joint banking facility.

§ The facility, which was due to expire in April 2025, will now run until April 2026 providing funding for more Landmark site acquisitions. The two principal bank covenants (LTV and Senior Interest) and margin are unaffected by the execution of the accordion and this extension of term.

§ Lok'nStore is a robust business which generates an increasing cash flow from its strong asset base with a low LTV net of cash of 6.6% (2021: 21.0%) and a low average cost of debt of 1.71%. The value of the Group's assets underpins a flexible business model with stable and rising cash flows and low credit risk giving the business a firm base for growth.

§ Average cost of debt 1.71% (2021: 1.54%)

§ Average cost of debt (active revolving loans) 2.71% (2021: 1.55%)

§ With £66.8 million of gross debt currently drawn against the £100 million bank facility the Group is not committed to enter into hedging instruments but continues to keep the matter under review.

§ It is not the intention of the Group to enter into an interest rate hedging arrangement at this time given our low level of net debt, low loan to value ratio and high interest cover and the Group has continued to benefit from relatively low lending rates although recognising that these rates are now rising, and the group is regularly monitoring this risk.

§ The Group monitors compliance with its bank covenants closely and during the year it complied with all of its bank covenants.

Property Valuation Risk

The external independent valuations of the stores are sensitive to both operational trading performance of the stores and also wider market conditions. It follows that a reduction in operational performance or a deterioration of market conditions could have a material adverse impact on the Net Asset Value (NAV) of the Group.

§ Regular monitoring of any changes in market conditions and transactions occurring within our marketplace.

§ Use of independent professional valuers who are experts in the self-storage sector. There is regular contact with the current valuer JLL and discussions around market values and transactions within the sector, including post year-end.

§ Previous experience of downturns, such as the Dotcom and global financial crises, has demonstrated that Self Storage has considerable resilience.

§ Stores are predominantly Landmark stores in prime locations and are all UK based and predominantly located in the affluent South of England. The Group is therefore not exposed to overseas/international/ currency risks etc.

§ Operational management teams with the skills, experience, and motivation to continue to drive operational performance.

Environmental Risk

Flooding.

Increased requirement to reduce waste and greenhouse gas emissions and reduce environmental impact on the environment.

§ Flood risk due diligence undertaken on all prospective site acquisitions.

§ Flood protection measures in place at all stores.

§ Group has been measuring environmental impact since 2005 and is committed to manage waste effectively and control polluting emissions.

§ All new construction has solar power on the roofs of its buildings.

Property Acquisition

Acquiring new sites is a key strategic objective of the business but we face significant competition from other uses such as hotels, car showrooms and offices as well as from other self-storage operators.

§ We hold weekly property meetings to manage the search process and property purchases.

§ Use of property acquisition consultants.

§ Regular communication with agents.

§ Attendance at industry relevant property events.

Planning Permission

The process of gaining planning permissions remains challenging.

Planning approval is increasingly dependent on Social or Environmental enhanced features such as BREEAM standards, as well as local planners demands for green spaces, cycle, and footpaths etc, all adding cost and complexity to a planning project.

§ Where we can we acquire sites subject to planning.

§ We work with an established external planning consultant.

§ Our property team has over 20 years' experience in obtaining planning consents for our stores.

Construction

Poor construction may affect the value of the property and/or the efficient operation of the store.

Rising costs of developing a store may mean site opportunities which do not meet management's return on investment criteria may not be taken up.

§ We use a design and build contract with a variety of established contractors.

§ We use external project managers.

§ All projects are overseen by our property team which has over 20 years' experience.

§ Construction projects are subject to a tender process

§ Rising costs are factored into our financial modelling to ensure the required returns are achievable.

Maintenance/Damage

Damage to properties through poor maintenance or flood or fire could render a store inoperable.

§ Regular site checks by team members.

§ Rolling maintenance plan for all stores.

§ Comprehensive disaster recovery plan.

§ Appropriate insurance cover.

Increased Competition

An increasing number of competitors in the industry may negatively impact Lok'nStore's existing operations (e.g. pricing/available sites).

§ Established criteria for site selection including:

o Prominent locations

o High visibility

o Distinctive designs and bright orange elevations and signage to attract customers.

§ Continued investment in the Group's website and internet marketing.

§ Ensure high levels of customer service through training and monitoring.

Employee Retention

Loss of employees may affect our ability to operate our stores and provide the high levels of customer service expected.

§ Aim to offer a good work/life balance and career development.

§ Regular reviews of remuneration levels against market.

§ Achievable bonus systems.

§ Generous Employee Share Schemes.

§ High-quality training within the Lok'nStore Academy.

§ Intranet for improved communications.

§ Established Employee rewards programme.

Cyber security and IT System Breach

A breach of our IT systems might adversely affect the operations and income of the business resulting in potential fines, customer compensation and causing reputational damage to the Group.

§ Regularly reviewed IT security systems.

§ Well communicated policies and procedures for handling and managing a systems breach.

Future Pandemic Risk

A spread of the virus and social protection measures which may be introduced by Government may adversely affect the operations and financial performance of the business and adversely impact on the health of staff.

§ The Group has a well-defined policy and response developed and executed throughout the recent Covid-19 pandemic.

§ Our Covid-19 Group Safe Response has been documented in detail in the Managing Director's Review in the 2021 Annual Report and is not repeated here.

Consolidated Statement of Comprehensive Income

For the year ended 31 July 2022

	Notes	Group Year ended 31 July 2022 £'000	Group Year ended 31 July 2021 £'000
Revenue	1	26,902	21,892
Total property, staff, distribution, and general costs	2	(10,553)	(10,001)
Adjusted EBITDA¹		16,349	11,891
Depreciation	7	(4,727)	(4,149)
Equity-settled share-based payments		(201)	(118)
Non-underlying items	4	5,739	(160)
		811	(4,427)
Operating profit		17,160	7,464

Finance income	5	42	1
Finance cost	6	(1,328)	(1,017)

Profit before taxation		15,874	6,448
Income tax expense	9	(3,796)	(3,165)

Profit for the year attributable to Owners of the Parent	27a	12,078	3,283

Other comprehensive income
Items that will not be reclassified to profit and loss
Fair value movement in property valuation	12	60,171	47,718
Deferred tax relating to change in property valuation	20	(14,284)	(18,224)
Other comprehensive income		45,887	29,494
Total comprehensive income for the year attributable to Owners of the Parent		57,965	32,777

Earnings per share attributable to owners of the Parent		Group Year ended 31 July 2022 £'000	Group Year ended 31 July 2021 £'000
Basic	11
Total basic earnings per share		41.24p	11.33p

Diluted	11
Total diluted earnings per share		40.48p	11.10p

¹ Adjusted EBITDA is defined in the accounting policies section of the notes to this Report.

Consolidated Statement of Changes in Equity

For the year ended 31 July 2022

Attributable to owners of the Parent

	Share Capital £'000	Share Premium £'000	Other Reserves £'000	Revaluation Reserve £'000	Retained Earnings £'000	Total Equity £'000
31 July 2020	297	10,560	8,455	75,975	26,095	121,382
Profit for the year	-	-	-	-	3,283	3,283
Other comprehensive income:
Increase in property valuation net of deferred tax	-	-	-	29,494	-	29,494
Total comprehensive income for the year	-	-	-	29,494	3,283	32,777
Transactions with owners:
Dividend paid	-	-	-	-	(3,865)	(3,865)
Share-based payments	-	-	118	-	-	118
Transfers in relation to share-based payments	-	-	(26)	-	26	-
Deferred tax relating to share options	-	-	591	-	-	591
Exercise of share options	1	255	-	-	-	256
Reserve transfer on disposal of assets	-	-	-	(165)	165	-
Transfer additional depreciation on revaluation net of deferred tax	-	-	-	(568)	568	-
Total transactions with owners	1	255	683	(733)	(3,106)	(2,900)
31 July 2021	298	10,815	9,138	104,736	26,272	151,259
Profit for the year	-	-	-	-	12,078	12,078
Other comprehensive income:
Increase in property valuation net of deferred tax	-	-	-	45,887	-	45,887
Total comprehensive income for the year	-	-	-	45,887	12,078	57,965
Transactions with owners:
Dividend paid	-	-	-	-	(4,601)	(4,601)
Share-based payments	-	-	201	-	-	201
Transfers in relation to share-based payments	-	-	(180)	-	180	-
Deferred tax relating to share options	-	-	(57)	-	-	(57)
Exercise of share options	3	576	-	-	-	579
Reserve transfer on disposal of assets	-	-	-	(20,258)	20,258	-
Transfer additional depreciation on revaluation net of deferred tax	-	-	-	(821)	821	-
Total transactions with owners	3	576	(36)	(21,079)	16,658	(3,878)
31 July 2022	301	11,391	9,102	129,544	55,008	205,346

Company Statement of Changes in Equity

For the year ended 31 July 2022

	Share Capital £'000	Share Premium £'000	Retained Earnings £'000	Other Reserves £'000	Total Equity £'000
31 July 2020	297	10,560	15,650	1,912	28,419
Profit and total comprehensive income for the year	-	-	4,793	-	4,793
Transactions with owners:
Equity settled share-based payments	-	-	-	118	118
Transfer in relation to share- based payments	-	-	26	(26)	-
Exercise of share options	1	255		-	256
Dividends paid	-	-	(3,865)	-	(3,865)
Total transactions with owners	1	255	(3,839)	92	(3,491)
31 July 2021	298	10,815	16,604	2,004	29,721
Profit and total comprehensive income for the year	-	-	5,756	-	5,756
Transactions with owners:
Equity settled share-based payments	-	-	-	201	201
Transfer in relation to share-based payments	-	-	180	(180)	-
Exercise of share options	3	576		-	579
Dividends paid	-	-	(4,601)	-	(4,601)
Total transactions with owners	3	576	(4,421)	21	(3,821)
31 July 2022	301	11,391	17,939	2,025	31,656

Consolidated and Company Statements of Financial Position

31 July 2022 Company Registration No. 04007169

	Notes	Group 31 July 2022 £'000	Group 31 July 2021 £'000	Company 31 July 2022 £'000	Company 31 July 2021 £'000
Assets
Non-current assets
Property, plant, and equipment	12a	292,848	255,652	-	-
Investments	13	-	-	2,871	2,670
Right of use assets	12b	10,424	10,503	-	-
		303,272	266,155	2,871	2,670
Current assets
Inventories	14	143	290	-	-
Trade and other receivables	15	3,988	4,273	28,785	27,051
Cash and cash equivalents	17c	46,465	9,105	-	-
Financial assets		-	509	-	-
Total current assets		50,596	14,177	28,785	27,051
Total assets		353,868	280,332	31,656	29,721

Liabilities
Current liabilities
Trade and other payables	16	(7,229)	(5,841)	-	-
Lease liabilities	19	(1,612)	(1,258)	-	-
Taxation		(989)	(365)	-	-
		(9,830)	(7,464)	-	-
Non-current liabilities
Borrowings	18	(66,196)	(64,941)	-	-
Lease liabilities	19	(9,282)	(9,908)	-	-
Deferred tax	20	(63,214)	(46,760)	-	-
		(138,692)	(121,609)	-	-
Total liabilities		(148,522)	(129,073)	-	-
Net assets		205,346	151,259	31,656	29,721
Equity
Equity attributable to owners of the Parent
Called up share capital	21	301	298	301	298
Share premium		11,391	10,815	11,391	10,815
Other reserves	23a	9,102	9,138	2,025	2,004
Retained earnings	24	55,008	26,272	17,939	16,604
Revaluation reserve		129,544	104,736	-	-
Total equity		205,346	151,259	31,656	29,721

As permitted by section 408 Companies Act 2006, the Parent Company's statement of comprehensive income has not been included in these financial statements. The profit and comprehensive income for the year ended 31 July 2022 was £5.8 million (2021: £4.8 million).

Consolidated Statement of Cash Flows

For the year ended 31 July 2022

	Notes	Group Year ended 31 July 2022 £'000	Group Year ended 31 July 2021 £'000
Operating activities
Cash generated from operations	26a	18,569	12,187
Income tax paid		(1,060)	(800)
Net cash inflow from operating activities		17,509	11,387
Investing activities
Proceeds of sale & manage-back stores		37,922	-
Proceeds of sale of land (net of disposal costs) - Wolverhampton		-	1,509
Proceeds of sale of land (net of disposal costs) - Southampton		-	1,676
Purchase of property, plant, and equipment	12a	(11,961)	(26,474)
Interest received		13	1
Net cash generated by / (used in) in investing activities		25,974	(23,288)

Financing activities
Proceeds of bank borrowings utilised for store development and bank refinancing		1,386	14,077
Finance costs paid including bank refinancing		(1,741)	(969)
Lease liabilities paid		(1,746)	(1,559)
Equity shares purchased for treasury (net of costs)		-	(693)
Equity shares sold from treasury (net of costs)		-	846
Equity dividends paid		(4,601)	(3,865)
Proceeds from issuance of Ordinary Shares (net)		579	103
Net cash (used in) / generated from financing activities		(6,123)	7,940
Net increase / (decrease) in cash and cash equivalents in the year		37,360	(3,961)
Cash and cash equivalents at beginning of the year		9,105	13,066
Cash and cash equivalents at end of the year		46,465	9,105

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

Accounting Policies

General Information

Lok'nStore Group plc is an AIM listed company incorporated and domiciled in England and Wales. The address of the registered office is One Fleet Place, London, EC4M 7WS, 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.co.uk. The principal activities of the Group and the nature of its operations are described in the Strategic Report.

Basis of Accounting

The preliminary financial information does not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 but is derived from statutory accounts for the years ended 31 July 2022 and 31 July 2021, both of which are audited. The report of the auditor on the statutory financial statements for the year ended 31 July 2021 was (i) unqualified; (ii) did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain statements under S 498(2) or (3) of the Companies Act 2006. The statutory financial statements for the year ended 31 July 2022 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The Preliminary Announcement is prepared on the same basis as set out in the statutory accounts for the year ended 31 July 2022. While the financial information included in this Preliminary Announcement has been prepared in accordance with the recognition and measurement criteria of UK-adopted International Financial Reporting Standards (IFRS), this announcement does not in itself contain sufficient information to comply with IFRSs.

The financial statements for the year ended 31 July 2021 were prepared in accordance with international accounting standards in conformity with the requirements of the Companies act 2006. The financial statements for the year ended 31 July 2022 have been prepared in accordance with UK-adopted International Accounting Standards (IFRS) as adopted by the UK Endorsement Board. This change in the basis of preparation is required by UK company Law for the purpose of financial reporting as a result of the UK's exit from the European Union on 31 January 2020. This change does not constitute a change in accounting policy, rather a change in framework which is required to group the use of IFRS into company law. There is no impact on the recognition, measurement or disclosure between the two frameworks in the year reported.

The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretation Committee applicable to companies reporting under UK adopted IFRS relevant to its operations and effective for accounting periods beginning on or after 1 August 2021. There was no material impact on the adoption of these.

The statutory accounts for the year ended 31 July 2022 will be delivered to the Registrar of Companies following the Company's Annual General Meeting and will be available from the investor section of the Company's website at http://www.loknstore.co.uk.

The financial statements have been prepared on the historic cost basis except that certain trading properties and non-current financial assets are stated at fair value.

Standards, Amendments, Improvements & Interpretations applicable ¹

At the date of authorisation of these financial statements the following standards, which have not been applied in these financial statements, were in issue but not yet effective.

	Effective Date - P/c on or after
Amendments to IFRS 4 Insurance Contracts - deferral of IFRS 9 (issued on 25 June 2020)	1 January 2021
Amendments to IFRS 16 Leases: Covid-19-Related Rent Concessions beyond 30 June 2021 (issued on 31 March 2021)	1 April 2021

¹ The above standards have been endorsed by both the EU and the UK. EU-IFRS at 31 December 2020 were adopted for use within the UK (from 1 January 2021) by Regulation 4 of Statutory Instrument 2019/685.

Endorsed Standards, Amendments, Improvements & Interpretations available for early adoption in the UK

	Effective Date - P/c on or after	Endorsed in the UK?	Endorsed in the EU?
Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (All issued 14 May 2020)	1 January 2022	Y	Y
IFRS 17 Insurance Contracts (issued on 18 May 2017); including Amendments to IFRS 17 (issued on 25 June 2020)	1 January 2023	Y	Y
Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and IFRS 9 - Comparative Information (issued on 9 December 2021)	1 January 2023	Y	N Not endorsed
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021)	1 January 2023	N Not endorsed	Y
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021)	1 January 2023	N Not endorsed	Y

The Directors do not anticipate that the adoption of these revised standards, amendments and interpretations will have a significant impact on the figures included in the financial statements in the period of initial application.

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (and its subsidiaries) made up to 31 July each year. Control is achieved where the Company has power over the investee, exposure, or rights to variable returns from the investee and the ability to use its power to vary those returns.

Intra-group transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated on consolidation, except to the extent that intra-group losses indicate an impairment.

Going Concern

The Directors can report that, based on the Group's budgets and financial projections, which include a recognition of the inflationary effect on rising costs, on the Group, they have satisfied themselves that the business is a going concern. The impact of rising costs and increasing bank interest rates and the measures the Directors have taken to mitigate its effects are set out in the Managing Director's Review.

The Board has a reasonable expectation that the Company and the Group have adequate resources and facilities to continue in operational existence for the foreseeable future based on Group cash balances and cash equivalents of £46.5 million (2021: £9.1 million), undrawn committed bank facilities at 31 July 2022, based on the Group's facility of £100 million, of £33.2 million (2021: £9.6 million - based on £75 million facility), and cash generated from operations in the year ended 31 July 2022 of £18.6 million (2021: £12.2 million).

In October 2021, the Group executed the accordion arrangement embedded within the Revolving Credit Facility which increases the facilities available to the Group to £100 million. In addition, the Group has also agreed a one-year extension on its existing joint banking facility with National Westminster Bank/Royal Bank of Scotland plc and ABN AMRO Bank N.V. The facility, which was due to expire in April 2025, will now run until April 2026 providing funding for more Landmark site acquisitions to support the Group's ambitious growth plans.

With interest rates rising, interest risk per se is increasing, however the Executive and the Board monitor this position carefully through the Group's detailed operating reports produced on a weekly basis and detailed financial and accounting reports produced on a monthly basis. The Group's bank covenant compliance is reviewed as part of this process. The Bank's senior interest covenant is tested quarterly on a 12-month rolling basis.

The Group is fully compliant with all bank covenants and undertakings and is not obliged to make any repayments prior to expiration. The financial statements are therefore prepared on a going concern basis.

Revenue Recognition

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

a) Self-storage revenue

Self-storage revenue is recognised over the period for which the space is occupied by the customer on a time apportionment basis. The price at which customers store their goods is dependent on size of unit and store location. Customers are invoiced on a four-weekly cycle in advance and revenue is recognised based on time stored to date within the cycle. When customers vacate, they are rebated the unexpired portion of their four weekly advance payment (subject to a seven-day notice requirement). Revenue is recognised evenly over the period of self-storage.

b) Retail sales

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

c) Insurance

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

The Group provides insurance to customers through a block policy purchased from its insurer. Block policyholders supply VAT exempt insurance transactions as principals rather than insurance-related services as intermediaries and accordingly insurance income received from the customer is recognised as revenue rather than offset against the costs of the block policy. The key characteristics of a block policy are that:

· There is a contract between the block policyholder and the insurer which allows the block policyholder to effect insurance cover subject to certain conditions.

· The Group acting in our own name as the block policyholder procures insurance cover for third parties from the insurer.

· There is a contractual relationship between the block policyholder and third parties under which the insurance is procured.

· The block policyholder stands in place of the insurer in effecting the supply of insurance to the third parties.

· The Group is not exposed to any insured losses arising from its insurance activity and therefore insurance risk.

d) Management fee income

Management fees earned for managing stores not owned by the Group are recognised over the period for which the services are provided. Fees are invoiced monthly based on revenue performance. Additional performance fees may be earned if an individual Managed Store's EBITDA performance exceeds agreed thresholds. Periodic fees may also be earned for additional specific services provided and are invoiced when that service has been completed. Revenue is recognised for each performance condition once the condition has been met.

Critical Accounting Estimates a) and b) and Judgements c) and d)

The preparation of 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 commissions an external valuation of its self-storage stores. This valuation uses 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 fees 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 12(a) together with estimation sensitivities undertaken. The carrying value of land and buildings held at valuation at the reporting date was £239.8 million (2021: £199.6 million) as shown in the table in note 12(a).

b) Assets in the course of construction and land held for 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 lettable storage space that it can achieve in its planning negotiations, together with the time it will take to achieve maturity. In addition, assumptions are made on the storage fees 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 therefore justify the proposed purchase price of the site at acquisition.

Following the acquisition, regular reviews are carried out taking into account the status of the planning negotiations, and revised construction costs or capacity of the new facility, for example, to make an assessment of the recoverable amount of the development property. The Group reviews all development property assets for impairment at each reporting date in the light of the results of these reviews. Once a store is opened it is valued as a trading store.

The carrying value of development property assets at the reporting date was £29.2 million (2021: £33.7 million). Please see note 12(a) for more details.

c) Classification of self-storage facilities as owner-occupied properties rather than investment properties

The Directors consider that Lok'nStore Group plc is the Parent Company of a 'Trading business' and is not wholly or mainly engaged in making investments.

The Group is an integrated storage solutions business offering a range of services to its customers. We provide services to our customers under contracts for the provision of storage services which do not give them any property or tenancy rights and a large number of the stores we operate are from properties where we do not own the land or the buildings. The assets we do own are valued on the basis of the trading cash flows that the operating businesses generate.

The Group continues to develop its managed stores' business where it uses its operational and logistic expertise to provide a full range of services to customers in stores we manage for third-party owners. In recent years the Group has developed many new managed stores all of which are owned by third-party investors and managed by Lok'nStore.

Previously owned sites at Woking, Ashford, Swindon, and Crayford, have been the subject of sale and manage-back transactions by which Lok'nStore has retained the management of the business when a third-party owner acquired the business, land and buildings. In this year another four trading stores were the subject of sale and manage-back transactions by which Lok'nStore has retained the management of the business.

All of this trading activity, including active management and marketing activity, as well as the self-storage income earned from our leasehold stores' activity, demonstrate that the holding of land is not a core activity because the trading operation is not dependent on the ownership of land. See the chart in the Property Review for the changing ownership structure of the stores.

The Group has always and continues to comply with all of the usual accounting and tax protocols consistent with a trading business. As at the year-end, Lok'nStore operates 24 owned stores mainly in southern England, although in recent years we have expanded our historically southern England focused geographic footprint into the Southwest (Exeter), Wales (Cardiff) and the Northwest (Salford, Warrington, and Altrincham). Of the 24 stores, Lok'nStore owns the freehold interest in 15 stores, nine of the stores are held under commercial leases. There are a further 16 managed stores operating under management contracts for third-party owners making a total of 40 stores trading under the Lok'nStore brand.

One of the features of Lok'nStore's strategy is to increase the number of stores we manage for third parties selling our expertise in storage solutions management, operating systems and marketing, through management fees rather than retaining a proprietary interest in land and buildings.

The classification of self-storage facilities as owner-occupied properties rather than investment properties has resulted in the recognition of fair value gains in 2022 (net deferred of tax) of £45.9 million (2021: £29.5 million) in Other Comprehensive Income rather than the Income Statement.

d) Application of IFRS 16

The Group uses judgement to assess whether the interest rate implicit in the lease is readily determinable. When the interest rate implicit in the lease is not readily determinable, the Group estimates the incremental borrowing rate based on its external borrowings secured against a similar asset, adjusted for the term of the lease.

Notes to the Financial Statements

For the year ended 31 July 2022

1 Revenue

Analysis of the Group's revenue is shown below:

Stores trading	Group 2022 £'000	Group 2021 £'000
Self-storage revenue	21,585	18,165
Insurance revenue	2,239	2,079
Retail sales (packing materials etc)	252	285
Total self-storage revenue - owned stores	24,076	20,529
Management fees - managed stores	2,785	1,346
Sub-total	26,861	21,875
Non-storage income	41	17
Total revenue per statement of comprehensive income	26,902	21,892

The Group has one operating segment, being self-storage in the UK.

2 Property, Staff and General Costs	Group 2022 £'000	Group 2021 £'000
Property and premises costs	5,304	4,783
Property rentals	(1,746)	(1,559)
Net property and premises costs	3,558	3,224
Staff costs	5,369	5,269
General overheads	1,438	1,341
Sub-total operating costs	10,365	9,834
Retail products cost of sales (see note 3)	188	167
	10,553	10,001

3 Cost of Sales of Retail Products

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

	Group 2022 £'000	Group 2021 £'000
Retail	113	125
Insurance	23	14
Other	52	28
	188	167

4 Non-underlying items	Group 2022 £'000	Group 2021 £'000
Profit on sale of trading stores ¹	5,936	-
Liquidated damages received on development ²	175	-
Abortive site costs ³	(372)	-
Profit on sale of land at Wolverhampton ⁴	-	265
Loss on sale of vacant property at Southampton ⁵	-	(425)
	5,739	(160)

₂₀₂₂

¹ Profit arising on the sale and manage-back of four trading stores located at Basingstoke, Cardiff, Horsham, and Portsmouth.

² Liquidated damages received on the late delivery of a new store development which has subsequently opened.

³ The Group's active search for suitable development sites for new Landmark stores has resulted in some abortive costs - mainly around planning and associated professional costs.

₂₀₂₁

⁴ Profit on sale of land at Wolverhampton: During the period development land with the benefit of planning permission was sold on a sale and manage-back basis.

⁵ In December 2020, we completed the sale of our vacant property in Southampton, Hampshire for £1.6 million (net of disposal costs) (Net Book Value c. £2 million) eliminating over £150,000 p.a. of residual costs.

5 Finance Income

Group

2022

£'000

Group

2021

£'000

Bank interest

Interest receivable arises on cash and cash equivalents (see note 17).

6 Finance Costs

	Group 2022 £'000	Group 2021 £'000
Bank interest	707	469
Non-utilisation fees	166	120
Bank loan arrangement fees	216	158
Interest on lease liabilities	239	270
	1,328	1,017

7 Profit before Taxation

Profit before taxation is stated after charging:	Group 2022 £'000	Group 2021 £'000
Depreciation and amounts written off property, plant and equipment:
Depreciation based on historic cost	2,316	2,178
Depreciation based on revalued assets	1,094	710
Depreciation of property, plant and equipment (note 12a)	3,410	2,888
Depreciation of right of use assets	1,314	1,261
Loss on disposal of fixed assets	3	-
	4,727	4,149

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

Group

2022

£'000

Group

2021

£'000

Audit services
- UK statutory audit of the Company and consolidated accounts	125	80
Other services
- interim agreed upon procedures	9	9
	134	89
Comprising:
Audit services	125	80
Non-audit services	9	9
	134	89

8 Employees

	Group 2022 No.	Group 2021 No.
The average monthly number of persons (including Directors) employed by the Group during the year was:
Store management	151	145
Administration	27	26
	178	171

Costs for the above persons:	Group 2022 £'000	Group 2021 £'000
Wages and salaries	4,174	4,369
Social security costs	819	555
Pension costs	135	130
	5,128	5,054
Share-based remuneration (options)	201	118
	5,329	5,172

Share-based remuneration is separately disclosed in the statement of comprehensive income. Wages and salaries of £154,920 (2021: £107,304) have been capitalised as additions to property, plant and equipment as they are directly attributable to the acquisition of these assets.

All other employee costs are included in staff costs in the statement of comprehensive income.

In relation to pension contributions, there was £32,807 (2021: £14,292) outstanding at the year-end. There were no employees employed by Lok'nStore Group plc in the year other than the Directors (2021: nil).

Directors' Remuneration 2022	Emoluments £			Bonuses £	Benefits £		Sub Total £		Pension £		Gains on Share Options £		Total £
Executive:
A Jacobs	223,842			146,500	7,387		377,729		-		1,360,277		1,738,006
RA Davies	174,087			49,287	5,587		228,961		6,963		456,995		692,919
N Newman-Shepherd	97,521			100,523	2,793		200,837		3,901		11,058		215,796
Non-Executive:
J Woyda	27,364			-	-		27,364		-		-		27,364
SG Thomas	23,881			-	5,570		29,451		-		-		29,451
RJ Holmes	23,881			-	-		23,881		-		-		23,881
ETD Luker	9,950			-	-		9,950		-		-		9,950
CP Peal	23,881			-	-		23,881		-		-		23,881
	604,407			296,310	21,337		922,054		10,864		1,828,330		2,761,248
Directors' Remuneration 2021		Emoluments £	Bonuses £			Benefits £		Sub Total £		Pension £		Gains on Share Options £		Total £
Executive:
A Jacobs		215,233	132,500			6,568		354,301		-		-		354,301
RA Davies		165,797	45,946			5,434		217,177		6,631		-		223,808
N Newman-Shepherd		91,210	179,545			2,571		273,326		3,648		-		276,974
Non-Executive:
SG Thomas		22,743	-			5,087		27,830		-		14,436		42,266
RJ Holmes		22,743	-			-		22,743		-		-		22,743
ETD Luker		28,430	-			-		28,430		-		-		28,430
CP Peal J Woyda		22,743 20,848	- -			- -		22,743 20,848		- -		- -		22,743 20,848
		589,747	357,991			19,660		967,398		10,279		14,436		992,113

Details of the Directors' remuneration are shown above.

The highest paid Director did not accrue any pension rights during the year. The benefits in kind all relate to medical insurance premiums paid on behalf of the Directors. The number of Directors to whom retirement benefits are accruing under money purchase pension schemes in respect of qualifying service is two (2021: two).

9 Taxation

	Group 2022 £'000	Group 2021 £'000
Current tax:
UK corporation tax - current year	1,572	798
UK corporation tax - adjustment in respect of prior period	111	-
Total UK corporation tax	1,683	798
Deferred tax:
Origination and reversal of temporary differences	2,113	260
Impact of change of rate on closing balance	-	2,107
Total deferred tax	2,113	2,367
Total Income tax expense for the year	3,796	3,165

The charge for the year can be reconciled to the profit for the year as follows:

	2022 £'000	2021 £'000
Profit before tax	15,874	6,448
Tax on ordinary activities at the effective standard rate of corporation tax in the UK of 19% (2021: 19%)	3,016	1,225
Depreciation of non-qualifying assets	377	263
Share-based payment charges in excess of corresponding tax deduction	(337)	(20)
Impact of change in tax rate on closing deferred tax balances	-	2,107
Adjustments in respect of prior periods - corporation tax	111	(375)
Tax effect of rolled over gains on sale of property	432	-
Other	197	(35)
Income tax expense for the year	3,796	3,165

Effective tax rate	24%	49%

In addition to the amount charged to profit or loss for the year, deferred tax relating to the revaluation of the Group's properties of £14.3 million (2021: £18.2 million) has been recognised as a debit/credit directly in other comprehensive income (see note 20 on deferred tax).

The current rates of corporation tax are calculated at a rate of 19%. The deferred tax balances are measured at the substantively enacted rates of corporation tax being 19% until 31 March 2023 and a rate of 25% thereafter.

10 Dividends

Amounts recognised as distributions to equity holders in the year:	2022 £'000	2021 £'000

Final dividend for the year ended 31 July 2021 (10.67 pence per share)	3,132	-
Interim dividend for the year to 31 July 2022 (5.00 pence per share)	1,469	-
Final dividend for the year ended 31 July 2020 (9.00 pence per share)	-	2,612
Interim dividend for the year to 31 July 2021 (4.33 pence per share)	-	1,253
	4,601	3,865

In respect of the current year the Directors paid an interim dividend of 5.00 pence per share to shareholders on 10 June 2022. The Directors propose that a final dividend of 12.25 pence per share will be paid to the shareholders. The total estimated final dividend to be paid is approximately £3.6 million based on the number of shares in issue at 14 October 2022 as adjusted for shares held in the Employee Benefits Trust.

This is subject to approval by shareholders at the Annual General Meeting on 8 December 2022 and has not been included as a liability in these financial statements. The ex-dividend date will be 24 November 2022; the record date 25 November 2022; with an intended payment date of 6 January 2023. The final deadline for Dividend Reinvestment Election (DRIP) is 9 December 2022.

11 Earnings per Share

The calculations of earnings per share are based on the following profits and numbers of shares.

	Group 2022 £'000	Group 2021 £'000
Total profit for the financial year attributable to owners of the parent	12,078	3,283

	2022 No. of shares	2021 No. of shares
Weighted average number of shares
For basic earnings per share	29,287,451	29,035,104
Dilutive effect of share options¹	549,321	527,846
For diluted earnings per share	29,836,772	29,562,950

Earnings per share	Group 2022 pence	Group 2021 pence
Basic
Total basic earnings per share	41.24p	11.33p
Diluted
Total diluted earnings per share	40.48p	11.10p

12a) Property, Plant and Equipment

Group	Development Property Assets at Cost £'000	Land and Buildings at Valuation £'000	Short Leasehold Improvements at Cost £'000	Fixtures, Fittings and Equipment at Cost £'000	Motor Vehicles at Cost £'000		Total £'000
Cost or valuation
1 August 2020	29,885	141,366	3,997	26,943	10	202,201
Additions	21,688	325	3,560	1,281	-	26,854
Transfers	(16,654)	13,157	-	3,497	-	-
Disposals	(1,243)	(1,497)	-	(1,301)	-	(4,041)
Revaluations	-	46,266	-	-	-	46,266
31 July 2021	33,676	199,617	7,557	30,420	10	271,280

Depreciation
1 August 2020	-	-	2,269	12,664	10	14,943
Depreciation	-	1,453	240	1,195	-	2,888
Disposals	-	-	-	(750)	-	(750)
Revaluations	-	(1,453)	-	-	-	(1,453)
31 July 2021	-	-	2,509	13,109	10	15,628
Net book value at 31 July 2021	33,676	199,617	5,048	17,311	-	255,652

Cost or valuation
1 August 2021	33,676	199,617	7,557	30,420	10	271,280
Additions	10,611	756	158	663	-	12,188*
Transfers	(15,072)	11,234	-	3,838	-	-
Disposals	-	(30,101)	-	(3,615)	-	(33,716)
Revaluations	-	58,299	-	-	-	58,299
31 July 2022	29,215	239,805	7,715	31,306	10	308,051

Depreciation
1 August 2021	-	-	2,509	13,109	10	15,628
Depreciation	-	1,872	296	1,242	-	3,410
Disposals	-	-	-	(1,963)	-	(1,963)
Revaluations	-	(1,872)	-	-	-	(1,872)
31 July 2022	-	-	2,805	12,388	10	15,203
Net book value at 31 July 2022	29,215	239,805	4,910	18,918	-	292,848

* including capitalised interest costs of £589,843 (2021: £380,193).

The Group has an active store development programme and in accordance with IAS 23 (Borrowing costs) has material assets that take a substantial period of time to develop from acquisition to ultimate store opening. Accordingly borrowing costs of £589,843 (2021: £380,193) have been capitalised that are directly attributable to the acquisition, construction and fit-out of these qualifying store assets. £149,321 of this amount relates to development stores which opened during the year leaving a balance of £440,522 carried in development property assets. If all property, plant and equipment were stated at historic cost the carrying value would be £111.4 million (2021: £113.0 million).

Capital expenditure during the year totalled £12.2 million (2021: £26.9 million). This was primarily the purchase of the Peterborough site, together with ongoing planning, construction and fit out works at other sites, principally at our Warrington and Stevenage stores and the completion of construction works at our Leicester and Salford stores. Disposals during the period relate to the sale and manage-back of four trading stores. Costs relating to the planning and pre-development works on our Bournemouth, Cheshunt, Peterborough and Staines sites also featured.

Property, plant and equipment (non-current assets) with a carrying value of £292.8 million (2021: £255.7 million) are pledged as security for bank loans.

Independent External Market Valuation of Freehold and Leasehold Land and Buildings

Fair Value Measurement

The fair value hierarchy within which the fair value measurements are categorised is level 3, in accordance with IFRS 13 (Fair value measurement).

On 31 July 2022, an independent professional valuation was prepared by Jones Lang LaSalle Limited (JLL) in respect of 15 freehold, and nine leasehold stores operated by Lok'nStore. The valuation was prepared in accordance with the RICS Valuation - Global Standards 2021 - UK national supplement, published by The Royal Institution of Chartered Surveyors (the RICS Red Book) and the valuation methodology is explained in more detail below. The valuations were prepared on the basis of Fair Value as a fully equipped operational entity having regard to trading potential. The valuation was provided for accounts purposes and as such, is a Regulated Purpose Valuation as defined in the Red Book. In compliance with the disclosure requirements of the RICS Red Book JLL have confirmed that:

· This is the seventh year that JLL has been appointed to value the properties.

· The valuers who prepared the valuation have the necessary skills and experience having been significantly involved in the sector.

· JLL do not provide other significant professional or agency services to the Company.

· In relation to the preceding financial year of JLL the proportion of the total fees payable by the Company to the total fee income of the firm is less than 5% and is minimal.

The valuation report indicates a total valuation for all properties valued of £279.0 million (2021: £234.9 million) of which £254.8 million (2021: £212.8 million) relates to freehold properties, and £24.2 million (2021: £22.1 million) relates to properties held under leases.

Freehold land and buildings are carried at valuation in the statement of financial position. Short leasehold improvements at properties held under leases are carried at cost rather than valuation in accordance with IFRS.

For the trading properties the valuation methodology explained in more detail below is based on fair value as fully equipped operational entities, having regard to trading potential. Of the £254.8 million (2021: £212.8 million) valuation of the freehold properties £16.6 million (2021: £14.7 million) relates to the net book value of fixtures, fittings and equipment, and the remaining £238.2 million (2021: £198.1 million) relates to freehold properties.

The 2022 valuation includes and reflects movements in value which have resulted from the operational performance of the stores and market movements in the investment environment.

Valuation Methodology

Jones Lang LaSalle Limited (JLL) have adopted the profits method of valuation and cross-checked with the direct comparison method based on recent transactions in the sector, which is the main method of pricing adopted by purchasers of self-storage properties. The carrying value of freehold land and buildings of £239.8 million also includes £1.5 million of assets held at directors' valuation (see below).

JLL have valued the assets on an individual basis and have disregarded any portfolio effect.

The profits method of valuation considers the cash flow generated by the trading potential of the self-storage facility. Due to the specialised design and use of the buildings, the value is typically based on their ability to generate a net income from operating as self-storage facilities.

JLL have constructed a discounted cash flow model. This sets out their explicit assumptions on the underlying cash flow that they believe could be generated by a Reasonably Efficient Operator at each of the properties, both at the valuation date and in the near future as the properties increase their occupancy and rates charged to customers. Judgements are made as to the trading potential and likely long-term sustainable occupancy.

Stable occupancy depends upon the nature of demand, size of property and nearby competition, and allows for a reasonable vacancy rate to enable the operator to contract units to new customers. In the valuation the assumed stabilised occupancy level for the 24 trading stores (both freeholds and leaseholds) averages 88.23% (2021: 88.5%).

Expenditure is deducted (such as business rates, staff costs, repair and maintenance, utilities, marketing and bad debts) as well as an operator's charge which takes account of central costs. JLL also make an allowance for long- term capex requirements where applicable. The assumptions used by JLL include: -

· The cash flow for freeholds runs for an explicit period of ten years, after which it is capitalised at an all risks yield which reflects the implicit future growth of the business, or a hypothetical sale.

· The cash flow for leaseholds continues for the unexpired term of the lease.

· The Discount Rate applied has had regard to recent transactions, weighted average costs of capital and target return in other asset types with adjustments made to reflect differences in the risk and liquidity profile.

· The weighted average annual Discount Rate adopted (for both freeholds and leaseholds) is 7.21% (2021: 9.24%).

· The Discount Rates used in the freehold valuation ranges from 6.50% to 8.75% (2021: 7.5% to 9.25%).

· The yield arising from the first year of the projected cash flow is 5.30% (2021: 6.49%), rising to 6.79% (2021: 7.61%) in year five.

· JLL have assumed purchasers' costs of 6.80% (2021: 6.80%).

· The average assumed stabilised occupancy is 88.23% (2021: 88.85%).

· The average Exit Yield assumed is 6.16% (2021: 6.73%).

The comparison method considers recent transactions where self-storage properties have sold, and then adjusts them based on a multiple of current earnings, and a capital value per square foot. They are adjusted to reflect differences in location, physical characteristics, local supply and demand, tenure and trading levels.

The Group has reported that the Lok'nStore trading stores have performed very well in terms of increasing pricing while maintaining occupancy over the course of the year.

For leaseholds, the same methodology has been used as for freehold property, except that no sale of the assets in the tenth year is assumed, but the discounted cash flow is extended to the expiry of the lease. The average unexpired term of the Group's operating leaseholds is approximately ten years and one month as at 31 July 2022 (11 years and one month: 31 July 2021). Valuations for stores held under leases are not reflected in the statement of financial position and the assets in relation to these stores are carried at cost less accumulated depreciation.

In 2011, one of the Group store's leases was renegotiated and includes a ten-year option to renew the leases from March 2026 to March 2036. The option to extend is only operable in the event that all four of the leases applicable to this store are extended and this option is personal to Lok'nStore or another "major self-storage operator", to be approved by the landlord (approval not to be unreasonably withheld). The JLL valuation on this store is based on this Special Assumption that the option to extend the lease for ten years is exercised. This is consistent with the approach taken in previous years.

Self-storage valuations are complex and involve a degree of judgement. As a guide and assuming all other factors or constant, improvements in a store's EBITDA would lead to an increase in that store's valuation. Conversely, an increase in Exit Yield and Discount Rate would result in a lower valuation and vice-versa.

The effect of a change in more than one input would magnify the impact on the valuation. Inputs moving in opposite directions, such as price and occupancy improving but capitalisation rates increasing could result in no net impact on valuations.

As an example of the sensitivity of capitalisation rates;

· A 50bpts decrease in the Exit Yields and Discount Rate would result in a £27.75 million increase in this year's valuation.

· A 100bpts decrease in the Exit Yields and Discount Rate would result in a £62.0 million increase in this year's valuation.

· A 50bpts increase in the Exit Yield and Discount Rate would result in a £23.1 million decrease in this year's valuation.

· A 100bpts increase in the Exit Yield and Discount Rate would result in a £42.5 million decrease in this year's valuation.

It is the Company's policy to conduct independent valuations of all trading assets at the end of each financial year. At the interim half year stage, the directors will consult with JLL to consider whether there has been any material change in market conditions. If there has been then the Directors will instruct an Independent Valuation at this point.

Directors' valuation of land and property

Land & Buildings at the rear of the new Salford trading store

Following the opening of the new Salford store in 2021, there is available land and building at the rear of the new store which is suitable for rent on commercial terms to third party users. Based on negotiated rents with tenants, the Directors continue to place a Directors' Valuation of £1.5 million (2021: £1.5 million) on this land and building.

The total value of land and property carried at Directors' Valuation at 31 July 2022 is £1.5 million (2021: £1.5 million).

12b) Right of use assets (ROU)

The Group accounts for the value of its property leases on the balance sheet by the recognition of a right of use asset (the right to use the leased item) and a corresponding financial liability to pay rentals due over the property lease term. This treatment relates to the Group's property leases. The Group has no leases on any other types of assets.

The Group recognises right of use assets (ROU) of £10.4 million at 31 July 2022 (2021: £10.5 million) and total lease liabilities of £10.9 million, (2021: £11.17 million) with depreciation charges of £1.31 million (2021: £1.26 million) and lease interest charges of £0.2 million (2021: £0.3 million).

Detailed analysis is provided in the tables below: -

Group

31 July 2022

£'000

Group

31 July 2021

£'000

Total annual rents payable under property leases

1,746

1,559

	Group 31 July 2022 £'000	Group 31 July 2021 £'000

Right of use asset (ROU)	10,424	10,503

Current Lease Liability
Amounts due within one year	1,612	1,258
Non-current Lease Liability
Amounts due in one to two years	1,174	1,085
Amounts due in three to five years	2,774	2,585
Amounts due in more than five years	5,334	6,238
Non-current Lease Liability	9,282	9,908
Total lease liability	10,894	11,166

	Group 31 July 2022 £'000	Group 31 July 2021 £'000
Property rentals	1,746	1,559
Depreciation of right of use asset (ROU)	(1,314)	(1,261)
Interest charged on lease liability	(239)	(270)

Impact on Comprehensive Income	193	28

The Group has no leases on any other types of assets. The Present Value of all future operating lease payments is calculated using 2.2% (2021: 2.2%) as an incremental borrowing rate as the single Discount Rate. The right of use assets are depreciated based on the individual lease term of the separate leases.

13 Investments

Company investments in subsidiary undertakings	£'000
31 July 2020	2,552
Capital contributions arising from share-based payments	118
31 July 2021	2,670
Capital contributions arising from share-based payments	201
31 July 2022	2,871

The Company holds more than 20% of the share capital of the following companies, all of which are incorporated in England and Wales:

% of Shares and Voting Rights
Company Name	Company Registration No.	Class of Shareholding	Directly	Indirectly	Nature of Entity
Lok'nStore Limited * #	02902717	Ordinary	100	-	Self-storage
Lok'nStore Trustee Limited ¥ ♦	03788705	Ordinary	-	100	Trustee
Southern Engineering and Machinery Company Ltd ¥ ^* #	00381670	Ordinary	-	100	Self-storage
Semco Machine Tools Limited ≠ #	01025573	Ordinary	-	100	Dormant
Semco Engineering Limited ≠ #	01164294	Ordinary	-	100	Dormant
ParknCruise Limited ¥ ♦	10329934	Ordinary	-	100	Dormant
The Box Room (Self-storage) Limited ¥ ^* ♦	06840417	Ordinary	-	100	Self-storage

¥ These companies are subsidiaries of Lok'nStore Limited.

≠ These companies are subsidiaries of Southern Engineering and Machinery Company Limited and did not trade during the year.

^* These companies have taken the exemption from audit under Section 479A of the Companies Act 2006.

♦ The address of these companies is 112, Hawley Lane, Farnborough, Hants. GU14 8JE.

# The address of these companies is 1, Fleet Place, London. EC4M 7WS.

14 Inventories

Group

2022

£'000

Group

2021

£'000

Consumables and goods for resale

143

290

The amount of inventories recognised in Group cost of sales as an expense during the year was £112,887 (2021: £124,656) (See note 3). The Company had no inventory in either year.

15 Trade and Other Receivables

	Group 2022 £'000	Group 2021 £'000
Trade receivables	1,198	1,451
Other receivables	2,318	881
Taxation	-	1,497
Prepayments and accrued income	472	444
	3,988	4,273

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

Other receivables include monies receivable from the managed stores for services provided by the Group. The 2021 taxation debtor of £1.497 million was a VAT repayment owed to the Group by HMRC which was received post year-end.

The following balances existed between the Company and its subsidiaries at 31 July:

Company

2022

Company

2021

£'000

Net amount due from Lok'nStore Limited

28,785

27,051

The amount due from Lok'nStore Limited is interest free. The balance is repayable on demand.

Trade receivables

In respect of its self-storage business the Group does not typically offer credit terms to its customers and hence the Group is not exposed to significant credit risk. All customers are required to pay in advance of the storage period. Late charges are applied to a customer's account if they are more than ten days overdue in their payment. The Group provides for receivables based upon sales levels and estimated recoverability. There is a right of lien over the customers' goods, so if they have not paid within a certain time frame the Group has the right to sell the items they store to cover the debt owed by the customer. Trade receivables that are overdue are provided for based on estimated irrecoverable amounts, determined by reference to expected credit losses.

For individual self-storage customers, the Group does not perform credit checks. However, this is mitigated by the fact that all customers are required to pay in advance. Before accepting a new business customer who wishes to use a number of the Group's stores, the Group uses an external credit rating to assess the potential customer's credit quality and defines credit limits by customer. There are no customers who represent more than 5% of the total balance of trade receivables.

Included in the Group's trade receivables balance are receivables with a carrying amount of £100,214 (2021: £89,329) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group holds a right of lien over its self-storage customers' goods if these debts are not paid. The average age of these receivables is 53 days past due (2021: 55 days past due). The Group does not expect credit losses on intra-group balances.

Ageing of past due but not impaired receivables

	Group 2022 £'000	Group 2021 £'000
0-30 days	22	14
30-60 days	8	4
60+ days	70	71
Total	100	89
Movement in the allowance for credit losses
	2022	2021
	£'000	£'000
Balance at the beginning of the year	147	189
Impairment losses recognised	30	22
Amounts written off as uncollectible	(77)	(64)
Balance at the end of the year	100	147

The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that there is no further provision required.

Ageing of impaired trade receivables	Group 2022 £'000	Group 2021 £'000
0-30 days	-	-
30-60 days	-	-
60+ days	100	147
Total	100	147

16 Trade and Other Payables

	Group 2022 £'000	Group 2021 £'000
Trade payables	1,849	1,385
Taxation and social security costs	1,014	370
Other payables	588	690
Accruals and deferred income	3,778	3,397
	7,229	5,842

The Directors consider that the carrying amount of trade and other payables approximates fair value. The Company had no trade and other payables in either year.

17 Financial Instruments

Capital management and gearing

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt, which include the borrowings disclosed in note 18, cash and cash equivalents and equity attributable to the owners of the Parent, comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity. The Group's banking facilities require that management give regular consideration to interest rate hedging strategy. The Group has complied with this during the year with hedging forming a Board agenda item for discussion at each Board meeting.

The Group's Board reviews the capital structure on an on-going basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital.

The Group seeks to have a relatively conservative gearing ratio (the proportion of net debt to equity) balancing the overall level with the opportunities for the growth of the business. The Board considers at each review the appropriateness of the current ratio in light of the above. The Board is currently satisfied with the Group's gearing ratio.

The gearing ratio at the year-end is as follows:

Gearing - Bank borrowings	Group 2022 £'000	Group 2021 £'000
Gross debt - bank borrowings *	(66,785)	(65,399)
Cash and cash equivalents	46,465	9,105
Net debt	(20,320)	(56,294)
Total equity - balance sheet	205,346	151,259
Net debt to equity ratio	9.9%	37.2%

Total Gearing - Bank borrowings and lease liabilities	Group 2022 £'000	Group 2021 £'000

Gross debt - bank borrowings *	(66,785)	(65,399)
Gross debt - lease liabilities	(10,894)	(11,166)
Cash and cash equivalents	46,465	9,105
Net debt	(31,214)	(67,460)
Total equity - balance sheet	205,346	151,259
Net debt to equity ratio	15.2%	44.6%

* Gross debt is the total amount of bank debt drawn before any amortisation of bank arrangement fees.

The movement of the Group's gearing ratio arises principally through the combined effect of an increase in the value of its trading properties, and the cash generated from operations, offset primarily by drawdown of debt to fund the acquisition of the development site in Peterborough. The Group's gearing ratio was also enhanced by the profitable disposals during the year relating to the sale and manage-back of four trading stores.

The Group's operating cash was also applied to ongoing planning, construction and fit out works at other sites, principally at our Warrington and Stevenage stores and the completion of construction works at our Leicester and Salford stores. Costs relating to the planning and pre-development works on our Bournemouth, Cheshunt, Peterborough and Staines sites also featured.

Exposure to credit and interest rate risk arises in the normal course of the Group's business.

A Derivative financial instruments and hedge accounting

The Group's activities expose it primarily to the financial risks of interest rates. The Group previously has hedged through the deployment of interest rate swaps although the Group had no such instruments in place at 31 July 2021 or 31 July 2022. The Board continues to keep its hedging policy under periodic review.

B Debt management

Debt is defined as non-current and current borrowings, as detailed in note 18. Equity includes all capital and reserves of the Group. The Group is not subject to externally imposed capital requirements.

The Group borrows through a joint revolving credit facility with Royal Bank of Scotland/NatWest Bank plc and ABN AMRO Bank secured on its store portfolio and other Group assets, excluding intangibles, with a net book value of £292.8 million (2021: £255.7 million).

Borrowings are arranged to ensure the Group fulfils its strategy of growth and development of its stores and to maintain short-term liquidity. As at the reporting date the Group has a committed revolving credit facility of £100 million (2021: £75 million) providing undrawn committed facilities at 31 July 2022 of £33.2 million. This facility runs to April 2026, and details are provided in note 18 (Borrowings).

C Interest rate risk management

The Group's policy on interest rate management is agreed at Board level and is reviewed on an on-going basis. All borrowings are denominated in Sterling and are detailed in note 17. The Group has a number of revolving loans within its overall revolving credit facility and as such is exposed to interest rate risks at the time of renewal arising from any upward movement in the SONIA rate. With the rising level of interest rates, the Board monitors closely its effect on the business and has levers in place to mitigate the effects.

Cash balances held in current accounts attract no interest, but surplus cash is transferred daily to a treasury deposit account which earns interest at the prevailing money market rates. All amounts are denominated in Sterling. The balances at 31 July 2022 are as follows:

	Group 2022 £'000	Group 2021 £'000
Variable rate treasury deposits ^#	45,371	7,604
SIP trustee deposits	63	63
Cash in operating current accounts	1,031	1,430
Other cash and cash equivalents	-	8
Total cash and cash equivalents	46,465	9,105

# On 7 July 2022, the Group placed £15.0 million on Treasury Deposit Reserve on a 3-month fixed rate at 1.36% which ended on 7 October 2022. On its maturity date this amount was rolled over into a 4-month fixed rate on Treasury Deposit Reserve at 2%.

Also, on 7 July 2022, the Group placed £15.0 million on Treasury Deposit Reserve on a 4-month fixed rate at 1.55% which ends on 7 November 2022.

The Group reviews the current and forecast projections of cash flow, borrowing and interest cover as part of its monthly management accounts review. In addition, an analysis of the impact of significant transactions is carried out regularly, as well as a sensitivity analysis of the impact of movements in interest rates on gearing and interest cover.

D Interest rate sensitivity analysis

Over the longer term, significant changes in interest rates may have an impact on consolidated earnings.

At 31 July 2022, it is estimated that an increase of one percentage point in interest rates would have reduced the Group's annual profit before tax by £667,846 (2021: £653,989) and conversely a decrease of one percentage point in interest rates would have increased the Group's annual profit before tax by £667,846 (2021: £653,989). There would have been no effect on amounts recognised directly in other comprehensive income. The sensitivity has been calculated by increasing by 1% the average variable interest rate of 1.71% and applying to the variable rate borrowings of £68.8 million in the year (2021: £65.4 million/1.54%).

E Cash management and liquidity

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note B above is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.

Short-term money market deposits are used to manage liquidity whilst maximising the rate of return on cash resources, giving due consideration to risk.

F Foreign currency management

The Group operates solely in the United Kingdom and as such all of the Group's financial assets and liabilities are denominated in Sterling and there is no exposure to exchange risk.

G Credit risk

The credit risk management policies of the Group, with respect to trade receivables, are discussed in note [15]. There has not been a significant change in credit quality.

The Group has a strong credit model with customers paying four-weekly in advance for their storage. The Group has no significant concentration of credit risk, with exposure spread across 17,000 customers (2021: 16,000) and with no individual self-storage customer accounting for more than 1% of total revenue and no entities under common control (e.g., Government) accounting for more than 5% of total revenues.

The Group holds a right of lien over its self-storage customers' goods if customer debts are not paid although this is used relatively infrequently within the context of overall customer numbers and only ever as a final stage in the debt recovery process.

The credit risk on liquid funds is limited because the counterparty is a bank with high credit ratings assigned by international credit-rating agencies, in line with the Group's policy which is to borrow from major institutional banks when arranging finance.

The Group's maximum exposure to credit risk at 31 July 2022 was £2.26 million (2021: £1.48 million) on receivables and £46.5 million (2021: £9.1 million) on cash and cash equivalents.

H Maturity analysis of financial liabilities

The undiscounted contractual cash flow maturities are as follows:

2022 - Group	Trade and Other Payables £'000	Borrowings £'000	Interest on Borrowings £'000
Over five years	-	-	-
From two to five years	-	66,785	3,131
From one to two years	-	-	1,809
Due after more than one year	-	66,785	4,940
Due within one year	4,207	-	1,809
Total contractual undiscounted cash flows	4,207	66,785	6,749

2021 - Group	Trade and Other Payables £'000	Borrowings £'000	Interest on Borrowings £'000
Over five years	-	-	-
From two to five years	-	65,399	2,248
From one to two years	-	-	1,010
Due after more than one year	-	65,399	3,258
Due within one year	2,856	-	1,010
Total contractual undiscounted cash flows	2,856	65,399	4,268

Lease liabilities are separately disclosed in note 19.

I Fair values of financial instruments

	Group 2022 £'000	Group 2021 £'000
Categories of financial assets and financial liabilities
Financial assets measured at amortised cost
Trade and other receivables ¹	3,516	2,824
Cash and cash equivalents	46,465	9,105
Financial liabilities measured at amortised cost
Trade and other payables	(4,207)	(2,856)
Lease liabilities	(10,894)	(11,166)
Bank loans	(66,196)	(64,941)

^{1 Includes £1.0 million (gross) relating to fees receivable from the Aldershot managed Store classified in Other Debtors, plus Trade Receivables of £1.2 million plus Other Receivables of £1.3 million}

The fair values of the Group's cash and short-term deposits and those of other financial assets equate to their carrying amounts. The amounts are presented net of provisions for doubtful receivables and allowances for impairment are made where appropriate.

J Company's financial instruments

The Company's financial assets are amounts owed by subsidiary undertakings amounting to £28.8 million (2021: £27.1 million) which are classified as loans and receivables, and the investment in its subsidiary undertaking of £2.87 million (2021: £2.67 million). These amounts are denominated in Sterling. The Company has no financial liabilities.

18 Borrowings

Bank borrowings	Group 2022 £'000	Group 2021 £'000
Non-current
Bank loans repayable in more than two years
but not more than five years
Gross	66,785	65,399
Deferred financing costs	(589)	(458)
Net bank borrowings	66,196	64,941
Non-current borrowings	66,196	64,941

· £25 million accordion executed and increases bank facility from £75 million to £100 million

· Bank facility extended by one year to April 2026

· Migration from LIBOR to an alternative risk-free reference rate (SONIA)

On 20 October 2021, the Group executed the accordion arrangement embedded within the Revolving Credit Facility which increases the facilities available to the Group from £75 million to £100 million.

In addition, the Group has also agreed a one-year extension on its existing joint banking facility with National Westminster Bank/Royal Bank of Scotland plc and ABN AMRO Bank N.V. The facility, which was due to expire in April 2025, will now run until April 2026 providing funding for more Landmark site acquisitions.

The two principal bank covenants (LTV and Senior interest) and margin are unaffected by the execution of the accordion and this extension of term. Margin/pricing is also unaffected.

Amendments to the Facility Agreement dealing with the transition from LIBOR to SONIA (Sterling Over Night Indexed Average) have also been made, fulfilling UK regulators' requirements ahead of LIBOR's phasing out after 31 December 2021.

The Group currently has £66.8 million drawn against its facility, which is secured with National Westminster Bank/ RBS and ABN AMRO jointly by legal charges and debentures over the freehold and leasehold properties and other tangible assets of the business with a net book value of £292.8 million (2021: £255.7 million) together with cross-company guarantees from Group companies.

With current facility utilisation at £66.8 million and combined with cash balances of £46.5 million the £100 million facility provides around £79.7 million of available cash headroom.

19 Lease Liabilities

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the leases. Where this cannot be readily determined the Present Value of all future operating lease payments is calculated using 2.2% (2021: 2.2%) as an incremental borrowing rate as the Discount Rate.

After the application of a weighted depreciation charge based on the individual lease term of the separate leases and the imputation of an interest charge at 2.2% (2021: 2.2%) as part of the amortisation of the lease liability the total lease liabilities are shown below.

Lease liabilities attributable to right of use assets	Group 2022 £'000	Group 2021 £'000

Current lease liabilities
Amounts due within one year	1,612	1,258

Non-current lease liabilities
Amounts due in one to two years	1,174	1,085
Amounts due in three to five years	2,774	2,585
Amounts due in more than five years	5,334	6,238
Non-current lease liabilities	9,282	9,908
Total lease liabilities	10,894	11,166

Lease liabilities attributable to right of use assets	Group 2022 £'000	Group 2021 £'000
Balance brought forward	11,166	12,455
Increase in property rentals	1,235	-
Lease repayments	(1,746)	(1,559)
Lease interest (non-cash)	239	270
Total lease liabilities	10,894	11,166

The portfolio of property leases all have similar characteristics. Subject to periodic future rent reviews, typically every five years, there are no variable lease payments. The Group has no leases on any other types of assets.

The total future commitments due under non-cancellable leases is set out in note 30 (Commitments under Property Leases).

20 Deferred Tax

Deferred tax liability	Group 2022 £'000	Group 2021 £'000
Liability at start of year	46,760	26,760
Total charge to income for the year	2,113	2,367
	48,873	29,127
Tax charged directly to other comprehensive income	14,284	18,224
Charge / (credit) to share-based payment reserve	57	(591)
Liability at end of year	63,214	46,760

The following are the major deferred tax liabilities and assets recognised by the Group and the movements during the year:

	Accelerated Capital Allowances £'000	Other Temporary Differences £'000	Revaluation of Properties £'000	Rolled over Gain on Disposal £'000	Share Options £'000	Total £'000

At 31 July 2020	3,649	479	19,939	2,956	(263)	26,760
Charge to income for the year	1,479	130	-	758	-	2,367
Charge to other comprehensive income	-	-	18,224	-	-	18,224
Credit to share-based payment reserve	-	-	-	-	(591)	(591)
At 31 July 2021	5,128	609	38,163	3,714	(854)	46,760
Charge to income for the year	591	-	-	1,522	-	2,113
Charge to other comprehensive income	-	-	9,978	4,306	-	14,284
Credit to share-based payment reserve	-	-	-	-	57	57
At 31 July 2022	5,719	609	48,141	9,542	(797)	63,214

The increase in the deferred tax liability arises substantially from a combination of an increase in the valuation of the Group's stores and a provision for the gain arising on the sale of the four sale and manage-back stores which will in due course be subject to a roll-over relief claim.

The deferred tax provision is substantially a tax provision against the potential crystallisation (sales) of revalued properties and past 'rolled over' gains and amounts to £63.2 million (2021: £46.8 million), the crystallisation of which is within the Board's control.

21 Share Capital

	2022	2021
Authorised:	£'000	£'000
35,000,000 ordinary shares of 1 pence each (2021: 35,000,000)	350	350

Allotted, issued and fully paid ordinary shares	£'000	£'000
Balance at start of year	298	297
Options exercised during the year	3	1
Balance at end of year	301	298
	Called up,	Called up,
	Allotted and	Allotted and
	Fully Paid	Fully Paid
	Number	Number
Number of shares at start of the year	29,686,787	29,633,290
Options exercised during the year	316,758	53,497
Number of shares at end of the year	30,003,545	29,686,787

The Company has one class of Ordinary Shares which carry no right to fixed income.

22 Equity-Settled Share-Based Payment Plans

The Group operates three equity-settled share-based payment plans: one approved and two unapproved share option schemes.

The Company has granted the following share options:

2022	As at				As at
Summary	31 July 2021			Lapsed/	31 July 2022
	No. of Options	Granted	Exercised	Surrendered	No. of Options

Unapproved Share Options (refer note 24(a))	683,950	1,163	(280,323)	-	404,790
Unapproved Share Options (PPP Scheme) - refer note 24(b))	990,000	277,658	-	-	1,267,658
Approved CSOP Share Options (refer note 25)	86,476	12,542	(36,435)	-	62,583
Total	1,760,426	291,363	(316,758)	-	1,735,031

2021	As at				As at
Summary	31 July 2020			Lapsed/	31 July 2021
	No. of Options	Granted	Exercised	Surrendered	No of Options

Unapproved Share Options (refer note 24(a))	715,104	8,608	(39,762)	-	683,950
Unapproved Share Options (PPP Scheme) - refer note 24(b))	830,000	280,000	-	(120,000)	990,000
Approved CSOP Share Options (refer note 25)	97,935	2,276	(13,735)	-	86,476
Total	1,643,039	290,884	(53,497)	(120,000)	1,760,426

The following table shows options held by Directors under all schemes.

	Total at 31 July 2021	Options Granted	Options Exercised	Unapproved Scheme	Approved CSOP Share Options	Total at 31 July 2022
2022
Executive Directors
A Jacobs - Unapproved	206,087	-	(206,087)-	-	-	-
A Jacobs - PPP	160,000	40,000	-	200,000	-	200,000
A Jacobs - total	366,087	40,000	(206,087)	200,000	-	200,000
RA Davies - Unapproved	246,977	-	(65,000)	181,977	-	181,977
RA Davies - CSOP	7,742		(7,742)	-	2,941	2,941
RA Davies - PPP	160,000	38,236	-	198,236	-	198,236
RA Davies total	414,719	38,236	(72,742)	380,213	2,941	383,154
N Newman-Shepherd - Unapproved	135,599	-	-	135,599	-	135,599
N Newman-Shepherd - CSOP	8,618		(1,400)	7,218	964	8,182
N Newman-Shepherd - PPP	240,000	59,422	-	299,422	-	299,422
N Newman-Shepherd total	384,217	59,422	(1,400)	442,239	964	443,203
All Directors total	1,165,023	137,658	(280,229)	1,022,452	3,905	1,026,357

	Total at 31 July 2020	Options Granted	Options Exercised	Unapproved Scheme	Approved CSOP Share Options	Total at 31 July 2021
2021
Executive Directors
A Jacobs - Unapproved	206,087	-	-	206,087	-	206,087
A Jacobs - PPP	80,000	40,000	-	120,000	-	120,000
A Jacobs - total	286,087	40,000	-	326,087	-	326,087
RA Davies - Unapproved	246,977	-	-	246,977	-	246,977
RA Davies - CSOP	7,742	-	-	-	7,742	7,742
RA Davies - PPP	80,000	40,000	-	120,000	-	120,000
RA Davies total	334,719	40,000	-	366,977	7,742	374,719
N Newman-Shepherd - Unapproved	172,421	-	(36,822)	135,599	-	135,599
N Newman-Shepherd - CSOP	10,661	-	(2,043)	-	8,618	8,618
N Newman-Shepherd - PPP	120,000	60,000	-	180,000	-	180,000
N Newman-Shepherd total	303,082	60,000	(38,865)	315,599	8,618	324,217
Non-Executive Directors
SG Thomas - Unapproved	5,217	-	-	5,217	-	5,217
All Directors total	929,105	140,000	(38,865)	1,013,880	16,360	1,030,240

The grant of options to Executive Directors and senior management is recommended by the Remuneration Committee on the basis of their contribution to the Group's success. The options vest after two and a half, three or five years, subject to the performance criteria attached to the options.

Under the CSOP Approved Share Option scheme (note 25) and the Unapproved Share Options scheme (note 24(a)), the exercise price of the options is equal to the closing mid-market price of the shares on the trading day previous to the date of the grant. Exercise of an option is subject to continued employment or in the case of unapproved options at the discretion of the Board. The life of each option granted is six and a half to seven years. There are no cash settlement alternatives.

The rules governing the PPP scheme are disclosed in note 24b.

Under the CSOP Approved Share Option scheme (note 25) and the Unapproved Share Options scheme (note 24a), the expected volatility is based on a historical review of share price movements over a period of time, prior to the date of grant, commensurate with the expected term of each award. The expected term is assumed to be six and a half years which is part way between vesting (two and a half to three years after grant) and lapse (ten years after grant). The risk-free rate of return is the UK gilt rate at date of grant commensurate with the expected term (i.e., six and a half years).

Under the Partnership Performance Plan (note 24(b)), the expected volatility is based on a historical review of share price movements over a period of time, prior to the date of grant, commensurate with the expected term of each award. For options granted on 31 July 2022, the expected term is assumed to be 10.34 years (2021: 11.76 years), which is halfway between vesting and lapse. The vesting date is based upon the assumption that the CAD and/or NAV targets are met at the same time as the share price target is met, and the lapse date is the fifteenth anniversary of the grant. The risk-free rate of return is the UK gilt rate at date of grant commensurate with the expected term (i.e.10.34 years).

The total charge for the year relating to employer share-based payment schemes was £201,385 (2021: £117,586), all of which relates to equity-settled share-based payment transactions.

23(a) Other Reserves

			Capital	Share-based
	Merger	Other	Redemption	Payment
	Reserve	Reserve	Reserve	Reserve	Total
Group	£'000	£'000	£'000	£'000	£'000
31 July 2020	6,295	1,294	34	832	8,455
Share-based remuneration (options)	-	-	-	118	118
IFRS 2 - transfer retained earnings	-	-	-	(26)	(26)
Tax charge relating to share options	-	-	-	591	591
31 July 2021	6,295	1,294	34	1,515	9,138
Share-based remuneration (options)	-	-	-	201	201
IFRS 2 - transfer retained earnings	-	-	-	(180)	(180)
Tax charge relating to share options	-	-	-	(57)	(57)
31 July 2022	6,295	1,294	34	1,479	9,102

The merger reserve represents the excess of the nominal value of the shares issued by Lok'nStore Group plc over the nominal value of the share capital and share premium of Lok'nStore Limited as at 31 July 2001.

The other distributable reserve and the capital redemption reserve arose in the year ended 31 July 2004 from the purchase of the Company's own shares and a cancellation of share premium. The revaluation reserve is a non-cash non-distributable reserve that reflects the uplift between market (fair) value of the Group's store assets and their historic book value.

Share-based payment reserve

There is the option to make transfers from the share-based payment reserve to retained earnings in respect of accumulated share option charges where the options have either been exercised or have lapsed post-vesting.

The total amounts calculated and accordingly transferred to retained earnings amounted to £180,391 (2021: £26,419).

23(b) Other Reserves

	Other	Share-based
	Reserve	Payment
		Reserve	Total
Company	£'000	£'000	£'000
31 July 2020	1,114	798	1,912
Share-based remuneration (options)	-	118	118
IFRS 2 - transfer to/from retained earnings	-	(26)	(26)
31 July 2021	1,114	890	2,004
Share-based remuneration (options)	-	201	201
IFRS 2 - transfer to/from retained earnings	-	(180)	(180)
31 July 2022	1,114	912	2,026

24(a) Retained Earnings

	Retained Earnings
	before Deduction	Own Shares	Retained Earnings
	of Own Shares	(note 25)	Total
Group	£'000	£'000	£'000

31 July 2020	26,595	(500)	26,095
Profit attributable to owners of Parent for the financial year	3,283	-	3,283
Transfer from revaluation reserve Additional depreciation on revaluation	568	-	568
Transfer from share-based payment reserve (note 23a)	26	-	26
Reserve transfer on disposal of assets	165	-	165
Dividend paid	(3,865)	-	(3,865)
31 July 2021	26,772	(500)	26,272
Profit attributable to owners of Parent for the financial year	12,078	-	12,078
Transfer from revaluation reserve Additional depreciation on revaluation	821	-	821
Transfer from share-based payment reserve (note 23a)	180	-	180
Reserve transfer on disposal of assets	20,258	-	20,258
Dividend paid	(4,601)	-	(4,601)
31 July 2022	55,508	(500)	55,008

The transfer from revaluation reserve represents the additional depreciation charged on revalued assets net of deferred tax.

The Own Shares Reserve represents the cost of shares in Lok'nStore Group plc purchased in the market and held in the Employee Benefit Trust to satisfy awards made under the Group's share incentive plan and shares purchased separately by Lok'nStore Limited for Treasury Account.

24(b) Retained Earnings

	Retained Earnings		Retained
	before Deduction	Own Shares	Earnings
	of Own Shares	(note 25)	Total
Company	£'000	£'000	£'000
31 July 2020	15,650	-	15,650

Profit attributable to owners of Company for the financial year	4,793	-	4,793
Transfer from share-based payment reserve (note 23b)	26	-	26
Dividend paid	(3,865)	-	(3,865)
31 July 2021	16,604	-	16,604
Profit attributable to owners of Company for the financial year	5,756	-	5,756
Transfer from share-based payment reserve (note 23b)	180	-	180
Dividend paid	(4,601)	-	(4,601)
31 July 2022	17,939	-	17,939

25 Own Shares

	EBT	EBT	Treasury	Treasury	Own Shares
	Shares	Shares	Shares	Shares	total
	Number	£	Number	£	£
31 July 2021 and 31 July 2022	623,212	499,910	-	-	499,910

The Group operates an Employee Benefit Trust (EBT) under a settlement dated 8 July 1999 between Lok'nStore Limited and Lok'nStore Trustee Limited, constituting an employees' share scheme.

Funds are placed in the Trust by way of deduction from employees' salaries on a monthly basis as they so instruct for purchase of shares in the Company. Shares are allocated to employees at the prevailing market price when the salary deductions are made.

As at 31 July 2022, the Trust held 623,212 (2021: 623,212) Ordinary Shares of 1 pence each with a market value of £6,356,762 (2021: £4,580,608). No shares were transferred out of the scheme during the year (2021: nil).

No options have been granted under the EBT. The EBT waived its dividends in full. No other dividends were waived during the year.

26 Cash flows

(a) Reconciliation of profit before tax to cash generated from operations

	Year ended 31 July 2022 £'000	Year ended 31 July 2021 £'000

Profit before tax	15,874	6,448
Depreciation and loss on disposal	4,727	4,149
Equity-settled share-based payments	201	118
Non-underlying items (note 4)	(5,739)	160
Interest receivable	(42)	(1)
Interest payable - bank borrowings	1,089	747
Interest payable - lease liabilities	239	270
Decrease / (increase) in financial asset	509	(148)
Decrease / (increase) in inventories	148	(20)
Decrease (increase) in receivables	285	(645)
Increase / (decrease) in payables	1,278	1,109
Cash generated from operations	18,569	12,187

(b) Reconciliation of net cash flow to movement in net bank debt

Net bank debt is defined as non-current and current borrowings, as detailed in note 18, less cash and cash equivalents.

	Group 2022	Group 2021
	£'000	£'000
Increase / (decrease) in cash in the year	37,360	(3,961)
Change in net debt resulting from cash flows	(1,386)	(14,077)
Movement in net debt in year	35,974	(18,038)
Net bank debt brought forward	(56,294)	(38,256)
Net bank debt carried forward	(20,320)	(56,294)

27 Commitments Under Property Leases

At 31 July 2022 the total future minimum lease payments as a lessee under non-cancellable leases were as follows:

	Group	Group
	2022	2021
Land and Buildings	£'000	£'000
Amounts due:
Within one year	1,727	1,612
Between two and five years	4,737	4,583
After five years	6,273	6,863
	12,737	13,058

Property lease payments represent rentals payable by the Group for certain of its properties. Typically, leases are negotiated for a term of 20 years and rentals are fixed for an average of five years.

The Group's property leases on its leased stores are recognised as a right of use asset and as a corresponding liability at the year-end.

28 Related Party Transactions

The Company provides share options for the employees of Lok'nStore Limited. The capital contributions arising from these share-based payments are separately disclosed under investments in note 13.

The aggregate remuneration of the Directors, and the other key management personnel of the Group, is set out below. Further information on the remuneration of individual Directors is found in note 8.

	Group 2022		Group 2021
	£'000		£'000
Short-term employee benefits - Directors	922	968
Short-term employee benefits - Other key management	373	469
Post-employment benefits - Directors	11	10
Post-employment benefits - Other key management	8	18
Share-based payments	201	118
Social security costs -Directors	370	120
Social security costs -Other key management	49	56
Total	1,934	1,759

The Group recognises a number of management personnel that are important to retain within the business in order for it to achieve its strategic plan. Accordingly, these are recognised as key personnel and are participants in the Long-Term Performance Plan. They are included in the table above.

Group Director shareholdings - dividends received

In respect of the total dividends paid during the year of £4.6 million (2021: £3.87 million), the Group Directors received the amounts set out in the table below: -

Director's Dividend Income

Holding

Final 2021

Interim 2022

Total 2022

Total 2021

10.67 pence per Share

5.0 pence per

Executive:

No.

A Jacobs *

5,513,950

588,338

275,698

864,036

658,776

R Davies

73,832

7,878

3,692

11,570

8,400

N Newman-Shepherd

30,739

3,280

1,537

4,817

4,098

Non-Executive:

SG Thomas *

1,691,190

180,450

84,560

265,010

203,733

RJ Holmes

289,606

30,901

14,480

45,381

41,004

CP Peal

600,629

64,087

30,031

94,118

84,797

J Woyda

2,419

258

121

379

105

8,202,365

875,192

410,119

1,285,311

1,005,579

* Andrew Jacobs and Simon Thomas dividend income above includes their respective holdings in their individual pension funds.

Managed Stores - Group Director shareholdings

The relationship between Lok'nStore Group plc and the Managed Stores which it manages have been reported in detail in last year's financial statements and is not repeated here.

Although the Director holdings in Managed Stores falls outside of the definition of related party transactions they are disclosed here, as in previous years, for transparency and are set out in the table below: -

Director	Wolverhampton	Broadstairs	Exeter
	No. of Shares	No. of Shares	No. of Shares
Andrew Jacobs	36,800	38,160	240,000
Charles Peal	-	-	500,000
Simon Thomas	-	-	160,000
Total shareholding	36,800	38,160	900,000
Issued Share Capital	189,341	189,690	3,970,000
% of Issued Share Capital	19.4%	20.1%	22.7%

· These shareholdings relate to three Managed Stores, each in separate corporate vehicles, which have very specific EIS tax advantages. The Directors' respective shareholdings in these companies have remained unchanged since their initial investment.

· The Lok'nStore Directors have no other shareholdings in any other Managed Stores.

· Changes in UK Tax legislation mean that these EIS tax advantages no longer exist, and these reliefs are no longer available for Managed Store opportunities that may be undertaken in the future.

· Under UK Takeover Panel protocols in relation to the Rule 9 Waiver agreed each year with Lok'nStore Group plc, necessary to preserve the Group's share buyback authority, Andrew Jacobs cannot, by agreement with the Panel, purchase any more Lok'nStore shares. As such the three EIS investment vehicles represented an opportunity for Mr Jacobs to hold additional self-storage assets in tax efficient vehicles.

· Lok'nStore Group operate 16 Managed Stores, currently trading, and have a further one secured Managed Stores in the pipeline making a total of 17 Managed Stores. The Managed Store strategy is a well-developed one which enables the Group to increase the operational footprint of Lok'nStore branded stores without the balance sheet risk of ownership.

· At 31 July 2022, Lok'nStore has a total of 50 stores (40 currently trading and a pipeline of ten secured stores).

· The terms of the Management Services Agreements executed between Lok'nStore and with Wolverhampton, Broadstairs and Exeter were executed at arm's length on normal commercial terms with independent Director(s) who were not directors of Lok'nStore and therefore unconnected. The commercial terms are all similar to, and consistent with, those agreed with other third-party Managed Store owners.

· The Board of Lok'nStore Group plc have governance protocols in place to ensure that there are no conflicts of interest between the Group and the shareholders of the Wolverhampton, Broadstairs and Exeter stores. Specifically, Mr Jacobs could not hold a disproportionate holding in the EIS Managed Stores not commensurate with his shareholding in Lok'nStore Group plc.

29 Capital Commitments

The Group has capital expenditure contracted but not provided for in the financial statements of £11.21 million (2021: £6.16 million) relating to commitments to complete the ongoing construction of our sites in Bedford and Peterborough and final contract commitments on our completed sites at Warrington and Stevenage. We are also committed on the Staines Store project in respect of the land and main build contract and the Basildon Store in respect of the lease commitment which commences when practical completion of the building is delivered to us at the end of March 2023.

30 Guarantees

The Company has guaranteed the bank borrowings of Lok'nStore Limited, a subsidiary company. As at the year-end, that company had gross bank borrowings of £66.8 million (2021: £65.4 million).

31 Events after the Reporting Date

Acquisition of a development site in Milton Keynes

On 4 October 2022, we exchanged contracts, subject to planning, on a freehold development opportunity in Watling Street, Milton Keynes. This new highly visible roadside location in the north west of the city complements our existing leasehold store, seven miles to the south east. Once developed the store will add circa 60,000 sq. ft. of lettable area.

Glossary

Abbreviation

APM	Alternative performance measure
Adjusted EBITDA	Earnings before all depreciation and amortisation charges, losses or profits on disposal, share-based payments, acquisition costs, non-underlying items and non-recurring professional costs, finance income, finance costs and taxation
Adjusted Store EBITDA	Adjusted EBITDA (see above) but before central and head office costs
AGM	Annual General Meeting
Bps	Basis Points
CAD	Cash available for Distribution
Capex	Capital Expenditure
CGU	Cash-generating units
CO2 e	Carbon Dioxide Equivalents
CSOP	Company Share Option Plan
DRIP	Dividend Reinvestment Plan
EBT	Employee Benefit Trust
EIS	Enterprise Investment Scheme
(eKPIs)	Environmental key performance indicators
EMI	Enterprise Management Incentive Scheme
ESOP	Employee Share Option Plan
EU	European Union
GHG	Greenhouse gas
HMRC	His Majesty's Revenue and Customs
IAS	International Accounting Standard
IFRIC	International Financial Reporting Interpretations Committee
IFRS	International Financial Reporting Standards
ISA	International Standards on Auditing
JLL	Jones Lang LaSalle
KPI	Key Performance Indicator
LFL	Like for like
LTPPP	Long Term Partnership Performance Plan
LTV	Loan to Value Ratio
MWh	Megawatt Hour
NAV	Net Asset Value
NBV	Net Book Value
Operating Profit	Earnings before interest and tax (EBIT)
PPP	Partnership Performance Plan
PV	Photovoltaic
QCA	Quoted Companies Alliance
RICS	Royal Institution of Chartered Surveyors
RNS	Regulatory News Service
ROU	Right of Use Asset
SIP	Share Incentive Plan
SME	Small and medium sized enterprises
SONIA	Sterling Overnight Index Average
Sq. ft.	Square feet
tCO2e	Tonnes of carbon dioxide equivalent
TVR	Total voting rights
VAT	Value Added Tax

Table Description automatically generated

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