Interim Results

Safestore Holdings PLC 10 July 2007 FOR IMMEDIATE RELEASE 10 JULY 2007 Safestore Holdings plc ("Safestore" or "the Company") Interim Results Announcement for the six months ended 30 April 2007 Safestore Holdings plc, the largest self storage retailer in the UK and Paris, is pleased to report its interim results for the six months ended 30 April 2007. The Company was admitted to the London Stock Exchange on 9 March 2007. Highlights: Six months Six months % increase ended ended 30 April 2007 30 April 2006 £'000 £'000 Revenue 34,608 30,123 14.9% EBITDA* before exceptional items and gain on investment properties 18,992 15,141 25.4% Profit after Tax ("Earnings") 23,249 416 Adjusted Profit after Tax (note 8) 6,568 3,086 112.8% Basic Earnings Per Share ("EPS") (note 8) 13.18p 0.24p Adjusted EPS (note 8) 3.72p 1.81p 105.5% Net Asset Value ("NAV") per share 103.1p 53.1p 94.2% Adjusted NAV ("NAV") per Share (note 11) 157.4p 101.7p 54.8% Interim Dividend per share 1.5p - * EBITDA - Earnings before interest, taxation, depreciation and amortisation • Strong financial performance o Revenue up 14.9% to £34.6m, with ancillary revenue increased by 26% to £4.8 million o Pre-exceptional EBITDA up 25.4% to £19.0 million o Adjusted NAV per share up 54.8% to 157.4p o Maiden interim dividend of 1.5p per share • Strong operational performance o Average rate per square foot ("sq ft") for the 6 month period ended 30 April 2007 increased by 8.0% to £20.95 (like-for-like increase of 8.3% to £21.14) o Closing occupancy for the 6 month period ended 30 April 2007 increased by 6.3% to 2.8 million sq ft (like-for-like increase of 4.2% to 2.7 million sq ft) o Successful completion of the re-branding of all Group stores under the name 'Safestore' in the UK and 'Une Piece en Plus' in France • As at 30 April 2007, Safestore's property portfolio was valued at £498 million, an increase of 28.4%, or £110 million, since 30 April 2006 (an increase of 6.0%, or £28 million, since October 2006) • Recently opened 100th store with additional 16 stores in the pipeline, 12 of which have planning permission • Total Maximum Lettable Area ("MLA"), combined with the expansion stores will increase to 5.1 million sq ft • Trading in H2 has begun positively with healthy increases in both occupancy and rates Safestore Chief Executive, Steve Williams, said: "We are pleased to report continued progress which reflects the success of our customer led retail focus and the strength of our property asset base. As the market leader in the UK and Paris, we are well placed to benefit from the continued growth forecast for the sector. The Board remains confident of the outcome for the full year." For further information, please contact: Safestore Holdings PLC T: 020 8732 1500 Steve Williams, Chief Executive Richard Hodsden, Chief Financial Officer Cardew Group T: 020 7930 0777 Tim Robertson / Sofia Rehman A presentation for analysts will be held at 9.30am today at Merrill Lynch, The Conference Centre, 6th Floor, 2 King Edward Street, London, EC1A 1HQ. A dial-in facility is also available for analysts to access the meeting via conference call Telephone: 020 8996 3920 Passcode: 859 755 The analyst presentation document will be available for download on Safestore's investor relations website: www.safestore.com Certain statements in this announcement are forward looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement. Information in this announcement relating to the price at which investments have been bought or sold in the past or the yield on investments cannot be relied upon as a guide to future performance. Except as required by law, the Company is under no obligation to update or keep current the forward-looking statements contained in this announcement or to correct any inaccuracies which may become apparent in such forward-looking statements. Safestore Holdings plc Interim Results Announcement for the six months ended 30 April 2007 Chief Executive's Review Introduction We are very pleased to present Safestore's results for the six months ended 30 April 2007. The business has performed strongly, generating significant increases in revenue and earnings which reflects the Company's success in driving occupancy levels and increasing rental growth across the portfolio. We have today announced a maiden interim dividend and firmly believe the Company is in an ideal position to continue its established track record for growth. Since the end of the period under review, we have opened our 100th store in Guildford and contracted a further six stores. We currently operate 100 stores (81 in the UK and 19 in France) with a self storage MLA of 4.1 million sq ft and an overall MLA of 4.3 million sq ft. A further 16 expansion stores (potential new stores on which contracts have been completed or exchanged), of which 12 have planning permission, will add around 770,000 sq ft by the end of 2008. As announced in the trading update released on 8 May 2007, we will also be delivering around 67,000 sq ft of additional MLA through store extensions and satellite stores. The property portfolio includes a mix of freehold and leasehold sites appropriate to the specific markets in which we operate. This flexibility in our approach enables us to draw from a much wider selection of potential properties, a significant advantage given competition for new sites. The combination of a customer led retail focused business with a structured property asset base gives us confidence that we can maintain and grow our leading UK market position and expand our European portfolio both in terms of store numbers and operational efficiency. Financial Review For the six months ended 30 April 2007, revenue grew strongly to £34.6 million (2006: £30.1 million), an increase of 14.9%. Going forward, we expect to gain more from the Company's unified branding which was only completed in 2006. On a like-for-like basis revenues grew by 13.7% to £34.0 million of which approximately 50% was attributed to rate improvement, 26% due to increases in occupancy with the balance stemming from increases in ancillary and other revenues. Revenues for the period in the UK increased by 14.9% to £28.6 million (2006: £24.8 million), with revenues for the same period from France rising by 14.8% to £6.1 million (2006: £5.3 million). Ancillary revenues derived from the sale of contents insurance, storage accessories and miscellaneous items equated to £4.8 million (2006: £3.8 million), equivalent to 16.8% of self storage revenues and representing a 26% increase over the corresponding period last year. A positive market environment and continued focus on marketing initiatives saw occupancy increase during the period by 6.3% to approximately 2.8 million sq ft. Store occupancy increased by 4.2% to approximately 2.7 million sq ft on a like-for-like basis. Average annual rate per sq ft increased by 8.0% to £20.95, whilst like-for-like rates increased by 8.3% to £21.14. As a consequence of increased revenue combined with tight cost control the Company generated pre-exceptional EBITDA of £19.0 million, an increase of 25.4% (2006: £15.1 million). Pre-exceptional EBITDA margins also improved to 54.9% from 50.3%. Exceptional costs for the period ended 30 April 2007 of circa £2.4 million includes approximately £2.0 million of IPO fees with the balance comprising pension scheme and group restructuring costs. It should be noted that, in addition to the exceptional charge, around £5.3 million of IPO fees have been written off against share premium in the period. The exceptional costs of £3.6 million in the comparative period last year related entirely to IFRS 2 shares issuance costs. Profit after tax was £23.2 million compared to £0.4 million in the comparative period last year. After adjusting for the gain on the revaluation of property portfolio, exceptional items, goodwill and the associated tax charges, the Company made an adjusted profit before tax in the period of £6.6 million compared to £3.1 million for the same period last year. Basic and adjusted EPS were 13.18p and 3.72p respectively for the period ended 30 April 2007 (2006: 0.24p and 1.81p respectively). As at 30 April 2007, the Group's net borrowings totalled £215 million. At this date approximately 82% of the net debt was covered by an interest rate swap at approximately 5.24%, which protects the Group from the effects of further interest rate rises. The swap exists for a period up until June 2011 in line with the existing facilities. As part of the IPO, the Company raised net proceeds of £29.7 million, which together with current banking facilities provides the necessary funding to meet the costs associated with the Company's present expansion plans and development pipeline. Retail Store Portfolio Safestore has the largest number of stores in the UK and central Paris. At the end of the half year, we had 80 stores tactically grouped across the UK (61% freehold / long leasehold and 39% short leasehold). In France, we have 19 stores (21% freehold, 79% short leasehold) which are well located in and around the central Paris area. Our strategy remains to "cluster" stores in specific geographic locations ensuring that they are located in tight formations, facilitating management efficiency and accelerating local awareness. London and Paris represent the best examples of this approach, creating market leading positions in both centres. Store Location No of Stores Occupancy of Average Rate MLA per Sq Ft % £ London 35 75.1% 26.00 Rest of UK 45 61.4% 17.32 Paris 19 71.9% 20.54 Group 99 67.6% 20.95 Safestore's strategy is to maintain a balanced property portfolio including a mix of freehold and leasehold sites appropriate to the specific markets in which we operate. One of our key objectives is to secure new stores in locations that we believe will enable us to drive earnings and generate value. The flexibility in our approach is a significant advantage given competition for new sites and underpins our confidence in maintaining our leading UK market position and expanding our European portfolio. Leasehold sites offer highly attractive return on capital, EBITDA and cash flow. Safestore also has an excellent track record of achieving lease extensions and converting leaseholds to freeholds and these significant factors are not reflected in the property valuation. We believe as familiarity with European self storage increases, yields will continue to compress and move closer to those prevailing in more mature markets rather than being connected to the commercial property market. If, as we believe, commercial property yields continue to rise, additional development sites are likely to become available and we will continue to apply our proven ability to drive occupancy levels and rental growth. This is evident in the results to 30 April 2007 and in the trading since the period end. At the period end, the Group's portfolio of 99 stores comprised a self storage MLA of 4.1 million sq ft with 3.75 million sq ft currently built out. In the period under review, we successfully added a further 112,000 sq ft of self storage space through the opening of a new facility in Slough, a satellite store in Burnley and extending the Staples Corner store. Initial trading within these new stores has been encouraging. Retail Store Expansion programme We are confident of meeting our stated target of expanding our store portfolio by 7-10 stores each year. At any one time the Company typically has between 30-40 stores at various stages of negotiation within which there is a pipeline of 'expansion stores' on which contracts have been completed or exchanged. We currently have 16 expansion stores in the UK and France, 12 of which have planning permission, all of which are due to open by the end of 2008, adding approximately a further 770,000 sq ft of self storage space. We have an established track record in sourcing and securing suitable sites. Where planning consent does not exist, our professionals are experienced in working alongside local authorities to gain the necessary approvals. Our model of progressing sites from planning to development through to trading ensures that we have an achievable and realistic pipeline of expansion stores which allows us to maintain our competitive edge as a leading self storage provider in the UK and Paris. In addition, we are adding highly experienced individuals to both our UK and European property teams which will further enhance our ability to source excellent locations. Our primary focus is on opening new stores within our current markets, but we will also continue to evaluate opportunities to acquire self storage businesses in these markets and certain other markets within Europe. Retail Strategy The strength of our property portfolio enables our management team to operate as an asset backed business with a strong customer led retail focus. This approach has been instrumental in delivering the 8.0% increase in average annual rate per sq ft for the period under review. Our customer led retail focus is embedded within all areas of the business from site selection and design through to the management of our stores. Retail techniques have further informed our marketing - Safestore was the first self storage company to offer 'The Lowest Price Guarantee' together with other innovative special promotions. Supporting this activity, in 2002 the Company set the benchmark within the industry by introducing an IT system that allowed for the exchange of real time information. These IT facilities have been constantly upgraded to remain state of the art and capable of meeting the evolving needs of the business. We have recently completed the re-branding of all Group stores under the name of 'Safestore' in the UK and 'Une Piece en Plus' in France. We believe the effect of this unified national brand presence is ongoing and combined with our marketing programmes across all media will result in increasing brand awareness reflecting the Group's market leading positions. A further growing segment of our business is our ability to provide a nationwide service for business customers using storage facilities at multiple sites, who benefit from one relationship manager and a centralised billing system. Property Portfolio Valuation The Company's property portfolio has been valued by Cushman and Wakefield ("C& W"). As at 30 April 2007, the total value of the Company's property portfolio was £498 million, up £110 million (28.4%) from £388 million at 30 April 2006. £94 million of the overall uplift is derived from the like for like store portfolio from which we estimate that £59 million (53.6% of the overall uplift) stems from operational performance such as increased occupancy and higher achievable rents and £35 million (31.8% of the overall uplift) is attributable to yield shift. The remaining approximately £16 million (14.6%) of the overall valuation uplift is attributable to the impact of new stores opened in the period. Location Tenure MLA (including Valuation Uplift Offices) (30 April 2007) Sq Ft '000 £ million £ million UK Freehold & Long Leasehold 2,260 372 78 Short leasehold 1,248 76 21 France Freehold & Long Leasehold 178 21 4 Short leasehold 644 29 7 Total 4,330 498 110 At the half year end, the Group's property portfolio comprised 99 trading stores; the freehold/long leasehold properties were valued at just over £393 million and the short leasehold were valued at just under £105 million. Freehold /long leasehold stores account for 79% of the most recent valuation with the remaining 21% being attributable to the short leasehold portfolio. The Group's current pipeline of 16 expansion stores is currently held at cost, amounting to just over £21 million. Since April 2006 the Group has acquired the freeholds of Bury and Oldham and extended the lease at Stoke Newington. The valuations of these three stores have increased by £7.3 million against the associated cost of restructuring these assets of £3.6 million. The effect of the valuation has led to an adjusted NAV per share of 157.4p, representing an increase of 54.7% from 101.7p per share as at 30 April 2006, and an increase of 13.1% from 139.2p as at 31 October 2006. Self storage is a relatively new asset class in the UK and this is reflected in the level of our property valuations. We believe that over time familiarity with the assets and their performance will increase and result in a re-rating of the yields applied to self storage businesses closer to those prevailing in more mature markets or alternative uses. This, together with our proven ability to drive occupancy levels and rental growth, provides investors in the self storage sector with a combination of growth dynamics which should continue to deliver attractive returns. Dividend As set out at the time of the IPO, it is the Board's intention to adopt a progressive dividend policy. The Company expects to pay interim and full year dividends based on a ratio of approximately one third and two thirds, respectively, of the total annual dividend. The Board is therefore pleased to announce a maiden interim dividend of 1.5p per share. The dividend will be paid on 10 August 2007 to shareholders who are on the Company's Register at the close of business on 20 July 2007. The ex-dividend date will be 18 July 2007. REIT's As set out at the time of the IPO, Safestore currently has the benefit of significant tax losses and capital allowances, particularly in France. This has the effect of minimising potential future tax payments as a non REIT company. However, the Board of Safestore is giving full consideration to converting to REIT status for our UK business, but will proceed only when it is satisfied that it does not detract from our ability to grow the business. Outlook Self storage is still an immature market which is growing rapidly, driven by a mix of socio-economic factors. These include workforce mobility, an ageing population, higher divorce rates, housing stock pressure and changing lifestyle trends, which all contribute to a lack of space for individuals and businesses to store goods. While the individual effect of these factors on the self storage market may alter from year to year, we are confident that overall demand will continue to support our growth strategy. We believe we are in a strong position to continue to acquire new stores. If commercial property yields rise, additional development sites are likely to be brought to the market providing more opportunities to acquire high quality property assets. By contrast, we believe that self storage yields will be relatively strong, underpinned by the strong growth in the cash flow in the sector. In spite of rising interest rates, trading in the second half of the year has begun positively and we have continued to see increases in both occupancy rates and rates per square foot. The Board remains confident of the outcome for the full year. S W Williams 10 July 2007 Consolidated income statement for the six months ended 30 April 2007 Six months Six months Year ended 30 April ended 30 ended 31 2007 April 2006 October 2006 Note £'000 £'000 £'000 ------------------ ------- ---------- ---------- ---------- Revenue 2 34,608 30,123 64,313 Cost of sales (13,255) (12,154) (21,853) ------------------ ------- ---------- ---------- ---------- Gross profit 21,353 17,969 42,460 Administrative expenses (4,780) (7,224) (16,112) ------------------ ------- ---------- ---------- ---------- EBITDA before exceptional items and gain on investment properties 18,992 15,141 33,452 Depreciation (55) (40) (103) Exceptional items 7 (2,364) (3,600) (6,245) Goodwill impairment - (756) (756) ------------------ ------- ---------- ---------- ---------- Operating profit before gain on investment properties 16,573 10,745 26,348 Gain on the revaluation of investment properties 17,315 868 63,631 ------------------ ------- ---------- ---------- ---------- Operating profit 33,888 11,613 89,979 Finance income 684 138 572 Finance expense 3 (10,347) (10,802) (29,565) ------------------ ------- ---------- ---------- ---------- Profit before taxation 24,225 949 60,986 Income tax expense 4 (976) (533) (15,849) ------------------ ------- ---------- ---------- ---------- Profit for the period (attributable to equity shareholders) 23,249 416 45,137 ------------------ ------- ---------- ---------- ---------- Basic and diluted earnings per share 8 13.18p 0.24p 26.31p ------------------ ------- ---------- ---------- ---------- All items in the income statement relate to continuing operations. A maiden dividend of 1.5 pence per ordinary share has been proposed for the period ended 30th April 2007. Consolidated balance sheet as at 30 April 2007 30 April 30 April 31 October 2007 2006 2006 Note £'000 £'000 £'000 ---------------------- -------- -------- -------- -------- Non-current assets Investment property 9 554,130 440,289 519,291 Development property 9 21,025 12,564 7,921 Plant, equipment and owner-occupied property 1,462 1,501 1,408 Deferred tax asset 5 8,028 7,017 9,633 ---------------------- -------- -------- -------- -------- 584,645 461,371 538,253 ---------------------- -------- -------- -------- -------- Non-current assets classified as held for sale - 691 670 Current assets Inventories 176 154 172 Trade and other receivables 14,332 14,092 10,421 Other financial assets 11,209 7,756 8,397 Derivative financial instruments 3,300 - - Cash and cash equivalents 21,954 8,928 9,478 ---------------------- -------- -------- -------- -------- 50,971 30,930 28,468 ---------------------- -------- -------- -------- -------- Total assets 635,616 492,992 567,391 ---------------------- -------- -------- -------- -------- Current liabilities Financial liabilities - borrowings (5,348) (6,648) (5,947) - derivative financial instruments - - (203) Trade and other payables (42,798) (47,179) (36,673) Obligations under finance leases (7,863) (8,344) (7,719) Provisions - - (5) ---------------------- -------- -------- -------- -------- (56,009) (62,171) (50,547) ---------------------- -------- -------- -------- -------- Non-current liabilities Bank borrowings (234,083) (211,649) (234,586) Trade and other payables (1,605) (1,900) (1,822) Deferred tax liabilities 5 (102,453) (82,938) (101,614) Obligations under finance leases (48,321) (44,025) (41,882) Provisions (175) (204) (175) Pension liability - (195) (247) ---------------------- -------- -------- -------- -------- (386,637) (340,911) (380,326) ---------------------- -------- -------- -------- -------- Total liabilities (442,646) (403,082) (430,873) ---------------------- -------- -------- -------- -------- Net assets 192,970 89,910 136,518 ---------------------- -------- -------- -------- -------- Equity Called up share capital 13 1,871 4 4 Share premium account 12 28,903 341 368 Reserves 12 162,196 89,565 136,146 ---------------------- -------- -------- -------- -------- Equity shareholders' funds 14 192,970 89,910 136,518 ---------------------- -------- -------- -------- -------- Consolidated statement of recognised income and expense for the six months ended 30 April 2007 Six months Six months Year ended ended ended 31 30 April 30 April October 2007 2006 2006 £'000 £'000 £'000 ---------------------------- -------- -------- -------- Profit for the financial period/year 23,249 416 45,137 Net exchange adjustment offset in reserves net of tax 445 (187) (368) Cash flow hedge: net fair value gains net of tax 2,430 - - Movement on deferred tax relating to pension deficit (74) - (8) Actuarial gain recognised in the pension scheme - - 3 ---------------------------- -------- -------- -------- Total recognised income in period/year 26,050 229 44,764 ---------------------------- -------- -------- -------- Consolidated cash flow statement for the six months ended 30 April 2007 Six months Six months Year ended ended ended 31 30 April 30 April October 2007 2006 2006 £'000 £'000 £'000 ---------------------------- -------- -------- -------- Profit before income tax 24,225 949 60,986 Gain on the revaluation of investment properties (17,315) (868) (63,631) Depreciation 55 40 103 Goodwill impairment - 756 756 Finance income (684) (138) (572) Finance expense 10,347 10,802 29,565 Increase in inventories (4) (17) (35) (Decrease)/increase in receivables (3,248) (2,503) 702 Increase in payables 4,751 10,680 5,390 Decrease in provisions (5) (24) (48) Decrease in pension scheme liabilities (321) (65) (124) ---------------------------- -------- -------- -------- Cash generated from operations 17,801 19,612 33,092 Interest paid (10,207) (6,783) (33,509) Interest received 589 138 399 Tax paid (22) (21) (17) ---------------------------- -------- -------- -------- Cash flows from operating activities 8,161 12,946 (35) ---------------------------- -------- -------- -------- Investing activities Acquisition of subsidiaries (net of cash acquired) - (1,622) (4,111) Expenditure on investment and development properties (19,342) (11,510) (27,278