REG - Safestore Hldgs plc - Full Year Results <Origin Href="QuoteRef">SAFE.L</Origin> - Part 2
09/01/2017 07:05
- Part 2: For the preceding part double click ID:nRSI5870Ta
provides the Group with financial flexibility and the ability to grow organically and via carefully selected
new development or acquisition opportunities.
At 31 October 2016 we had 1.4m sq ft of unoccupied space in the UK and 0.2m sq ft in France, equivalent to over 40 full new
stores. Our main focus is on filling the spare capacity in our stores at optimally yield-managed rates. The operational
leverage of our business model will ensure that the bulk of the incremental revenue converts to profit given the relatively
fixed nature of our cost base.
Trading Performance
UK- balanced approach to revenue management results in strong growth
UK Operating Performance- like-for-like 2 2016 2015 Change
Revenue (£'m) 84.5 77.4 9.2%
EBITDA (£'m) 3 45.0 39.3 14.5%
Closing Occupancy (let sq ft- million) 4 2.79 2.73 2.2%
Closing Occupancy (% of MLA) 71.8% 70.4% +1.4ppts
Average Occupancy (let sq ft- million) 4 2.73 2.63 3.8%
Average Storage Rate (£) 24.73 23.66 4.5%
UK Operating Performance- total 2016 2015 Change
Revenue (£'m) 87.4 79.9 9.4%
EBITDA (£'m) 3 46.5 40.6 14.5%
EBITDA (after leasehold costs) (£'m) 41.6 35.5 17.2%
Closing Occupancy (let sq ft- million) 4 3.15 2.76 14.1%
Maximum Lettable Area (MLA) 5 4.52 3.92 15.3%
Closing Occupancy (% of MLA) 69.7% 70.2% -0.5ppts
Average Storage Rate (£) 24.60 23.70 3.8%
The UK has delivered another strong year growing revenue by 9.4%. The acquisition of Space Maker on 29 July 2016 has
contributed to this growth but is offset by the closures of Whitechapel and New Malden in the previous year so, on a
like-for-like basis, revenue grew by 9.2% in the year. Our first quarter's ownership of the Space Maker portfolio has gone
to plan with the business fully integrated into the Group from an operational perspective and the rebranding of the stores
well advanced.
Like-for-like new lets increased by 7.6% for the full year reflecting good customer enquiry growth, helped by our new
website, and consistent conversion performance in our stores.
Total occupancy grew by 397,000 sq ft (2015: 76,000 sq ft) over the year reflecting the acquisition of Space Maker and a
net like-for-like occupancy growth of 57,000 sq ft which comprised an 84,000 sq ft underlying increase in occupancy
partially offset by a planned 27,000 sq ft reduction in the lower yielding discounted bulk occupancy. The addition of three
new stores in the last two months of the year (Wandsworth, Birmingham and Altrincham) diluted total closing occupancy which
ended the year at 69.7% (2015: 70.2%) but like-for-like closing occupancy grew by 1.4ppts to 71.8% (2015: 70.4%).
Like-for-like average occupancy for the year grew by 3.8%.
We take a balanced approach to revenue management and our occupancy growth was accompanied by a 4.5% increase in the
like-for-like average storage rate for the year. Sequentially, our Q4 like-for-like average rate was 2.2% higher than the
rate achieved in Q3 2016.
We opened three new stores towards the end of the financial year in Wandsworth, Altrincham and Birmingham (and closed our
existing Birmingham Central store) and our Chiswick store opened on 4 November 2016. In addition, we completed the
extension of our Acton store. These developments were completed on time and on budget and added c. 135,000 sq ft of net new
space to our portfolio. Early trading at these sites has been encouraging and in line with management's expectations. The
Group now operates 109 wholly owned stores in the UK.
We remain focused on our cost base. During the year, our cost base increased by around 4.1% or £1.6m driven by the variable
costs related to incremental revenue, the acquisition of Space Maker and an increase in business rates, offset by
reductions arising from the closures of Whitechapel and New Malden in 2015.
As a result EBITDA after leasehold rent costs for the UK business was £41.6m (FY2015: £35.5m), an increase of £6.1m or
17.2%.
Paris - another year of solid revenue growth
Paris Operating Performance- like-for-like 2 2016 2015 Change
Revenue (E'm) 35.4 33.7 5.0%
EBITDA (E'm) 3 22.4 21.2 5.7%
Closing Occupancy (let sq ft- million) 4 0.82 0.83 -1.2%
Closing Occupancy (% of MLA) 80.7% 81.8% -1.1ppts
Average Occupancy (let sq ft- million) 4 0.81 0.79 2.5%
Average Storage Rate (E) 39.85 38.94 2.3%
Paris Operating Performance- total 2016 2015 Change
Revenue (E'm) 35.4 33.7 5.0%
EBITDA (E'm) 3 22.4 21.2 5.7%
EBITDA (after leasehold costs) (E'm) 17.5 15.9 10.1%
Closing Occupancy (let sq ft- million) 4 0.82 0.83 -1.2%
Maximum Lettable Area (MLA) 5 1.07 1.01 5.9%
Closing Occupancy (% of MLA) 76.3% 81.8% -5.5ppts
Average Occupancy (let sq ft- million) 4 0.81 0.79 2.5%
Average Storage Rate (E) 39.85 38.94 2.3%
Revenue (£'m) 28.0 24.9 12.4%
Our Paris business had a solid year growing like-for-like revenue by 5.0%. The impact of the significant weakening of
Sterling in the period resulted in the Sterling equivalent like-for-like revenue growing by 12.4% for the full year.
Pricing was robust and our like-for-like average rate was up 2.3% for the full year. Like-for-like closing occupancy ended
the year at 80.7% (2015: 81.8%). Our average occupancy for the year was up 2.5% on 2015.
Our new store at Emerainville in the east of Paris opened on time and on budget at the end of the financial year adding
60,000 sq ft of MLA to our portfolio. Given that the store has only recently started to trade, its opening has a dilutive
effect on total closing occupancy. The extension of our Longpont store, which will add 22,600 sq ft of new space, is due to
complete in January 2017.
We continue to pursue our proven strategy of growing the revenue of our market leading Parisian portfolio by achieving an
appropriate balance of rate and occupancy growth and we are now in the eighteenth year of uninterrupted revenue growth in
local currency.
The impact of a 7% strengthening in the average Euro exchange rate resulted in a 12.4% increase in revenue in sterling. In
the previous year, the Group had hedging arrangements in place which resulted in a £0.9m benefit which is reflected in the
prior year EBITDA for Paris when reported in sterling, but not in the revenue line.
The cost base in Paris remained well controlled during the year and, as a result, EBITDA in France grew to E22.4m (FY2015:
E21.2m prior to the benefit of the Euro hedging arrangements), an improvement of E1.2m or 5.7% on 2015.
Frederic Vecchioli
6 January 2017
Financial Review
Underlying Income Statement
The table below sets out the Group's underlying results of operations for the year ended 31 October 2016 and the year ended
31 October 2015.
2016 2015 Mvmt
£'m £'m %
Revenue 115.4 104.8 10.1%
Underlying costs (51.2) (47.7) 7.3%
Underlying EBITDA 64.2 57.1 12.4%
Leasehold rent (8.8) (9.0) (2.2%)
Underlying EBITDA after leasehold rent 55.4 48.1 15.2%
Depreciation (0.4) (0.4) 0.0%
Finance charges (10.1) (11.4) (11.4%)
Underlying profit before tax 44.9 36.3 23.7%
Current tax (3.7) (1.8) 105.6%
Cash tax earnings 41.2 34.5 19.4%
Underlying deferred tax - (1.2) (100.0%)
EPRA Earnings 41.2 33.3 23.7%
Average shares in issue (m) 208.2 207.5
Underlying (cash tax adjusted) EPS (p) 19.8 16.6 19.3%
EPRA EPS (p) 19.8 16.0 23.8%
Management considers the above presentation of earnings to be representative of the underlying performance of the
business.
Underlying EBITDA increased by 12.4% to £64.2m (FY2015: £57.1m), reflecting a 10.1% increase in revenue, and only a 7.3%
increase to the underlying cost base. The contribution of the Space Maker business since acquisition to the Group's income
statement largely compensates for the 2015 closures of New Malden and Whitechapel.
Leasehold rent reduced by 2.2% from £9.0m to £8.8m. Despite an additional six leases in respect of the Space Maker business
for the last quarter, savings in rent principally reflect a full year of two fewer leases (at New Malden and High Wycombe),
a full year of benefit from lease re-gears agreed during the prior period and the favourable settlement of outstanding rent
reviews.
Finance charges reduced by 11.4% from £11.4m to £10.1m. This reflects the benefit of the Group's August 2015 refinancing,
as well as reduced interest rates in the latter part of the year, and offsets an increase in borrowings during the year
required to finance the Space Maker acquisition and our new store developments.
As a result, we achieved a 23.7% increase in underlying profit before tax to £44.9m (FY2015: £36.3m).
Given the Group's REIT status in the UK, tax is principally payable in France. The underlying tax charge for the year was
£3.7m, which compares to the total of underlying current tax and underlying deferred tax of £3.0m in the prior year. The
year-on-year increase is attributable to the increased underlying pre-tax profit in Paris and the translational impact of
the strengthening of the Euro. The underlying deferred tax in the prior year has not been repeated in 2016.
Management considers that the most representative earnings per share ("EPS") measure is cash tax adjusted EPS which has
increased by 19.3% to 19.8p (FY2015: 16.6p). EPRA EPS also reflects the deferred tax on underlying trading and increased by
23.8% to 19.8p from 16.0p in 2015.
Reconciliation of Underlying EBITDA
The table below reconciles the operating profit included in the income statement to underlying EBITDA.
2016 2015
£'m £'m
Operating profit 109.3 134.2
Adjusted for
- gain on investment properties (41.7) (78.9)
- depreciation 0.4 0.4
- contingent rent 0.5 1.1
- change in fair value of derivatives - 0.3
Exceptional items
- costs incurred relating to corporate transactions 1.3 -
- negative goodwill on acquisition of subsidiary (5.6) -
Underlying EBITDA 64.2 57.1
The main reconciling items between operating profit and underlying EBITDA are the gain on investment properties and
exceptional items, as well as adjustments for depreciation, contingent rent and changes in the fair value of derivatives.
The gain on investment properties was £41.7m, as compared to £78.9m in 2015. The Group has recognised a net exceptional
credit of £4.3m in the year (FY2015: £nil), comprising a £5.6m credit relating to negative goodwill arising on the
acquisition of Space Maker, less corporate transactions costs of £1.3m.
Underlying Profit by geographical region
The Group is organised and managed in two operating segments based on geographical region. The table below details the
underlying profitability of each region.
2016 2015
UK Paris Total (CER) UK Paris Total (CER)
£'m E'm £'m £'m E'm £'m
Revenue 87.4 35.4 113.5 79.9 33.7 104.8
Underlying cost of sales (32.4) (9.7) (39.5) (30.9) (9.3) (37.7)
Store EBITDA 55.0 25.7 74.0 49.0 24.4 67.1
Store EBITDA margin 63% 73% 65% 61% 72% 64%
Underlying administrative expenses (8.5) (3.3) (11.0) (8.4) (3.2) (10.9)
Underlying EBITDA 46.5 22.4 63.0 40.6 21.2 56.2
EBITDA margin 53% 63% 56% 51% 63% 54%
Leasehold rent (4.9) (4.9) (8.5) (5.1) (5.3) (9.0)
Underlying EBITDA after leasehold rent 41.6 17.5 54.5 35.5 15.9 47.2
EBITDA after leasehold rent margin 48% 49% 48% 44% 47% 45%
UK Paris Total UK Paris Total
£'m £'m £'m £'m £'m £'m
Underlying EBITDA after leasehold rent (CER) 41.6 12.9 54.5 35.5 11.7 47.2
Adjustment to actual exchange rate - 0.9 0.9 - - -
Adjustment for swap income - - - - 0.9 0.9
Reported underlying EBITDA after leasehold rent 41.6 13.8 55.4 35.5 12.6 48.1
Note: CER is Constant Exchange Rates (Euro denominated results for the current period have been retranslated at the
exchange rate effective for the comparative period, and the impact of foreign exchange swaps has been reversed, in order to
present the reported results on a more comparable basis).
Underlying EBITDA in the UK increased by £5.9m, or 14.5%, to £46.5m (FY2015: £40.6m), underpinned by a 9.4% or £7.5m
increase in revenue, which was driven primarily by a 3.8% increase in the average storage rate plus a 4.5% increase in
average occupancy. Underlying UK EBITDA after leasehold rent increased by 17.2% to £41.6m (FY2015: £35.5m).
In Paris, underlying EBITDA increased by E1.2m, or 5.7%, to E22.4m (FY2015: E21.2m), reflecting a E1.7m increase in
revenue, arising from a 2.3% increase in the average storage rate and a 2.5% increase in average occupancy. Underlying
EBITDA after leasehold rent in Paris increased by 10.1% to E17.5m (FY2015: E15.9m)
The combined results of the UK and Paris delivered a 15.5% increase in underlying EBITDA after leasehold rent at constant
exchange rates at Group level. Adjusting for a favourable exchange impact of £0.9m in the current year and the £0.9m of
swap income from Euro hedges recognised in the prior year, Group reported underlying EBITDA after leasehold rent has
increased by 15.2% or £7.3m to £55.4m (FY2015: £48.1m).
Revenue
Revenue for the Group is primarily derived from the rental of self-storage space and the sale of ancillary products such as
insurance and merchandise (e.g. packing materials and padlocks) in both the UK and Paris.
The split of the Group's revenues by geographical segment is set out below for 2016 and 2015.
2016 % of total 2015 % of total % change
UK £'m 87.4 76% 79.9 76% 9.4%
Paris
Local currency E'm 35.4 33.7 5.0%
Average exchange rate E:£ 1.262 1.356
Paris in sterling £'m 28.0 24% 24.9 24% 12.4%
Total revenue 115.4 100% 104.8 100% 10.1%
The Group's revenue increased by 10.1% or £10.6m in the year. The Group's occupied space was 388,000 sq ft higher at 31
October 2016 (3.97 million sq ft) than at 31 October 2015 (3.58 million sq ft), and the average rental rate per square foot
for the Group was 3.3% higher in 2016 at £26.17 than in 2015 (£24.85).
Adjusting the Group's revenue to a like-for-like basis (to reflect the closures of Whitechapel and New Malden in 2015, the
2016 openings of Wandsworth, Altrincham, Birmingham and Emerainville and the Space Maker acquisition), revenue has
increased by 10.0%. Adjusting further for the strengthening of the Euro during the year, Group like-for-like revenue at
constant exchange rates has increased by 8.1%.
In the UK, revenue grew by £7.5m or 9.4%, and on a like-for-like basis it was up by 9.2%. Occupancy was 397,000 sq ft
higher at 31 October 2016 than at 31 October 2015, at 3.15million sq ft (2.76 million sq ft). Like-for-like UK occupancy
also grew, by 57,000 sq ft to 2.79 million sq ft at 31 October 2016. The average rental rate for the year was up 3.8% from
£23.70 in 2015 to £24.60 in 2016.
In Paris, revenue increased by 5.0% to E35.4m (FY2015: E33.7m). However, the strengthening of the Euro during the financial
year had a favourable currency impact of approximately £1.9m on translation, which resulted in a 12.4% increase when
reported in Sterling. Average occupancy grew to 0.81 million sq ft (FY2015: 0.79 million sq ft), and the average rental
rate grew by 2.3% to E39.85 for the year (FY2015: E38.94).
Analysis of Cost Base
Cost of sales
The table below details the key movements in cost of sales between 2015 and 2016.
Cost of sales 2016 2015
£'m £'m
Reported cost of sales (40.9) (38.3)
Adjusted for:
Depreciation 0.4 0.4
Contingent rent 0.5 1.1
Underlying cost of sales (40.0) (36.8)
Underlying cost of sales for 2015 (reported) (36.8)
Swap income in 2015 (0.9)
Underlying cost of sales for 2015 (CER) (37.7)
Business rates (0.5)
Customer insurance, merchandise and other volume related costs (0.6)
Marketing (0.3)
Premises insurance (0.2)
Other (0.2)
Underlying cost of sales for 2016 (CER) (39.5)
Foreign exchange (0.5)
Underlying cost of sales for 2016 (reported) (40.0)
Note: Certain costs previously reported as administrative expenses, primarily relating to marketing and the customer
service centre, are now reported within cost of sales.
In order to arrive at underlying cost of sales, adjustments are made to remove the impact of depreciation and contingent
rent.
In constant currency and adjusting for the impact of the Euro swap income in 2015, underlying cost of sales grew by £1.8m,
arising from sales volume related increases totalling c.£0.9m, including merchandise and insurance, store maintenance and
enquiry generation, as well as increases in business rates (£0.5m, due to inflationary increases and non-recurring rebates
received in the prior year) and premises insurance (£0.2m, as a result of higher premiums, partly driven by a higher rate
of insurance premium tax).
Administrative Expenses
The table below reconciles reported administrative expenses to underlying administrative expenses and details the key
movements in underlying administrative expenses between 2015 and 2016.
Administrative expenses 2016 2015
£'m £'m
Reported administrative expenses (12.5) (11.2)
Adjusted for:
Exceptionals and non-underlying items 1.3 -
Changes in fair value of derivatives - 0.3
Underlying administrative expenses (11.2) (10.9)
Underlying administrative expenses for 2015 (10.9)
Employee remuneration (0.1)
Underlying administrative expenses for 2016 (CER) (11.0)
Foreign exchange (0.2)
Underlying administrative expenses for 2016 (reported) (11.2)
Note: Certain costs previously reported as administrative expenses, primarily relating to marketing and the customer
service centre, are now reported within cost of sales.
In order to arrive at underlying administrative expenses, adjustments are made to remove the impact of exceptional items
and changes in the fair value of derivatives.
Exceptional costs reported within administrative expenses include net costs relating to corporate transactions of £1.3m.
Underlying administrative expenses increased by £0.3m to £11.2m (FY2015: £10.9m), principally as a result of the
translational impact of the strengthening of the Euro on the results reported for Paris.
Space Maker Acquisition
On 29 July 2016, the Group completed the acquisition of Space Maker Stores Limited for initial consideration of £40.9m plus
£1.4m of deferred consideration, which has subsequently been paid, resulting in a total consideration of £42.3m. The
consideration paid was less than the fair value of the identifiable net assets and, as a result, £5.6 million of negative
goodwill has been recognised within operating profit in the income statement. In addition, £1.3 million of transaction
related costs are included within administrative expenses. The net gain arising on business combinations of £4.3 million,
recognised in the income statement, is considered to be exceptional.
Gain on Investment Properties
The gain on investment properties consists of the revaluation gains and losses with respect to investment properties under
IAS 40 and finance lease depreciation for the interests in leaseholds and other items as detailed below.
2016 2015
£'m £'m
Revaluation of investment properties 45.8 83.1
Revaluation of investment properties under construction 0.5 (0.1)
Depreciation on leasehold properties (4.6) (4.1)
Gain on investment properties 41.7 78.9
In the current financial year the UK business contributed £37.1m to the positive valuation movement and the Paris business
contributed £9.2m. The gain on investment properties principally reflects the continuing improvements in both average
rental rate and occupancy, which drive positive changes in the cash flow metrics that are used to assess the value of the
store portfolio.
Operating Profit
Operating profit decreased by £24.9m from £134.2m in 2015 to £109.3m in 2016, as a result of the £37.2m lower gain on
investment properties, partially mitigated by the £7.1m improvement in underlying EBITDA and the net £4.3m exceptional gain
arising on the Space Maker acquisition.
Net finance costs
Net finance costs includes interest payable, interest on obligations under finance leases, fair value movements on
derivatives and exchange gains or losses. Net finance costs reduced by £1.6m in 2016, to £14.4m from £16.0m in 2015.
2016 2015
£'m £'m
Net bank interest payable (10.1) (11.4)
Interest on obligations under finance leases (3.7) (3.8)
Fair value movement on derivatives 18.4 1.9
Net exchange losses (19.1) (2.8)
Unwinding of discount on Capital Goods Scheme receivable 0.1 0.1
Net finance costs (14.4) (16.0)
Underlying finance charge
The underlying finance charge (net bank interest payable) reduced by £1.3m to £10.1m, principally reflecting the
annualisation of the interest savings from the amendment and extension of our loan facilities undertaken in August 2015,
despite an increase in borrowings to finance the Space Maker acquisition. Net bank interest payable also includes the
amortisation of debt issue costs, which has increased to £0.4m (FY2015: £0.2m), mainly due to additional debt issue costs
incurred as a result of the August 2015 re-financing, which are being amortised over five years.
Based on the year-end drawn debt position the effective interest rate is analysed as follows:
Facility Drawn Hedged Hedged Bank Hedged Floating Total
£/E/$'m £'m £'m % Margin Rate Rate Rate
UK Term Loan £126.0 £126.0 £100.0 79% 1.50% 1.34% 0.39% 2.64%
UK Revolver £125.0 £61.0 - - 1.50% - 0.38% 1.88%
UK Revolver- non-utilisation £64.0 - - - 0.60% - - 0.60%
Euro Revolver E70.0 £37.8 £27.0 71% 1.50% 0.31% (0.30%) 1.63%
Euro Revolver- non-utilisation E28.0 - - - 0.60% - - 0.60%
US Private Placement 2019 $65.6 £53.9 £53.9 100% 5.52% - - 5.83%
US Private Placement 2024 $47.3 £38.8 £38.8 100% 6.29% - - 6.74%
Unamortised finance costs - (£1.8) - - - - - -
Total £406.7 £315.7 £219.7 70% 3.58%
The UK term loan of £126m is fully drawn as at 31 October 2016 and attracts a bank margin of 1.50%. The Group has interest
rate hedge agreements in place to June 2020 swapping LIBOR on £100m at an effective weighted average rate of 1.34%.
As at 31 October 2016, £61m of the £125m UK revolver and E42m (£37.8m) of the E70m Euro revolver were drawn. The drawn
amounts also attract a bank margin of 1.50%, and the Group pays a non-utilisation fee of 0.60% on the remaining undrawn
balances.
The Group has interest rate hedges in place to June 2020 swapping EURIBOR on E30m at an effective rate of 0.309%.
The US Private Placement Notes are fully hedged at 5.83% for the 2019 notes and 6.74% for the 2024 notes.
The hedge arrangements provide cover for 70% of the Group's drawn debt. Overall, the Group has an effective interest rate
on its borrowings of 3.58% at 31 October 2016, compared to 3.90% at the previous year end.
Non-underlying finance charge
Interest on finance leases was £3.7m (FY2015: £3.8m) and reflects part of the leasehold rental charge. The balance of the
leasehold rental charge is expensed through the gain/loss on investment properties line and contingent rent in the income
statement. Overall, our leasehold rental charge continued to reduce in 2016 to £8.8m, £0.2m lower than the charge of £9.0m
in 2015. This decrease reflects the annualisation of lease re-gears negotiated over the last few years, two fewer leasehold
stores (at New Malden and High Wycombe) and the favourable settlement of outstanding rent reviews, despite an additional
£0.3m rent charge arising on the leased Space Maker stores, following the acquisition in July 2016.
The strengthening of the US dollar during the year had a significant impact on boththe retransition of our US dollar
borrowingsand the fair value of our cross currency swaps which provide an economic hedge against them. The fair value
movement on derivatives was an £18.4m net gain (FY2015: £1.9m), including gains totalling £20.8m arising on the US dollar
cross currency swaps, partly offset by net losses arising on the interest rate swaps. Net exchange losses, arising mainly
on our US dollar denominated borrowings, totalled £19.1m (FY2015: £2.8m).
Tax
The tax charge for the year is analysed below:
Tax charge 2016 2015
£'m £'m
Underlying current tax (3.7) (1.8)
Tax relief on settlement of derivatives - 0.2
Current tax (3.7) (1.6)
Underlying deferred tax - (1.2)
Tax on investment properties movement (4.0) (6.3)
Tax on revaluation of interest rate swaps 0.1 (0.2)
Other 0.1 (0.2)
Deferred tax (3.8) (7.9)
Tax charge (7.5) (9.5)
The income tax charge for the year is £7.5m (FY2015: £9.5m).
In the UK, the Group is a REIT. As a result, the Group continues to benefit from a zero tax rate on its UK self-storage
income. The Group is normally only liable to UK tax on the profits attributable to the residual business, consisting of the
sale of ancillary products such as insurance and packaging products, which incurred a UK tax charge of £nil (FY2015:
£0.2m).
The underlying tax charge relating to Paris amounted to £3.7m, which compares to the total of underlying current tax and
underlying deferred tax of £3.0m in the prior year, with the year-on-year increase attributable to the increased underlying
pre-tax profit in Paris and the translational impact of the strengthening of the Euro. The underlying deferred tax in the
prior year has not been repeated in 2016.
All other deferred tax movements are non-underlying, and relate to Paris. The deferred tax impact of the revaluation gain
on investment properties was a charge of £4.0m (FY2015: £6.3m).
Profit after tax
As a result of the movements explained above, profit after tax for 2016 was £87.4m as compared with £108.7m in 2015. Basic
EPS was 42.0 pence (FY2015: 52.4 pence) and diluted EPS was 41.7 pence (FY2015: 52.0 pence). Management considers cash tax
adjusted EPS to be more representative of the underlying EPS performance of the business and this is discussed above.
Dividends
The Directors are recommending a final dividend of 8.05 pence (FY2015: 6.65 pence) which Shareholders will be asked to
approve at the Company's Annual General Meeting on 22 March 2017. If approved by Shareholders, the final dividend will be
payable on 7 April 2017 to Shareholders on the register at close of business on 10 March 2017.
Reflective of the Group's improved performance, the Group's full year dividend of 11.65 pence is 20.7% up on the prior year
dividend of 9.65 pence. The Property Income Dividend ("PID") element of the full year dividend is 9.85 pence (FY2015: 9.65
pence).
Property Valuation
Cushman & Wakefield LLP has valued the Group's property portfolio. As at 31 October 2016, the total value of the Group's
property portfolio was £943.3m (excluding investment properties under construction of £10.9m). This represents an increase
of £167.8m compared with the £775.5m valuation as at 31 October 2015. A reconciliation of the movement is set out below:
UK Paris Total Paris
£'m £'m £'m E'm
Value as at 1 November 2015 597.6 177.9 775.5 249.3
Currency translation movement - 48.7 48.7 -
Additions 9.4 2.2 11.6 2.8
Acquisition of subsidiary 48.0 - 48.0 -
Reclassifications 8.1 5.6 13.7 7.1
Revaluation 36.6 9.2 45.8 11.7
Value at 31 October 2016 699.7 243.6 943.3 270.9
The exchange rate at 31 October 2016 was E1.11:£1 compared with E1.40:£1 at 31 October 2015. This movement in the foreign
exchange rate has resulted in a £48.7m favourable currency translation movement in the year. This has benefitted Group net
asset value ("NAV") but had no impact on the loan to value ("LTV") covenant as the assets in Paris are tested in Euros.
The value of the UK property portfolio has increased by £102.1m compared with 31 October 2015, comprising a £36.6m
valuation gain, £48.0m arising on the Space Maker acquisition and capital additions (including reclassifications from
investment properties under construction) of £17.5m.
Our Chiswick store opened after our year-end on 4 November 2016, so remained classified as an investment property under
construction as at 31 October 2016 and is valued at £10.9m.
In Paris, the value of the property portfolio increased by E21.6m, of which E11.7m was valuation gain and capital additions
(including reclassifications) were E9.9m. However, the net increase in Sterling amounted to £65.7m, due to the foreign
exchange benefit described above.
The Group's freehold exit yield for the valuation at 31 October 2016 was 7.19%, consistent with 7.18% at 31 October 2015,
and the weighted average annual discount rate for the whole portfolio has reduced slightly from 10.79% at 31 October 2015
to 10.75% at 31 October 2016.
The adjusted EPRA NAV per share was 300.0 pence at 31 October 2016, up 17.0% on 31 October 2015, reflecting a £96.8m
increase in reported net assets during the year.
Gearing and Capital Structure
The Group's borrowings comprise bank borrowing facilities, made up of a UK Term Loan and revolving facilities in the UK and
France, as well as a US Private Placement.
Net debt (including finance leases and cash) stood at £369.2m at 31 October 2016, an increase of £86.4m from the 2015
position of £282.8m. Total capital (net debt plus equity) increased from £773.4m at 31 October 2015 to £956.6m at 31
October 2016. The net impact is that the gearing ratio has increased from 37% to 39% in the year.
Management also measures gearing with reference to its loan to value ("LTV") ratio defined as gross debt (excluding finance
leases, but adjusted for the fair value of the US dollar cross currency swaps) as a proportion of the valuation of
investment properties and investment properties under construction (excluding finance leases). At 31 October 2016 the Group
LTV ratio was 31% as compared to 32% at 31 October 2015. This reduction in LTV has arisen principally due to the £172.7m
increase in value of the Group's investment property portfolio, which included £48.0m arising on the Space Maker
acquisition, despite a £45.4m increase in gross debt, due to net loan drawdowns of £38.6m, mainly to acquire Space Maker,
and adverse currency movements. The Board considers this level of gearing is appropriate for the business to enable the
Group to increase returns on equity, maintain financial flexibility and to achieve our medium-term strategic objectives.
The Group's £126m UK term loan facility and £125m UK revolver both run to June 2020 and currently attract a margin of
1.50%. The UK revolver facility was increased by £45m during the year, from £80m, in anticipation of the acquisition of
Space Maker. The amount drawn under the UK revolver has increased by a net £41m during the period, from £20m at 31 October
2015 to £61m at 31 October 2016.
The Group's Euro revolver is E70m, of which E42m had been drawn as at 31 October 2016 following the net repayment of E3m
during the year. It also runs to June 2020 and currently attracts a margin of 1.50%.
Of the US Private Placement debt which totals $113m issued in 2012, $66m was issued at 5.52% (swapped to 5.83%) with 2019
maturity and $47m was issued at 6.29% (swapped to 6.74%) with 2024 maturity. It is worth noting that although the value of
the US Private Placement debt when reported in Sterling has increased by £19.5m during the year, to £92.7m, due to adverse
movements on the US dollar exchange rate, this is compensated by a £20.8m fair valuation gain arising on the US dollar
cross currency swaps which we hold as an economic hedge against these borrowings.
As at 31 October 2016, the weighted average remaining term for the Group's committed borrowings facilities is 3.9 years.
Borrowings under the existing loan facilities are subject to certain financial covenants. The UK bank facilities and the US
Private Placement share interest cover and LTV covenants. The interest cover requirement increased to a level of
EBITDA:interest of 2.4:1 in July 2016, where it will remain until the end of the facilities' terms. Interest cover for the
year ended 31 October 2016 is 5.5x.
The LTV covenant is 60% in both the UK and France, where it will remain until the end of the facilities' terms. As at 31
October 2016, there is significant headroom in both the UK LTV and the French LTV covenant calculations.
The Group is in compliance with its covenants at 31 October 2016 and, based on forecast projections, is expected to be in
compliance for a period in excess of twelve months from the date of this report.
Cash flow
The table below sets out the cash flow of the business in 2016 and 2015.
2016 2015
£'m £'m
Underlying EBITDA 64.2 57.1
Working capital/exceptionals/other (1.8) 1.8
Operating cash inflow 62.4 58.9
Interest payments (9.5) (12.0)
Leasehold rent payments (8.8) (9.0)
Tax payments (1.7) (0.6)
Free cash flow (before investing and financing activities) 42.4 37.3
Acquisition of subsidiary, net of cash acquired (41.8) -
Capital expenditure - investment properties (28.3) (7.5)
Capital expenditure - property, plant and equipment (0.8) (0.5)
Capital Goods Scheme receipt 1.5 1.6
Proceeds from disposal - investment properties - 1.5
Net cash flow after investing activities (27.0) 32.4
Dividends paid (21.3) (17.2)
Issue of share capital 0.1 -
Net drawdown/(repayment) of borrowings 38.6 (13.0)
Debt issuance costs (0.4) (1.4)
Hedge breakage costs - (2.0)
Net decrease in cash (10.0) (1.2)
Operating cash flow increased by £3.5m in the year, principally due to the £7.1m improvement in underlying EBITDA. Working
capital, exceptional items and other resulted in a £1.8m outflow, compared to a £1.8m inflow in the prior year. The
variance was driven by the timing of VAT recovery in the UK, the impact of currency in Paris and £1.3m of exceptional cash
costs incurred in respect of corporate transactions costs.
Free cash flow (before investing and financing activities) grew by 13.7% to £42.4m (FY2015: £37.3m). The free cash flow
benefitted from a £2.5m reduction in interest payments, reflecting the lower net finance charges incurred during the year.
Investing activities experienced a net outflow of £69.4m (FY2015: £4.9m), which included £41.8m for the acquisition of
Space Maker (net of the cash acquired) and £28.3m of capital expenditure on our investment property portfolio, of which
£22.3m was in respect of our five new stores at Chiswick, Wandsworth, Altrincham, Birmingham and Emerainville, as well as
the extension at Acton. The prior year included the purchase of the High Wycombe freehold for £1.8m less proceeds of £1.5m
for the disposal of our leasehold interest at New Malden.
Financing activities generated a net cash inflow of £17.0m (FY2015: £33.6m outflow). The net drawdown of borrowings of
£38.6m (FY2015: £13.0m repayment) was partly offset by dividend payments totalling £21.3m (FY2015: £17.2m).
Andy Jones
6 January 2017
Consolidated income statement
for the year ended 31 October 2016
Notes Group
2016£'m 2015£'m
Revenue 2 115.4 104.8
Cost of sales (40.9) (38.3)
Gross profit 74.5 66.5
Administrative expenses (12.5) (11.2)
Negative goodwill on acquisition of subsidiary 5.6 -
Underlying EBITDA 64.2 57.1
Exceptional items 4 4.3 -
Change in fair value of derivatives - (0.3)
Depreciation and contingent rent (0.9) (1.5)
Operating profit before gains on investment properties 67.6 55.3
Gain on investment properties 8 41.7 78.9
Operating profit 2 109.3 134.2
Finance income 3 21.0 3.2
Finance expense 3 (35.4) (19.2)
Profit before income tax 94.9 118.2
Income tax charge 5 (7.5) (9.5)
Profit for the year 87.4 108.7
Earnings per share for profit attributable to the equity holders
- basic (pence) 7 42.0 52.4
- diluted (pence) 7 41.7 52.0
The financial results for both years relate to continuing activities.
Certain costs previously reported as administrative expenses, primarily relating to marketing and the customer service
centre, are now reported within cost of sales, as the directors believe this provides a fairer presentation. Prior periods
have been restated, resulting in an increase to cost of sales of £6.1m in the year to 31 October 2015, with an equal
reduction to administrative expenses. This restatement has had no impact on previously reported profit.
Underlying EBITDA is defined as operating profit before exceptional items, corporate transaction costs, change in fair
value of derivatives, gain/loss on investment properties, contingent rent and depreciation.
Consolidated statement of comprehensive income
for the year ended 31 October 2016
Group
2016£'m 2015£'m
Profit for the year 87.4 108.7
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Currency translation differences 29.4 (9.9)
Other comprehensive income, net of tax 29.4 (9.9)
Total comprehensive income for the year 116.8 98.8
Consolidated balance sheet
as at 31 October 2016
Group
Notes 2016£'m 2015£'m
Assets
Non-current assets
Investment properties 8 943.3 775.5
Interests in leasehold properties 8 58.9 47.1
Investment properties under construction 8 10.9 6.0
Property, plant and equipment 2.0 1.6
Derivative financial instruments 11 20.9 0.6
Deferred income tax assets 0.2 0.1
Other receivables 2.1 3.4
1,038.3 834.3
Current assets
Inventories 0.2 0.2
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