Strategy

The Group’s strategy remains the same as stated in our last annual report. We believe that the Group has a well located asset base, management expertise, infrastructure, scale and balance sheet strength to exploit the current healthy industry dynamics. As we look forward, we consider that the Group has the potential to significantly further increase its earnings per share by:

  • Optimising the trading performance of the existing portfolio;
  • Maintaining a strong and flexible capital structure; and
  • Taking advantage of selective portfolio management and expansion opportunities.

Optimisation of Existing Portfolio

With the opening of nine new stores since August 2016, and the acquisitions of Space Maker in July 2016 and Alligator in November 2017, we have further strengthened our market leading portfolio. We have a high quality, fully invested estate in both the UK and Paris. Of our 146 stores, 94 are in London and the South East of England or in Paris with 52 in the other major UK cities. We now operate 44 stores within the M25 which represents a higher number of stores than any other competitor.
 
With the aforementioned new store openings, our MLA has increased to 6.37m sq ft at 31 October 2018. At the current occupancy level of 73.6% we have 1.7m sq ft of unoccupied space , of which 1.4m sq ft is in our UK stores and 0.3m sq ft in Paris. In total this unlet space is the equivalent of circa 40 empty stores located across the estate. This available space is fully invested and the related operating costs are essentially fixed and already included in the Group cost base. Our continued focus will be on ensuring that we drive occupancy to utilise this capacity at carefully managed rates. Over the last five years, the like-for-like occupancy has increased from 63.1% to 76.6% i.e. an average of 2.7% per year. As of 31 December 2018, the like-for-like closing occupancy is up 2.7ppts year-on-year.
 
There are three elements that are critical to the optimisation of our existing portfolio.

  • Enquiry generation through an effective and efficient marketing operation;
  • Strong conversion of enquiries into new lets; and
  • Disciplined central revenue management and cost control.

Digital marketing expertise
 
Awareness of self-storage is increasing each year but still remains relatively low with 54% (FY2017: 58%) of the UK population either knowing very little or nothing about self-storage (source: 2018 SSA Annual Report). In the UK around 75% of our new customers are using self-storage for the first time. It is largely a brand blind purchase with only 12% of respondents in the Self Storage Association Annual Survey stating that a brand would influence their purchase decision. Only 3% of respondents in the same survey associated any particular features or benefits with a certain brand. Typically, customers requiring storage start their journey by conducting online research using generic keywords in their locality (e.g. “storage in Borehamwood”, “self-storage near me”).
 
We believe there is a clear benefit of scale in the generation of customer enquiries. The Group has continued to invest in its consumer website as well as in-house expertise which has resulted in the development of a leading digital marketing platform that has generated over 40% enquiry growth over the last five years. Our digital marketing team has been enhanced with the recruitment and on-boarding of a Digital and Marketing Director. Our increasing in-house expertise and significant annual budget has enabled us to deliver strong results.
 
Online enquiries now represent 83% of our enquiries in the UK (FY2017: 82%) and 74% in France (FY2017: 72%). Nearly 50% of our online enquiries in the UK now originate from a mobile device (excluding tablets), compared to just over 45% last year, highlighting the need for continual investment in our responsive web platform for a “mobile-first” world.
 
During 2018, the Group successfully completed the integration of the Alligator Self Storage marketing platform (core website, hosting, paid advertising, social media and analytics) and CRM system with full realisation of cost synergies as planned. Now within the Safestore platform, the search engine visibility of former Alligator stores has been improving, which should provide the foundation for future enquiry and occupancy growth.
 
We will continue to invest in activities that promote a strong search engine presence to grow enquiry volume whilst managing efficiency in terms of the overall cost per enquiry.

In 2018, Safestore once again achieved a Feefo customer service rating of 96% based on the customers who rated their experience as “Excellent” or “Good”. Having achieved this service level online, in the store and on the phone, Safestore was again recognised with a “Gold Trusted Merchant” award – given to businesses achieving over 95% – for the fifth year running. In addition to using Feefo, Safestore now invites customers to leave a review of their service on a number of review platforms, including Google, to ensure that customers can confidently choose Safestore wherever they look for trust and reputational signals in the brand. In France, Une Pièce en Plus continues to use Trustpilot to obtain independent customer reviews. More than 93% of customers are satisfied with their customer service experience, rating it 4 stars and above.
 
Motivated and effective store teams benefiting from improved training and coaching
 
Our enthusiastic, well-trained and customer-centric sales team remains a key differentiator and a strength of our business. Understanding the needs of our customer and using this knowledge to develop in-store trusted advisers is a fundamental part of driving revenue growth and market share.
 
On 1 November 2017, we acquired the Alligator Self Storage portfolio of twelve stores. Drawing on the experience gained from the successful integration of the Space Maker brand in 2016, we implemented enhancements to our leadership structure and successfully and efficiently integrated the stores into our geographical regional structure. Our dedicated on-line learning platform allows our new colleagues to take part in our industry leading training and development programmes. The Alligator internal and external rebrand to Safestore commenced in June 2018 and is exceeding its projected completion programme timescales.
 
November 2016 saw the launch of our internal Store Manager Development programme designed to provide the business with its future store managers. The first group of trainees graduated in November 2017 and the second intake of sales consultants at the end of October 2018. We are proud to announce that our intake 3 programme delegates have the opportunity to gain a nationally recognised qualification from ILM (Institute of Leadership & Management) at Level 3.
 
As with our new Alligator colleagues, all new recruits to the business benefit from enhanced induction and training tools which have been developed in-house and enable us to quickly identify high potential individuals and increase their speed to competency. Our Store Manager Development programme demonstrates the effectiveness of our learning tools. In a spirit of constant improvement our content and delivery process is dynamically enhanced through our 360 degree feedback process utilising the learnings from not only the candidates but also our training store managers. This allows our people to be trained with the knowledge and skills to sell effectively in today’s market place.
 
All new recruits receive individual performance targets within four weeks of joining the business and are placed on the ‘pay-for-skills’ programme which allows accelerated basic pay increases dependent on success in demonstrating specific and defined skills. The key target of our programme, to ensure that close to 100% of our store manager appointments are from within the business, still remains and we are pleased with our progress to date.
 
The training and development of our store and customer facing colleagues is an essential part of our daily routines. In 2018, we delivered a further 29,000 hours of training through face-to-face sessions and via our internally developed online learning tool. This Learning Management System also provides the opportunity for team members to receive rigorously enforced health and safety, fire and compliance training, ensuring that our staff are up-to-date in relation to their technical knowledge and continue to operate a safe environment for both our colleagues and customers. These modules are continually updated to target the areas of most opportunity and maintain colleague engagement. These tools, systems and resources have allowed us to effectively communicate changes quickly and manage compliance robustly, allowing our colleagues to complete the training on an annual basis.
 
To further support our Cyber security and GDPR compliance we have introduced further enhanced online training modules. All colleagues are required to complete this training.
 
Our performance dashboard allows our store and field teams to focus on the key operating metrics of the business providing an appropriate level of management information to enable swift decision making. Reporting performance down to individual employee level enhances our competitive approach to team and individual performance. We continue to reward our people for their performances with bonuses of up to 50% of basic salary based on their achievements against individual new lets, occupancy, ancillary sales and pricing targets. In addition, a Values and Behaviours framework is overlaid on individuals’ financial performance in order to assess team members’ performance and development needs on a quarterly basis.
 
Customers continue to be at the heart of everything we do. Whether it be in store, online or in their communities. Our Gold standard Feefo customer service score, currently at 96%, reflects our ongoing commitment to their satisfaction.
 
In what is still a relatively immature and poorly understood product, customer service and selling skills at the point of sale remain essential in earning the trust of the customer and in driving the appropriate balance of volumes and unit price in order to optimise revenue growth in each store.
 
Safestore has been an “Investors in People” (IIP) organisation since 2003 and our aim is to be an employer of choice in our sector as we passionately believe that our continued success is dependent on our highly motivated and well trained colleagues. In April 2018, Safestore was awarded the Gold accreditation under the IIP programme, a significant improvement from the Bronze accreditation awarded in 2015. This puts Safestore as one of the top employers of 14,000 IIP accredited companies. In addition, Safestore was subsequently shortlisted as a finalist for the IIP Gold Employer of the year 250+ category, putting us in the top ten of all companies that have achieved Gold accreditation. IIP is the international standard for people management, defining what it takes to lead, support and manage people effectively to achieve sustainable results. Underpinning the Standard is the Investors in People framework, reflecting the latest workplace trends, essential skills and effective structures required to outperform in any industry. Investors in People enables organisations to benchmark against the best in the business on an international scale. We are proud to have our colleagues recognised to such a high standard not only in our industry but across 14,000 organisations in 75 countries.
 
Central Revenue Management and Cost Control
 
We continue to pursue a balanced approach to revenue management. We aim to optimise revenue by improving the utilisation of the available space in our portfolio at carefully managed rates. Our central pricing team is responsible for the management of our dynamic pricing policy, the implementation of promotional offers and the identification of additional ancillary revenue opportunities. Whilst price lists are managed centrally and can be adjusted on a real-time basis when needed, the store sales teams have the ability, in selected stores, to offer a Lowest Price Guarantee in the event that a local competitor is offering a lower price. The reduction in the level of discount offered over the last four years is linked to store team variable incentives and is monitored closely by the central pricing team.
 
Average rates are predominantly influenced by:

  • The store location and catchment area;
  • The volume of enquiries generated online;
  • The store team skills at converting these enquiries into new lets at the expected price; and
  • The pricing policy and the confidence provided by analytical capabilities that smaller players may lack.

 We believe that Safestore has a very strong proposition in each of these areas.
 
Costs are managed centrally with a lean structure maintained at the Head Office. Enhancements to cost control are continually considered and the cost base is challenged on an ongoing basis.

Strong and Flexible Capital Structure

Since 2014 we have refinanced the business on three occasions, each time on improved terms, and believe we now have a capital structure that is appropriate for our business and which provides us with the flexibility to take advantage of carefully evaluated development and acquisition opportunities.
 
In 2017, we completed the refinancing of the Group’s US Private Placement Notes (“USPP”) and an amendment and extension of its existing bank facilities to extend the average maturity and lower the cost of the Group’s debt financing. The terms of the Amendment and Extension of the bank facilities allowed for an option to extend the facilities by a further year. We have recently completed this extension. From the £250m UK revolving bank facility, £26m matures in June 2022 and £224m matures in June 2023. €13.3m of the €70m France revolving facility matures in June 2022 and €56.7m matures in June 2023.
 
During the year we hedged a further £35m of our Sterling revolving credit facility drawings at a rate of 1.2915%. Currently, 87% of our debt facilities are either fixed rate or hedged until June 2022.
 
At 31 October 2018, based on the current level of borrowings and interest swap rates, the Group’s weighted average cost of debt is 2.28%. The weighted average maturity of the Group’s drawn debt is 6.3 years at the current period end and the Group’s LTV ratio under the new financing arrangements is 30.3% as at 31 October 2018.
 
This LTV and ICR of 8.6x for the rolling twelve month period ended 31 October 2018 provide us with significant headroom compared to our banking covenants. We have £103m of available bank facilities at 31 October 2018.
 
Taking into account the improvements we have made in the performance of the business and the reduction in underlying finance charges of c.£10m over the last five years, the Group is now capable of generating free cash after dividends sufficient to fund the building of 2-3 new stores per annum depending on location and availability of land.
 
The Group evaluates development and acquisition opportunities in a careful and disciplined manner against rigorous investment criteria. Our investment policy requires certain Board-approved hurdle rates to be considered achievable prior to progressing an investment opportunity. In addition, the Group aims to maintain a Group LTV ratio of between 30% and 40% which the Board considers to be appropriate for the Group.

Portfolio Management

As ever, our approach to store development and acquisition in the UK and Paris will continue to be pragmatic, flexible and focused on the return on capital.
 
Our property teams in both the UK and Paris are continually seeking investment opportunities in new sites to add to the store pipeline. However, investments will only be made if they comply with our disciplined and strict investment criteria.
 
Since we relaunched our Store Opening strategy in Summer 2016 we have opened six new stores in the UK in Chiswick, Wandsworth, Paddington Marble Arch and Mitcham in London, Birmingham, Altrincham and three stores in Paris at Emerainville, Combs-la-Ville and Poissy as well as completing the extension and refurbishment of our Acton and Longpont (Paris) stores. All of these stores are performing in line with or ahead of their business plans.
 
In addition, we have a pipeline of 210,000 sq feet of space across four new stores to be opened in 2019 in the UK in Carshalton in South London and Merry Hill in Birmingham and in Paris in Pontoise and Magenta.
 
Further details of the last twelve month’s activity are as follows;
 
In April 2018, we opened a new c.54,000 sq ft freehold store in Mitcham, in South West London. The site was acquired in December 2016 with the planning and building process taking just 16 months.
 
At the end of July 2018, we closed our leasehold Merton store and consolidated the majority of customers into our new Mitcham store. The closed Merton store had an MLA of 19,000 sq ft and an annual EBITDA of c.£0.1m.
 
In June 2018, we opened a new 37,000 sq ft leasehold store located between Paddington and Marble Arch in central London. The lease is for a period of 20 years, with an option to extend for a further 10 years. Our former 15,000 sq ft Paddington store closed in July 2018 with a significant proportion of its customers transferred to the new store.
 
In October 2017, we completed the acquisition of a 1.34 acre industrial site at Merry Hill, around ten miles west of the centre of Birmingham, in a very prominent location close to Merry Hill regional shopping centre. We have now received planning consent and commenced building and we expect to open a purpose-built freehold 55,000 sq ft store in the second half of 2019.
 
In our Interim Results this year, we announced that we had exchanged contracts to acquire a freehold site in Carshalton in South London subject to planning permission. We have now received planning permission and have completed the acquisition of the site. We anticipate opening the c.40,000 sq ft store in 2019.
 
In Paris, where regulatory barriers are likely to continue to restrict meaningful new development inside the city, we will continue our policy of segmenting our demand and encouraging the customers who wish to reduce their storage costs to utilise the second belt stores. We will also manage occupancy and rates upwards in the more central stores and ensure that pricing recognises the value customers place on the convenience of physical proximity. The strong selling organisation and store network established by Une Pièce en Plus in Paris uniquely enables it to implement this commercial policy to complement the strong second belt markets in which we operate.
 
In June 2018, we exchanged contracts on a freehold 4.2 acre site in Pontoise, north west of Paris and have now received planning permission and completed the acquisition of the site in December 2018. We anticipate converting the existing building into a 65,000 sq ft store and that opening will be in 2019.
 
In April 2018, we agreed a lease on a site at Magenta in central Paris. Subject to planning, we aim to open a 50,000 sq ft store here in the 2019/20 financial year.
 
In November 2017, we exchanged contracts on a site at Poissy, in the West of Paris, an area where we previously had no stores. We have since completed the acquisition of the site and opened the freehold 80,000 sq ft store in summer 2018.

We believe there will be further opportunities to develop new stores in the outer suburbs of Paris and are actively reviewing the market for new opportunities.
 
Following the year-end, we extended the lease on our Edinburgh Gyle store by ten years. The lease now has eighteen years remaining and expires in 2036. In addition, a six month rent free period was agreed.
 
We have now extended the leases on 19 stores or 53% of our leased store portfolio in the UK since 2012 and our average lease length remaining now stands at 12.5 years as compared to 13.3 years at FY2017.
 
In the UK we plan to redevelop a small number of our older stores. Currently, our Leeds store is closed as part of this programme and most of the store’s customers have been relocated to other sites. In addition, our Newcastle store is undergoing a full refurbishment and remains open during the course of the works. Finally, options for the refurbishment of our Sheldon store, as anticipated on acquisition of the Alligator portfolio, are being considered.

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