REG - Safestay PLC - Final Results
15/08/2022 07:00
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RNS Number : 9366V Safestay PLC 15 August 2022
Safestay plc
("Safestay", the "Company" or the "Group")
Final Results for the year Ended 31 December 2021
Safestay (AIM: SSTY), the owner and operator of an international brand of
contemporary hostels, is pleased to announce its Final Results for the 12
months to 31 December 2021.
2021 Financial highlights
· Covid-19 meant the Group's hostels were only open for 44% of 2021
(2020: 43%) and international travel was both restricted and significantly
reduced
· Reflecting this challenging environment, total revenues were £6.4
million, an increase on 2020 (2020: £4.8 million) but still significantly
below 2019
· Adjusted EBITDA loss of £1.0 million (2020 loss: £1.9 million).
Adjusted EBITDA is earnings before interest, tax, depreciation and
amortisation with non-recurring items and removes the profit on disposal of
the properties
· EBITDA of £7.2 million including profit on property disposals (2020:
loss of £3.0 million)
· Profit before tax of £0.7 million (2020: loss of £9.9 million)
· Loss per share of 0.93p (2020: loss of 11.88p)
· Available cash balances of £4.5 million, as at 31 December 2021, to
support the ongoing recovery of the Group to pre-covid trading levels
· Completed the sale of Edinburgh and Barcelona Sea for £16.7 million
and Safestay used this to reduce HSBC debt on 6 July 2021 by £10.2 million
decreasing the debt to £12.7 million. The Group also has a £5.0 million
government backed CBILS loan secured for 6 years on 16 December 2020, with
repayment commencing 16 April 2022. Overall borrowings including property
loans are £25 million as at 31 December 2021 (£40 million 31 December 2020)
· The gearing ratio (the ratio of debt to equity and is exclusive of
lease liabilities) has decreased from 99% in 2020 to 56% in 2021 following the
reduction in loans and property financing of £10.2 and £4.8 million
respectively, plus the £3.3 million increase in equity. £3.6 million of this
increase relates to property revaluations, £0.1 million to share based
charges and £0.2 million to foreign exchange translation
2021 Operational highlights
· Beginning in April and by the end of July, all 16 hostels had
re-opened as restrictions lifted and overall showed improved trading with
demand initially focused on domestic customers but also gradually beginning to
welcome back international visitors
· Throughout the portfolio the Company has maintained high levels of
hygiene and sanitation to protect both staff and guests
· Organic and acquisition capital investment projects were on hold
through 2021
Post-year end - 2022 year to date highlights
· Completed strategic review of the business and refocused the
operational team on returning the business to pre-pandemic revenue levels.
This has been achieved through improved marketing and revenue management
strategies coupled with returning customer service to pre-pandemic levels
· Steady start over first 5 months of the year with revenue running at
around 81% of pre-pandemic levels in-line with management's expectations
· Balance sheet remains strong with sufficient cash to support the
business through to recovery
Larry Lipman, Chairman of the Company, commenting on the results said:
"We are seeing the steady recovery of our market with young travellers and
schools once again visiting Europe's major cities. From our perspective, we
always believed this would happen and that our hostels would again demonstrate
their appeal to our target customers. Occupancy is increasing at an
encouraging pace and at strong average bed rates with bookings for the summer
ahead of our internal budget plans. We expect momentum to increase as travel
returns to normal conditions."
Enquiries:
Safestay plc Tel: +44 (0) 20 8815 1600
Larry Lipman
Liberum (Nomad & Joint Broker) Tel: +44 (0) 20 3100 2000
Andrew Godber / Edward Thomas / Miquela Bezuidenhoudt
Novella Tel: +44 (0) 20 3151 7008
Tim Robertson / Safia Colebrook
CHAIRMAN'S STATEMENT
Introduction
2021 was another year of significant disruption. The year started with the
global travel industry at a near standstill, it wasn't until April our hostels
began to re-open, however the year ended with the new Omicron variant
appearing, leading to further restrictions to trading, which meant our hostels
were only able to open for 44% of the year.
These challenges were reflected in the Company's results for the year.
However, unlike 2020, we entered 2021 with a much lower cost base and took the
opportunity in the first half of the year to reduce debt and create liquidity
with the disposal of our Edinburgh and Barcelona Sea hostels, which placed us
in a good financial position to reset and prepare for when we were allowed to
trade.
Our 2021 results show an improvement compared to 2020, but given the impact of
the global pandemic, neither year reflects the true trading potential of the
portfolio, and as such, for comparison, we have provided 2019 comparators to
where appropriate.
Through the second half of 2021 the Board took the opportunity to review all
strategic options with the business, including the potential for a sale, and
whilst bids were received at a significant premium to share price at the time,
they were conditional on our largest shareholders supporting an offer which
they were not prepared to do as they are strong believers in the longer-term
prospects of the Company. Consequently, the management are pleased to now
focus solely on supporting the ongoing recovery of the business to pre-Covid
levels and beyond.
The first five months of 2022, indicate Group trading is continuing to
improve, in line with increasing demand and that bookings for the summer are
in-line with management's expectations.
Financial Results
Revenue
Group revenue for the financial year ended 31 December 2021, increased by 33%
to £6.4 million, although this was still significantly below pre covid levels
(2020: £4.8m; 2019: £18.4 million).
The revenue in 2021 does not include £0.9 million (2020: £0.8 million) of
grants received from governments and local authorities. These are reported
separately, in administrative expenses for the £0.4 million payroll grants
and as exceptional income for the £0.5 million other grants. 62% of the
revenue came from non-UK properties (2020: 49%). The increase in revenue was
in the non-UK properties 68% and the decrease in revenue was in the UK
properties 1%.
Room revenue grew by 37% to £4.9 million (2020: £3.6 million) and food
& beverage revenue as well as ancillary revenue were up 48%, to £1.3
million (2020: £0.9 million). Rental income has reduced to £0.2 million
(2020: £0.4 million) due to the disposal of the Edinburgh hostel.
Historically, management focus has been the sale of beds and drive
accommodation revenue, with all other income streams significantly lower. In a
bid to maximise the revenue potential beyond beds, we have outsourced, on a
revenue share basis, our Madrid food and beverage operations to Casa Suecia,
who are steadily investing in the customer proposition and experience.
Safestay receives the higher of a minimum guaranteed rent or an agreed % of
the food and beverage revenue in return for Casa Suecia receiving the profit
from this income stream by managing this part of the operation with its own
staff.
Adjusted EBITDA
The Directors consider that an adjusted EBITDA provides a key measure of
performance since it removes the impact of the profit on disposal of the
properties, which is not a trading activity, along with the benefit of rent
concessions received. Adjusted EBITDA for the year to December 2021 was a
£1.0 million loss (2020: £1.9m loss; 2019: £6.1 million profit). Adjusted
EBITDA represents earnings before interest, tax, depreciation, amortisation,
profit on disposal and rent charges in the period.
2021 2020
£'000 As Restated
£'000
Adjusted EBITDA is as follows:
Operating Profit after exceptional expenses 3,393 (7,176)
Add back:
Depreciation 1,434 1,541
Right of Use Depreciation 2,243 2,459
Amortisation 96 199
Actual EBITDA 7,166 (2,977)
Impairment - 1,491
Profit on disposal - Edinburgh (7,511) -
Loss on disposal - Barcelona Sea 554 -
Exceptional expenses - 261
Rent concessions (1,275) (904)
Share based payment expense 72 279
Adjusted EBITDA (994) (1,850)
The exceptional expenses in 2020 totalled £0.3 million and included costs in
relation to acquisitions made in 2020, and debt fees write off relating to
re-financing.
Share-based provision was increased partly due to salary sacrifice being
replaced with share options during COVID-19.
Finance Costs
Finance costs in 2021 were £2.7 million (2020: £2.8 million) as follows:
2021 2020
Lease finance 1,741 1,558
Property financing costs 197 343
HSBC debt facility interests 695 625
Other finance charges 68 224
Finance costs 2,701 2,750
Following the sale of our Edinburgh hostel at the end of June, Safestay
reduced its HSBC debt on 6 July 2021 by £10.2m reducing bank debt to £12.7
million. The Group also has a £5.0 million government backed CBILS loan
secured for 6 years on 16 December 2020, with repayment commencing 16 April
2022.
In addition, the Company has two government backed loans in Germany (£0.2
million) and Austria (£0.2 million). Since the introduction of IFRS 16 from 1
January 2019, our hostel leases have been accounted for as lease liabilities.
At the lease commencement date, the Group recognises a right-of-use asset and
a lease liability on the balance sheet. The rental charge is replaced with
interest and depreciation. In 2021, the finance costs include £1.7 million of
lease interest (2020: £1.6 million). The £1.28 million (2020: £0.9 million)
reduction negotiated with our landlords was treated as rent concessions in
administrative expenses in full in both the current and prior year.
Earnings per Share
Basic loss per share for the year ended 31 December 2021 was 0.93p (2020: loss
11.88p) based on the weighted number of shares, 64,679,014 (2020: 64,679,014)
in issue during the year.
The Group made a £0.6 million net loss in 2021 (2020 loss: £7.5 million;
2019 loss: £1.0 million).
Cash flow, capital expenditure and debt
Net cash generated from operations was (£1.3) million (2020: (£4.3)
million).
The £1.6 million increase in income from the hostels resulted in additional
operating profit of £3.4 million, excluding the profit on disposal, due to
the drive to reduce the cost structure. The hostel and the majority of the
central teams were furloughed during the lockdowns, and the head office cost
structure has been significantly reduced since November 2020 when the
directors and senior management agreed to reduce their salary by 40% in return
for share options. The rental charge was reduced by £2 million via a mix of
reduction (£1.3 million) and deferments (£0.9 million). In addition, all
capital expenditure has been restricted from March 2020.
The Group had cash balances of £4.5 million at 31 December 2021 (2020: £2.1
million).
Following the measures implemented in 2020 to navigate the global pandemic to
focus on preserving and managing cash, capital expenditure was restricted
through 2021 to essential capital necessary to optimise revenues in our
existing portfolio on re-opening, following a sustained period of being
mothballed in line with legislative requirements.
Outstanding bank debt as at 31 December 2021 was £18 million (2020: £28
million). This includes a £12.7 million loan with HSBC (2020: £22.9
million), minus the £0.1 million amortised loan fees (2020: £0.3 million),
the £5.0 million government backed CBILS loan received in December 2020, and
the two government backed loans received via our local entities in Germany and
Vienna for £0.2 million each. The lease liabilities amount to £33 million
(2020: £39 million).
The gearing ratio (exclusive of lease liabilities) has decreased from 99% in
2020 to 56% in 2021 following the reduction in loans and property financing of
£10.4 and £5.2 million respectively, plus the £3.3 million increase in
Equity.
The HSBC debt covenants were waived until June 2021, and then adjusted and
waived covenants are agreed until December 2022.
Net asset value per share increased to 47p (2020: 42p) as a result of an
improved net profit position in 2021.
The Directors believe the existing cash and facilities in place, the increase
in occupancy forecast and the reduction in the cost base will allow them to
continue as a going concern, despite the lingering impact of COVID-19 and
travel restrictions. For these reasons, they continue to adopt the
going-concern basis in preparing the Company's financial statements.
2020 Qualification Elimination
In 2020 Grant Thornton provided a qualified opinion on the financial
statements because they were unable to obtain sufficient appropriate audit
evidence to substantiate historic accounting entries on goodwill and reserves
in relation to the acquisition of Edinburgh. This qualification became
redundant following the sale of Edinburgh in June 2021, as the subsequent
accounting treatment for the disposal pushes the final accounting entries
through reserves which is consistent with the approach taken in 2020.
Operational Review
Like 2020, 2021 was another unusual year, operating under the restrictions for
parts of the year imposed by the pandemic. The hospitality industry was more
affected than most and Safestay was no exception.
We entered 2021 with all hostels closed, and at the end of April tentatively
started to re-open initially in Edinburgh with all hostels finally open by the
end of July. Whilst hostels were allowed to be open, travel, although
possible, was restricted and barriers to travel made it hard for customers to
move outside of their own country.
Operational procedures were reset and fully adapted to the new safety
protocols and standards to keep both customers and employees safe. Week after
week, occupancy gradually increased with October and November seeing our
hostels return to a positive hostel EBITDA before rent, before Omicron hit in
December and a return to further travel restrictions and some countries into
lockdown.
The travel restriction had a particular impact on group bookings, with the
majority of schools and clubs deferring a return until 2022, but our policy of
focusing our marketing activity in the digital space, our own web site
investment and booking platforms meant that individual travellers have been
attracted to our hostels.
Going into 2022, we are reverting to targeting a revenue split of 40% from a
broad range of group bookings, 20% from direct individual bookings and 40%
through Online Travel Agencies ('OTAs'). Thereby spreading our revenue
generation beyond OTAs to the higher margin direct and group bookings.
Safestay continues to be positioned at the premium end of the hostel market.
In 2019, the Group began a renovation programme to maintain these standards.
Once the business returns to normal we expect to re-commence this programme
which supports our ability to maintain the Company's premium positioning and
high guest satisfaction scores.
The Group has a unique network in Europe which provides the opportunity to
offer young travellers and groups visiting Europe, accommodation in multiple
cities in one packaged deal. In addition, it provides Safestay with a natural
hedge against currency and economic volatility.
The Board
Paul Hingston joined the board as CFO and Company secretary on 21 February
2022. Paul has extensive leisure and travel sector experience, most recently
he was Group Finance Director for Starboard Hotels Ltd. Peter Harvey decided
to step down from the position of Chief Financial Officer and Company
Secretary on 21 February 2022 and I would like to thank him, on behalf of the
Board, for his contribution through what we trust has been the final stages of
the pandemic and the re-opening of our hostel estate. Additionally, Nuno
Sacramento resigned from his position as Chief Operating Officer on 17 June
2022.
Outlook
Utilising our unique portfolio, our longer-term strategy remains focused on
offering a comfortable and safe stay in beautiful, often iconic buildings that
are centrally located, in well-known and popular cities but still with a bed
rate representing outstanding value for money. Ultimately, we believe the
appeal of our offer combined with the proven appeal of visiting Europe's
ancient leading cities will underpin the full recovery of our business.
Bookings for the summer period are ahead of our internal budgets and we are
looking forward to delivering a much-improved summer trading period.
Larry Lipman
Chairman
12 August 2022
Strategic Report
Principal activity
The principal activity of the Group comprises the operation and development of
high-quality traveller accommodation under the Safestay brand in properties
that are either owned or occupied on leasehold.
The Business Model
The Safestay business model is to develop and operate a brand of contemporary
hostels in the UK and key tourist cities in Europe. The Safestay brand is
positioned at the premium end of the hostel spectrum appealing to a broad
range of guests. Core elements of the model are:
· Development: Identifying potential properties in target cities,
acquiring the leasehold or freehold in the properties and their contemporary,
stylish refurbishment to fit with the brand
· Operational: Deploying a strong hostel expertise and cost control to
achieve best in class operating margins
· Brand: Building the Safestay brand value
· Scale: Building the platform to efficiently add further hostels to
the Group
· People: Investing in the right people where automation cannot be
adopted
· Guest experience: Providing a comfortable, safe and enjoyable stay in
our hostels for a reasonable price with a focus on customer satisfaction, a
strong community experience and repeat stays.
Section 172(1) statement
The directors understand the importance of their section 172 duty and the need
to act in a way the directors consider, in good faith, would be most likely to
promote the success of the company for the benefit of its members, and in
doing so have regard, amongst other matters to:
• the likely consequences of any decisions in the long term;
• the interests of employees;
• the need to foster business relationships with suppliers,
customers and others;
• the impact of operations on the community and environment;
• the desirability of maintaining a reputation for high standards of
business conduct; and
• the need to act fairly as between members of the Company.
This duty underpins the Board's decision-making processes and the Group's
strategic direction, with due consideration given to the long-term impact of
its decisions on shareholders, employees, customers and wider stakeholders.
Practical measures that the Board takes to ensure the interests of these
stakeholders are reflected in the Board's decision-making process are as
follows:
• Customers
Customer engagement levels is a key performance indicator of our business. We
use this customer feedback to continuously improve our product and level of
service in the hostels. The Company also directly engages with customers via
social media to share information and collect further feedback. This
communication channel was used throughout the pandemic to maintain a close
connection with our customers when the hostels were closed during the
Pandemic.
As a result of engagement with customers, due to the impact of Covid-19, the
decision was made that the period in which customers were able to re-book
their cancelled stay would be extended. In addition, the bookings were made
more flexible and could be transferred to other Safestay hostels, if the
hostel they had booked remained closed.
· Employees
Employees are at the heart of the hospitality industry and the directors know
that the long-term success of the Company and its ability to continue to
extend its unique pan-European hostel network will rely on a strong company
culture, employees' wellbeing, and efficient succession planning. Except for
the period when meetings are impacted with social distancing measures and
travel restrictions, some Board Meetings would take place in hostels to
encourage direct contact between the Board and the operational teams.
Bi-annual meetings are organised with all managers to share best practice,
company information and help build a positive culture amongst the teams.
Social media is used amongst the teams to encourage regular communication
across the Group. Weekly team meetings, which all happen remotely via video
conferencing systems, have continued to take place with managers during the
pandemic to maintain a strong level of engagement amongst the teams and make a
smooth transition towards re-opening the hostels when restrictions end.
As a result of Covid-19 the Company engaged with employees to manage the
liquidity of the business including the offering of share options in respect
of salary replacement.
• Suppliers
Where possible, the Company forms long-term relationships with suppliers, so
that the Company and its suppliers have a more certain environment in which to
operate. This also applies to landlords of the 12 hostels operated by the
Group under lease agreements. The ability of the Company to build strong links
with suppliers has been instrumental to successfully negotiating rent
reductions and deferments during the pandemic and mitigate the closure of the
hostels and the significant loss in income which has resulted.
• Shareholders
In addition to the annual general meeting, the directors hold meetings with
institutional shareholders following the release of year end and interim
results and remain available for ad hoc meetings throughout the year. In
addition, the executive directors have participated in shareholder conferences
to present their business and strategy and obtain live and direct feedback
from non-institutional shareholders. The Company website includes an investor
section where shareholders can find all relevant information and reports.
The Board believes communication with stakeholders helps to shape and adapt
the Company's strategy and ultimately contributes to maintaining a high
standard of business conduct. The directors will always assess the
consequences of any decision over the long term. For example, decisions over
whether to acquire or develop new properties follows a rigorous process
involving long term financial assessment and commercial study, all in
conjunction with the funding capabilities of the Company. Similarly, the
Company uses customer satisfaction reports to help allocate the way funds are
deployed under an annual capex improvement programme to enhance the experience
of customers and ultimately safeguard brand equity.
The Company complies with the UK's Quoted Companies Alliance Corporate
Governance code for Small and Mid-Size Quoted Companies (the "QCA Code") and
further information is publicised in the investor section of the Company
website. https://www.safestay.com/investors/
(https://www.safestay.com/investors/)
· Engagement with the wider community
The board ensures that decisions made are responsible and ethical by taking
into consideration the wider society external to the organisation. The Group
is committed to contributing to the community in which it operates as a
business. The Company is using its footprint in each country to encourage
local initiatives via the local management and staff.
· Anti-bribery
The Company is committed to the prevention of bribery by those employed and
associated with it and is committed to carrying out business fairly, honestly
and openly, with zero-tolerance towards bribery. All employees have a
responsibility to prevent, detect and report all instances of bribery as
stated in our employee handbook.
Review of business and future prospects
Key Metrics
2021 2020 2019
Occupancy % 35.4% 37.9% 77.3%
Average Bed Rate £19.7 £18.3 £21.4
Room Revenues (£'000) 4,901 3,570 15,115
Total Revenues (£'000) 6,423 4,831 18,379
Net cash (used in)/generated from operations (£'000) (1,323) (4,347) 5,228
Net assets per share 47p 42p 55p
The occupancy is calculated by dividing the number of beds sold over the
period with the number of beds available when the hostels were opened during
the same period. It means that in 2020 and 2021 the occupancy was calculated
specifically for those days when the hostels were not closed due to the
COVID-19 pandemic. The underlying business generated revenues of £6.4 million
(2020: £4.8 million; 2019: £18.4 million).
Operating profit was £3.4 million (2020: £7.2 million loss) and an
underlying adjusted negative EBITDA, as defined in the Chairman's statement,
of £1.0 million (2020: £1.9 million loss) for the year to 31 December 2021.
Actual EBITDA profit is £7 million (2020: £3 million loss) and Profit before
Tax is £0.7 million (2020: Loss of £9.9 million). The business was severely
impacted by the pandemic in 2021 and the loss does not reflect the underlying
healthy business model which was cash generative in 2019 and was expected to
break even in 2020 when the Company hit the critical mass of 18 hostels to
absorb the central cost of managing the pan-European platform.
2021 was another challenging year which both impacted the results of the Group
and arrested our expansion plan. However, it continued to demonstrate the
sustained resilience of the teams in the hostels and head office, and their
ability to pivot under exceptional circumstances. It was also comforting to
benefit from the support of our bank, landlords and shareholders, reflecting
their confidence in the model developed so far, and the value of the Safestay
brand.
The Group completed on the disposal of two hostels in 2021 to provide the
Company with the necessary funding to meet the short-term and mid-term cash
requirement. The Barcelona Sea hostel was sold in February 2021 for a £0.7
million consideration, and the Edinburgh hostel was sold for £16 million in
June 2021. The combination of these disposals and cost saving measures, which
have been implemented by management since March 2020, ensuring the Company has
sufficient financial liquidity to support the business in its recovery
following the pandemic.
The Group is currently not committed to any future acquisition projects or
development. However, the Group is hoping to capitalise on this position to
seize opportunities and aggregate a fragmented market which will have become
even more inclined to consolidate following the COVID-19 period.
Social matters
Safestay provided jobs for over 200 people pre COVID-19. This number did
reduce during COVID whilst the hostels were temporarily closed, and most of
the staff employed by the Company during this period were on furlough.
The Company operates in 12 different countries and has established local
operating entities in each of the countries where our hostels are located.
This gives us the ability to hire employees locally and offer them employment
contracts and social benefits in full compliance with each relevant
jurisdiction. This also includes the relevant level of hospitality training as
well as mandatory training courses.
Maintaining a reputation for high standards of business conduct
The Board is mindful that the continued growth and success of the Group is
dependent upon maintaining high standards of business conduct, including:
· The ability to successfully compete within the market, to attract and
retain clients, and to service these clients to a high standard;
· The ability to attract and retain high quality employees;
· The ability to attract investors and to meet their expectations of
good governance and sound business conduct;
· The ability to meet the Group's regulatory obligations, and to meet
the expectations of relevant regulatory bodies.
This mindset underpins the formulation of the Group's strategy and is evident
throughout the Board's decision-making process.
Ensuring that members of the Company are treated fairly
The Board ensures that the Group's shareholders are treated equally and
fairly, regardless of the size of their shareholding or their status as a
private or institutional shareholder. The Group provides clear and timely
communications to all shareholders in their chosen communication medium, as
well as via the Group's website and via a Regulatory News Service. All holders
of Ordinary shares are able to vote at general meetings of the Company.
Environment
The Company is mindful of the importance of reducing environmental impact
wherever possible and has implemented several initiatives to achieve a
sustainable future. The Company intends to continuously review and increase
its efforts in this area. As an example, in all Safestay properties, we
minimise the use of plastics wherever possible seeking more sustainable
alternatives. This enables us to reduce our environmental footprint and helps
us build a reputation with our guests as it meets their environmental
expectations. We reuse and recycle the plastic we do use. We are also
constantly reviewing our CO2 emissions. We are committed to reducing Scope 1
and 2 emissions - for example, in the future, we would like to incorporate
water-saving products in our showers to encourage our guests to be mindful of
water wastage. We will also look to reduce Scope 3 emissions working only with
trusted suppliers.
We have a unique carbon impact tool which we offer to our guests. This gives
them the opportunity to test their carbon impact by using an online carbon
calculator on our website with the aim to increase the overall awareness and
desire to act responsively during their journey.
More information is available on our website at
https://www.safestay.com/corporate-social-responsibility/ .
Employee diversity
The Company is committed to diverse representation at all levels. We are
mindful that there is still work to be done to achieve these goals and are
looking to make significant progress in our recruitment, retention and
promotion strategies as we emerge from the pandemic.
The following table reports on the gender diversity of the Group's employees
at 31 December 2021:
Male Female
Directors 5 0
Senior Managers 1 3
Employment of disabled people
It is the policy of the Group to employ disabled persons in the job suited to
their aptitudes, abilities and qualifications whenever practicable, endeavour
to continue to employ those who become disabled whilst in the Group's
employment and to provide disabled employees with the same opportunities for
promotion, career development and training as those afforded to other
employees.
Human rights
The Company is committed to respecting human rights within our business by
complying with all relevant laws and regulations. We prohibit any form of
discrimination, forced, trafficked or child labour and are committed to safe
and healthy working conditions for all individuals, whether employed by the
Company directly or by a supplier in our supply chain.
Legal and ethical conduct
The Company has comprehensive measures to meet its statutory requirements
across all areas of its operation, and those expected by our customers and
employees, as necessary, for the long-term success of the business. Risks in
this area can occur from corruption, bribery, and human rights abuses,
including discrimination, harassment, and bullying. The Company has training
programmes for all employees. We take a zero-tolerance approach to bribery and
are committed to acting professionally, fairly and with integrity in all our
business dealings and relationships wherever we operate and implementing and
enforcing effective procedures to counter bribery as documented in the Company
anti bribery policy signed by the directors.
Principal risks and uncertainties
Management has completed a full review of the risks which may arise from
within or outside the business and may have an impact on the Company.
COVID-19 was also identified as an emerging risk for the period ending 31
December 2019 as it arose as a post balance sheet event. The Group's
operations have a relatively limited impact on the environment, and therefore
climate change has not been identified as an emerging risk. No other emerging
risks have been identified at this point. There has been no identified change
in the principal risks and uncertainties.
The principal risks and uncertainties that could potentially have a material
impact on the Group's performance are presented below.
· COVID-19
Although no business can be fully prepared for a worldwide catastrophe, the
financial health of Safestay, strength of the underlying business and prompt
reaction of management at the start of the crisis in March 2020 have helped to
mitigate the impact of this unexpected event, and the lessons learnt will help
build stronger processes and policies to combat any similar event in the
future.
From an operational perspective, our safety protocols have already been tested
during the summer 2020 after the first lockdown and our hostels and teams were
ready for the initial re-opening from May 2021, focused on protecting
employees and guests against the risk of the COVID-19. The Company website has
been updated to inform guests of the new safety protocols and ongoing
expectations.
As set out in last year's report we have set out a safety standard that
continues to be deployed across all Safestay properties and involves the
release of an internal certification to hostels each time they re-open. This
is being closely monitored and accessed by our management team to ensure a
safe space in public and private areas.
We expect that protocols will be lifted progressively as the restrictions are
finally removed, in line with local and international guidance and regulation.
· Business risks
Safestay operates in the hospitality industry which, over the years, has
experienced fluctuations in trading performance. Traditionally, the hotel
sector's performance has tracked macro-economic trends, feeling the strain
during the economic downturn, and becoming more buoyant during recovery. The
hostel sector, which leans more heavily on leisure travellers and has a lower
price point, has proved more resilient and has delivered more robust cash
flows through the economic cycle and has quickly recovered from isolated
terror acts which may limit travel in the short term. The hospitality sector
in the UK continues to face a number of cost headwinds from the National
Living Wage, commodity price inflation, foreign exchange rate fluctuations and
the hangovers from the UK's departure from the European Union and the
consequences of that. Business rates in the UK had continued to increase until
2020 when full relief was introduced from April 2020 until June 2021 as part
of the government support measures.
A proportion of Safestay's business in the UK comes from Europe, including
several school groups. In addition, over 60% of the turnover is coming from
hostels located in mainland Europe. The business is therefore highly
vulnerable to changes in the source market, schools' education, travel
policies and any fluctuations arising in the market from the 'Brexit' process
and travel restrictions implemented by the governments, or the school
governance bodies.
Conversely, this balance between the UK and mainland Europe offers a natural
hedging against fluctuations of each local market and currency where Safestay
operates.
Post COVID-19 crisis, the demand in Safestay's markets has strengthened, as we
expect that the existing supply within the competitor set will temporarily
reduce, until the industry expands again. However, provision of new supply
will increase again with the opportunity for real estate owners to repurpose
and convert existing buildings previously used for retail or offices.
Safestay's defence to such threats is the combination of our premium locations
and high standard of accommodation and operations. As supply increases, the
business's focus on revenue, customer service, and sales and marketing
activity is key to protect and grow market share, brand loyalty and
reputation.
IT and system risks
Safestay's property management and accounting systems are deployed via SaaS
(software as a service). As such the Group is dependent on robust internet
connectivity and the resilience of the provider's third-party data centre and
back-up protocols to operate. Whilst the arrangement carries risks, these
are deemed to be reduced when compared to an in-house option which would lead
to higher management overhead costs for the business. Management believes
this current arrangement is more suitable to the business needs as well as
being more cost effective due to the small size of our business. The other
systems used are not deemed to be business critical.
The Company contracts the maintenance of the IT infrastructure with an
external provider and has a cloud based back up system to secure all data
which are not already covered via other SaaS suppliers. This is a more robust
and flexible option compared to an in-house solution.
Expansion and regulatory risks
Accessing expansion opportunities at the right price and in the right
locations is, by its nature, an opportunistic exercise. Whilst the leadership
team has a track record in securing properties to support business growth, and
the fact that the market should offer more real estate opportunities in the
coming years, there is no guarantee that future opportunities can be secured,
even if it is expected that the market will offer real estate opportunities
when emerging from the COVID-19 crisis and existing property owners look for
alternatives to office and retail asset classes.
Expansion in new jurisdictions and changes in regulation in countries where
Safestay already operates is creating an environment where it is more likely
to be in regulatory breach compared to a group which would only trade in one
country. Safestay plc is a listed business and as such is bound to a very high
level of compliance. The Board is composed of seven experienced non-executive
and executive directors who all have a proven experience in hospitality and
strong understanding of regulatory and compliance topics. Moreover, the Group
works with local law firms in each country where it operates to gain access to
the local expertise and guarantee full local compliance, notably via the
obtention of relevant licenses. As opposed to other hospitality sectors, such
as sharing economy or private rental, the hostel sector is built on strong
regulation plus existing fundamentals and trade licences, which makes it less
likely to require the introduction of more strict regulations.
Financial risk
The main £12.7 million facility with HSBC ends in January 2025. In December
2020, the Group received a £5.0 million CBILS (Coronavirus Business
Interruption Loan Scheme) via HSBC. The CBILS will be repaid at a rate of
£1.0 million per year from April 2022 until April 2027. The main £12.7
million facility is interest only from July 2021 following a £10.2 million
repayment after the completion of the Edinburgh hostel disposal on 30 June
2021. These loans provide an efficient base from which to grow the business at
a reduced 2.95% margin over SONIA for the main facility and 3.99% margin over
base rate from year 2 for the CBILS. The CBILS was interest free in the first
year.
Any increases in SONIA or base rate will increase the cost of these loans and
therefore impact the net profit of the business (a 0.5% change in interest
rate would impact the net profit before tax by £89,000). Strict financial
controls are in place to ensure that monies cannot be expended above the
available limits or to breach any banking covenants.
A proportion of Safestay's business comprises group bookings and there is a
risk of booking cancellations which will leave the hostel with unforeseen beds
to sell at relatively short notice. To offset this risk, all group bookings
require a non-refundable deposit of 10% at time of confirmation and staged
payments in advance of the group arrivals.
Except for a small number of credit sales for which applied credit limits are
verified through external sources, Safestay has a policy of full payment
upfront for guests staying which is the norm for hostels. As such there are
negligible trade receivable risks.
Approved by the Board of Directors and signed on behalf of the Board.
Larry Lipman
Chairman
12 August 2022
Consolidated Income Statement Note 2021 2021 2021 2020 2020 2020
Continuing operations Discontinued operations Total As restated As restated As restated
£'000 £'000 £'000 Continuing operations Discontinued operations Total
£'000 £'000 £'000
Revenue 2 5,810 613 6,423 3,375 1,456 4,831
Cost of sales 3 (1,160) (132) (1,292) (658) (234) (892)
Gross profit 4,650 481 5,131 2,717 1,222 3,939
Administrative expenses 5 (9,867) (565) (10,432) (9,693) (1,609) (11,302)
Operating loss before exceptional items (5,217) (84) (5,301) (6,976) (387) (7,363)
Exceptional items - other operating income 5 1,737 - 1,737 448 - 448
Exceptional items - profit on disposal 5 - 7,511 7,511 - - -
Exceptional items - loss on disposal 5 - (554) (554) - - -
Exceptional items - costs 5 - - - (261) - (261)
Operating profit after exceptional items (3,480) 6,873 3,393 (6,789) (387) (7,176)
Finance costs 6 (2,627) (74) (2,701) (2,750) - (2,750)
Profit/(loss) before tax (6,107) 6,799 692 (9,539) (387) (9,926)
Tax 8 218 (1,509) (1,291) 2,198 205 2,403
Profit/(loss) for the financial year attributable to owners of the parent (5,889) 5,290 (599) (7,341) (182) (7,523)
company
Basic profit/(loss) per share 9 (0.93p) (11.63p)
Consolidated Statement of Comprehensive Income 2021 2020
Year ended 31 December 2021 As restated
£'000 £'000
Profit/(loss) for the year (599) (7,523)
Exchange differences on translating foreign operations 169 (4)
Property revaluation 5,039 -
Deferred tax on property revaluation (1,399) (185)
Total comprehensive profit/(loss) for the year attributable to owners of the 3,210 (7,712)
parent company
Consolidated Statement of Financial Position Note 2021 2020
31 Dec 2021 As restated
£'000 £'000
Non-current assets
Property, plant and equipment (including right of use asset) 11 73,609 89,735
Intangible assets 12 18 921
Goodwill 12 12,146 13,569
Lease assets 17 562 -
Deferred tax asset 18 1,122 2,159
Total non-current assets 87,457 106,384
Current assets
Stock 35 47
Trade and other receivables 13 1,227 1,884
Lease assets 17 78 -
Current tax asset 199 289
Cash and cash equivalents 14 4,482 2,125
Total current assets 6,021 4,345
Total assets 93,478 110,729
Current liabilities
Borrowings 16 (926) (311)
Lease liabilities 17 (1,922) (1,932)
Trade and other payables 15 (2,062) (2,409)
Current liabilities (4,910) (4,652)
Non-current liabilities
Borrowings 16 (24,028) (40,043)
Lease liabilities 17 (31,086) (37,089)
Trade and other payables due in more than one year 15 (7) (336)
Deferred tax liabilities 18 (3,314) (1,758)
Total non-current liabilities (58,435) (79,226)
Total liabilities (63,345) (83,878)
Net assets 30,133 26,851
Equity
Share capital 19 647 647
Share premium account 19 23,904 23,904
Other components of equity 19 18,510 14,629
Retained earnings (12,928) (12,329)
Total equity attributable to owners of the parent company 30,133 26,851
Consolidated Statement of Changes in Equity
31 December 2021
Share Share As restated Other As restated Retained earnings As restated Total
Capital premium account Components of £'000 equity
£'000 £'000 Equity £'000
£'000
Balance as at 1 January 2020 (as restated) 647 23,904 14,531 (4,806) 34,276
Comprehensive income
Loss for the year - - - (7,523) (7,523)
Other comprehensive income
Movement in translation reserve (as restated) - - 4 - 4
Deferred tax on property revaluation (as restated) - - (185) - (185)
Total comprehensive income - - (181) (7,523) (7,704)
Transactions with owners
Share based payment charge for the period - - 279 - 279
Balance at 31 December 2020 (as restated) 647 23,904 14,629 (12,329) 26,851
Loss for the year - - - (599) (599)
Other comprehensive income
Property revaluation - - 5,039 - 5,039
Deferred tax on property revaluation - - (1,399) - (1,399)
Movement in translation reserve - - 169 - 169
Total comprehensive profit - - 3,809 (599) 3,210
Transactions with owners
Share based payment charge for the period - - 72 - 72
Balance at 31 December 2021 647 23,904 18,510 (12,928) 30,133
Consolidated Statement of Cash Flows - 31 Dec 2021 Note 2021 2020
£'000 £'000
Operating activities
Cash generated from operations 21 (1,272) (4,228)
Income tax received/(paid) (51) (119)
Net cash (used in)/generated from operations (1,323) (4,347)
Investing activities
Purchases of property, plant and equipment (307) (985)
Purchases of intangible assets - (36)
Acquisitions, net of cash acquired 25 - (2,003)
Payment of deferred consideration - (509)
Proceeds on sale of fixed assets 16,658 -
Net cash outflow from investing activities 16,351 (3,533)
Financing activities
Proceeds from refinancing transaction - 5,681
Fees relating to financing transaction - (161)
Proceeds from Coronavirus Business Interruption Loan Scheme - 5,000
Bank loans redeemed (10,373) -
Principal elements of lease payments (1,810) (2,514)
Property financing payments - (331)
Interest paid (488) (624)
Net cash generated from financing activities (12,671) 7,051
Cash and cash equivalents at beginning of year 2,125 2,954
Net increase /(decrease) in cash and cash equivalents 2,357 (829)
Cash and cash equivalents at end of year 14 4,482 2,125
Notes to the Consolidated Financial Information
31 December 2021
1. Accounting policies for the group FINANCIAL Information
Safestay plc is listed on the AIM of the London Stock Exchange and was
incorporated and is domiciled in the UK.
The Group financial statements have been prepared in accordance with
International Accounting Standards in conformity with the requirements of the
Company Act 2006.
The financial statements have been presented in sterling, prepared under the
historical cost convention, except for the revaluation of freehold properties
and right of use assets.
The accounting policies have been applied consistently throughout all periods
presented in these financial statements. These accounting policies comply with
each IFRS that is mandatory for accounting periods ending on 31 December 2021.
The financial information set out in this Preliminary Announcement does not
constitute the Group's statutory financial
statements for the years ended 31 December 2021 or 2020. The financial
information has been extracted from the
Group's statutory financial statements for the years ended 31 December 2021
and 2020. The auditors have reported
on the 2021 financial statements; their report was unqualified, did not
include references to any matters to which the
auditors drew attention by way of emphasis and did not contain a statement
under Section 498(2) or (3) of the
Companies Act 2006.
The former auditors have reported on the 2020 financial statements, their
report was qualified for a limitation of
scope relating to a reduction of reserves and drew attention by way of
emphasis to a material uncertainty related to
going concern and contained a statement under s498(2) and 498(3).
The statutory accounts for the year ended 31 December 2021 will be filed
with the Registrar of Companies following
the Company's Annual General Meeting. The statutory accounts for the year
ended 31 December 2020 have been
filed with the Registrar of Companies. New standards and interpretations
effective in the year
The Group has adopted the new accounting pronouncements which have become
effective this year, and are as follows:
· IFRS16
The Group has adopted the amendment to IFRS 16 which provides lessees with an
exemption from assessing whether a COVID-19-related rent concession is a lease
modification.
Applying the practical expedient, the Group has recognised the rent
concessions as a variable lease payment in accordance with IFRS 16. There is a
corresponding adjustment to the lease liability, derecognising the part of the
lease liability that has received the concession, with the corresponding
adjustment to operating expenses.
Where amounts have been deferred they do not extinguish the lessee's liability
or substantially change the consideration of the lease. These have been
accounted for as an increase in the accrual for the rent outstanding.
· IFRS 3: Business combination - amendment effective 1 January 2021
IFRS 3 establishes different accounting requirements for a business
combination as opposed to the acquisition of an asset or a group of assets
that does not constitute a business. Business combinations are accounted for
by applying the acquisition method, which, among other things, may give rise
to goodwill. In contrast, when accounting for asset acquisitions, the acquirer
allocates the transaction price to the individual identifiable assets acquired
and liabilities assumed based on their relative fair values and no goodwill is
recognised. Therefore, whether an acquired set of activities and assets is a
business, is a key consideration in determining how the transaction should be
accounted for. The amendments made to the IFRS 3 are set out to clarify the
definition of a business. The amendment also adds an optional concentration
test that allows a simplified assessment of whether an acquired set of
activities and assets is not a business.
Going concern
The Group is reporting an adjusted EBITDA loss of £994,000 and net current
assets of £1,111,000 in 2021 when the business was again severely impacted by
the pandemic and the hostels on average have been open for less than 50% of
the year. Travel restrictions and local lockdowns continued to impact in some
of the countries where the Group operates in Europe into 2022.
However, the Group's strategy to develop and expand the premium hostel
offering provided by the Group within the UK and through its European
acquisitions had proved successful until February 2020 and despite the Omicron
pandemic in December 2021 through to February 2022, the Group has started to
generate cash from its operation in the first quarter in 2022 when the travel
restrictions were lifted. The travel industry as a whole has been impacted and
continues to recover through 2022.
The directors have further reviewed the measures implemented by management to
reduce the cash burn of the Group since the start of the outbreak. The monthly
fixed cost base was reduced from £0.9 million to £0.6 million during the
first lockdown in the second quarter of 2020, and this continued during the
second wave of lockdowns from November 2020. Costs were allowed to come back
into the business on a measured basis as the business re-opened in 2021,
mindful of the potential for future travel restrictions and lockdown, which
has helped navigate the final Omicron variant and associated restrictions.
These reductions and the cost consciousness, are the results of the combined
impact of the following actions implemented by management during this period:
· The Group has taken advantage of governmental support schemes in all
jurisdictions where they were available, including the job retention scheme in
the UK and similar schemes in the other countries where Safestay operates
hostels.
· Variable operational costs in the hostels were mechanically reduced
to zero with the absence of revenue, as necessary. The fixed operational
costs, exclusive of insurance, rent and property taxes, were reduced to £0.15
million during the first lockdown and this continued until the hostels
reopened. The Group maintains a minimum level of spend in safety, utilities
and maintenance to keep the properties in a good condition whilst they are
closed.
· The Group benefited from business rates reliefs for the 5 hostels
operated in the UK since April 2020 through to end of June 2021 and continued
with a 66% relief until March 2022. It is also benefiting from the 50% relief
in the year to 31 March 2023.
· The Group continued to liaise with landlords to obtain a £1.3
million rent reduction for 2021, with deals being extended in all of the
hostels apart from Berlin, Bratislava, Elephant & Castle, Madrid and
Vienna. As highlighted in previous reports, in addition, the landlords with
rent deferments have agreed for the majority to be after 2022.
· Operating costs in the head office were reduced by 40% to adjust the
team and spend to this unprecedented context. This includes a 40% reduction in
salaries for Directors and senior management in exchange for share options
since October 2020 through to July 2021.
The Group received £16.0 million proceeds from the disposal of the Edinburgh
hostel which completed on 30 June 2021. Following completion, the £1 million
overdraft facility was removed, and £10.2 million of HSBC debt was repaid.
Since the start of the Pandemic, management has continuously updated and
adjusted the cash forecast for the next months. The most recent forecast
prepared in June 2022 assumes as a prudent base case that the hostels revenue
will gradually climb through the summer months. Like for like sales for the
first 5 months of the year are 80% of pre covid levels. This continues to
reflect the expectation of a slow recovery of the tourism market in general
outlined in last year's annual report.
The sale of Edinburgh generated enough liquidity, after the £10.2m debt
repayment, for the business to mitigate the enforced downturn of revenues due
to the Pandemic restrictions, and through to time when positive cash inflows
are being generated.
The covenants of the debt facility were waived in June 2020, being replaced
with adjusted EBITDA targets reflecting revised performances of the hostels
since the first lockdown in April 2020. These also apply in June 2022 and have
been met. These will then revert to the adjusted and waived covenants that
have been agreed until December 2022.
Based on the latest forecast occupancy rates and average spend, the
directors have assessed the cash flow of the business against the Group's
commitments and obligations and conclude that there are no material
uncertainties in terms of the ability to continue for the foreseeable future.
For this reason, they continue to adopt the going-concern basis in preparing
the Group's financial statements.
Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision makers (CODM), who are responsible for allocating resources and
assessing performance of the operating segments, have been identified as the
executive directors. Currently the operating segments are the operation of
hostel accommodation in the UK and Europe. An additional geographical area has
been identified in respect of Spain as disclosed in note 2.
Revenue
To determine whether to recognise revenue, the Group follows a 5-step process
in accordance with IFRS 15
- Identifying the contract with a customer
- Identifying the performance obligations
- Determining the transaction price
- Allocating the transaction price to the performance obligations
- Recognising revenue when/as performance obligation(s) are
satisfied.
Revenue is stated net of VAT and is gross of travel agency commission with the
Group being the principal in all third party booking arrangements. It
comprises revenues from overnight hostel accommodation, the sale of ancillary
goods and services such as food & beverage and merchandise.
Accommodation and the sale of ancillary goods and services is recognised when
provided.
Income from the rent of student accommodation is recognised on a straight-line
basis over the academic year to which the rent relates. In accordance with
IFRS 16, the group accounts for its subleases as operating leases as they do
not transfer substantially all the risks and rewards of ownership to the
lessee.
The group recognises income from lease payments from operating leases as
income on a straight-line basis over the term of the contract.
The sale of ancillary goods comprises sales of food, beverages, and
merchandise.
Deferred income comprises deposits received from customers to guarantee future
bookings of accommodation. This is recognised as revenue once the bed has been
occupied.
There are no significant judgements or estimations made in calculating and
recognising revenue.
Revenue is not materially accrued or deferred between one accounting period
and the next.
Government Grants
Monetary resources transferred to the Group by government, government agencies
or similar bodies are recognised at fair value, when the Group is certain that
the grant will be received. Grants will be recognised in the profit and loss
account on a systematic basis, over the same period during which the expenses,
for which the grant was intended to compensate, are recognised.
Grants relating to employee costs are disclosed in Staff Costs, note 10 of the
accounts. Other grants are disclosed in Exceptional Items shown in note 5 of
the accounts.
Exceptional Items
The Group separately discloses on the face of the Income Statement items of
income or expense which nature or amount would, without separate disclosure,
distort the reporting of the underlying business.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on taxable profit for the year.
Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the statement of
financial position date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit and is accounted for using the statement of financial position
liability method. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets are reviewed at each statement of
financial position date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled, or the asset is realised based on tax
losses enacted or substantively enacted at the statement of financial position
date. Deferred tax is charged or credited in the income statement, except when
it relates to items charged or credited in other comprehensive income, in
which case the deferred tax is also dealt with in other comprehensive income.
Foreign currency translation
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in Sterling which is the Group's functional currency.
Foreign currency transactions are translated into the functional currency
using the exchange rates at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from
the translation of monetary assets and liabilities denominated in foreign
currencies are generally recognised in profit and loss.
Foreign exchange gains and losses that relate to borrowings are presented in
the statement of profit or loss within finance costs. All other exchange gains
and losses are presented in the statement of profit or loss within
administrative expenses.
Non-monetary items that are measured at fair-value in a foreign currency are
translated using the exchange rates at the date when fair-value was
determined. Translation differences on assets or liabilities carried at
fair-value are reported as part of the fair-value gain or loss.
The results and financial position of foreign operations that have a
functional currency different to the presentation currency are translated into
the presentation currency as follows:
· assets and liabilities for each statement of financial position are
translated using the closing rate at the date of that statement of financial
position.
· income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average exchange rates.
· All resulting exchange differences are recognised in other
comprehensive income.
Goodwill and fair-value adjustments arising on the acquisition of a foreign
operation are treated as the assets and liabilities of the foreign operation
and translated at the closing rate.
Business combinations
Acquisitions of subsidiaries and businesses are accounted using the
acquisition method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the acquisition-date
fair values of assets transferred by the Group, liabilities incurred by the
Group to former owners of the acquire and the equity interest issued by the
Group in exchange for control of the acquire. Acquisition costs are expensed
as incurred.
At the acquisition date, the identifiable assets acquired, and liabilities
assumed are recognised at their fair value at the acquisition date.
Deferred Consideration
Deferred payments made in relation to acquisitions of subsidiaries and
business are accounted for their discounted value in trade and other payable.
Any difference between the discounted value and the cash consideration at the
time of the payment, is recognised as an interest charge in the income
statement.
Property, plant and equipment
Freehold property and Lease assets are stated at fair value and revalued
periodically in accordance with IAS 16 Property Plant and Equipment. Valuation
surpluses and deficits arising in the period are included in other
comprehensive income. All other property, plant and equipment are recognised
at historical cost less depreciation and are depreciated over their useful
lives. The applicable useful lives are as follows:
Fixtures, fittings and equipment 3-5 years
Freehold
properties
50 years
Leasehold
properties
50 years or term of lease if shorter
Land is not depreciated.
Leasehold land and buildings relate to Property from financing transactions
related to Safestay Elephant and Castle and Safestay Edinburgh Hostel. In
2017, Safestay completed financing transactions on these two properties,
raising gross cash proceeds of £12.6m. The sale was agreed with an
institutional buyer in exchange for 150 year geared ground rent leases. The
significant risks and rewards of ownership were retained, and the exercise to
repurchase these properties is "almost certain". The contracts took the legal
form of the sale and leasebacks. However, the economic substance of the
original transactions in 2017 meant that both leases have historically been
treated as owned by Safestay. Therefore, the transactions are classified as
leasehold land and buildings.
Impairment of property, plant and equipment
At each statement of financial position date, the Group reviews the carrying
amounts of its property, plant and equipment to determine whether there is any
indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated to
determine the extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have been adjusted. If the
recoverable amount of an asset (or cash-generating unit) is estimated to be
less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount.
An impairment loss is recognised as an expense immediately, unless the
relevant asset is carried at a revalued amount, in which case the impairment
loss is treated as a revaluation decrease, but a negative revaluation reserve
is not created.
For revalued assets, where an impairment loss subsequently reverses, the
carrying amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been determined had
no impairment loss been recognised for the asset (cash-generating unit) in
prior years. Any remaining balance of the reversal of an impairment loss is
recognised in the income statement. For assets carried at cost, any reversals
of impairments are recognised in the income statement.
Goodwill
Goodwill represents the future economic benefits arising from a business
combination, measured as the excess of the sum of the consideration
transferred over the net of the acquisition-date amounts of the identifiable
assets acquired and the liabilities assumed. Goodwill is carried at cost less
accumulated impairment losses. A review of the carrying value of goodwill is
carried out annually.
For the purpose of impairment testing, goodwill acquired in a business
combination is allocated to each of the cash-generating units (CGUs), or
groups of CGUs, that is expected to benefit from the synergies of the
combination. The Directors consider each individual hostel to be a separate
cash generating unit for impairment purposes and, as explained in note 12 to
the financial statements, each unit or group of units to which the goodwill is
allocated represents the lowest level within the entity at which the goodwill
is monitored for internal management purposes.
Goodwill impairment reviews are undertaken annually or more frequently if
events or changes in circumstances indicate a potential impairment. The
carrying value of the CGU containing the goodwill is compared to the
recoverable amount, which is the higher of value in use and the fair value
less costs of disposal. Any impairment is recognised immediately as an expense
and is not subsequently reversed.
Intangible assets
Costs that are directly attributable to a project's development phase,
including capitalised internally developed software, are recognised as
intangible assets using the cost model, provided they meet all of the
following recognised:
• the development costs can be measured reliably
• the project is technically and commercially feasible
• the Group intends to and has sufficient resources to complete the project
• the Group has the ability to use or sell the software, and
• the software will generate probable future economic benefits.
Intangible assets acquired in a business combination are recognised at fair
value at the acquisition date, which is deemed to be the cost going forward.
The leasehold rights and tenancy subleases relate to intangible assets
acquired in a business combination as outlined in note 12.
Assets with a finite useful life are carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line method to
allocate the cost of trademarks and licences over their estimated useful lives
as set out above.
The following useful lives are applied:
- 10 years for the life of the interest in the head lease
- 13 years for tenancy sublease
- 3 years for website development.
Residual values and useful lives are reviewed at each reporting date.
Assets that are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs of disposal and value in
use. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are largely independent cash inflows (CGUs).
Prior impairments of non-financial assets (other than goodwill) are reviewed
for possible reversal at each reporting date.
Stock
Stock is stated at the lower of cost and net realisable value. Cost is
calculated using the weighted average method. Net realisable value represents
the estimated selling price.
Financial assets measured at amortised cost
Financial assets held at amortised costs are non-derivative financial assets
with fixed or determinable payments which are not quoted in an active market.
They are included in current assets, except for maturities greater than 12
months after the balance sheet date. These are classified as non-current
assets.
· Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held at call with
banks and other short-term highly liquid investments with original maturities
of three months or less. Bank overdrafts that are repayable on demand and
which form an integral part of the Group's cash management are included as a
component of cash and cash equivalents for the purpose of the statement of
cash flows.
· Trade and other receivables
Trade and other receivables are measured at initial recognition at transaction
price plus transaction costs and are subsequently measured at amortised cost
using the effective interest rate method. The Group recognises lifetime ECL
for trade receivables and amounts due on contracts with customers. The
expected credit losses on these financial assets are estimated based on the
Group's historical credit loss experience, adjusted for factors that are
specific to the debtors. Management have considered the ECL for trade
receivables as immaterial given the majority of sale receipts are obtained
prior to the stay.
Credit risk
The Group assesses impairment on a forward-looking basis using the expected
credit loss method and has applied the simplified approach which permits the
use of the lifetime expected loss provision for all trade and other
receivables. The Group has no significant history of non-payment; as a result,
the expected credit losses on financial assets are not material.
Financial liabilities
The Group classifies its financial liabilities as other financial liabilities.
Other financial liabilities are measured at fair value on initial recognition
and subsequently measured at amortised cost, using the effective-interest
method.
· Borrowings
Borrowings other than bank overdrafts are recognised initially at fair value
less attributable transaction costs. Subsequent to initial recognition,
borrowings are stated at amortised cost with any difference between the amount
initially recognised and redemption value being recognised in the income
statement over the period of the borrowings, using the effective interest
method.
Where there are extension options, management have made an accounting policy
choice that these are loan commitments from the holder of the debt instrument
that does not need to be separately accounted for.
Property from financing transactions included the borrowings for Safestay
Elephant and Castle and Safestay Edinburgh Hostel. In 2017, Safestay completed
financing transactions on these two properties, raising gross cash proceeds of
£12.6m. The sale was agreed with an institutional buyer in exchange for 150
year geared ground rent leases. The significant risks and rewards of ownership
were retained, and the exercise to repurchase these properties is "almost
certain". The contracts took the legal form of the sale and leasebacks.
However, the economic substance of the original transactions in 2017 meant
that both leases have historically been treated as owned by Safestay.
Therefore, the transactions are accounted for as financial liabilities.
· Loan arrangement fees
The loan arrangement fees are offset against the loan balance and amortised
over the term of the loan to which they relate as part of the effective
interest rate calculation.
· Trade and other payables
Trade and other payables are initially measured at fair value and are
subsequently measured at amortised cost using the effective interest rate
method.
· Leases
The Group has leases for hostels across Europe. With the exception of
short-term leases and leases of low-value underlying assets, each lease is
reflected on the balance sheet as a right-of-use asset and a lease liability.
Leases of property generally have a lease term ranging from 5 years to 19
years.
For any new property asset contracts entered on or after 1 January 2019, the
Group considers whether a contract is, or contains a lease. A lease is defined
as 'a contract, or part of a contract, that conveys the right to use an asset
(the underlying asset) for a period of time in exchange for consideration'. To
apply this definition the Group assesses whether the contract meets three key
evaluations which are whether:
· the contract contains an identified asset, which is either explicitly
identified in the contract or implicitly specified by being identified at the
time the asset is made available to the Group
· the Group has the right to obtain substantially all of the economic
benefits from use of the identified asset throughout the period of use,
considering its rights within the defined scope of the contract the Group has
the right to direct the use of the identified asset throughout the period of
use; and
· The Group has the right to direct the use of the asset. The Group has
this right when it has the decision-making rights that are most relevant to
changing how and for what purposes the asset is used. In rare cases where all
the decisions about how and for what purpose the asset is used are
predetermined, the Group has the right to direct the use of the asset if
either:
- The Group has the right to operate the asset; or
- The Group designed the asset in a way that predetermines how and
for what purpose it will be used.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use asset and a
lease liability on the balance sheet. The right-of-use asset is measured at
cost, which is made up of the initial measurement of the lease liability, any
initial direct costs incurred by the Group, an estimate of any costs to
dismantle and remove the asset at the end of the lease, and any lease payments
made in advance of the lease commencement date (net of any incentives
received). The Group depreciates the right-of-use assets on a straight-line
basis from the lease commencement date to the earlier of the end of the useful
life of the right-of-use asset or the end of the lease term. The Group also
assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the
present value of the lease payments unpaid at that date, discounted using the
interest rate implicit in the lease if that rate is readily available or the
Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up
of fixed payments (including in substance fixed), variable payments based on
an index or rate, amounts expected to be payable under a residual value
guarantee and payments arising from options reasonably certain to be
exercised.
The lease liability is measured at amortised cost using the effective interest
method. It is remeasured when there is a change in future lease payments
arising from a change in an index or rate, or if the Group changes its
assessment of whether it will exercise an extension or termination option.
The Group has elected to take the exemption not to recognise right-of-use
assets and lease liabilities for short-term lease of machinery that have a
lease term of 12 months or less and leases of low-value assets. The Group
defines leases of low value assets as being any lease agreement where the
total value of payments made across the lease term is less than £10,000. The
Group recognises the lease payments associated with these leases as an expense
on a straight-line basis over the lease.
On the statement of financial position, right-of-use assets have been included
in property, plant and equipment and lease liabilities have been included in
trade and other payables.
Measurement of the Right-of-use Assets
Right-of-use assets are generally depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
The Group as a lessor
As a lessor the Group classifies its leases as either operating or finance
leases.
A lease is classified as a finance lease if it transfers substantially all the
risks and rewards incidental to ownership of the underlying asset and
classified as an operating lease if it does not.
The group accounts for its sub leases as finance leases with reference to the
right-of-use asset arising from the head lease. The group has not offset the
assets and liabilities of the head lease and sub lease, nor the income and
expenditure arising from these contracts. A lease receivable is recognised in
the balance sheet in respect of the net investment in the sub lease. The net
investment in the sub lease is assessed annually for any indicators of
impairment.
Equity
The total equity attributable to the equity holders of the parent comprises
the following:
· Share Capital
Share capital represents the nominal value of shares issued.
· Retained earnings
Retained earnings represent undistributed cumulative earnings.
· Equity Instruments
Equity instruments issued by the Group are recorded at the proceeds received,
net of direct issue costs.
Other Components of Equity
· Share premium account
Share premium represents amounts subscribed for share capital in excess of
nominal value less the related costs of share issues.
· Merger reserve
Merger reserve represents amounts subscribed for share capital in excess of
nominal value exchanged for the shares in the acquisition of a subsidiary
company.
· Revaluation reserve
Revaluation reserves represent the increase in fair value of freehold property
and leasehold assets over the value at which it was previously carried on the
balance sheet. Any gain from a revaluation is taken to the revaluation
reserve. Where it reverses a previous impairment, the impairment is reversed,
but any surplus in excess of the amount of the impairment is added to the
revaluation reserve.
· Translation Reserve
Translation Reserve comprises foreign currency translation differences arising
from the translation of financial statements of the Group's foreign entities
into presentational currency.
· Share based payment reserve
The equity settled share-based payment reserve arises as the expense of
issuing share-based payments is recognised over time. The reserve will fall as
share options vest and are exercised but the reserve may equally rise or might
see any reduction offset, as new potentially dilutive share options are
issued. Balances relating to share options that lapse after they vest are
transferred to retained fair value of employee services determined by
reference to transfer of instruments granted.
The Group has applied the requirements of IFRS 2 Share based payment to share
options. The fair value of the share options is determined at the grant date
and are expensed on a straight-line basis over the vesting period, based on
the Group's estimate of shares that will eventually vest and adjusted for the
effect of non-market-based vesting conditions.
Fair value is measured by use of the Black Scholes model. The expected life
used in the model has been adjusted, based on management's best estimate, for
the effects on non-transferability, exercise restrictions and behavioural
considerations.
Dividends
Dividend distributions payable to equity shareholders are included in other
liabilities when the dividends have been approved in a general meeting prior
to the reporting date.
Critical accounting judgements and key sources of estimation and uncertainty
The fair value of the Group's property is the main area within the financial
information where the directors have exercised significant estimates.
Judgements
· The Group has identified certain costs and income as exceptional in
nature in that, without separate disclosure, would distort the reporting of
the underlying business. A degree of judgement is required in determining
whether certain transactions merit separate presentation to allow shareholders
to better understand financial performance in the year, when compared with
that of previous years and trends This is set out in note 5.
· Extension options for leases: In accordance with IFRS 16, when the
entity has the option to extend a lease, management uses its judgement to
determine whether or not an option would be reasonably certain to be
exercised. Management considers all facts and circumstances including their
past practice and any cost that will be incurred to change the asset if an
option to extend is not taken, to help them determine the lease term.
Management generally includes extensions when the option to extend can be
unilaterally exercised by the tenant provided the hostel under lease is
expected to continue to be profitable for the Group after the extension is
exercised.
Estimates
· The fair-value of the assets and liabilities recognised on the
acquisition of an operation or entity is determined using both external
valuations and directors' valuations. Details of the fair values are set out
in the note 24.
· Assessment of impairment of goodwill requires estimation of future
cash flows, which are uncertain, discounted to present value which also
requires estimation by management. The key assumptions used to calculate the
value in use (VIU) to test the goodwill for each cash generating units (CGUs)
are detailed in note 12. A Pre-tax discount rate of 9.7% (2020: 11.1%) has
been calculated using weighted average cost of capital. An assessment was made
on the differing risks between countries in which the hostels operate based on
country risks. Based on the assessment it was concluded that the differences
between discount rates between each CGU is not material. The assets are
similar in nature, with all CGUs providing the provision of hostel
accommodation and therefore similar cashflows and therefore the risk
associated with the assets is considered to be consistent between CGUs. As
such one discount rate has been utilised for the purposes of performing an
impairment review.
· As outlined in the accounting policy, the financial statements have
been prepared under the historical cost convention except for the revaluation
of the freehold properties and lease assets (in respect of Elephant and Castle
and Edinburgh Hostel). The Group is required to value property on a
sufficiently regular basis by using open market values to ensure that the
carrying value does not differ significantly from the fair value. The
valuation, performed by qualified valuers is based on market observations and
estimates on the selling price in an arms-length transaction, and includes
estimates of future income levels and trading potential for each hostel as
other factors including location and tenure. See note 11. The Group has used
external valuations on freehold properties and leased assets under financing
transactions, as outlined in note 11. Based on the market data assessed and
internal assessment of each property, management does not consider that the
fair value differs materially from the carrying value. Management is confident
that the carrying value is deemed reasonable at 31(st) December 2021.
· The Group has incurred tax losses, and therefore a material deferred
tax asset has been recognised as these can be carried forward indefinitely and
offset against probable future taxable profits after the market recovers in
2022 and the Group is expected to generate net profits from 2023 under his
forecast model.
2. Segmental analysis
An analysis of the Group's revenue from external customers for each major
product and service category (excluding revenue from discontinued operations)
is as follows:
2021 2020
£'000 £'000
Hostel accommodation 4,901 3,570
Food and Beverages sales 725 744
Other income 550 120
Rental income 247 397
Total Income 6,423 4,831
Like-for-like income 5,810 3,375
Like-for-like income relates to all turnover less turnover associated with the
discontinued operating segments (i.e. Edinburgh and Barcelona Sea hostels).
The group recognises income from lease payments from operating leases as
income on a straight-line basis over the term of the contract.
Operating segments are reporting in a manner consistent with the internal
reporting provided to the Chief Operating Decision Maker (CODM). The CODMs,
who monitor the performance of these operating segments as well as deciding on
the allocation of resources to them, have been identified as the executive
directors. Currently the operating segments are the operation of hostel
accommodation in the UK and Europe.
An additional material geographical area has been identified in respect of
Spain to meet the disclosure requirements of IFRS 8 due to its significance to
group.
Management considers the like-for-like income only for acquisitions and
continuing operations that have been operational 12 consecutive months in the
prior year. Due to the ongoing impact of Covid-19, on average our hostels have
been open for just 44% of 2021. Different hostels were open for different
periods of time throughout the year based on the individual circumstances,
responses and policies to the ongoing coronavirus pandemic and as such the
period of results is not comparable to the prior period and therefore no
changes to geographical areas have been identified.
The Group provides a shared services function to its operating segments and
reports these activities separately. Management does not consider there to be
any other material reporting segments. Management revisit this at each period
end.
The most important measures used to evaluate the performance of the business
are revenue and adjusted EBITDA, which is the operating profit after excluding
non-cash items such as depreciation and amortisation, and removing
non-recurring expenditure which would otherwise distort the cash generating
nature of the segment.
Pre-IFRS 16 EBITDA was calculated in the prior period segmental analysis such
that the accounts can be understood on a comparable basis and included for
information purposes. As this is the second year since transition, pre-IFRS 16
adjusted EBIDTA is not considered in the current year.
2021 UK Spain Europe Shared services Total
£'000 £'000 £'000 £'000 £'000
Revenue 2,422 1,363 2,638 0 6,423
Profit/(loss) before tax 6,689 (2,279) (1,169) (2,549) 692
Add back: Finance costs 271 618 539 1,273 2,701
Add back: Depreciation & Amortisation 1,028 1,076 1,274 395 3,773
EBITDA 7,988 (585) 644 (881) 7,166
Exceptional & Share based payment expense (7,511) 554 - 72 (6,885)
Rent concessions (595) (227) (453) - (1,275)
Adjusted EBITDA (118) (258) 191 (809) (994)
Total assets 34,975 19,144 25,024 14,335 93,478
Total liabilities (10,731) (13,432) (12,461) (26,721) (63,345)
2020 UK Europe Shared services Total
As restated £'000 £'000 £'000 £'000
Spain
£'000
Revenue 2,455 835 1,541 - 4,831
Profit/(loss) before tax (3,156) (2,986) (3,280) (504) (9,926)
Finance costs 963 460 541 786 2,750
Depreciation & Amortisation 1,465 2,309 1,916 - 5,690
EBITDA (728) (217) (823) 282 (1,486)
Exceptional & Share based payment expense - - - 541 541
Rent concessions (495) (207) (202) - (904)
Adjusted EBITDA (1,223) (424) (1,025) 823 (1,849)
Total assets 57,743 18,857 23,259 10,870 110,729
Total liabilities (24,550) (13,207) (18,044) (28,077) (83,878)
The Group's non-current assets (other than financial instruments, investments
accounted for using the equity method, deferred tax assets and post-employment
benefit assets) are located into the following geographic regions:
2021 2020
£'000 £'000
UK 35,862 59,478
Spain 18,102 21,976
Rest of Europe 23,164 24,088
Shared services 10,329 842
Total 87,457 106,384
Non-current assets are allocated based on their physical location.
Revenues from external customers in the Group's domicile, United Kingdom, as
well as its major markets, Spain and the Rest of Europe, have been identified
on the basis of the customer's geographical location and are disclosed as
follows:
2021 2020
£'000 £'000
UK 2,422 2,455
Spain 1,363 835
Rest of Europe 2,638 1,541
Total 6,423 4,831
3. COST OF SALES
2021 2020
£'000 £'000
Food and drinks 341 311
Direct room supplies and sales commissions 951 581
Total 1,292 892
4. DISCONTINUED OPERATIONS
The Group completed on the disposal of two hostels in 2021. The Barcelona Sea
hostel was sold in February 2021 for a loss of £554k and the Edinburgh hostel
was sold in June 2021 for a profit of £7,511k. The Barcelona Sea hostel was
in the operating segment of Spain and the Edinburgh hostel was in the
operating segment of UK.
The income statement for the year ended 31 December 2020 has been
presentational restated to show the comparative performance of the
discontinued hostels.
5. administrative expenses
2021 2020
As restated
£'000 £'000
Staff costs (see note 10) 3,331 3,823
Legal and professional fees 614 521
Property costs 482 391
Depreciation and amortisation 3,773 4,199
Impairment of goodwill - 1,491
Share option expenses 72 279
Other expenses 2,160 598
10,432 11,302
2021 2020
£'000 £'000
Exceptional items - other operating income
Grant income 462 448
Profit on sale of Edinburgh Hostel 7,511 -
Rent concessions 1,275 -
9,248 448
Exceptional items - costs
Acquisition and Development costs - 74
Property costs - 4
Legal and other - 82
Refinance related fees write off - 101
Loss on sale of Barcelona Sea Hostel 554 -
554 261
Exceptional items comprise of expenses and income that, without separate
disclosure, would distort the reporting of the underlying business.
The group received £448,000 in grant income from national, regional, and
local governmental organisations in 2020 to support the business. This does
not include grants relating to employee costs which are disclosed in Staff
Costs (Note 10).
In the year 2021 property with a net book value of £14.03m (2020: Nil) was
disposed of in the year. The total consideration received from this disposal
was £16.66m (2020: £Nil) with the profit on disposal of £7.96m (2020:
£Nil). The other main component of the profit is the release of the lease
liability of £6.56 m, less the cost of investment of £0.4m, the Edinburgh
sublease £0.5m and the Barcelona SEA lease intangible of £0.2m.
6. FINANCE COSTS
2021 2020
£'000 £'000
Interest on bank overdrafts and loans 695 625
Amortised loan arrangement fees 68 92
Other interest costs - 75
Interest expense for lease arrangements (note 17) 1,741 1,558
Property financing costs 197 343
Unwinding of discount on deferred consideration - 57
2,701 2,750
Included within borrowings is £5.0 million CBILS (Coronavirus Business
Interruption Loan Scheme) obtained via HSBC. The government provide lenders
with a guarantee on each loan. This was secured for 6 years on 16(th) December
2020, which is interest free for the first year increasing to 3.99% + base
rate from year 2.
7. LOSS FOR THE FINANCIAL YEAR
2021 2020
£'000 £'000
Loss for the financial period is arrived at after charging:
Depreciation on owned assets 1,434 1,541
Depreciation of assets under lease liabilities 2,243 2,459
Amortisation of intangible assets 96 199
Impairment of goodwill - 1,491
CLA Evelyn Partners Limited Auditor's remuneration for audit services 119 -
Grant Thornton UK LLP Auditor's remuneration for audit services - 92
Fees payable to Grant Thornton UK LLP as auditors and its associates for other - 5
services
Amounts payable in respect of both audit and non-audit services are set out
below:
2021 2020
£'000 £'000
Fees payable to Company's auditors for the audit of the Parent Company and
consolidated financial statements:
CLA Evelyn Partners Limited audit of the Group and Company's annual accounts 90 -
CLA Evelyn Partners Limited audit of the subsidiaries' annual accounts 29 -
Grant Thornton UK LLP audit of the Group and Company's annual accounts - 70
Grant Thornton UK LLP audit of the subsidiaries' annual accounts - 22
119 92
Fees payable to the Company's auditors and its associates for other services: 2020
2021 £'000
£'000
Grant Thornton UK LLP Tax advice services - 5
- 5
The audit fees disclosed in 2021 represent the fees payable for the audit for
the period ended 31 December 2021 and the non-audit fees are those incurred in
the period.
8. Tax
In the Spring Budget 2020, the UK Government announced that from 1 April 2020
the corporation tax rate would remain at 19% (rather than reducing to 17%, as
previously enacted). This new law was substantively enacted on 17 March 2020.
Deferred taxes at the balance sheet date have been measured using these
enacted tax rates and reflected in these financial statements.
2021 2020
As Restated
£'000 £'000
Current tax
Corporation tax on profits for the year 103 -
Adjustments for corporation tax on prior periods (123) (271)
Other local taxes 116 -
Total current tax 96 (271)
Deferred tax 724 (1,682)
Adjustments for deferred tax in prior periods 559 (450)
Effect of increased tax rate on opening balance (88)
Total tax charge 1,291 (2,403)
The charge for the year can be reconciled to the loss per the consolidated
income statement as follows:
2021 2020
As Restated
£'000 £'000
Profit/(loss) before tax 692 (9,926)
Tax at the standard UK corporation tax rate of 19% (2020: 19%) 131 (1,886)
Fixed asset differences 54 -
Adjustment for tax rate differences in foreign jurisdictions (154) (167)
Adjustments for tax on prior periods (122) (750)
Other tax adjustments, reliefs and transfers 193 -
Remeasurement of deferred tax for changes in tax rates (148) -
Deferred tax not recognised 1,155 -
Factors affecting charge for the period
Non-deductible items and other timing differences (1,300) 344
Chargeable gains/(losses) 1,482 -
Depreciation in excess of capital allowances - 56
Group tax charge 1,291 (2,403)
The Group has a deferred tax liability of £3.326m as disclosed in note 18 related to the potential future gain on property revaluations.
Included within current tax are adjustments for corporation tax on prior
periods of £122k and relates to Group losses.
9. Profit/(LOSS) per share
The calculation of the basic and diluted loss per share is based on the
following data:
2021 2020
As restated
£'000
£'000
Profit/(Loss) for the period attributable to equity holders of the Company (599) (7,523)
2021 2020
Weighted average number of ordinary shares (000s) for the purposes of basic 64,679
loss earnings per share
64,679
Effect of dilutive potential ordinary shares (000s) 4,537 4,250
Weighted average number of ordinary shares (000s) for the purposes of diluted 69,216 68,929
profit/(loss) per share
Basic profit/(loss) per share (0.93p) (11.63p)
The total number of shares in issue as at 31 December 2021 was 64,679,014.
There is no difference between the diluted loss per share and the basic loss
per share presented. Due to the loss incurred in the year, the effect of the
share options in issue is anti-dilutive.
10. STAFF COSTS
The average monthly number of employees (including directors) during the
period was:
2021 2020
Number Number
Hostel operation 176 197
Directors 5 5
181 202
The costs incurred in respect of employees (including directors) were:
2021 2020
£'000 £'000
Wages and salaries 2,925 3,288
Social security costs 380 499
Pension costs 26 36
Total staff costs 3,331 3,823
Government grants claimed by the Group under coronavirus job retention schemes
across the Group for 2021 total £240k (2020: £566k).
The remuneration of the directors, who are the key management personnel of the
Group, is set out below.
2021 2020
£'000 £'000
Short term employee benefits 332 444
Pension 6 16
Share based payment charges 72 257
410 717
Further information about the remuneration of individual directors is provided
in the Directors' Remuneration Report.
Details of directors share options is provided in the Directors' Remuneration
Report.
11. PROPERTY, PLANT AND EQUIPMENT
Freehold land and buildings Right of use assets Leasehold buildings Leasehold improvements Fixtures, fittings and equipment Total
£'000 buildings £'000 £'000 £'000 £'000
£'000
Cost or valuation
At 1 January 2020 7,998 37,512 41,126 4,597 3,225 94,458
Additions 362 1,326 - 106 517 2,311
Acquired in business combination - 3,210 - 711 175 4,096
Exchange movements 51 - - (119) 30 (38)
At 31 December 2020 8,411 42,048 41,126 5,295 3,947 100,827
Transfers 73 - - (73) - -
Additions 32 - - - 275 307
Disposals (17) (1,610) (13,402) (201) (576) (15,806)
Revaluations 1,072 - 3,967 - - 5,039
Derecognition of sub-leased asset - (640) - - - (640)
IFRS 16 lease modification - (2,891) - - - (2,891)
Exchange movements (87) - - (54) (92) (233)
At 31 December 2021 9,484 36,907 31,691 4,967 3,554 86,603
Depreciation
At 1 January 2020 144 2,425 1,616 695 2,212 7,092
Charge for the year 141 2,459 804 102 494 4,000
At 31 December 2020 285 4,884 2,420 797 2,706 11,092
Transfers 1 - - (1) - -
Charge for the year 154 2,243 671 254 355 3,677
On disposals (1) (261) (1,094) (14) (405) (1,775)
At 31 December 2021 439 6,866 1,997 1,036 2,656 12,994
Net book value:
At 31 December 2021 9,045 30,041 29,694 3,931 898 73,609
At 31 December 2020 8,126 37,164 38,706 4,498 1,241 89,735
Freehold properties
The Freehold values relates to the 3 following hostels:
· The £3.5 million value of the freehold in York is based on the
external valuations as at 31 December 2021 prepared by Cushman and Wakefield.
The historic cost carrying value is £2.4 million which is the acquisition
price in 2014.
· The freehold of the Glasgow property acquired in October 2019 for
£3.2 million and which has undergone renovation for £0.4 million. The £4.9
million value of the freehold in Glasgow is based on the external valuations
as at 31 December 2021 prepared by Cushman and Wakefield.
· The hostel in Pisa was acquired in June 2019 for £3 million, of
which £2.1 million for the freehold. The £3.5 million value of the freehold
in Pisa is based on the external valuations as at 31 December 2021 prepared by
Cushman and Wakefield.
Covid-19 rent concessions
The International Accounting Standards Board (IASB) has published
'Covid-19-Related Rent Concessions (Amendment to IFRS 16)' amending the
standard to provide lessees with an exemption from assessing whether a
COVID-19-related rent concession is a lease modification.
The £37.5 million right of use assets all relate to properties operated by
the Group as hostels.
Right of use assets as at 31 December 2020 42,048
Lease disposal (Barcelona Sea) (1,610)
IFRS 16 lease modification (2,891)
Derecognition of sub-leased asset (640)
Right of use assets as at 2021 36,907
Leasehold, land and buildings
The Group has used external valuations on Elephant & Castle. The London
Elephant & Castle leasehold was independently valued on 31 December 2021
at £26.8 million. The valuation was performed by Cushman and Wakefield. The
Group has accounted for the finance transactions as interest-bearing
borrowings secured on the original properties held.
Leasehold improvements
Leasehold improvements comprise the capitalised refurbishment costs incurred
by the Group on the leased properties.
Valuation process
Initially market values of the properties were believed to have fallen due to
the impact of COVID-19. The directors wanted to show that the values of the
properties have recovered post COVID-19 so engaged independent external
valuers to determine the market value of all three freehold properties and the
long leasehold property. These independent external valuers hold recognised
and relevant professional qualifications and have recent experience in the
location and category of the properties being valued.
The Group provides information to valuers, including profit and cashflow
forecasts along with asset-specific business plans. The valuers use this and
other inputs including market transactions for similar properties to produce
valuations. These valuations and the assumptions they have made are then
discussed and reviewed with the management as well as the directors. Cushman
& Wakefield were engaged to value properties now valued at £38.7m.
Valuation fees are a fixed amount agreed between the Group and the valuers in
advance of the valuation and are not linked to the valuation output.
Valuation methodology
The value is assessed by adopting the income approach to valuation adopting a
discounted cashflow approach. Under this approach it is assumed that the
property is held for a period of 10 years and the net present value of the
earnings during this period are added to the exit value which is discounted to
present day values. Adopting an income approach also requires the analysis
of comparable transactions in the market to assess the rates of returns
investors are prepared to accept at the date of valuation.
The table below provides details of the assumptions used in the valuation of
the properties:
Location Discount rate Capitalisation rate Inflation rate Running Yield
Elephant & Castle 8% 6% 2% 3.88% - 7.39%
Glasgow 11% 8.5% 2% 5.12% - 10.95%
York 10% 8% 2% 6.27% - 9.78%
Pisa 11% 8.5% 2% 6.82% - 10.77%
12. INTANGIBLE ASSETS AND GOODWILL
Website Leasehold rights Goodwill Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2020 98 1,705 12,235 14,038
Additions 36 - 172 208
Disposals - - (94) (94)
Arising in business combination (note 24) - - 2,747 2,747
Exchange movements - (8) - (8)
At 31 December 2020 134 1,697 15,060 16,891
Disposals - (1,697) (1,423) (3,120)
At 31 December 2021 134 - 13,637 13,771
Amortisation and Impairment
At 1 January 2020 53 666 - 719
Charge for the period 39 160 - 199
Impairment - - 1,491 1,491
Exchange movement - (8) - (8)
At 31 December 2020 92 818 1,491 2,401
Charge for the period 24 72 - 96
On disposals - (890) - (890)
At 31 December 2021 116 - 1,491 1,607
Net book value:
At 31 December 2021 18 - 12,146 12,164
At 31 December 2020 42 879 13,569 14,490
Leasehold Rights
The directors identified intangible assets in the following transactions:
- acquisition of the business on Smart City hostel in Edinburgh in
2015 identified an intangible asset in relation the lease with the University
of Edinburgh, which terminates in 2027.
- acquisition of the Barcelona Sea property in 2017 identified a
sublease agreement with a tenant in-situ for the duration of the head lease.
This property has been sold in the year.
Amortisation of leasehold rights is based on a straight-line basis for the
term of the lease. Amortisation is taken to the statement of comprehensive
income within administrative expenses.
Goodwill
Goodwill arising from business combinations in the year is disclosed in note
25. Goodwill in a business combination is allocated to the cash generating
units (CGUs) that are expected to benefit from that business combination.
The Group's CGUs have been defined as each operating hostel. This conclusion
is consistent with the approach adopted in previous years and with the
operational management of the business.
Impairment
Goodwill is not amortised but tested annually for impairment. The
recoverable amount of each CGU is determined from value in use (VIU)
calculations based on future expected cash flows discounted to present value
using an appropriate pre-tax discount rate.
Goodwill carrying values as at the 31 December 2021 are shown below.
CGU Goodwill pre-impairment £'000 Impairment £'000 Goodwill carrying value £'000
Madrid 2,234 - 2,234
Paris 11 - 11
Gothic 1,611 (891) 720
Lisbon 1,365 - 1,365
Prague 805 (600) 205
Barcelona Passeig De Gracia 1,699 - 1,699
Vienna 5 - 5
Brussels 1,375 - 1,375
Pisa 770 - 770
Berlin 1,015 - 1,015
Athens 1,210 - 1,210
Bratislava 917 - 917
Warsaw 620 - 620
13,637 (1,491) 12,146
The impairment charge was recorded in the year ended 31 December 2020. No
impairment has been deemed necessary by management for the year ended 31
December 2021.
The key assumptions used in the VIU calculations for all hostels are based on
forecasts approved by management performed for a 5-year period:
· A Pre-tax discount rate of 9.7% (2020: 11.1%) was calculated using
weighted average cost of capital. An assessment was made on the differing
risks between countries in which the hostels operate. Based on the
assessment it was concluded that the differences between discount rates
between each CGU are not material. The assets are similar in nature, with all
CGUs providing the provision of hostel accommodation and therefore similar
cashflows and therefore the risk associated with the assets is considered to
be consistent between CGUs. As such one discount rate has been utilised for
the purposes of performing an impairment review.
· Estimated 2021 average bed rate per property, discounted against 2019
to reflect post covid-19 recovery transaction, and increasing in line with a
2% annual inflation rate in following years.
· Earnings before interest, tax, depreciation, amortisation, and rent
(EBITDAR) margin of 2022, adjusted to reflect the post covid-19 transition,
and no hostels have a shortfall between the recoverable value and carrying
value.
Sensitivity analysis
Management have reviewed all the properties and do not consider there to be an
impairment. Also, the sale of the Edinburgh Hostel has also been agreed for a
higher value than book value.
Headroom between the carrying and recoverable value of an asset is dependent
upon sensitivities to the following assumptions:
For each of the CGU, a fall in operating margin and occupancy, or an increase
in the weighted average cost of capital (WACC) by the following rates of
change would result in the carrying value of goodwill falling below its
recoverable amount:
CGU Operating margin Occupancy WACC
Barcelona Gothic 1800bps 1500bps 500bps
Barcelona Passeig De Gracia 3200bps 2700bps 900bps
Berlin 1800bps 1200bps 600bps
Brussels 6000bps 5200bps 2700bps
Lisbon 1700bps 1500bps 500bps
Madrid 4800bps 4000bps 1600bps
Pisa 300bps 200bps 100bps
Prague 8500bps 6400bps 3900bps
Vienna 2200bps 1800bps 700bps
The table above demonstrates the change in assumption required for an
impairment to occur.
A change of 1% in the WACC would have an overall impact of £4.2m in the
recoverable value of the CGU tested.
A change of 1% in the occupancy level would have an overall impact of £1.7m
in the recoverable value of the CGU tested.
A change of 1% in the Operating margin would have an overall impact of £1.2m
in the recoverable value of the CGU tested.
13. TRADE AND OTHER RECEIVABLES
2021 2020
£'000 £'000
Trade and other receivables 865 1,653
Other debtors 230 26
Prepayments and accrued income 132 205
1,227 1,884
Credit risk is the risk that a counterparty does not settle its financial
obligation with the Group. At the year end, the Group has assessed the credit
risk on amounts due from suppliers, based on historic experience, meaning that
the expected lifetime credit loss was immaterial. Cash and cash equivalents
are also subject to the impairment requirements of IFRS 9 - the identified
impairment loss was immaterial.
14. CASH AND CASH EQUIVALENTS
2021 2020
£'000 £'000
Cash and cash equivalents 4,482 2,125
The directors consider that the carrying amount of cash and cash equivalents
approximates their fair value. Cash and cash equivalents comprise cash.
15. TRADE AND OTHER PAYABLES
2021 2020
As restated
£'000
£'000
Due in less than one year
Trade payables 640 686
Social security and other taxes 107 157
Other creditors 642 563
Accruals and deferred income 673 1,003
2,062 2,409
Due in more than one year
Other payables 7 336
2,069 2,745
Accruals and deferred income in 2020 have been restated and reduced by
£598,000 as explained in note 26.
Payables due in more than one year in 2020 represents remainder of the
discounted present value of deferred consideration due in April 2022 in
relation to the Barcelona Passeig de Gracia which was acquired for €3.0
million (£2.7 million) in 2017.
16. BORROWINGS
2021 2020
£'000 £'000
At amortised cost
Bank Loan 18,013 28,380
Property financing loans 7,078 12,240
Loan arrangement fees (137) (266)
24,954 40,354
Loans repayable within one year 926 311
Loans repayable after more than one year 24,028 40,043
24,954 40,354
Included within borrowings is £5.0 million CBILS (Coronavirus Business
Interruption Loan Scheme) obtained via HSBC. The government provide lenders
with a guarantee on each loan, and it may be possible that there is a
government grant in the form of the lower rate of interest than would likely
have been payable in the absence of the government guarantee. However, in the
absence of further information the total amounts are disclosed within finance
costs. The loan will be repaid at a rate of £1 million per year from April
2022 until April 2027. The interest rate is 3.99% margin over base rate from
year 2 onwards and is interest free in the first year.
At 31st December 2021 a HSBC bank loan was secured against the freehold
property, York hostel and subsidiary investments. The facility ends in January
2025 and the interest rate is 2.95% margin over SONIA.
17. LEASES
Lease assets are presented in the statement of financial position as follows:
2021 2020
£'000 £'000
Current 78 -
Non-current 562 -
Total 640 -
The lease asset relates fully to our contract with Casa Suecia where we have
outsourced, on a revenue share basis, our Madrid food and beverage operations.
This is a contract where Safestay receives the higher of a minimum guaranteed
rent or an agreed % of the food and beverage revenue in return for Casa Suecia
receiving the profit from this income stream by managing this part of the
operation with its own staff. This arrangement commenced in July 2021 and is
for an initial five years.
In our lease asset calculations, we have assumed the net profit of Casa Suecia
did not exceed the variable threshold.
31-Dec-21
Minimum lease receipts due
Within 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years After 5 years Total
Lease receipts 101 151 151 151 154 - 708
Finance income (23) (19) (14) (9) (3) - (68)
Net present values 78 132 137 142 151 - 640
Lease liabilities are presented in the statement of financial position as
follows:
2021 2020
As restated
£'000 £'000
Current 1,922 1,932
Non-current 31,086 37,089
Total 33,008 39,021
Lease liabilities have been restated in 2020 and increased by £441,000 as
explained in note 26.
The International Accounting Standards Board (IASB) has published
'Covid-19-Related Rent Concessions (Amendment to IFRS 16)' amending the
standard to provide lessees with an exemption from assessing whether a
COVID-19-related rent concession is a lease modification. The impact on the
current period was a £1.3 million (2020: £0.9 million) reduction in lease
liability included as rent concessions in administrative expenses in 2021,
reflecting the temporary reduction in rent agreed with the landlords in the 12
months ending 31 December 2021.
Total cash outflow for leases for the year ended 31 December 2021 was £1.9m
(2020: £2.5m).
The Group has leases for hostels across Europe. With the exception of
short-term leases and leases of low-value underlying assets, each lease is
reflected on the balance sheet as a right-of-use asset and a lease liability.
Variable lease payments which do not depend on an index or a rate (such as
lease payments based on a percentage of Group sales) are excluded from the
initial measurement of the lease liability and asset. The Group classifies its
right-of-use assets in a consistent manner to its property, plant and
equipment (Note 10).
The hostel in London Kensington Holland Park has a term of 50 years. There is
no such purchase option in this lease.
Lease payments are generally linked to annual changes in an index (either RPI
or CPI). However, the Group has one lease in Lisbon which a portion of the
rentals are linked to revenue. The variable portion of the lease in Lisbon is
accounted for as a variable rent over the period it relates to.
Each lease generally imposes a restriction that, unless there is a contractual
right for the Group to sublet the asset to another party, the right-of-use
asset can only be used by the Group. Leases are either non-cancellable or may
only be cancelled by incurring a substantive termination fee. Some leases
contain an option to purchase the underlying leased asset outright at the end
of the lease, or to extend the lease for a further term. The Group is
prohibited from selling or pledging the underlying leased assets as security.
For leases over hostels or hotels, the Group must keep those properties in a
good state of repair and return the properties in good condition at the end of
the lease. Further, the Group must insure items of property, plant and
equipment and incur maintenance fees on such items in accordance with the
lease contracts.
The table below describes the nature of the Group's leasing activities by type
of right-of-use asset recognised on balance sheet:
Right-of-use asset No of right-of-use assets leased Range of remaining term Average remaining lease term No of leases with extension options No of leases with options to purchase No of leases with variable payments linked to an index No of leases with termination options
Hostel buildings - Operating leases 11 5 - 17 years 11 years 10 0 11 0
In addition to the above, there is the London Kensington Holland Park lease
which ends in 2064. There are no such options as above.
Lease liabilities
The lease liabilities are secured by the related underlying assets. The
undiscounted maturity analysis of lease liabilities at 31 December 2021 is as
follows:
31-Dec-21
Minimum lease payments due
Within 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years After 5 years Total
Lease payments 3,085 3,070 2,978 3,008 2,859 32,606 47,606
Finance charges (1,163) (1,092) (1,020) (948) (874) (9,501) (14,598)
Net present values 1,922 1,978 1,958 2,060 1,985 23,105 33,008
In addition to the above, there is the London Kensington Holland Park lease
which ends in 2064. There are no such options as above.
Lease liabilities
The lease liabilities are secured by the related underlying assets. The
undiscounted maturity analysis of lease liabilities at 31 December 2021 is as
follows:
31-Dec-21
Minimum lease payments due
Within 1 year
1 - 2 years
2 - 3 years
3 - 4 years
4 - 5 years
After 5 years
Total
Lease payments
3,085
3,070
2,978
3,008
2,859
32,606
47,606
Finance charges
(1,163)
(1,092)
(1,020)
(948)
(874)
(9,501)
(14,598)
Net present values
1,922
1,978
1,958
2,060
1,985
23,105
33,008
31-Dec-20
Minimum lease payments due
Within 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years After 5 years Total
Lease payments 3,466 3,085 3,070 2,978 3,008 47,981 63,588
Finance charges (1,534) (1,163) (1,092) (1,020) (948) (18,810) (24,567)
Net present values 1,932 1,922 1,978 1,958 2,060 29,171 39,021
The Group has elected not to recognise a lease liability for short term leases
(leases with an expected term of 12 months or less) or for leases of low value
assets.
18. DEFERRED INCOME TAX
Deferred tax assets Deferred Total
£'000 tax liabilities £'000
£'000
Balance as at 1 January 2020 as restated - (1,678) (1,678)
Recognised in the income statement 2,159 105 2,264
Recognised in other comprehensive income as restated - (185) (185)
Balance at 31 December 2020 as restated 2,159 (1,758) 401
Recognised in the income statement (1,037) (157) (1,194)
Recognised in other comprehensive income - (1,399) (1,399)
Balance at 31 December 2021 1,122 (3,314) (2,192)
The deferred tax liability in 2020 has been restated and increased by £1.758m
as explained in note 26.
The Group has recognised deferred tax assets of £1.1m (2020: £2.2m), which
are expected to offset against future profits, in respect of tax losses. This
is on the basis that it is probable that profits will arise in the foreseeable
future, enabling the assets to be utilised.
19. EQUITY
CALLED UP SHARE CAPITAL
£'000
Allotted, issued and fully paid
64,679,014 Ordinary Shares of 1p each as at 1 January 2021 and 31 December 647
2021
647
At the 31 December 2021, the ordinary shares rank pari passu. There are no
changes to the voting rights of the ordinary shares since the balance sheet
date.
SHARE PREMIUM
£'000
At 1 January 2021 23,904
At 31 December 2021 23,904
OTHER COMPONENTS OF EQUITY
Merger reserve Share based payment reserve As restated Translation reserve Total
£'000 £'000 Revaluation reserve £'000 £'000
£'000
Cost
At 1 January 2020 as restated 1,772 159 12,541 59 14,531
Share based payment charge - 279 - - 279
Exchange differences on translating foreign operations - - - 4 4
Deferred tax on property revaluation - - (185) - (185)
At 31 December 2020 as restated 1,772 438 12,356 63 14,629
Share based payment charge - 72 - - 72
Property revaluation - - 5,039 - 5,039
Deferred tax on property revaluation - - (1,399) - (1,399)
Exchange differences on translating foreign operations - - - 169 169
At 31 December 2021 1,772 510 15,996 232 18,510
20. SHARE BASED PAYMENTS
The Group operates a share-based payments scheme for Directors as outlined in
the Directors Remuneration Report. Share options were awarded as part of
longer-term incentives.
The option holder may only exercise the option if, on the date of exercise,
the market value targets are achieved.
609,600 share options were granted in the period (2020: 1,620,400). In
addition to those granted to Directors in January 2020, Directors and 2
persons discharging managerial responsibilities were awarded in lieu of a 40%
reduction of salary in 2020. In 2021, the Directors and 1 person discharging
managerial responsibility have continued to receive share options in lieu of
salary up until July 2021.
The average share price target for options issued in 2021 was 15p (2020: 19p).
Grant date Exercise price per share (pence) Period within which options are exercisable Number of share options outstanding
2021 2020
2 May 2014 50p 2/5/2017 to 1/5/2024 396,521 396,521
12 May 2014 50p 12/5/2017 to 11/5/2024 528,695 528,695
21 May 2014 50p 21/5/2017 to 20/5/2024 38,550 38,550
14 July 2017 50p 14/7/2020 to 13/7/2027 250,000 250,000
21 July 2017 50p 21/7/2020 to 20/7/2027 500,000 500,000
11 October 2018 42p 11/10/2021 to 10/10/2028 100,000 100,000
1 January 2019 34p 01/01/2022 to 31/12/2028 500,000 500,000
29 April 2019 34p 29/04/2022 to 28/04/2029 - 500,000
26 June 2019 40p 26/06/2022 to 25/06/2029 100,000 100,000
05 Sept 2019 34p 05/09/2022 to 04/09/2029 100,000 100,000
02 Jan 2020 33p 02/01/2023 to 01/01/2030 900,000 1,200,000
31 Oct 2020 9p 31/10/2021 to 30/10/2028 186,400 186,400
30 Nov 2020 16p 30/11/2021 to 29/11/2028 104,900 104,900
31 Dec 2020 13p 31/12/2021 to 30/12/2028 129,100 129,100
31 January 2021 13p 31/01/2022 to 30/01/2029 129,100 -
28 February 2021 14p 28/02/2022 to 27/02/2029 119,900 -
31 March 2021 15p 31/03/2022 to 30/03/2029 111,900 -
30 April 2021 15p 30/04/2022 to 29/04/2029 75,200 -
31 May 2021 17p 31/05/2022 to 30/05/2029 66,400 -
30 June 2021 18p 30/06/2022 to 29/06/2029 62,700 -
31 July 2021 16p 31/07/2022 to 30/07/2029 44,400 -
4,443,766 4,634,166
The share options are exercisable at a price equal to the average quoted
market price of the Group's shares on the date of grant. The vesting period is
3 years from the date of grant and the share price must be a minimum of 60p,
with the exception of the options issued since 2018 which have a target price
of 50p, and the options issued in 2020 in exchange for salary reduction, which
have a 1 year vesting period and no target price. The options are forfeited if
the employee leaves the Group before the options vest. Details of these share
options are summarised in the table below:
2021 2021 2020 2020
Number of share options Weighted average exercise price Number of share options Weighted average exercise price
Brought forward 1 January 4,634,166 38.0p 3,013,766 44p
Forfeited in the period (800,000) 33.6p - -
Issued in the period 609,600 15.0p 1,620,400 28p
Outstanding at 31 December 4,443,766 35.9p 4,634,166 38p
Exercisable at end of the period 2,327,789 42.8p 1,713,766 50p
No options were exercised in the period.
The fair value of the share options was calculated using the Black Scholes
model. There is a charge of £72k taken though the income statement (2020:
£279k).
The inputs are as follows:
2021 2020
Closing price of Safestay Plc 19.5p 16.0p
Weighted average share price 20.3p 18.8p
Weighted average exercise price 35.9p 38.0p
Expected volatility 35% 40%
Average vesting period 7.0 years 7.1 years
Risk free rate 1.28% 0.50%
Expected dividend yield 0.00% 0.00%
The expected volatility percentage was derived from the quoted share prices
since flotation.
21. Notes to the cashflow statement
Restated
2021 2020
£'000 £'000
Profit/(loss) before tax 693 (9,926)
Adjustments for:
Depreciation of property, plant and equipment and amortisation and impairment 3,773 5,690
of intangible assets
Profit on disposal of fixed assets (6,957) -
Finance cost 2,545 2,693
Share based payment charge 72 279
Exchange movements 116 (8)
Rent concessions (1,275) (904)
Changes in working capital:
Decrease in inventory 12 39
Decrease/(increase) in trade and other receivables 549 (244)
(Decrease) in trade and other payables (800) (1,847)
Net cash from operating activities (1,272) (4,228)
22. RELATED PARTY TRANSACTIONS
The Group has taken advantage of the exemption contained within IAS 24 -
'Related Party Disclosures' from the requirement to disclose transactions
between wholly owned group companies as these have been eliminated on
consolidation.
The remuneration of the directors, who are the key management personnel of the
Group, is set out below.
2021 2020
£'000 £'000
Short term employee benefits 336 444
Pension 6 16
Share based payment charges 72 257
414 717
Further information about the remuneration of individual directors is provided
in the Directors' Remuneration Report.
Details of directors share options is provided in the Directors' Remuneration
Report and in note 20 of the accounts. The directors share options have been
audited.
Safestay Plc has a common directorship with Safeland Plc. In the year,
Safestay Plc rented premises from Safeland Plc on non-commercial terms. Total
rent paid to Safeland Plc was £50,000 (2020:£nil).
23. FINANCIAL INSTRUMENTS
Capital management
Total Capital is calculated as equity, as shown in the consolidated statement
of financial position, plus debt.
The Board's policy is to maintain a strong capital base with a view to
underpinning investor, creditor and market confidence and sustaining the
future development of the business. Capital consists of ordinary shares, other
capital reserves and retained earnings. To this end, the Board monitors the
Group's performance at both a corporate and individual asset level and sets
internal guidelines for interest cover and gearing.
The executive directors monitor the Group's current and projected financial
position against these guidelines. In order to maintain or adjust the capital
structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce
debt.
2021 2020
As Restated
£'000 £'000
Share capital 647 647
Share premium account 23,904 23,904
Retained earnings (12,928) (12,329)
Merger reserve 1,772 1,772
Share based payment reserve 510 438
Revaluation reserve 15,996 12,356
Translation reserve 231 63
Bank loans 18,007 28,380
Property financing loans 7,078 12,240
Lease liabilities 33,008 39,021
The revaluation reserve has been restated in 2020 and reduced by £1,758,000
as explained in note 26.
The Group has no externally imposed capital requirements.
Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including
the criteria for recognition, the basis of measurement and the basis on which
income and expenses are recognised, in respect of each class of financial
asset, financial liability and equity instruments are disclosed in note 1 to
these financial statements and in the tables below:
Categories of financial instruments
At 31 December 2021, the Group held the following financial assets:
2021 2020
£'000 £'000
Trade and other receivables (note 13) 1,227 1,679
Cash and cash equivalents 4,482 2,125
5,709 3,804
At 31 December 2021, the Group held the following financial liabilities:
2021 2020
As restated
£'000 £'000
Bank loans (note 16) 18,007 28,114
Property financing loans (note 16) 7,078 12,240
Lease liabilities (note 17) 33,008 39,021
Trade and other payables (note 15) 2,069 1,386
60,162 80,761
All financial liabilities are measured at amortised cost.
The carrying amounts of the Group's bank loans and overdrafts, lease
obligations and trade and other payables approximate to their fair value.
Financial Liability Movements
Long term borrowings Short term borrowings Lease liabilities Total
£'000 £'000 £'000 £'000
At 1 January 2020 (restated) 29,638 267 35,904 65,809
Cash flows
Repayment of lease liabilities - - (2,514) (2,514)
Repayment of property finance loans (331) - - (331)
Proceeds received 10,361 159 - 10,520
Loan and refinancing fees (174) (102) - (276)
Non-cash
Reclassification 130 (130) - -
Refinance related fees write off 76 25 - 101
New leases and extension - - 4,536 4,536
Imputed interest and amortisation of fees 343 92 1,558 1,993
Lease modification - - 441 441
Rent concessions - - (904) (904)
At 31 December 2020 (restated) 40,043 311 39,021 79,375
At 1 January 2021 40,043 311 39,021 79,375
Cash flows
Repayment of lease liabilities - - (1,810) (1,810)
Repayment of property finance loans (5,156) - - (5,156)
Repayment of bank loans (10,062) (311) - (10,373)
Loan and refinancing fees - - - -
Non-cash
Reclassification (926) 926 - -
Government grant (156) - - (156)
Lease disposals - - (1,389) (1,389)
Imputed interest and amortisation of fees 285 - 1,471 1,756
Lease modification - - (3,010) (3,010)
Rent concessions - - (1,275) (1,275)
At 31 December 2021 24,028 926 33,008 57,962
2021 2020
£'000 £'000
Total liabilities (57,962) (78,934)
Cash and cash equivalents 4,482 2,125
Net Debt 53,480 76,809
Financial risk management
The Group's financial instruments comprise bank loans and overdrafts, Lease
liabilities, cash and cash equivalents, and various items within trade and
other receivables and payables that arise directly from its operations.
The main risks arising from the financial instruments are interest rate risk
and liquidity risk. The board reviews and agrees policies for managing these
risks which are detailed below.
Interest rate risk
The Group's interest rate risk arises from long-term borrowings. Borrowings
at variable rate expose the Group to cash flow interest rate risk which is
partially offset by cash held at variable rates.
Liquidity risk
All of the Group's long-term bank borrowings are secured on the Group's
property portfolio. If the value of the portfolio were to fall significantly,
the Group risk breaching borrowing covenants. The Board regularly review the
Group's gearing levels, cash flow projections and associated headroom and
ensure that excess banking facilities are available for future use.
As outlined in going concern note 1, the business has been severely impacted
by the travel restrictions and ability to meet its banking covenants as a
result of Covid-19. The Group produces an annual cashflow forecasts based on
agreed budgets, and as a result of Covid-19 have monitored the cashflow
forecasts on a weekly basis.
The business continued to manage its liquidity risk with the renewal of its
debt facility with HSBC on the 13(th) January 2020 with a new facility of
£22.9m for 5 years until 2025. In addition, a £5.0m bank CBILs facility was
secured for 6 years on 16(th) December 2020, which is interest free for the
first year increasing to 3.9% + base rate from year 2.
The business continues to service is debt and make the interest payments as
they fall due. There are no off balance sheet financing arrangements or
contingent liabilities.
While liquidity remains closely monitored the Sea Hostel was sold February
2021 for a £0.7m consideration, and Edinburgh Hostel was sold for £16m. The
monthly cost base was reduced from £0.9 million to £0.6 million during the
first lockdown. The Sea disposal and sale of Edinburgh would provide
sufficient headroom to manage liquidity in the short term, through to the end
of December 2022, even if the impact of Covid-19 continued or the hostels
remained closed. See note 1 going concern accounting policy.
However, the covenants of the existing debt facility were waived since June
2020. From June 2021 they were adjusted and replaced with adjusted EBITDA
targets reflecting the current performances of the hostels since the first
lockdown in April 2020. They will revert to the contractual covenants from
July 2022 when it is expected that the Group will have enough trading history
from the re-opening of the hostels in July 2021 to meet the 12 month historic
Interest Cover (ICR) and Loan to Value ratios.
Foreign currency risk
The group is exposed to foreign currency risk from overseas subsidiaries with
group transactions carried out in Euros. Exposures to currency exchange rates
arise from the Group's overseas sales and purchases, which are primarily
denominated in Euros.
This risk is mitigated by each hostel holding a denominated bank account in
the country of operation. The group monitors cashflows and considers foreign
currency risk when making intra-group transfers.
Foreign transactions are translated into the functional currency at the
exchange rate ruling when the transaction is entered. Foreign exchange gains
and losses resulting from the settlement of such transactions, and from the
translation at year end exchange rates, of monetary assets and liabilities are
recognised in the income statement.
Interest rate risk management
The Group is exposed to interest rate risk on its borrowings. The £17.7
million main facility has an interest rate of 2.45% above the London
inter-bank offer rate (LIBOR). When the £10.2 million from the Edinburgh sale
proceeds was used to reduce the debt in July 2021, LIBOR was replaced with
2.95% SONIA. The £5 million CBILS in interest free in year 1 and has an
interest rate of 3.99% above base rate from year 2 until it is fully repaid at
the end of year 6. The Group carefully manages its interest rate risk on an
ongoing basis.
Interest rate sensitivity
The sensitivity analysis in the paragraph below has been determined based on
the exposure to interest rates for all borrowings subject to interest charges
at the statement of financial position date. For floating rate liabilities,
the analysis is prepared assuming the amount of the liability outstanding at
the statement of financial position date was outstanding for the whole year. A
0.25% increase or decrease is used when reporting interest rate risk
internally to key management and represents management's assessment of the
reasonably possible change in interest rates.
Based on bank borrowings, at 31 December 2021, if interest rates were 0.5%
higher or (lower) and all other variables were held constant, the Group's net
profit would increase or decrease by £89,000 (2020: £140,000). This is
attributable to the Group's exposure to interest rates on its variable rate
borrowings.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of
directors. The Board manages liquidity risk by regularly reviewing the Group's
gearing levels, cash flow projections and associated headroom and ensuring
that excess banking facilities are available for future use. All of the
Group's long-term bank borrowings are secured on the Group's property
portfolio.
Liquidity and interest risk analysis
The following tables detail the Group's remaining contractual maturity for all
financial liabilities. The tables have been drawn up based on the undiscounted
cash flows of financial liabilities based on the earliest date on which the
Group can be required to pay including interest.
Less than 1 year Later than
£'000 1-2 years 3-5 years 5 years Total
£'000 £'000 £'000 £'000
Variable interest rate borrowings 1,379 1,577 16,659 - 19,615
Property financing borrowings 191 191 573 10,193 11,148
Trade and other payables 1,946 7 - - 1,953
Lease liabilities 1,922 1,978 6,003 23,105 33,008
5,438 3,753 23,235 33,298 65,724
The above amounts reflect the contractual undiscounted cash flows, which may
differ to the carrying values of the liabilities at the reporting date.
The repayment of the £5 million CBILS will start in April 2022. The repayment
under 1 year relates to the £22.9 million debt facility for £57,500 per
quarter, and the repayment of the government backed loan in Vienna for
£80,000 per semester. It was however agreed with HSBC that the main debt
facility would be interest only from July 2021 after the disposal of Edinburgh
which involves a £10.0 million debt repayment to HSBC.
24. FAIR VALUES OF NON-FINANCIAL ASSETS
The following table shows the levels within the hierarchy of non-financial
assets measured at fair value on a recurring basis:
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
2020
Freehold Property - - 8,411 8,411
Leasehold Property - - 41,126 41,126
- - 49,537 49,537
2021
Freehold Property - - 9,484 9,484
Leasehold Property - - 31,691 31,691
- - 41,175 41,175
The group's freehold and leasehold property asset is estimated based on
appraisals performed by independent, professionally qualified property
valuers. The significant inputs and assumptions are developed in close
consultation with management. The valuation process and fair value changes are
reviewed by the directors at each reporting date.
25. Business combinations
See accounting policy in note 1.
There have been no business combinations in the year ended 31 December 2021.
On 14(th) January 2020, the Group acquired the leasehold of an existing 132
bed hostel in Athens via a newly registered Greek subsidiary of Safestay plc,
for a consideration of €1.5m paid in full at acquisition.
On 30(th) January 2020, the Group acquired an existing entity registered in
Poland which owned the leasehold of a 158 bed hostel in Warsaw. At the same
date, the Group acquired an existing entity registered in Slovakia which owned
the leasehold of a 124 bed hostel in Bratislava. Both entities were acquired
from the same party, Dream Management Group Ltd, for a consideration with
€0.6m paid at completion and the outstanding amount in November 2020 for
€0.3m.
Athens Warsaw Bratislava 2020
Number of sites purchased 3
Fair value £'000 £'000 £'000 £'000
Property, plant & equipment 2,092 1,179 825 4,096
Intangible assets - - - -
Current assets 1 233 - 234
Cash - 64 4 68
Debt (1,964) (732) (515) (3,211)
Deferred revenue, trade & other payables (9) (1,351) (503) (1,863)
Goodwill 1,210 620 917 2,747
Consideration
Net cash paid on acquisition 1,330 13 728 2,071
Total Consideration 1,330 13 728 2,071
Goodwill recognised on each acquisition reflects the future growth of the
Group and represent the first stage in establishing a pan-European network of
Safestay Hostels. All goodwill acquired has been allocated to a cash
generating unit.
The Board reviewed each business on acquisition for its separately
identifiable assets:
· Brand - the hostels were purchased from two selling entities, each
with a large portfolio of hostels that are continuing to trade under their
original brand names. For this reason, management do not attribute the
future earnings to the brands purchased; the key asset purchased is the future
potential of each hostel as operated under the Safestay management team, and
as an extension of the existing Safestay portfolio.
· Advanced deposits - each acquisition resulted in the purchase of
advanced deposits taken under previous management that would result in
potential sales whilst under Safestay control. The Board quantified the
value of contracted sales under their original terms of sale and found the
contracts to be immaterial at acquisition.
· Property, plant and equipment - the Board reviewed the asset
registers of each entity and performed an impairment of each. The book value
of assets was agreed to represent the fair value of each asset class.
· Intangible assets - the Board reviewed the agreements with customers
and found no intangible assets for capitalisation.
The Group incurred acquisition costs of £0.1 million on legal fees and due
diligence costs. These have been charged to operating exceptional items in the
Consolidated Income Statement in 2020.
The acquisitions have contributed the following revenue and operating profits
to the Group in the year ended 31 December 2020 from the date of acquisition:
Athens Warsaw Bratislava
£'000 £'000 £'000
Revenue 115 129 31
Operating profit (179) (201) (151)
It is not practicable to identify the related cash flows, revenue and profit
on an annualised basis as the months for which the businesses have been
controlled by Safestay are not indicative of the annualised figures especially
in the context of the Covid-19 pandemic.
The pre-acquisition trading results are not indicative of the trading
expectation under Safestay's stewardship; the Group deployed its Property
Management System and digital marketing platform and updated internal
processes.
26. PRIOR YEAR RESTATEMENT
IFRS 16 Adjustment
Following a review of the IFRS 16 accounting for the year to 31 December 2021,
it is noted that the classification between accruals, IFRS lease liability and
rent expense in the year to 31 December 2020 was found to be incorrect. This
has resulted in an increased lease liability of £440,000, a decrease in
accruals of £598,000 and a decrease in rent (increase in retained earnings
brought forward) of £158,000.
Overall, the 2020 loss decreased and consequently the 2021 retained earnings
brought forward has increased by £158,000, plus the net assets has increased
by £158,000.
Deferred tax liability on the 2019 Safestay (Elephant & Castle) Ltd
property revaluation
From a review of the deferred tax balances as at 31 December 2021 it is noted
that the deferred tax liability relating to the property revaluation on
Safestay (Elephant & Castle) Ltd was erroneously omitted from the
liability for the year ended 31 December 2019.
An adjustment has been made to correct this that has reduced the property
revaluation reserve by £1,758,000 and increased the deferred tax liability by
£1,758,000. This has reduced net assets by £1,758,000 and has no impact on
the trading profit in 2019.
27. POST REPORTING DATE EVENTS
On the 14 April 2022 a share option modification was made by the Group on all
share options currently active. This has been performed to align the
historical share option vesting conditions to more appropriate benchmarks in
the current economic climate.
The Group is currently not committed to any future acquisition projects or
development.
Following a review of director rewards and incentives, the Remuneration
Committee of the Board of Directors ("Directors") has recommended that, given
the reduction in the Group's share price, that the existing awards of share
options are no longer a reasonable incentive for the Group's management team
(the "Management Team") and Directors and should be replaced in order to
re-align the option scheme with the current share price. The Board of
Directors approved this recommendation.
On 14 April 2022 the Group granted awards of options over a total of 4,020,121
ordinary shares of one (1) penny each in the Grouo ("Ordinary Shares") under
the Group's existing share option scheme (the "New Options"). The New Options
are exercisable on or after 1 January 2024.
A portion of the New Options have been awarded to replace all existing awards
of options previously granted in the same number (the "Old Options") to the
current Management Team and Directors, which were cancelled on 14 April 2022.
The holders of all of the Old Options have agreed to their termination with
immediate effect. Old Options that were previously priced significantly above
the current share price have effectively been reissued at the current share
price, with Old Options previously priced below the current share price
effectively reissued at their previous exercise price.
In addition to the replacement of the Old Options, the New Options also
include new share options granted to Paul Hingston, Chief Financial Officer,
as part of his employment package following his appointment in February 2022.
It has also been agreed with the Business Growth Fund that Larry Lipman, the
Chairman, will waive his 250,000 share options issued on 14 July 2017. He has
also agreed that if he exercises any of the remaining share options, he cannot
sell these shares for two years.
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