REG - Safestay PLC - Final Results
09/06/2023 11:00
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RNS Number : 2668C Safestay PLC 09 June 2023
Safestay plc
("Safestay", the "Company" or the "Group")
Final Results for the year Ended 31 December 2022
Safestay (AIM: SSTY), the owner and operator of an international brand of
contemporary hostels, is pleased to announce its audited Final Results for the
12 months to 31 December 2022.
2022 Financial highlights
· Total revenues increased to £19.1million reflecting a return to near
normal trading (2021: £6.4 million)
· 20% increase in average bed rate to £23.63 (2021: £19.70)
· EBITDA fell to £5.5m (2021 profit: £7.2m due to the sale of
Barcelona Sea and Edinburgh hostels)
· Adjusted EBITDA increased to £5.9 million (2021 loss: £1.0 million)
· Loss after tax of £0.3m (2021: loss of 0.6m)
· Loss per share of 0.44p (2021: loss of 0.93p)
· Available cash balances of £5.2 million (2021: £4.5 million)
2022 Operational highlights
· Occupancy was 63%, still low compared to pre-covid levels of 77%
(2019)
· Trading broadly uninterrupted with our 16 premium hostels open for
97% of the year
· Guest profile mostly made up of young travellers with large bookings
from schools and colleges still relatively low against historic levels but
showing signs of recovery
· Business overall more efficient and cost effective as a result of
practices and efficiencies adopted during the covid period
Outlook
· Trading in the first four months of 2023 is significantly ahead of
our budget showing the resilience of the travel market sectors in which
Safestay operates
· Prospects for 2023 are encouraging on the basis that the hostels are:
o Sustaining average room rate at or above 2022 levels
o Benefiting from the return of large school and college bookings
o Continuing to move occupancy back to historic levels
Larry Lipman, Chairman of the Company, commenting on the results said:
"2022 was our first near normal trading year since the start of the pandemic
and it was therefore very pleasing to see that when allowed to trade, our
hostels immediately attracted back a high level of guests. Looking ahead, if
occupancy continues to grow into 2023, which we believe it will, and we are
able to maintain our average bed rate levels, then the business is in a strong
position. Overall, I believe we are a better business having weathered the
pandemic and we are now back into growth mode from a stronger base both
financially and operationally".
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
Novella
Tel: +44 (0) 20 3151 7008
Tim Robertson / Safia Colebrook
CHAIRMAN'S STATEMENT
Introduction
2022 was a good year for the business and marked the return to near normal
trading. For the first time in two years, the portfolio was allowed to trade
freely with all 16 premium hostels open for 97% of the year. The response from
guests was immediate and positive, reflecting some pent-up demand but also a
return to normal travelling patterns. Revenues increased threefold to £19.1
million and with a 20% increase in average bed rate, the Group recorded EBITDA
of £5.5 million, down from £7.2 million in the prior year. The Group
recorded adjusted EBITDA of £5.9 million up from a £1.0 million loss in the
prior year.
We have a mature and well-established hostel portfolio all located in central
parts of Europe's best known cities which collectively attract millions of
young visitors every year. The pandemic did not change people's desire to
visit and experience these cities, it only limited their ability to do so. Now
that travel restrictions are lifted, we are seeing a return to normal trading
with young travellers and other groups, such as families and commercial
travellers, taking advantage of Safestay's network to stay centrally,
economically and safely in Europe's leading cities.
Importantly, we entered 2022 in a good financial position having reduced debt
and increased liquidity with the disposal of our Edinburgh and Barcelona Sea
hostels during 2021. This resulted in gearing reducing to 54% and a
strengthened financial position. In addition, the Group still has a valuable
property portfolio with a mix of freehold and leaseholds across the 16 strong
hostel portfolio.
2023 has begun well with trading in the first four months significantly ahead
of budget. The Group is well placed to continue to build on the performance of
the past twelve months, expanding its visitor base supported by investment in
developing a new website and membership scheme both aimed at increasing the
level of direct sales.
Financial Results
Revenue
Group revenue for the financial year ended 31 December 2022, increased to
£19.1 million, above both the prior year and the last year before the
pandemic with just one more hostel than in 2019 (2021: £6.4m; 2019: £18.4
million).
Room revenue grew to £17.1 million (2021: £4.9 million) and food &
beverage revenue together with ancillary revenue was £2.0 million (2021:
£1.3 million).
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 2022 was a
£5.9 million profit (2021: £1.0m loss). Adjusted EBITDA represents earnings
before interest, tax, depreciation, amortisation and exceptional items.
Following the introduction of IFRS16 from 1 January 2019, rent charges are no
longer included in EBITDA as they are shown in lease finance and right-of-use
depreciation.
2022 2021
£'000 £'000
Adjusted EBITDA is as follows:
Operating Profit after exceptional expenses 1,766 3,393
Add back:
Depreciation 1,363 1,434
Right of Use Depreciation 2,210 2,243
Amortisation 150 96
Actual EBITDA 5,488 7,166
Impairment - -
Profit on disposal - Edinburgh - (7,511)
Loss on disposal - Barcelona Sea - 554
Exceptional expenses 369 -
Rent concessions - (1,275)
Share based payment expense 42 72
Adjusted EBITDA 5,900 (994)
Finance Costs
Finance costs in 2022 were £2.6 million (2021: £2.7 million) as follows:
2022 2021
Lease finance 1,404 1,741
Property financing costs 191 197
HSBC debt facility interests 853 695
Other finance charges 111 68
Finance costs 2,559 2,701
The Group has a ongoing loan facility with HSBC UK Bank plc, which ends in
January 2025. The value of the loan at 31 December 2022 was £12.7m. The Group
also has a £5.0 million government backed CBILS loan secured for 6 years on
16 December 2020, with repayments commencing 16 April 2022 reducing the
balance to £4.25 million at 31 December 2022.
In addition, the Group has a government backed loan in Austria (£0.1
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
statement of financial position. The rental charge is replaced with interest
and depreciation. In 2022, the finance costs include £1.4 million of lease
interest (2021: £1.7 million). The £0 (2021: £1.3 million) reduction
negotiated with our landlords was treated as rent concessions in
administrative expenses in full in the prior year.
Earnings per Share
Basic loss per share for the year ended 31 December 2022 was 0.44p (2021: loss
0.93p) based on the weighted average number of shares, 64,679,014 (2021:
64,679,014) in issue during the year.
The Group made a £0.3 million net loss in 2022 (2021 loss: £0.6 million).
Cash flow, capital expenditure and debt
Net cash generated from operations was £6.3 million (2021: (£1.3) million).
The Group had cash balances of £5.2 million at 31 December 2022 (2021: £4.5
million).
Outstanding bank debt at 31 December 2022 was £17 million (2021: £18
million). This includes a £12.7 million loan with HSBC (2021: £12.7
million), minus the £0.1 million amortised loan fees (2021: £0.1 million),
the £5.0 million government backed CBILS loan received in December 2020
reduced by £0.75 million in 2022, and the Austrian loan £0.1 million. The
lease liabilities amount to £33 million (2021: £33 million).
The gearing ratio (exclusive of lease liabilities) is 54%.
Net asset value per share fell to 46p (2021: 47p).
The value of freehold and long leasehold properties has not materially changed
in the period.
Operational Review
The business had to relaunch a number of times during the pandemic according
to when governments allowed the hospitality industry to trade and this varied
from country to country. In 2022, the hostels were open for close to 100% of
the year during which momentum built without interruption, resulting in a
strong summer period and better than expected trading in the traditionally
weaker months. It is hard to decipher to what extent demand in 2022 relates to
pent up frustration from those unable to travel during the pandemic and how
much is down to trading returning to normal. However, given occupancy is still
well below historic averages, we believe the business is simply returning to
normal market conditions.
The business had to be re-set for Covid, with the operational cost base
significantly reduced alongside the sale of two hostels in Edinburgh and
Barcelona which ensured the Group's financial security. Furthermore, on 11
March 2022, the landlord of the Holland Park hostel agreed to a reduction in
the base rent of £0.25m per year.
Currently, the portfolio is made up 16 premium hostels, 4 in the UK and 12 on
the continent, together selling 725,778 beds at an average price of £23.63
per night in 2022.
From nearly a standing start, the hostels performed well overall in 2022, with
the European sites representing 64% of sales and the UK representing 36%.
Elephant & Castle and Glasgow performed well in the UK with Pisa and
Lisbon also being particularly strong performers on the continent. For the
hostel in Brussels, another strong performer, negotiations around a new lease
are about to commence and there is the potential to take on extra areas in the
building.
The majority of guests have been young travellers with large groups from
colleges and schools only making up 10% of accommodation revenue whereas
historically these made up around 28% of this revenue. There is a reasonable
likelihood group bookings will improve significantly in 2023 as colleges and
schools were perhaps more cautious to return and take longer to prepare for
trips. In addition, there has been good custom from young families and single
commercial travellers.
Our marketing policy is primarily focused on the digital space and we intend
to launch a new website in June. This is expected to further drive traffic and
direct bookings, particularly from individual travellers. Currently, our
website is responsible for 14% of overall sales. The balance of bookings come
from Groups and Online Travel Agencies ('OTAs').
Alongside the launch of the new website, the Group is planning a significant
marketing campaign, in part to maximise the investment in the website, but
also to promote a new membership scheme, encouraging members to take advantage
of member only discounts available across the portfolio. Sarah Whiddett, our
new Non-Executive Director, with her extensive marketing leadership experience
will make a significant contribution to this.
Safestay is positioned at the premium end of the hostel market. In order to
maintain our premium positioning, it is critical that we invest in maintaining
a premium level of quality and feel across the portfolio. To this end, from 1
January 2023, we have allocated 3% of total revenues in order to maintain
these high standards in our hostels.
We have also decided to brand the Group as Safestay Hostels and Hotels to be
able to attract premium customers to some of our properties that have superior
accommodation equivalent to hotel rooms. This will allow us to expand our
market reach and price points.
We are currently formulating a COVID 19 business interruption insurance claim,
as we believe our policy wording is similar to some recent successful outcomes
for insured parties in our industry. Whilst a successful claim may result in a
material payout to the Group, at this stage, there can be no certainty of any
financially beneficial outcome.
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. Nuno Sacramento
resigned from his position as Chief Operating Officer on 17 June 2022. In
November 2022, Peter Zielke was appointed as Chief Operating Officer and took
up the role on 1 February 2023. Peter is a highly experienced operator with
extensive industry experience. Since the year end, in April 2023, Sarah
Whiddett was appointed as a Non-Executive Director and has over 17 years'
marketing leadership experience.
Outlook
2022 was a good year for our business as it demonstrated the continued
customer appeal of our portfolio of premium hostels. Our trading results
reflected this, with significant increases in sales and the average price per
bed night. The current year has started strongly, with trading in the first
four months significantly ahead of budget, and this together with careful
revenue management and increased occupancy should result in a good outcome for
this year.
Larry Lipman
Chairman
8 June 2023
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 Group 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
Group.
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 Group 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.
• Employees
Employees are at the heart of the hospitality industry and the directors know
that the long-term success of the Group and its ability to continue to extend
its unique pan-European hostel network will rely on a strong Group culture,
employees' wellbeing, and efficient succession planning. Some Board Meetings
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, Group information and help build a positive culture amongst the
teams.
• Suppliers
Where possible, the Group forms long-term relationships with suppliers, so
that the Group 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.
• 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 Group 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 Group'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 Group. Similarly, the Group 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 Group 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 Group
website. 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 Group is using its footprint in each country to encourage local
initiatives via the local management and staff.
• Anti-bribery
The Group 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 Metric
2022 2021 2019
Occupancy % 63.0% 35.0% 77.3%
Average Bed Rate £23.63 £19.70 £21.40
Room Revenues (£'000) 17,150 4,901 15,115
Total Revenues (£'000) 19,146 6,423 18,379
Net cash (used in)/generated from operations (£'000) 6,263 (1,323) 5,228
Net assets per share 46p 47p 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 2022 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 £19.1
million (2021: £6.4 million; 2019: £18.4 million).
Operating profit was £1.8 million (2021: £3.4 million profit) and an
underlying adjusted EBITDA of £5.9 million (2021: £1.0 million loss) for the
year to 31 December 2022. Actual EBITDA is £5.5 million (2021: £7.2 million)
and Loss before Tax is £0.7 million (2021: profit of £0.7 million). The
comparisons are difficult due to the pandemic leading to the hostels only able
to trade on a limited basis.
2022 was a successful year for the business demonstrating the continued
customer demand for the premium hostel portfolio. Whilst still yet to return
to pre-covid occupancy levels, the financial trading performance was very
encouraging with sales increasing above 2019, albeit with one more hostel in
2022.
The financial position of the business is sound benefiting from the disposal
of two hostels in 2021. 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, has meant the Group had cash balances of £5.2 million, as at 31
December 2022.
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.
Social matters
Safestay provided jobs for 226 for people in 2022.
The Group 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 Group.
Environment
The Group is mindful of the importance of reducing environmental impact
wherever possible and has implemented several initiatives to achieve a
sustainable future. The Group 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. Additionally, we are exploring the
possibility of working with train and other public transport companies to
reduce the carbon footprint of our guests.
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 Group 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 2022:
Male Female
Directors 5 0
Senior Managers 2 4
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 Group 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
Group directly or by a supplier in our supply chain.
Legal and ethical conduct
The Group 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 Group 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 Group
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 Group.
The impact of the environment on the Group's operations has been assessed and
there is a strategy to reduce this risk as explained in the Environment
Section above. 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.
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.
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.
There is also the risk of higher energy and other supply costs, but a new
utility broker is helping to identify opportunities for reducing consumption
and the growth in the average bed rate has shown that cost increases can be
offset. Also, the cost pressure on consumers can result in a desire to stay in
hostels rather than budget hotels.
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 Group 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 is being 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 £83,000 (2021: £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.
Safestay Plc are in the process of starting to refinance the loan facility,
and the Directors are confident of achieving similar terms on a new facility.
Approved by the Board of Directors and signed on behalf of the Board.
Larry Lipman
Chairman
8 June 2023
Consolidated Income Statement for the Period Ended 31 December 2022
Note 2022 2021 2021 2021
Continuing operations Discontinued operations Total
£'000 £'000 £'000 £'000
Revenue 2 19,146 5,810 613 6,423
Cost of sales 3 (3,142) (1,160) (132) (1,292)
Gross profit 16,004 4,650 481 5,131
Administrative expenses:
Administrative expenses 5 (13,801) (9,867) (565) (10,432)
Exceptional items - other operating income 5 - 1,737 - 1,737
Exceptional items - profit on disposal 5 - - 7,511 7,511
Exceptional items - loss on disposal 5 - - (554) (554)
Exceptional items - costs 5 (369) - - -
Total administrative expenses (14,170) (8,130) 6,392 (1,738)
Operating profit 1,834 (3,480) 6,873 3,393
Finance costs 6 (2,557) (2,627) (74) (2,701)
Profit/(loss) before tax (723) (6,107) 6,799 692
Tax 8 441 218 (1,509) (1,291)
Profit/(loss) for the financial year attributable to owners of the parent (282) (5,889) 5,290 (599)
company
Basic (loss) per share 9 (0.44p) (0.93p)
Consolidated Statement of Comprehensive Income
Year ended 31 December 2022
2022 2021
£'000 £'000
(Loss) for the year (282) (599)
Items that may be reclassified to profit or loss
Exchange differences on translating foreign operations 134 169
Total items that may be reclassified to profit or loss 134 169
Items that will not be reclassified to profit or loss
Property revaluation - 5,039
Deferred tax on property revaluation - (1,399)
Total items that will not be reclassified to profit or loss - 3,640
Total comprehensive (loss) for the year attributable to owners of the parent (148) 3,210
company
The accompanying accounting policies and notes form an integral part of these
financial statements.
Consolidated Statement of Financial Position
31 December 2022
2022 2021
Note £'000 £'000
Non-current assets
Property, plant and equipment (including right of use asset) 11 72,059 73,609
Intangible assets 12 9 18
Goodwill 12 12,014 12,146
Lease assets 17 453 562
Deferred tax asset 18 1,379 1,122
Total non-current assets 85,914 87,457
Current assets
Stock 25 35
Trade and other receivables 13 1,121 1,227
Lease assets 17 139 78
Current tax asset 65 199
Cash and cash equivalents 14 5,226 4,482
Total current assets 6,576 6,021
Total assets 92,490 93,478
Current liabilities
Borrowings 16 (925) (926)
Lease liabilities 17 (1,764) (1,922)
Trade and other payables 15 (3,128) (2,062)
Current liabilities (5,817) (4,910)
Non-current liabilities
Borrowings 16 (23,101) (24,028)
Lease liabilities 17 (30,450) (31,086)
Trade and other payables due in more than one year 15 - (7)
Deferred tax liabilities 18 (3,364) (3,314)
Total non-current liabilities (56,915) (58,435)
Total liabilities (62,732) (63,345)
Net assets 29,758 30,133
Equity
Share capital 19 647 647
Share premium account 19 23,904 23,904
Other components of equity 19 18,417 18,510
Retained earnings (13,210) (12,928)
Total equity attributable to owners of the parent company 29,758 30,133
The accompanying accounting policies and notes form an integral part of these
financial statements.
These financial statements were approved by the Board of Directors and
authorised for issue on 31 May 2023.
Signed on behalf of the Board of Directors
Larry
Lipman
Consolidated Statement of Changes in Equity
31 December 2022
Share Share Other Retained earnings Total
Capital premium account Components of £'000 equity
£'000 £'000 Equity £'000
£'000
Balance as at 1 January 2021 647 23,904 14,629 (12,329) 26,851
Comprehensive income
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 income - - 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
Profit for the year - - - (282) (282)
Other comprehensive income
Movement in translation reserve - - (134) - (134)
Total comprehensive income - - (134) (282) (416)
Transactions with owners
Share based payment charge for the period - - 42 - 42
Balance at 31 December 2022 647 23,904 18,417 (13,210) 29,758
Consolidated Statement of Cash Flows
31 December 2022
Note 2022 2021
£'000 £'000
Operating activities
Cash generated from operations 21 6,130 (1,272)
Income tax received/(paid) 133 (51)
Net cash generated/(used in) from operations 6,263 (1,323)
Investing activities
Purchases of property, plant and equipment (365) (307)
Purchases of intangible assets (5) -
Proceeds on sale of fixed assets - 16,658
Net cash (used in)/generated from investing activities (370) 16,351
Financing activities
Bank loans redeemed - (10,373)
Principal elements of lease payments (3,495) (1,810)
Interest paid (656) (488)
Loan repayments (997) -
Net cash used in financing activities (5,148) (12,671)
Cash and cash equivalents at beginning of year 4,482 2,125
Net increase in cash and cash equivalents 744 2,357
Cash and cash equivalents at end of year 14 5,226 4,482
Notes to the Consolidated Financial Statements
1 Accounting policies for the group and company FINANCIAL STATEMENTS
Safestay plc is listed on the AIM of the London Stock Exchange and was
incorporated and is domiciled in the UK.
The Group and Company financial statements have been prepared in accordance
with UK-adopted 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 2022.
The financial information set out in this Preliminary Announcement does not
constitute the Group's statutory financial statements for the years ended 31
December 2022 or 2021. The financial information has been extracted from the
Group's statutory financial statements for the years ended 31 December 2022
and 2021. The auditors have reported on the 2022 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 statutory accounts for the year ended 31 December 2022 will be filed with
the Registrar of Companies before the deadline of 30 June 2023. The statutory
accounts for the year ended 31 December 2021 have been filed with the
Registrar of Companies. New standards and interpretations effective in the
year
New standards, amendments and interpretations not yet effective
IAS 12 "Income Taxes" and subsequent amendments have been endorsed by the
IASB, EU and the UK. IAS 12, as amended, is effective for accounting periods
beginning on or after 1 January 2023.
The amendments to IAS 12 outline that in certain instances, which may include
the initial recognition of a lease or a decommissioning provision, IFRS
requires simultaneous recognition of an asset and liability and consequently,
there may be also offsetting temporary differences.
The impact of the changes above on the Group's reportable segments will depend
largely on the extent to which timing differences arise at different rates on
Right of Use assets and Lease Liabilities. The combined impact of the changes
is not expected to materially increase or decrease the profit or loss after
tax, with deferred tax assets and liabilities generated on leasehold
agreements expected to largely offset one another.
Going concern
The Group is reporting an Adjusted EBITDA profit of £5.9 million in 2022 as
the business has recovered strongly from the pandemic and the hostels have
been open for 97% of the year.
The Group started to generate cash from its operations in 2022 to finish with
an available cash balance of £5.2 million at 31 December 2022.
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.
This means the Group now has a low gearing of 54%.
Management updates and adjusts the cash forecast for the next 18 months on a
monthly basis. The most recent forecast prepared in April 2023 for the period
to 31 December 2024, assumes as a prudent base case that the sales will
gradually climb through the summer months. Sales for the first 4 months of
the year are significantly ahead of 2022.
All the covenants of the debt facility for the past year have been satisfied
based on interest cover and loan to value with significant headroom.
Safestay plc are in the process of starting to refinance the loan facility of
£12.7m that is due to be renewed in January 2025. The Directors have
considered the impact of this and are confident of achieving similar terms on
a new facility on the basis of the excellent current trading performance and
the strong cash flow resulting from this that is projected to continue for at
least the next two years.
Additionally, the significant headroom on both of the covenants supports this
view of the Directors.
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.
Exceptional Items
The Group separately discloses on the face of the Income Statement items of
income or expense which the nature of 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 based on 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 the income statement.
Foreign exchange gains and losses that relate to borrowings are presented in
the statement of income statement and the 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 acquiree 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 the statement of
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. The sale of the property in 2017 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 contract took
the legal form of the sale and leasebacks. However, the economic substance of
the original transactions in 2017 meant that the lease has 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 statement of financial position 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 uses 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.
· 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 statement of financial position as a right-of-use asset and a
lease liability. Leases of property generally have a lease term ranging from 5
years to 50 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 statement of financial position. 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 statement of financial position 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
statement of financial position. 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.
· 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.
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% (2021: 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). 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 2022.
Notes to the Consolidated Financial Statements
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:
2022 2021
£'000 £'000
Hostel accommodation 17,150 4,901
Food and Beverages sales 1,109 725
Other income 517 550
Rental income 370 247
Total Income 19,146 6,423
Like-for-like income 19,146 5,810
Like-for-like income relates to all turnover less turnover associated with the
discontinued operating segments.
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.
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, EBIDTA and adjusted EBITDA, which is the operating profit after
excluding 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.
2022 UK Spain Europe Shared services Total
£'000 £'000 £'000 £'000 £'000
Revenue 6,864 4,464 7,818 - 19,146
Profit/(loss) before tax 2,574 278 1,007 (4,583) (724)
Finance costs 191 1 59 2,306 2,558
Depreciation & Amortisation 253 1,045 1,370 987 3,654
EBITDA 3,018 1,324 2,436 (1,290) 5,488
Exceptional & Share based payment expense - - - 411 411
Rent concessions - - - - -
Adjusted EBITDA 3,018 1,324 2,436 (878) 5,900
Total assets 36,539 16,570 25,233 14,147 92,490
Total liabilities (9,164) (12,088) (12,672) (28,808) (62,732)
2021 UK Spain Europe Shared services Total
£'000 £'000 £'000 £'000 £'000
Revenue 2,422 1,363 2,638 - 6,423
Profit/(loss) before tax 6,689 (2,279) (1,169) (2,549) 692
Finance costs 271 618 539 1,273 2,701
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)
The Group's non-current assets (other than financial instruments and deferred
tax assets) are located into the following geographic regions:
2022 2021
£'000 £'000
UK 36,005 35,862
Spain 15,636 18,102
Rest of Europe 22,733 23,164
Shared services 11,540 10,329
Total 85,914 87,457
3 COST OF SALES
2022 2021
£'000 £'000
Food and drinks 449 341
Direct room supplies and sales commissions 2,692 951
Total 3,142 1,292
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.
5 administrative expenses
2022 2021
£'000 £'000
Staff costs (see note 10) 5,380 3,331
Legal and professional fees 895 614
Property costs 513 482
Depreciation and amortisation 3,654 3,773
Share option expenses 42 72
Other expenses 3,316 2,160
13,800 10,432
2022 2021
£'000 £'000
Exceptional items - other operating income
Grant income - 462
Profit on sale of Edinburgh Hostel - 7,511
Rent concessions - 1,275
- 9,248
Exceptional items - costs
Legal and other 369 -
Loss on sale of Barcelona Sea Hostel - 554
369 554
6 FINANCE COSTS
2022 2021
£'000 £'000
Interest on bank overdrafts and loans 853 695
Amortised loan arrangement fees 68 68
Other interest costs 43 0
Interest expense for lease arrangements (note 17) 1,404 1,741
Property financing costs 191 197
2,559 2,701
Finance income for the period totalled £2k (2021: £1k).
7 LOSS FOR THE FINANCIAL YEAR
The audit fees disclosed in 2022 represent the fees payable for the audit for
the period ended 31 December 2022 and the non-audit fees are those incurred in
the period.
2022 2021
£'000 £'000
Profit/(Loss) for the financial period is arrived at after charging:
Depreciation on owned assets 1,363 1,434
Depreciation of assets under lease liabilities 2,210 2,243
Amortisation of intangible assets 150 96
CLA Evelyn Partners Limited Auditor's remuneration for audit services 281 119
Amounts payable in respect of both audit and non-audit services are set out
below:
2022 2021
£'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 136 90
CLA Evelyn Partners Limited additional fees relating to first year 2021 audit. 116 0
CLA Evelyn Partners Limited audit of the subsidiaries' annual accounts 29 29
281 119
8 Tax
The group tax charge is made up as follows:
2022 2021
£'000 £'000
Current tax
Corporation tax on profits for the year - 103
Adjustments for corporation tax on prior periods 48 (123)
Other local taxes (4) 116
Total current tax 44 96
Deferred tax (505) 724
Adjustments for deferred tax in prior periods 20 559
Effect of increased tax rate on opening balance - (88)
Total tax charge (441) 1,291
The charge for the year can be reconciled to the loss per the consolidated
income statement as follows:
2022 2021
£'000 £'000
Profit/(loss) before tax (724) 692
Tax at the standard UK corporation tax rate of 19% (2021: 19%) (137) 131
Fixed asset differences 34 54
Adjustment for tax rate differences in foreign jurisdictions 73 (154)
Adjustments for tax on prior periods 68 (122)
Other tax adjustments, reliefs and transfers (4) 193
Remeasurement of deferred tax for changes in tax rates (111) (148)
Deferred tax not recognised (26) 1,155
Factors affecting charge for the period
Non-deductible items and other timing differences (284) (1,300)
Chargeable gains/(losses) - 1,482
Foreign exchange differences (54)
Depreciation in excess of capital allowances - -
Group tax charge (441) 1,291
Remeasurement of deferred tax for changes in tax rates is as a result of the UK tax rate being increased to 25% effective 1 April 2023.
The Group has a deferred tax liability of £3.364m 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 £68k and relates to Group losses.
9 LOSS per share
The calculation of the basic and diluted loss per share is based on the
following data:
2022 2021
£'000 £'000
Loss for the period attributable to equity holders of the Company (282) (599)
2022 2021
Weighted average number of ordinary shares (000s) for the purposes of basic 64,679 64,679
loss earnings per share
Effect of dilutive potential ordinary shares (000s) 4,767 4,537
Weighted average number of ordinary shares (000s) for the purposes of diluted 69,446 69,216
profit/(loss) per share
Basic profit/(loss) per share (0.44p) (0.93p)
The total number of shares in issue as at 31 December 2022 was 64,679,014.
10 STAFF COSTS
The average monthly number of employees (including directors) during the
period was:
2022 2021
Number Number
Hostel operation 222 176
Directors 4 5
226 181
The costs incurred in respect of employees (including directors) were:
2022 2021
£'000 £'000
Wages and salaries 4,680 2,925
Social security costs 670 380
Pension costs 30 26
Total staff costs 5,380 3,331
Government grants claimed by the Group under coronavirus job retention schemes
across the Group for 2022 total £0k (2021: £240k).
The remuneration of the directors, who are the key management personnel of the
Group, is set out below.
2022 2021
£'000 £'000
Short term employee benefits 364 332
Pension 5 6
Share based payment charges 42 72
411 410
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 land and buildings Leasehold improvements Fixtures, fittings and equipment Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost or valuation
At 1 January 2021 8,411 42,048 41,126 5,295 3,947 100,827
Transfers 73 - - (73) - -
Additions 32 - - - 275 307
Acquired in business combination - - - - - -
Derecognition of sub-leased asset (640) (640)
Disposals (17) (1,610) (13,402) (201) (576) (15,806)
IFRS lease modification (2,891) (2,891)
Revaluation 1,072 3,967 5,039
Exchange movements (87) - - (54) (92) (233)
At 1 January 2022 9,484 36,907 31,691 4,967 3,554 86,603
Transfers 2,895 - (2,895) (305) 305 -
Additions - - - 69 296 365
IFRS lease modification - (280) - - (280)
Exchange movements - 1,913 - - 24 1,937
At 31 December 2022 12,379 38,540 28,796 4,731 4,179 88,625
Depreciation
At 1 January 2021 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
Released on disposal (1) (261) (1,094) (14) (405) (1,775)
At 1 January 2022 439 6,866 1,997 1,036 2,656 12,994
Transfers - - - - - -
Adjustment on transition to IFRS16 - - - - - -
Charge for the period 223 2,210 596 241 302 3,572
Released on disposal - - - - - -
At 31 December 2022 662 9,076 2,593 1,278 2,957 16,566
Net book value:
At 31 December 2022 11,717 29,465 26,203 3,453 1,222 72,059
At 31 December 2021 9,045 30,041 29,694 3,931 898 73,609
Fixed asset transfers
As part of an internal review into the fixed asset register, it was identified
that a number of assets had been incorrectly classified. In order to more
accurately reflect the nature of the assets, the directors have transferred
the assets to the correct asset class.
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.
Right of Use Assets
The £36.5 million right of use assets all relate to properties operated by
the Group as hostels.
Right of use assets as at 31 December 2021 36,907
IFRS 16 lease modification (280)
Exchange differences 1,913
Right of use assets as at 2022 38,540
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 Company 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% 8.50% 2% 5.12% - 10.95%
York 10% 8% 2% 6.27% - 9.78%
Pisa 11% 8.50% 2% 6.82% - 10.77%
12 INTANGIBLE ASSETS AND GOODWILL
Website Leasehold rights Goodwill Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2021 134 1,697 15,060 16,891
Disposals - (1,697) (1,423) (3,120)
At 31 December 2021 134 - 13,637 13,771
Additions 5 - - 5
Exchange differences (131) (131)
At 31 December 2022 139 - 13,504 13,645
Amortisation and Impairment
At 1 January 2021 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
Charge for the period 14 - - 14
At 31 December 2022 130 - 1,491 1,621
Net book value:
At 31 December 2022 9 - 12,014 12,023
At 31 December 2021 18 0 12,146 12,164
Leasehold Rights
Amortisation of leasehold rights is based on a straight-line basis for the
term of the lease. Amortisation is taken to the statement of income
statement within administrative expenses.
Goodwill
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 2022 are shown below.
CGU Goodwill carrying value £'000
Madrid 2,217
Paris 11
Gothic 726
Lisbon 1,355
Prague 211
Barcelona Passeig De Gracia 1,687
Vienna 5
Brussels 1,326
Pisa 795
Berlin 1,015
Athens 1,210
Bratislava 897
Warsaw 607
12,014
No impairment has been deemed necessary by Management for the year ended 31
December 2022.
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 11.0% (2021: 9.7%) 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 2023 average bed rate per property has been used as the basis
of our assessment to which the Directors' have applied an increase of a 7.5%
in revenue and a 5% increase in cost relating to inflation for subsequent
years.
· 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.
Headroom between the carrying and recoverable value of an asset is dependent
upon sensitivities to the following assumptions (other than the VIU
assumptions outlined above):
Discount Rate
The group calculates a WACC applying local government bond yields and tax
rates. For reference the Group WACC for Safestay plc was 11.0% (2021: 9.7%).
The discount rate applied to a CGU represents a pre-tax rate that reflects the
market assessment of the time value of money as at 31 December 2022 and the
risks specific to the CGU.
Sensitivity analysis
A sensitivity analysis was performed for the group of CGUs and Management have
concluded that no reasonably possible change in any of the key assumptions
would result in the carrying value of the CGUs to exceeding their recoverable
amount.
13 TRADE AND OTHER RECEIVABLES
2022 2021
£'000 £'000
Trade and other receivables 620 865
Other debtors - 230
Prepayments and accrued income 502 132
1,122 1,227
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 none.
14 CASH AND CASH EQUIVALENTS
2022 2021
£'000 £'000
Cash and cash equivalents 5,226 4,482
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
2022 2021
£'000 £'000
Due in less than one year
Trade payables 663 640
Social security and other taxes 150 107
Other creditors 758 642
Accruals and deferred income 1,556 673
3,128 2,062
Due in more than one year
Other payables - 7
3,128 2,069
16 BORROWINGS
2022 2021
£'000 £'000
At amortised cost
Bank Loan 17,000 18,013
Property financing loans 7,088 7,078
Loan arrangement fees (62) (137)
24,026 24,954
Loans repayable within one year 925 926
Loans repayable after more than one year 23,101 24,028
24,026 24,954
Included within borrowings is 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 and the balance at 31 December 2022 is £4.3m. The interest rate is 3.99%
margin over base rate from year 2 onwards and is interest free in the first
year.
Property financing loans relate to the sale and leaseback arrangement entered
for Elephant & Castle.
At 31(st) December 2021 a HSBC bank loan was secured against the UK freehold
and long leasehold properties. 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:
2022 2021
£'000 £'000
Current 139 78
Non-current 453 562
Total 592 640
The lease asset relates fully to our contract with Casa Suecia where the Group
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.
Variable lease income relating to performance of Casa Suecia have been
excluded from the initial measurement of the lease asset and any additional
consideration received is recognised through the income statement.
2022
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 159 159 159 162 - - 640
Finance income (20) (15) (9) (3) - - (48)
Net present values 139 145 150 159 - - 592
Lease liabilities are presented in the statement of financial position as
follows:
2022 2021
£'000 £'000
Current 1,770 1,922
Non-current 30,450 31,086
Total 32,220 33,008
Total cash outflow for leases for the year ended 31 December 2022 was £3.3m
(2021: £3.3m).
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 statement of financial position 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 and any
additional consideration is recognised through the income statement. The Group
classifies its right-of-use assets in a consistent manner to its property,
plant and equipment (Note 11).
The hostel in London Kensington Holland Park has a term of 50 years. There is
no 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 11 5 - 42 years 12 10 0 11 0
In addition to the above, there is the London Kensington Holland Park lease
which ends in 2065. 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 2022 is as
follows:
2022
Minimum lease payments due
Within 1 year 1-5 years After 5 years Total
Lease payments 3,345 13,075 31,420 47,841
Finance charges (1,474) (4,876) (9,271) (15,621)
Net present values 1,871 8,199 22,140 32,220
2021
Minimum lease payments due
Within 1 year 1-5 years After 5 years Total
Lease payments 3,085 11,915 32,606 47,606
Finance charges (1,163) (3,934) (9,501) (14,598)
Net present values 1,922 7,981 23,105 33,008
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. The expense incurred for short term and low value leases is £50k
(2021: 50k).
18 DEFERRED INCOME TAX
Deferred tax assets Deferred tax liabilities Total
£'000 £'000 £'000
Balance as at 1 January 2021 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)
Recognised in the income statement 258 (82) 174
Recognised in other comprehensive income - 32 32
Balance at 31 December 2022 1,379 (3,364) (1,985)
The Group has recognised deferred tax assets of £1.4m (2021: £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 2022 and 31 December 647
2022
647
At the 31 December 2022, 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 2022 23,904
At 31 December 2022 23,904
OTHER COMPONENTS OF EQUITY
Merger reserve Share based payment reserve Revaluation reserve Translation reserve Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2021 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
Exchange differences on translating foreign operations - - - (136) (136)
Share based payment charge - 42 - - 42
At 31 December 2022 1,772 552 15,996 96 18,416
20 SHARE BASED PAYMENTS
The Company 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.
480,000 share options were granted in the period (2021: 609,000) and the
average share price target for options issued in 2022 was 15p (2021:
15p).
Grant date Exercise price per share (pence) Period within which options are exercisable Number of share options outstanding
2022 2021
12-May-14 15p 01/01/2024 to 31/12/2031 396,521 396,521
12-May-14 50p 01/01/2024 to 31/12/2031 528,695 528,695
21-May-14 50p 21/05/2017 to 20/05/2024 132,173 38,550
14-Jul-17 50p - - 250,000
21-Jul-17 15p 01/01/2024 to 31/12/2031 500,000 500,000
11-Oct-18 15p 01/01/2024 to 31/12/2031 100,000 100,000
1-Jan-19 15p 01/01/2024 to 31/12/2031 500,000 500,000
26-Jun-19 15p 01/01/2024 to 31/12/2031 100,000 100,000
5-Sep-19 15p 01/01/2024 to 31/12/2031 100,000 100,000
2-Jan-20 15p 01/01/2024 to 31/12/2031 900,000 900,000
31-Oct-20 9p 01/01/2024 to 31/12/2031 186,400 186,400
30-Nov-20 15p 01/01/2024 to 31/12/2031 104,900 104,900
31-Dec-20 13p 01/01/2024 to 31/12/2031 129,100 129,100
31-Jan-21 13p 01/01/2024 to 31/12/2031 129,100 129,100
28-Feb-21 14p 01/01/2024 to 31/12/2031 119,900 119,900
31-Mar-21 15p 01/01/2024 to 31/12/2031 111,900 111,900
30-Apr-21 15p 01/01/2024 to 31/12/2031 75,200 75,200
31-May-21 15p 01/01/2024 to 31/12/2031 66,400 66,400
30-Jun-21 15p 01/01/2024 to 31/12/2031 62,700 62,700
31-Jul-21 15p 01/01/2024 to 31/12/2031 44,400 44,400
14-Apr-22 15p 01/01/2024 to 31/12/2031 400,000 -
9-Nov-22 16p 01/01/2024 to 31/12/2031 30,000 -
25-Nov-22 16p 01/01/2024 to 31/12/2031 50,000 -
4,767,389 4,443,766
The share options are exercisable at a price equal to the average quoted
market price of the Company's shares on the date of grant. The share options
that have been issued in 2022 have a vesting period to 1 January 2024 and have
no minimum price condition. 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:
During 2022, it was agreed with the Business Growth Fund that Larry Lipman,
the Chairman, will waive his 250,000 share options issued on 14 July 17. He
has also agreed that if he exercised any of the remaining share options, he
cannot sell these shares for two years.
2022 2022 2021 2021
Number of share options Weighted average exercise price Number of share options Weighted average exercise price
Brought forward 1 January 4,443,766 18.2p 4,634,166 38.0p
Forfeited in the period (156,377) 50.0p (800,000) 33.6p
Issued in the period 480,000 20.9p 609,600 15.0p
Outstanding at 31 December 4,767,389 19.3p 4,443,766 35.9p
Exercisable at end of the period 388,573 50.0p 2,327,789 42.8p
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 £42k taken though the income statement (2021:
£72k).
The inputs are as follows:
2022 2021
Closing price of Safestay plc 15.5p 19.5p
Weighted average share price 15.7p 20.3p
Weighted average exercise price 19.3p 35.9p
Expected volatility 52% 35%
Average vesting period 2.0 years 7.0 years
Risk free rate 1.47% 1.28%
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
2022 2021
£'000 £'000
Profit/(loss) before tax (724) 693
Adjustments for:
Depreciation of property, plant and equipment and amortisation and impairment 3,586 3,773
of intangible assets
Profit on disposal of fixed assets - (6,957)
Finance cost 2,558 2,545
Share based payment charge 42 72
Exchange movements (836) 116
Lease Modifications 280 -
Rent concessions - (1,275)
Changes in working capital:
Decrease in inventory 11 12
Decrease/(increase) in trade and other receivables 154 549
(Decrease) in trade and other payables 1,059 (800)
Net cash from operating activities 6,130 (1,272)
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:
2022 2021
£'000 £'000
Short term employee benefits 364 332
Pension 5 6
Share based payment charges 0 72
369 410
Further information about the remuneration of individual directors is provided
in the Directors' Remuneration Report.
Details of the 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 (2021:£50,000).
Safeland plc has 528,695 share options as at 31 December 2022 (2021: 528,695),
valued at £48k.
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.
2022 2021
£'000 £'000
Share capital 647 647
Share premium account 23,904 23,904
Retained earnings (13,209) (12,928)
Merger reserve 1,772 1,772
Share based payment reserve 551 510
Revaluation reserve 15,996 15,996
Translation reserve 96 231
Bank loans 17,000 18,007
Property financing loans 7,088 7,078
Lease liabilities 32,220 33,008
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 2022, the Group held the following financial assets:
2022 2021
£'000 £'000
Trade and other receivables (note 13) 1,187 1,227
Cash and cash equivalents (note 14) 5,226 4,482
6,413 5,709
At 31 December 2022, the Group held the following financial liabilities:
2022 2021
£'000 £'000
Bank loans (note 16) 17,000 18,007
Property financing loans (note 16) 7,084 7,078
Lease liabilities (note 17) 32,220 33,008
Trade and other payables (note 15) 3,128 2,069
59,432 60,162
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.
2022 2021
£'000 £'000
Total liabilities (62,732) (57,962)
Cash and cash equivalents 5,226 4,482
Net Debt (57,506) (53,480)
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.
The business continued to manage its liquidity risk with the renewal of its
debt facility with HSBC on the 13 January 2020 with a facility of £12.7m
until 2025. In addition, a £5.0m bank CBILs facility was secured for 6 years
on 16th December 2020, which is interest free for the first year increasing to
3.99% above base rate from year 2. Repayment of CBILs facility commenced in
April 2022.
The business continues to service this debt and make the interest payments as
they fall due. There are no off-balance sheet financing arrangements or
contingent liabilities.
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.
The Group have performed a sensitivity analysis to determine the impact of a
fluctuation in exchange rate on the business. The Group have assumed that 10%
fluctuation in exchange rate reasonably reflects the change in the currency
pair over the last 12 months:
Profit before tax (losses)/gains 2022 Equity (losses)/gains 2022 Profit before tax (losses)/gains 2021 Equity (losses)/gains 2021
£'000 £'000 £'000 £'000
10% Strengthening of Sterling versus the Euro (117) (1,549) 315 (1,661)
10% Weakening of Sterling versus the Euro 129 1,704 (346) 1,827
Interest rate risk management
The Group is exposed to interest rate risk on its borrowings. The £12.7
million main facility has an interest rate of 2.95% 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% above 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
0.5% 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 2022, 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 £83,000 (2021: £89,000). 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.
Later than
Less than 1 year 1-2 years 3-5 years 5 years Total
£'000 £'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 3,124 - - - 3,124
Lease liabilities 3,345 3,345 9,729 31,420 47,839
8,039 5,113 26,961 41,613 81,726
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 started in April 2022. It was agreed
with HSBC that the main debt facility would be interest only from July 2021
after the disposal of Edinburgh, which involved a £10.2 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
2021
Freehold Property - - 9,484 9,484
Leasehold Property - - 31,691 31,691
- - 41,175 41,175
2022
Freehold Property - - 12,471 12,471
Leasehold Property - - 28,796 28,796
- - 41,267 41,267
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.
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