TIDMSSTY
RNS Number : 9366V
Safestay PLC
15 August 2022
Safestay plc
("Safestay", the "Company" or the "Group")
Final Results for the year Ended 31 December 2021
Safestay (AIM: SSTY), the owner and operator of an international
brand of contemporary hostels, is pleased to announce its Final
Results for the 12 months to 31 December 2021.
2021 Financial highlights
-- Covid-19 meant the Group's hostels were only open for 44% of
2021 (2020: 43%) and international travel was both restricted and
significantly reduced
-- Reflecting this challenging environment, total revenues were
GBP6.4 million, an increase on 2020 (2020: GBP4.8 million) but
still significantly below 2019
-- Adjusted EBITDA loss of GBP1.0 million (2020 loss: GBP1.9
million). Adjusted EBITDA is earnings before interest, tax,
depreciation and amortisation with non-recurring items and removes
the profit on disposal of the properties
-- EBITDA of GBP7.2 million including profit on property
disposals (2020: loss of GBP3.0 million)
-- Profit before tax of GBP0.7 million (2020: loss of GBP9.9 million)
-- Loss per share of 0.93p (2020: loss of 11.88p)
-- Available cash balances of GBP4.5 million, as at 31 December
2021, to support the ongoing recovery of the Group to pre-covid
trading levels
-- Completed the sale of Edinburgh and Barcelona Sea for GBP16.7
million and Safestay used this to reduce HSBC debt on 6 July 2021
by GBP10.2 million decreasing the debt to GBP12.7 million. The
Group also has a GBP5.0 million government backed CBILS loan
secured for 6 years on 16 December 2020, with repayment commencing
16 April 2022. Overall borrowings including property loans are
GBP25 million as at 31 December 2021 (GBP40 million 31 December
2020)
-- The gearing ratio (the ratio of debt to equity and is
exclusive of lease liabilities) has decreased from 99% in 2020 to
56% in 2021 following the reduction in loans and property financing
of GBP10.2 and GBP4.8 million respectively, plus the GBP3.3 million
increase in equity. GBP3.6 million of this increase relates to
property revaluations, GBP0.1 million to share based charges and
GBP0.2 million to foreign exchange translation
2021 Operational highlights
-- Beginning in April and by the end of July, all 16 hostels had
re-opened as restrictions lifted and overall showed improved
trading with demand initially focused on domestic customers but
also gradually beginning to welcome back international visitors
-- Throughout the portfolio the Company has maintained high
levels of hygiene and sanitation to protect both staff and
guests
-- Organic and acquisition capital investment projects were on hold through 2021
Post-year end - 2022 year to date highlights
-- Completed strategic review of the business and refocused the
operational team on returning the business to pre-pandemic revenue
levels. This has been achieved through improved marketing and
revenue management strategies coupled with returning customer
service to pre-pandemic levels
-- Steady start over first 5 months of the year with revenue
running at around 81% of pre-pandemic levels in-line with
management's expectations
-- Balance sheet remains strong with sufficient cash to support the business through to recovery
Larry Lipman, Chairman of the Company, commenting on the results
said:
"We are seeing the steady recovery of our market with young
travellers and schools once again visiting Europe's major cities.
From our perspective, we always believed this would happen and that
our hostels would again demonstrate their appeal to our target
customers. Occupancy is increasing at an encouraging pace and at
strong average bed rates with bookings for the summer ahead of our
internal budget plans. We expect momentum to increase as travel
returns to normal conditions."
Enquiries:
Safestay plc Tel: +44 (0) 20 8815 1600
Larry Lipman
Liberum (Nomad & Joint Broker) Tel: +44 (0) 20 3100 2000
Andrew Godber / Edward Thomas / Miquela Bezuidenhoudt
Novella Tel: +44 (0) 20 3151 7008
Tim Robertson / Safia Colebrook
CHAIRMAN'S STATEMENT
Introduction
2021 was another year of significant disruption. The year
started with the global travel industry at a near standstill, it
wasn't until April our hostels began to re-open, however the year
ended with the new Omicron variant appearing, leading to further
restrictions to trading, which meant our hostels were only able to
open for 44% of the year.
These challenges were reflected in the Company's results for the
year. However, unlike 2020, we entered 2021 with a much lower cost
base and took the opportunity in the first half of the year to
reduce debt and create liquidity with the disposal of our Edinburgh
and Barcelona Sea hostels, which placed us in a good financial
position to reset and prepare for when we were allowed to
trade.
Our 2021 results show an improvement compared to 2020, but given
the impact of the global pandemic, neither year reflects the true
trading potential of the portfolio, and as such, for comparison, we
have provided 2019 comparators to where appropriate.
Through the second half of 2021 the Board took the opportunity
to review all strategic options with the business, including the
potential for a sale, and whilst bids were received at a
significant premium to share price at the time, they were
conditional on our largest shareholders supporting an offer which
they were not prepared to do as they are strong believers in the
longer-term prospects of the Company. Consequently, the management
are pleased to now focus solely on supporting the ongoing recovery
of the business to pre-Covid levels and beyond.
The first five months of 2022, indicate Group trading is
continuing to improve, in line with increasing demand and that
bookings for the summer are in-line with management's
expectations.
Financial Results
Revenue
Group revenue for the financial year ended 31 December 2021,
increased by 33% to GBP6.4 million, although this was still
significantly below pre covid levels (2020: GBP4.8m; 2019: GBP18.4
million).
The revenue in 2021 does not include GBP0.9 million (2020:
GBP0.8 million) of grants received from governments and local
authorities. These are reported separately, in administrative
expenses for the GBP0.4 million payroll grants and as exceptional
income for the GBP0.5 million other grants. 62% of the revenue came
from non-UK properties (2020: 49%). The increase in revenue was in
the non-UK properties 68% and the decrease in revenue was in the UK
properties 1%.
Room revenue grew by 37% to GBP4.9 million (2020: GBP3.6
million) and food & beverage revenue as well as ancillary
revenue were up 48%, to GBP1.3 million (2020: GBP0.9 million).
Rental income has reduced to GBP0.2 million (2020: GBP0.4 million)
due to the disposal of the Edinburgh hostel.
Historically, management focus has been the sale of beds and
drive accommodation revenue, with all other income streams
significantly lower. In a bid to maximise the revenue potential
beyond beds, we have outsourced, on a revenue share basis, our
Madrid food and beverage operations to Casa Suecia, who are
steadily investing in the customer proposition and experience.
Safestay receives the higher of a minimum guaranteed rent or an
agreed % of the food and beverage revenue in return for Casa Suecia
receiving the profit from this income stream by managing this part
of the operation with its own staff.
Adjusted EBITDA
The Directors consider that an adjusted EBITDA provides a key
measure of performance since it removes the impact of the profit on
disposal of the properties, which is not a trading activity, along
with the benefit of rent concessions received. Adjusted EBITDA for
the year to December 2021 was a GBP1.0 million loss (2020: GBP1.9m
loss; 2019: GBP6.1 million profit). Adjusted EBITDA represents
earnings before interest, tax, depreciation, amortisation, profit
on disposal and rent charges in the period.
Adjusted EBITDA is as follows: 2021 2020
GBP'000 As Restated
GBP'000
Operating Profit after exceptional expenses 3,393 (7,176)
Add back:
Depreciation 1,434 1,541
Right of Use Depreciation 2,243 2,459
Amortisation 96 199
Actual EBITDA 7,166 (2,977)
Impairment - 1,491
Profit on disposal - Edinburgh (7,511) -
Loss on disposal - Barcelona Sea 554 -
Exceptional expenses - 261
Rent concessions (1,275) (904)
Share based payment expense 72 279
--------- -------------
Adjusted EBITDA (994) (1,850)
--------- -------------
The exceptional expenses in 2020 totalled GBP0.3 million and
included costs in relation to acquisitions made in 2020, and debt
fees write off relating to re-financing.
Share-based provision was increased partly due to salary
sacrifice being replaced with share options during COVID-19.
Finance Costs
Finance costs in 2021 were GBP2.7 million (2020: GBP2.8 million)
as follows:
2021 2020
Lease finance 1,741 1,558
Property financing
costs 197 343
HSBC debt facility
interests 695 625
Other finance charges 68 224
------ ------
Finance costs 2,701 2,750
Following the sale of our Edinburgh hostel at the end of June,
Safestay reduced its HSBC debt on 6 July 2021 by GBP10.2m reducing
bank debt to GBP12.7 million. The Group also has a GBP5.0 million
government backed CBILS loan secured for 6 years on 16 December
2020, with repayment commencing 16 April 2022.
In addition, the Company has two government backed loans in
Germany (GBP0.2 million) and Austria (GBP0.2 million). Since the
introduction of IFRS 16 from 1 January 2019, our hostel leases have
been accounted for as lease liabilities. At the lease commencement
date, the Group recognises a right-of-use asset and a lease
liability on the balance sheet. The rental charge is replaced with
interest and depreciation. In 2021, the finance costs include
GBP1.7 million of lease interest (2020: GBP1.6 million). The
GBP1.28 million (2020: GBP0.9 million) reduction negotiated with
our landlords was treated as rent concessions in administrative
expenses in full in both the current and prior year.
Earnings per Share
Basic loss per share for the year ended 31 December 2021 was
0.93p (2020: loss 11.88p) based on the weighted number of shares,
64,679,014 (2020: 64,679,014) in issue during the year.
The Group made a GBP0.6 million net loss in 2021 (2020 loss:
GBP7.5 million; 2019 loss: GBP1.0 million).
Cash flow, capital expenditure and debt
Net cash generated from operations was (GBP1.3) million (2020:
(GBP4.3) million).
The GBP1.6 million increase in income from the hostels resulted
in additional operating profit of GBP3.4 million, excluding the
profit on disposal, due to the drive to reduce the cost structure.
The hostel and the majority of the central teams were furloughed
during the lockdowns, and the head office cost structure has been
significantly reduced since November 2020 when the directors and
senior management agreed to reduce their salary by 40% in return
for share options. The rental charge was reduced by GBP2 million
via a mix of reduction (GBP1.3 million) and deferments (GBP0.9
million). In addition, all capital expenditure has been restricted
from March 2020.
The Group had cash balances of GBP4.5 million at 31 December
2021 (2020: GBP2.1 million).
Following the measures implemented in 2020 to navigate the
global pandemic to focus on preserving and managing cash, capital
expenditure was restricted through 2021 to essential capital
necessary to optimise revenues in our existing portfolio on
re-opening, following a sustained period of being mothballed in
line with legislative requirements.
Outstanding bank debt as at 31 December 2021 was GBP18 million
(2020: GBP28 million). This includes a GBP12.7 million loan with
HSBC (2020: GBP22.9 million), minus the GBP0.1 million amortised
loan fees (2020: GBP0.3 million), the GBP5.0 million government
backed CBILS loan received in December 2020, and the two government
backed loans received via our local entities in Germany and Vienna
for GBP0.2 million each. The lease liabilities amount to GBP33
million (2020: GBP39 million).
The gearing ratio (exclusive of lease liabilities) has decreased
from 99% in 2020 to 56% in 2021 following the reduction in loans
and property financing of GBP10.4 and GBP5.2 million respectively,
plus the GBP3.3 million increase in Equity.
The HSBC debt covenants were waived until June 2021, and then
adjusted and waived covenants are agreed until December 2022.
Net asset value per share increased to 47p (2020: 42p) as a
result of an improved net profit position in 2021.
The Directors believe the existing cash and facilities in place,
the increase in occupancy forecast and the reduction in the cost
base will allow them to continue as a going concern, despite the
lingering impact of COVID-19 and travel restrictions. For these
reasons, they continue to adopt the going-concern basis in
preparing the Company's financial statements.
2020 Qualification Elimination
In 2020 Grant Thornton provided a qualified opinion on the
financial statements because they were unable to obtain sufficient
appropriate audit evidence to substantiate historic accounting
entries on goodwill and reserves in relation to the acquisition of
Edinburgh. This qualification became redundant following the sale
of Edinburgh in June 2021, as the subsequent accounting treatment
for the disposal pushes the final accounting entries through
reserves which is consistent with the approach taken in 2020.
Operational Review
Like 2020, 2021 was another unusual year, operating under the
restrictions for parts of the year imposed by the pandemic. The
hospitality industry was more affected than most and Safestay was
no exception.
We entered 2021 with all hostels closed, and at the end of April
tentatively started to re-open initially in Edinburgh with all
hostels finally open by the end of July. Whilst hostels were
allowed to be open, travel, although possible, was restricted and
barriers to travel made it hard for customers to move outside of
their own country.
Operational procedures were reset and fully adapted to the new
safety protocols and standards to keep both customers and employees
safe. Week after week, occupancy gradually increased with October
and November seeing our hostels return to a positive hostel EBITDA
before rent, before Omicron hit in December and a return to further
travel restrictions and some countries into lockdown.
The travel restriction had a particular impact on group
bookings, with the majority of schools and clubs deferring a return
until 2022, but our policy of focusing our marketing activity in
the digital space, our own web site investment and booking
platforms meant that individual travellers have been attracted to
our hostels.
Going into 2022, we are reverting to targeting a revenue split
of 40% from a broad range of group bookings, 20% from direct
individual bookings and 40% through Online Travel Agencies
('OTAs'). Thereby spreading our revenue generation beyond OTAs to
the higher margin direct and group bookings.
Safestay continues to be positioned at the premium end of the
hostel market. In 2019, the Group began a renovation programme to
maintain these standards. Once the business returns to normal we
expect to re-commence this programme which supports our ability to
maintain the Company's premium positioning and high guest
satisfaction scores.
The Group has a unique network in Europe which provides the
opportunity to offer young travellers and groups visiting Europe,
accommodation in multiple cities in one packaged deal. In addition,
it provides Safestay with a natural hedge against currency and
economic volatility.
The Board
Paul Hingston joined the board as CFO and Company secretary on
21 February 2022. Paul has extensive leisure and travel sector
experience, most recently he was Group Finance Director for
Starboard Hotels Ltd. Peter Harvey decided to step down from the
position of Chief Financial Officer and Company Secretary on 21
February 2022 and I would like to thank him, on behalf of the
Board, for his contribution through what we trust has been the
final stages of the pandemic and the re-opening of our hostel
estate. Additionally, Nuno Sacramento resigned from his position as
Chief Operating Officer on 17 June 2022.
Outlook
Utilising our unique portfolio, our longer-term strategy remains
focused on offering a comfortable and safe stay in beautiful, often
iconic buildings that are centrally located, in well-known and
popular cities but still with a bed rate representing outstanding
value for money. Ultimately, we believe the appeal of our offer
combined with the proven appeal of visiting Europe's ancient
leading cities will underpin the full recovery of our business.
Bookings for the summer period are ahead of our internal budgets
and we are looking forward to delivering a much-improved summer
trading period.
Larry Lipman
Chairman
12 August 2022
Strategic Report
Principal activity
The principal activity of the Group comprises the operation and
development of high-quality traveller accommodation under the
Safestay brand in properties that are either owned or occupied on
leasehold.
The Business Model
The Safestay business model is to develop and operate a brand of
contemporary hostels in the UK and key tourist cities in Europe.
The Safestay brand is positioned at the premium end of the hostel
spectrum appealing to a broad range of guests. Core elements of the
model are:
-- Development: Identifying potential properties in target
cities, acquiring the leasehold or freehold in the properties and
their contemporary, stylish refurbishment to fit with the brand
-- Operational: Deploying a strong hostel expertise and cost
control to achieve best in class operating margins
-- Brand: Building the Safestay brand value
-- Scale: Building the platform to efficiently add further hostels to the Group
-- People: Investing in the right people where automation cannot be adopted
-- Guest experience: Providing a comfortable, safe and enjoyable
stay in our hostels for a reasonable price with a focus on customer
satisfaction, a strong community experience and repeat stays.
Section 172(1) statement
The directors understand the importance of their section 172
duty and the need to act in a way the directors consider, in good
faith, would be most likely to promote the success of the company
for the benefit of its members, and in doing so have regard,
amongst other matters to:
-- the likely consequences of any decisions in the long term;
-- the interests of employees;
-- the need to foster business relationships with suppliers, customers and others;
-- the impact of operations on the community and environment;
-- the desirability of maintaining a reputation for high standards of business conduct; and
-- the need to act fairly as between members of the Company.
This duty underpins the Board's decision-making processes and
the Group's strategic direction, with due consideration given to
the long-term impact of its decisions on shareholders, employees,
customers and wider stakeholders. Practical measures that the Board
takes to ensure the interests of these stakeholders are reflected
in the Board's decision-making process are as follows:
-- Customers
Customer engagement levels is a key performance indicator of our
business. We use this customer feedback to continuously improve our
product and level of service in the hostels. The Company also
directly engages with customers via social media to share
information and collect further feedback. This communication
channel was used throughout the pandemic to maintain a close
connection with our customers when the hostels were closed during
the Pandemic.
As a result of engagement with customers, due to the impact of
Covid-19, the decision was made that the period in which customers
were able to re-book their cancelled stay would be extended. In
addition, the bookings were made more flexible and could be
transferred to other Safestay hostels, if the hostel they had
booked remained closed.
-- Employees
Employees are at the heart of the hospitality industry and the
directors know that the long-term success of the Company and its
ability to continue to extend its unique pan-European hostel
network will rely on a strong company culture, employees'
wellbeing, and efficient succession planning. Except for the period
when meetings are impacted with social distancing measures and
travel restrictions, some Board Meetings would take place in
hostels to encourage direct contact between the Board and the
operational teams. Bi-annual meetings are organised with all
managers to share best practice, company information and help build
a positive culture amongst the teams.
Social media is used amongst the teams to encourage regular
communication across the Group. Weekly team meetings, which all
happen remotely via video conferencing systems, have continued to
take place with managers during the pandemic to maintain a strong
level of engagement amongst the teams and make a smooth transition
towards re-opening the hostels when restrictions end.
As a result of Covid-19 the Company engaged with employees to
manage the liquidity of the business including the offering of
share options in respect of salary replacement.
-- Suppliers
Where possible, the Company forms long-term relationships with
suppliers, so that the Company and its suppliers have a more
certain environment in which to operate. This also applies to
landlords of the 12 hostels operated by the Group under lease
agreements. The ability of the Company to build strong links with
suppliers has been instrumental to successfully negotiating rent
reductions and deferments during the pandemic and mitigate the
closure of the hostels and the significant loss in income which has
resulted.
-- Shareholders
In addition to the annual general meeting, the directors hold
meetings with institutional shareholders following the release of
year end and interim results and remain available for ad hoc
meetings throughout the year. In addition, the executive directors
have participated in shareholder conferences to present their
business and strategy and obtain live and direct feedback from
non-institutional shareholders. The Company website includes an
investor section where shareholders can find all relevant
information and reports.
The Board believes communication with stakeholders helps to
shape and adapt the Company's strategy and ultimately contributes
to maintaining a high standard of business conduct. The directors
will always assess the consequences of any decision over the long
term. For example, decisions over whether to acquire or develop new
properties follows a rigorous process involving long term financial
assessment and commercial study, all in conjunction with the
funding capabilities of the Company. Similarly, the Company uses
customer satisfaction reports to help allocate the way funds are
deployed under an annual capex improvement programme to enhance the
experience of customers and ultimately safeguard brand equity.
The Company complies with the UK's Quoted Companies Alliance
Corporate Governance code for Small and Mid-Size Quoted Companies
(the "QCA Code") and further information is publicised in the
investor section of the Company website.
https://www.safestay.com/investors/
-- Engagement with the wider community
The board ensures that decisions made are responsible and
ethical by taking into consideration the wider society external to
the organisation. The Group is committed to contributing to the
community in which it operates as a business. The Company is using
its footprint in each country to encourage local initiatives via
the local management and staff.
-- Anti-bribery
The Company is committed to the prevention of bribery by those
employed and associated with it and is committed to carrying out
business fairly, honestly and openly, with zero-tolerance towards
bribery. All employees have a responsibility to prevent, detect and
report all instances of bribery as stated in our employee
handbook.
Review of business and future prospects
Key Metrics
2021 2020 2019
Occupancy % 35.4% 37.9% 77.3%
Average Bed Rate GBP19.7 GBP18.3 GBP21.4
Room Revenues (GBP'000) 4,901 3,570 15,115
Total Revenues (GBP'000) 6,423 4,831 18,379
Net cash (used in)/generated from operations
(GBP'000) (1,323) (4,347) 5,228
Net assets per share 47p 42p 55p
The occupancy is calculated by dividing the number of beds sold
over the period with the number of beds available when the hostels
were opened during the same period. It means that in 2020 and 2021
the occupancy was calculated specifically for those days when the
hostels were not closed due to the COVID-19 pandemic. The
underlying business generated revenues of GBP6.4 million (2020:
GBP4.8 million; 2019: GBP18.4 million).
Operating profit was GBP3.4 million (2020: GBP7.2 million loss)
and an underlying adjusted negative EBITDA, as defined in the
Chairman's statement, of GBP1.0 million (2020: GBP1.9 million loss)
for the year to 31 December 2021. Actual EBITDA profit is GBP7
million (2020: GBP3 million loss) and Profit before Tax is GBP0.7
million (2020: Loss of GBP9.9 million). The business was severely
impacted by the pandemic in 2021 and the loss does not reflect the
underlying healthy business model which was cash generative in 2019
and was expected to break even in 2020 when the Company hit the
critical mass of 18 hostels to absorb the central cost of managing
the pan-European platform.
2021 was another challenging year which both impacted the
results of the Group and arrested our expansion plan. However, it
continued to demonstrate the sustained resilience of the teams in
the hostels and head office, and their ability to pivot under
exceptional circumstances. It was also comforting to benefit from
the support of our bank, landlords and shareholders, reflecting
their confidence in the model developed so far, and the value of
the Safestay brand.
The Group completed on the disposal of two hostels in 2021 to
provide the Company with the necessary funding to meet the
short-term and mid-term cash requirement. The Barcelona Sea hostel
was sold in February 2021 for a GBP0.7 million consideration, and
the Edinburgh hostel was sold for GBP16 million in June 2021. The
combination of these disposals and cost saving measures, which have
been implemented by management since March 2020, ensuring the
Company has sufficient financial liquidity to support the business
in its recovery following the pandemic.
The Group is currently not committed to any future acquisition
projects or development. However, the Group is hoping to capitalise
on this position to seize opportunities and aggregate a fragmented
market which will have become even more inclined to consolidate
following the COVID-19 period.
Social matters
Safestay provided jobs for over 200 people pre COVID-19. This
number did reduce during COVID whilst the hostels were temporarily
closed, and most of the staff employed by the Company during this
period were on furlough.
The Company operates in 12 different countries and has
established local operating entities in each of the countries where
our hostels are located. This gives us the ability to hire
employees locally and offer them employment contracts and social
benefits in full compliance with each relevant jurisdiction. This
also includes the relevant level of hospitality training as well as
mandatory training courses.
Maintaining a reputation for high standards of business
conduct
The Board is mindful that the continued growth and success of
the Group is dependent upon maintaining high standards of business
conduct, including:
-- The ability to successfully compete within the market, to
attract and retain clients, and to service these clients to a high
standard;
-- The ability to attract and retain high quality employees;
-- The ability to attract investors and to meet their
expectations of good governance and sound business conduct;
-- The ability to meet the Group's regulatory obligations, and
to meet the expectations of relevant regulatory bodies.
This mindset underpins the formulation of the Group's strategy
and is evident throughout the Board's decision-making process.
Ensuring that members of the Company are treated fairly
The Board ensures that the Group's shareholders are treated
equally and fairly, regardless of the size of their shareholding or
their status as a private or institutional shareholder. The Group
provides clear and timely communications to all shareholders in
their chosen communication medium, as well as via the Group's
website and via a Regulatory News Service. All holders of Ordinary
shares are able to vote at general meetings of the Company.
Environment
The Company is mindful of the importance of reducing
environmental impact wherever possible and has implemented several
initiatives to achieve a sustainable future. The Company intends to
continuously review and increase its efforts in this area. As an
example, in all Safestay properties, we minimise the use of
plastics wherever possible seeking more sustainable alternatives.
This enables us to reduce our environmental footprint and helps us
build a reputation with our guests as it meets their environmental
expectations. We reuse and recycle the plastic we do use. We are
also constantly reviewing our CO2 emissions. We are committed to
reducing Scope 1 and 2 emissions - for example, in the future, we
would like to incorporate water-saving products in our showers to
encourage our guests to be mindful of water wastage. We will also
look to reduce Scope 3 emissions working only with trusted
suppliers.
We have a unique carbon impact tool which we offer to our
guests. This gives them the opportunity to test their carbon impact
by using an online carbon calculator on our website with the aim to
increase the overall awareness and desire to act responsively
during their journey.
More information is available on our website at
https://www.safestay.com/corporate-social-responsibility/ .
Employee diversity
The Company is committed to diverse representation at all
levels. We are mindful that there is still work to be done to
achieve these goals and are looking to make significant progress in
our recruitment, retention and promotion strategies as we emerge
from the pandemic.
The following table reports on the gender diversity of the
Group's employees at 31 December 2021:
Male Female
Directors 5 0
Senior Managers 1 3
Employment of disabled people
It is the policy of the Group to employ disabled persons in the
job suited to their aptitudes, abilities and qualifications
whenever practicable, endeavour to continue to employ those who
become disabled whilst in the Group's employment and to provide
disabled employees with the same opportunities for promotion,
career development and training as those afforded to other
employees.
Human rights
The Company is committed to respecting human rights within our
business by complying with all relevant laws and regulations. We
prohibit any form of discrimination, forced, trafficked or child
labour and are committed to safe and healthy working conditions for
all individuals, whether employed by the Company directly or by a
supplier in our supply chain.
Legal and ethical conduct
The Company has comprehensive measures to meet its statutory
requirements across all areas of its operation, and those expected
by our customers and employees, as necessary, for the long-term
success of the business. Risks in this area can occur from
corruption, bribery, and human rights abuses, including
discrimination, harassment, and bullying. The Company has training
programmes for all employees. We take a zero-tolerance approach to
bribery and are committed to acting professionally, fairly and with
integrity in all our business dealings and relationships wherever
we operate and implementing and enforcing effective procedures to
counter bribery as documented in the Company anti bribery policy
signed by the directors.
Principal risks and uncertainties
Management has completed a full review of the risks which may
arise from within or outside the business and may have an impact on
the Company.
COVID-19 was also identified as an emerging risk for the period
ending 31 December 2019 as it arose as a post balance sheet event.
The Group's operations have a relatively limited impact on the
environment, and therefore climate change has not been identified
as an emerging risk. No other emerging risks have been identified
at this point. There has been no identified change in the principal
risks and uncertainties.
The principal risks and uncertainties that could potentially
have a material impact on the Group's performance are presented
below.
-- COVID-19
Although no business can be fully prepared for a worldwide
catastrophe, the financial health of Safestay, strength of the
underlying business and prompt reaction of management at the start
of the crisis in March 2020 have helped to mitigate the impact of
this unexpected event, and the lessons learnt will help build
stronger processes and policies to combat any similar event in the
future.
From an operational perspective, our safety protocols have
already been tested during the summer 2020 after the first lockdown
and our hostels and teams were ready for the initial re-opening
from May 2021, focused on protecting employees and guests against
the risk of the COVID-19. The Company website has been updated to
inform guests of the new safety protocols and ongoing
expectations.
As set out in last year's report we have set out a safety
standard that continues to be deployed across all Safestay
properties and involves the release of an internal certification to
hostels each time they re-open. This is being closely monitored and
accessed by our management team to ensure a safe space in public
and private areas.
We expect that protocols will be lifted progressively as the
restrictions are finally removed, in line with local and
international guidance and regulation.
-- Business risks
Safestay operates in the hospitality industry which, over the
years, has experienced fluctuations in trading performance.
Traditionally, the hotel sector's performance has tracked
macro-economic trends, feeling the strain during the economic
downturn, and becoming more buoyant during recovery. The hostel
sector, which leans more heavily on leisure travellers and has a
lower price point, has proved more resilient and has delivered more
robust cash flows through the economic cycle and has quickly
recovered from isolated terror acts which may limit travel in the
short term. The hospitality sector in the UK continues to face a
number of cost headwinds from the National Living Wage, commodity
price inflation, foreign exchange rate fluctuations and the
hangovers from the UK's departure from the European Union and the
consequences of that. Business rates in the UK had continued to
increase until 2020 when full relief was introduced from April 2020
until June 2021 as part of the government support measures.
A proportion of Safestay's business in the UK comes from Europe,
including several school groups. In addition, over 60% of the
turnover is coming from hostels located in mainland Europe. The
business is therefore highly vulnerable to changes in the source
market, schools' education, travel policies and any fluctuations
arising in the market from the 'Brexit' process and travel
restrictions implemented by the governments, or the school
governance bodies.
Conversely, this balance between the UK and mainland Europe
offers a natural hedging against fluctuations of each local market
and currency where Safestay operates.
Post COVID-19 crisis, the demand in Safestay's markets has
strengthened, as we expect that the existing supply within the
competitor set will temporarily reduce, until the industry expands
again. However, provision of new supply will increase again with
the opportunity for real estate owners to repurpose and convert
existing buildings previously used for retail or offices.
Safestay's defence to such threats is the combination of our
premium locations and high standard of accommodation and
operations. As supply increases, the business's focus on revenue,
customer service, and sales and marketing activity is key to
protect and grow market share, brand loyalty and reputation.
IT and system risks
Safestay's property management and accounting systems are
deployed via SaaS (software as a service). As such the Group is
dependent on robust internet connectivity and the resilience of the
provider's third-party data centre and back-up protocols to
operate. Whilst the arrangement carries risks, these are deemed to
be reduced when compared to an in-house option which would lead to
higher management overhead costs for the business. Management
believes this current arrangement is more suitable to the business
needs as well as being more cost effective due to the small size of
our business. The other systems used are not deemed to be business
critical.
The Company contracts the maintenance of the IT infrastructure
with an external provider and has a cloud based back up system to
secure all data which are not already covered via other SaaS
suppliers. This is a more robust and flexible option compared to an
in-house solution.
Expansion and regulatory risks
Accessing expansion opportunities at the right price and in the
right locations is, by its nature, an opportunistic exercise.
Whilst the leadership team has a track record in securing
properties to support business growth, and the fact that the market
should offer more real estate opportunities in the coming years,
there is no guarantee that future opportunities can be secured,
even if it is expected that the market will offer real estate
opportunities when emerging from the COVID-19 crisis and existing
property owners look for alternatives to office and retail asset
classes.
Expansion in new jurisdictions and changes in regulation in
countries where Safestay already operates is creating an
environment where it is more likely to be in regulatory breach
compared to a group which would only trade in one country. Safestay
plc is a listed business and as such is bound to a very high level
of compliance. The Board is composed of seven experienced
non-executive and executive directors who all have a proven
experience in hospitality and strong understanding of regulatory
and compliance topics. Moreover, the Group works with local law
firms in each country where it operates to gain access to the local
expertise and guarantee full local compliance, notably via the
obtention of relevant licenses. As opposed to other hospitality
sectors, such as sharing economy or private rental, the hostel
sector is built on strong regulation plus existing fundamentals and
trade licences, which makes it less likely to require the
introduction of more strict regulations.
Financial risk
The main GBP12.7 million facility with HSBC ends in January
2025. In December 2020, the Group received a GBP5.0 million CBILS
(Coronavirus Business Interruption Loan Scheme) via HSBC. The CBILS
will be repaid at a rate of GBP1.0 million per year from April 2022
until April 2027. The main GBP12.7 million facility is interest
only from July 2021 following a GBP10.2 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 GBP89,000). Strict financial controls are in place to ensure
that monies cannot be expended above the available limits or to
breach any banking covenants.
A proportion of Safestay's business comprises group bookings and
there is a risk of booking cancellations which will leave the
hostel with unforeseen beds to sell at relatively short notice. To
offset this risk, all group bookings require a non-refundable
deposit of 10% at time of confirmation and staged payments in
advance of the group arrivals.
Except for a small number of credit sales for which applied
credit limits are verified through external sources, Safestay has a
policy of full payment upfront for guests staying which is the norm
for hostels. As such there are negligible trade receivable
risks.
Approved by the Board of Directors and signed on behalf of the
Board.
Larry Lipman
Chairman
12 August 2022
Consolidated Income Statement Note 2020 2020
2021 2021 As restated As restated 2020
Continuing Discontinued 2021 Continuing Discontinued As restated
operations operations Total operations operations Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2 5,810 613 6,423 3,375 1,456 4,831
Cost of sales 3 (1,160) (132) (1,292) (658) (234) (892)
----------- ------------- -------- ------------ ------------- ------------
Gross profit 4,650 481 5,131 2,717 1,222 3,939
Administrative expenses 5 (9,867) (565) (10,432) (9,693) (1,609) (11,302)
----------- -------------
Operating loss before
exceptional
items (5,217) (84) (5,301) (6,976) (387) (7,363)
Exceptional items - other
operating income 5 1,737 - 1,737 448 - 448
Exceptional items - profit
on disposal 5 - 7,511 7,511 - - -
Exceptional items - loss
on disposal 5 - (554) (554) - - -
Exceptional items - costs 5 - - - (261) - (261)
----------- ------------- -------- ------------ ------------- ------------
Operating profit after
exceptional
items (3,480) 6,873 3,393 (6,789) (387) (7,176)
Finance costs 6 (2,627) (74) (2,701) (2,750) - (2,750)
----------- ------------- -------- ------------ ------------- ------------
Profit/(loss) before tax (6,107) 6,799 692 (9,539) (387) (9,926)
Tax 8 218 (1,509) (1,291) 2,198 205 2,403
----------- ------------- -------- ------------ ------------- ------------
Profit/(loss) for the
financial
year attributable to owners
of the parent company (5,889) 5,290 (599) (7,341) (182) (7,523)
=========== ============= ======== ============ ============= ============
Basic profit/(loss) per
share 9 (0.93p) (11.63p)
Consolidated Statement of Comprehensive Income 2021 2020
Year ended 31 December 2021 GBP'000 As restated
GBP'000
Profit/(loss) for the year (599) (7,523)
Exchange differences on translating foreign operations 169 (4)
Property revaluation 5,039 -
Deferred tax on property revaluation (1,399) (185)
Total comprehensive profit/(loss) for the year
attributable to owners of the parent company 3,210 (7,712)
======== ============
Consolidated Statement of Financial Position Note 2021 2020
31 Dec 2021 As restated
GBP'000 GBP'000
Non-current assets
Property, plant and equipment (including
right of use asset) 11 73,609 89,735
Intangible assets 12 18 921
Goodwill 12 12,146 13,569
Lease assets 17 562 -
Deferred tax asset 18 1,122 2,159
-------- ------------
Total non-current assets 87,457 106,384
-------- ------------
Current assets
Stock 35 47
Trade and other receivables 13 1,227 1,884
Lease assets 17 78 -
Current tax asset 199 289
Cash and cash equivalents 14 4,482 2,125
-------- ------------
Total current assets 6,021 4,345
-------- ------------
Total assets 93,478 110,729
-------- ------------
Current liabilities
Borrowings 16 (926) (311)
Lease liabilities 17 (1,922) (1,932)
Trade and other payables 15 (2,062) (2,409)
Current liabilities (4,910) (4,652)
-------- ------------
Non-current liabilities
Borrowings 16 (24,028) (40,043)
Lease liabilities 17 (31,086) (37,089)
Trade and other payables due in more than
one year 15 (7) (336)
Deferred tax liabilities 18 (3,314) (1,758)
Total non-current liabilities (58,435) (79,226)
-------- ------------
Total liabilities (63,345) (83,878)
-------- ------------
Net assets 30,133 26,851
======== ============
Equity
Share capital 19 647 647
Share premium account 19 23,904 23,904
Other components of equity 19 18,510 14,629
Retained earnings (12,928) (12,329)
-------- ------------
Total equity attributable to owners of the
parent company 30,133 26,851
======== ============
Consolidated Statement of Changes in Equity
31 December 2021
As restated
Other
Share Components As restated As restated
Share premium of Retained Total
Capital account Equity earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- ----------- ----------- -----------
Balance as at 1 January
2020 (as restated) 647 23,904 14,531 (4,806) 34,276
Comprehensive income
Loss for the year - - - (7,523) (7,523)
Other comprehensive
income
Movement in translation
reserve (as restated) - - 4 - 4
Deferred tax on property
revaluation (as restated) - - (185) - (185)
-------- -------- ----------- ----------- -----------
Total comprehensive
income - - (181) (7,523) (7,704)
-------- -------- ----------- ----------- -----------
Transactions with owners
Share based payment
charge for the period - - 279 - 279
-------- -------- ----------- ----------- -----------
Balance at 31 December
2020 (as restated) 647 23,904 14,629 (12,329) 26,851
-------- -------- ----------- ----------- -----------
Loss for the year - - - (599) (599)
Other comprehensive
income
Property revaluation - - 5,039 - 5,039
Deferred tax on property
revaluation - - (1,399) - (1,399)
Movement in translation
reserve - - 169 - 169
-------- -------- ----------- ----------- -----------
Total comprehensive
profit - - 3,809 (599) 3,210
Transactions with owners
Share based payment
charge for the period - - 72 - 72
Balance at 31 December
2021 647 23,904 18,510 (12,928) 30,133
======== ======== =========== =========== ===========
Consolidated Statement of Cash Flows - Note 2021 2020
31 Dec 2021 GBP'000 GBP'000
Operating activities
Cash generated from operations 21 (1,272) (4,228)
Income tax received/(paid) (51) (119)
-------- --------
Net cash (used in)/generated from operations (1,323) (4,347)
-------- --------
Investing activities
Purchases of property, plant and equipment (307) (985)
Purchases of intangible assets - (36)
Acquisitions, net of cash acquired 25 - (2,003)
Payment of deferred consideration - (509)
Proceeds on sale of fixed assets 16,658 -
-------- --------
Net cash outflow from investing activities 16,351 (3,533)
-------- --------
Financing activities
Proceeds from refinancing transaction - 5,681
Fees relating to financing transaction - (161)
Proceeds from Coronavirus Business Interruption
Loan Scheme - 5,000
Bank loans redeemed (10,373) -
Principal elements of lease payments (1,810) (2,514)
Property financing payments - (331)
Interest paid (488) (624)
Net cash generated from financing activities (12,671) 7,051
-------- --------
Cash and cash equivalents at beginning
of year 2,125 2,954
Net increase /(decrease) in cash and cash
equivalents 2,357 (829)
Cash and cash equivalents at end of year 14 4,482 2,125
======== ========
Notes to the Consolidated Financial Information
31 December 2021
1. Accounting policies for the group FINANCIAL Information
Safestay plc is listed on the AIM of the London Stock Exchange
and was incorporated and is domiciled in the UK.
The Group financial statements have been prepared in accordance
with International Accounting Standards in conformity with the
requirements of the Company Act 2006.
The financial statements have been presented in sterling,
prepared under the historical cost convention, except for the
revaluation of freehold properties and right of use assets.
The accounting policies have been applied consistently
throughout all periods presented in these financial statements.
These accounting policies comply with each IFRS that is mandatory
for accounting periods ending on 31 December 2021.
The financial information set out in this Preliminary
Announcement does not constitute the Group's statutory
financial
statements for the years ended 31 December 2021 or 2020. The
financial information has been extracted from the
Group's statutory financial statements for the years ended 31
December 2021 and 2020. The auditors have reported
on the 2021 financial statements; their report was unqualified,
did not include references to any matters to which the
auditors drew attention by way of emphasis and did not contain a
statement under Section 498(2) or (3) of the
Companies Act 2006.
The former auditors have reported on the 2020 financial
statements, their report was qualified for a limitation of
scope relating to a reduction of reserves and drew attention by
way of emphasis to a material uncertainty related to
going concern and contained a statement under s498(2) and
498(3).
The statutory accounts for the year ended 31 December 2021 will
be filed with the Registrar of Companies following
the Company's Annual General Meeting. The statutory accounts for
the year ended 31 December 2020 have been
filed with the Registrar of Companies. New standards and
interpretations effective in the year
The Group has adopted the new accounting pronouncements which
have become effective this year, and are as follows:
-- IFRS16
The Group has adopted the amendment to IFRS 16 which provides
lessees with an exemption from assessing whether a COVID-19-related
rent concession is a lease modification.
Applying the practical expedient, the Group has recognised the
rent concessions as a variable lease payment in accordance with
IFRS 16. There is a corresponding adjustment to the lease
liability, derecognising the part of the lease liability that has
received the concession, with the corresponding adjustment to
operating expenses.
Where amounts have been deferred they do not extinguish the
lessee's liability or substantially change the consideration of the
lease. These have been accounted for as an increase in the accrual
for the rent outstanding.
-- IFRS 3: Business combination - amendment effective 1 January 2021
IFRS 3 establishes different accounting requirements for a
business combination as opposed to the acquisition of an asset or a
group of assets that does not constitute a business. Business
combinations are accounted for by applying the acquisition method,
which, among other things, may give rise to goodwill. In contrast,
when accounting for asset acquisitions, the acquirer allocates the
transaction price to the individual identifiable assets acquired
and liabilities assumed based on their relative fair values and no
goodwill is recognised. Therefore, whether an acquired set of
activities and assets is a business, is a key consideration in
determining how the transaction should be accounted for. The
amendments made to the IFRS 3 are set out to clarify the definition
of a business. The amendment also adds an optional concentration
test that allows a simplified assessment of whether an acquired set
of activities and assets is not a business.
Going concern
The Group is reporting an adjusted EBITDA loss of GBP994,000 and
net current assets of GBP1,111,000 in 2021 when the business was
again severely impacted by the pandemic and the hostels on average
have been open for less than 50% of the year. Travel restrictions
and local lockdowns continued to impact in some of the countries
where the Group operates in Europe into 2022.
However, the Group's strategy to develop and expand the premium
hostel offering provided by the Group within the UK and through its
European acquisitions had proved successful until February 2020 and
despite the Omicron pandemic in December 2021 through to February
2022, the Group has started to generate cash from its operation in
the first quarter in 2022 when the travel restrictions were lifted.
The travel industry as a whole has been impacted and continues to
recover through 2022.
The directors have further reviewed the measures implemented by
management to reduce the cash burn of the Group since the start of
the outbreak. The monthly fixed cost base was reduced from GBP0.9
million to GBP0.6 million during the first lockdown in the second
quarter of 2020, and this continued during the second wave of
lockdowns from November 2020. Costs were allowed to come back into
the business on a measured basis as the business re-opened in 2021,
mindful of the potential for future travel restrictions and
lockdown, which has helped navigate the final Omicron variant and
associated restrictions. These reductions and the cost
consciousness, are the results of the combined impact of the
following actions implemented by management during this period:
-- The Group has taken advantage of governmental support schemes
in all jurisdictions where they were available, including the job
retention scheme in the UK and similar schemes in the other
countries where Safestay operates hostels.
-- Variable operational costs in the hostels were mechanically
reduced to zero with the absence of revenue, as necessary. The
fixed operational costs, exclusive of insurance, rent and property
taxes, were reduced to GBP0.15 million during the first lockdown
and this continued until the hostels reopened. The Group maintains
a minimum level of spend in safety, utilities and maintenance to
keep the properties in a good condition whilst they are closed.
-- The Group benefited from business rates reliefs for the 5
hostels operated in the UK since April 2020 through to end of June
2021 and continued with a 66% relief until March 2022. It is also
benefiting from the 50% relief in the year to 31 March 2023.
-- The Group continued to liaise with landlords to obtain a
GBP1.3 million rent reduction for 2021, with deals being extended
in all of the hostels apart from Berlin, Bratislava, Elephant &
Castle, Madrid and Vienna. As highlighted in previous reports, in
addition, the landlords with rent deferments have agreed for the
majority to be after 2022.
-- Operating costs in the head office were reduced by 40% to
adjust the team and spend to this unprecedented context. This
includes a 40% reduction in salaries for Directors and senior
management in exchange for share options since October 2020 through
to July 2021.
The Group received GBP16.0 million proceeds from the disposal of
the Edinburgh hostel which completed on 30 June 2021. Following
completion, the GBP1 million overdraft facility was removed, and
GBP10.2 million of HSBC debt was repaid.
Since the start of the Pandemic, management has continuously
updated and adjusted the cash forecast for the next months. The
most recent forecast prepared in June 2022 assumes as a prudent
base case that the hostels revenue will gradually climb through the
summer months. Like for like sales for the first 5 months of the
year are 80% of pre covid levels. This continues to reflect the
expectation of a slow recovery of the tourism market in general
outlined in last year's annual report.
The sale of Edinburgh generated enough liquidity, after the
GBP10.2m debt repayment, for the business to mitigate the enforced
downturn of revenues due to the Pandemic restrictions, and through
to time when positive cash inflows are being generated.
The covenants of the debt facility were waived in June 2020,
being replaced with adjusted EBITDA targets reflecting revised
performances of the hostels since the first lockdown in April 2020.
These also apply in June 2022 and have been met. These will then
revert to the adjusted and waived covenants that have been agreed
until December 2022.
Based on the latest forecast occupancy rates and average spend,
the directors have assessed the cash flow of the business against
the Group's commitments and obligations and conclude that there are
no material uncertainties in terms of the ability to continue for
the foreseeable future. For this reason, they continue to adopt the
going-concern basis in preparing the Group's financial
statements.
Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision makers (CODM), who are responsible for
allocating resources and assessing performance of the operating
segments, have been identified as the executive directors.
Currently the operating segments are the operation of hostel
accommodation in the UK and Europe. An additional geographical area
has been identified in respect of Spain as disclosed in note 2.
Revenue
To determine whether to recognise revenue, the Group follows a
5-step process in accordance with IFRS 15
- Identifying the contract with a customer
- Identifying the performance obligations
- Determining the transaction price
- Allocating the transaction price to the performance obligations
- Recognising revenue when/as performance obligation(s) are satisfied.
Revenue is stated net of VAT and is gross of travel agency
commission with the Group being the principal in all third party
booking arrangements. It comprises revenues from overnight hostel
accommodation, the sale of ancillary goods and services such as
food & beverage and merchandise.
Accommodation and the sale of ancillary goods and services is
recognised when provided.
Income from the rent of student accommodation is recognised on a
straight-line basis over the academic year to which the rent
relates. In accordance with IFRS 16, the group accounts for its
subleases as operating leases as they do not transfer substantially
all the risks and rewards of ownership to the lessee.
The group recognises income from lease payments from operating
leases as income on a straight-line basis over the term of the
contract.
The sale of ancillary goods comprises sales of food, beverages,
and merchandise.
Deferred income comprises deposits received from customers to
guarantee future bookings of accommodation. This is recognised as
revenue once the bed has been occupied.
There are no significant judgements or estimations made in
calculating and recognising revenue.
Revenue is not materially accrued or deferred between one
accounting period and the next.
Government Grants
Monetary resources transferred to the Group by government,
government agencies or similar bodies are recognised at fair value,
when the Group is certain that the grant will be received. Grants
will be recognised in the profit and loss account on a systematic
basis, over the same period during which the expenses, for which
the grant was intended to compensate, are recognised.
Grants relating to employee costs are disclosed in Staff Costs,
note 10 of the accounts. Other grants are disclosed in Exceptional
Items shown in note 5 of the accounts.
Exceptional Items
The Group separately discloses on the face of the Income
Statement items of income or expense which nature or amount would,
without separate disclosure, distort the reporting of the
underlying business.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax. The tax currently payable is based on taxable
profit for the year. Taxable profit differs from net profit as
reported in the income statement because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the statement of
financial position date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit and is accounted for using the
statement of financial position liability method. Deferred tax
liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets are reviewed at each
statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled, or the asset is
realised based on tax losses enacted or substantively enacted at
the statement of financial position date. Deferred tax is charged
or credited in the income statement, except when it relates to
items charged or credited in other comprehensive income, in which
case the deferred tax is also dealt with in other comprehensive
income.
Foreign currency translation
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates ('the functional
currency'). The consolidated financial statements are presented in
Sterling which is the Group's functional currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and
liabilities denominated in foreign currencies are generally
recognised in profit and loss.
Foreign exchange gains and losses that relate to borrowings are
presented in the statement of profit or loss within finance costs.
All other exchange gains and losses are presented in the statement
of profit or loss within administrative expenses.
Non-monetary items that are measured at fair-value in a foreign
currency are translated using the exchange rates at the date when
fair-value was determined. Translation differences on assets or
liabilities carried at fair-value are reported as part of the
fair-value gain or loss.
The results and financial position of foreign operations that
have a functional currency different to the presentation currency
are translated into the presentation currency as follows:
-- assets and liabilities for each statement of financial
position are translated using the closing rate at the date of that
statement of financial position.
-- income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average
exchange rates.
-- All resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair-value adjustments arising on the acquisition
of a foreign operation are treated as the assets and liabilities of
the foreign operation and translated at the closing rate.
Business combinations
Acquisitions of subsidiaries and businesses are accounted using
the acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the
sum of the acquisition-date fair values of assets transferred by
the Group, liabilities incurred by the Group to former owners of
the acquire and the equity interest issued by the Group in exchange
for control of the acquire. Acquisition costs are expensed as
incurred.
At the acquisition date, the identifiable assets acquired, and
liabilities assumed are recognised at their fair value at the
acquisition date.
Deferred Consideration
Deferred payments made in relation to acquisitions of
subsidiaries and business are accounted for their discounted value
in trade and other payable. Any difference between the discounted
value and the cash consideration at the time of the payment, is
recognised as an interest charge in the income statement.
Property, plant and equipment
Freehold property and Lease assets are stated at fair value and
revalued periodically in accordance with IAS 16 Property Plant and
Equipment. Valuation surpluses and deficits arising in the period
are included in other comprehensive income. All other property,
plant and equipment are recognised at historical cost less
depreciation and are depreciated over their useful lives. The
applicable useful lives are as follows:
Fixtures, fittings and equipment 3-5 years
Freehold properties 50 years
Leasehold properties 50 years or term of lease if shorter
Land is not depreciated.
Leasehold land and buildings relate to Property from financing
transactions related to Safestay Elephant and Castle and Safestay
Edinburgh Hostel. In 2017, Safestay completed financing
transactions on these two properties, raising gross cash proceeds
of GBP12.6m. The sale was agreed with an institutional buyer in
exchange for 150 year geared ground rent leases. The significant
risks and rewards of ownership were retained, and the exercise to
repurchase these properties is "almost certain". The contracts took
the legal form of the sale and leasebacks. However, the economic
substance of the original transactions in 2017 meant that both
leases have historically been treated as owned by Safestay.
Therefore, the transactions are classified as leasehold land and
buildings.
Impairment of property, plant and equipment
At each statement of financial position date, the Group reviews
the carrying amounts of its property, plant and equipment to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the
extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have been adjusted. If the
recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount
of the asset (cash-generating unit) is reduced to its recoverable
amount.
An impairment loss is recognised as an expense immediately,
unless the relevant asset is carried at a revalued amount, in which
case the impairment loss is treated as a revaluation decrease, but
a negative revaluation reserve is not created.
For revalued assets, where an impairment loss subsequently
reverses, the carrying amount of the asset (cash-generating unit)
is increased to the revised estimate of its recoverable amount, but
so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been
recognised for the asset (cash-generating unit) in prior years. Any
remaining balance of the reversal of an impairment loss is
recognised in the income statement. For assets carried at cost, any
reversals of impairments are recognised in the income
statement.
Goodwill
Goodwill represents the future economic benefits arising from a
business combination, measured as the excess of the sum of the
consideration transferred over the net of the acquisition-date
amounts of the identifiable assets acquired and the liabilities
assumed. Goodwill is carried at cost less accumulated impairment
losses. A review of the carrying value of goodwill is carried out
annually.
For the purpose of impairment testing, goodwill acquired in a
business combination is allocated to each of the cash-generating
units (CGUs), or groups of CGUs, that is expected to benefit from
the synergies of the combination. The Directors consider each
individual hostel to be a separate cash generating unit for
impairment purposes and, as explained in note 12 to the financial
statements, each unit or group of units to which the goodwill is
allocated represents the lowest level within the entity at which
the goodwill is monitored for internal management purposes.
Goodwill impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate a
potential impairment. The carrying value of the CGU containing the
goodwill is compared to the recoverable amount, which is the higher
of value in use and the fair value less costs of disposal. Any
impairment is recognised immediately as an expense and is not
subsequently reversed.
Intangible assets
Costs that are directly attributable to a project's development
phase, including capitalised internally developed software, are
recognised as intangible assets using the cost model, provided they
meet all of the following recognised:
-- the development costs can be measured reliably
-- the project is technically and commercially feasible
-- the Group intends to and has sufficient resources to complete
the project
-- the Group has the ability to use or sell the software,
and
-- the software will generate probable future economic
benefits.
Intangible assets acquired in a business combination are
recognised at fair value at the acquisition date, which is deemed
to be the cost going forward.
The leasehold rights and tenancy subleases relate to intangible
assets acquired in a business combination as outlined in note
12.
Assets with a finite useful life are carried at cost less
accumulated amortisation. Amortisation is calculated using the
straight-line method to allocate the cost of trademarks and
licences over their estimated useful lives as set out above.
The following useful lives are applied:
- 10 years for the life of the interest in the head lease
- 13 years for tenancy sublease
- 3 years for website development.
Residual values and useful lives are reviewed at each reporting
date.
Assets that are subject to amortisation are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs of disposal and value in
use. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are largely independent cash
inflows (CGUs). Prior impairments of non-financial assets (other
than goodwill) are reviewed for possible reversal at each reporting
date.
Stock
Stock is stated at the lower of cost and net realisable value.
Cost is calculated using the weighted average method. Net
realisable value represents the estimated selling price.
Financial assets measured at amortised cost
Financial assets held at amortised costs are non-derivative
financial assets with fixed or determinable payments which are not
quoted in an active market. They are included in current assets,
except for maturities greater than 12 months after the balance
sheet date. These are classified as non-current assets.
-- Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held
at call wit h banks and other short-term highly liquid investments
with original maturities of three months or less. Bank overdrafts
that are repayable on demand and which form an integral part of the
Group's cash management are included as a component of cash and
cash equivalents for the purpose of the statement of cash
flows.
-- Trade and other receivables
Trade and other receivables are measured at initial recognition
at transaction price plus transaction costs and are subsequently
measured at amortised cost using the effective interest rate
method. The Group recognises lifetime ECL for trade receivables and
amounts due on contracts with customers. The expected credit losses
on these financial assets are estimated based on the Group's
historical credit loss experience, adjusted for factors that are
specific to the debtors. Management have considered the ECL for
trade receivables as immaterial given the majority of sale receipts
are obtained prior to the stay.
Credit risk
The Group assesses impairment on a forward-looking basis using
the expected credit loss method and has applied the simplified
approach which permits the use of the lifetime expected loss
provision for all trade and other receivables. The Group has no
significant history of non-payment; as a result, the expected
credit losses on financial assets are not material.
Financial liabilities
The Group classifies its financial liabilities as other
financial liabilities. Other financial liabilities are measured at
fair value on initial recognition and subsequently measured at
amortised cost, using the effective-interest method.
-- Borrowings
Borrowings other than bank overdrafts are recognised initially
at fair value less attributable transaction costs. Subsequent to
initial recognition, borrowings are stated at amortised cost with
any difference between the amount initially recognised and
redemption value being recognised in the income statement over the
period of the borrowings, using the effective interest method.
Where there are extension options, management have made an
accounting policy choice that these are loan commitments from the
holder of the debt instrument that does not need to be separately
accounted for.
Property from financing transactions included the borrowings for
Safestay Elephant and Castle and Safestay Edinburgh Hostel. In
2017, Safestay completed financing transactions on these two
properties, raising gross cash proceeds of GBP12.6m. The sale was
agreed with an institutional buyer in exchange for 150 year geared
ground rent leases. The significant risks and rewards of ownership
were retained, and the exercise to repurchase these properties is
"almost certain". The contracts took the legal form of the sale and
leasebacks. However, the economic substance of the original
transactions in 2017 meant that both leases have historically been
treated as owned by Safestay. Therefore, the transactions are
accounted for as financial liabilities.
-- Loan arrangement fees
The loan arrangement fees are offset against the loan balance
and amortised over the term of the loan to which they relate as
part of the effective interest rate calculation.
-- Trade and other payables
Trade and other payables are initially measured at fair value
and are subsequently measured at amortised cost using the effective
interest rate method.
-- Leases
The Group has leases for hostels across Europe. With the
exception of short-term leases and leases of low-value underlying
assets, each lease is reflected on the balance sheet as a
right-of-use asset and a lease liability. Leases of property
generally have a lease term ranging from 5 years to 19 years.
For any new property asset contracts entered on or after 1
January 2019, the Group considers whether a contract is, or
contains a lease. A lease is defined as 'a contract, or part of a
contract, that conveys the right to use an asset (the underlying
asset) for a period of time in exchange for consideration'. To
apply this definition the Group assesses whether the contract meets
three key evaluations which are whether:
-- the contract contains an identified asset, which is either
explicitly identified in the contract or implicitly specified by
being identified at the time the asset is made available to the
Group
-- the Group has the right to obtain substantially all of the
economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of
the contract the Group has the right to direct the use of the
identified asset throughout the period of use; and
-- The Group has the right to direct the use of the asset. The
Group has this right when it has the decision-making rights that
are most relevant to changing how and for what purposes the asset
is used. In rare cases where all the decisions about how and for
what purpose the asset is used are predetermined, the Group has the
right to direct the use of the asset if either:
- The Group has the right to operate the asset; or
- The Group designed the asset in a way that predetermines how
and for what purpose it will be used.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use
asset and a lease liability on the balance sheet. The right-of-use
asset is measured at cost, which is made up of the initial
measurement of the lease liability, any initial direct costs
incurred by the Group, an estimate of any costs to dismantle and
remove the asset at the end of the lease, and any lease payments
made in advance of the lease commencement date (net of any
incentives received). The Group depreciates the right-of-use assets
on a straight-line basis from the lease commencement date to the
earlier of the end of the useful life of the right-of-use asset or
the end of the lease term. The Group also assesses the right-of-use
asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability
at the present value of the lease payments unpaid at that date,
discounted using the interest rate implicit in the lease if that
rate is readily available or the Group's incremental borrowing
rate.
Lease payments included in the measurement of the lease
liability are made up of fixed payments (including in substance
fixed), variable payments based on an index or rate, amounts
expected to be payable under a residual value guarantee and
payments arising from options reasonably certain to be
exercised.
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate,
or if the Group changes its assessment of whether it will exercise
an extension or termination option.
The Group has elected to take the exemption not to recognise
right-of-use assets and lease liabilities for short-term lease of
machinery that have a lease term of 12 months or less and leases of
low-value assets. The Group defines leases of low value assets as
being any lease agreement where the total value of payments made
across the lease term is less than GBP10,000. The Group recognises
the lease payments associated with these leases as an expense on a
straight-line basis over the lease.
On the statement of financial position, right-of-use assets have
been included in property, plant and equipment and lease
liabilities have been included in trade and other payables.
Measurement of the Right-of-use Assets
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis.
The Group as a lessor
As a lessor the Group classifies its leases as either operating
or finance leases.
A lease is classified as a finance lease if it transfers
substantially all the risks and rewards incidental to ownership of
the underlying asset and classified as an operating lease if it
does not.
The group accounts for its sub leases as finance leases with
reference to the right-of-use asset arising from the head lease.
The group has not offset the assets and liabilities of the head
lease and sub lease, nor the income and expenditure arising from
these contracts. A lease receivable is recognised in the balance
sheet in respect of the net investment in the sub lease. The net
investment in the sub lease is assessed annually for any indicators
of impairment.
Equity
The total equity attributable to the equity holders of the
parent comprises the following:
-- Share Capital
Share capital represents the nominal value of shares issued.
-- Retained earnings
Retained earnings represent undistributed cumulative
earnings.
-- Equity Instruments
Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
Other Components of Equity
-- Share premium account
Share premium represents amounts subscribed for share capital in
excess of nominal value less the related costs of share issues.
-- Merger reserve
Merger reserve represents amounts subscribed for share capital
in excess of nominal value exchanged for the shares in the
acquisition of a subsidiary company.
-- Revaluation reserve
Revaluation reserves represent the increase in fair value of
freehold property and leasehold assets over the value at which it
was previously carried on the balance sheet. Any gain from a
revaluation is taken to the revaluation reserve. Where it reverses
a previous impairment, the impairment is reversed, but any surplus
in excess of the amount of the impairment is added to the
revaluation reserve.
-- Translation Reserve
Translation Reserve comprises foreign currency translation
differences arising from the translation of financial statements of
the Group's foreign entities into presentational currency.
-- Share based payment reserve
The equity settled share-based payment reserve arises as the
expense of issuing share-based payments is recognised over time.
The reserve will fall as share options vest and are exercised but
the reserve may equally rise or might see any reduction offset, as
new potentially dilutive share options are issued. Balances
relating to share options that lapse after they vest are
transferred to retained fair value of employee services determined
by reference to transfer of instruments granted.
The Group has applied the requirements of IFRS 2 Share based
payment to share options. The fair value of the share options is
determined at the grant date and are expensed on a straight-line
basis over the vesting period, based on the Group's estimate of
shares that will eventually vest and adjusted for the effect of
non-market-based vesting conditions.
Fair value is measured by use of the Black Scholes model. The
expected life used in the model has been adjusted, based on
management's best estimate, for the effects on non-transferability,
exercise restrictions and behavioural considerations.
Dividends
Dividend distributions payable to equity shareholders are
included in other liabilities when the dividends have been approved
in a general meeting prior to the reporting date.
Critical accounting judgements and key sources of estimation and
uncertainty
The fair value of the Group's property is the main area within
the financial information where the directors have exercised
significant estimates.
Judgements
-- The Group has identified certain costs and income as
exceptional in nature in that, without separate disclosure, would
distort the reporting of the underlying business. A degree of
judgement is required in determining whether certain transactions
merit separate presentation to allow shareholders to better
understand financial performance in the year, when compared with
that of previous years and trends This is set out in note 5.
-- Extension options for leases: In accordance with IFRS 16,
when the entity has the option to extend a lease, management uses
its judgement to determine whether or not an option would be
reasonably certain to be exercised. Management considers all facts
and circumstances including their past practice and any cost that
will be incurred to change the asset if an option to extend is not
taken, to help them determine the lease term. Management generally
includes extensions when the option to extend can be unilaterally
exercised by the tenant provided the hostel under lease is expected
to continue to be profitable for the Group after the extension is
exercised.
Estimates
-- The fair-value of the assets and liabilities recognised on
the acquisition of an operation or entity is determined using both
external valuations and directors' valuations. Details of the fair
values are set out in the note 24.
-- Assessment of impairment of goodwill requires estimation of
future cash flows, which are uncertain, discounted to present value
which also requires estimation by management. The key assumptions
used to calculate the value in use (VIU) to test the goodwill for
each cash generating units (CGUs) are detailed in note 12. A
Pre-tax discount rate of 9.7% (2020: 11.1%) has been calculated
using weighted average cost of capital. An assessment was made on
the differing risks between countries in which the hostels operate
based on country risks. Based on the assessment it was concluded
that the differences between discount rates between each CGU is not
material. The assets are similar in nature, with all CGUs providing
the provision of hostel accommodation and therefore similar
cashflows and therefore the risk associated with the assets is
considered to be consistent between CGUs. As such one discount rate
has been utilised for the purposes of performing an impairment
review.
-- As outlined in the accounting policy, the financial
statements have been prepared under the historical cost convention
except for the revaluation of the freehold properties and lease
assets (in respect of Elephant and Castle and Edinburgh Hostel).
The Group is required to value property on a sufficiently regular
basis by using open market values to ensure that the carrying value
does not differ significantly from the fair value. The valuation,
performed by qualified valuers is based on market observations and
estimates on the selling price in an arms-length transaction, and
includes estimates of future income levels and trading potential
for each hostel as other factors including location and tenure. See
note 11. The Group has used external valuations on freehold
properties and leased assets under financing transactions, as
outlined in note 11. Based on the market data assessed and internal
assessment of each property, management does not consider that the
fair value differs materially from the carrying value. Management
is confident that the carrying value is deemed reasonable at 31(st)
December 2021.
-- The Group has incurred tax losses, and therefore a material
deferred tax asset has been recognised as these can be carried
forward indefinitely and offset against probable future taxable
profits after the market recovers in 2022 and the Group is expected
to generate net profits from 2023 under his forecast model.
2. Segmental analysis
An analysis of the Group's revenue from external customers for
each major product and service category (excluding revenue from
discontinued operations) is as follows:
2021 2020
GBP'000 GBP'000
Hostel accommodation 4,901 3,570
Food and Beverages sales 725 744
Other income 550 120
Rental income 247 397
-------- --------
Total Income 6,423 4,831
-------- --------
Like-for-like income 5,810 3,375
======== ========
Like-for-like income relates to all turnover less turnover
associated with the discontinued operating segments (i.e. Edinburgh
and Barcelona Sea hostels).
The group recognises income from lease payments from operating
leases as income on a straight-line basis over the term of the
contract.
Operating segments are reporting in a manner consistent with the
internal reporting provided to the Chief Operating Decision Maker
(CODM). The CODMs, who monitor the performance of these operating
segments as well as deciding on the allocation of resources to
them, have been identified as the executive directors. Currently
the operating segments are the operation of hostel accommodation in
the UK and Europe.
An additional material geographical area has been identified in
respect of Spain to meet the disclosure requirements of IFRS 8 due
to its significance to group.
Management considers the like-for-like income only for
acquisitions and continuing operations that have been operational
12 consecutive months in the prior year. Due to the ongoing impact
of Covid-19, on average our hostels have been open for just 44% of
2021. Different hostels were open for different periods of time
throughout the year based on the individual circumstances,
responses and policies to the ongoing coronavirus pandemic and as
such the period of results is not comparable to the prior period
and therefore no changes to geographical areas have been
identified.
The Group provides a shared services function to its operating
segments and reports these activities separately. Management does
not consider there to be any other material reporting segments.
Management revisit this at each period end.
The most important measures used to evaluate the performance of
the business are revenue and adjusted EBITDA, which is the
operating profit after excluding non-cash items such as
depreciation and amortisation, and removing non-recurring
expenditure which would otherwise distort the cash generating
nature of the segment.
Pre-IFRS 16 EBITDA was calculated in the prior period segmental
analysis such that the accounts can be understood on a comparable
basis and included for information purposes. As this is the second
year since transition, pre-IFRS 16 adjusted EBIDTA is not
considered in the current year.
2021 Shared
UK Spain Europe services Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2,422 1,363 2,638 0 6,423
------------ ------------ --------- ---------- ---------
Profit/(loss) before tax 6,689 (2,279) (1,169) (2,549) 692
Add back: Finance costs 271 618 539 1,273 2,701
Add back: Depreciation & Amortisation 1,028 1,076 1,274 395 3,773
------------ ------------ --------- ---------- ---------
EBITDA 7,988 (585) 644 (881) 7,166
Exceptional & Share based payment
expense (7,511) 554 - 72 (6,885)
Rent concessions (595) (227) (453) - (1,275)
Adjusted EBITDA (118) (258) 191 (809) (994)
------------ ------------ --------- ---------- ---------
Total assets 34,975 19,144 25,024 14,335 93,478
------------ ------------ --------- ---------- ---------
Total liabilities (10,731) (13,432) (12,461) (26,721) (63,345)
------------ ------------ --------- ---------- ---------
2020
As restated Shared
UK Spain Europe services Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2,455 835 1,541 - 4,831
------------ ---------- --------- ---------- ---------
Profit/(loss) before tax (3,156) (2,986) (3,280) (504) (9,926)
Finance costs 963 460 541 786 2,750
Depreciation & Amortisation 1,465 2,309 1,916 - 5,690
------------ ---------- --------- ---------- ---------
EBITDA (728) (217) (823) 282 (1,486)
Exceptional & Share based payment
expense - - - 541 541
Rent concessions (495) (207) (202) - (904)
------------ ---------- --------- ---------- ---------
Adjusted EBITDA (1,223) (424) (1,025) 823 (1,849)
------------ ---------- --------- ---------- ---------
Total assets 57,743 18,857 23,259 10,870 110,729
------------ ---------- --------- ---------- ---------
Total liabilities (24,550) (13,207) (18,044) (28,077) (83,878)
------------ ---------- --------- ---------- ---------
The Group's non-current assets (other than financial
instruments, investments accounted for using the equity method,
deferred tax assets and post-employment benefit assets) are located
into the following geographic regions:
2021 2020
GBP'000 GBP'000
UK 35,862 59,478
Spain 18,102 21,976
Rest of Europe 23,164 24,088
Shared services 10,329 842
--------- ---------
Total 87,457 106,384
--------- ---------
Non-current assets are allocated based on their physical
location.
Revenues from external customers in the Group's domicile, United
Kingdom, as well as its major markets, Spain and the Rest of
Europe, have been identified on the basis of the customer's
geographical location and are disclosed as follows:
2021 2020
GBP'000 GBP'000
UK 2,422 2,455
Spain 1,363 835
Rest of Europe 2,638 1,541
Total 6,423 4,831
========= =========
3. COST OF SALES
2021 2020
GBP'000 GBP'000
Food and drinks 341 311
Direct room supplies and sales commissions 951 581
Total 1,292 892
========= =========
4. DISCONTINUED OPERATIONS
The Group completed on the disposal of two hostels in 2021. The
Barcelona Sea hostel was sold in February 2021 for a loss of
GBP554k and the Edinburgh hostel was sold in June 2021 for a profit
of GBP7,511k. The Barcelona Sea hostel was in the operating segment
of Spain and the Edinburgh hostel was in the operating segment of
UK.
The income statement for the year ended 31 December 2020 has
been presentational restated to show the comparative performance of
the discontinued hostels.
5. administrative expenses
2021 2020
GBP'000 As restated
GBP'000
Staff costs (see note 10) 3,331 3,823
Legal and professional fees 614 521
Property costs 482 391
Depreciation and amortisation 3,773 4,199
Impairment of goodwill - 1,491
Share option expenses 72 279
Other expenses 2,160 598
-------- ------------
10,432 11,302
-------- ------------
2021 2020
GBP'000 GBP'000
Exceptional items - other operating income
Grant income 462 448
Profit on sale of Edinburgh Hostel 7,511 -
Rent concessions 1,275 -
-------- --------
9,248 448
======== ========
Exceptional items - costs
Acquisition and Development costs - 74
Property costs - 4
Legal and other - 82
Refinance related fees write off - 101
Loss on sale of Barcelona Sea Hostel 554 -
-------- --------
554 261
======== ========
Exceptional items comprise of expenses and income that, without
separate disclosure, would distort the reporting of the underlying
business.
The group received GBP448,000 in grant income from national,
regional, and local governmental organisations in 2020 to support
the business. This does not include grants relating to employee
costs which are disclosed in Staff Costs (Note 10).
In the year 2021 property with a net book value of GBP14.03m
(2020: Nil) was disposed of in the year. The total consideration
received from this disposal was GBP16.66m (2020: GBPNil) with the
profit on disposal of GBP7.96m (2020: GBPNil). The other main
component of the profit is the release of the lease liability of
GBP6.56 m, less the cost of investment of GBP0.4m, the Edinburgh
sublease GBP0.5m and the Barcelona SEA lease intangible of
GBP0.2m.
6. FINANCE COSTS
2021 2020
GBP'000 GBP'000
Interest on bank overdrafts and loans 695 625
Amortised loan arrangement fees 68 92
Other interest costs - 75
Interest expense for lease arrangements (note
17) 1,741 1,558
Property financing costs 197 343
Unwinding of discount on deferred consideration - 57
-------- --------
2,701 2,750
-------- --------
Included within borrowings is GBP5.0 million CBILS (Coronavirus
Business Interruption Loan Scheme) obtained via HSBC. The
government provide lenders with a guarantee on each loan. This was
secured for 6 years on 16(th) December 2020, which is interest free
for the first year increasing to 3.99% + base rate from year 2.
7. LOSS FOR THE FINANCIAL YEAR
2021 2020
GBP'000 GBP'000
Loss for the financial period is arrived at after
charging:
Depreciation on owned assets 1,434 1,541
Depreciation of assets under lease liabilities 2,243 2,459
Amortisation of intangible assets 96 199
Impairment of goodwill - 1,491
CLA Evelyn Partners Limited Auditor's remuneration
for audit services 119 -
Grant Thornton UK LLP Auditor's remuneration for
audit services - 92
Fees payable to Grant Thornton UK LLP as auditors
and its associates for other services - 5
-------- --------
Amounts payable in respect of both audit and non-audit services
are set out below:
2021 2020
GBP'000 GBP'000
Fees payable to Company's auditors for the audit
of the Parent Company and consolidated financial
statements:
CLA Evelyn Partners Limited audit of the Group
and Company's annual accounts 90 -
CLA Evelyn Partners Limited audit of the subsidiaries'
annual accounts 29 -
Grant Thornton UK LLP audit of the Group and Company's
annual accounts - 70
Grant Thornton UK LLP audit of the subsidiaries'
annual accounts - 22
119 92
Fees payable to the Company's auditors and its 2021 2020
associates for other services: GBP'000 GBP'000
Grant Thornton UK LLP Tax advice services - 5
- 5
========= ========
The audit fees disclosed in 2021 represent the fees payable for
the audit for the period ended 31 December 2021 and the non-audit
fees are those incurred in the period.
8. Tax
In the Spring Budget 2020, the UK Government announced that from
1 April 2020 the corporation tax rate would remain at 19% (rather
than reducing to 17%, as previously enacted). This new law was
substantively enacted on 17 March 2020. Deferred taxes at the
balance sheet date have been measured using these enacted tax rates
and reflected in these financial statements.
2021 2020
GBP'000 As Restated
GBP'000
Current tax
Corporation tax on profits for the year 103 -
Adjustments for corporation tax on prior periods (123) (271)
Other local taxes 116 -
Total current tax 96 (271)
Deferred tax 724 (1,682)
Adjustments for deferred tax in prior periods 559 (450)
Effect of increased tax rate on opening balance (88)
-------- ------------
Total tax charge 1,291 (2,403)
======== ============
The charge for the year can be reconciled to the loss per the
consolidated income statement as follows:
2021 2020
GBP'000 As Restated
GBP'000
Profit/(loss) before tax 692 (9,926)
======== ============
Tax at the standard UK corporation tax rate of
19% (2020: 19%) 131 (1,886)
Fixed asset differences 54 -
Adjustment for tax rate differences in foreign
jurisdictions (154) (167)
Adjustments for tax on prior periods (122) (750)
Other tax adjustments, reliefs and transfers 193 -
Remeasurement of deferred tax for changes in tax
rates (148) -
Deferred tax not recognised 1,155 -
Factors affecting charge for the period
Non-deductible items and other timing differences (1,300) 344
Chargeable gains/(losses) 1,482 -
Depreciation in excess of capital allowances - 56
Group tax charge 1,291 (2,403)
======== ============
The Group has a deferred tax liability of GBP3.326m as disclosed
in note 18 related to the potential future gain on property
revaluations.
Included within current tax are adjustments for corporation tax
on prior periods of GBP122k and relates to Group losses.
9. Profit/(LOSS) per share
The calculation of the basic and diluted loss per share is based
on the following data:
2021 2020
GBP'000 As restated
GBP'000
Profit/(Loss) for the period attributable to equity
holders of the Company (599) (7,523)
========= =============
2021 2020
Weighted average number of ordinary shares (000s)
for the purposes of basic loss earnings per share 64,679 64,679
Effect of dilutive potential ordinary shares (000s) 4,537 4,250
------- --------
Weighted average number of ordinary shares (000s)
for the purposes of diluted profit/(loss) per share 69,216 68,929
------- --------
Basic profit/(loss) per share (0.93p) (11.63p)
------- --------
The total number of shares in issue as at 31 December 2021 was
64,679,014.
There is no difference between the diluted loss per share and
the basic loss per share presented. Due to the loss incurred in the
year, the effect of the share options in issue is
anti-dilutive.
10. STAFF COSTS
The average monthly number of employees (including directors)
during the period was:
2021 2020
Number Number
Hostel operation 176 197
Directors 5 5
------- -------
181 202
======= =======
The costs incurred in respect of employees (including directors)
were:
2021 2020
GBP'000 GBP'000
Wages and salaries 2,925 3,288
Social security costs 380 499
Pension costs 26 36
Total staff costs 3,331 3,823
======== ========
Government grants claimed by the Group under coronavirus job
retention schemes across the Group for 2021 total GBP240k (2020:
GBP566k).
The remuneration of the directors, who are the key management
personnel of the Group, is set out below.
2021 2020
GBP'000 GBP'000
Short term employee benefits 332 444
Pension 6 16
Share based payment charges 72 257
410 717
======== ========
Further information about the remuneration of individual
directors is provided in the Directors' Remuneration Report.
Details of directors share options is provided in the Directors'
Remuneration Report.
11. PROPERTY, PLANT AND EQUIPMENT
Freehold Right of Fixtures,
land and use assets Leasehold Leasehold fittings
buildings buildings buildings improvements and equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost or valuation
At 1 January 2020 7,998 37,512 41,126 4,597 3,225 94,458
Additions 362 1,326 - 106 517 2,311
Acquired in business
combination - 3,210 - 711 175 4,096
Exchange movements 51 - - (119) 30 (38)
---------- -----------
At 31 December 2020 8,411 42,048 41,126 5,295 3,947 100,827
Transfers 73 - - (73) - -
Additions 32 - - - 275 307
Disposals (17) (1,610) (13,402) (201) (576) (15,806)
Revaluations 1,072 - 3,967 - - 5,039
Derecognition of sub-leased
asset - (640) - - - (640)
IFRS 16 lease modification - (2,891) - - - (2,891)
Exchange movements (87) - - (54) (92) (233)
---------- ----------- ---------- ------------- -------------- --------
At 31 December 2021 9,484 36,907 31,691 4,967 3,554 86,603
---------- ----------- ---------- ------------- -------------- --------
Depreciation
At 1 January 2020 144 2,425 1,616 695 2,212 7,092
Charge for the year 141 2,459 804 102 494 4,000
At 31 December 2020 285 4,884 2,420 797 2,706 11,092
Transfers 1 - - (1) - -
Charge for the year 154 2,243 671 254 355 3,677
On disposals (1) (261) (1,094) (14) (405) (1,775)
At 31 December 2021 439 6,866 1,997 1,036 2,656 12,994
---------- ----------- ---------- ------------- -------------- --------
Net book value:
At 31 December 2021 9,045 30,041 29,694 3,931 898 73,609
---------- ----------- ---------- ------------- -------------- --------
At 31 December 2020 8,126 37,164 38,706 4,498 1,241 89,735
---------- ----------- ---------- ------------- -------------- --------
Freehold properties
The Freehold values relates to the 3 following hostels:
-- The GBP3.5 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 GBP2.4 million
which is the acquisition price in 2014.
-- The freehold of the Glasgow property acquired in October 2019
for GBP3.2 million and which has undergone renovation for GBP0.4
million. The GBP4.9 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 GBP3
million, of which GBP2.1 million for the freehold. The GBP3.5
million value of the freehold in Pisa is based on the external
valuations as at 31 December 2021 prepared by Cushman and
Wakefield.
Covid-19 rent concessions
The International Accounting Standards Board (IASB) has
published 'Covid-19-Related Rent Concessions (Amendment to IFRS
16)' amending the standard to provide lessees with an exemption
from assessing whether a COVID-19-related rent concession is a
lease modification.
The GBP37.5 million right of use assets all relate to properties
operated by the Group as hostels.
Right of use assets as at 31 December 2020 42,048
Lease disposal (Barcelona Sea) (1,610)
IFRS 16 lease modification (2,891)
Derecognition of sub-leased asset (640)
-------
Right of use assets as at 2021 36,907
-------
Leasehold, land and buildings
The Group has used external valuations on Elephant & Castle.
The London Elephant & Castle leasehold was independently valued
on 31 December 2021 at GBP26.8 million. The valuation was performed
by Cushman and Wakefield. The Group has accounted for the finance
transactions as interest-bearing borrowings secured on the original
properties held.
Leasehold improvements
Leasehold improvements comprise the capitalised refurbishment
costs incurred by the Group on the leased properties.
Valuation process
Initially market values of the properties were believed to have
fallen due to the impact of COVID-19. The directors wanted to show
that the values of the properties have recovered post COVID-19 so
engaged independent external valuers to determine the market value
of all three freehold properties and the long leasehold property.
These independent external valuers hold recognised and relevant
professional qualifications and have recent experience in the
location and category of the properties being valued.
The Group provides information to valuers, including profit and
cashflow forecasts along with asset-specific business plans. The
valuers use this and other inputs including market transactions for
similar properties to produce valuations. These valuations and the
assumptions they have made are then discussed and reviewed with the
management as well as the directors. Cushman & Wakefield were
engaged to value properties now valued at GBP38.7m.
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 Capitalisation Inflation Running Yield
rate rate rate
Elephant &
Castle 8% 6% 2% 3.88% - 7.39%
---------- ---------------- ----------- ----------------
Glasgow 11% 8.5% 2% 5.12% - 10.95%
---------- ---------------- ----------- ----------------
York 10% 8% 2% 6.27% - 9.78%
---------- ---------------- ----------- ----------------
Pisa 11% 8.5% 2% 6.82% - 10.77%
---------- ---------------- ----------- ----------------
12. INTANGIBLE ASSETS AND GOODWILL
Leasehold
Website rights Goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2020 98 1,705 12,235 14,038
Additions 36 - 172 208
Disposals - - (94) (94)
Arising in business combination
(note 24) - - 2,747 2,747
Exchange movements - (8) - (8)
-------- --------- -------- --------
At 31 December 2020 134 1,697 15,060 16,891
Disposals - (1,697) (1,423) (3,120)
At 31 December 2021 134 - 13,637 13,771
-------- --------- -------- --------
Amortisation and Impairment
At 1 January 2020 53 666 - 719
Charge for the period 39 160 - 199
Impairment - - 1,491 1,491
Exchange movement - (8) - (8)
-------- --------- -------- --------
At 31 December 2020 92 818 1,491 2,401
Charge for the period 24 72 - 96
On disposals - (890) - (890)
At 31 December 2021 116 - 1,491 1,607
-------- --------- -------- --------
Net book value:
At 31 December 2021 18 - 12,146 12,164
======== ========= ======== ========
At 31 December 2020 42 879 13,569 14,490
======== ========= ======== ========
Leasehold Rights
The directors identified intangible assets in the following
transactions:
- acquisition of the business on Smart City hostel in Edinburgh
in 2015 identified an intangible asset in relation the lease with
the University of Edinburgh, which terminates in 2027.
- acquisition of the Barcelona Sea property in 2017 identified a
sublease agreement with a tenant in-situ for the duration of the
head lease. This property has been sold in the year.
Amortisation of leasehold rights is based on a straight-line
basis for the term of the lease. Amortisation is taken to the
statement of comprehensive income within administrative
expenses.
Goodwill
Goodwill arising from business combinations in the year is
disclosed in note 25. Goodwill in a business combination is
allocated to the cash generating units (CGUs) that are expected to
benefit from that business combination. The Group's CGUs have been
defined as each operating hostel. This conclusion is consistent
with the approach adopted in previous years and with the
operational management of the business.
Impairment
Goodwill is not amortised but tested annually for impairment.
The recoverable amount of each CGU is determined from value in use
(VIU) calculations based on future expected cash flows discounted
to present value using an appropriate pre-tax discount rate.
Goodwill carrying values as at the 31 December 2021 are shown
below.
Goodwill Goodwill
pre-impairment Impairment carrying
CGU GBP'000 GBP'000 value GBP'000
Madrid 2,234 - 2,234
Paris 11 - 11
Gothic 1,611 (891) 720
Lisbon 1,365 - 1,365
Prague 805 (600) 205
Barcelona Passeig De Gracia 1,699 - 1,699
Vienna 5 - 5
Brussels 1,375 - 1,375
Pisa 770 - 770
Berlin 1,015 - 1,015
Athens 1,210 - 1,210
Bratislava 917 - 917
Warsaw 620 - 620
13,637 (1,491) 12,146
================ =========== ===============
The impairment charge was recorded in the year ended 31 December
2020. No impairment has been deemed necessary by management for the
year ended 31 December 2021.
The key assumptions used in the VIU calculations for all hostels
are based on forecasts approved by management performed for a
5-year period:
-- A Pre-tax discount rate of 9.7% (2020: 11.1%) was calculated
using weighted average cost of capital. An assessment was made on
the differing risks between countries in which the hostels operate.
Based on the assessment it was concluded that the differences
between discount rates between each CGU are not material. The
assets are similar in nature, with all CGUs providing the provision
of hostel accommodation and therefore similar cashflows and
therefore the risk associated with the assets is considered to be
consistent between CGUs. As such one discount rate has been
utilised for the purposes of performing an impairment review.
-- Estimated 2021 average bed rate per property, discounted
against 2019 to reflect post covid-19 recovery transaction, and
increasing in line with a 2% annual inflation rate in following
years.
-- Earnings before interest, tax, depreciation, amortisation,
and rent (EBITDAR) margin of 2022, adjusted to reflect the post
covid-19 transition, and no hostels have a shortfall between the
recoverable value and carrying value.
Sensitivity analysis
Management have reviewed all the properties and do not consider
there to be an impairment. Also, the sale of the Edinburgh Hostel
has also been agreed for a higher value than book value.
Headroom between the carrying and recoverable value of an asset
is dependent upon sensitivities to the following assumptions:
For each of the CGU, a fall in operating margin and occupancy,
or an increase in the weighted average cost of capital (WACC) by
the following rates of change would result in the carrying value of
goodwill falling below its recoverable amount:
Operating
CGU margin Occupancy WACC
---------------------------- ---------- ---------- --------
Barcelona Gothic 1800bps 1500bps 500bps
Barcelona Passeig De Gracia 3200bps 2700bps 900bps
Berlin 1800bps 1200bps 600bps
Brussels 6000bps 5200bps 2700bps
Lisbon 1700bps 1500bps 500bps
Madrid 4800bps 4000bps 1600bps
Pisa 300bps 200bps 100bps
Prague 8500bps 6400bps 3900bps
Vienna 2200bps 1800bps 700bps
The table above demonstrates the change in assumption required
for an impairment to occur.
A change of 1% in the WACC would have an overall impact of
GBP4.2m in the recoverable value of the CGU tested.
A change of 1% in the occupancy level would have an overall
impact of GBP1.7m in the recoverable value of the CGU tested.
A change of 1% in the Operating margin would have an overall
impact of GBP1.2m in the recoverable value of the CGU tested.
13. TRADE AND OTHER RECEIVABLES
2021 2020
GBP'000 GBP'000
Trade and other receivables 865 1,653
Other debtors 230 26
Prepayments and accrued income 132 205
-------- --------
1,227 1,884
======== ========
Credit risk is the risk that a counterparty does not settle its
financial obligation with the Group. At the year end, the Group has
assessed the credit risk on amounts due from suppliers, based on
historic experience, meaning that the expected lifetime credit loss
was immaterial. Cash and cash equivalents are also subject to the
impairment requirements of IFRS 9 - the identified impairment loss
was immaterial.
14. CASH AND CASH EQUIVALENTS
2021 2020
GBP'000 GBP'000
Cash and cash equivalents 4,482 2,125
======== ========
The directors consider that the carrying amount of cash and cash
equivalents approximates their fair value. Cash and cash
equivalents comprise cash.
15. TRADE AND OTHER PAYABLES
2021 2020
GBP'000 As restated
GBP'000
Due in less than one year
Trade payables 640 686
Social security and other taxes 107 157
Other creditors 642 563
Accruals and deferred income 673 1,003
-------- ------------
2,062 2,409
Due in more than one year
Other payables 7 336
-------- ------------
2,069 2,745
======== ============
Accruals and deferred income in 2020 have been restated and
reduced by GBP598,000 as explained in note 26.
Payables due in more than one year in 2020 represents remainder
of the discounted present value of deferred consideration due in
April 2022 in relation to the Barcelona Passeig de Gracia which was
acquired for EUR3.0 million (GBP2.7 million) in 2017.
16. BORROWINGS
2021 2020
GBP'000 GBP'000
At amortised cost
Bank Loan 18,013 28,380
Property financing loans 7,078 12,240
Loan arrangement fees (137) (266)
-------- --------
24,954 40,354
======== ========
Loans repayable within one year 926 311
Loans repayable after more than one year 24,028 40,043
-------- --------
24,954 40,354
======== ========
Included within borrowings is GBP5.0 million CBILS (Coronavirus
Business Interruption Loan Scheme) obtained via HSBC. The
government provide lenders with a guarantee on each loan, and it
may be possible that there is a government grant in the form of the
lower rate of interest than would likely have been payable in the
absence of the government guarantee. However, in the absence of
further information the total amounts are disclosed within finance
costs. The loan will be repaid at a rate of GBP1 million per year
from April 2022 until April 2027. The interest rate is 3.99% margin
over base rate from year 2 onwards and is interest free in the
first year.
At 31st December 2021 a HSBC bank loan was secured against the
freehold property, York hostel and subsidiary investments. The
facility ends in January 2025 and the interest rate is 2.95% margin
over SONIA.
17. LEASES
Lease assets are presented in the statement of financial
position as follows:
2021 2020
GBP'000 GBP'000
Current 78 -
Non-current 562 -
Total 640 -
======== ========
The lease asset relates fully to our contract with Casa Suecia
where we have outsourced, on a revenue share basis, our Madrid food
and beverage operations.
This is a contract where Safestay receives the higher of a
minimum guaranteed rent or an agreed % of the food and beverage
revenue in return for Casa Suecia receiving the profit from this
income stream by managing this part of the operation with its own
staff. This arrangement commenced in July 2021 and is for an
initial five years.
In our lease asset calculations, we have assumed the net profit
of Casa Suecia did not exceed the variable threshold.
31-Dec-21
Minimum lease receipts due
Within 1 - 2 - 3 - 4 - After Total
1 year 2 years 3 years 4 years 5 years 5 years
-------- --------- --------- --------- --------- --------- ------
Lease receipts 101 151 151 151 154 - 708
Finance
income (23) (19) (14) (9) (3) - (68)
Net present
values 78 132 137 142 151 - 640
Lease liabilities are presented in the statement of financial
position as follows:
2021 2020
As restated
GBP'000 GBP'000
Current 1,922 1,932
Non-current 31,086 37,089
Total 33,008 39,021
======== ============
Lease liabilities have been restated in 2020 and increased by
GBP441,000 as explained in note 26.
The International Accounting Standards Board (IASB) has
published 'Covid-19-Related Rent Concessions (Amendment to IFRS
16)' amending the standard to provide lessees with an exemption
from assessing whether a COVID-19-related rent concession is a
lease modification. The impact on the current period was a GBP1.3
million (2020: GBP0.9 million) reduction in lease liability
included as rent concessions in administrative expenses in 2021,
reflecting the temporary reduction in rent agreed with the
landlords in the 12 months ending 31 December 2021.
Total cash outflow for leases for the year ended 31 December
2021 was GBP1.9m (2020: GBP2.5m).
The Group has leases for hostels across Europe. With the
exception of short-term leases and leases of low-value underlying
assets, each lease is reflected on the balance sheet as a
right-of-use asset and a lease liability. Variable lease payments
which do not depend on an index or a rate (such as lease payments
based on a percentage of Group sales) are excluded from the initial
measurement of the lease liability and asset. The Group classifies
its right-of-use assets in a consistent manner to its property,
plant and equipment (Note 10).
The hostel in London Kensington Holland Park has a term of 50
years. There is no such purchase option in this lease.
Lease payments are generally linked to annual changes in an
index (either RPI or CPI). However, the Group has one lease in
Lisbon which a portion of the rentals are linked to revenue. The
variable portion of the lease in Lisbon is accounted for as a
variable rent over the period it relates to.
Each lease generally imposes a restriction that, unless there is
a contractual right for the Group to sublet the asset to another
party, the right-of-use asset can only be used by the Group. Leases
are either non-cancellable or may only be cancelled by incurring a
substantive termination fee. Some leases contain an option to
purchase the underlying leased asset outright at the end of the
lease, or to extend the lease for a further term. The Group is
prohibited from selling or pledging the underlying leased assets as
security. For leases over hostels or hotels, the Group must keep
those properties in a good state of repair and return the
properties in good condition at the end of the lease. Further, the
Group must insure items of property, plant and equipment and incur
maintenance fees on such items in accordance with the lease
contracts.
The table below describes the nature of the Group's leasing
activities by type of right-of-use asset recognised on balance
sheet:
Right-of-use No of Range Average No of No of No of No of
asset right-of-use of remaining leases leases leases leases
assets remaining lease with with with with
leased term term extension options variable termination
options to payments options
purchase linked
to an
index
Hostel
buildings
- Operating 5 - 17
leases 11 years 11 years 10 0 11 0
------------- ---------- ---------- ---------- --------- ---------
In addition to the above, there is the London Kensington Holland
Park lease which ends in 2064. There are no such options as above.
Lease liabilities
The lease liabilities are secured by the related underlying assets.
The undiscounted maturity analysis of lease liabilities at 31
December 2021 is as follows:
31-Dec-21
Minimum lease payments due
Within 1 - 2 - 3 - 4 - After Total
1 year 2 years 3 years 4 years 5 years 5 years
----------- ------------ ------------ ------------ ------------ ------------ ------------
Lease payments 3,085 3,070 2,978 3,008 2,859 32,606 47,606
Finance
charges (1,163) (1,092) (1,020) (948) (874) (9,501) (14,598)
Net present
values 1,922 1,978 1,958 2,060 1,985 23,105 33,008
31-Dec-20
Minimum lease payments due
Within 1 - 2 - 3 - 4 - After Total
1 year 2 years 3 years 4 years 5 years 5 years
-------- --------- --------- --------- --------- --------- ---------
Lease payments 3,466 3,085 3,070 2,978 3,008 47,981 63,588
Finance
charges (1,534) (1,163) (1,092) (1,020) (948) (18,810) (24,567)
Net present
values 1,932 1,922 1,978 1,958 2,060 29,171 39,021
The Group has elected not to recognise a lease liability for
short term leases (leases with an expected term of 12 months or
less) or for leases of low value assets.
18. DEFERRED INCOME TAX
Deferred Deferred
tax assets tax liabilities Total
GBP'000 GBP'000 GBP'000
Balance as at 1 January 2020 as restated - (1,678) (1,678)
Recognised in the income statement 2,159 105 2,264
Recognised in other comprehensive income
as restated - (185) (185)
------------ ----------------- ---------
Balance at 31 December 2020 as restated 2,159 (1,758) 401
Recognised in the income statement (1,037) (157) (1,194)
Recognised in other comprehensive income - (1,399) (1,399)
------------ ----------------- ---------
Balance at 31 December 2021 1,122 (3,314) (2,192)
============ ================= =========
The deferred tax liability in 2020 has been restated and
increased by GBP1.758m as explained in note 26.
The Group has recognised deferred tax assets of GBP1.1m (2020:
GBP2.2m), 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
GBP'000
Allotted, issued and fully paid
64,679,014 Ordinary Shares of 1p each as at 1 January
2021 and 31 December 2021 647
647
=======
At the 31 December 2021, the ordinary shares rank pari passu.
There are no changes to the voting rights of the ordinary shares
since the balance sheet date.
SHARE PREMIUM
GBP'000
At 1 January 2021 23,904
At 31 December 2021 23,904
=======
OTHER COMPONENTS OF EQUITY
Share based As restated
Merger payment Revaluation Translation
reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2020 as
restated 1,772 159 12,541 59 14,531
Share based payment charge - 279 - - 279
Exchange differences
on translating foreign
operations - - - 4 4
Deferred tax on property
revaluation - - (185) - (185)
At 31 December 2020 as
restated 1,772 438 12,356 63 14,629
-------- ----------- ------------ ----------- --------
Share based payment charge - 72 - - 72
Property revaluation - - 5,039 - 5,039
Deferred tax on property
revaluation - - (1,399) - (1,399)
Exchange differences
on translating foreign
operations - - - 169 169
-------- ----------- ------------ ----------- --------
At 31 December 2021 1,772 510 15,996 232 18,510
-------- ----------- ------------ ----------- --------
20. SHARE BASED PAYMENTS
The Group operates a share-based payments scheme for Directors
as outlined in the Directors Remuneration Report. Share options
were awarded as part of longer-term incentives.
The option holder may only exercise the option if, on the date
of exercise, the market value targets are achieved.
609,600 share options were granted in the period (2020:
1,620,400). In addition to those granted to Directors in January
2020, Directors and 2 persons discharging managerial
responsibilities were awarded in lieu of a 40% reduction of salary
in 2020. In 2021, the Directors and 1 person discharging managerial
responsibility have continued to receive share options in lieu of
salary up until July 2021.
The average share price target for options issued in 2021 was
15p (2020: 19p).
Number of share
options outstanding
Exercise price Period within which 2021 2020
Grant date per share (pence) options are exercisable
2 May 2014 50p 2/5/2017 to 1/5/2024 396,521 396,521
12 May 2014 50p 12/5/2017 to 11/5/2024 528,695 528,695
21 May 2014 50p 21/5/2017 to 20/5/2024 38,550 38,550
14 July 2017 50p 14/7/2020 to 13/7/2027 250,000 250,000
21 July 2017 50p 21/7/2020 to 20/7/2027 500,000 500,000
11 October
2018 42p 11/10/2021 to 10/10/2028 100,000 100,000
1 January 2019 34p 01/01/2022 to 31/12/2028 500,000 500,000
29 April 2019 34p 29/04/2022 to 28/04/2029 - 500,000
26 June 2019 40p 26/06/2022 to 25/06/2029 100,000 100,000
05 Sept 2019 34p 05/09/2022 to 04/09/2029 100,000 100,000
02 Jan 2020 33p 02/01/2023 to 01/01/2030 900,000 1,200,000
31 Oct 2020 9p 31/10/2021 to 30/10/2028 186,400 186,400
30 Nov 2020 16p 30/11/2021 to 29/11/2028 104,900 104,900
31 Dec 2020 13p 31/12/2021 to 30/12/2028 129,100 129,100
31 January
2021 13p 31/01/2022 to 30/01/2029 129,100 -
28 February
2021 14p 28/02/2022 to 27/02/2029 119,900 -
31 March 2021 15p 31/03/2022 to 30/03/2029 111,900 -
30 April 2021 15p 30/04/2022 to 29/04/2029 75,200 -
31 May 2021 17p 31/05/2022 to 30/05/2029 66,400 -
30 June 2021 18p 30/06/2022 to 29/06/2029 62,700 -
31 July 2021 16p 31/07/2022 to 30/07/2029 44,400 -
4,443,766 4,634,166
========== ==========
The share options are exercisable at a price equal to the
average quoted market price of the Group's shares on the date of
grant. The vesting period is 3 years from the date of grant and the
share price must be a minimum of 60p, with the exception of the
options issued since 2018 which have a target price of 50p, and the
options issued in 2020 in exchange for salary reduction, which have
a 1 year vesting period and no target price. The options are
forfeited if the employee leaves the Group before the options vest.
Details of these share options are summarised in the table
below:
2021 2021 2020 2020
Number of Weighted Number of Weighted
share options average exercise share options average exercise
price price
Brought forward 1 January 4,634,166 38.0p 3,013,766 44p
Forfeited in the period (800,000) 33.6p - -
Issued in the period 609,600 15.0p 1,620,400 28p
Outstanding at 31 December 4,443,766 35.9p 4,634,166 38p
============== ================= ============== =================
Exercisable at end of the
period 2,327,789 42.8p 1,713,766 50p
============== ================= ============== =================
No options were exercised in the period.
The fair value of the share options was calculated using the
Black Scholes model. There is a charge of GBP72k taken though the
income statement (2020: GBP279k).
The inputs are as follows:
2021 2020
Closing price of Safestay Plc 19.5p 16.0p
Weighted average share price 20.3p 18.8p
Weighted average exercise price 35.9p 38.0p
Expected volatility 35% 40%
Average vesting period 7.0 years 7.1 years
Risk free rate 1.28% 0.50%
Expected dividend yield 0.00% 0.00%
The expected volatility percentage was derived from the quoted
share prices since flotation.
21. Notes to the cashflow statement
Restated
2021 2020
GBP'000 GBP'000
Profit/(loss) before tax 693 (9,926)
Adjustments for:
Depreciation of property, plant and equipment
and amortisation and impairment of intangible
assets 3,773 5,690
Profit on disposal of fixed assets (6,957) -
Finance cost 2,545 2,693
Share based payment charge 72 279
Exchange movements 116 (8)
Rent concessions (1,275) (904)
Changes in working capital:
Decrease in inventory 12 39
Decrease/(increase) in trade and other receivables 549 (244)
(Decrease) in trade and other payables (800) (1,847)
-------- --------
Net cash from operating activities (1,272) (4,228)
======== ========
22. RELATED PARTY TRANSACTIONS
The Group has taken advantage of the exemption contained within
IAS 24 - 'Related Party Disclosures' from the requirement to
disclose transactions between wholly owned group companies as these
have been eliminated on consolidation.
The remuneration of the directors, who are the key management
personnel of the Group, is set out below.
2021 2020
GBP'000 GBP'000
Short term employee benefits 336 444
Pension 6 16
Share based payment charges 72 257
414 717
======== ========
Further information about the remuneration of individual
directors is provided in the Directors' Remuneration Report.
Details of directors share options is provided in the Directors'
Remuneration Report and in note 20 of the accounts. The directors
share options have been audited.
Safestay Plc has a common directorship with Safeland Plc. In the
year, Safestay Plc rented premises from Safeland Plc on
non-commercial terms. Total rent paid to Safeland Plc was GBP50,000
(2020:GBPnil).
23. FINANCIAL INSTRUMENTS
Capital management
Total Capital is calculated as equity, as shown in the
consolidated statement of financial position, plus debt.
The Board's policy is to maintain a strong capital base with a
view to underpinning investor, creditor and market confidence and
sustaining the future development of the business. Capital consists
of ordinary shares, other capital reserves and retained earnings.
To this end, the Board monitors the Group's performance at both a
corporate and individual asset level and sets internal guidelines
for interest cover and gearing.
The executive directors monitor the Group's current and
projected financial position against these guidelines. In order to
maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.
2021 2020
GBP'000 As Restated
GBP'000
Share capital 647 647
Share premium account 23,904 23,904
Retained earnings (12,928) (12,329)
Merger reserve 1,772 1,772
Share based payment reserve 510 438
Revaluation reserve 15,996 12,356
Translation reserve 231 63
Bank loans 18,007 28,380
Property financing loans 7,078 12,240
Lease liabilities 33,008 39,021
-------- ------------
The revaluation reserve has been restated in 2020 and reduced by
GBP1,758,000 as explained in note 26.
The Group has no externally imposed capital requirements.
Significant Accounting Policies
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are
recognised, in respect of each class of financial asset, financial
liability and equity instruments are disclosed in note 1 to these
financial statements and in the tables below:
Categories of financial instruments
At 31 December 2021, the Group held the following financial
assets:
2021 2020
GBP'000 GBP'000
Trade and other receivables (note 13) 1,227 1,679
Cash and cash equivalents 4,482 2,125
-------- --------
5,709 3,804
======== ========
At 31 December 2021, the Group held the following financial
liabilities:
2021 2020
GBP'000 As restated
GBP'000
Bank loans (note 16) 18,007 28,114
Property financing loans (note 16) 7,078 12,240
Lease liabilities (note 17) 33,008 39,021
Trade and other payables (note 15) 2,069 1,386
60,162 80,761
======== ============
All financial liabilities are measured at amortised cost.
The carrying amounts of the Group's bank loans and overdrafts,
lease obligations and trade and other payables approximate to their
fair value.
Financial Liability Movements
Long Short Lease
term borrowings term borrowings liabilities Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2020 (restated) 29,638 267 35,904 65,809
Cash flows
Repayment of lease liabilities - - (2,514) (2,514)
Repayment of property finance
loans (331) - - (331)
Proceeds received 10,361 159 - 10,520
Loan and refinancing fees (174) (102) - (276)
Non-cash
Reclassification 130 (130) - -
Refinance related fees write
off 76 25 - 101
New leases and extension - - 4,536 4,536
Imputed interest and amortisation
of fees 343 92 1,558 1,993
Lease modification - - 441 441
Rent concessions - - (904) (904)
At 31 December 2020 (restated) 40,043 311 39,021 79,375
----------------- ----------------- ------------- ---------
At 1 January 2021 40,043 311 39,021 79,375
Cash flows
Repayment of lease liabilities - - (1,810) (1,810)
Repayment of property finance
loans (5,156) - - (5,156)
Repayment of bank loans (10,062) (311) - (10,373)
Loan and refinancing fees - - - -
Non-cash
Reclassification (926) 926 - -
Government grant (156) - - (156)
Lease disposals - - (1,389) (1,389)
Imputed interest and amortisation
of fees 285 - 1,471 1,756
Lease modification - - (3,010) (3,010)
Rent concessions - - (1,275) (1,275)
----------------- ----------------- ------------- ---------
At 31 December 2021 24,028 926 33,008 57,962
================= ================= ============= =========
2021 2020
GBP'000 GBP'000
Total liabilities (57,962) (78,934)
Cash and cash equivalents 4,482 2,125
-------- ----------
Net Debt 53,480 76,809
======== ==========
Financial risk management
The Group's financial instruments comprise bank loans and
overdrafts, Lease liabilities, cash and cash equivalents, and
various items within trade and other receivables and payables that
arise directly from its operations.
The main risks arising from the financial instruments are
interest rate risk and liquidity risk. The board reviews and agrees
policies for managing these risks which are detailed below.
Interest rate risk
The Group's interest rate risk arises from long-term borrowings.
Borrowings at variable rate expose the Group to cash flow interest
rate risk which is partially offset by cash held at variable
rates.
Liquidity risk
All of the Group's long-term bank borrowings are secured on the
Group's property portfolio. If the value of the portfolio were to
fall significantly, the Group risk breaching borrowing covenants.
The Board regularly review the Group's gearing levels, cash flow
projections and associated headroom and ensure that excess banking
facilities are available for future use.
As outlined in going concern note 1, the business has been
severely impacted by the travel restrictions and ability to meet
its banking covenants as a result of Covid-19. The Group produces
an annual cashflow forecasts based on agreed budgets, and as a
result of Covid-19 have monitored the cashflow forecasts on a
weekly basis.
The business continued to manage its liquidity risk with the
renewal of its debt facility with HSBC on the 13(th) January 2020
with a new facility of GBP22.9m for 5 years until 2025. In
addition, a GBP5.0m bank CBILs facility was secured for 6 years on
16(th) December 2020, which is interest free for the first year
increasing to 3.9% + base rate from year 2.
The business continues to service is debt and make the interest
payments as they fall due. There are no off balance sheet financing
arrangements or contingent liabilities.
While liquidity remains closely monitored the Sea Hostel was
sold February 2021 for a GBP0.7m consideration, and Edinburgh
Hostel was sold for GBP16m. The monthly cost base was reduced from
GBP0.9 million to GBP0.6 million during the first lockdown. The Sea
disposal and sale of Edinburgh would provide sufficient headroom to
manage liquidity in the short term, through to the end of December
2022, even if the impact of Covid-19 continued or the hostels
remained closed. See note 1 going concern accounting policy.
However, the covenants of the existing debt facility were waived
since June 2020. From June 2021 they were adjusted and replaced
with adjusted EBITDA targets reflecting the current performances of
the hostels since the first lockdown in April 2020. They will
revert to the contractual covenants from July 2022 when it is
expected that the Group will have enough trading history from the
re-opening of the hostels in July 2021 to meet the 12 month
historic Interest Cover (ICR) and Loan to Value ratios.
Foreign currency risk
The group is exposed to foreign currency risk from overseas
subsidiaries with group transactions carried out in Euros.
Exposures to currency exchange rates arise from the Group's
overseas sales and purchases, which are primarily denominated in
Euros.
This risk is mitigated by each hostel holding a denominated bank
account in the country of operation. The group monitors cashflows
and considers foreign currency risk when making intra-group
transfers.
Foreign transactions are translated into the functional currency
at the exchange rate ruling when the transaction is entered.
Foreign exchange gains and losses resulting from the settlement of
such transactions, and from the translation at year end exchange
rates, of monetary assets and liabilities are recognised in the
income statement.
Interest rate risk management
The Group is exposed to interest rate risk on its borrowings.
The GBP17.7 million main facility has an interest rate of 2.45%
above the London inter-bank offer rate (LIBOR). When the GBP10.2
million from the Edinburgh sale proceeds was used to reduce the
debt in July 2021, LIBOR was replaced with 2.95% SONIA. The GBP5
million CBILS in interest free in year 1 and has an interest rate
of 3.99% above base rate from year 2 until it is fully repaid at
the end of year 6. The Group carefully manages its interest rate
risk on an ongoing basis.
Interest rate sensitivity
The sensitivity analysis in the paragraph below has been
determined based on the exposure to interest rates for all
borrowings subject to interest charges at the statement of
financial position date. For floating rate liabilities, the
analysis is prepared assuming the amount of the liability
outstanding at the statement of financial position date was
outstanding for the whole year. A 0.25% increase or decrease is
used when reporting interest rate risk internally to key management
and represents management's assessment of the reasonably possible
change in interest rates.
Based on bank borrowings, at 31 December 2021, if interest rates
were 0.5% higher or (lower) and all other variables were held
constant, the Group's net profit would increase or decrease by
GBP89,000 (2020: GBP140,000). This is attributable to the Group's
exposure to interest rates on its variable rate borrowings.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the Board of directors. The Board manages liquidity risk by
regularly reviewing the Group's gearing levels, cash flow
projections and associated headroom and ensuring that excess
banking facilities are available for future use. All of the Group's
long-term bank borrowings are secured on the Group's property
portfolio.
Liquidity and interest risk analysis
The following tables detail the Group's remaining contractual
maturity for all financial liabilities. The tables have been drawn
up based on the undiscounted cash flows of financial liabilities
based on the earliest date on which the Group can be required to
pay including interest.
Less than 1-2 years 3-5 years Later than Total
1 year GBP'000 GBP'000 5 years GBP'000
GBP'000 GBP'000
Variable interest rate borrowings 1,379 1,577 16,659 - 19,615
Property financing borrowings 191 191 573 10,193 11,148
Trade and other payables 1,946 7 - - 1,953
Lease liabilities 1,922 1,978 6,003 23,105 33,008
5,438 3,753 23,235 33,298 65,724
========= ========== ========== ========== =========
The above amounts reflect the contractual undiscounted cash
flows, which may differ to the carrying values of the liabilities
at the reporting date.
The repayment of the GBP5 million CBILS will start in April
2022. The repayment under 1 year relates to the GBP22.9 million
debt facility for GBP57,500 per quarter, and the repayment of the
government backed loan in Vienna for GBP80,000 per semester. It was
however agreed with HSBC that the main debt facility would be
interest only from July 2021 after the disposal of Edinburgh which
involves a GBP10.0 million debt repayment to HSBC.
24. FAIR VALUES OF NON-FINANCIAL ASSETS
The following table shows the levels within the hierarchy of
non-financial assets measured at fair value on a recurring
basis:
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
2020
Freehold Property - - 8,411 8,411
Leasehold Property - - 41,126 41,126
-------- -------- -------- --------
- - 49,537 49,537
-------- -------- -------- --------
2021
Freehold Property - - 9,484 9,484
Leasehold Property - - 31,691 31,691
- - 41,175 41,175
-------- -------- -------- --------
The group's freehold and leasehold property asset is estimated
based on appraisals performed by independent, professionally
qualified property valuers. The significant inputs and assumptions
are developed in close consultation with management. The valuation
process and fair value changes are reviewed by the directors at
each reporting date.
25. Business combinations
See accounting policy in note 1.
There have been no business combinations in the year ended 31
December 2021.
On 14(th) January 2020, the Group acquired the leasehold of an
existing 132 bed hostel in Athens via a newly registered Greek
subsidiary of Safestay plc, for a consideration of EUR1.5m paid in
full at acquisition.
On 30(th) January 2020, the Group acquired an existing entity
registered in Poland which owned the leasehold of a 158 bed hostel
in Warsaw. At the same date, the Group acquired an existing entity
registered in Slovakia which owned the leasehold of a 124 bed
hostel in Bratislava. Both entities were acquired from the same
party, Dream Management Group Ltd, for a consideration with EUR0.6m
paid at completion and the outstanding amount in November 2020 for
EUR0.3m.
Athens Warsaw Bratislava 2020
Number of sites purchased 3
Fair value GBP'000 GBP'000 GBP'000 GBP'000
Property, plant & equipment 2,092 1,179 825 4,096
Intangible assets - - - -
Current assets 1 233 - 234
Cash - 64 4 68
Debt (1,964) (732) (515) (3,211)
Deferred revenue, trade
& other payables (9) (1,351) (503) (1,863)
Goodwill 1,210 620 917 2,747
Consideration
Net cash paid on acquisition 1,330 13 728 2,071
Total Consideration 1,330 13 728 2,071
-------- -------- ----------- --------
Goodwill recognised on each acquisition reflects the future
growth of the Group and represent the first stage in establishing a
pan-European network of Safestay Hostels. All goodwill acquired has
been allocated to a cash generating unit.
The Board reviewed each business on acquisition for its
separately identifiable assets:
-- Brand - the hostels were purchased from two selling entities,
each with a large portfolio of hostels that are continuing to trade
under their original brand names. For this reason, management do
not attribute the future earnings to the brands purchased; the key
asset purchased is the future potential of each hostel as operated
under the Safestay management team, and as an extension of the
existing Safestay portfolio.
-- Advanced deposits - each acquisition resulted in the purchase
of advanced deposits taken under previous management that would
result in potential sales whilst under Safestay control. The Board
quantified the value of contracted sales under their original terms
of sale and found the contracts to be immaterial at
acquisition.
-- Property, plant and equipment - the Board reviewed the asset
registers of each entity and performed an impairment of each. The
book value of assets was agreed to represent the fair value of each
asset class.
-- Intangible assets - the Board reviewed the agreements with
customers and found no intangible assets for capitalisation.
The Group incurred acquisition costs of GBP0.1 million on legal
fees and due diligence costs. These have been charged to operating
exceptional items in the Consolidated Income Statement in 2020.
The acquisitions have contributed the following revenue and
operating profits to the Group in the year ended 31 December 2020
from the date of acquisition:
Athens Warsaw Bratislava
-------- -------- -----------
GBP'000 GBP'000 GBP'000
Revenue 115 129 31
Operating profit (179) (201) (151)
It is not practicable to identify the related cash flows,
revenue and profit on an annualised basis as the months for which
the businesses have been controlled by Safestay are not indicative
of the annualised figures especially in the context of the Covid-19
pandemic.
The pre-acquisition trading results are not indicative of the
trading expectation under Safestay's stewardship; the Group
deployed its Property Management System and digital marketing
platform and updated internal processes.
26. PRIOR YEAR RESTATEMENT
IFRS 16 Adjustment
Following a review of the IFRS 16 accounting for the year to 31
December 2021, it is noted that the classification between
accruals, IFRS lease liability and rent expense in the year to 31
December 2020 was found to be incorrect. This has resulted in an
increased lease liability of GBP440,000, a decrease in accruals of
GBP598,000 and a decrease in rent (increase in retained earnings
brought forward) of GBP158,000.
Overall, the 2020 loss decreased and consequently the 2021
retained earnings brought forward has increased by GBP158,000, plus
the net assets has increased by GBP158,000.
Deferred tax liability on the 2019 Safestay (Elephant &
Castle) Ltd property revaluation
From a review of the deferred tax balances as at 31 December
2021 it is noted that the deferred tax liability relating to the
property revaluation on Safestay (Elephant & Castle) Ltd was
erroneously omitted from the liability for the year ended 31
December 2019.
An adjustment has been made to correct this that has reduced the
property revaluation reserve by GBP1,758,000 and increased the
deferred tax liability by GBP1,758,000. This has reduced net assets
by GBP1,758,000 and has no impact on the trading profit in
2019.
27. POST REPORTING DATE EVENTS
On the 14 April 2022 a share option modification was made by the
Group on all share options currently active. This has been
performed to align the historical share option vesting conditions
to more appropriate benchmarks in the current economic climate.
The Group is currently not committed to any future acquisition
projects or development.
Following a review of director rewards and incentives, the
Remuneration Committee of the Board of Directors ("Directors") has
recommended that, given the reduction in the Group's share price,
that the existing awards of share options are no longer a
reasonable incentive for the Group's management team (the
"Management Team") and Directors and should be replaced in order to
re-align the option scheme with the current share price. The Board
of Directors approved this recommendation.
On 14 April 2022 the Group granted awards of options over a
total of 4,020,121 ordinary shares of one (1) penny each in the
Grouo ("Ordinary Shares") under the Group's existing share option
scheme (the "New Options"). The New Options are exercisable on or
after 1 January 2024.
A portion of the New Options have been awarded to replace all
existing awards of options previously granted in the same number
(the "Old Options") to the current Management Team and Directors,
which were cancelled on 14 April 2022. The holders of all of the
Old Options have agreed to their termination with immediate effect.
Old Options that were previously priced significantly above the
current share price have effectively been reissued at the current
share price, with Old Options previously priced below the current
share price effectively reissued at their previous exercise
price.
In addition to the replacement of the Old Options, the New
Options also include new share options granted to Paul Hingston,
Chief Financial Officer, as part of his employment package
following his appointment in February 2022.
It has also been agreed with the Business Growth Fund that Larry
Lipman, the Chairman, will waive his 250,000 share options issued
on 14 July 2017. He has also agreed that if he exercises any of the
remaining share options, he cannot sell these shares for two
years.
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