TIDMSSTY
RNS Number : 2860O
Safestay PLC
29 May 2020
29 May 2020
Safestay plc
("Safestay", the "Company" or the "Group")
Final Results for the year Ended 31 December 2019
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 2019.
2019 Financial highlights
-- Total revenues increased by 26% to GBP18.4 million (2018:
GBP14.6 million) with like for like sales up 7%
-- 49% or GBP9 million of net revenue now coming from mainland
Europe versus 43% in 2018 (GBP6.2 million)
-- 77.3% occupancy achieved over the period, up from 75.6%, reflecting good demand
-- 5.4% increase in average bed rate to GBP21.4 (2018: GBP20.3)
-- Adjusted EBITDA of GBP6.1 million and GBP3.8 million pre-IFRS
16 adjustments (2018: GBP3.4 million)
-- Loss before tax of GBP0.6 million and GBP0.2 million pre-IFRS
16 adjustments (2018: GBP0.6 million)
-- Loss per share 1.48p (2018: loss of 2.56p)
2019 Operational highlights
-- Transformational year with the portfolio increasing from:
o 13 to 20 hostels
o 3,200 to 4,900 beds
o 6 to 12 countries
-- Added 7 new properties in the key tourist cities of Pisa,
Venice, Glasgow, Berlin, Athens, Bratislava and Warsaw
-- 43% growth in F&B revenues now representing 14% of total revenues
-- 50% increase in number of bookings made via the Safestay website
-- GBP0.9 million was invested in renovation projects to
maintain the premium positioning of the Safestay brand
-- Elephant & Castle hostel was revalued following the 73
bed extension at GBP26.8 million, an increase of GBP10.8 million
over the last valuation in 2017, which equates to a NAV increase of
16.7p per share
Post-year end - 2020 year to date highlights
-- Agreed to increase debt facility from GBP17.9 million to
GBP22.9 million with HSBC under the same terms as the previous
facility, for a new 5 year term until January 2025
-- In response to COVID-19 and the temporary closure of all
hostels from 1 April, the Company minimised all costs, agreed a
GBP5 million overdraft with HSBC, utilised available government
reliefs and as a result is well placed to weather the current
crisis
-- Management focus has switched to preparing for a staggered
re-opening plan initially just targeting the domestic market in
each country
-- Under the re-opening plan there will be protective changes
introduced to check-in, food service, cleaning rotas and the
temporary closure of common spaces with no shared rooms, and
instead rooms will be sold to individuals or groups known to each
other
Larry Lipman, Chairman of the Company, commenting on the results
said:
"2019 was a transformational year for Safestay. We added 7 new
hostels increasing our number of sites to 20 making us a leading
premium hostel operator in Europe. Our financial performance
reflected this expansion with revenues up 26% and while we also
made a good start to trading in 2020, the sudden spread of COVID-19
has meant we have had to adapt quickly to an unexpected phase.
We secured the financial stability of the business and we are
now working on our plans to re-open our hostels on a staggered
basis, over the course of 2020, as and when we believe they can be
profitable. Our focus is on ensuring the safety of our guests,
initially targeting the domestic markets in each country, and then
looking to gradually return to normal trading patterns.
Navigating the re-engagement of the business will require us to
be highly flexible as we test and match demand in individual
markets, however, we are confident of being able to do this and
making sure that we balance increased operational cost with
increased income. From an industry perspective, the hostel market
is highly fragmented with a large number of small operators who are
under pressure as a result of the pandemic and this may well create
unique opportunities for Safestay".
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014 (MAR).
Enquiries
Safestay plc +44 (0) 20 8815 1600
Larry Lipman
Liberum Capital Limited
(Nominated Adviser and Broker) +44 (0) 20 3100 2000
Andrew Godber/Edward Thomas
Novella +44 (0) 20 3151 7008
Tim Robertson
Fergus Young
For more information visit our:
Website www.safestay.com
Vox Markets page
https://www.voxmarkets.co.uk/company/SSTY/news/
Instagram page www.instagram.com/safestayhostels/
Chairman's Statement
Introduction
I am pleased to present the results for the year to 31 December
2019 which showed the Group performing strongly. Our strategy was
to expand our network whilst improving underlying profitability and
investing behind our premium hostel positioning. I believe our 2019
results illustrate our success with total revenues increasing by
26% against 2018.
We would normally focus this report on reviewing the Company's
trading performance in 2019, however, given the impact of COVID-19,
we have instead begun with a review of the actions we have the
taken to protect Safestay, and the plans we are making to
successfully re-open our portfolio of hostels and also potentially
capitalise on any opportunities that arise.
Response to COVID-19
In line with the hospitality industry globally, all our hostels
have been closed since 1 April 2020. The majority of our hostel
staff have been furloughed, receiving financial support from the
governments in their respective countries and the Company has taken
advantage of government reliefs where available. Operational costs
associated with the running of the individual sites and our head
office have been greatly reduced. Individual agreements have been
reached with landlords involving a mix of suspension of rents or
rent reductions for a limited period. As a result, the monthly cost
base of the Group has been significantly lowered to approximately
GBP0.6 million of which half relates to payments which can be
temporary deferred.
To support our financial ability to manage the crisis, we agreed
an additional GBP5 million overdraft from HSBC which together with
our cash reserves will enable us to fund liquidity requirements
during this lockdown period and for us to be well positioned to
re-open as restrictions are lifted and as and when we believe they
can be profitable.
Our re-opening plans will be staggered over the course of 2020,
subject to the restrictions in each market and look to initially
focus on just domestic customers while international travel remains
limited. Under the slogan, 'Stay Safe at Safestay' the priority
will be to inform guests of the safety measures that will be in
place. Check-in will be completed via WhatsApp, hand sanitiser gel,
masks and gloves will be made available, common rooms including the
restaurant areas will be closed, breakfasts will instead be served
in boxes. A substantially increased cleaning rota will be
introduced and no shared rooms will be sold, and instead rooms will
be sold to individuals or groups who are known to each other.
With this as a starting point, the hostels will adapt their
operating structures according to market conditions over the course
of 2020 with the emphasis on matching operational costs with
income. It will require flexibility and careful monitoring across
all our markets.
Material uncertainty which may cast significant doubt regarding
the Company's ability to trade as a going concern has resulted from
the impact of the COVID-19 virus on the economy and the hospitality
industry. Note 1 below elaborates on the position of the Company
regarding going concern, and the measures introduced before and
after the re-opening of the hostels to protect our clients,
employees and the Company. We believe that Safestay has the
infrastructure in place to manage the re-engagement and that
ultimately, we will find the route to returning our portfolio of
hostels to pre-COVID-19 levels.
80% of the hostel market is made up of small operators (1-5
hostels) who are currently being put under severe financial
pressure due to the pandemic. It is inevitable there will be
closures and distressed sales as a result and there may well be
opportunities for Safestay to benefit.
Financial Results
Revenue
Group revenue for the financial year ended 31 December 2019,
increased by 26% to GBP18.4 million (2018: GBP14.6 million). GBP9
million coming from non-UK properties, a 43% increase over last
year (2018: GBP6.2 million) reflecting the additional contribution
from the openings of Vienna, Brussels and Barcelona Passeig De
Gracia in 2018 and the opening of Pisa, Glasgow and Berlin in
2019.
The Like for Like (LFL) growth, which only compares performances
of hostels opened during the same period, is 7%. This breaks down
into LFL Room revenue which progressed by 4% in the period, and a
very strong improvement in LFL Food and Beverage (F&B)
revenues, up 23%. Contribution from our bars and restaurants
benefited from the efforts of the team to tap into this additional
revenue source, and from the renovation of the bars in Barcelona,
Elephant & Castle and Edinburgh. With the full renovation of
the bar in Lisbon and the conversion of the Glasgow, Berlin, Vienna
and Brussels hotels into hostels in 2020, we expect this trend to
continue going forward.
Adjusted EBITDA
Adjusted EBITDA provides a key measure of progress made.
Adjusted EBITDA for the year to December 2019 was GBP6.1 million,
and GBP3.8 million pre-IFRS 16 adjustment (2018: GBP3.4
million).
The Group has implemented the newly introduced IFRS 16 standard
(Lease accounting) and decided to opt for the modified approach
which does not require restatement of comparative periods. The
introduction of the standard means that we are changing the way we
report the charges in relation to leaseholds in our consolidated
statement of income. The rental expense (GBP2.2 million) is
replaced with an interest charge (GBP0.8 million) and depreciation
of the leased asset (GBP1.9 million). The adjusted EBITDA post-IFRS
16 is GBP6.1 million in 2019 and would have been GBP5.1 million in
2018 on a comparable basis.
Adjusted EBITDA is as follows:
2019 2018
GBP'000 GBP'000
Operating Profit (Pre-IFRS 16) 1,541 1,044
Add back:
Depreciation (Pre-IFRS 16) 1,458 1,421
Amortisation 188 181
Loss on disposal of fixed assets 0 74
Exceptional expenses 585 662
Share based payment expense 34 34
-------- --------
Adjusted EBITDA (pre-IFRS 16) 3,806 3,416
-------- --------
Rent 2,248 1,709
-------- --------
Adjusted EBITDA (post-IFRS 16) 6,054 5,125
-------- --------
The exceptional expenses totalled GBP0.6 million and included
essentially costs in relation to acquisitions made in 2019.
Finance Costs
Finance costs in 2019 were GBP2.6 million (2018: GBP1.6
million). There has been no significant change since 2017 when the
Group signed a 5-year GBP18.4 million secured bank facility with
HSBC and entered a Land Sale and Lease back with 2 properties, in
London and Edinburgh. These 2 leases have been accounted for as
finance leases since 2017, under IAS 17. Our lease at Kensington
Holland Park has also been accounted for as a finance lease since
2017, under IAS 17.
However, the introduction of IFRS 16 from 1 January 2019 means
that the finance costs now include the interest resulting from the
retreatment of the rental charge for operating leases, which is
replaced with interest and depreciation. In 2019, the finance costs
therefore include GBP0.8 million of interest in relation to IFRS 16
which explains a substantial portion of the year on year
variance.
Earnings per Share
Basic loss per share for the year ended 31 December 2019 was
1.48p (2018: loss 2.56p) based on the weighted number of shares,
64,679,014 (2018: 35,387,458) in issue during the year. The total
number of shares in issue was increased in December 2018 following
a 30,459,880 share issue.
Despite being cash generative, the Company is making a GBP1
million net loss in 2019. This loss includes a GBP0.4 million
negative adjustment (0.67p per share) for IRFS 16.
Cash flow, capital expenditure and debt
Net cash generated from operations was GBP5.2 million, or GBP3
million pre-IFRS 16 (2018: GBP1.8 million). The increase in cash
from the hostels was partly offset by a GBP0.2 million increase in
central costs. The increase in central costs has significantly
reduced versus 2018 when the Group had made significant investments
into the central teams and systems to build a scalable platform to
support the growth in the network. The Group had cash balances of
GBP3 million at 31 December 2019 (2018: GBP9.9 million). The cash
balance at 31 December 2019 included GBP10.4 million from the share
issue completed in December 2018. This cash was deployed in
expanding the hostel network in 2019 as follows:
Completed Acquisitions in 2019:
-- GBP3 million was invested in June in the acquisition of a
freehold of an existing 171 bed hostel in Pisa.
-- GBP3.3 million was invested in October in the acquisition of
a freehold of an existing 52 bedroom hotel in Glasgow. This
property was converted into a 200 bed hostel in the first quarter
of 2020.
-- GBP1.1 million was invested November in the acquisition of a
leasehold of an existing 32 bedroom hotel in Berlin. This property
will be converted into a 171 bed hostel.
In 2019, the Group also announced 2 projects which were
exchanged in 2019 but completed in 2020:
-- GBP1.3 million was invested in January 2020 in the
acquisition of a leasehold of an existing 132 bed hostel in
Athens.
-- GBP2.3 million was invested in January 2020 in the
acquisition of two leaseholds of two existing hostels in Warsaw
(158 beds) and Bratislava (124 beds). These hostels were both
acquired from the same owner, Dream Management Group Ltd.
Safestay also announced the agreement to enter a Joint Venture
to acquire a freehold of a vacant property in Venice for GBP3.8
million. The property will be converted into a 660 bed hostel at an
estimated cost of GBP7 million and will be leased to Safestay upon
completion.
The Group completed the extension of the London Elephant &
Castle property adding a further 73 beds. The project completed in
January 2019 at a total cost of GBP2.4 million of which only GBP0.3
million was invested in the period ending December 2019. In line
with the property refinancing agreement signed in 2017, on
completion Safestay received GBP1.18 million back from the
landlord.
From the beginning of 2019, the Group has set aside a capex fund
to invest in a continuing programme of renovation and upkeep across
the portfolio. In this context GBP0.9 million was invested in
various improvement projects such as the showers and restaurant in
Lisbon, the restaurant in Barcelona Passeig de Gracia, the
bathrooms and guestrooms in Barcelona Gothic and the beds and
showers in Edinburgh.
Outstanding bank loan was GBP17.7 million (2018: GBP18.1
million). This includes a GBP17.9 million loan with HSBC (2018:
GBP18.2 million), minus the GBP0.2 million amortised loan fees
(2018: GBP0.3 million). The finance lease obligations already
recognised under IAS 17 in 2018 amount to GBP22.4 million (2018:
GBP21.2 million) following the GBP1.2 million contribution of our
landlord in London Elephant & Castle to the extension of the
building in 2019. We have also recognised an additional GBP25.8
million liability in relation to leases retreated under IFRS 16
since 2019. This results in a GBP65.8 million debt at 31 December
2019 (2018: GBP39.3 million). The gearing ratio (inclusive of
obligations under finance lease) has reduced from 141% in 2018 to
111% in 2019. The Company is fully compliant with the HSBC debt
covenants as at 31 December 2019: The historic (595%) and projected
(696%) interest cover as well as the historic (369%) and projected
(427%) debt service cover are all significantly in excess of the
minimum covenant ratios (175% for the interest cover and 150% for
the debt service cover).
Net asset value per share increased to 56p (2018: 43p) as a
result of the increase in the valuation of the London Elephant
& Castle property to GBP26.8 million, up by GBP10.8 million
since the last valuation performed in 2017.
Operational Review
Since establishing its first hostel, Safestay has been achieving
a 57% CAGR (Compounded Average Annual Growth Rate) in revenues in 5
years. It is clear that the Safestay model, which was originally
developed in the UK, is well suited to the rest of the European
market. Since the acquisition of 4 hostels in Spain, Czech Republic
and Portugal in 2017, Safestay has entered 7 more countries with
the openings of Brussels and Vienna in 2018, Pisa, Glasgow and
Berlin in 2019 and Athens, Warsaw, Bratislava in 2020.
Safestay's product and service offer is of a very high standard,
with guest satisfaction scores achieving 80 (out of 100) in 2019.
High guest satisfaction is a fundamental pillar of the Safestay
brand experience. To this end, the Company invested GBP0.9 million
in capex improvement works across the portfolio in 2019. We had
started a GBP1 million under the capex programme in 2020 before
COVID-19 forced us to review our capex plans, and the situation
will be reassessed when the situation improves.
In 2019, a primary focus was to capitalise on our investment in
a dynamic revenue management system and revenue team, aimed at
increasing our revenue per available bed. It is therefore pleasing
to see that occupancy has increased to 77.3% (2018: 75.6%) whilst
average rates have also increased to GBP21.4 (2018: GBP20.3). The
occupancy levels are similar in the UK (77.9%) and Europe (76.8%),
both increasing versus 2018, and reflect the strategy to focus on
operating properties in central locations which benefit from strong
and resilient demand. The increase in bed rate is not only
attributable to the effort of the revenue management team, but also
from the fact that some properties have been operating as hotels in
2019 pending conversion to becoming hostels in 2020, therefore
attracting a higher rate.
It was also pleasing to see that the revenue generated directly
via our website increased by 50% in 2019 to reach 9% of the total
room revenue. Reflecting a 34% increase in website traffic,
combined with a 4.3% conversion to booking (2018: 3.5%). More
specifically, the contribution from our website was 12% of total
room revenue in the last 5 months of the year after the completion
of a website refresh.
We are still 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 OTA's to the higher margin direct and
group bookings.
Following the recent acquisitions in continental Europe, almost
half of all revenues now come from European properties. The spread
of locations across tourist cities in Europe, positions Safestay
uniquely and 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 volatility.
EBITDA margins in Like for Like hostels have improved from 39.8%
to 40.1% where the reduction in payroll costs (reducing by 6% per
unit sold) were partly offset by an increase in maintenance and
utility costs. The overall Hostel EBITDA margin (pre-IFRS 19)
reduces from 36.9% to 32.9%. This is partly due to the change in
the mix in revenues originating from leasehold versus freehold
properties between 2018 (46% from leasehold in 2019 versus 42.6% in
2018). This is also due to the fact some of the properties acquired
in 2018 and 2019 (Brussels, Glasgow, Vienna and Berlin) were still
operated as hotels in 2019 and have not yet benefited from
operational efficiencies which will arise when fully converted to
hostels in 2020.
Outlook
Safestay has been at the forefront of the modernisation of the
hostel market over the last 5 years. Our strategy is to offer a
comfortable and safe stay in beautiful, often iconic buildings that
are centrally located, in well-known and popular cities but still
with an expected bed rate of GBP20. This has proven to be a
successful formula and one which we believe will continue to appeal
to our customer base again once the world gets past the current
crisis.
Safestay has put in place measures to minimise losses whilst our
hostels remain closed and we have been very focused on developing
flexible plans to manage a staggered re-opening as restrictions are
lifted. We are not providing guidance on the Company's trading
performance for 2020 as there are too many unknown factors not
least the point at which we will be allowed to re-open out
sites.
Our teams remain in place and while it will take time to
re-build our bookings to pre-COVID 19 levels, we are confident of
being able to do so and perhaps also taking advantage of corporate
opportunities that will arise from this crisis.
Larry Lipman
Chairman
29 May 2020
Safestay Plc
Condensed Consolidated Income Statement
Year ended 31 December 2019
Note 2019 2018
GBP'000 GBP'000
Revenue 2 18,379 14,620
Cost of sales (2,875) (2,228)
-------- --------
Gross profit 15,504 12,392
Administrative expenses (12,996) (10,686)
-------- --------
Operating profit before exceptional expenses 2,508 1,706
Exceptional expenses (585) (662)
-------- --------
Operating profit after exceptional expenses 1,923 1,044
Finance costs 3 (2,558) (1,648)
-------- --------
Loss before tax (635) (604)
Tax (325) (303)
-------- --------
Loss for the financial year attributable
to owners of the parent company (960) (907)
======== ========
Basic and diluted loss per share 4 (1.48p) (2.56p)
Safestay plc
Condensed Consolidated Statement of Comprehensive Income
Year ended 31 December 2019
2019 2018
GBP'000 GBP'000
Loss for the year (960) (907)
Other comprehensive income:
Items that will be reclassified subsequently
to profit and loss
Exchange differences on translating foreign
operations (47) 106
Total comprehensive (loss)for the year
attributable to owners of the parent company (1,007) (801)
======== ========
Safestay plc
Condensed Consolidated Statement of Financial Position
31 December 2019
Note 2019 2018
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 5 87,366 47,522
Intangible assets 6 1,084 1,268
Goodwill 6 12,603 10,506
-------- --------
Total non-current assets 101,053 59,296
-------- --------
Current assets
Stock 85 45
Trade, Derivative financial instruments and
other receivables 1,408 1,200
Cash and cash equivalents 2,954 9,859
-------- --------
Total current assets 4,447 11,104
-------- --------
Total assets 105,500 70,400
-------- --------
Current liabilities
Loans and overdrafts 7 279 353
Finance lease obligations 8 1,648 28
Trade, Derivative financial instruments and
other payables 2,602 1,890
Current liabilities 4,529 2,271
-------- --------
Non-current liabilities
Bank loans and convertible loan notes 7 17,399 17,772
Finance lease obligations 8 46,483 21,176
Deferred tax liabilities 105 105
Trade and other payables due in more than
one year 767 1,140
Total non-current liabilities 64,754 40,193
-------- --------
Total liabilities 69,283 42,464
-------- --------
Net assets 36,217 27,936
======== ========
Equity
Share capital 9 647 647
Share premium account 23,904 23,904
Other components of equity 15,461 6,221
Retained earnings (3,795) (2,836)
-------- --------
Total equity attributable to owners of the
parent company 36,217 27,936
======== ========
Safestay plc
Condensed Consolidated Statement of Changes in Equity
31 December 2019
Share Share Other Retained Total
Capital premium account Components earnings equity
GBP'000 GBP'000 of GBP'000 GBP'000
Equity
GBP'000
-------- ---------------- ----------- --------- --------
Balance as at 1 January
2018 342 14,504 6,081 (1,929) 18,998
Comprehensive income `
Loss for the year - - 106 (907) (801)
Total comprehensive income - - 106 (907) (801)
-------- ---------------- ----------- --------- --------
Transactions with owners
Issue of shares 305 9,400 - - 9,705
Share based payment charge
for the period - - 34 - 34
-------- ---------------- ----------- --------- --------
Balance at 31 December
2018 647 23,904 6,221 (2,836) 27,936
-------- ---------------- ----------- --------- --------
Comprehensive income
Loss for the year - - - (960) (960)
Movement in translation
reserve - - (47) - (47)
-------- ---------------- ----------- --------- --------
Total comprehensive loss - - (47) (960) (1,007)
Transactions with owners
Share based payment charge
for the period - - 34 - 34
Revaluation reserve - - 9,253 - 9,253
Balance at 31 December
2019 647 23,904 15,461 (3,795) 36,217
======== ================ =========== ========= ========
Safestay plc
Condensed Consolidated Statement of Cash Flows
Year ended 31 December 2018
Note 2019 2018
GBP'000 GBP'000
Operating activities
Cash generated from operations 5,445 2,056
Income tax paid (217) (224)
-------- --------
Net cash generated from operating activities 5,228 1,832
-------- --------
Investing activities
Purchases of property, plant and equipment (1,413) (2,510)
Purchases of intangible assets (24) (24)
Acquisitions, net of cash acquired 10 (7,122) (1,791)
Payment of deferred consideration (395)
Net cash outflow from investing activities (8,954) (4,325)
-------- --------
Financing activities
Proceeds from property refinancing transaction 1,180 -
Bank loans repaid (528) (304)
Proceeds from issue of share capital - 10,356
Fees related to the issue of shares - (652)
Amounts paid under finance leases (3,242) (960)
Interest paid (589) (592)
Net cash generated from financing activities (3,179) 7,848
-------- --------
Net increase /(decrease) in cash and
cash equivalents 9,859 5,355
Cash and cash equivalents at beginning
of year (6,905) 4,504
Cash and cash equivalents at end of year 2,954 9,859
======== ========
Basis of Preparation
On 28 May 2020, the directors approved this preliminary
announcement for publication. Copies of this announcement are
available from the Company's registered office at 1a Kingsley Way,
London N2 OFW and on its website, www.safestay.com. The Annual
Report and Accounts will be sent to shareholders in due course and
will be available on the Company's website, www.safestay.com. The
financial information presented above does not constitute statutory
financial statements as defined by section 435 of the Companies Act
2006 for the year ended 31 December 2019.
The financial information for the year ended 31 December 2019 is
derived from the statutory financial statements for that year,
prepared under IFRS, under which the auditors have reported. The
audit report was unqualified, did not include references to matters
to which the auditor drew attention by way of emphasis without
qualifying their report and did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006. The statutory
financial statements for the year ended 31 December 2019 will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting.
The accounting policies applied in this announcement are
consistent with those of the annual financial statements for the
year ended 31 December 2018, as described in those financial
statements.
1. SIGNIFICANT ACCOUNTING POLICIES FOR THE GROUP
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:
IFRS 16: Leases - effective 1 January 2019
IFRS 16 Leases replaces IAS17 Leases. IFRS 16 'Leases' replaces
IAS 17 'Leases' along with three Interpretations (IFRIC 4
'Determining whether an Arrangement contains a Lease', SIC 15
'Operating Leases-Incentives' and SIC 27 'Evaluating the Substance
of Transactions Involving the Legal Form of a Lease').
The adoption of this new Standard has resulted in the Group
recognising a right-of-use asset and related lease liability in
connection with all former operating leases except for those
identified as low-value or having a remaining lease term of less
than 12 months from the date of initial application.
The new Standard has been applied using the modified
retrospective approach, with the cumulative effect of adopting IFRS
16 being recognised in equity as an adjustment to the opening
balance of retained earnings for the current period. Prior periods
have not been restated. For contracts in place at the date of
initial application, the Group has elected to apply the definition
of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to
arrangements that were previously not identified as lease under IAS
17 and IFRIC 4.
The Group has elected not to include initial direct costs in the
measurement of the right-of-use asset for operating leases in
existence at the date of initial application of IFRS 16, being 1
January 2019. At this date, the Group has also elected to measure
the right-of-use assets at an amount equal to the lease liability
adjusted for any prepaid or accrued lease payments that existed at
the date of transition. Instead of performing an impairment review
on the right-of-use assets at the date of initial application, the
Group has relied on its historic assessment as to whether leases
were onerous immediately before the date of initial application of
IFRS 16.
On transition, for leases previously accounted for as operating
leases with a remaining lease term of less than 12 months and for
leases of low-value assets the Group has applied the transitional
exemptions to not recognise right-of-use assets but to account for
the lease expense on a straightline basis over the remaining lease
term.
For those leases previously classified as finance leases, the
right-of-use asset and lease liability are measured at the date of
initial application at the same amounts as under IAS 17 immediately
before the date of initial application.
On transition to IFRS 16 the weighted average incremental
borrowing rate applied to lease liabilities recognised under IFRS
16 was 4.5%.
The Group has benefited from the use of hindsight for
determining the lease term when considering options to extend and
terminate leases.
The following is a reconciliation of the financial statement
line items from IAS 17 to IFRS 16 at 1 January 2019:
Carrying value Reclassification IFRS 16 Carrying
at 31 December value at 1 January
2018 2019
Property, Plant and
equipment 42,104 25,632 64,945
Lease liabilities 21,204 25,632 46,836
The following is a reconciliation of total operating lease
commitments at 31 December 2018 (as disclosed in the financial
statements to 31 December 2018) to the lease liabilities recognised
at 1 January 2019:
Total operating lease commitments disclosed
at 31 December 2018 8,676
Operating lease liabilities before discounting 32,482
Discounted using incremental borrowing rate 25,631
Operating lease liabilities 25,632
Finance lease obligations (Note 8) 21,204
Total lease liabilities recognised under IFRS
16 at 1 January 2019 46,836
Lessor accounting
The Group's accounting policy under IFRS 16 has not changed from
the comparative period. 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.
Going concern
The impact of the COVID-19 virus on the economy and the
hospitality industry indicate that a material uncertainty exists
that may cast significant doubt on the Group and company's ability
to continue as a going concern. Following the implementation of
social distancing measures in all European jurisdictions as a
result of the outbreak of COVID-19 virus, all the hostels operated
by the Company had to be temporary closed by the 1 April 2020.
There is also a risk of a recession as a result of Covid-19, which
could lead to a prolonged downturn in trade. The directors have
made enquiries into the adequacy of the Company's financial
resources, through a review of the Company's cashflow forecasts and
financial plan, including available lending facilities, government
available schemes to protect businesses during the period of
closure, capital expenditure plans and cash flow forecasts.
The directors have reviewed the measures implemented by the
management since the start of the outbreak which have resulted in a
significant reduction of the monthly cost base to GBP0.6 million,
and the monthly cash burn to GBP0.3 million during the lock down
period and as long as the government support measures are
maintained.
-- The Company has taken advantage of the employment support
governmental schemes in all jurisdictions where they were
available. Most employees in the UK hostels were registered as
furloughed under the job retention scheme introduced by the
government in March and extended until June. Portugal, Germany,
Slovakia and Austria have similar schemes whereby governments
refund salaries of furloughed employees. In Greece, Spain, Belgium,
Italy and Poland, furloughed employees are paid directly by the
government.
-- The Company also benefited from business rates reliefs for
the 5 hostels operated in the UK for the 12 months ending March
2021.
-- Most governments, including in the UK, have offered to defer
the payment of social charges until later in the year when business
has fully resumed.
-- The Company has liaised with landlords and obtained
deferments of rent payments during the lock period, as well as rent
reductions for some properties.
-- Operating costs in the head office have reduced by 50% to
adjust the team and spend to this unprecedented context.
The cash in bank was GBP1.4 million as at 1 April 2020. In
addition, the Company has obtained from HSBC a GBP5 million
overdraft facility from 13 April 2020 to satisfy the working
capital cash requirements during and after the lock down period.
The covenants of the existing GBP23 million debt facility, also
with HSBC, were waived until the end of 2020 when the position will
need to be revisited for the period to 31st December 2021. Due to
the impact of Covid-19 the overall impact cannot be quantified at
the moment.
A new budget has been prepared for the 18 months to 31 December
2021, based on the assumption that the hostels would start to
operate again from July 2020, and that occupancy levels would be
reduced to 30% in July and August, 40% from September to December,
half of the level normally achieved for this 6 month period in
previous years. These assumptions will depend on government
policies in each jurisdiction and may therefore vary from one
hostel to the other. The occupancy is expected to return to more
normal levels from March 2021. This reflects the expectation of a
slow recovery of the tourism market in general, and the need to
implement social distancing and cleaning measures in all properties
in the months following the lock down. The additional costs
resulting from the implementation of these new safety requirements
in the hostels were factored into the budget. The budget includes a
sensitivity analysis to assess what minimum occupancy levels the
Company could face given the financial resources available. In the
event the occupancy levels were continuously below 25% until
February 2021 the Company would have to reduce further the costs or
secure additional funding.
During the lock down period, the management has organised 24/7
security in all hostels and all properties have been serviced,
maintained and cleaned. The job retention schemes have allowed the
Company to keep essential staff employed therefore we will have the
ability to resume activity in all hostels as soon as authorised by
relevant jurisdictions and provided it makes financial sense.
Despite the material uncertainties the directors believe the
existing cash and facilities in place would allow them to continue
as a going concern. For this reason, they continue to adopt the
going-concern basis in preparing the Company's financial
statements.
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.
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 goodwill is carried out annually.
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, 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.
Lease
For any new contracts entered into 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.
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.
Due to the nature of the goods and services sold, the judgements
made in identifying performance obligations and transaction prices
have not had an impact on the revenue recognised.
Revenue is stated net of VAT and comprises revenues from
overnight hostel accommodation, income from the rental of student
accommodation during the academic year and 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..
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.
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.
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 Company'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. They are deferred in equity if they
relate to qualifying cash flow hedges, qualifying net investment
hedges or are attributable to part of the investment in a foreign
operation.
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.
Property, plant and equipment
Freehold property is 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. Fixtures fittings and
equipment are stated at 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
Assets held as finance leases are depreciated over the shorter
of the lease term and their expected useful lives on the same basis
as owned assets.
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 in order 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.
Intangible assets
Intangible assets are initially recognised and measured at fair
market value.
Where an intangible has a determinable finite useful life, the
intangible asset is amortised on a straight-line basis over that
useful life. The applicable useful life is
10 years for the life of the interest in the head lease
13 years for tenancy sublease
3 years for website development.
-- Goodwill
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred over the
fair value of the identifiable net assets acquired.
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. 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 is monitored at the operating segment
level.
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.
-- Other intangible assets
Intangible assets acquired in a business combination are
recognised at fair value at the acquisition date.
Assets with a finite useful life and 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.
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.
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
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 Holland Park lease showed indicators that it could be
treated as either a finance or operating lease. The Group's
decision to treat it as a finance lease was based on a balanced
judgment of relevant factors. Furthermore, the fair value of the
Group's finance lease asset is inherently subjective. The
methodology applies a discount rate to the future lease payments to
approximate to the fair value of the asset. Details of the
methodology of property valuations are detailed in note 5.
-- Judgements were made around the capitalised leases for
Edinburgh and Elephant & Castle. The valuation of the leasehold
interest was performed by external valuers as set out in note 5. No
tax arises on these transactions.
-- The Group has identified certain costs as exceptional in
nature in that, without separate disclosure, would distort the
reporting of the underlying business.
-- 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.
-- The IFRS 16 standard specifies the accounting for an
individual lease and therefore the IBR is specific to each lease.
However, as a practical expedient, the Standard may be applied to a
portfolio of leases with similar characteristics if management
reasonably expects that the effects on the financial statements of
applying this Standard to the portfolio would not differ materially
from applying this Standard to the individual leases within that
portfolio. If accounting for a portfolio, management shall use
estimates and assumptions that reflect the size and composition of
the portfolio. Generally, the Group uses its incremental borrowing
rate as the discount rate adjusted for lease specific and asset
specific terms where required. All the commercial leases entered in
by the Company are of similar terms, in European countries which
offer similar lending rates. Management has assessed the
sensitivity of the model as follows: a change of 100bps in the IBR
would impact the total lease liability by 6%. Therefore, management
have applied
the same discount rate to all leases in the portfolio.
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 10.
-- 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 6.
2. Segmental analysis
2019 2018
GBP'000 GBP'000
Hostel accommodation 15,115 12,171
Food and Beverages sales 2,492 1,746
Other income 772 703
-------- --------
Total Income 18,379 14,620
-------- --------
Like-for-like income 13,206 12,377
======== ========
Management consider the like-for-like income only for
acquisitions and continuing operations that have been operational
12 consecutive months in the prior year.
The Group has two operating segments: UK and Europe. The
operating segments are organised and managed separately due to the
location of each market. The Group provides a shared services
function to its operating segments and reports these activities
separately.
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.
2019 UK Spain Rest of Shared TOTAL
Europe services
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 9,401 4,909 4,069 - 18,379
----------- -------- -------- ---------- --------
Profit/(Loss) before tax 3,347 (387) 498 (4,093) (635)
Finance costs 338 681 308 1,231 2,558
----------- -------- -------- ---------- --------
Operating Profit after exceptional
expenses 3,685 294 806 (2,862) 1,923
Depreciation & Amortisation 1,265 1,555 692 - 3,512
Exceptional & Share based payment
expense - - - 619 619
----------- -------- -------- ---------- --------
Adjusted EBITDA 4,950 1,849 1,498 (2,243) 6,054
----------- -------- -------- ---------- --------
Rental charges (IFRS 16) - (1,504) (744) - (2,248)
Adjusted EBITDA (pre-IFRS 16) 4,950 345 754 (2,243) 3,806
----------- -------- -------- ---------- --------
Total assets 47,965 17,021 14,059 26,455 105,500
------- ---------- ------- ---------- --------
Total liabilities 12,255 16,553 12,426 28,049 69,283
------- ---------- ------- ---------- --------
2018 UK Spain Rest of Shared Total
Europe services
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 8,393 4,449 1,778 - 14,620
-------- -------- -------- ---------- --------
Profit/(Loss) before tax 2,711 314 369 (3,998) (604)
Finance costs 270 112 6 1,260 1,648
-------- -------- -------- ---------- --------
Operating Profit after exceptional
expenses 2,981 426 375 (2,738) 1,044
Depreciation, Amortisation
& disposals 1,320 271 85 - 1,676
Exceptional & Share based
payment expense - - - 696 696
-------- -------- -------- ---------- --------
Adjusted EBITDA 4,301 697 460 (2,042) 3,416
-------- -------- -------- ---------- --------
Total assets 35,347 1,667 1,260 32,126 70,400
-------- -------- -------- ---------- --------
Total liabilities 11,820 1,590 570 28,484 42,464
-------- -------- -------- ---------- --------
The above information is presented in the format of that
frequently reviewed by the Chief Operating Decision Maker (CODM),
and decisions made on the basis of adjusted segment operating
results.
3. FINANCE COSTS
2019 2018
GBP'000 GBP'000
Interest on bank overdrafts and loans 589 593
Amortised loan arrangement fees 81 81
Other interest costs (14) -
Interest expense for leasing arrangements 1,785 936
Unwinding of discount on deferred consideration 117 38
======== ========
2,558 1,648
======== ========
4. LOSS per share
The calculation of the basic and diluted loss per share is based
on the following data:
2019 2018
GBP'000 GBP'000
Loss for the period attributable to equity holders
of the Company (960) (907)
======== ========
2019 2018
'000 '000
Weighted average number of ordinary shares for
the purposes of basic loss earnings per share 64,679 35,387
Effect of dilutive potential ordinary shares 2,736 1,830
------- -------
Weighted average number of ordinary shares for
the purposes of diluted
Loss per share 67,415 37,217
------- -------
Basic loss per share (1.48p) (2.56p)
------- -------
Diluted loss per share (1.48p) (2.56p)
------- -------
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.
The total number of shares in issue as at 31 December 2019 was
64,679,014.
5. PROPERTY, PLANT AND EQUIPMENT
Leasehold Fixtures,
Freehold Right of land and fittings Assets under
land and use assets buildings and equipment construction Total
buildings GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
Cost or valuation
At 1 January 2018 2,683 - 43,717 2,052 121 48,573
Transfer 18 - (230) - - (212)
Additions - - 208 207 2,084 2,499
Acquired in business
combination - - 319 259 - 578
Disposals - - - (48) (55) (103)
Transfer to current
assets - - - - (88) (88)
Exchange movements - - - 43 - 43
----------- ------------
At 31 December 2018 2,701 - 44,014 2,513 2,062 51,290
Transfer - - 2,062 - (2,062) -
Additions - - 717 696 - 1,413
Adjustment on
transition
to IFRS 16 - 72,534 (45,322) - - 27,212
Acquired in business
combination 5,348 - - 89 - 5,437
Disposals - - - - - -
Revaluation - 9,253 - - - 9,253
Exchange movements (51) - (23) (73) - (147)
----------- ------------ ----------- --------------- -------------- ---------
At 31 December 2019 7,998 81,787 1,448 3,225 - 94,458
----------- ------------ ----------- --------------- -------------- ---------
Depreciation
At 1 January 2018 261 - 1,031 1,310 - 2,602
Transfer (205) - (25) - - (230)
Charge for the year 28 - 904 489 - 1,421
Released on disposal - - - (25) - (25)
----------- ------------
At 31 December 2018 84 - 1,910 1,774 - 3,768
Transfer - - - - - -
Adjustment on
transition
to IFRS 16 1,848 (1,848)
Charge for the year 60 2,771 55 438 - 3,324
Released on disposal - - - - - -
----------- ------------
At 31 December 2019 144 4,619 117 2,212 - 7,092
----------- ------------ ----------- --------------- -------------- ---------
Net book value:
At 31 December 2019 7,854 77,168 1,331 1,013 - 87,366
----------- ------------ ----------- --------------- -------------- ---------
At 31 December 2018 2,617 - 42,104 739 2,062 47,522
----------- ------------ ----------- --------------- -------------- ---------
The directors based the valuation of the freehold in York using
external valuations as at 14 March 2017 prepared by Cushman and
Wakefield on behalf of HSBC (the Group's bankers) as part of the
security for the Group's bank financing. Had the properties not
been revalued their historic cost carrying value would have been
GBP2.4 million.
The freehold land and building acquired in business combination
relate to:
-- The freehold of the Glasgow property acquired in October 2019
for GBP3.2 million, and valued by Cushman and Wakefield for GBP3.2
million on behalf of HSBC as part of the security for the Group's
bank financing in February 2020.
-- The freehold of the Pisa acquired in June 2019 for GBP3 million.
The Edinburgh leasehold was independently valued on 14 March
2017 at GBP16 million and the London Elephant & Castle
leasehold was independently valued on 31 July 2019 at GBP26.8
million. Both valuations were performed by Cushman and Wakefield on
behalf of HSBC (the Group's bankers). The Group has accounted for
the finance transactions as interest-bearing borrowings secured on
the original properties held. There were no recognised gains or
losses arising in respect of these transactions.
Leasehold land and buildings comprise the capitalised
refurbishment costs incurred by the Company on the leased
properties.
Right of use assets
The GBP79.9 million right of use assets all relate to properties
operated by the Company as hostels.
2019 2018
Finance leases held in Leasehold, Land and Buildings - -
Transfer from Leasehold, Land and Buildings to Right
of use assets 43,474 -
Transition of Operating leases to Right of use assets 27,212 -
Revaluation of Elephant and Castle 9,253
------ -----
Right of use assets 79,939 -
6. INTANGIBLE ASSETS AND GOODWILL
Website Leasehold Goodwill Total
Development rights GBP'000 GBP'000
GBP'000 GBP'000
Cost
At 1 January 2018 48 1,711 7,301 9,060
Additions 24 - - 24
Arising in business combination - - 3,109 3,109
Exchange movements - 15 96 111
------------ --------- --------- ---------
At 31 December 2018 72 1,726 10,506 12,304
Additions 26 - 392 418
Arising in business combination - - 1,705 1,705
Exchange movements - (21) - (21)
------------ --------- --------- ---------
At 31 December 2019 98 1,705 12,603 14,406
------------ --------- --------- ---------
Amortisation
At 1 January 2018 4 345 - 349
Charge for the period 20 161 - 181
------------ --------- --------- ---------
At 31 December 2018 24 506 - 530
Charge for the period 29 160 - 189
------------ ---------
At 31 December 2019 53 666 - 719
------------ --------- --------- ---------
Net book value:
At 31 December 2019 45 1,039 12,603 13,687
============ ========= ========= =========
At 31 December 2018 48 1,220 10,506 11,774
============ ========= ========= =========
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.
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 are
disclosed in note 10. 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.
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.
The key assumptions used in the VIU calculations for all hostels
are based on forecasts approved by management performed for a
5-year period:
-- Pre-tax discount rate of 8.7%
-- 2019 average bed rate per property, increasing in line with a
2% annual inflation rate in following years
-- Earnings before interest, tax, depreciation, amortisation and
rent (EBITDAR) margin of 2019 with an increase up to 4 basis points
over 5 years
Two hostels, in Lisbon and Prague, show the lowest relative VIU
headroom. However, the property in Lisbon benefited from a
significant capex improvement program at the end of 2019 and the
Management are confident this will reposition the occupancy and bed
rate of the property so that it will not lead to any impairment in
the future. Similarly, the demand and operation in the hostel in
Prague have suffered from works on the adjacent site in the last
years and is expected to resume trading as before in the next
years.
No impairment has been identified for the year ended 31 December
2019.
Sensitivity analysis
Headroom between the carrying and recoverable value of an asset
is dependent upon sensitivities to the following assumptions:
For each of CGU, a fall in operating margin and average bed rate
(ABR), 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 300bps 500bps 300bps
Barcelona Sea 300bps 500bps 400bps
Barcelona Passeig De Gracia 400bps 800bps 900bps
Brussels 1800bps 3000bps 2000bps
Lisbon 100bps 100bps 100bps
Madrid 600bps 1100bps 700bps
Prague 100bps 200bps 100bps
7. LOANS
2019 2018
GBP'000 GBP'000
At amortised cost
Bank Loan and other loans 17,860 18,389
Loan arrangement fees (182) (264)
-------- ---------
17,678 18,125
======== =========
Loans repayable within one year 279 353
Loans repayable after more than one year 17,399 17,772
-------- ---------
17,678 18,125
======== =========
8. LEASES
Lease liabilities are presented in the statement of financial
position as follows:
Audited Audited
31 December 31 December
2019 2018
GBP000 GBP000
---------------------------- ----------------------------
Current 1,648 28
Non-current 46,483 21,176
Total 48,131 21,204
============================ ============================
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
(see Note 5).
Leases of property generally have a lease term ranging from 7 years
to 20 years. However, two leases for the hostels operated in Edinburgh
and London Elephant & Castle, which were previously treated as finance
lease under IAS 17, have terms of 150 years with option to buy back
after the end of year 25. One lease for the hostel in London Kensington
Holland Park, also previously treated as finance lease under IAS
17, has a term of 50 years.
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.
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 their original
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 7 -
leases 12 20 years 13 years 8 0 9 0
------------- ---------- ---------- ---------- --------- ---------
Hostel
buildings 50 -
- Long 150
leases 3 years 13 years 0 2 3 0
-------------- ------------- ---------- ---------- ---------- --------- --------- ------------
Lease liabilities
The lease liabilities are secured by the related underlying assets.
The undiscounted maturity analysis of lease liabilities at 31 December
2019 is as follows:
2019 Minimum lease payments due
Within 1 - 2 2 - 3 3 - 4 4 - 5 After Total
1 year years years years years 5 years
-------- -------- -------- -------- -------- --------- ---------
Lease payments 3,424 3,442 3,442 3,442 3,442 64,620 81,812
Finance charges (1,776) (1,720) (1,662) (1,601) (1,540) (25,382) (33,681)
Net present
values 1,648 1,722 1,780 1,841 1,902 39,238 48,131
2018 Minimum lease payments due
Within 1 - 2 2 - 3 3 - 4 4 - 5 After Total
1 year years years years years 5 years
-------- ------- -------- ------- ------- --------- ---------
Lease payments 960 960 960 960 960 43,955 48,755
Finance charges (932) (931) (1,005) (848) (923) (22,912) (27,551)
Net present
values 28 29 (45) 112 37 21,043 21,204
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.
9. EQUITY
CALLED UP SHARE CAPITAL
GBP'000
Allotted, issued and fully paid
64,679,014 Ordinary Shares of 1p each as at 1 January
2019 647
647
=======
At the 31 December 2019, the ordinary shares rank pari passu.
There are no changes to the voting rights of the ordinary shares
since the balance sheet date.
10. Business combinations
See accounting policy in note 1.
On 12(th) June 2019, the Group acquired Pisa hostel for a total
consideration of EUR3.4m paid in full at acquisition. The
consideration included 100% interest in HPISA Srl, acquisition of
the freehold property and the operating hostel business.
On 29(th) October 2019, Safestay (Edinburgh) Hostel Limited
acquired the Best Western Glasgow hotel from the Crown Group prop
co for the property and Crown Group op co for the business. Total
consideration paid on acquisition was GBP3.2m.
On 14(th) November 2019, the Group purchased 100% of the shares
of Hotel Auberge GmbH, an entity incorporated in Germany.
Consideration paid for the trading business was GBP1.2m.
Pisa Glasgow Berlin 2019 2018
------------- ------------------- ------------- --------- ---------
Number of sites purchased 3 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Provisional fair value
Property, plant &
equipment 2,130 3,286 21 5,437 578
Intangible assets - - 2 2 -
Current assets - - 40 40 128
Cash 86 - 106 192 -
Debt - - - - (189)
Deferred revenue, trade
& other payables (33) - (71) (104) (263)
Deferred tax - - - - -
Goodwill 790 - 957 1,747 3,109
Consideration
Net cash paid on acquisition 2,973 3,286 1,055 7,314 1,791
Deferred payments - - - - 1,572
------------- ------------------- ------------- --------- ---------
Total Consideration 2,973 3,286 1,055 7,314 3,363
------------- ------------------- ------------- --------- ---------
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:
1) 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.
2) 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.
3) 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.
4) Intangible assets - the Board reviewed the agreements with
customers and found no intangible assets for capitalisation.
The Group incurred acquisition costs of GBP0.101 million on
legal fees and due diligence costs. These have been charged to
operating exceptional items in the Consolidated Income
Statement.
The acquisitions have contributed the following revenue and
operating profits to the Group in the year ended 31 December 2019
from the date of acquisition:
Pisa Glasgow Berlin
-------- -------- --------
GBP'000 GBP'000 GBP'000
Revenue 514 100 90
Operating profit 159 10 15
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.
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, updated internal processes and undertook a light
re-branding exercise in each new property in the year ended 31
December 2019.
11. POST REPORTING DATE EVENTS
On 13 January 2020, the Group completed the renewal of its debt
facility with HSBC. The GBP17.9 million facility which was agreed
for 5 years in April 2017 for an original amount of GBP18.4
million, was replaced with a new facility of GBP22.9 million for 5
years until 2025. The terms are similar to the previous facility,
with interests of 2.45% + LIBOR and same covenants as before.
On 15 January 2020 announced the completion for GBP1.3 million
of the leasehold acquisition of the 132 bed hostel in Athens.
On 30 January 2020 Safestay completed for GBP2.4 million the
acquisition of the 2 Leaseholds hostels in Warsaw (158 beds) and
Bratislava (124 beds), both acquired from Dream Management Group
Ltd.
From March 2020 Safestay was impacted by the COVID-19 outbreak.
Bookings and stays have started to fall in the first weeks of
March, until all hostels were closed by 1 April 2020. We have
elaborated on the impact of this COVID-19 in the Chairman's
statement and the Going Concern note. COVID-19 is a non-adjusting
event but would have had some impact on the balance sheet had it
been an adjusting event:
-- Due to current closure of the hostels and the slow recovery
expected from re-opening, as explained in the Going concern note,
cash flows from operation will be reduced, which will reduce the
recoverable amount from each hostel. As a consequence, has this
been taken in consideration within these financial statements, an
impairment charge could have arisen. Note 6 includes a sensitivity
analysis for each hostel.
-- Payments from guests take place at the time of booking or
check in, except for groups which may occasionally benefit from
partial credit facility. Trade debtors amount to as at 31 December
2019. There would therefore be no risk of significant trade bad
debt resulting from COVID-19.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR QVLFLBELEBBD
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May 29, 2020 02:00 ET (06:00 GMT)
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