SAFESTAY PLC

Earnings Release • Sep 29, 2022

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RNS Number : 0735B

Safestay PLC

29 September 2022

29 September 2022

Safestay plc

("Safestay", the "Company" or the "Group")

Interim Results

Safestay (AIM: SSTY), the owner and operator of an international brand of contemporary hostels, is pleased to announce its Interim Results for the 6 months to 30 June 2022.

H1 Financial Highlights

·    All 16 hostels remained largely open for the first time since early 2020 and demonstrated that their customer appeal remains strong

·    Revenues built during the period to £7.3 million (2021: £1.0 million) a good performance moving back toward pre-pandemic levels (2019: £8.1 million)

·    Delivered with an Occupancy rate of only 51% (2019: 71%) showing there remains significant upside

·    Average bed rate (ABR) was sustained at £21.5 (2019: £19.5)

·    Cost base coming back in line with increased trading

·    Generated EBITDA of £2.5 million (2021 loss of £1.09 million and 2019 profit of £2.2 million) and a loss before tax of £0.3 million (2021: profit of £3.6 million including gains from property disposals and 2019 loss of £0.9 million).

·    Cash at bank of £5.2 million as at 30 June 2022

·    As at 30 June 2022, net asset value per share was 44.6p (30 June 2021: 47.6p per share(restated)) reflecting the underlying value of the property portfolio

H2 Trading

·    Good start to the key summer months with trading in both July and August ahead of budget

·    Sales currently coming mostly from young travellers, Group bookings from schools, colleges and universities starting to come back but well below where they are expected, although forward group bookings for the latter part of 2022 are encouraging.

·    On track to complete a successful year 

Larry Lipman, Chairman of the Company, commenting on the results said:

"It is difficult to predict how quickly a business will recover, so we are very pleased to present these results which show Safestay coming back rapidly towards pre-pandemic levels of trading and beyond. As we always felt, if allowed to travel, our customers would again opt to stay in our premium portfolio of hostels all of which are well located in the major and most visited cities across Europe. Our trading is naturally second half weighted over the summer months and we have enjoyed a strong July and August and have done so with college groups around 14.8% of room revenue at this stage but is expected to build back to historical levels of 30-40%. It is important to remain cautious, especially given the current economic backdrop, but the business is well funded, demand is rising and we are well placed to deliver a trading result for the year that is comfortably ahead of our expectations at the outset of 2022.

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
Safia Colebrook

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 these results which demonstrate the continued popularity of the Safestay portfolio of premium hostels. This was the first 6-month trading period in the last two years where we have been able to remain largely open with very little interruption and our customers have been free from travel restrictions to visit each of the 12 countries where we operate. We have come out of the pandemic with 16 high quality hostels and a strengthened balance sheet, following the two hostel sales last year, to support the return of the Group to full trading. These results show the Group is close to being level with the H1 performance in 2019 and given this was achieved with occupancy at just 51% there is certainly scope for further improvement.

We have started the key second half of the financial year well and we look forward to delivering a good result for the year as a whole.

Financial review 

The Group generated revenues of £7.3 million (2021: £1.0 million), leading to EBITDA of £2.5 million (2021: Loss of £1.09 million). The EBITDA calculation is disclosed in note 2.

With the portfolio now open and less likely to face further closures, the cost base, which was successfully pared back during the pandemic, is now coming back up to support the trading prospects of the hostels. There was no government support for the Group in the period and the rental agreements are also normalising after several landlords acted supportively during the pandemic. In addition, the rent on Holland Park has been reduced by 38% or £250,000 following successful rent negotiations.

The Group recorded a loss before tax of £0.3 million (2021: profit of £3.6 million), in the prior year, the Group benefited from the sale of the Edinburgh hostel and recorded a loss per share of 0.5p (2021: profit of 5.6p).

Group borrowings as at 30 June 2022 were £24.8 million with cash at bank of £5.2 million. The value of the Group's portfolio of properties further underpins the Group's finances and while it is not valued on an annual basis, the most recent valuation for just the Elephant & Castle site as at 31 December 2021 was £26.8 million.

As at 30 June 2022, net asset value per share was 44.6p per share (30 June 2021: 47.6p per share(restated)).

Operational review

Following the disposal in 2021 of the Barcelona (Sea) and Edinburgh Hostels for £16.7 million, Safestay now operates 16 hostels with approximately 3,242 beds across 11 European and 3 UK cities. Like many operators in the hospitality sector, the last two years have presented significant challenges to every part of the business. The Group has had to adapt quickly but has now re-emerged in 2022 a leaner, more financially secure business with the capability to recover all lost ground and move forward again. The first six months have clearly shown good demand which has continued into the second half of the year.

Demand at this stage has primarily come from young people exploring Europe who have been the first to respond to the ability to travel freely and once again visit the attractions of Europe's principal cities. Whereas group bookings by colleges, schools and universities who typically make up between 30-40% of the annual room revenue have been slower to come back post pandemic, responsible for just 14.8% of the H1 room revenue. Demand has increased from this segment in H2 but the Group expects it will be in 2023 that the group bookings market returns in earnest.

Occupancy was 51% in H1, a figure that is building back towards pre-pandemic levels of 71%, recorded for the same H1 period in 2019. The return of group bookings to previous levels will be an important factor and increasing confidence amongst all customer segments will support a return to normal trading.

Operationally the Group is building back the teams in each hostel, new staff are being recruited in line with increasing demand. Recruitment in this market is challenging and competition for good staff may lead to higher payroll costs but as yet there has been no need for a significant shift. The management team are also very mindful of potential inflationary pressures on other parts of the business. In terms of energy costs, the Group has fixed electricity prices in the UK to September 2023 providing certainty during this period. Ultimately, if required bed prices would be increased.

Overall, the business has made a good return to trading, always placing the safety of guests first and looking to build momentum and trust in the business over the coming months. The core offer of 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 of around just £20, is unchanged. Importantly, a good proportion of the bookings received were direct to the Group's website, in total 25.1% of non-groups room revenue, which delivers a higher margin.

Capex has been kept at a minimum over the last two years given cash constraints. During H1 while capex spend levels were still relatively low where required the business invested behind ensuring the fabric and quality of the buildings was maintained. Reflecting the uncertainty of the market environment, new  development projects remain on hold. The focus for now is solely on improving the marketing and revenue management strategies to optimise performance and supporting customer return to pre-pandemic levels.

In February, Paul Hingston joined the Group as Chief financial Officer replacing Peter Harvey. In June, Nuno Sacramento, Chief Operating Officer left the Group and a search for his successor is well advanced.

Outlook

This has been a good performance by Safestay, certainly better than we had originally forecast. Most importantly, when our customers were allowed to visit, they did, proving the ongoing appeal of our venues. The sale of the two hostels last year for £16.7 million, helped refinance the business and place us in a good position to move forward positively. There will no doubt be further cost pressures, but we may also benefit from being a value offer in a market where consumers are more cash constrained. Overall, we feel confident in our business and its prospects are steadily returning.

Larry Lipman

Chairman

28 September 2022

Condensed consolidated statement of comprehensive income		Unaudited	(restated) Unaudited	Audited
		6 months to 30 June 2022	6 months to 30 June 2021	Year to 31 December 2021
	Note	£000	£000	£000
Revenue	3	7,286	407	5,810
Cost of sales		(906)	(42)	(1,160)
Gross profit		6,380	365	4,650
Administrative expenses		(5,759)	(2,836)	(9,867)
Operating profit / (loss) before exceptional expenses		620	(2,471)	(5,217)
EBIT
Exceptional items - profit on sale of assets		-		-
Exceptional items - other operating income		-	336	1,737
Exception items - loss on disposal				-
Exceptional items - costs		-	(20)	-
Operating profit / (loss) after exceptional expenses	3	620	(2,155)	(3,480)
Interest received		1	-	-
Finance costs		(960)	(1,196)	(2,627)
Profit / (loss) before tax		(338)	(3,351)	(6,107)
Tax		(5)	1,891	218
Profit/(Loss) after tax for continuing operations		(343)	(1,460)	(5,889)
Profit/(Loss) after tax for discontinued operations		-	5.407	5,290
Total comprehensive profit / (loss) for the period attributable to owners of the parent company		(343)	3,947	(599)
Basic profit/(loss) per share		(0.53p)	6.1p	(0.93p)

Condensed consolidated statement of financial position		Unaudited	Unaudited (restated)	Audited
		30 June 2022	30 June 2021	31 December 2021
		£000	£000	£000
Non-current assets
Property, plant and equipment		73,974	73,780	73,609
Intangible assets		11	29	18
Goodwill		12,145	12,146	12,146
Lease assets		500	-	562
Deferred tax asset		1,126	2,693	1,122
Total non-current assets		87,755	88,648	87,457
Current assets
Stock		44	38	35
Trade and other receivables		605	1,673	1,227
Lease assets		105	-	78
Current tax asset		199	65	199
Cash and cash equivalents		5,215	16,230	4,482
Total current assets		6,168	18,006	6,021
Total assets		93,923	106,654	93,478
Current liabilities
Borrowings		574	776	926
Lease liabilities		2,033	1,854	1,922
Trade and other payables		2,236	2,310	2,062
Total current liabilities		4,843	4,940	4,910
Non-current liabilities
Borrowings		24.140	34,312	24,028
Lease liabilities		32,783	34,863	31,086
Deferred tax		3,287	1,758	3,314
Trade and other payables due in more than one year		-	-	7
Total non-current liabilities		60,210	70,933	58.435
Total liabilities		65,052	75,873	63,345
Net assets		28,871	30,781	30,133
Equity
Share capital	10	647	647	647
Share premium account		23,904	23,904	23,904
Other components of equity		17,590	14,613	18,510
Retained earnings		(13,271)	(8,383)	(12,928)
Total equity attributable to owners of the parent company		28,871	30,781	30,133

Condensed consolidated statement of changes in equity

For the six months to 30 June 2022 (unaudited)

	Share capital £000	Share premium account £000	Other Components of Equity £000	Retained earnings £000	Total equity £000
Balance at 1 January 2022	647	23,904	18,510	(12,928)	30,133
Comprehensive income
(Loss) for the period	-	-	-	(343)	(343)
Movement in translation reserve	-	-	(969)	-	(969)
Total comprehensive income	-	-	(969)	(343)	3,769
Transactions with owners
Share-based payment charge for the period	-	-	49	-	49
Balance at 30 June 2022	647	23,904	17,590	(13,271)	28,871

Condensed consolidated statement of changes in equity

For the six months to 30 June 2021 (unaudited) (restated)

	Share capital £000	Share premium account £000	Other Components of Equity £000	Retained earnings £000	Total equity £000
Balance at 1 January 2021	647	23,904	14,628	(12,329)	26,851
Comprehensive income
Profit for the period	-	-	-	3,947	3,947
Movement in translation reserve	-	-	(178)	-	(178)
Total comprehensive income	-	-	(178)	3,947	(3,769)
Transactions with owners
Share-based payment charge for the period	-	-	162	-	162
Balance at 30 June 2021	647	23,904	14,613	(8,383)	30,781

For the year ended 31 December 2021 (audited)

Balance at 1 January 2021 (restated)	647	23,904	14,628	(12,329)	26,851
Loss for the year	-	-	-	(599)	(599)
Other comprehensive income Property revaluation Deferred tax on property revaluation			5,039 (1,399)		5,039 (1,399)
Movement in translation reserve	-	-	169	-	169
Total comprehensive loss	-	-	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

Condensed consolidated statement of cash flows		Unaudited	Unaudited	Audited
Note	6 months to 30 June 2022	6 months to 30 June 2021	Year to 31 December 2021
	£000	£000	£000
Operating activities
Cash generated from operations	4	2,939	(244)	(1,272)
Income tax paid		4	-	(51)
Net cash generated from operating activities		2,943	(244)	(1,323)
Investing activities
Purchase of property, plant and equipment		(176)	(55)	(307)
Purchase of intangible assets		-	-	-
Acquisition of business		-	-	-
Payment of deferred consideration		-	-	-
Sale proceeds from disposals		-	16,000	16,658
Net cash outflow from investing activities		(176)	15,945	16,351
Cash flows from financing activities
Proceeds from refinancing transaction		-	-	-
Fees relating to financing transaction		-	-	-
Proceeds from property financing transaction		-	-	-
Proceeds from Coronavirus Business Interruption loan		-	-	-
Repayment of bank loans		(250)	(205)	(10,373)
Principal elements of lease payments		(1,678)	(882)	(1,810)
Property financing payments		-	(166)	-
Fees related to borrowings		-	-	-
Interest paid		(106)	(343)	(488)
		(2,034)	(1,596)	(12,671)
Cash and cash equivalents at beginning of period		4,482	2,125	2,125
Net increase/(decrease) in cash and cash equivalents		733	14,105	2,357
Cash and cash equivalents at end of period		5,215	16,230	4,482

1.      ACCOUNTING POLICIES FOR THE GROUP AND COMPANY FINANCIAL STATEMENTS

Safestay plc is listed on the AIM market of the London Stock Exchange and was incorporated and is domiciled in the UK.

The Group and Company interim financial statements have been prepared in accordance with International Accounting Standards under UK-adopted IFRS. 

These condensed interim financial statements have not been audited, do not include all the information required for full annual financial statements and should be read in conjunction with the Group's consolidated annual financial statements for the year ended 31 December 2021.

The financial statements have been presented in sterling, prepared under the historical cost convention, except for the revaluation of freehold properties and right of use assets.

The accounting policies have been applied consistently throughout all periods presented in these financial statements. These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 31 December 2022.

New standards and interpretations effective in the year

No new standards have been implemented this year that have a material impact on the business.

2.         PRIOR YEAR RESTATEMENT

IFRS 16 Adjustment 

Following a review of the IFRS 16 accounting for the year to 31 December 2021, it is noted that the classification between accruals, IFRS lease liability and rent expense in the year to 31 December 2020 was found to be incorrect. This has resulted in an increased lease liability of £440,000, a decrease in accruals of £598,000 and a decrease in rent (increase in retained earnings brought forward) of £158,000.

Overall, the 2020 loss decreased and consequently the 2021 retained earnings brought forward has increased by £158,000, plus the net assets has increased by £158,000.

Deferred tax liability on the 2019 Safestay (Elephant & Castle) Ltd property revaluation

From a review of the deferred tax balances as at 31 December 2021 it is noted that the deferred tax liability relating to the property revaluation on Safestay (Elephant & Castle) Ltd was erroneously omitted from the liability for the year ended 31 December 2019.

An adjustment has been made to correct this that has reduced the property revaluation reserve by £1,758,000 and increased the deferred tax liability by £1,758,000. This has reduced net assets by £1,758,000 and has no impact on the trading profit in 2019.

Profit and Loss Representation

For the period ending 30 June 2021 we have restated the profit and loss account to present the discontinued operations on a separate line. There has been no impact on the profit and loss made for the period.

3.                SEGMENTAL ANALYSIS

		Unaudited 6 months to 30 June 2022 £000	Unaudited 6 months to 30 June 2021 £000	Audited Year to 31 December 2021 £000
Hostel accommodation		6,564	507	4,901
Food and Beverages sales		495	364	725
Other income		227	18	550
Rental income		-	131	247
Total Income		7,286	1,020	6,423

UNAUDITED 6 MONTHS TO 30 JUNE 2022

2022	UK	Spain	Rest of Europe	Shared services	Total
	£000	£000	£000	£000	£000
Revenue	2,657	1,813	2,816	-	7,286
Profit/(Loss) before tax	509	403	456	(1,706)	(338)
Finance costs	160	244	203	353	960
Operating Profit after exceptional items	669	648	659	(1354)	622
Depreciation, Amortisation & disposals	404	636	670	198	1,908
Exceptional & Share based payment expense	49		-	-	49
Rent forgiveness	-	(24)	-	-	(24)
Adjusted EBITDA	1,122	1,260	1,329	(1,156)	2,555
Total assets	34,456	20,739	26,206	12,522	93,923
Total liabilities	(11,653)	(13,916)	(12,687)	(26,796)	(65,052)

AUDITED 12 MONTHS TO 31 DECEMBER 2021

2021	UK	Spain	Europe	Shared services	Total
	£000	£000	£000	£000	£000
Revenue	2,422	1,363	2,625	-	6,423
Profit/(Loss) before tax	6,689	(2,278)	(3,448)	(2,549)	692
Finance costs	271	618	1,157	1,273	2,701
Operating Loss after exceptional items	6.960	(1,660)	(2,291)	(1,276)	3,393
Depreciation, Amortisation & disposals	1,028	1,076	2,350	395	3,773
Exceptional & Share based payment expense	(7,511)	554	554	72	(6,885)
Rent forgiveness	(595)	(227)	(680)	-	(1,275)
Adjusted EBITDA	(118)	(257)	(67)	(809)	(994)
Total assets	34,975	19,144	44,168	14,335	93,478
Total liabilities	(10,731)	(13,432)	(25,893)	(26,721)	(63,345)

4.          NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
		Unaudited	Unaudited			Audited
	6 months to 30 June 2022	6 months to 30 June 2021			Year to 31 December 2021
	£000	£000			£000
Loss before tax		(283)	3,565			693
Adjustments for:
Depreciation of property, plant and equipment and		1,908	2,466			3,773
amortisation of intangible assets
Profit on disposal of assets		-	(7,074)			(6,957)
Finance costs		960	1,270			2,545
Share-based payments		-	162			72
Exchange movements		43	30			116
Rent concessions		(24)	(788)			(1,275)
Changes in working capital
Decrease/(Increase) in inventory		(9)	10			12
(Increase)/Decrease in trade receivables		622	218			549
Increase/(Decrease) in trade and other payables		(272)	(103)			(800)
Cash generated from operating activities		2,939	(244)			(1,272)

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