TIDMSSTY
RNS Number : 2441L
Safestay PLC
18 April 2018
Safestay plc
("Safestay", the "Company" or the "Group)
Final Results for the Year Ended 31 December 2017
2017 Financial highlights
-- 43% growth in total revenues to GBP10.5 million (including acquisitions made in 2017)
-- 15% growth in UK revenues to GBP8.5 million showing strong underlying performance
-- Adjusted EBITDA of GBP3.2m (2016: GBP2.2 million) in line with market expectations
-- Loss before tax increased to GBP0.87m (2016: GBP0.47m) due to
increased finance costs (including leasehold properties)
-- Reflecting the strong sales growth like for like occupancy
(UK) increased by 13.5% to 74% (31 December 2016: 65%)
-- UK average bed rate stable at GBP19.80 with scope for future
increases in line with increased demand
-- Completed the refinancing of Elephant & Castle and
Edinburgh hostels raising GBP11.4 million of gross cash
proceeds
-- Agreed new GBP18.4 million 5 year secured debt facility with
HSBC to replace existing bank loan and two convertible loans and in
addition reducing significantly the cost of borrowings
Key Metrics
2017 2016
Occupancy % 73% 65%
Average Bed Rate GBP19.34 GBP19.28
Room Revenues (GBP'000) 8,971 6,058
Total Revenues (GBP'000) 10,547 7,411
Cash generated from operations (GBP'000) 1,863 2,308
Net assets per share 55p 58p
2017 Operational highlights
-- Number of beds sold increased from 297,276 to 444,480 in 2017
-- Switch from focus on bed rate to focusing on bed profitability
-- Successful integration of 5 newly acquired European
properties in key gateway city destinations
-- Leading guest scores in the markets Safestay operates
achieved by developing a strong traction with guests
-- Well advanced capex programme with key projects in Madrid,
Barcelona, and Elephant & Castle that together will add a
further 330 beds to the portfolio
-- Significant expansion of Digital Marketing capabilities
Post year end
-- Acquisition of 3rd Hostel in Barcelona for EUR3.0 million
increasing the number of beds in the city to 594 beds.
Larry Lipman commenting on the results said:
"Arguably this has been the most successful year for the Company
to date, beginning with the refinancing of the Company which
exemplified the embedded value in the business and providing the
capital to support the threefold expansion of the portfolio. This
activity came alongside a very strong trading performance from the
Group with like for like revenues up 15% driven by a particularly
strong performance from our uniquely located and Grade 1 listed
Holland Park Hostel.
2018 has started well from a trading perspective and we have
continued the portfolio's expansion with the acquisition of a third
hostel in the ever-popular city of Barcelona. We are looking
forward to benefitting from a full year's contribution from the
assets that we have acquired and completing the investment projects
we have underway."
Enquiries
Safestay plc +44 (0) 20 8815 1600
Larry Lipman
Sharon Segal
Canaccord Genuity Limited
(Nominated Adviser and Broker) +44 (0) 20 7523 8000
Chris Connors
Martin Davison
Novella +44 (0) 20 3151 7008
Tim Robertson
Toby Andrews
For more information visit: www.safestay.com
Chairman's Statement
Introduction
I am very pleased to present the results for the year to 31
December 2017 which shows the company performing strongly recording
a 43% increase in revenues alongside an increased occupancy across
our portfolio of hostels to 73%.
The business has grown rapidly, both organically and through
acquisition. The first Safestay hostel opened in London at Elephant
& Castle in 2012, with 413 beds. In 2017 the Group expanded
into key gateway European cities transforming the portfolio. Today
we have 9 hostels in the UK and Europe (plus Elephant & Castle
extension, a development site in Paris and 34 apartments under
development in Madrid), with a total of over 2,600 beds plus 34
apartments.
The concept of a youth hostel has changed substantially over the
last few years; Safestay's hostels are stylish, comfortable and
safe occupying beautiful buildings that are centrally located but
with an average bed rate of GBP20. This has led to the concept of a
premium hostel becoming more widely recognised which in turn is
increasing our existing and future customer base and opportunity as
awareness of the offer grows.
2017 was a good year for the business with the establishment of
our European platform together with growing brand recognition that
are combining to drive occupancy levels and expand our loyal
customer base.
Financial Results
Revenue
Group revenue for the financial year ended 31 December 2017
increased by 43% to GBP10.5 million (2016: GBP7.4 million). Within
this, UK achieved total sales growth of 15% to GBP8.5 million,
driven on the back of increases in occupancy to 74% (2016: 65%).
The new European acquisitions contributed GBP2.0 million to revenue
in the period.
Food & beverage sales for the Group in 2017 were GBP1.4
million. On a like for like basis, the UK grew its food &
beverage revenue by 8% to GBP1.3 million. With the added investment
and initiatives, we are making in our food and beverage offering we
expect to be able to deliver increased benefits going forward, both
in 2018 and beyond.
Total ancillary sales were GBP193k. In the UK they grew by 39%
to GBP153k. Despite being a small portion of revenue, we believe
that there is a potential to grow this side of the business.
Adjusted EBITDA
Adjusted EBITDA provides a key measure of progress made.
Adjusted EBITDA for the year to December 2017 was GBP3.2 million,
an increase of 45% on the same period last year (2016: GBP2.2
million).
Adjusted EBITDA is as follows:
2017 2016
GBP'000 GBP'000
Operating Profit 971 995
Add back:
Depreciation 1,538 901
Amortisation 161 140
Exceptional expenses 495 152
Share based payment expense 34 34
------------- --------
Adjusted EBITDA 3,199 2,222
------------- --------
There were a number of exceptional expenses, totalling GBP0.495
million which includes costs relating to the Group refinancing of
its bank debt, professional costs in relation to the property
refinancing and the acquisition costs of acquiring the U Hostel and
Equity Point Hostels in Europe.
Finance Costs
Finance costs in 2017 were GBP1.8m (2016: GBP1.5 million).
In March 2017 the Group refinanced its borrowings with a new 5
year GBP18.4m secured bank facility with HSBC. This enabled the
Group to repay all previous borrowings including two convertible
loans and, in doing so, the group significantly reduce the annual
interest costs. There were, however, early repayment penalties of
GBP118k on the previous loan.
The property refinancing for Edinburgh and Elephant & Castle
has been accounted for as a financing transaction as all
significant risks and rewards of the ownership of the two buildings
are retained by Safestay. Safestay retains operational control and
will benefit from all operating profits and also has a repurchase
option for each freehold interest.
Furthermore, our lease at Kensington Holland Park is also being
accounted for as a finance lease rather than an operating lease,
according to IAS17 (to be superseded by IFRS16 from 1 January
2019). Whilst the lease shows indicators for both finance and
operating leases it was concluded that the lease should be
classified as a finance lease on the basis that the present value
of the lease payments at a yield of 6.55% constitutes the
substantial part of the freehold valuation.
Loss Per Share
Basic loss per share for the year ended 31 December 2017 was
2.55p (2016: loss 1.49p) based on the number of shares, 34,219,134
(2016: 34,219,134) in issue during the year.
Cash flow, capital expenditure and debt
Cash generated from operations was GBP1.8 million (2016: GBP2.3
million). Cash generation has reduced during the year due to
increases in PLC and central costs, in line with the growth of the
business. The Group had cash balances of GBP4.5 million at 31
December 2017 (2016: GBP0.7million).
Gross proceeds of GBP11.4 million were received on the property
refinancing of Edinburgh and Elephant & Castle. The business
retains a long-term interest in the properties to generate future
operating cash flows and the funds generated were used to acquire
our European hostels in the Summer of 2017. The two hostels were
valued for the refinancing as leaseholds on 14 March 2017 at
GBP30.3 million.
Further capital expenditure, to improve the Group's properties,
was GBP1.1 million. For 2018 we are projecting capital expenditure
to be considerably higher due mainly to expansionary improvements.
We are undertaking the extension of the Elephant & Castle
property which will give us an additional 80 beds. The expected
build cost is GBP2.1m plus expenses. In line with the property
refinancing agreement, on completion Safestay will receive GBP1.2m
back from the landlord. The remaining amount is being financed from
internal cash resources. Other planned improvement works are at our
Madrid Hostel to provide a rooftop bar and terrace together with
the fit out of our service apartments in Madrid, due to open in the
second half of 2018. Finally, there will be some product
improvement and maintenance on our Barcelona properties and the
ongoing investment in Paris, due to open in 2019.
Outstanding bank loans from HSBC was GBP18.2 million (2016:
GBP17.4 million). This together with the finance lease obligations
of GBP21.2 million (2016: GBP10.2 million) meant debt at 31
December 2017 was GBP39.4 million (2016: GBP27.6 million).
Net asset value per share decreased to 55p (2016: 58p).
Operational Review
2017 was a year of change for the operations. With Nuno
Sacramento joining the business as COO we became more focused on
the quality of our proposition, and yield management as well as
total bed profitability, rather than average bed rate.
The UK business delivered GBP7.0 million of revenue in hostel
accommodation (+16% year on year), along with 39% growth year on
year in ancillary revenues. This excellent result was achieved by
pursuing clear segmentation, targeting 40% groups, 20% direct
business and 40% sold through Online Travel Agencies ('OTAs'). In
addition, the introduction of a yield management system has allowed
us to better flex our prices to meet demand, and this has helped
grow revenues.
Furthermore, 2017 was a year of consolidation for the UK
portfolio. Occupancy levels in all our UK properties increased.
Particularly pleasing was Kensington Holland Park where average
occupancy increased from 55.2% in 2016 to 73.40% in 2017. York
continues to grow reaching an average of 55% for the year, but
peaking at 75.3% in June, representing a good performance.
2017 was also our year of European expansion. The group acquired
two separate businesses in May. Two properties were acquired from U
Hostels in Madrid, one open with 228 beds, one under development
with 34 serviced apartments and Paris, also under development with
a further 250 beds. In addition, we acquired from Equity Point four
hostels, two in Barcelona, and one each in Prague and Lisbon. Both
these sets of acquisitions support our concept that Safestay has
the capability to apply its model to an operating business. The
European acquisitions have given us the foundation and operating
platform in Europe to expand upon further, and to deliver on our
ambition to become a leading consolidator of the hostel
segment.
Cost reduction is an ongoing consideration across our business.
We have taken a more focused approach to maximising EBITDA in order
to achieve optimum performance and hence improve bed profitability.
We have been reducing our OTA dependency. In addition, we are
removing a significant portion of costs through automation,
centralising procurement and exploring payroll efficiencies
including outsourcing, where there has been an immediate gain in
productivity. For example, we have outsourced our housekeeping in
both Elephant & Castle and Kensington Holland Park which is
proving a success.
We are also investing in line with our strategy of improving the
customer proposition and building digital and IT capabilities that
will help enable the delivery of long-term sustainable growth. We
believe this is key as we are looking to engage and talk with more
of our customers in the digital environment which in turn will lead
to increased customer loyalty translating into increased
revenues.
We believe that a well-planned capital improvements programme is
key to supporting and growing the value of our businesses. For this
reason, we are excited at the progress made in Elephant &
Castle with the extension that will yield an additional 80 beds.
The planned development of our Madrid rooftop is on track to open
for the summer months and sets the standard for our Paris opening,
in 2019, which will also have a rooftop bar. All these additions
further help enhance our brand and proposition and increase
revenue.
Safestay increased its beds sold from 297,276 to 444,480 in
2017. We believe there remains further potential to enhance
performance of the existing portfolio, through increased occupancy
as scale and distribution meets millennials' preferred travelling
profile of hop on, hop off in key European cities; groups can be
leveraged across the chain and loyalty starts to get traction
through the quality and service levels that underpin Safestay's
ethos.
Whilst we may be faced with market headwinds in 2018 with
regards to labour costs, supply chain inflation and increased
business costs we believe that our ability to focus on maximising
bed profitability, as well as keeping our brand and proposition
relevant will make us well placed to continue to grow. This will be
reinforced by the ever-increasing demand for travel in the hostel
sector across Europe).
Clear & Consistent Strategy
Safestay is targeting an increasingly diverse customer base. Our
hostels are designed to appeal to a broad community of guests from
school groups, young adults and backpackers, to families and
business travellers. Our revenue generation is driven by occupancy
and bed rate. In addition, we are also focusing our efforts on
driving additional revenue from our food & beverage offering
together with ancillary spend, including towel rental, laundry,
padlocks. This can be seen in this year's results where food &
beverage spend was 13% of total revenue, mainly in the UK (only 3%
in Europe).
Our aim is to act as a consolidator within the Hostel market,
entering new markets through the acquisition and development of
both existing operations and new sites where the potential is
identified.
The Board
There have been a number of Board changes during the year, as
well as changes to the senior executive team.
Two new non-executive directors were appointed, Michael Hirst in
May 2017 and Anson Chan in December 2017. Michael is consultant to
CBRE Hotels and is one of the world's leading hotel experts. He
also advises corporate clients in the hospitality and tourism
businesses. Michael's experience in the hospitality industry is
already providing Safestay's Board with invaluable insights and
additional operational and development support as we continue to
expand our business. Anson Chan is a respected Hong Kong
businessman who has a wealth of management and investment
experience. His experience will support Safestay through its
acquisition journey. Anson Chan is not considered to be independent
due his interest in Pyrrho Investments Limited, which is a
significant shareholder in the company.
Nuno Sacramento was appointed as Chief Operating Officer on 1
February 2017 and joined the Board in July 2017. His significant
hospitality background with Premier Inn and other international
brands and his very strong operational gives him the right
experience to take the Safestay brand to the next stage of
growth.
Sharon Segal joined the board as Finance Director and Company
Secretary on 9 October 2017. Sharon previously worked at The ONE
Group, a hospitality business operating restaurant, lounge bars and
Food & beverage in Hotels as Director of Finance, having joined
the business in 2011, in order to open the Pan-European office and
head up the European expansion.
Corporate Governance
The Remuneration Committee is chaired by Stephen Moss and its
other member is Michael Hirst. The Remuneration Committee has
responsibility for determining, within agreed terms of reference,
the Group's policy on the remuneration of senior executives and
special remuneration packages for the Executive Directors. It is
also responsible for making recommendations for performance bonus'
for Executive Directors as well as Senior Management.
The Audit Committee comprises Stephen Moss (Chairman) and
Michael Hirst. The Audit Committee meets at least twice a year and
is responsible for ensuring that the financial performance of the
Company is properly reported on and monitored, including reviews of
the annual and interim accounts, results announcements, internal
control systems and procedures and accounting policies.
Outlook
2018 has begun as expected for Safestay. The announcement on the
8 March 2018 of our acquisition of a third hostel in Barcelona,
increases our number of beds to over 2,600, and has already been
absorbed into the Safestay Group.
We have a highly experienced management team in place that will
ensure our continued growth and success. This, together with the
continued opportunity for supply chain enhancement gives us a solid
foundation to achieve our goals.
We remain committed to seeking out new opportunities in the
market; acting as a consolidator and entering new markets globally
through acquisition and acquiring new sites.
Larry Lipman
Chairman
17 April 2018
Condensed Consolidated Income Statement
Year ended 31 December 2017
Note 2017 2016
GBP'000 GBP'000
Revenue 2 10,547 7,411
Cost of sales (1,561) (1,022)
-------- --------
Gross profit 8,986 6,389
Administrative expenses (7,520) (5,242)
-------- --------
Operating profit before exceptional expenses 1,466 1,147
Exceptional expenses (495) (152)
-------- --------
Operating profit after exceptional expenses 971 995
Finance costs (1,833) (1,463)
-------- --------
Loss before tax (862) (468)
Tax (11) (43)
-------- --------
Loss for the financial year attributable
to owners of the parent company (873) (511)
======== ========
Basic and diluted loss per share 3 (2.55p) (1.49p)
Condensed Consolidated Statement of Comprehensive
Income
Year ended 31 December 2017
2017 2016
GBP'000 GBP'000
Loss for the year (873) (511)
Other comprehensive income
Items that will not be reclassified subsequently
to profit and loss
Revaluation of freehold land and buildings - 3,860
Total comprehensive (loss)/ income for
the year
attributable to owners of the parent company (873) 3,349
======== ========
Condensed
Consolidated
Statement of
Financial
Position
31 December 2017
Note 2017 2016
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 4 45,971 45,771
Intangible assets 5 1,410 1,212
Goodwill 5 7,301 525
-------- --------
Total non-current assets 54,682 47,508
-------- --------
Current assets
Stock 25 23
Trade, Derivative financial instruments
and other receivables 903 504
Cash and cash equivalents 4,504 737
-------- --------
Total current assets 5,432 1,264
-------- --------
Total assets 60,114 48,772
-------- --------
Current liabilities
Loans and overdrafts 6 168 3,489
Finance lease obligations 7 49 34
Trade, Derivative financial instruments
and other payables 1,625 1,306
Current liabilities 1,842 4,829
-------- --------
Non-current liabilities
Bank loans and convertible loan notes 6 17,990 13,906
Finance lease obligations 7 21,179 10,195
Deferred tax liabilities 105 5
Total non-current liabilities 39,274 24,106
-------- --------
Total liabilities 41,116 28,935
-------- --------
Net assets 18,998 19,837
======== ========
Equity
Share capital 8 342 342
Share premium account 14,504 14,504
Merger reserve 1,772 1,772
Share based payment reserve 91 57
Revaluation reserve 4,218 4,218
Retained earnings (1,929) (1,056)
-------- --------
Total equity attributable to owners of
the parent company 18,998 19,837
======== ========
Condensed Consolidated
Statement of Changes
in Equity
31 December 2017
-------- -------- -------- -------- ----------- --------- ---------
Share Share Merger Share Revaluation Retained Total
Capital premium Reserve based Reserve earnings equity
GBP'000 account GBP'000 payment GBP'000 GBP'000 GBP'000
GBP'000 reserve
GBP'000
-------- -------- -------- -------- ----------- --------- ---------
Balance as at
1 January 2016 342 14,504 1,772 23 358 (545) 16,454
Comprehensive
income `
Loss for the
year - - - - - (511) (511)
Other comprehensive
income - - - - 3,860 - 3,860
-------- -------- -------- -------- ----------- --------- ---------
Total comprehensive
income - - - - 3,860 (511) (3,349)
-------- -------- -------- -------- ----------- --------- ---------
Transactions
with owners
Share based payment
charge for the
period - - - 34 - - 34
-------- -------- -------- -------- ----------- --------- ---------
Balance at 31
December 2016 342 14,504 1,772 57 4,218 (1,056) 19,837
-------- -------- -------- -------- ----------- --------- ---------
Comprehensive
income
Loss for the
year - - - - - (873) (873)
Other comprehensive - - - - - - -
income
-------- -------- -------- -------- ----------- --------- ---------
Total comprehensive
income - - - - - (873) (873)
-------- -------- -------- -------- ----------- --------- ---------
Transactions
with owners
Share based payment
charge for the
period - - - 34 - - 34
-------- -------- -------- -------- ----------- --------- ---------
Balance at 31
December 2017 342 14,504 1,772 91 4,218 (1,929) 18,998
======== ======== ======== ======== =========== ========= =========
Condensed Consolidated Statement of Cash
Flows
Year ended 31 December 2017
2017 2016
GBP'000 GBP'000
Operating activities
Cash generated from operations 1,911 2,308
Income tax paid (48) -
-------- --------
Net cash generated from operating activities 1,863 2,308
-------- --------
Investing activities
Purchases of property, plant and equipment (1,088) (484)
Purchases of intangible assets (48) -
Acquisition of business (note 26) (7,298) -
Net cash outflow from investing activities (8,434) (484)
-------- --------
Financing activities
Proceeds from property refinancing transaction 11,420 -
New bank loans drawn 18,400 -
Bank loans repaid (17,600) (755)
Loan and refinancing arrangement fees (375) -
Amounts paid under finance leases (916) (660)
Interest paid (591) (732)
Net cash generated / (absorbed in) from
financing activities 10,338 (2,147)
-------- --------
Net increase /(decrease) in cash and cash
equivalents 3,767 (323)
Cash and cash equivalents at beginning
of year 737 1,060
Cash and cash equivalents at end of year 4,504 737
======== ========
Basis of Preparation
On 17 April 2018, the Directors approved this preliminary
announcement for publication. Copies of this announcement are
available from the Company's registered office at la 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 2017.
The financial information for the year ended 31 December 2017 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 2017 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 2016, as described in those financial
statements.
1. SIGnificant Accounting policies for the group
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.
At the acquisition date, the identifiable assets acquired and
liabilities assumed are recognised at their fair value at the
acquisition date.
Goodwill
Goodwill is 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. 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 there are only operating segment, which is the operation
of hostel accommodation in the UK and Europe.
Revenue
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.
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.
Leases
The Group as lessor:
Rental income from operating leases is recognised on a
straight-line basis over the term of the relevant lease.
The Group as lessee:
Assets held under finance leases are recognised as assets of the
group at the present value of the lease payments at the inception
of the lease. The corresponding liability to the lessor is included
in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance expenses and
reduction in lease obligation so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance
expenses are recognised immediately in the income statement.
All other leases are classified as operating leases. Operating
leases are recognised in the income statement on a straight-line
basis over the life of the lease.
Foreign currency translation
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 annually.
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.
(a) 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.
(b) 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 s 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.
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.
-- 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. No tax arises in these
transactions.
-- Judgements were made around the capitalised leases for
Edinburgh and Elephant & Castle. The valuations will remain
fixed going forward. The valuation of the leasehold interest was
performed by external valuers. No tax arises in 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.
-- 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.
2. Segmental analysis
2017 2016
GBP'000 GBP'000
Hostel accommodation 8,971 6,058
Food and Beverages sales 1,383 1,243
Other income 193 110
-------- --------
10,547 7,411
-------- --------
2017 UK Europe Total
Revenue 8,496 2,051 10,547
------ ------- -------
Operating Profit 922 49 971
Depreciation & Amortisation 1,450 249 1,699
Exceptional & Share base payment expense 529 - 529
------ ------- -------
Adjusted EBITDA 2,901 298 3,199
====== ======= =======
Assets and liabilities are not analysed on a segmental
basis.
In 2016 all revenues, costs and profits and losses arising there
from related to the UK.
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. LOSS per share
The calculation of the basic and diluted loss per share is based
on the following data:
2017 2016
GBP'000 GBP'000
Loss for the period attributable to equity holders
of the company (873) (511)
======== ========
2017 2016
'000 '000
Weighted average number of ordinary shares for
the purposes of basic loss earnings per share 34,219 34,219
Effect of dilutive potential ordinary shares 1,807 2,264
------- -------
Weighted average number of ordinary shares for
the purposes of diluted loss per share 36,026 36,483
------- -------
Basic loss per share (2.55p) (1.49p)
------- -------
Diluted loss per share (2.55p) (1.49p)
------- -------
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.
4. PROPERTY, PLANT AND EQUIPMENT
Freehold Leasehold Fixtures, Assets under Total
land and land and fittings construction GBP'000
buildings buildings and equipment GBP'000
GBP'000 GBP'000 GBP'000
Cost or valuation
Balance as at 1 January
2016 28,764 12,793 1,055 - 42,612
Transfer (267) 267 - - -
Additions 224 62 198 - 484
Revaluation 3,739 - - - 3,739
Balance as at 31 December
2016 32,460 13,122 1,253 - 46,835
Transfer (29,777) 29,777 - - -
Additions - 818 149 121 1,088
Acquired in business combination - - 598 - 598
Exchange movements - - 52 - 52
----------- --------------- -------------- ---------
At 31 December 2017 2,683 43,717 2,052 121 48,573
----------- ----------- --------------- -------------- ---------
Depreciation
Balance as at 1 January
2016 - 71 214 - 285
Charge for the period 275 262 364 - 901
Revaluation (122) - - - (122)
----------- ----------- --------------- -------------- ---------
Balance as at 31 December
2016 153 333 578 - 1,064
Charge for the year 108 698 732 - 1,538
At 31 December 2017 261 1,031 1,310 - 2,602
----------- ----------- --------------- -------------- ---------
Net book value:
At 31 December 2017 2,422 42,686 742 121 45,971
=========== =========== =============== ============== =========
At 31 December 2016 32,307 12,789 675 - 45,771
=========== =========== =============== ============== =========
The directors based their valuation of the freehold properties
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.
Leasehold land and buildings additions comprise the capitalised
finance lease plus refurbishment costs incurred on the Holland Park
hostel and the Group properties transferred from freehold land and
buildings following the finance transactions in respect of its
hostels in Edinburgh and Elephant & Castle which completed on
31 March 2017.
The newly-created leaseholds for both properties were also
independently valued on 14 March 2017 at GBP30.3 million 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.
Assets in the course of construction represent additional
letting rooms at one of the group's hostels. The group has a
commitment to spend GBP2.1m on this development.
5. INTANGIBLE ASSETS AND GOODWILL
Website Development Leasehold Goodwill Total
GBP'000 rights GBP'000 GBP'000
GBP'000
Cost
At 1 January 2016 and 31 December
2016 - 1,400 525 1,925
Additions 48 - - 48
Arising in business combination - 302 6,685 6,987
Exchange movements - 9 91 100
------------------- --------- -------- --------
At 31 December 2017 48 1,711 7,301 9,060
------------------- --------- -------- --------
Amortisation
At 1 January 2016 - 48 - 48
Charge for the period - 140 - 140
------------------- --------- -------- --------
At 31 December 2016 - 188 - 188
Charge for the period 4 157 - 161
------------------- ---------
At 31 December 2017 4 345 - 349
------------------- --------- -------- --------
Net book value:
At 31 December 2017 44 1,366 7,301 8,711
------------------- --------- -------- --------
At 31 December 2016 - 1,212 525 1,737
------------------- --------- -------- --------
On the acquisition of the business on Smart City hostel in
Edinburgh in 16 September 2015 the Directors identified an
intangible asset in relation the lease with the University of
Edinburgh, which terminates in 2027 and the amortisation of this
intangible asset is based on a straight-line basis until that
date.
Goodwill in 2017 arose from the acquisition of U Hostels and
Equity Point businesses.
Goodwill in 2016 arose from the acquisition of the business of
the Smart City hostel in Edinburgh, which is the relevant cash
generating unit. At 31 December 2017, an impairment review has been
performed using forecast cash flows over 5 years discounted at
appropriate discount rates to affirm its value in use. This
forecast requires the use of assumptions and estimates based on
current operating parameters and there are no reasonable
sensitivities that indicate this asset is impaired.
6. LOANS
2017 2016
GBP'000 GBP'000
At amortised cost
Bank Loan 18,400 13,794
Convertible loan - 3,800
18,400 17,594
Loan arrangement fees (242) (199)
-------- --------
18,158 17,395
======== ========
Loans repayable within one year 168 3,489
Loans repayable after more than one year 17,990 13,906
-------- --------
18,158 17,395
======== ========
7. OBLIGATIONS UNDER FINANCE LEASES
Minimum lease payments
2017 2016
GBP'000 GBP'000
Amounts payable under finance leases:
Within one year 937 660
In the second to fifth years inclusive 3,840 2,640
After five years 37,455 28,380
Less future finance charges (21,004) (21,451)
----------- -----------
Present value of future lease obligations 21,228 10,229
=========== ===========
Present value of
minimum lease payments
2017 2016
GBP'000 GBP'000
Amounts payable under finance leases:
Within one year 49 34
In the second to fifth years inclusive 223 157
After five years 20,956 10,038
------------ -----------
Present value of future lease obligations 21,228 10,229
============ ===========
The group continues to treat the Holland Park lease as a finance
lease on the basis that the present value of the lease payments
constitutes the substantial part of a theoretical freehold
valuation.
The average effective borrowing rate was 6.55%. The lease is on
a fixed repayment basis and no arrangements have been entered into
for contingent rental payments.
On 31 March 2017 the group property refinancing transactions on
its hostels in Edinburgh and Elephant & Castle, receiving gross
proceeds of GBP5.32 million and GBP6.1 million respectively. The
properties were independently valued at GBP14.3 million and GBP16.0
million; as the undervaluation matched by lease rentals is below
the full market rate, the directors have deemed the transactions as
outside the scope of IAS17 and treatment as finance leases is
considered appropriate.
The average effective rate of borrowing for the transactions was
7.74% and 7.81% respectively.
8. CALLED UP EQUITY SHARE CAPITAL
GBP'000
Allotted, issued and fully paid
34,219,134 Ordinary Shares of 1p each as at 31 December
2016 and 2017 342
=======
9. Post balance sheet events
On 8 March 2018, the Group announced the acquisition of a third
hostel in Barcelona for EUR3.0 million from Equity Point Hostels
("Equity Point"). The consideration will be satisfied from the
Group's cash resources with an initial payment of EUR0.7 million
and then four payments of EUR0.575 million spread over the next
four years. The Board has not completed its appraisal on the fair
value of assets acquired.
10. Business combinations
During the year ended 31 December 2017 the business acquired
a100% interest five new hostels.
Safestay PLC individually acquired three new hostels for a
combined cash consideration of EUR5.9m. Safestay España SLU, a
previously dormant subsidiary of Safestay PLC, acquired a further
two hostels for an additional EUR3m cash consideration.
All hostel acquisitions have been treated as business
combinations as they were operating as a business at the point of
purchase.
On 19th May 2017, the Group's first European hostels were
acquired through a portfolio, hereafter referred to collectively as
"U Hostels":
- U Hostels Albergues Juveniles SL, an entity operating a
228-bed luxury hostel, located in Lisbon, Portugal
- U Places SL, a dormant subsidiary of U Hostels Albergues
Juveniles SL. The entity holds a business licence for the apartment
block situated next to the Madrid hostel.
- Safestay France SAS (formerly U Hostels France SAS), a
subsidiary of U Hostels Albergues Juveniles SL. The company has
access to a development in Montmatre Paris, which, if developed
under current plans as a 250-bed hostel, will join the Safestay
portfolio.
On 30th June 2017, the Group continued its European expansion
through purchases from a further portfolio, hereafter collectively
referred to as "Equity Point".
- Equity Point Lisboa Unipessoal Lda, an entity operating a
150-bed luxury hostel in Lisbon, Portugal
- Equity Point Prague s,r.o, an entity operating a 150 bed
luxury hostel in Prague, Czech Republic.
The business operations of two hostels in Barcelona were
purchased by Safestay España SLU from the same portfolio on 30th
June 2017. The assets and liabilities acquired, translated at
EUR1.14 to the pound are:
GROUP
U Hostels Equity Point
------------- ---------------------
Number of hostels acquired (excluding assets
under development) 1 4
Provisional fair values GBP'000 GBP'000
Property, plant and equipment 467 131
Intangible assets - 401
Current assets 78 78
Cash / (net debt) 386 84
Deferred revenue, trade and other payables (241) (201)
Deferred Tax - (100)
Goodwill 2,207 4,478
Consideration (satisfied by cash) 2,897 4,871
------------- ---------------------
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 continui1ng 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 identified within the business
combination of Safestay España SLU an intangible asset in relation
to a tenancy sublease with a tenant in-situ at acquisition. The
lease terminates in 2031; the amortisation of this intangible asset
is based on a straight- line basis until that date.
The group incurred acquisition costs of GBP155,000 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 2017
from the date of acquisition:
GROUP
U Hostels Equity Point
GBP'000 GBP'000
Revenue 738 1,313
Operating
Profit (66) 116
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 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BDLLFVZFFBBL
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