TIDMSSTY
RNS Number : 6842V
Safestay PLC
10 April 2019
10 April 2019
Safestay plc
("Safestay", the "Company" or the "Group")
Final Results for the year Ended 31 December 2018
Safestay (AIM: SSTY), the owner and operator of a new brand of
contemporary hostel,
2018 Financial highlights
-- 39% increase in total revenues to GBP14.6 million (2017: GBP10.5 million)
-- 8% increase in like for like sales in mainland Europe with
Group like for like sales up 1% to GBP10.6 million (2017: GBP10.5
million) as UK is down by 1% due to the disruption from adding 73
beds in Elephant & Castle
-- 43% or GBP6.2 million of net revenue now coming from mainland Europe versus 19% in 2017
-- Occupancy grew to 76% (2017: 73%)
-- Adjusted EBITDA of GBP3.4m (2017: GBP3.2 million)
-- Loss before tax reduced to GBP0.60 million (2017: GBP0.86 million)
-- Loss per share 2.56p (2017: 2.55p)
-- Completed successful GBP10.36 million capital raise in
December 2018 to fund future expansion
2018 Operational highlights
-- Added 575 beds with 3 new properties in the key gateway
cities of Barcelona, Brussels and Vienna
-- Significant improvements in operating margins led to profit
before tax from UK hostels increasing by 14% to GBP1.76 million
(2017: GBP1.55 million)
-- Hostel EBITDAR margins have increased by 7% to 48% (2017 44.8%)
-- Guest recommendation rate increased to 81% (2017 80%)
-- Enhanced website and booking engine implemented in Q4 2018
-- Adopted common property management system (Cloudbeds) now operating in all hostels
-- Madrid rooftop bar open since July 2018
Post year end
-- Completed 73-bed extension to Elephant & Castle on 20
January 2019, triggering a GBP1.18 million final payment to
Safestay under the re-financing transaction in February
Larry Lipman commenting on the results said:
"2018 was a positive year for the business and I am confident
that 2019 will deliver continued growth. The portfolio is maturing
and shows the benefits of the Group gaining from economies of
scale, geographic spread and group wide automation. This, together
with continuing global demand for the modern hostel experience
means we are well placed to sell an increasing number of bed nights
in 2019 and add further destination cities to our portfolio."
Enquiries:
Safestay plc +44 (0) 20 8815 1600
Larry Lipman
Nuno Sacramento
Hervé Deligny
Canaccord Genuity Limited
(Nominated Adviser and Broker) +44 (0) 20 7523 8000
Chris Connors
Martin Davison
Michael Reynolds
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 2018 which show the Group performing strongly, recording a
39% increase in revenues alongside occupancy improving across the
portfolio to 75.6%.
Since establishing its first hostel, Safestay has expanded
rapidly achieving a 66% CAGR (Compounded Average Annual Growth
Rate) in revenues over the last 4 years. Initially focused in the
UK with hostels in London, York and Edinburgh, Safestay moved into
mainland Europe in 2017 with new hostels in Madrid, Prague, Lisbon
and Barcelona. In 2018, 3 new properties were opened in the popular
cities of Brussels, Barcelona and Vienna. Today, the Company
operates 2,890 beds in 12 hostels spread across 6 countries, with a
flagship hostel under construction in the centre of Paris due to
open in 2020.
Perceptions of the hostel market have changed substantially over
the last 5 years and Safestay's contemporary properties have played
a part in this cultural shift. Offering a stylish, comfortable and
safe stay to a broad profile of guests within beautiful buildings
that are centrally located in popular cities but still with an
average bed rate of just GBP20. This has proven to be a successful
formula for Safestay and along with other modern hostel operators
has led to the concept of a premium hostel becoming more widely
recognised which in turn is increasing the global customer base as
awareness spreads.
2018 was a good year, the Group grew significantly whilst
strengthening central platforms, systems and operational
profitability. This, together with the successful GBP10.36 million
fund raising completed in December 2018, ensures the Group is well
place to both to continue to make selective acquisitions as well
drive operational improvements.
Financial Results
Revenue
Group revenue for the financial year ended 31 December 2018,
increased by 39% to GBP14.6 million (2017: GBP10.5 million). GBP6.2
million came from non-UK properties representing 43% of total
revenues, up from 19% in 2017, reflecting the successful expansion
of the Group and the ability to diversify into new markets.
Food & beverage sales in 2018 were GBP1.7 million (2017:
GBP1.4 million). In the UK, this segment grew by 7% in a
challenging environment. With the opening of the Rooftop bar in
Madrid in July 2018 and the renovation of the restaurant in
Elephant & Castle completed in February 2019, we expect this
trend to continue in the current year.
Adjusted EBITDA
Adjusted EBITDA provides a key measure of progress made.
Adjusted EBITDA for the year to December 2018 was GBP3.4 million
(2017: GBP3.2 million).
Adjusted EBITDA is as follows:
2018 2017
GBP'000 GBP'000
Operating Profit 1,044 971
Add back:
Depreciation 1,421 1,538
Amortisation 181 161
Loss on disposal of fixed assets 74 -
Exceptional expenses 662 495
Share based payment expense 34 34
-------- --------
Adjusted EBITDA 3,416 3,199
-------- --------
The exceptional expenses totalled GBP0.66 million and included
costs in relation to acquisitions made in 2018 as well as costs in
relation to projects which did not materialise.
Finance Costs
Finance costs in 2018 were GBP1.6 million (2017: GBP1.8
million). There has not been significant change since 2017 when the
Group refinanced its borrowings with a 5-year GBP18.4 million
secured bank facility with HSBC.
The properties in Edinburgh and Elephant & Castle were also
refinanced in 2017 and have been accounted for as finance leases.
Our lease at Kensington Holland Park is also being accounted for as
a finance lease rather than an operating lease, under IAS17 (to be
superseded by IFRS16 from 1 January 2019).
Earnings per Share
Basic loss per share for the year ended 31 December 2018 was
2.56p (2017: loss 2.55p) based on the weighted number of shares,
35,387,458 (2017: 34,219,134) in issue during the year.
The total number of shares in issue as at 31 December 2018 was
64,679,014 following the 30,459,880 share issue completed on 17
December 2018
Cash flow, capital expenditure and debt
Net cash generated from operations was GBP1.8 million (2017:
GBP1.9 million). The increase in cash from the hostels was partly
offset with the increases in the central costs, in line with the
growth of the business. The Group had cash balances of GBP9.9
million at 31 December 2018 (2017: GBP4.5 million).
The cash was used in 2018 to make acquisitions and grow the
European network. GBP2.2 million was invested in the acquisition of
a third property in Barcelona (380 beds on Passeig de Gracia) in
March. Of the consideration payable, GBP0.62 million was paid
immediately on acquisition with the balance due in 4 annual
instalments from 2019. In October, The Group purchased an existing
company in Belgium for GBP1.2m to take over a hotel operating under
leasehold in the tourist quarter in Brussels. The take over an
existing hotel in Vienna under a new leasehold did not involve any
consideration.
In the UK, the Group undertook the extension of the Elephant
& Castle property adding a further 73 beds. The project
completed in January 2019 for a total cost of GBP2.4 million. In
line with the property refinancing agreement, on completion
Safestay received GBP1.18 million back from the landlord which
helped finance the extension with the balance being financed from
internal cash resources.
The Group also invested GBP0.1m in adding a rooftop bar and
terrace to the Madrid hostel which completed in July 2018.
From the beginning of 2019, 4% of revenue generated from the
hostel operation will be set aside to invest in a continual
programme of renovation and upkeep across the portfolio. This will
ensure the brand is maintained as a premium product in line with
our guests expectations of a Safestay hostel.
In addition, the successful placing and open offer competed in
December 2018 increased our cash balance by GBP9.7 million (net of
GBP0.65 million of fees). This gives us the capital to implement
our roll-out plans and continue to grow our network though existing
and new leaseholds as well as acquisitions.
Outstanding bank loans was GBP18.1 million (2017: GBP18.2
million). This includes a GBP18.2 million loan with HSBC (2017:
GBP18.4 million), as well as GBP0.2 million local loans in Belgium
and Spain (2017: GBP0.1 million), minus the GBP0.3 million
amortised loan fees (2017: GBP0.3 million). The finance lease
obligations amount to GBP21.2 million (2017: GBP21.2 million). This
results in a GBP39.3 million debt at 31 December 2018 (2017:
GBP39.4 million). The gearing ratio (inclusive of obligations under
finance lease) has reduced from 207% in 2017 to 141% in 2018. The
company is fully compliant with the HSBC debt covenants as at 31
December 2018: The historic (376%) and projected (450%) interest
cover as well as the historic (287%) and projected (280%) service
cover are all significantly in excess of the minimum covenant
ratios (150%).
Net asset value per share decreased to 43p (2017: 55p) as a
result of the successful share issue completed on 17 December 2018
at a price of 34p per share.
Operational Review
In 2018, our primary focus was to increase our operational
profitability whilst also seeking to improve the quality of the
Safestay proposition.
It was pleasing therefore to achieve operational efficiencies,
particularly on the payroll costs, that led to an improvement in
EBITDA margins in the UK to 47.4% (2017 44.4%) adding a further
GBP0.2 million to net profit.
2018 was the first full year of trading for 5 European
properties purchased in 2017 in Spain, Portugal and the Czech
Republic. It was extremely satisfactory to see that these hostels
all achieved occupancy levels in excess of 70% in 2018, with an
average occupancy of 76.8% (versus 70.6% in 2017 achieved over the
last 6 months of the year).
In total, the mainland European business generated GBP6.2m
revenue in 2018, GBP4.2m more than in 2017. The EBITDA margin in
these hostels which are all operated under leasehold has also
increased up from 19.1% to 20.1% with room to improve further as
the sites mature and benefit from further economies of scale.
The new sites in Brussels and Vienna added in 2018 are currently
operating as hotels and will be converted to hostels in 2019.
The operating performance achieved to date in Europe confirms
our belief in the scalability of the business outside the UK which
has increased our confidence in achieving our portfolio growth
targets.
Revenue management in 2018 was also a core focus. We are
targeting generating a revenue split of 40% from a broad range of
group bookings, 20% from direct bookings into our website and 40%
through Online Travel Agencies ('OTAs'). To achieve this will be a
shift away from OTA's to the more higher margin direct and group
bookings.
To support these objectives the website was refreshed in Q4 2018
along with a fully revamped booking experience for our guests which
is expected to increase traffic, conversion and ultimately grow
contribution from direct booking channels.
In parallel, we have built an in-house revenue management
expertise to better control and yield the average bed rates in all
properties. The roll out of one property management system
(Cloudbeds) in all properties give us this data consistency and
integrity which is the foundation for an efficient yield and
distribution management.
We have also reinforced our central group sales team to grow and
support more efficiently this segment of business and deliver the
more customised service and product needed.
The Board
Following the expansion of the board in 2017 with the
appointment of two new non-executive directors, Michael Hirst in
May 2017 and Anson Chan in December 2017, a new appointment was
made in August 2018. Hervé Deligny joined the board as CFO. Hervé
Deligny has spent 20 years in the hospitality industry, with
Accorhotels and onefinestay. He brings a wealth of knowledge in the
operational finance and property investment area and has been
instrumental to the successful acquisition and fund raising in
December 2018. Paul Cummins was appointed alternate director for
the non-executive director Anson Chan.
Outlook
In a challenging market, our forward bookings are strong and we
are on track to achieve our forecast this year.
The modern hostel sector is a fast-growing market and we believe
Safestay is well placed within it. The brand is gaining a good
reputation for offering safe, stylish accommodation in well located
attractive buildings. In 2019, we will distribute over one million
bed nights, move into net profitability and become self-funding as
the Group benefits from the growing economies and group wide
automation.
Larry Lipman
Chairman
9 April 2019
Safestay Plc
Condensed Consolidated Income Statement
Year ended 31 December 2018
Note 2018 2017
GBP'000 GBP'000
Revenue 2 14,620 10,547
Cost of sales (2,228) (1,561)
-------- --------
Gross profit 12,392 8,986
Administrative expenses (10,686) (7,520)
-------- --------
Operating profit before exceptional expenses 1,706 1,466
Exceptional expenses (662) (495)
-------- --------
Operating profit after exceptional expenses 1,044 971
Finance costs (1,648) (1,833)
-------- --------
Loss before tax (604) (862)
Tax (303) (11)
-------- --------
Loss for the financial year attributable
to owners of the parent company (907) (873)
======== ========
Basic and diluted loss per share 3 (2.56p) (2.55p)
Safestay plc
Condensed Consolidated Statement of Comprehensive Income
Year ended 31 December 2018
2018 2017
GBP'000 GBP'000
Loss for the year (907) (873)
Other comprehensive income:
Items that will be reclassified subsequently
to profit and loss
Exchange differences on translating foreign
operations 106 -
Total comprehensive (loss)for the year
attributable to owners of the parent company (801) (873)
======== ========
Safestay plc
Condensed Consolidated Statement of Financial Position
31 December 2018
Note 2018 2017
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 4 47,522 45,971
Intangible assets 5 1,268 1,410
Goodwill 5 10,506 7,301
-------- --------
Total non-current assets 59,296 54,682
-------- --------
Current assets
Stock 45 25
Trade, Derivative financial instruments and
other receivables 1,200 903
Cash and cash equivalents 9,859 4,504
-------- --------
Total current assets 11,104 5,432
-------- --------
Total assets 70,400 60,114
-------- --------
Current liabilities
Loans and overdrafts 6 353 168
Finance lease obligations 7 28 26
Trade, Derivative financial instruments and
other payables 1,890 1,625
Current liabilities 2,271 1,819
-------- --------
Non-current liabilities
Bank loans and convertible loan notes 6 17,772 17,990
Finance lease obligations 7 21,176 21,202
Deferred tax liabilities 105 105
Trade and other payables due in more than
one year 1,140 -
Total non-current liabilities 40,193 39,297
-------- --------
Total liabilities 42,464 41,116
-------- --------
Net assets 27,936 18,998
======== ========
Equity
Share capital 8 647 342
Share premium account 23,904 14,504
Other components of equity 6,221 6,081
Retained earnings (2,836) (1,929)
-------- --------
Total equity attributable to owners of the
parent company 27,936 18,998
-------- --------
Safestay plc
Condensed Consolidated Statement of Changes in Equity
31 December 2018
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
2017 342 14,504 6,047 (1,056) 18,998
Comprehensive income `
Loss for the year - - - (873) (873)
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 6,081 (1,929) 18,998
-------- ---------------- ----------- --------- --------
Comprehensive income
Loss for the year - - 106 (907) (801)
-------- ---------------- ----------- --------- --------
Total comprehensive loss - - 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
======== ================ =========== ========= ========
Safestay plc
Condensed Consolidated Statement of Cash Flows
Year ended 31 December 2018
Note 2018 2017
GBP'000 GBP'000
Operating activities
Cash generated from operations 2,056 1,911
Income tax paid (224) (48)
-------- --------
Net cash generated from operating activities 1,832 1,863
-------- --------
Investing activities
Purchases of property, plant and equipment (2,510) (1,088)
Purchases of intangible assets (24) (48)
Acquisitions, net of cash acquired 9 (1,791) (7,298)
Net cash outflow from investing activities (4,325) (8,434)
-------- --------
Financing activities
Proceeds from property refinancing transaction - 11,420
New bank loans drawn - 18,400
Bank loans repaid (304) (17,600)
Loan and refinancing arrangement fees - (375)
Proceeds from issue of share capital 10,356 -
Fees related to the issue of shares (652) -
Amounts paid under finance leases (960) (916)
Interest paid (592) (591)
Net cash generated from financing activities 7,848 10,338
-------- --------
Net increase /(decrease) in cash and
cash equivalents 5,355 3,767
Cash and cash equivalents at beginning
of year 4,504 737
Cash and cash equivalents at end of year 9,859 4,504
======== ========
Basis of Preparation
On 9 April 2019, 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 2018.
The financial information for the year ended 31 December 2018 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 2018 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 2017, as described in those financial
statements.
1. SIGNIFICANT Accounting policies for the group
New standards and interpretations effective in the year
The following standards were effective from 1 January 2018.
-- IFRS 9: Financial Instruments
-- IFRS 15: Revenue from contracts with customers
The adoption of IFRS9 Financial Instruments and IFRS15 Revenues
from contracts with customers have not had a material effect on the
financial statements.
New standards and interpretations issued but not yet applied
The following standard is in issue but is not effective in the
year and has not yet been endorsed for use in the EU:
-- IFRS 16: Leases - effective 1 January 2019
The Directors consider the implementation of IFRS 16, which
replaces IAS 17 Leases, will have a material impact on the
financial statements of the Group in future periods. The Standard
will require recognition of current operating leases to be
accounted for within the balance sheet by recognising a new
category of right-of-use asset and a liability for future lease
payments, discounted to present value. In addition, IFRS 16
replaces the straight-line operating lease expense in the income
statement with a depreciation charge for the lease asset (included
within operating costs) and an interest expense on the lease
liability (included within finance costs). As a result, the
adjusted EBITDA, as well as the Cash generated from operations
reported in the Consolidated Statement of Cash Flows statement will
both be increased by an amount equivalent to the operating lease
expense previously reported under IAS 17.
The Group's full assessment of its potential impact on the
financial statements is not yet complete. As an indicative
assessment, the 2018 Consolidated Income Statement includes a
GBP1.7m rental charge for all hostel leases currently treated as
operating leases under IAS 17. The future minimum lease payments
under non-cancellable term for these leases is GBP8.7m.
Going concern
Although the group reports a loss before tax in the consolidated
income statement, it generates significant cash from its operations
and expects to continue to do so for the foreseeable future. The
group's strategy is to continue to develop and expand the premium
hostel offering provided by the group within the UK and through its
European acquisitions. The plan, based on the Group's budgets and
financial projections 12 months from the date of approval, expects
significant increase in group revenue, building on the recent
expansion and management's expertise, and the directors consider
this to be achievable. In addition, the group maintains a cash
surplus for the foreseeable future.
As a result, the directors believe that the group and company
should have adequate resources to continue in operational existence
for at least 12 months after the date of approval of these
financial statements and continues to adopt the going concern basis
of accounting in preparing the 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 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
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.
(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.
Exceptional Items
The Group separately discloses on the face of the Income
Statement items of income or expense which nature or amount would,
without separate disclosure, distort the reporting of the
underlying business.
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 4.
-- 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 as set out in note 4. 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.
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 9.
-- 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 5.
2. Segmental analysis
2018 2017
GBP'000 GBP'000
Hostel accommodation 12,171 8,641
Food and Beverages sales 1,746 1,383
Other income 703 523
-------- --------
Total Income 14,620 10,547
-------- --------
Like-for-like income 10,643 10,547
======== ========
The 2017 figures were restated to reallocate the rental income
in Edinburgh from Hostel accommodation to Other income. This rental
income was GBP330,000 in 2017 and GBP342,000 in 2018.
Management consider the like-for-like income only for
acquisitions and continuing operations that were operational during
the same period 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.
2018 UK Europe Shared Total
services
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 8,393 6,227 - 14,620
-------- -------- ---------- --------
Operating Profit after exceptional
expenses 2,981 801 (2,738) 1,044
Depreciation, Amortisation & disposals 1,320 356 - 1,676
Exceptional & Share based payment
expense - - 696 696
-------- -------- ---------- --------
Adjusted EBITDA 4,301 1,157 (2,042) 3,416
======== ======== ========== ========
2017 UK(1) Europe TOTAL
GBP'000 GBP'000 GBP'000
Revenue 8,496 2,051 10,547
----------- -------- --------
Operating Profit after exceptional
expenses 922 49 971
Depreciation & Amortisation 1,450 249 1,699
Exceptional & Share based payment
expense 529 - 529
----------- -------- --------
Adjusted EBITDA 2,901 298 3,199
=========== ======== ========
(1) Shared Services are included within the adjusted EBITDA of
the UK segment in 2017.
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.
As segment assets and liabilities are not regularly provided to
the CODM, the Group has elected, as provided under IFRS 8 Operating
Segments (amended), not to disclose a measure of segment assets and
liabilities.
3. LOSS per share
The calculation of the basic and diluted loss per share is based
on the following data:
2018 2017
GBP'000 GBP'000
Loss for the period attributable to equity holders
of the company (907) (873)
======== ========
2018 2017
'000 '000
Weighted average number of ordinary shares for
the purposes of basic loss earnings per share 35,387 34,219
Effect of dilutive potential ordinary shares 1,830 1,807
------- -------
Weighted average number of ordinary shares for
the purposes of diluted loss per share 37,217 36,026
------- -------
Basic loss per share (2.56p) (2.55p)
------- -------
Diluted loss per share (2.56p) (2.55p)
------- -------
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 2018 was
64,679,014 following the 30,459,880 share issue completed on 17
December 2018.
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
At 1 January 2017 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
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
----------- ----------- --------------- -------------- ---------
Depreciation
At 1 January 2017 153 333 578 - 1,064
Charge for the period 108 698 732 - 1,538
At 31 December 2017 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
----------- ----------- --------------- -------------- ---------
Net book value:
At 31 December 2018 2,617 42,104 739 2,062 47,522
=========== =========== =============== ============== =========
At 31 December 2017 2,422 42,686 742 121 45,971
=========== =========== =============== ============== =========
Assets in the course of construction represent additional
letting rooms in the London Elephant & Castle hostel, which
completed after the balance sheet date.
Included in disposals is a transfer from assets under
construction to current receivables representing development costs
that were reimbursed by the landlord post year end.
5. INTANGIBLE ASSETS AND GOODWILL
Website Leasehold Goodwill Total
Development rights GBP'000 GBP'000
GBP'000 GBP'000
Cost
At 1 January 2017 - 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
Additions 24 - - 24
Arising in business combination
(note 9) - - 3,109 3,109
Exchange movements - 15 96 111
------------ --------- --------- ---------
At 31 December 2018 72 1,726 10,506 12,304
------------ --------- --------- ---------
Amortisation
At 1 January 2017 - 188 - 188
Charge for the period 4 157 - 161
------------ --------- --------- ---------
At 31 December 2017 4 345 - 349
Charge for the period 20 161 - 181
------------ ---------
At 31 December 2018 24 506 - 530
------------ --------- --------- ---------
Net book value:
At 31 December 2018 48 1,220 10,506 11,774
============ ========= ========= =========
At 31 December 2017 44 1,366 7,301 8,711
============ ========= ========= =========
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.
Goodwill
Goodwill arising from business combinations in the year are
disclosed in note 9. 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 11%
-- 2018 average bed rate per property, increasing in line with inflation in following years
-- Earnings before interest, tax, depreciation, amortisation and
rent (EBITDAR) margin of 2018 with an increase up to 3 basis points
over 5 years
Four hostels acquired from one vendor in 2017 show the lowest
relative VIU headroom. These operations of these hostels are still
being optimised following their acquisition in 2017. Management are
confident that the improvement in operating margin and utilisation
of space within the hostels will not lead to any impairment once
the expected improvements have been completed.
No impairment has been identified for the year ended 31 December
2018.
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 ABR WACC
----------------- ---------- ---- ------
Barcelona Gothic 2bps 1% 1bps
Barcelona Sea 2bps 1% 1bps
Lisbon 2bps 1% 2bps
Madrid 8bps 9% 20bps
Prague 3bps 2% 3bps
6. LOANS
2018 2017
GBP'000 GBP'000
At amortised cost
Bank Loan and other loans 18,389 18,503
Loan arrangement fees (264) (345)
-------- ---------
18,125 18,158
======== =========
Loans repayable within one year 353 168
Loans repayable after more than one year 17,772 17,990
-------- ---------
18,125 18,158
======== =========
7. LEASES
Minimum lease payments due
Within 1 1 to 5 After 5 Total
year years years GBP'000
GBP'000 GBP'000 GBP'000
31 December 2018
Lease payments 960 3,840 43,955 48,755
Finance charges (932) (3,707) (22,912) (27,551)
--------- -------- -------- ---------
Net present values 28 133 21,043 21,204
--------- -------- -------- ---------
31 December 2017
Lease payments 960 3,840 44,915 49,715
Finance charges (934) (3,716) (23,837) (28,487)
--------- -------- -------- ---------
Net present values 26 124 21,078 21,228
--------- -------- -------- ---------
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.
The fair value of the group's lease obligations is approximately
equal to their carrying amount. The Group's finance leases
disclosed above are in sterling.
8. EQUITY
CALLED UP SHARE CAPITAL
GBP'000
Allotted, issued and fully paid
34,219,134 Ordinary Shares of 1p each as at 1 January
2018 342
27,609,496 Ordinary Shares of 1p each issued on 17 December
2018 276
1,802,269 Ordinary Shares of 1p each issued on 17 December
2018 18
1,048,115 Ordinary Shares of 1p each issued on 17 December
2018 11
-------
647
=======
At the 31 December 2018, the ordinary shares rank pari passu.
There are no changes to the voting rights of the ordinary shares
since the balance sheet date.
9. Business combinations
See accounting policy in note 1.
On 7 March 2018, the Group acquired its third hostel in
Barcelona for a consideration of GBP2.2m, of which GBP0.62m was
paid at acquisition; the balance is due in 4 annual instalments and
is recognised as a Balance Sheet liability at its discounted rate.
The transaction has been treated as a business combination as the
hostel was operational at the point of purchase.
On 1 October 2018, the Group acquired the trade of a hotel in
Vienna, Austria for GBPnil consideration. The staff, customer
listing and supply chain was transferred from the existing
operator. Simultaneously, the Group entered into a lease with the
property owner for a period of 20 years.
On 10 October 2018, the Group purchased 100% of the shares of
Arcadie SA, an entity incorporated in Belgium. Consideration for
the operator of Hotel Opera in Brussels totalled GBP1.16m.
Following acquisition, the hotel immediately commenced trading as
Safestay Brussels.
Barcelona Vienna Brussels 2018 2017
-------------- ------------------- -------------- --------- ---------
Number of sites purchased 3 5
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Provisional fair value
Property, plant & equipment 415 - 163 578 598
Intangible assets - - - - 401
Current assets 55 61 12 128 156
Cash - - - - 470
Debt - - (189) (189) -
Deferred revenue, trade
& other payables (51) (61) (151) (263) (442)
Deferred tax - - - - (100)
Goodwill 1,770 5 1,334 3,109 6,685
Consideration
Cash paid on acquisition 617 5 1,169 1,791 7,768
Deferred payments 1,572 - - 1,572 -
-------------- ------------------- -------------- --------- ---------
Total Consideration 2,189 5 1,169 3,363 7,768
-------------- ------------------- -------------- --------- ---------
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 GBP0.118 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 2018
from the date of acquisition:
Barcelona Vienna Brussels
---------- -------- ---------
GBP'000 GBP'000 GBP'000
Revenue 1,696 305 241
Operating profit 40 81 62
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 2018.
10. OPERATING LEASEs
The Group's leases are all in Europe and provide for periodic
rent reviews in line with inflation, and enjoy statutory rights to
renewal on expiry. Generally, they do not contain conditions to
rent escalation, rights to purchase, concessions or other material
provision of an unusual mature.
Total future minimum lease rental payments under non-cancellable
leases as follows:
Restated
2018 2017
---- ---------------------- -------- ---------
GBP'000 GBP'000
Due after one year 2,180 1,359
Between one and five
years 4,094 4,695
After five years 2,402 5,481
--------------------------- -------- ---------
11. POST REPORTING DATE EVENTS
As disclosed in the 2017 Annual Report, the Group underwent
refinancing on its Edinburgh and Elephant & Castle locations in
March 2017, receiving proceeds of GBP5.32 million and GBP6.1
million respectively.
The transaction included receipt of additional consideration of
GBP1.18 million upon completion of extension works to the Elephant
& Castle location in February 2019; a milestone that was
reached on 20 January 2019.
No further adjusting or significant non-adjusting events have
occurred between the 31 December reporting date and the date of
authorisation.
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 DKLFBKZFLBBE
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