REG - Safestay PLC - Final Results
07/06/2024 07:00
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RNS Number : 5939R Safestay PLC 07 June 2024
Safestay plc
("Safestay", the "Company" or the "Group")
Final Results
Safestay (AIM: SSTY), the owner and operator of an international brand of
contemporary hostels, is pleased to announce its Final Results for the 12
months to 31 December 2023.
2023 Financial highlights
· Total revenues, including discontinued operations, increased by 18%
to £22.5million (2022: £19.1 million)
· Adjusted EBITDA increased by 15% to £6.8 million (2022: £5.9
million)
· Net loss of £1.3 million (2022: Loss of £0.1 million) increased by
the £1.0 million Bratislava impairment
· Loss per share of 2.04p (2022: Loss of 0.23 p)
· Available cash balances of £2.0 million as at 31 December 2023
(2022: £5.2 million) reduced by the acquisition of a freehold property in
Edinburgh for £4.3 million
· NAV per share of 50p as at 31 December 2023 (2022: 46p)
2023 Operational highlights
· Occupancy increased to 71.4% (2022: 63%) leaving room for further
growth
· Average bed rate increased to £23.74 (2022: £23.63) in spite of a
challenging backdrop
· Recovery in group bookings with new office set up in Warsaw to focus
solely on this segment
· Significant investment made with 3% of revenues spent on
refurbishment across the portfolio
· Launch of new website in July 2023 to drive direct sales
· Completed the acquisition of Edinburgh Hostel in October for £4.3
million
Outlook
· Forward bookings as at January 1(st) are significantly up on last
year at £3.7 million.
· (2023: £1.9 million), with forward bookings from large school and
college groups of £2.7 million as at January 1(st) 2024 (£0.9 million in
2023)
· Significant opportunity to increase group and direct bookings to
drive occupancy rates and mix
· Good start to 2024 with the addition of two Spanish hostels, and one
UK hostel to our network: the acquisition of the Safestay Cordoba Mezquita
Catedral hostel in Andalusia and the first management contract for Safestay
Calpe Seafront, located on the Costa Blanca. The UK hostel acquired is located
in Brighton. Both Spanish hostels will be ready for the summer trading season.
Brighton will undergo a capital refurbishment project, with trading expected
to start in 2025.
· Successful and optimal refinancing of borrowings increases the
Group's financial flexibility
Larry Lipman, Chairman of the Company, commenting on the results said:
"Our collection of premium hostels continues to resonate with our core client
base and our popularity and appeal is growing, resulting in us selling 848,633
bed nights in 2023. I am delighted to see that our pipeline is a strong as
ever, with forward bookings up significantly at the beginning of the year. We
are in a strong position to grow the business organically and there is a huge
opportunity to grow our group bookings. Acquisitions will also play their
part in driving growth. We have three new hostels due to come on stream this
summer and I have no doubt that they will prove to be fantastic additions to
our portfolio."
Enquiries:
Safestay plc
Tel: +44 (0) 20 8815 1600
Larry Lipman
Liberum (Nomad & Joint Broker)
Tel: +44 (0) 20
3100 2000
Andrew Godber / Edward Thomas / Miquela Bezuidenhoudt
Novella
Tel: +44 (0) 20 3151 7008
Tim Robertson / Claire de Groot/ Safia Colebrook
Chairman's Statement
I am delighted to report that over the course of 2023 we were able to build on
the recovery that we saw in 2022 and have delivered impressive growth in spite
of a difficult economic environment. Group revenues (including discontinued
operations, please refer to Chief Financial Officer's report for more
information) for the period were up 18% to £22.5 million (2022: £19.1
million). Occupancy levels increased to 71.4% (2022: 63%) which is a very
pleasing result. However, this still remains below historic levels, leaving
scope for further improvement. Average bed rate has increased and now stands
at £23.74 (2022: £23.63). This has been achieved in spite of macroeconomic
headwinds and reflects a material improvement in pricing on pre-pandemic
levels.
Our portfolio of 16 hostels and hotels at the 31(st) December 2023 - soon to
be 20 following the acquisitions of Edinburgh, Brighton, Cordoba and the
management contract in Calpe - located in key cities across the UK and Europe
and our value conscious proposition continues to attract a core client base of
young travellers and families, and increasingly business travellers, who are
drawn to our premium hostels in city centre locations.
In October 2023, we announced the purchase of a freehold property situated in
the heart of Edinburgh for £4.3 million. This property is an extremely
attractive and spacious building, positioned in the heart of Edinburgh in the
middle of its tourist hotspots. It is set to open ahead of the crucial summer
season this year. With 225 beds available in a range of room configurations,
we are delighted to be able to offer accommodation in this incredible city
once again. Edinburgh remains a top destination for countless young travellers
and we are confident our new property will have huge appeal for this group.
In January of this year, we were able to successfully refinance our debt,
placing all of our existing borrowings into a single term loan on favourable
terms (refer to note
27 for more information) as well as adding a new £2.5 million Revolving
Credit Facility (further information of this can be found in the Chief
Financial Officer's review). This increases the Group's financial flexibility
and will enable us to make additional investment into the growth of our
business when the right opportunities arise. We have additionally sourced
finance to aid the purchase of the Brighton freehold property. More details
can be found in note 27.
The year has started well and our pipeline is strong, with forward bookings as
at January 1st 2024 significantly ahead of the level of the previous year.
There is headroom to increase occupancy rates and we expect to be able to
expand our group and direct bookings in 2024 as we reap the benefits of our
investments in marketing and the specialist sales team in Warsaw. I am
confident that we are in a strong position to deliver another solid year of
growth.
Operational Review
This has been a strong year for the Group, building on the recovery that we
delivered in 2022 following the pandemic. International tourism has returned
and we are well-positioned to benefit from this recovery as well as a shift to
value-conscious travel. We are seeing a diversifying mix of customers. Young
travellers and groups comprise the core of our business and we are seeing a
growing number of families and business travellers who are attracted to our
proposition.
At the year-end, we operated out of 16 hostels and hotels across 14 Cities in
both Europe and the UK, offering a total of 3,255 beds at an average cost of
£23.74 per night in 2023. Overall, we delivered 848,633 bed nights in 2023.
Soon we will boast 20 sites with 6 sites in the UK following the acquisitions
of freehold properties in Brighton and Edinburgh, and 5 sites in Spain,
including our new Cordoba site and the management contract for Calpe.
Our hostels delivered a strong performance in all geographies in 2023. Our UK
sites performed well accounting for 37% of sales. London Elephant & Castle
and London Kensington Holland Park both performed well in the UK with strong
performances overseas from Athens, the Barcelona hostels and Pisa.
In August, we established a new office in Warsaw, employing five staff and
intended to focus exclusively on driving group bookings from colleges, schools
and universities. Pre-pandemic, this target group accounted for 38% of room
revenue compared to 13% in 2023 and we believe there is a significant
opportunity to build this back up to historic levels. We are already seeing
the results of this investment with forward bookings for groups up materially
at the beginning of the year at £2.7 million, against £0.9 million in
2023. Overall, total forward bookings are up twofold to £3.7 million.
We have invested in marketing and improved our online platforms as well as our
social media presence. We upgraded our website to make it more user-friendly
and effective in terms of showcasing sites and enabling seamless bookings in
single or multiple hostels. Since we launched the website in July, we have
attracted 2,215 new members to the site.
We are determined to maintain our premium offer and keep it relevant and
attractive to our core client base and this requires investment. This year we
allocated a total of 3% of revenues to refurbishing existing sites.
Investments have been various and varied, including the roll-out of self-check
in kiosks at our Elephant and Castle site.
In September 2023, the Board took the decision to look for a buyer for our
hostel in Vienna. Following this decision, the Directors reclassified the
Vienna hostel as a discontinued operation and the assets and liabilities were
reclassified to held-for-sale.
In October 2023, we announced the purchase of a freehold property situated in
the heart of Edinburgh for £4.3 million, which completed in December 2023. We
are investing £1.2 million in the preparation and refurbishment of the
Edinburgh site and look forward to seeing it in operation ahead of the crucial
summer season.
The Board
In November 2022, Peter Zielke was appointed as Chief Operating Officer and
took up the role on 1 February 2023. Peter is a highly experienced operator
with extensive industry experience. In April 2023, Sarah Whiddett was
appointed as a Non-Executive Director and has strong marketing leadership
experience.
Stephen Moss announced his resignation as Chair of both the Remuneration and
Audit & Risk Committee on 29 March 2024. I would like to thank Stephen, on
behalf of the Board, for his invaluable contribution to the Group over the
last 10 years. Following Stephen's resignation, Michael Hirst was appointed as
Chair of both the Remuneration Committee and Audit & Risk Committee.
Outlook
The pipeline for 2024 is extremely promising with forward sales at the
beginning of the year significantly ahead of the level of the previous year.
We are well-positioned in a challenging market and believe that there is an
opportunity to drive occupancy rates and product mix through an increase in
group and direct bookings. The Edinburgh site will make its first contribution
this year and we are confident that it will be a great success. The
acquisition of the Cordoba site further enhances our Spanish hostel offering
and consolidates on our strong European portfolio. Our recent debt
restructuring and resulting financial flexibility leave us in a strong
position to take advantage of further opportunities should they arise.
Further, with the addition of our first management contract at Calpe Seafront,
we are aiming to start adding asset-light hostels to sit along side our
expanding freehold and leasehold portfolio. Finally, the acquisition of the
Brighton site will further establish Safestay as a key player in the UK hostel
market.
Larry Lipman
Chairman
6 June 2024
Business Model
The Safestay business model is to develop and operate a brand of contemporary
hostels in the UK and key tourist cities in Europe. The Safestay brand is
positioned at the premium end of the hostel spectrum appealing to a broad
range of guests. Core elements of the model are:
· Development: Identifying potential properties in target cities,
acquiring the leasehold or freehold in the properties and their contemporary,
stylish refurbishment to fit with the brand
· Operational: Deploying a strong hostel expertise and cost control to
achieve best in class operating margins
· Brand: Building the Safestay brand value
· Scale: Building the platform to efficiently add further hostels to
the Group
· People: Investing in the right people where automation cannot be
adopted
· Guest experience: Providing a comfortable, safe and enjoyable stay in
our hostels for a reasonable price with a focus on customer satisfaction, a
strong community experience and repeat stays.
Our Strategy
Openings and Opportunities
This year saw the opening of our new Commercial Hub in Warsaw. Operating in
lockstep with our London-based headquarters, this new office is home to a
diverse, multilingual team, working across sales, marketing and revenue
management functions. The Commercial Hub will provide great opportunities to
increase sales in low season, as well as our food and beverage offerings.
To complement the skills of our dedicated revenue management team, we also
introduced an AI-powered yielding system that monitors and updates prices
dynamically, across all bed categories. Prices are demand-driven and reviewed
automatically in two-minute intervals.
Elevating experiences
Increasing occupancy and stay durations relies on delivering consistently
superior experiences, and there's been a firm focus on customer sentiment this
year. The re-introduction of TrustYou - an intelligent review management
platform that consolidates guest feedback from across platforms into a single
score - has enabled us to more easily harness, understand and act upon
customer feedback.
We have also undergone a brand refresh, to reflect the continually evolving
expectations of the travel and hospitality sector. This has been successfully
rolled out across all our digital and print media, including our
new-and-improved website. Here, the addition of an integrated booking engine
has elevated the customer experience, reduced our reliance on online travel
agents, and increased our share of valuable direct bookings.
Brand Awareness
2023 marked a significant step in refreshing the Safestay brand. As part of
wider brand refresh, this year saw the launch of our new website, with
enhanced booking engine functionality. Website searches converted into
bookings at a rate of 11.65% (up from 8.65% in 2022), with a clear positive
trend following the website relaunch in August 2023. Across the year, a strong
31.8% of bed nights were booked through direct and non-commissionable
channels, and we expect this trajectory to continue trending upwards as a
result of our ongoing digital investments.
Broadening our reach
Digital campaigns have centred around increasing our Google presence, and our
enhanced partnership with Triptease - an innovative data-driven marketing
platform - has helped boost our metasearch, paid search and retargeting
results. In 2023, metasearch delivered 15% of our website bookings, with a
Return on Ad Spend of 23.6x - a big jump from 17.3x in 2022. These initiatives
will be further complemented by a new SEO programme, which we kicked off in
March 2024.
We have also partnered with a new email marketing platform, GetResponse, to
nurture our customer base, boost conversions and optimise marketing based on
actionable insights.
A global picture
Our core markets remain the UK and Spain, with overnight stays improving by
20% and 26% respectively. However, our shift towards a multilingual digital
marketing approach is already making headway in wider markets, with arrivals
from France up by 26%, and Italy increasing by 28%. We continue to reach
further afield too, cementing a strong following in South America. Overnight
stays from here rose by 32%, while guest nights booked from Australia almost
doubled, marking an increase of 81.3%.
Setting Foundations for the Future
With the opening of the Commercial Hub in Warsaw, we are well placed to
consolidate our position at the leading edge of the European hostel market.
The office is a one-stop shop for revenue management, sales and marketing, as
well as critical HR functions. Five of our key countries now have local phone
numbers to the Hub's call centre, and we can communicate effectively with
guests, booker and hostel teams in eight different languages.
Since the Commercial Hub began operations, we've seen the daily sales
conversion rate increase by 23.4%. This creates a strong business pipeline as
we move towards becoming less reliant on a short-lead booking model.
Fostering talent for the long term
Our Safestay teams remain at the heart of the business, and this year saw the
introduction of a number of new initiatives to foster talent, boost retention
and improve staff engagement. Our Employee of the Quarter awards have been
integrated into our rewards programme, and we also launched 'Be Our Guest',
whereby staff enjoy complimentary stays in our properties, with discounts for
our team members' friends and families.
We are continuing to build on these activities with a new intranet launching
this year. Centralised policies and announcements will make it easier to
access consistent, clear information, while opportunities for interaction and
feedback will help boost engagement. We are also partnering with Mapal, an
online training platform, that will host customer service modules and
statutory health and safety sessions, in seven different languages - with
additional translation functionality as required.
Unlocking digital experiences
Along with boosting our share of direct bookings, the new website gives our
guests the option of pre-arrival online check-in, delivering the seamless
experiences customers now expect across travel touchpoints. Meanwhile, the
addition of check-in kiosks within hostels marks the start of a fully
automated experience. This is currently in its trial phase at our London
Elephant & Castle property, with the aspiration for keys to be delivered
direct to guests' mobile devices. Launch of this functionality is expected in
our new Edinburgh Cowgate hostel, opening summer 2024.
This will be the first property in the Safestay portfolio to operate without a
reception desk, freeing up staff to focus on key customer service moments and
tailored support. With searches on mobile devices outranking desktops by 2:1,
these initiatives will underpin our mobile strategy moving forwards, and
ensure we're meeting our guests on their devices of choice.
Cost Control
Operating in an inflationary landscape meant navigating wage increases in
excess of 15% in some markets. Dynamic yield management played a strong part
in mitigating cost pressures, as did the introduction of a number of HR and
people-focused initiatives. A central, Group-wide scheduling and HR system has
delivered closer payroll control, and enhanced staff engagement at the same
time. A new invoicing system, Contina Document Capture, streamlined cost
control activities. Further plans are in place to establish a purchase order
system processing system with Continia, to further identify cost saving
opportunities.
The Group have further looked to consolidate the buying power of the regions.
With the acquisition of Edinburgh Cowgate, the UK hosts 5 properties. This
opens opportunities for potential cost savings through agreements with
suppliers. Following the announcements of the management contract for a hostel
in Calpe, and the acquisition of a hostel in Cordoba, this takes the number of
Spanish properties operating under the Safestay Brand to 5. This will create
potential for cost saving opportunities which the Group will look to take
advantage of in 2024.
During October 2023, new utility contracts were secured for the UK properties,
resulting in a reduction in unit prices of up to 66%. Further opportunities
are being investigated with our utility consultant.
Meanwhile, ongoing technology investments - including the introduction of
mobile check-in facilities - will further increase staff productivity, without
compromising our customer-centric approach. The new website, with enhanced
booking engine functionality, combined with the commercial hub, will look to
increase the percentage of direct bookings. This offers direct savings in
commissions paid to third parties.
Section 172(1) statement
The Directors are aware of their duty under Section 172(1) of the Companies
Act 2006, to act in the way they consider, in good faith, would be most likely
to promote the success of the Group for the benefit of its members as a whole,
and in doing so have regard to (amongst other matters):
• the likely consequences of any decisions in the
long term;
• the interests of employees;
• the need to foster business relationships with
suppliers, customers and others;
• the impact of operations on the community and
environment;
• the desirability of maintaining a reputation for
high standards of business conduct; and
• the need to act fairly as between members of the
Group.
This duty underpins the Board's decision-making processes and the Group's
strategic direction, with due consideration given to the long-term impact of
its decisions on shareholders, employees, customers and wider stakeholders.
Practical measures that the Board takes to ensure the interests of these
stakeholders are reflected in the Board's decision-making process are as
follows:
Customers
Customer engagement levels is a key performance indicator of our business. We
use this customer feedback to continuously improve our product and level of
service in the hostels. The Group also directly engages with customers via
social media to share information and collect further feedback.
Employees
Employees are at the heart of the hospitality industry and the Directors know
that the long-term success of the Group and its ability to continue to extend
its unique pan-European hostel network will rely on a strong Group culture,
employees' wellbeing, and efficient succession planning. Some Board Meetings
take place in hostels to encourage direct contact between the Board and the
operational teams. Bi-annual meetings are organised with all managers to share
best practice, Group information and help build a positive culture amongst the
teams.
Suppliers
Where possible, the Group forms long-term relationships with suppliers, so
that the Group and its suppliers have a more certain environment in which to
operate. This also applies to landlords of the 12 hostels operated by the
Group under lease agreements.
Shareholders
In addition to the annual general meeting, the Directors hold meetings with
institutional shareholders following the release of year end and interim
results and remain available for ad hoc meetings throughout the year. In
addition, the Executive Directors have participated in shareholder conferences
to present their business and strategy and obtain live and direct feedback
from non-institutional shareholders. The Group website includes an investor
section where shareholders can find all relevant information and reports.
The Board believes communication with stakeholders helps to shape and adapt
the Group's strategy and ultimately contributes to maintaining a high standard
of business conduct. The D
directors will always assess the consequences of any decision over the long
term. For example, decisions over whether to acquire or develop new properties
follows a rigorous process involving long term financial assessment and
commercial study, all in conjunction with the funding capabilities of the
Group. Similarly, the Group uses customer satisfaction reports to help
allocate the way funds are deployed under an annual capex improvement
programme to enhance the experience of customers and ultimately safeguard
brand equity.
The Group complies with the UK's Quoted Companies Alliance Corporate
Governance code for Small and Mid-Size Quoted Companies (the "QCA Code") and
further information is publicised in the investor section of the Group
website. https://www.safestay.com/investors/
Engagement with the wider community
The board ensures that decisions made are responsible and ethical by taking
into consideration the wider society external to the organisation. The Group
is committed to contributing to the community in which it operates as a
business. The Group is using its footprint in each country to encourage local
initiatives via the local management and staff.
Anti-bribery
The Group is committed to the prevention of bribery by those employed and
associated with it and is committed to carrying out business fairly, honestly
and openly, with zero-tolerance towards bribery. All employees have a
responsibility to prevent, detect and report all instances of bribery as
stated in our employee handbook.
Social matters
Safestay provided jobs for 283 people in 2023.
The Group operates in 13 different countries and has established local
operating entities in each of the countries where our hostels are located.
This gives us the ability to hire employees locally and offer them employment
contracts and social benefits in full compliance with each relevant
jurisdiction. This also includes the relevant level of hospitality training as
well as mandatory training courses.
Maintaining a reputation for high standards of business conduct
The Board is mindful that the continued growth and success of the Group is
dependent upon maintaining high standards of business conduct, including:
· The ability to successfully compete within the market, to attract and
retain clients, and to service these clients to a high standard;
· The ability to attract and retain high quality employees;
· The ability to attract investors and to meet their expectations of
good governance and sound business conduct;
· The ability to meet the Group's regulatory obligations, and to meet
the expectations of relevant regulatory bodies.
This mindset underpins the formulation of the Group's strategy and is evident
throughout the Board's decision-making process.
Ensuring that members of the Company are treated fairly
The Board ensures that the Group's shareholders are treated equally and
fairly, regardless of the size of their shareholding or their status as a
private or institutional shareholder. The Group provides clear and timely
communications to all shareholders in their chosen communication medium, as
well as via the Group's website and via a Regulatory News Service. All holders
of Ordinary shares are able to vote at general meetings of the Group.
Environment
The Group is mindful of the importance of reducing environmental impact
wherever possible and has implemented several initiatives to achieve a
sustainable future. The Group intends to continuously review and increase its
efforts in this area. As an example, in all Safestay properties, we minimise
the use of plastics wherever possible seeking more sustainable alternatives.
This enables us to reduce our environmental footprint and helps us build a
reputation with our guests as it meets their environmental expectations. We
reuse and recycle the plastic we do use.
We are also constantly reviewing our CO2 emissions. We are committed to
reducing Scope 1 and 2 emissions - for example, in the future, we would like
to incorporate water-saving products in our showers to encourage our guests to
be mindful of water wastage. We will also look to reduce Scope 3 emissions
working only with trusted suppliers. Additionally, we are exploring the
possibility of working with train and other public transport companies to
reduce the carbon footprint of our guests.
We have a unique carbon impact tool which we offer to our guests. This gives
them the opportunity to test their carbon impact by using an online carbon
calculator on our website with the aim to increase the overall awareness and
desire to act responsively during their journey.
More information is available on our website at
https://www.safestay.com/corporate-social-responsibility.
Employee diversity
The Group is committed to diverse representation at all levels. We were
pleased to welcome to the Board this year our first female Director, Sarah
Whiddett. We hope that this is the first of many steps in diversifying our
recruitment at all levels, including the most senior.
The following table reports on the gender diversity of the Group's employees
at 31 December 2023:
Male Female
Directors 6 1
Senior Managers 3 4
Employment of disabled people
It is the policy of the Group to employ disabled persons in the job suited to
their aptitudes, abilities and qualifications whenever practicable, endeavour
to continue to employ those who become disabled whilst in the Group's
employment and to provide disabled employees with the same opportunities for
promotion, career development and training as those afforded to other
employees
Human rights
The Group is committed to respecting human rights within our business by
complying with all relevant laws and regulations. We prohibit any form of
discrimination, forced, trafficked or child labour and are committed to safe
and healthy working conditions for all individuals, whether employed by the
Group directly or by a supplier in our supply chain.
Legal and ethical conduct
The Group has comprehensive measures to meet its statutory requirements across
all areas of its operation, and those expected by our customers and employees,
as necessary, for the long-term success of the business. Risks in this area
can occur from corruption, bribery, and human rights abuses, including
discrimination, harassment, and bullying. The Group has training programmes
for all employees. We take a zero-tolerance approach to bribery and are
committed to acting professionally, fairly and with integrity in all our
business dealings and relationships wherever we operate and implementing and
enforcing effective procedures to counter bribery as documented in the Group
anti bribery policy signed by the Directors.
Safestay plc
Strategic Report
Chief Financial Officer's review
The Group faced a challenging trading period in FY23 under the cost-of-living
crises which saw impacts to consumer demand, alongside increases in utility
and food costs as a result of the geopolitical situation still ongoing in
Ukraine. Despite these challenges, the Group has had a strong year, delivering
revenue (including discontinued operations) of £22.5 million (2022: £19.1
million) and Adjusted EBITDA (including discontinued operations) of £6.8
million (2022: £5.9 million).
Financial Key Performance Indicators
2023 2022
As restated
Occupancy % 71.4% 63.0%
Average Bed Rate £23.74 £23.62
Room Revenues (£'000):
Continuing Operations 19,190 16,157
Discontinued Operations 953 993
Total 20,143 17,150
Total Revenues (£'000)
Continuing Operations 21,493 18,148
Discontinued Operations 997 998
Total 22,490 19,146
Net cash generated from operations (£'000)
Continuing Operations 7,673 6,556
Discontinued Operations 382 541
Total 8,055 7,097
Net assets per share 50p 46p
Adjusted EBITDA (£'m)
Continuing Operations 6.7 5.6
Discontinued Operations 0.1 0.3
Total 6.8 5.9
Finance Cost (£'000)
Continuing Operations 3,209 2,395
Discontinued Operations 239 164
Total 3,448 2,559
Earnings per share
Continuing Operations (1.46p) (0.07p)
Discontinued Operations (0.58p) (0.16p)
Total (2.04p) (0.23p)
Occupancy is calculated by dividing the number of beds sold over the period
with the number of beds available when the hostels were opened during the same
period. This means that in 2022 and 2021 the occupancy was calculated
specifically for those days when the hostels were not closed due to the
COVID-19 pandemic. Occupancy for the period was 71.0% (2022: 63.0%), primarily
driven through more normalised trading in the first half of 2023 compared to
2022.
Average Bed Rate is calculated by dividing Room revenues by the number of beds
sold over the period. Average Bed Rate for the period is £23.74 (2022:
£23.62)
Revenue
Total revenue for the financial year ended 31 December 2023 increased to
£22.5 million (2022: £19.1 million), up 18% on the previous year.
Room revenue was £20.1 million (2022: £17.2 million) and food &
beverage revenue as well as ancillary revenue was £2.4 million (2022: £1.9
million).
Sales in the UK business increased by 20% to £8.3 million (2022: £6.9
million), accounting for 37% of revenue versus 36% the previous year. Sales of
our Overseas businesses of £14.2 million (2022: 12.3 million) were up 16% on
last year.
Adjusted EBITDA
The Directors considers than an adjusted EBITDA provides a key measure of
performance since it removes the impact of non-trading activities. These
non-trading activities are considered adjusting items. Adjusted EBITDA
represents earnings before interest, tax, depreciation, amortisation and
one-off nonrecurring adjusting items ("adjusting items"). Following the
introduction of IFRS16 from 1 January 2019, rent charges are no longer
included in EBITDA as they are shown in lease finance and right-of-use
depreciation.
Adjusting items comprise of professional fees relating to aborted
acquisitions.
Adjusted EBITDA for the period was £6.8 million, up 15% compared to £5.9
million in 2022. EBITDA margins were down by 100 basis points to 30%, a
reflection of a normalisation of payroll costs, which were artificially low in
2022 due to the COVID pandemic, as well as an abnormal increase in utility
costs.
2023 2022
As restated
£'000 £'000
Adjusted EBITDA is as follows:
Operating Profit (including discontinued operations) 2,315 1,968
Add back:
Depreciation 938 1,363
Right of Use Depreciation 2,408 2,210
Amortisation 18 81
Actual EBITDA 5,679 5,622
Impairment 1,028 -
Adjusting items (refer to note 5) 26 369
Share based payment expense 54 (92)
Adjusted EBITDA 6,787 5,899
Finance Costs
Finance costs in Finance costs were £3.4 million (2022: £2.6 million) as
follows:
2023 2022
£'000 £'000
Interest on bank overdrafts and loans 1,340 896
Amortised loan arrangement fees 68 68
Interest expense for lease arrangements (note 17) 1,725 1,404
Property financing expense 315 191
The Group recorded finance income of £36k (2022: £2k)
The Group has an ongoing loan facility with HSBC UK Bank plc, which renewed in
January 2024. The value of the loan at 31 December 2023 was £12.7m (2022:
£12.7 million). The Group also had a £5.0 million government backed CBILS
loan secured for 6 years on 16 December 2020, with repayments, which commenced
on 16 April 2022 reducing the balance to £3.25 million at 31 December 2023
(2022: £4.25 million).
The Group has refinanced all of its existing borrowings in January 2024 into a
single £16 million Term Loan and added a new £2.5 million Revolving Credit
Facility ("RCF") to support future growth plans. The new Term Loan and RCF are
for 5 years and were provided by existing lender HSBC.
The Term Loan interest rates are £4.4 million at 3.955%, £10 million at
SONIA but capped at 4.75% with a floor of 3% and £1.6 million at SONIA, all
with an additional margin of 2.6%. The RCF has a rate of SONIA plus a margin
of 2.85%. The Term Loan is repayable at £0.1 million per quarter from March
2025 together with a final payment at completion. Interest on both the Term
Loan and RCF is payable quarterly from March 2024.
The Term Loan replaces the previous interest only £12.7 million facility with
HSBC and enables the repayment of the outstanding CBILS loan of £3.25 million
which carried a significantly higher interest rate.
In addition, the Group has a loan in Germany (£0.2 million). Since the
introduction of IFRS 16 from 1 January 2019, our hostel leases have been
accounted for as lease liabilities. At the lease commencement date, the Group
recognises a right-of-use asset and a lease liability on the statement of
financial position. The rental charge is replaced with interest and
depreciation. In 2023, the finance costs include £1.7 million of lease
interest (2022: £1.4 million).
Earnings per Share
The Group made a loss after tax of £1.3 million in the period (2022 as
restated: loss of £0.1 million). Earnings per share for the period were a
loss of 2.04p compared to a loss of 0.23p in 2022 (as restated). This is
largely driven by £1.0 million of impairment charges relating to Bratislava
during the period
Cash flow, capital expenditure and debt
Net cash generated from operations was £8.1 million (2022 restated: £7.1
million) primarily due to the increase in trading performance.
The Group had cash balances of £2.0 million at 31 December 2023 (2022: £5.2
million). This reduction is because £4.3 million was paid from the Group's
cash flow for the Edinburgh hostel acquisition.
Outstanding bank debt at 31st December 2023 was £16 million (2022: £17
million). This includes a £12.7 million loan with HSBC (2022: £12.7 million)
minus the £0.1 million amortised loan fees (2022: £0.1 million), the £5
million government CBILS loan now reduced to £3.3 million at 31 December
2023(2022: £4.3 million), and the German loan £0.2 million (2022: £0.2
million). The lease liabilities reduced to £25.9 million (2022: £32.2
million) primarily due to paying another year of rent and the classification
of the Vienna disposal group as held for sale.
The gearing ratio (exclusive of lease liabilities) is 50% (2022: 56%).
Net asset value per share increased to 50p (2022: 46p). This is largely due to
freehold and leasehold property revaluation across the portfolio.
Non-financial KPIs
The board also considers non-financial KPIs when evaluating the performance of
the business. The Directors consider Guest Response scores to be a key metric
of the business's performance and health.
Principal risks and uncertainties
Management has completed a full review of the risks which may arise from
within or outside the business and may have an impact on the Group.
The impact of the environment on the Group's operations has been assessed and
there is a strategy to reduce this risk as explained in the Environment
Section above. No other emerging risks have been identified at this point.
There has been no identified change in the principal risks and uncertainties.
The principal risks and uncertainties that could potentially have a material
impact on the Group's performance are presented below.
Business risks
Safestay operates in the hospitality industry which, over the years, has
experienced fluctuations in trading performance. Traditionally, the hotel
sector's performance has tracked macro-economic trends, feeling the strain
during the economic downturn, and becoming more buoyant during recovery. The
hostel sector, which leans more heavily on leisure travellers and has a lower
price point, has proved more resilient and has delivered more robust cash
flows through the economic cycle and has quickly recovered from isolated
terror acts which may limit travel in the short term. The hospitality sector
in the UK continues to face a number of cost headwinds from the National
Living Wage, commodity price inflation, foreign exchange rate fluctuations and
the hangovers from the UK's departure from the European Union and the
consequences of that.
A proportion of Safestay's business in the UK comes from Europe, including
several school groups. In addition, over 60% of the turnover is coming from
hostels located in mainland Europe. The business is therefore highly
vulnerable to changes in the source market, schools' education, travel
policies and any fluctuations arising in the market from the 'Brexit' process
and travel restrictions implemented by the governments, or the school
governance bodies.
Conversely, this balance between the UK and mainland Europe offers a natural
hedging against fluctuations of each local market and currency where Safestay
operates.
Post COVID-19 crisis, the demand in Safestay's markets has strengthened, as we
expect that the existing supply within the competitor set will temporarily
reduce, until the industry expands again. However, provision of new supply
will increase again with the opportunity for real estate owners to repurpose
and convert existing buildings previously used for retail or offices.
Safestay's defence to such threats is the combination of our premium locations
and high standard of accommodation and operations. As supply increases, the
business's focus on revenue, customer service, and sales and marketing
activity is key to protect and grow market share, brand loyalty and
reputation.
There is also the risk of higher energy and other supply costs, but a new
utility broker is helping to identify opportunities for reducing consumption
and the growth in the average bed rate has shown that cost increases can be
offset. Also, the cost pressure on consumers can result in a desire to stay in
hostels rather than budget hotels.
IT and system risks
Safestay's property management and accounting systems are deployed via SaaS
(software as a service). As such, the Group is dependent on robust internet
connectivity and the resilience of the provider's third-party data centre and
back-up protocols to operate. Whilst the arrangement carries risks, these
are deemed to be reduced when compared to an in-house option which would lead
to higher management overhead costs for the business. Management believes
this current arrangement is more suitable to the business needs as well as
being more cost effective due to the small size of our business. The other
systems used are not deemed to be business critical.
The Group contracts the maintenance of the IT infrastructure with an external
provider and has a cloud based back up system to secure all data which are not
already covered via other SaaS suppliers. This is a more robust and flexible
option compared to an in-house solution.
Expansion and regulatory risks
Accessing expansion opportunities at the right price and in the right
locations is, by its nature, an opportunistic exercise. Whilst the leadership
team has a track record in securing properties to support business growth, and
the fact that the market should offer more real estate opportunities in the
coming years, there is no guarantee that future opportunities can be secured,
even if it is expected that the market will offer real estate opportunities
when emerging from the COVID-19 crisis and existing property owners look for
alternatives to office and retail asset classes.
Expansion in new jurisdictions and changes in regulation in countries where
Safestay already operates is creating an environment where it is more likely
to be in regulatory breach compared to a group which would only trade in one
country. Safestay plc is a listed business and as such is bound to a very high
level of compliance. The Board is composed of six experienced Non-Executive
and Executive Directors who all have a proven experience in hospitality and
strong understanding of regulatory and compliance topics. Moreover, the Group
works with local law firms in each country where it operates to gain access to
the local expertise and guarantee full local compliance, notably via the
obtention of relevant licenses. As opposed to other hospitality sectors, such
as sharing economy or private rental, the hostel sector is built on strong
regulation plus existing fundamentals and trade licences, which makes it less
likely to require the introduction of more strict regulations.
Financial risk
In January 2024, the Group refinanced its existing borrowings into a single
£16 million Term Loan and added a new £2.5 million Revolving Credit Facility
("RCF") to support future growth plans. The new Term Loan and RCF are for 5
years and were provided by existing lender HSBC.
The Term Loan interest rates are £4.4 million at 3.955%, £10 million at
SONIA but capped at 4.75% with a floor of 3% and £1.6 million at SONIA, all
with an additional margin of 2.6%. The RCF has a rate of SONIA plus a margin
of 2.85%. The Term Loan is repayable at £0.1 million per quarter from March
2025 together with a final payment at completion. Interest on both the Term
Loan and RCF is payable quarterly from March 2024.
The Term Loan replaces the previous interest only £12.7 million facility with
HSBC and enables the repayment of the outstanding CBILS loan of £3.25
million, which carried a significantly higher interest rate.
Any increases in SONIA or base rate will increase the cost of these loans and
therefore impact the net profit of the business (a 0.5% change in interest
rate would impact the net profit before tax by £92,500 (2022: £83,500)).
Strict financial controls are in place to ensure that monies cannot be
expended above the available limits or to breach any banking covenants.
A proportion of Safestay's business comprises group bookings and there is a
risk of booking cancellations which will leave the hostel with unforeseen beds
to sell at relatively short notice. To offset this risk, all group bookings
require a non-refundable deposit of 10% at time of confirmation and staged
payments in advance of the group arrivals.
Except for a small number of credit sales for which applied credit limits are
verified through external sources, Safestay has a policy of full payment
upfront for guests staying which is the norm for hostels. As such there are
negligible trade receivable risks.
Financial risk management
The Group's financial instruments comprise bank loans, lease liabilities, cash
and cash equivalents, and various items within trade and other receivables and
payables that arise directly from its operations.
The main risks arising from the financial instruments are foreign exchange
risk, interest rate risk and liquidity risk. The Board reviews and agrees
policies for managing these risks which are detailed below.
Interest rate risk
The Group's interest rate risk arises from long-term borrowings. Borrowings
at variable rate expose the Group to cash flow interest rate risk which is
partially offset by cash held at variable rates.
Liquidity risk
All of the Group's long-term bank borrowings are secured on the Group's
property portfolio. If the value of the portfolio were to fall significantly,
the Group risk breaching borrowing covenants. The Board regularly review the
Group's gearing levels, cash flow projections and associated headroom and
ensure that excess banking facilities are available for future use.
The business continued to manage its liquidity risk with the renewal of its
debt facility with HSBC on the 13 January 2020 with a new facility of £12.8m
until 2025. In addition, a £5.0m bank CBILs facility was secured for 6 years
on 16th December 2020, which is interest free for the first year increasing to
3.99% above base rate from year 2. Repayment of CBILs facility commenced in
April 2022. In January 2024, the Group refinanced its existing borrowings and
added a £2.5 million Revolving Credit Facility ("RCF"). More details can be
found in note 27, post reporting date events.
The business continues to service this debt and make the interest payments as
they fall due. There are no off-balance sheet financing arrangements or
contingent liabilities.
Foreign currency risk
The Group is exposed to foreign currency risk from overseas subsidiaries with
Group transactions carried out in Euros. Exposures to currency exchange rates
arise from the Group's overseas sales and purchases, which are primarily
denominated in Euros. This risk is mitigated by each hostel holding a
denominated bank account in the country of operation. The Group monitors
cashflows and considers foreign currency risk when making intra-group
transfers
Interest rate risk management
The Group is exposed to interest rate risk on its borrowings. The £17.7
million main facility has an interest rate of 2.95% above the London
inter-bank offer rate (LIBOR). When the £10.2 million from the Edinburgh sale
proceeds was used to reduce the debt in July 2021, LIBOR was replaced with
2.95% above SONIA. The £5 million CBILS in interest free in year 1 and has an
interest rate of 3.99% above base rate from year 2 until it is fully repaid at
the end of year 6. The Group carefully manages its interest rate risk on an
ongoing basis. In January 2024, the Group refinanced its existing borrowings
and added a £2.5 million Revolving Credit Facility ("RCF"). More details can
be found in note 27, post reporting date events.
Interest rate sensitivity
The sensitivity analysis in the paragraph below has been determined based on
the exposure to interest rates for all borrowings subject to interest charges
at the statement of financial position date. For floating rate liabilities,
the analysis is prepared assuming the amount of the liability outstanding at
the statement of financial position date was outstanding for the whole year. A
0.5% increase or decrease is used when reporting interest rate risk internally
to key management and represents management's assessment of the reasonably
possible change in interest rates.
Based on bank borrowings, at 31 December 2023, if interest rates were 0.5%
higher or (lower) and all other variables were held constant, the Group's net
profit would increase or decrease by £92,500 (2022: £83,000). This is
attributable to the Group's exposure to interest rates on its variable rate
borrowings.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of
Directors. The Board manages liquidity risk by regularly reviewing the Group's
gearing levels, cash flow projections and associated headroom and ensuring
that excess banking facilities are available for future use. All of the
Group's long-term bank borrowings are secured on the Group's property
portfolio.
For more details, refer to note 22.
The Strategic Report, from Pages 1 to 18, was approved by the Board of
Directors and signed on its behalf by:
Paul Hingston
Chief Financial Officer
6 June 2024
Corporate Governance Statement
Introduction from the Chairman
The Board of Directors (the "Board") of Safestay plc (the "Company")
recognises the importance of, and is committed to, high standards of corporate
governance. We believe strong corporate governance is the key to delivering
high performance as a business and ensuring success for its stakeholders.
Accountability to our stakeholders, including shareholders, guests, suppliers
and employees is key to our governance approach.
Therefore, and in compliance with the updated AIM Rules for Companies, the
Company has chosen to formalise its governance policies by complying with the
UK's Quoted Companies Alliance Corporate Governance Guidelines for Small and
Mid-Size Quoted Companies (the "QCA Code").
The annual financial statements for the Company for the period ending 31
December 2023 will be prepared in accordance with the Company's obligations as
an AIM company and the requirements of the QCA Corporate Governance Code.
All Directors are fully aware of their duties and responsibilities under the
QCA Code. As at the date of this report, we consider we are in full compliance
with the QCA Code, which is made up of 10 principles. Below, we explain how we
have complied with each principle. We continue to review for best practice and
will update this report accordingly as we do so, at least annually.
Larry Lipman
Chairman
6 June 2024
The Quoted Companies Alliance's Ten Principles of Corporate Governance
The Group applies the Quoted Companies Alliances' code for corporate
governance in order to ensure the long-term success of the Group. By applying
the code, the Group will benefit from improved governance, and ultimately
therefore promotion of long term value for shareholders.
Further details of how the Group applies each principle of the code is
outlined below:
1. Establish a strategy and business model which promote long-term value
for shareholders
The Group's strategy and business model is discussed within the Strategic
report on pages 15 to 18. Our key strategic pillars are:
· Openings and Opportunities
· Elevating experiences
· Brand Awareness
· Setting Foundations for the Future
· Cost Control
The Group saw the opening of a new Commercial Hub in Warsaw during 2023. The
office seeks to drive group sales, an area which pre pandemic, used to account
for a more significant portion of the Group's revenue, and is an area that the
Board feel is ripe for growth in 2024 and beyond. Alongside the commercial
hub, the Group also introduced an AI-powered yielding system that monitors and
updates prices dynamically based on demand.
The long term aim of the Group is continued expansion of the Portfolio that
currently exists, evidenced by the purchase of the freehold properties in
Edinburgh and Cordoba, along with our first management contract entered into
to manage a hostel in Calpe. The Group constantly monitors a strong pipeline
of potential properties and locations to further expand where the right
opportunity arises.
Our Safestay team remains the heart of the business and so it is important to
ensure that the staff feel valued. We introduced a number of initiatives, such
as 'employee of the quarter' reward programmes to reward our high performing
staff members. Additionally we also launched the 'Be Our Guest', where staff
can enjoy complimentary stays in our properties, while offering generous
discounts to our team members' friends and families.
Guest experience has and always will be a key driver of business success. The
Group has introduced a review management platform to further understand guest
feedback and sentiment and be able to respond more quickly to our guests'
needs.
The key risks we face as a business are discussed in the strategic report on
pages 15 to 18.
2. Seek to understand and meet shareholder needs and expectations -
there is continuous communication with shareholders and the largest
shareholder has a seat on the Board of Directors.
The Board understands the importance of ensuring and maintaining regular
dialogue with shareholders. The Chairman and Chief Financial Officer ("CFO")
are responsible for investor relations. The ultimate responsibility for
ensuring a satisfactory dialogue with Shareholders sits with the Board. The
Group's financial PR agency leads the preparation, coordination and
communication of all dealings with the financial community and is the primary
point of contact for shareholders and third parties.
3. Take into account wider stakeholder and social responsibilities and
their implications for long-term success - this is explained in the Section
172(1) statement of the Strategic Report.
The Group considers the key stakeholders in the business to be its customers,
employees, suppliers and shareholders.
The Board understands that the Group's long-term success relies heavily upon
strong relations with each of their stakeholders and they must ensure that the
needs of each are met.
The Board is committed to ensuring a continuous and open dialogue with its
stakeholders, both internal and external. Further details can be found in the
Section 172 Statement on Pages 16 to 17.
4. Embed effective risk management, considering both opportunities and
threats, throughout the organisation
In order to ensure that the Group has fully understood its exposure to risk,
each key area of the business is reviewed on an annual basis to ensure that
any key risks are identified and monitored. A risk register is maintained to
track the risks identified as part of these reviews.
The risks outlined in the strategic report on pages 15 to 18 are those which
the Board believes are the most significant to the Group's business model and
most likely to prevent the Group from achieving its strategic objectives.
There may be additional risks and uncertainties that are currently unknown or
currently believed to be immaterial that may also have an adverse effect on
the Group.
5. Maintain the board as a well-functioning, balanced team led by the
chair
The Board consists of six Directors: three Executive Directors and three
Non-Executive Directors. Two of the three Non-Executive Directors (Sarah
Whiddett and Michael Hirst OBE) are independent, in line with the QCA Code
Guidance. Paul Cummins, due to his employment with Phyrro Investments Limited
(the largest shareholder in Safestay plc), is not considered to be
independent. The Non-Executive Directors of the Board have been selected with
the objective to further support the breadth of skills and experience of the
Board and bring constructive challenge to the Executive Directors. They are
also responsible for ensuring the effective running of the Board's Committees
and ensuring that the Committees support the strategic priorities of the
Board.
The Board Members are:
· Larry Lipman - Chairman
· Paul Hingston - Chief Financial Officer
· Peter Zielke - Chief Operating Officer
· Michael Hirst - Independent Non-Executive Director and Chair of the
Audit and Remuneration Committees
· Sarah Whiddett - Independent Non-Executive Director
· Paul Cummins - Non-Executive Director
The Executive Directors of the Company are employed on a full time basis.
Non-Executive Directors are required to devote such time to the Group's
affairs as necessary to discharge their duties, and this may change from time
to time. All Directors are required to attend all Board meetings and Committee
meetings as necessary.
The attendance record of each of the Directors at full Board and the
Sub-Committees of the Board is set out below:
Board Meetings Audit Committee Meetings Remuneration Committee Meetings
Paul Cummins 24/24
Paul Hingston 24/24 3/3
Michael Hirst 24/24 3/3 1/1
Larry Lipman 24/24
Stephen Moss 24/24 3/3 1/1
Sarah Whiddett 19/24
Peter Zielke 23/24
Please note that Paul Hingston attended the Audit Committee Meetings in an
advisory capacity. Attendance of Executive Directors to Remuneration and Audit
Committee meetings are by invitation only.
Due to the size of the business, the Board of Directors do not consider there
is a need for a Nominations Committee. They will review this over time and
evaluate the need for one in future periods.
6. Ensure that between them the Directors have the necessary up-to-date
experience, skills and capabilities
The Board considers that it has sufficient skills and experience to enable it
to execute its duties and responsibilities effectively given the nature and
size of the Group. The Directors have a wide range of skills and experience as
outlined in the Director biographies on pages 25 to 27.
Where the Board considers that it does not possess the necessary expertise or
experience, it will engage the services of professional advisers or
consultants. The Directors receive regular updates from external advisers on
legal requirements and regulations as well as remuneration matters and
corporate governance best practice.
7. Evaluate board performance based on clear and relevant objectives,
seeking continuous improvement.
The Board has recently reviewed its Financial Position and Prospects
Procedures Memorandum designed to outline the roles of the Board and the
Sub-Committees amongst other things. This has given the Board a clear
benchmark for which they can evaluate the Board's performance against.
In line with best practice and the newly applicable requirements of the QCA
Code, the Board intends to undertake regular evaluations of the Board and the
Sub-Committees.
8. Promote a corporate culture that is based on ethical values and
behaviours
The culture of the Group is set by the Board, and the Directors are committed
to promoting a culture of honesty and ethical behaviours. All new staff
receive training and information on the values and culture of the Group as
well as regular updates to these, to ensure that the culture and behaviours
reflected in the business support the Group's long term strategy.
The Group is currently developing an intranet which will contain all employee
policies, and will provide a key source of information for all employees on
cultures and behaviours. The intranet will prove invaluable to ensure that our
employees have the right training on the cultures and behaviours that will
enhance our guests stay as much as possible. It will also outline best
practice on operations relating to the hostels, to ensure unnecessary costs
are not incurred.
9. Maintain governance structures and processes that are fit for purpose
and support good decision-making by the board - this is covered by the Board's
best practice review.
The Chairman has the ultimate responsibility for corporate governance, and
ensures that the Directors have access to timely, accurate and clear
information from which to base their decisions. They also ensure that the
Committees are functioning appropriately, and the fiduciary requirements of
the Board are being carried out.
10. Communicate how the Group is governed and is performing by maintaining a
dialogue with shareholders and other relevant stakeholders
The Group communicates with its shareholders through:
· The Annual Report and Accounts
· Half-Year report announcements
· RNS announcements
· AGM
· Investor relation programme
· The Company website (www.safestay.com (http://www.safestay.com) )
Directors' and senior management biographies
Larry Lipman (Chairman)
Larry has been the main driving force behind the Safestay business since its
establishment. He is responsible for the Group's strategy and business
development. He has extensive experience of the property market, gained over
thirty years, throughout which he has been the Managing Director of Safeland
plc, where his primary focus is on trading opportunities and the assessment of
potential investments and refurbishment projects. He was also a key executive
in each of Safeland's previous demergers, including BizSpace and Safestore,
and, in each case, he continued after the demerger to be closely involved with
the growth of those businesses as well as continuing to manage the core
businesses of Safeland.
Paul Hingston (Chief Financial Officer & Company Secretary)
Paul is a KPMG qualified FCA Chief Financial Officer with an MBA.
Significant board level experience in the UK and overseas has involved
operating in a wide variety of sectors including Leisure, Travel, Hospitality,
Aviation and Construction. He was most recently Group Finance Director of
Starboard Hotels Ltd.
In addition to working with operational teams to optimise business
performance, often during periods of rapid growth, Paul has worked extensively
on financing strategy with corporate finance advisers, banks, private equity
funds and other city investors. Paul's expertise in optimising value from the
interaction of Finance with the other functions of the business has been
applied across a variety of corporate structures including PLCs, privately
owned and private equity backed businesses. Additionally, he is the Business
Members Representative on the Management Committee for the Beds, Bucks and
Herts Society of Chartered Accountants.
Peter Zielke (Chief Operating Officer)
Peter joined Safestay plc in February 2023. His international hospitality
career spans over 25 years with management and director positions held in
Germany, the UK, Russia, New Zealand and other countries. He started his
career in his hometown Weimar, Germany at renowned Hotel Elephant. Most
recently Director of Operations for the South-UK region for Kew Green Hotels,
where he was in charge of Marriott International and IHG branded properties.
He also gained considerable brand knowledge in previous roles at Hilton and
Millennium & Copthorne Hotels at which he completed various operational
strategy reviews. His expertise in optimising revenue, marketing and
operational management is extremely valuable for Safestay in enhancing its
market position. Peter was Chairman of the Gatwick Hotels Association until
March 2023 and a member of various business focus groups.
Michael Hirst (Remuneration and Audit and Risk Committee Chair)
Michael is the former Chairman of the UK Events Industry Board, advising
Ministers on how to increase the value of international business events held
in the UK. He serves on the Tourism Industry Council, a collaboration between
the UK Government and the tourism industry focusing on improving the tourism
sector. He is an Executive Committee member and past Chairman of the Business
Visits & Events Partnership, representing Britain's Events Industry and a
director of The Tourism Alliance, bringing together all the major tourism
organisations in the UK.
He is a Director of CP Holdings Ltd, a diversified industrial and services
group, which includes hotels and thermal spas in Central Europe and a service
office business in the UK.
He is a former consultant to CBRE Hotels, the world's leading hotel experts.
He also advises hospitality and tourism businesses and has acted as an
arbitrator for the International Court of Arbitration in hotel dispute
resolution.
Michael Hirst was awarded an OBE for services to tourism in Britain and
awarded the Joint Meetings Industry Council Unity Award, for his significant
contribution to the advancement of the international Meetings Industry. He was
awarded a Lifetime Achievement Award for his distinguished career in
hospitality, leisure and tourism by the International Hotel Investment Forum
and recently awarded a Fellowship by the Event and Visual Communications
Association.
He was a board member of the Ladbroke Group Plc where he was Chairman and CEO
of Hilton International and voted "Corporate Hotelier of the World" by HOTELS
Magazine.
Stephen Moss (Remuneration and Audit Committee)
Stephen is Chairman of Grosvenor Securities Limited, a Central London
commercial property investment and development company. He is past Chairman of
Bibendum PLB, the leading wine and spirit distributors and, prior to that, CEO
of BCP Airport Parking which he grew to become the UK's largest airport car
parking booking platform. Stephen founded Springboard in 1990, a charity which
promotes careers in hospitality, leisure and tourism, of which he remains
President, and its board and corporate partners include many of the UK's top
hotel groups. He is now Chair of London Youth, Chairman of Trustees of
London's top-ranked comprehensive school and of a leading demographic and
social research think tank. In 1992 he was awarded an MBE for services to the
restaurant industry and, in 2002, a CBE for his contribution towards education
and training. Stephen stepped down from his role as non-executive director, as
well as his roles as Chairman of the Remuneration and Audit Committee. The
Board thanks him for his services and wishes him the best in the future.
Paul Cummins (Non-Executive Director)
Paul is a qualified chartered accountant and is currently Investment Director
of Pyrrho Investments Ltd, Safestay's largest shareholder. He has previously
worked at Nomura International in both Hong Kong and London as a proprietary
trader, he also worked at KPMG in Hong Kong and BDO in London. He is currently
Chairman of Pacific Jade Holdings Ltd, a Hong Kong based tax and company
secretarial business.
Sarah Whiddett (Remuneration and Audit and Risk Committee)
Sarah Whiddett has over 17 years' leadership experience in Insight, CX and
Marketing. Currently, she is a Strategic Client Partner for Kantar Insights
& Consulting, a leading global data, insight and consultancy agency.
Sarah, and her global matrix team, support clients with their brand strategy,
innovation, creative and media activation, and consumer experience, through a
mix of research, analytics and consultancy services. She was previously Chair
and Director of AURA, the UK's biggest client-side research networking and
events organisation, and prior to that held numerous leadership positions at
food and drinks wholesaler Bidfood. Alongside these roles, Sarah has been
involved in extensive public speaking and industry engagement, judging
multiple industry awards, speaking at conferences and leading press
engagement. Sarah was a Marketing Academy Scholar 2019 - selected as a group
of 30 future leaders from a group of over 600 applicants, and was selected for
the Kantar Women in Leadership program 2022. Sarah has been enlisted to the
Safestay board in 2023 to support Safestay's growth ambition, utilising her
marketing and consumer insight expertise.
Audit Committee report
I am pleased to introduce the report of the Audit Committee for the year ended
31 December 2023.
Best practice recommends that all members of the Committee be Non-Executive
Directors, independent in character and judgement and free from any
relationship or circumstance which may, could or would be likely to, or appear
to, affect their judgement and that at least one such member has recent and
relevant financial experience. Accordingly, the Committee comprises of both
independent Non-Executive Directors, with Paul Hingston supporting in an
advisory capacity.
The Committee provides support to the Board in meeting its statutory
responsibilities as set out in the QCA Code. The Board's view is that the
skills and experience of the Committee members are very much relevant to the
Group's business, as evidenced by the biographies within the Directors page in
the Directors' report. The Committee also monitors the integrity of the
financial statements of the Company and meets regularly with management and
Haysmacintyre LLP (the Company's external auditors) to review and monitor the
financial reporting process, the statutory audit of the consolidated financial
statements, audit procedures, risk management, internal controls and financial
matters.
Haysmacintyre LLP was appointed as external auditor of the Company to conduct
the audit of the Company's financial statements for the financial year to
31 December 2023 and their re-appointment as auditor for the following
financial year will be subject to approval by shareholders at the 2023 Annual
General Meeting. External audit partners are rotated every five years. The
current external audit partner is Laura Mott. The external auditors present in
advance of the year end their approach to the forthcoming audit and present
their findings from the audit following the completion of their work. The
Committee assesses the performance of the external auditors on an annual basis
and based on this review the Committee recommends the appointment,
re-appointment or removal of the Company's external auditors to the Board.
The Committee was chaired by Stephen Moss and I was also part of the
Committee. Following Stephen Moss's resignation in March 2024, Sarah Whiddett
was appointed to the Committee.
The Committee meets at least annually with the Company's external auditors.
The Committee has a minimum of 2 meetings per year. They review the audit plan
at the start of the annual audit, plus the audit findings and the draft annual
accounts before they are submitted to the Board for approval. The Committee
generally also meets to follow up the audit action plan and risk assessment
report during the year. The external auditors have unrestricted access to the
Committee. Both the Committee and the Board keep the external auditor's
independence under close scrutiny. The Group also receives a formal statement
of independence and objectivity from the external auditors each year.
Two meetings were held in 2023, these were both attended by Michael Hirst and
Stephen Moss, with Paul Hingston attending in an advisory capacity.
The Committee's activities and areas of focus during the year were the
following:
· Key assumptions used in the cash forecast prepared by the Directors
in relation to the Going Concern note;
· Review of the management paper in relation to key assumptions used in
the impairment test as at 31 December 2023 under IAS 36;
· Review of the management paper in relation to the valuation of the
assets under IAS 16 and IFRS16;
· Board governance, including the Committee and the procedure for
assessing the Group's key risks.
· The classification of Vienna as discontinued operations and assets
and liabilities held-for-sale under IFRS 5.
· Review of accounting relating to the acquisition of the freehold
property in Edinburgh
Significant issues considered in relation to the financial statements
The Committee reviewed the financial statements, with particular attention to
accounting policies and areas of judgement.
The key matters considered by the Committee in respect of the period ended 31
December 2023 are set out below:
· Assets held for sale and discontinued operations: The Committee
reviewed Managements assessment on the application of IFRS 5 for the property
located in Vienna to ensure that the judgements applied were deemed to be
reasonable.
· Impairment of goodwill and fixed assets: The Committee reviewed
Managements assessment of impairment on goodwill and fixed asset balances
related to Bratislava. They challenged Managements assumptions of future
cashflows to ensure they were reasonable.
Risk management and internal control
The Board has overall responsibility for maintaining sound internal control
and risk management systems and has delegated responsibility to monitor their
effectiveness to the Committee.
The system of internal control comprises high level Group-wide controls,
controls operating within individual properties and controls over processes.
Policies, procedures and clearly defined levels of delegated authority have
been communicated across the Group, and Management has identified the key
operational financial processes which exist within the business and
implemented internal controls over these processes in addition to the
higher-level review and authorisation-based controls. These policies are
designed to ensure the accuracy and reliability of financial reporting and
govern the preparation of financial statements. The Committee is satisfied
that the system of controls is sufficient for a Group of Safestay's size and
complexity.
Internal Audit
The Group does not currently have an internal audit function, and the
Committee supports Management's view that there is no need, at present, to
establish an internal audit function given the operational scale of the
business as well as the fact that where possible, the Group avoids cash
payments.
The Committee will keep this under consideration and will review the need for
an internal audit function on an annual basis.
Michael Hirst
Chair of the Audit Committee
6 June 2024
Remuneration Committee Report
As Chair of the Remuneration Committee ("the Committee"), I am pleased to
present the report of the Committee for the period ended 31 December 2023.
Membership, role and responsibilities
As an AIM-listed company, we are not required to comply with the Listing Rules
of the Financial Conduct Authority, or the requirements of Schedule 8 (Quoted
Companies Directors Remuneration Report) as amended by the provisions of The
Large and Medium-sized Companies and Groups (Accounts and Report) Regulations
2008 (SI 2008/410) (the "Regulations") or the UK Corporate Governance Code.
However, noting the Company has chosen to comply with the UK's Quoted
Companies Alliance Corporate Governance Guidelines for Small and Mid-Size
Quoted Companies (the "QCA Code"), the Board considers it appropriate for the
Company to provide shareholders with additional information in respect of
executive remuneration where appropriate.
I was appointed the Committee's Chair following Stephen Moss's resignation as
chair of the Remuneration Committee in March 2024. I would like to thank
Stephen for his services as Committee Chair. Following Stephen's resignation,
Sarah Whiddett was appointed to the Committee. Both Sarah and I are considered
independent by the Board within the meaning of the QCA Code.
The Committee operates under Terms of Reference approved by the Board. The
terms of reference are subject to an annual review by the Committee.
The Committee is responsible for reviewing the performance of the Executive
Directors and within the terms of the agreed remuneration policy, determining
their remuneration packages, including, where appropriate, bonuses and the
grant of share options.
Activity during the year
The Committee met once during 2023, and all relevant Committee members were
present at every meeting. During the period, the Committee discussed and
agreed to approve the remuneration arrangements for the Executive Directors.
Remuneration policy
The objective of the Group's remuneration policy is to attract, motivate, and
retain high quality individuals who will contribute to the success of the
Group.
The table below summarises the key elements of the remuneration policy for
Executive Directors and Senior Management:
Element Link to remuneration policy/strategy Operation Maximum opportunity Performance Metric
Base Salary To help recruit and retain high performing Executive Directors. Salaries will normally be reviewed annually taking into account performance, Annual increases will usually be commensurate with those of the wider A broad-based assessment of individual and Group performance is considered
It should reflect the individuals skills and experience within the role. experience, responsibilities, relevant market information and the level of workforce. Further increases may be considered if there are significant as part of any salary review.
workforce pay increases. changes in responsibility or scope of the role, sustained increase in the size
of the business, or if there are significant movements in market rates. New
joiners, where pay is initially set below market levels, may benefit from
larger increases as their salary is progressed towards the market rate based
on their development in the role.
Pension To provide cost-effective, yet market-competitive, retirement benefits. Contribution to a personal pension arrangement or cash in lieu of pension by Executive and Non-Executive Directors receive statutory minimum pension None
way of a salary supplement. contributions, in line with legislation, and with all other UK employees.
Annual Bonus To help recruit and retain high performing Executive Directors. Executives are all eligible to receive bonus incentives, at the discretion of Bonuses are provided on an ad-hoc basis. It is the Committees preference to None
the Remuneration Committee. provide longer term incentive's to align the Executive Director's interests to
Any awards are deemed to be ad-hoc. the wider business.
Long Term Incentive Plan To incentivize and reward long term performance and value creation. Executives are both eligible to receive share option incentives, at the There is no limit to the number of share option awards available at any one None
To aid retention and align the interest of Executive and Non-Executive discretion of the Remuneration Committee. time. However, the committee exercises judgement to ensure that any awards are
Directors and shareholders in the long term.
Any awards are deemed to be ad-hoc. commensurate to the employee/Executive Director who receives the award.
Directors' service contracts
Larry Lipman has a contract terminable on 6 months' notice. All the other
Directors have contracts terminable by either party upon three months'
written notice except for Paul Cummins as he is employed by Phyrro Investments
Limited.
The Directors' service contracts contain no provision for fixed termination
payments.
Directors' emoluments (audited)
The emoluments of the Directors of the Company for the period ended 31
December 2023 were as follows:
Name Salary and fees Pension Benefits 2023
in kind Total
£'000 £'000 £'000 £'000
Executive directors
Larry Lipman 105 - - 105
Paul Hingston 143 4 - 147
Peter Zielke 105 4 - 109
Non-executive directors
Michael Hirst 33 - - 33
Paul Cummins 9 - - 9
Stephen Moss 31 - - 31
Sarah Whiddett 20 - - 20
Total 446 8 - 454
The comparative for the 31 December 2022 is as follows:
Name Salary and fees Pension Benefits 2022
in kind Total
£'000 £'000 £'000 £'000
Executive directors
Larry Lipman 100 - - 100
Nuno Sacramento 63 2 - 65
Peter Harvey 16 - - 16
Paul Hingston 122 3 - 125
Non-executive directors
Michael Hirst 33 - - 33
Paul Cummins - - - -
Stephen Moss 30 - - 30
Total 364 5 - 369
Directors' interests in shares
The following Directors directly own share capital of the Company:
Ordinary shares of 1p each
Fully paid number Percentage %
Larry Lipman 346,054 0.5
Stephen Moss 233,988 0.4
Michael Hirst 97,142 0.1
Larry Lipman also owns one-third of the share capital of Safeland Holdings
(2008) Corporation ("SHC") a corporation incorporated in Panama and 2% of
Safeland plc, a company incorporated in the UK. SHC owned 3,112,484 ordinary
shares in the Company, representing 4.8% of the Company's shares in issue as
at 31 December 2023. SHC owned 83.4% of Safeland plc. Safeland plc owned
2,597,334 ordinary shares of the Company, representing 4.0% of the Company's
shares in issue at 31 December 2023. Paul Cummins is not considered to be
independent as he is employed by Pyrrho Investments Limited which is a
significant shareholder in the Company, owning 19,025,638 ordinary shares
representing 29.4% of the Company's shares in issue at 31 December 2023.
Directors' interests in options over the equity share capital of the Company
at 31 December 2023 were:
Granted Lapsed At 31 December 2023 Exercise Price Exercisable From Exercisable To
Larry Lipman 396,521 396,521 15 p 01/01/2024 31/12/2031
300,000 300,000 15 p 01/01/2024 31/12/2031
400,000 400,000 15 p 01/01/2024 31/12/2031
37,100 37,100 9 p 01/01/2024 31/12/2031
20,900 20,900 15 p 01/01/2024 31/12/2031
25,700 25,700 13 p 01/01/2024 31/12/2031
25,700 25,700 13 p 01/01/2024 31/12/2031
23,900 23,900 14 p 01/01/2024 31/12/2031
22,300 22,300 15 p 01/01/2024 31/12/2031
22,300 22,300 15 p 01/01/2024 31/12/2031
19,700 19,700 15 p 01/01/2024 31/12/2031
18,600 18,600 15 p 01/01/2024 31/12/2031
20,900 20,900 15 p 01/01/2024 31/12/2031
Michael Hirst 4,600 4,600 9 p 01/01/2024 31/12/2031
2,600 2,600 15 p 01/01/2024 31/12/2031
3,200 3,200 13 p 01/01/2024 31/12/2031
3,200 3,200 13 p 01/01/2024 31/12/2031
3,000 3,000 14 p 01/01/2024 31/12/2031
2,800 2,800 15 p 01/01/2024 31/12/2031
2,800 2,800 15 p 01/01/2024 31/12/2031
2,400 2,400 15 p 01/01/2024 31/12/2031
2,300 2,300 15 p 01/01/2024 31/12/2031
2,600 2,600 15 p 01/01/2024 31/12/2031
Paul Hingston 400,000 400,000 15 p 01/01/2024 31/12/2031
Stephen Moss 11,200 11,200 9 p 01/01/2024 31/12/2031
6,300 6,300 15 p 01/01/2024 31/12/2031
7,700 7,700 13 p 01/01/2024 31/12/2031
7,700 7,700 13 p 01/01/2024 31/12/2031
7,200 7,200 14 p 01/01/2024 31/12/2031
6,700 6,700 15 p 01/01/2024 31/12/2031
6,700 6,700 15 p 01/01/2024 31/12/2031
5,900 5,900 15 p 01/01/2024 31/12/2031
5,600 5,600 15 p 01/01/2024 31/12/2031
6,300 6,300 15 p 01/01/2024 31/12/2031
Peter Zielke 300,000 300,000 15p 01/01/2024 31/12/2031
The options granted in the first 7 months of 2021 were received by the
existing Directors in exchange for a 40% reduction in their salary to reduce
the operating costs of the Group during the lockdown period.
Approval
This report was approved by the Remuneration Committee and signed on its
behalf by:
Michael Hirst OBE
Chair of the Remuneration Committee
6 June 2024
Directors Report
The Directors present the Directors' report on the affairs of Safestay plc
(the "Company") together with the audited consolidated financial statements,
for the period ended 31 December 2023.
Directors' indemnity provisions
The Group has granted an indemnity to each of its Directors against liability
in respect of proceedings brought by third parties, subject to the conditions
set out in section 234 of the Companies Act 2006. The Company purchases
Directors and Officers liability insurance which gives appropriate cover for
any legal action brought against its Directors. Such qualifying indemnity
provision remains in force as at the date of approving the Directors' Report.
Other substantial shareholdings
The Company had been notified of the following shareholdings which constitutes
three per cent or more of the total issued ordinary shares of the Company as
at 31 December 2023.
Ordinary shares of 1p each
Fully paid Percentage
Number %
Pyrrho Investments 19,025,638 29.30
BGF 11,791,661 18.16
Mr Peter O'Reilly 4,758,767 7.33
Chelverton Asset Management 4,361,764 6.72
Bredbury Limited 3,129,665 4.82
Safeland Holdings (2008) Corporation 3,112,484 4.79
Safeland plc 2,597,334 4.00
Mr Peter Leslie Squire 2,150,000 3.31
Mrs JD Squire 2,000,000 3.08
Hargreaves Lansdown 1,995,723 3.07
Dividends
The Directors have not recommended the payment of a dividend for the year
(2022: nil).
Directors' Responsibilities Statement
The Directors are responsible for preparing the Chairman's Statement,
Directors' Report, Strategic Report, Corporate Governance report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. The Directors are required to prepare consolidated accounts
under UK-adopted International Accounting Standards. Under company law the
Directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Company and
the Group and the profit or loss of the Group for that period. In preparing
these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgments and accounting estimates that are reasonable and
prudent;
· state whether applicable UK accounting standards or UK-adopted
International Accounting Standards, subject to any material departures
disclosed and explained in the financial statements;
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Conflicts of interest
Under the articles of association of the Company and in accordance with the
provisions of the Companies Act 2006 a Director must avoid a situation where
he has, or can have, a direct or indirect interest that conflicts, or possibly
may conflict with the Company's interests. However, the Directors may
authorise conflicts and potential conflicts, as they deem appropriate. As a
safeguard, only Directors who have no interest in the matter being considered
will be able to take the relevant decision, and the Directors will be able to
impose limits or conditions when giving authorisation if they think this is
appropriate. During the financial period ended 31 December 2023, the Directors
have authorised no such conflicts or potential conflicts in accordance with
the above procedures.
Director Independence
The appointment of the Non-executive Director's is designed to provide balance
between those with detailed knowledge of business operations, and those who
are independent to provide the right levels of scrutiny's to the business
operations. Both Sarah Whiddett and Michael Hirst are considered to be
independent Non-Executive Directors, whilst Paul Cummins is not deemed to be
independent due to his employment with Phyrro Investments Limited, who at the
reporting date, had a 29.3% ownership in Safestay plc.
Going concern
In assessing the going concern position of the Group for the consolidated
financial statements for the period ending 31 December 2023, the Directors
have considered the Group's cash flow, liquidity, and business activities.
During 2023, the Group recorded an adjusted EBITDA of £6.8 million (2022:
£5.9 million) as the business continued to recover well from the pandemic and
for the first time since 2019, the hostels have been open for 100% of the
year. Additionally, 2024 sales are significantly ahead of 2023 with the profit
impact further enhanced by tight cost control and a changing sales mix from
increased groups business.
The Group reduced its bank loan borrowings by £0.8m as the Group continued
repaying CBILS (Coronavirus Business Interruption Loan Scheme). The Group
reported a cash position of £1.9 million (2022: £5.2 million) which is
largely reduced due to the acquisition of freehold property in Edinburgh for
£4.3 million. During 2024, the Group refinanced all its existing borrowings
in January 2024 into a single £16.0 million Term Loan and added a new £2.5
million Revolving Credit Facility ("RCF") to support future growth plans. The
new Term Loan and RCF are for five years and were provided by existing lender
HSBC.
As part of their going concern assessment, the Directors have prepared
forecasts for a minimum period of twelve months from the date of approval of
the financial statements. In addition, certain adverse scenarios have been
considered for the purposes of stress and sensitivity testing. Refer to Note 1
for further information on the assumptions and judgements applied.
Upon consideration of this analysis and the principal risks faced by the
Group, the Directors are satisfied that the Group has adequate resources to
continue in operation for the foreseeable future, a period of at least 12
months from the date of this report. Accordingly, the Directors have concluded
that it is appropriate to prepare these financial statements on a going
concern basis.
Post balance sheet events
In January 2024, the Group refinanced its existing borrowings into a single
£16 million Term Loan and added a new £2.5 million Revolving Credit Facility
("RCF") to support future growth plans. The new Term Loan and RCF are for 5
years and were provided by existing lender HSBC.
The Term Loan interest rates are £4.4 million at 3.955%, £10 million at
SONIA but capped at 4.75% with a floor of 3% and £1.6 million at SONIA, all
with an additional margin of 2.6%. The RCF has a rate of SONIA plus a margin
of 2.85%. The Term Loan is repayable at £0.1 million per quarter from March
2025 together with a final payment at completion. Interest on both the Term
Loan and RCF is payable quarterly from March 2024.
The Term Loan replaces the previous interest only £12.7 million facility with
HSBC and enables the repayment of the outstanding CBILS loan of £3.25
million, which carried a significantly higher interest rate.
On 30 April 2024, the Group acquired a property located in Cordoba, Spain for
a consideration of €2 million, funded through the Group's existing cash
balance.
In June 2024, the Group acquired a freehold property located in Brighton,
United Kingdom, for a consideration of £2.3 million, funded through both the
Group's existing cash balances, and a £1.2 million loan from the trustees of
the Sheldon Pension Fund and Sentpark Capital Limited.
The loan will be made to Safe Hostels Limited (a 100% owned subsidiary of
Safestay plc) with Safestay plc providing a written guarantee. The interest
rate on the loan is 1% per month and is serviced monthly, plus there are
arrangement and exit fees of 1% each. The repayment date is 18 months after
the drawdown date.
Statement of disclosure of information to the auditor
The Directors confirm that:
· so far as each Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
· the Directors have taken all the steps that they ought to have taken
as Directors to make themselves aware of any relevant audit information and to
establish that the Company's auditor is aware of that information.
The Directors are responsible for preparing the annual report in accordance
with applicable law and regulations. Having taken advice from the Audit
Committee, the Directors consider the annual report and the financial
statements, taken as a whole, provides the information necessary to assess the
Company's performance, business model and strategy and they are fair, balanced
and understandable.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
To the best of our knowledge:
· Company and Group financial statements, prepared in accordance with
International Accounting Standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
· the Strategic Report and Directors' Report include a fair review of
the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face.
Future Developments
Details of the Group's future developments are provided within the Strategic
Report.
Employees and social matters
The Strategic Report outlines the position of the Company with regard to
social, environmental matters and employment of disabled persons.
This report was approved by the Board of Directors and signed on behalf of the
Board
Paul Hingston
Chief Financial Officer
6 June 2024
Independent auditor's report to the members of Safestay Plc
Opinion
We have audited the financial statements of Safestay Plc ("the Parent
Company") and its subsidiaries ("the Group") for the year ended 31 December
2023 which comprise the Consolidated Statement of Comprehensive Income, the
Consolidated and Company Statements of Financial Position, the Consolidated
and Company Statement of Cash Flows, Consolidated and Company Statements of
Changes in Equity and notes to the financial statements, including a summary
of significant accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and International
Reporting Financial Standards (IFRSs) as adopted by the United Kingdom.
In our opinion, the financial statements:
• give a true and fair view of the state of the Group's and of the Parent
company's affairs as at 31 December 2023 and of the Group's loss for the
period then ended;
• the Group's financial statements have been properly prepared in accordance
with IFRSs as adopted by the United Kingdom and in accordance with the
requirements of the Companies Act 2006; and
• the Parent Company's financial statements have been property prepared in
accordance with IFRS as adopted by the United Kingdom and in accordance with
the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We are independent of
the Group and Parent Company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
An overview of the scope of our audit
For the year ended 31 December 2023, the Group undertook all its trading
activities through its wholly owned subsidiaries. The scope of our audit work
was therefore the audit of the Group, which included the parent company and
its subsidiaries. All audit work to respond to the risks of material
misstatement of both the Group and Parent Company was performed directly by
the group audit engagement team.
The scope of the audit and our audit strategy was developed by using our audit
planning process to obtain and update our understanding of the Group, its
activities, internal control environment, and likely future developments. Our
audit testing was informed by this understanding of the Group and accordingly
was designed to focus on areas where we assessed there to be the most
significant risks of material misstatement.
Audit work to respond to the assessed risks was performed directly by the
group audit engagement team who performed full scope audit procedures on the
six UK subsidiaries, being Safestay (HP) Limited, Safestay (Elephant &
Castle) Limited, Safestay (Edinburgh) Limited, Safestay (Edinburgh) Hostel
Limited, Safestay (York) Limited and Safestay (York) Hostel Limited. The
remaining UK subsidiary, WXYZ2 Limited, is exempt from audit under the s479
parent company guarantee audit exemption and so was not subject to statutory
audit with the remaining overseas subsidiaries subject to specific scope audit
procedures. Specific scope audits were planned and performed to provide
sufficient audit evidence based on the size of these subsidiaries compared to
the size of the group and group materiality. Our group scoping ensured that we
achieved at least 90% coverage of our key audit matters and at least 75%
coverage across all other balances.
There have been no component auditors used in this engagement. All work was
completed by the group audit engagement team.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key Audit Matter How our scope addressed this matter
Group Revenue (Note 2)
The key risks surrounding income have been assessed individually, with risk We have undertaken the following procedures to verify the appropriateness of
assessments being performed for each element of revenue recognition. revenue recognition:
- Evaluated the processes and controls relating to the recognition
of revenue and related balance sheet accounts;
The possible risk of fraud in revenue recognition is reduced in respect of the
automatic postings of daily accommodation and food & beverage sales. This - Performed cash to revenue reconciliations for each trading entity;
is on the basis that these transactions are made up a large volume of small
value transactions which are recognised at the point of sale. As such the - Performed reconciliations from the EPOS system to the trial
point of revenue recognition is non-complex and involves little judgement. balance of each subsidiary;
- Performed cut off testing for accommodation revenue looking
bookings straddling year end, ensuring that appropriate portions of revenue
Cut off risk is also not deemed to be significant as the recognition criteria were recognised in the period of stay.
is not complex or subjective. Accommodation revenue is recognised on the date
of stay and food and beverage sales are recognised at the point of sale. The - Utilised data analytics software to identify any unusual
distinct recognition dates provides limited subjectivity in recognition and transactions that are posted outside of the 'normal' revenue cycle. We then
reduces risk of misstatement. substantively tested any exceptions to ensure they were free from material
fraud or error;
- Substantive testing was performed of transactions around year-end
Therefore, journals to revenue within the expected revenue cycle of journal with verification of transactions to supporting documentation (EPOS reports
postings are not considered to be a significant risk. and bank statements) challenging the appropriateness of revenue recognition.
Comfort obtained over reliability of EPOS system through reconciliation of
EPOS to bank receipts.
However, as the Group is listed and revenue is a key KPI for the Group, - Our review also included an assessment of the appropriateness of
there are incentive for the overstatement of revenue. Therefore, there the recognition of trade receivables, accrued income and the completeness of
remains a significant risk around the manual posting of journals to revenue, deferred income.
outside of the normal revenue cycle, to overstate reported revenue.
Management override of controls Controls Approach
Management is in a unique position to manipulate accounting records and - We have reviewed the controls of the business and performed
prepare fraudulent financial statements by overriding controls that otherwise walkthrough tests of the controls to determine any weaknesses which could lead
appear to be operating effectively. Due to the unpredictable way in which such to management override of controls. This was with particular reference to
override could occur, it is a risk of material misstatement due to fraud and areas that we felt could have weaker controls in place.
thus a significant risk on all audits. The specific risk to the Group is the
manipulation of journal entries and accounting estimates, including
assessments of asset impairment, assessments of debtor recoverability,
discount rates used in the calculation of IFRS 16 leases and the valuation of Substantive Audit Approach
the properties.
- We considered and reviewed all areas requiring judgement or
estimates in order to assess the appropriateness of the judgements and
estimates made by Management.
- We inquired with management personnel to understand their controls
and risk assessment procedures and if they consider any other areas which may
be susceptible to risk of material misstatement due to fraud;
- We have tested a number of journal entries made as part of the
year-end financial reporting process and those made in the year. These
journals were selected based on our assessment of high-risk features, in
particular journal entries posted with round sum values, blank descriptions,
keywords or involving intercompany or related parties. We have ensured these
are in the normal course of business, have a valid business rationale and have
been appropriately authorised.
Right of use assets and lease liabilities (IFRS16) (Note 11)
The Group holds a significant number of its hostel properties on long term As part of our audit procedures we:
leasehold contracts.
- Obtained the IFRS 16 model and the underlying calculations for
As at 31 December 2023, the Group recognised right of use assets with a each lease and checked the arithmetic accuracy of these.
carrying value of £23.2m and related lease liabilities totalling £25.9m.
These assets and liabilities are material to the Group and there is a risk - Obtained lease agreements for each property leased within the
that they have been incorrectly calculated under IFRS16. group and reviewed each agreement against the inputs of the model.
- Obtained details of all lease modifications which were agreed
during the year and compared the terms of each against the inputs of the
The leasehold contracts contain clauses to increase rental charges if certain model.
inflationary thresholds are breached. There is a risk that the list of
modifications is incomplete and/or the IFRS lease liability and right of use - Reviewed and assessed management's assessment for the calculation
assets has not been correctly adjusted. of IBR rates for all lease additions and modifications and challenged the
reasonableness of the assumptions of the assumptions made by management in
respect of them.
A significant level of judgement is required to assess the Incremental - Performed sensitivity analysis to assess the possible impact of
Borrowing Rate (IBR) for both lease additions and modifications. changes to the IBR rate on the capitalised right of use asset and lease
liability values.
Valuation of freehold and leasehold property (Note 11) As part of our audit procedures we:
The Group owns four freehold properties, three in the UK and one in Pisa,
Italy and one leasehold property in the UK.
- Obtained valuation reports from external valuers and challenged
the reasonableness of the key assumptions, judgements and estimates within
them.
The Group carries all freehold and leasehold properties at a revalued amount,
which is the fair value of the items at the date of the revaluation, less any - Assessed key estimates such as discount rates, EBITDA forecasts
subsequent accumulated depreciation and accumulated impairment losses. and inflation rates in line with our work performed on forecasts within our
impairment reviews noted below.
- Verified these key estimates to supporting calculations, and / or
The fair value assessment is judgemental and includes assessing the third party sources where applicable.
appropriateness of the key assumptions used in the valuation by directors and
external valuers. - Evaluated the experience, competence and independence of the
external valuers to assess whether they had the required capabilities to
provide the valuation services that they had been charged with.
Management has obtained an external valuation for each of the freehold and - Assessed whether movements in fair value have been appropriately
leasehold properties in the current reporting periods. recorded in the financial statements.
- Reviewed the appropriateness of the accounting treatment of
revaluation gains in the current and previous financial years, noting that
Increasing interest rates are expected to have had significant impacts on they have previously been accounted for as an adjustment to cost rather than
property valuations in the year, increasing the likelihood that the properties first eliminating accumulated depreciation and then adjusting cost for any
could be inappropriately valued. Freehold and leasehold property valuations gains in excess of depreciation. This was discussed with management and
contain significant assumptions and judgements and therefore there is a risk subsequently confirmed by them that historic revaluation gains should have
that the valuation is not materially accurate or has been applied incorrectly first gone offset accumulated depreciation and so a prior year adjustment has
in the financial statements. been recognised in respect of this.
- Reviewed the appropriateness and completeness of disclosure of the
prior year restatements included in the financial statements.
Impairment of Goodwill (Note 12), investment in subsidiaries (Note 4 - Parent) We obtained and critically assessed management's impairment assessment of
and intercompany receivables Note 5 - Parent). these balances, which largely related to forecasts of the subsidiaries'
performance to which these balances are attributable. As part of our audit
procedures we:
Included in the Group's Statement of Financial Position is Goodwill of £10.9m
(2022: £12.0m).
- Challenged the reasonable of key assumptions used in the formation
of expected future revenues by CGU. This included a review of projected
occupancy and forecasted revenue per available room.
In addition, included in the Parent Company's Statement of Financial Position
are investments in subsidiaries of £9.3m (2022: £9.9m) and intercompany - Assessed the reasonableness of revenue growth rates applied year
receivables of £21.1m (2022: £19.1m). on year, with reference to third party sources.
- Assessed the completeness and accuracy of forecasted expenditure
in line with actuals from the current year and contracts for committed
Given that the Group, and a number of subsidiaries to which the balances expenditure in future periods.
relate are loss making, there is a risk that the Groups Goodwill, and Parent
Company's investment in subsidiaries and intercompany receivables should be - Assessed the appropriateness of the discount factor used in the
impaired. calculation of the present value of future forecasts. This involved an
agreement to third party sources and contracted agreements.
- Ensured that forecasted future revenues were only included for the
The impairment review of these balances Is subjective due to the inherent period up to the end of the contracted lease term, taking into account any
uncertainty involved in forecasting and discounting future cash flows and the options to extend
assumptions made in relation to the forecasted performance of the subsidiaries
to which the balances relate. - Assessed the sensitivity analysis presented by management
detailing the headroom for each subsidiary.
- Performed our own sensitivity analysis to assess the level of
The effect of this is that the recoverable amount of Goodwill, Investment in headroom regarding the balance of goodwill, investments in subsidiaries and
subsidiaries and intercompany receivables has a high degree of estimation intercompany receivables, where a prior year restatement was made between
uncertainty and a potential range of reasonable outcomes greater than Safestay PLC and WXYZ2 Limited.
materiality for the financial statements. Therefore, there is a risk that they
require impairment.
Recognition of held for sale assets
Discussions with management during our audit indicated that around year end As part of our audit procedures we:
there were ongoing discussions surrounding the disposal of the hostel in
Vienna, operated by Safestay Hostel GmbH.
- Reviewed board meeting minutes and other correspondence around
year end to verify at which date the held for sale recognition criteria was
Under IFRS 5, assets should be classified as held for sale if an entity has met.
the intention and ability to transfer the assets to a buyer in its present
conditions. - Assessed the appropriateness of whether the sale recognition
criteria had been met prior to the year end, and we reviewed management's
assessments on the valuation of the Vienna property, ensuring that it is
appropriately recognised at the lower of carrying amount and fair value less
It was determined during this audit that this classification criteria had been costs to sell.
met and therefore audit testing was performed to ensure appropriate
recognition of the held for sale assets and the discontinued operations. - Re-performed depreciation calculations ensuring that depreciation
charges ceased at the point of recognition as held for sale.
- Reviewed management's accounting disclosures for the held for sale
Included in the Groups Statement of Financial Position are liabilities held assets, ensuring that it is appropriately recognised within the face of the
for sale of £506k and a net loss from discontinued operations of £376k. statement of financial position and within the notes to the accounts.
Sale and leaseback As part of our audit procedures we:
In 2017 the Group entered into a sale and leaseback transaction in respect of
one of its properties. The arrangement requires the Group to pay an annual
rental charge, but also grants the right of re-purchase of the property either - Evaluated the accounting policy adopted by the Group for
after 25 years from the commencement of the lease or at the end of the 150 compliance with IFRSs as adopted by the UK, specifically obtaining
year lease term. management's assessment of the substance of the financing transactions and
assessing its reasonableness through reference to the requirements of IAS 17,
other relevant accounting standards and associated technical guidance;
Management have considered that this transaction does not meet the definition - Assessed the appropriateness of management's judgement with
of a sale of the asset and so rather than applying the requirements of IAS 17 regards to whether or not they will trigger the 25 year re-purchase option;
(the accounting standard relating to leases applicable in 2017) to recognise a
finance lease liability at the lower of the fair value of the asset and the - Substantiated the terms of the sale and leaseback transaction to
present value of future minimum lease payments, instead the sales proceeds the sale and subsequent lease agreement for property;
have been accounted for as a financing liability which is being amortised,
using the effective interest method, over the term of the lease based on - Reviewed the mathematical accuracy of their calculations of the
management's judgement that they will not take the 25 year re-purchase option lease liabilities and insuring that the inputs in relation to cash flows
and instead will acquire it at the end of the lease term. agreed to the terms of the sale and lease agreements and that the effective
interest rate estimated was appropriate; and
- Reviewed the appropriateness of the disclosures within the
Given the complexity of this transaction and that it is outside of the financial statements to ensure that they are appropriate and complete.
ordinary course of business for the Group we identified that there was a risk
that the liability in respect of this had been incorrectly accounted for.
WXYZ2 Impairment (Parent Company only)
During our review of impairment of investment in subsidiaries, we noted As part of our audit procedures we have:
accounting entries for a group restructure in both 2014 and 2017 had been
omitted from the financial statements.
- Assessed the appropriateness and mathematically accuracy of
management's steps paper showing the calculation of all missing accounting
entries;
The financial statements have been restated to include the accounting - Obtained the restructuring steps paper to confirm the substance of
treatment for this transaction. This has been recognised as a prior period the transactions;
adjustment.
- Reviewed Companies House to confirm the legal transfer of
ownership of Safestay (Elephant & Castle) Limited to Safestay PLC on 22
March 2017; and
- Reviewed the appropriateness of the disclosures, including the
prior year adjustment, within the financial statements to ensure they are
appropriate and complete.
Our application of materiality
The scope and focus of our audit were influenced by our assessment and
application of materiality. We define materiality as the magnitude of
misstatement that could reasonably be expected to influence the readers and
the economic decisions of the users of the financial statements. We use
materiality to determine the scope of our audit and the nature, timing and
extent of our audit procedures and to evaluate the effect of misstatements,
both individually and on the financial statements as a whole.
The materiality for the Group financial statements as a whole was set at
£1,850,000. This was determined as being 2% of the Group's gross assets.
Gross assets have been selected as a benchmark because net assets per share is
it is a Key Performance Indicator of the Group and gross assets are a key
driver of this. Gross assets also reflects the high asset base of the Group
which is required to continue to operate its daily trade.
In addition to this, a lower area specific materiality was set at £382,000
for all areas except for leasehold and freehold property, and those
intrinsically linked to them such as the revaluation reserve and goodwill.
This was determined as 2% of revenue as it is also a Key Performance Indicator
of the Group and stakeholders are principally interested in the underlying
performance of the Group. Consideration was given as to whether a profit-based
area specific materiality should be used however on the basis that the Group
is loss making it was concluded that it was more appropriate to base the area
specific materiality on revenue.
On the basis of our risk assessment and review of the Group's control
environment, performance materiality was set at 65% of materiality, being
£1,200,000 on full materiality and £248,300 on area specific materiality.
The reporting threshold to the audit committee was set at 5% of materiality,
being £92,500 and £19,100 respectively. If in our opinion, differences below
this level warranted reporting on qualitative grounds, these would also be
reported.
We have determined Parent Company materiality to be £776,000. This was
determined as being 2% of gross assets. Gross assets was selected as the
benchmark as the Parent company is a holding company and does not generate
revenue. Therefore, the gross asset position is considered to be the area of
principal interest for the stakeholders. Additionally, an area specific
materiality was set at £84,000 for all transactions related to the Income
Statement. This was determined at 2% of total expenditure.
Because of our risk assessment and review of the Parent Company's control
environment, performance materiality was set at 65% of materiality, being
£504,000 for total materiality and £54,500 for area specific materiality.
The reporting threshold to the Audit Committee was set at 5% of materiality,
being £38,800 and £4,100 respectively. If in our opinion, differences below
this level warranted reporting on qualitative grounds, these would also be
reported.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors'
assessment of the Group's ability to continue to adopt the going concern basis
of accounting included but was not limited to:
- Obtaining management's assessment of going concern and supporting
cash flow forecasts covering up to 31 December 2028, and challenging the
reasonableness of the assumptions, current and historic trading performance,
estimates and judgements that support them.
- Reviewing and considering of the appropriateness of downside and
stressed scenarios of trading performance and cash flow forecasts prepared by
management;
- Reviewing and considering compliance with bank loan covenants
during the period ended 31 December 2023 and as prospectively forecast;
- Challenging and assessing the underlying assumptions of the
cashflow forecasts and considering whether the period of the forecast is
appropriate and;
- Reviewing post balance sheet trading performance and cash flow to
assess the reasonableness of management's forecasting, including an assessment
of the impact of post balance sheet events including the group refinancing in
January 2024.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's ability to continue as
a going concern for a period of at least twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report, other than the
financial statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors' report
for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
• the strategic report and the directors' report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Croup and the Parent
Company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act
2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
• the Parent Company financial statements are not in agreement with the
accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not
made; or
• we have not received all the information and explanations we require for
our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Group's and the Parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below:
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Based on our understanding of the Group and the industry in which it operates,
we identified that the principal risks of non-compliance with laws and
regulations related to regulatory requirements for the Group and trade
regulations, such as minimum wage regulation and food standards requirements
and AIM listing rules, and we considered the extent to which non-compliance
might have a material effect on the financial statements. We also considered
those laws and regulations that have a direct impact on the preparation of the
financial statements such as the Companies Act 2006, income tax, payroll tax
and sales tax.
We evaluated management's incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override of
controls), and determined that the principal risks were related to posting
inappropriate journal entries to revenue and management bias in accounting
estimates. Audit procedures performed by the engagement team included:
· Inspecting correspondence with regulators and tax authorities;
· Evaluating management's controls designed to prevent and detect
irregularities;
· Discussion with management regarding the relevant laws and
regulations that apply to the Group and its subsidiaries, with specific tests
completed to ensure compliance with National Minimum Wage requirements and
hygiene standards.
· Reviewing board meeting minutes for any details on ongoing legal
cases or known regulatory breaches.
· Reviewing legal expenses to assess for evidence of contingent
liabilities.
· Holding discussions with management regarding the risk of
breaches of AIM rules, as well as discussing this with the Company's NOMAD;
· Reviewing revenue recognition throughout the year to ensure that it
has been correctly accounted for. Specifically this involved targeted journals
testing around manual journals posted to revenue and journals outside of the
normal revenue cycle;.
· Identifying and testing journals, in particular journal entries
posted with round sum values, blank descriptions, keywords or involving
intercompany or related parties.
· Challenging assumptions and judgements made by management in their
critical accounting estimates, particularly in relation: to assumptions made
in preparing value in use calculations for impairment assessments in respect
of goodwill, tangible fixed assets and investments in subsidiaries; their
assessment of the recoverability of intercompany debtors and the calculation
of discount rates used in lease valuations and freehold property valuations;
Because of the inherent limitations of an audit, there is a risk that we will
not detect all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with regulation.
This risk increases the more that compliance with a law or regulation is
removed from the events and transactions reflected in the financial
statements, as we will be less likely to become aware of instances of
non-compliance. The risk is also greater regarding irregularities occurring
due to fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we
are required to state to them in an Auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Laura Mott (Senior Statutory Auditor)
For and on behalf of Haysmacintyre LLP, Statutory Auditors
10 Queen Street Place
London
EC4R 1AG
6 June 2024
Consolidated Income Statement for the
Period Ended 31 December 2023
Note 2023 2022
As restated
Total Total
£'000 £'000
Revenue 2 21,493 18,148
Cost of sales 3 (3,811) (2,831)
Gross profit 17,682 15,317
Administrative expenses 5 (15,231) (13,410)
Operating profit after exceptional items 2,451 1,907
Finance income and costs 6 (3,173) (2,393)
Loss before tax (722) (486)
Tax 8 (226) 442
Loss for the year from continuing operations (948) (44)
Net loss from discontinued operations 4 (376) (105)
Loss for the financial year attributable to owners of the parent company (1,324) (149)
Basic loss per share from continuing operations 9 (1.46p) (0.07p)
Basic loss per share from discontinued operations 9 (0.58p) (0.16p)
Diluted loss per share from continuing operations 9 (1.39p) (0.06p)
Diluted loss per share from discontinued operations 9 (0.55p) (0.15p)
Consolidated Statement of Comprehensive Income
2023 2022
As Restated
£'000 £'000
Loss for the year (1,324) (149)
Exchange differences on translating foreign operations 7 134
Property revaluation 3,904 -
Deferred tax on property revaluation (171) -
Total comprehensive income for the year attributable to owners of the parent 2,416 (15)
company
The accompanying accounting policies and notes form an integral part of these
financial statements.
Consolidated Statement of Financial
Position
31 December 2023 31 December 2022 1 January 2022
As Restated As Restated
Note £'000 £'000 £'000
Non-current assets
Property, plant and equipment (including right of use asset) 11 73,709 72,058 73,609
Intangible assets 12 71 9 18
Goodwill 12 10,896 12,014 12,146
Lease assets 17 297 453 562
Deferred tax asset 18 5,488 7,226 6,969
Total non-current assets 90,461 91,760 93,304
Current assets
Inventory 26 24 35
Trade and other receivables 13 1,210 1,122 1,227
Lease assets 17 142 139 78
Current tax asset 134 66 199
Cash and cash equivalents 14 1,998 5,226 4,482
Total current assets 3,510 6,577 6,021
Total assets 93,971 98,337 99,325
Current liabilities
Borrowings 16 (932) (925) (926)
Lease liabilities 17 (1,793) (1,871) (1,922)
Liabilities held for sale 4 (506) - -
Trade and other payables 15 (4,018) (3,128) (2,062)
Current liabilities (7,249) (5,924) (4,910)
Non-current liabilities
Borrowings 16 (22,354) (23,095) (24,028)
Lease liabilities 17 (24,250) (30,349) (31,086)
Trade and other payables - - (7)
Deferred tax liabilities 18 (7,359) (8,737) (8,687)
Total non-current liabilities (53,963) (62,181) (63,808)
Total liabilities (61,212) (68,105) (68,718)
Net assets 32,759 30,232 30,607
Equity
Share capital 19 649 647 647
Share premium account 19 23,959 23,904 23,904
Other components of equity 19 21,952 18,158 18,384
Retained earnings (13,801) (12,477) (12,328)
Total equity attributable to owners of the parent company 32,759 30,232 30,607
The accompanying accounting policies and notes form an integral part of these
financial statements.
These financial statements were approved by the Board of Directors and
authorised for issue on 6th June 2024.
Signed on behalf of the Board of Directors
Paul Hingston
Chief Financial
Officer
Consolidated Statement of Changes in Equity
Other
Share Share Components of Total
Capital premium account Equity Retained earnings equity
£'000 £'000 £'000 £'000 £'000
Balance as at 1 January 2022 647 23,904 18,510 (12,928) 30,133
Prior year adjustment (note 25) - - (126) 126 --
Transition to IAS 12 (see note 18) - - - 474 474
Balance as at 1 January 2022 As Restated 647 23,904 18,384 (12,328) 30,607
Comprehensive income
Loss for the year (as restated - see note 25) - - - (149) (149)
Other comprehensive income
Movement in translation reserve - - (134) - (134)
Total comprehensive income - - (134) (149) (283)
Transactions with owners
Share based payment charge for the period (as restated) - - (92) - (92)
Balance at 31 December 2022 (as restated) 647 23,904 18,158 (12,477) 30,232
Comprehensive income
Loss for the year - - - (1,324) (1,324)
Other comprehensive income
Movement in translation reserve - - 7 - 7
Property revaluation reserve - - 3,904 - 3,904
Deferred tax on property revaluation - - (171) - (171)
Total comprehensive income - - 3,740 (1,324) 2,416
Transactions with owners
Issue of shares 2 55 - - 57
Share based payment charge for the period - - 54 - 54
Balance at 31 December 2023 649 23,959 21,952 (13,801) 32,759
Consolidated Statement of Cash
Flows
Note 2023 2022
As Restated
£'000 £'000
Cash flow from operating activities
Loss for the year (1,324) (149)
Tax charge 226 (442)
Depreciation, amortisation 3,364 3,587
Net finance costs 3,413 2,557
Share based payment charge 54 (92)
Lease modification - 280
Impairment charges 1,028 -
(Increase)/decrease in inventories (2) 11
Decrease in lease asset debtor 153 48
Decrease in trade and other receivables 136 104
Increase in trade and other payables 1,076 1,059
Cash generated from operations attributable to continuing operations 8,124 6,963
Income tax received/(paid) (69) 134
Total net cash inflow from operating activities 8,055 7,097
Cash flow from investing activities
Purchases of property, plant and equipment (4,977) (365)
Purchases of intangible assets (80) (5)
Interest received 35 2
Total net cash outflow from investing activities (5,022) (368)
Cash flow from financing activities
Share issue 57 -
Principal elements of lease payments (3,639) (3,495)
Interest paid (1,274) (658)
Loan repayments (1,000) (997)
Total net cash outflow from financing activities (5,856) (5,150)
Cash and cash equivalents at beginning of year 5,226 4,482
Net cash flows (used in)/generating from operating, investing and financing (2,823) 1,579
activities
Differences on exchange (365) (835)
Cash and cash equivalents at end of year (including discontinued operations) 4, 14 2,038 5,226
1 General Information
Corporate Information
Safestay plc is a public limited company, limited by share capital, whose
shares are publicly traded on the Alternative Investment Market ("AIM") of the
London Stock Exchange and is incorporated in the United Kingdom and registered
in England and Wales. The registered number of the Group is 8866498 and its
registered address is 1a Kingsley Way, London, N2 0FW.
Statement of Compliance
The Group and Company financial statements have been prepared in accordance
with UK-adopted International Financial Reporting Standards ("IFRS") in
conformity with the requirements of the Company Act 2006.
Basis of preparation
The consolidated financial statements have been presented in sterling,
prepared under the historical cost convention, except for the revaluation of
freehold properties and right of use assets.
The accounting policies have been applied consistently throughout all periods
presented in these financial statements. These accounting policies comply with
each IFRS that is mandatory for accounting periods ending on 31 December 2023.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of
Safestay plc and its subsidiaries. The financial statements of subsidiaries
are prepared for the same reporting period as the Parent Company with
adjustments made to their financial statements to bring their accounting
policies in line with those used by the Group.
The financial results of subsidiaries are included in the consolidated
financial information from the date that control commences, being where the
Group controls more than 50% of a subsidiary's share capital, until the date
that control ceases. The consolidated financial information presents the
results of the companies within the same group. Intra-group balances and
transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial
information. Unrealised losses are eliminated in the same way as unrealised
gains, but only to the extent that there is no evidence of impairment.
Judgements made by the Directors in the application of these accounting
policies that have a significant effect on the financial statements and
estimates with a significant risk of material adjustment in the next period
are discussed below.
New standards, amendments and interpretations adopted
The Directors do not consider that there are any new standards or amendments
applicable for the accounting period ending 31 December 2023 that would have a
material impact on the Group's accounting treatment.
New standards, amendments and interpretations issued but not yet effective
The following standards are applicable for financial years beginning on/after
1 January 2024:
· IFRS10 - Sale or contribution of assets between an investor and its
associate or joint venture
· IFRS16 - Lease liability in a sale and leaseback
· IAS 1 - Classification of liabilities as current or non-current
· IAS 1 - Non-current liabilities with covenants
· IFRS18 - Presentation and Disclosure in Financial Statements
When applied, none of these amendments are expected to have a material impact
on the Group.
Going concern
In assessing the going concern position of the Group for the consolidated
financial statements for the period ending 31 December 2023, the Directors
have considered the Group's cash flow, liquidity, and business activities.
During 2023, the Group recorded an adjusted EBITDA of £6.8 million (2022:
£5.9 million) as the business continued to recover well from the pandemic and
for the first time since 2019, the hostels have been open for 100% of the
year. Additionally, 2024 sales are significantly ahead of 2023 with the profit
impact further enhanced by tight cost control and a changing sales mix from
increased groups business.
The Group reduced their bank borrowings by £0.8m as the Group continued
repaying CBILS (Coronavirus Business Interruption Loan Scheme). The Group
reported a cash position of £1.9 million (2022: £5.2 million) which is
largely reduced due to the acquisition of freehold property in Edinburgh for
£4.3 million. During 2024, the Group refinanced all its existing borrowings
in January 2024 into a single £16.0 million Term Loan and added a new £2.5
million Revolving Credit Facility ("RCF") to support future growth plans. The
new Term Loan and RCF are for five years and were provided by existing lender
HSBC.
As part of their going concern assessment, the Directors have prepared
forecasts for a minimum period of twelve months from the date of approval of
the financial statements. In addition, certain adverse scenarios have been
considered for the purposes of stress and sensitivity testing.
A downside case was considered whereby EBITDA was reduced by 5% for the
18-month period to June 25. In this scenario, the Group has sufficient
liquidity to remain in compliance with its covenant obligations.
A severe downside case whereby EBITDA was reduced by 20%. In this scenario,
there would not be any expected breaches of the covenant obligations and
doesn't factor in any mitigating actions such as reducing labour spend and
controllable costs. This severe case was modelled to provide comfort over the
Group's headroom on its covenants and is not considered to be a realistic
scenario.
Upon consideration of this analysis and the principal risks faced by the
Group, the Directors are satisfied that the Group has adequate resources to
continue in operation for the foreseeable future, a period of at least 12
months from the date of this report. Accordingly, the Directors have concluded
that it is appropriate to prepare these financial statements on a going
concern basis.
(A) Accounting Policies
Revenue
To determine whether to recognise revenue, the Group follows a 5-step process
in accordance with IFRS 15
- Identifying the contract with a customer
- Identifying the performance obligations
- Determining the transaction price
- Allocating the transaction price to the performance obligations
- Recognising revenue when/as performance obligation(s) are
satisfied.
Revenue is stated net of VAT and is gross of travel agency commission with the
Group being the principal in all third party booking arrangements. It
comprises revenues from overnight hostel accommodation, the sale of ancillary
goods and services such as food & beverage and merchandise.
Accommodation and the sale of ancillary goods and services are recognised when
provided.
Income from the rent of student accommodation is recognised on a straight-line
basis over the academic year to which the rent relates. In accordance with
IFRS 16, the Group accounts for its subleases as operating leases as they do
not transfer substantially all the risks and rewards of ownership to the
lessee.
The Group recognises income from lease payments from operating leases as
income on a straight-line basis over the term of the contract.
The sale of ancillary goods comprises sales of food, beverages, and
merchandise.
Deferred income comprises deposits received from customers to guarantee future
bookings of accommodation. This is recognised as revenue once the bed has been
occupied.
There are no significant judgements or estimations made in calculating and
recognising revenue.
Revenue is not materially accrued or deferred between one accounting period
and the next.
Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision makers ("CODM"), who are responsible for allocating resources and
assessing performance of the operating segments, have been identified as the
executive directors. Currently the operating segments are the operation of
hostel accommodation in the UK and Europe. An additional geographical area has
been identified in respect of Spain as disclosed in note 2.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on taxable profit for the year.
Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated based on tax
rates that have been enacted or substantively enacted by the statement of
financial position date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit and is accounted for using the statement of financial position
liability method. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets are reviewed at each statement of
financial position date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled, or the asset is realised based on tax
losses enacted or substantively enacted at the statement of financial position
date. Deferred tax is charged or credited in the income statement, except when
it relates to items charged or credited in other comprehensive income, in
which case the deferred tax is also dealt with in other comprehensive income.
Foreign currency translation
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in Sterling which is the 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 the income statement.
Foreign exchange gains and losses that relate to borrowings are presented in
the statement of income statement and the within finance costs. All other
exchange gains and losses are presented in the statement of profit or loss
within administrative expenses.
Non-monetary items that are measured at fair-value in a foreign currency are
translated using the exchange rates at the date when fair-value was
determined. Translation differences on assets or liabilities carried at
fair-value are reported as part of the fair-value gain or loss.
The results and financial position of foreign operations that have a
functional currency different to the presentation currency are translated into
the presentation currency as follows:
· assets and liabilities for each statement of financial position are
translated using the closing rate at the date of that statement of financial
position.
· income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average exchange rates.
· All resulting exchange differences are recognised in other
comprehensive income.
Goodwill and fair-value adjustments arising on the acquisition of a foreign
operation are treated as the assets and liabilities of the foreign operation
and translated at the closing rate.
Business combinations
Acquisitions of subsidiaries and businesses are accounted using the
acquisition method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the acquisition-date
fair values of assets transferred by the Group, liabilities incurred by the
Group to former owners of the acquiree and the equity interest issued by the
Group in exchange for control of the acquiree. 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.
Prior Year Adjustments
Prior year adjustments are recognised where changes in accounting policy or
misstatements identified in respect of previously reported amounts have a
material impact on the prior year comparatives.
Assets and liabilities held for sale & discontinued operations
Disposal groups are classified as held for sale if their carrying amount will
be recovered principally through sale. Assets held in Assets held for sale are
measured at the lower of their carrying amount and fair value less costs to
sell. Non-current assets included in Assets held for sale are not depreciated
or amortised. Assets and liabilities classified as held for sale are presented
in current assets and current liabilities separately from the other assets and
liabilities in the balance sheet.
A discontinued operation is a component of the Group that has been disposed
of, distributed or is classified as held for sale or distribution and that
represents a separate major line of business. The results of discontinued
operations are presented separately in the consolidated income statement, the
consolidated statement of other comprehensive income and the consolidated
statement of cash flows and comparatives are restated on a consistent basis.
Deferred Consideration
Deferred payments made in relation to acquisitions of subsidiaries and
business are accounted for their discounted value in trade and other payable.
Any difference between the discounted value and the cash consideration at the
time of the payment, is recognised as an interest charge in the income
statement.
Property, plant and equipment
Freehold property and Lease assets are stated at fair value and revalued
periodically in accordance with IAS 16 Property Plant and Equipment. Valuation
surpluses and deficits arising in the period are included in the statement of
Comprehensive Income. All other property, plant and equipment are recognised
at historical cost less depreciation and are depreciated over their useful
lives. The applicable useful lives are as follows:
Fixtures, fittings and equipment 3-5 years
Freehold
properties
50 years
Leasehold
properties
Term of the lease
Land is not depreciated.
Leasehold land and buildings relate to property from financing transactions
related to Safestay Elephant and Castle. The sale of the property in 2017 was
agreed with an institutional buyer in exchange for 150 year geared ground rent
leases. The significant risks and rewards of ownership were retained, and the
exercise to repurchase these properties is "almost certain". The contract took
the legal form of the sale and leasebacks. However, the economic substance of
the original transactions in 2017 meant that the lease has historically been
treated as owned by Safestay. Therefore, the transactions are classified as
leasehold land and buildings.
Impairment of property, plant and equipment
At each statement of financial position date, the Group reviews the carrying
amounts of its property, plant and equipment to determine whether there is any
indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated to
determine the extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have been adjusted. If the
recoverable amount of an asset (or cash-generating unit) is estimated to be
less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount.
An impairment loss is recognised as an expense immediately, unless the
relevant asset is carried at a revalued amount, in which case the impairment
loss is treated as a revaluation decrease, but a negative revaluation reserve
is not created.
For revalued assets, where an impairment loss subsequently reverses, the
carrying amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been determined had
no impairment loss been recognised for the asset (cash-generating unit) in
prior years. Any remaining balance of the reversal of an impairment loss is
recognised in the income statement. For assets carried at cost, any reversals
of impairments are recognised in the income statement.
Goodwill
Goodwill represents the future economic benefits arising from a business
combination, measured as the excess of the sum of the consideration
transferred over the net of the acquisition-date amounts of the identifiable
assets acquired and the liabilities assumed. Goodwill is carried at cost less
accumulated impairment losses. A review of the carrying value of goodwill is
carried out annually.
For the purpose of impairment testing, goodwill acquired in a business
combination is allocated to each of the cash-generating units ("CGUs"), or
groups of CGUs, that is expected to benefit from the synergies of the
combination. The Directors consider each individual hostel to be a separate
cash generating unit for impairment purposes and, as explained in note 12 to
the financial statements, each unit or group of units to which the goodwill is
allocated represents the lowest level within the entity at which the goodwill
is monitored for internal management purposes.
Goodwill impairment reviews are undertaken annually or more frequently if
events or changes in circumstances indicate a potential impairment. The
carrying value of the CGU containing the goodwill is compared to the
recoverable amount, which is the higher of value in use and the fair value
less costs of disposal. Any impairment is recognised immediately as an expense
and is not subsequently reversed.
Intangible assets
Costs that are directly attributable to a project's development phase,
including capitalised internally developed software, are recognised as
intangible assets using the cost model, provided they meet all of the
following recognised:
• the development costs can be measured reliably
• the project is technically and commercially feasible
• the Group intends to and has sufficient resources to complete the project
• the Group has the ability to use or sell the software, and
• the software will generate probable future economic benefits.
Intangible assets acquired in a business combination are recognised at fair
value at the acquisition date, which is deemed to be the cost going forward.
The leasehold rights and tenancy subleases relate to intangible assets
acquired in a business combination as outlined in note 12.
Assets with a finite useful life are carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line method to
allocate the cost of trademarks and licences over their estimated useful lives
as set out above.
The following useful lives are applied:
- 10 years for the life of the interest in the head lease
- 13 years for tenancy sublease
- 3 years for website development.
Residual values and useful lives are reviewed at each reporting date.
Assets that are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs of disposal and value in
use. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are largely independent cash inflows (CGUs).
Prior impairments of non-financial assets (other than goodwill) are reviewed
for possible reversal at each reporting date.
Inventory
Inventory is stated at the lower of cost and net realisable value. Cost is
calculated using the weighted average method. Net realisable value represents
the estimated selling price.
Financial assets measured at amortised cost
Financial assets held at amortised costs are non-derivative financial assets
with fixed or determinable payments which are not quoted in an active market.
They are included in current assets, except for maturities greater than 12
months after the statement of financial position date. These are classified as
non-current assets.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held at call with
banks and other short-term highly liquid investments with original maturities
of three months or less. Bank overdrafts that are repayable on demand and
which form an integral part of the Group's cash management are included as a
component of cash and cash equivalents for the purpose of the statement of
cash flows.
Trade and other receivables
Trade and other receivables are measured at initial recognition at transaction
price plus transaction costs and are subsequently measured at amortised cost
using the effective interest rate method. The Group recognises lifetime ECL
for trade receivables and amounts due on contracts with customers. The
expected credit losses on these financial assets are estimated based on the
Group's historical credit loss experience, adjusted for factors that are
specific to the debtors. Management have considered the ECL for trade
receivables as immaterial given the majority of sale receipts are obtained
prior to the stay.
Credit risk
The Group assesses impairment on a forward-looking basis using the expected
credit loss method and has applied the simplified approach which uses the
lifetime expected loss provision for all trade and other receivables. The
Group has no significant history of non-payment; as a result, the expected
credit losses on financial assets are not material.
Financial liabilities
The Group classifies its financial liabilities as other financial liabilities.
Other financial liabilities are measured at fair value on initial recognition
and subsequently measured at amortised cost, using the effective-interest
method.
Borrowings
Borrowings other than bank overdrafts are recognised initially at fair value
less attributable transaction costs. Subsequent to initial recognition,
borrowings are stated at amortised cost with any difference between the amount
initially recognised and redemption value being recognised in the income
statement over the period of the borrowings, using the effective interest
method.
Where there are extension options, management have made an accounting policy
choice that these are loan commitments from the holder of the debt instrument
that does not need to be separately accounted for.
Loan arrangement fees
The loan arrangement fees are offset against the loan balance and amortised
over the term of the loan to which they relate as part of the effective
interest rate calculation.
Trade and other payables
Trade and other payables are initially measured at fair value and are
subsequently measured at amortised cost using the effective interest rate
method.
Leases
The Group has leases for hostels across Europe. With the exception of
short-term leases and leases of low-value underlying assets, each lease is
reflected on the statement of financial position as a right-of-use asset and a
lease liability. Leases of property generally have a lease term ranging from 5
years to 50 years.
For any new property asset contracts entered on or after 1 January 2019, the
Group considers whether a contract is, or contains a lease. A lease is defined
as 'a contract, or part of a contract, that conveys the right to use an asset
(the underlying asset) for a period of time in exchange for consideration'. To
apply this definition the Group assesses whether the contract meets three key
evaluations which are whether:
· the contract contains an identified asset, which is either explicitly
identified in the contract or implicitly specified by being identified at the
time the asset is made available to the Group
· the Group has the right to obtain substantially all of the economic
benefits from use of the identified asset throughout the period of use,
considering its rights within the defined scope of the contract the Group has
the right to direct the use of the identified asset throughout the period of
use; and
· The Group has the right to direct the use of the asset. The Group has
this right when it has the decision-making rights that are most relevant to
changing how and for what purposes the asset is used. In rare cases where all
the decisions about how and for what purpose the asset is used are
predetermined, the Group has the right to direct the use of the asset if
either:
- The Group has the right to operate the asset; or
- The Group designed the asset in a way that predetermines how and
for what purpose it will be used.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use asset and a
lease liability on the statement of financial position. The right-of-use asset
is measured at cost, which is made up of the initial measurement of the lease
liability, any initial direct costs incurred by the Group, an estimate of any
costs to dismantle and remove the asset at the end of the lease, and any lease
payments made in advance of the lease commencement date (net of any incentives
received). The Group depreciates the right-of-use assets on a straight-line
basis from the lease commencement date to the earlier of the end of the useful
life of the right-of-use asset or the end of the lease term. The Group also
assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the
present value of the lease payments unpaid at that date, discounted using the
interest rate implicit in the lease if that rate is readily available or the
Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up
of fixed payments (including in substance fixed), variable payments based on
an index or rate, amounts expected to be payable under a residual value
guarantee and payments arising from options reasonably certain to be
exercised.
The lease liability is measured at amortised cost using the effective interest
method. It is remeasured when there is a change in future lease payments
arising from a change in an index or rate, or if the Group changes its
assessment of whether it will exercise an extension or termination option.
The Group has elected to take the exemption not to recognise right-of-use
assets and lease liabilities for short-term lease of machinery that have a
lease term of 12 months or less and leases of low-value assets. The Group
defines leases of low value assets as being any lease agreement where the
total value of payments made across the lease term is less than £10,000. The
Group recognises the lease payments associated with these leases as an expense
on a straight-line basis over the lease.
On the statement of financial position, right-of-use assets have been included
in property, plant and equipment and lease liabilities have been included in
trade and other payables.
Measurement of the Right-of-use Assets
Right-of-use assets are generally depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
The Group as a lessor
As a lessor the Group classifies its leases as either operating or finance
leases.
A lease is classified as a finance lease if it transfers substantially all the
risks and rewards incidental to ownership of the underlying asset and
classified as an operating lease if it does not.
The Group accounts for its sub leases as finance leases with reference to the
right-of-use asset arising from the head lease. The Group has not offset the
assets and liabilities of the head lease and sub lease, nor the income and
expenditure arising from these contracts. A lease receivable is recognised in
the statement of financial position in respect of the net investment in the
sub lease. The net investment in the sub lease is assessed annually for any
indicators of impairment.
Equity
The total equity attributable to the equity holders of the parent comprises
the following:
Share Capital
Share capital represents the nominal value of shares issued.
Share premium account
Share premium represents amounts subscribed for share capital in excess of
nominal value less the related costs of share issues.
Retained earnings
Retained earnings represent undistributed cumulative earnings.
Equity Instruments
Equity instruments issued by the Group are recorded at the proceeds received,
net of direct issue costs.
Other Components of Equity
Merger reserve
Merger reserve represents amounts subscribed for share capital in excess of
nominal value exchanged for the shares in the acquisition of a subsidiary
company.
Revaluation reserve
Revaluation reserves represent the increase in fair value of freehold property
and leasehold assets over the value at which it was previously carried on the
statement of financial position. Any gain from a revaluation is taken to the
revaluation reserve. Where it reverses a previous impairment, the impairment
is reversed, but any surplus in excess of the amount of the impairment is
added to the revaluation reserve.
Translation Reserve
Translation Reserve comprises foreign currency translation differences arising
from the translation of financial statements of the Group's foreign entities
into presentational currency.
Share based payment reserve
The equity settled share-based payment reserve arises as the expense of
issuing share-based payments is recognised over time. The reserve will fall as
share options vest and are exercised but the reserve may equally rise or might
see any reduction offset, as new potentially dilutive share options are
issued. Balances relating to share options that lapse after they vest are
transferred to retained fair value of employee services determined by
reference to transfer of instruments granted.
The Group has applied the requirements of IFRS 2 Share based payment to share
options. The fair value of the share options is determined at the grant date
and are expensed on a straight-line basis over the vesting period, based on
the Group's estimate of shares that will eventually vest and adjusted for the
effect of non-market-based vesting conditions.
Fair value is measured by use of the Black Scholes model. The expected life
used in the model has been adjusted, based on management's best estimate, for
the effects on non-transferability, exercise restrictions and behavioural
considerations.
Dividends
Dividend distributions payable to equity shareholders are included in other
liabilities when the dividends have been approved in a general meeting prior
to the reporting date.
Critical accounting judgements and key sources of estimation and uncertainty
The fair value of the Group's property is the main area within the financial
information where the directors have exercised significant estimates.
Judgements
· The Group has identified certain costs and income as exceptional in
nature in that, without separate disclosure, would distort the reporting of
the underlying business. A degree of judgement is required in determining
whether certain transactions merit separate presentation to allow shareholders
to better understand financial performance in the year, when compared with
that of previous years and trends This is set out in note 5. The value for
these costs in the Consolidated Income statement for the period ending 31
December 2023 is £26,000 (2022: £369,000).
· Extension options for leases: In accordance with IFRS 16, when the
entity has the option to extend a lease, management uses its judgement to
determine whether or not an option would be reasonably certain to be
exercised. Management considers all facts and circumstances including their
past practice and any cost that will be incurred to change the asset if an
option to extend is not taken, to help them determine the lease term.
Management generally includes extensions when the option to extend can be
unilaterally exercised by the tenant provided the hostel under lease is
expected to continue to be profitable for the Group after the extension is
exercised.
· The Group has an option to repurchase the leasehold property at
Elephant & Castle after 25 years. The Directors have considered whether
the option would be exercised and have concluded that for commercial reasons,
the option would not be taken. If the option were to be taken, the property
finance liability at 31 December 2023 would be £8.7 million (2022: £8.4
million), and finance charges relating to the liability would total £0.5
million (2022: £0.4 million).
· The Group has identified that a portion of the newly acquired
freehold property in Edinburgh has been leased out to a third party. The
Directors have considered whether the portion of the property leased out to a
third party constitutes investment property under IAS 40. The Director's
concluded that due to the specific leasing arrangements with the third party,
it was appropriate to consider the space as freehold property. If the
treatment were to be considered as investment property, the property would be
held at fair value per the valuation report of £1.8 million. Depreciation
charges would not be affected under treatment as investment property for the
period ending 2023 given the property was purchased in December 2023. The
impact on depreciation charges for future periods would equate to a reduction
in depreciation expense of £0.1 million per annum.
· The Group, where the interest rate implicit in the lease cannot be
practicably determined, has used the incremental borrowing rate (based on a
quoted rate from an external lender as at the date of inception or most recent
modification of the lease) instead to calculate the present value of the
minimum lease payments. The nature and therefore small changes in the
incremental borrowing rate could have a material impact on the financial
statements. At 31 December 2023, lease liabilities totalled £26.0 million
(2022: 32.2 million) and finance charges relating to lease liabilities for the
period totalled £1.9 million (2022: 1.4 million).
Estimates
· Assessment of impairment of goodwill, property, plant and equipment
(including right of use assets) and the ability for the Group to continue as a
going concern requires estimation of future cash flows, which are uncertain,
discounted to present value which also requires estimation by management. The
key assumptions used to calculate the value in use (VIU) to test the goodwill
for each cash generating units (CGUs) are detailed in note 12. A Pre-tax
discount rate of 9.7% (2022: 11.0%) has been calculated using weighted average
cost of capital. An assessment was made on the differing risks between
countries in which the hostels operate based on country risks. Based on the
assessment it was concluded that the differences between discount rates
between each CGU is not material. The assets are similar in nature, with all
CGUs providing the provision of hostel accommodation and therefore similar
cashflows and therefore the risk associated with the assets is considered to
be consistent between CGUs. As such one discount rate has been utilised for
the purposes of performing an impairment review. At 31 December 2023, Goodwill
totalled £10.9 million (2022 : £12.0 million) and impairment charges
totalled £0.9 million (2022: £nil). At 31 December 2023, property plant and
equipment (including right of use assets) totalled £73.7 million (2022:
£72.1 million) and impairment charges totalled £0.1 million (2022: £nil).
· As outlined in the accounting policy, the financial statements have
been prepared under the historical cost convention except for the revaluation
of the freehold properties and lease assets (in respect of Elephant and
Castle). The Group is required to value property on a sufficiently regular
basis by using open market values to ensure that the carrying value does not
differ significantly from the fair value. The valuation, performed by
qualified valuers is based on market observations and estimates on the selling
price in an arms-length transaction, and includes estimates of future income
levels and trading potential for each hostel as other factors including
location and tenure. See note 11. The Group has used external valuations on
freehold properties and leased assets under financing transactions, as
outlined in note 11. Based on the market data assessed and internal assessment
of each property, Management does not consider that the fair value differs
materially from the carrying value. Management is confident that the carrying
value is deemed reasonable at 31(st) December 2023.
· The estimated useful lives which are used to calculate depreciation
of property, plant and equipment are based on the length of time these are
expected to generate income and be of benefit to the Group. Depreciation
methods, useful economic lives and residual values are reviewed at each
reporting date and adjusted if appropriate. Property plant and equipment
totalled £73.7 million at 31 December 2023 (2022: £72.1 million) and
depreciation charges totalled £3.3 million (2022: £3.3 million).
· The Group has recognised deferred tax assets for deductible temporary
differences and unused tax losses that it believes are recoverable. The
recoverability of recognised deferred tax assets is in part dependent on the
Group's ability to generate future taxable profits sufficient to utilise
deductible temporary differences and tax losses (before the latter expire).
The Director's consider the likelihood that the Group will generate taxable
profits is probable, and as such, recognises deferred tax assets related to
tax losses in full. Deferred tax assets at 31 December 2023 totalled £5.5
million, of which £1.2 million (2022: £1.4 million) relates to losses.
Deferred tax charges for the period ending 31 December 2023 totalled £0.2
million (2022: £0.5 million tax credit).
2. Segmental analysis
An analysis of the Group's revenue from external customers for each major
product and service category is as follows:
2023 2022
£'000 £'000
Hostel accommodation 20,143 17,150
Food and Beverages sales 1,525 1,109
Other income 822 887
Total Income 22,490 19,146
Like for like income 21,493 18,148
Like-for-like income relates to all turnover less turnover associated with the
discontinued operating segments.
The Group recognises income from lease payments from operating leases as
income on a straight-line basis over the term of the contract.
Operating segments are reporting in a manner consistent with the internal
reporting provided to the Chief Operating Decision Maker ("CODM"). The CODMs,
who monitor the performance of these operating segments as well as deciding on
the allocation of resources to them, have been identified as the Executive
Directors. Currently the operating segments are the operation of hostel
accommodation in the UK and Europe.
An additional material geographical area has been identified in respect of
Spain to meet the disclosure requirements of IFRS 8 due to its significance to
the Group.
The Group provides a shared services function to its operating segments and
reports these activities separately. Management does not consider there to be
any other material reporting segments. Management revisit this at each period
end.
The most important measures used to evaluate the performance of the business
are revenue, EBIDTA and adjusted EBITDA, which is the operating profit after
excluding depreciation and amortisation, and removing non-recurring
expenditure which would otherwise distort the cash generating nature of the
segment.
2023 UK Spain Europe Shared services Total
£'000 £'000 £'000 £'000 £'000
Revenue 8,270 5,349 8,871 - 22,490
Profit/(loss) before tax (including discontinued operations) 2,293 (431) (1,293) (1,667) (1,098)
Add back: Finance costs 315 278 494 2,326 3,413
Add back: Depreciation & Amortisation 432 1,198 1,194 540 3,364
EBITDA 3,040 1,045 395 1,199 5,679
Impairment - - 1,028 - 1,028
Adjusting Items & Share based payment expense - - - 80 80
Adjusted EBITDA 3,040 1,045 1,423 1,279 6,787
Total assets 40,944 15,818 21,551 15,658 93,971
Total liabilities (11,424) (11,853) (7,904) (30,031) (61,212)
2022 UK Spain Europe Shared services Total
£'000 £'000 £'000 £'000 £'000
Revenue 6,864 4,464 7,818 - 19,146
Profit/(loss) before tax (as restated) (including discontinued operations) 2,574 278 1,009 (4,450) (589)
Finance costs 191 1 59 2,306 2,557
Depreciation & Amortisation 253 1,045 1,369 987 3,654
EBITDA 3,018 1,324 2,437 (1,157) 5,622
Adjusting Items & Share based payment expense (as restated) - - - 277 277
Adjusted EBITDA 3,018 1,324 2,437 (880) 5,899
Total assets 36,539 16,570 25,233 19,995 98,337
Total liabilities (9,164) (12,088) (12,672) (34,181) (68,105)
The Group's non-current assets (other than financial instruments and deferred
tax assets) are located into the following geographic regions:
2023 2022
£'000 £'000
UK 40,472 36,005
Spain 14,976 15,636
Rest of Europe 19,650 22,733
Shared services 15,363 17,386
Total 90,461 91,760
3. COST OF SALES
2023 2022
£'000 £'000
Food and drinks 635 449
Direct room supplies and sales commissions 3,404 2,693
Total 4,039 3,142
4 DISCONtinued operations and liabilities held for sale
Following the classification of the asset group of "Vienna Hostel" as
held-for-sale in September 2023, the operational performance was classified as
discontinued. The Hostel formed part of the Europe operating segment.
2023 2022
£000s £000s
Revenue 996 998
Cost of sales (228) (311)
Gross profit 768 687
Administrative expenses (905) (628)
Operating profit (137) 59
Finance income and costs (239) (164)
Profit/(loss) before tax (376) (105)
Loss after tax for discontinuing operations (376) (105)
2023 2022
£000s £000s
Property plant and equipment (including right-of-use asset) 3,884 -
Trade and other payables (187) -
Lease Liabilities (4,291) -
Cash and cash equivalents 40
Trade and other receivables 48 -
Liabilities held for sale (506) -
2023 2022
As Restated
£'000 £'000
Cash flow from operating activities
Loss for the year (376) (103)
Tax charge 1 -
Depreciation, amortisation and impairment 264 259
Net finance costs 239 161
(Increase)/decrease in inventories 2 (2)
Decrease in trade and other receivables (54) (13)
Increase in trade and other payables 306 239
Net Cash generated from operations attributable to discontinued operations 382 541
Cash flow from investing activities
Purchases of property, plant and equipment (9) (5)
Net cash used in discontinued investing activities (9) (5)
Cash flow from financing activities
Principal elements of lease payments (419) (366)
Loan repayments (80) (72)
Net cash used in discontinued financing activities (499) (438)
Cash and cash equivalents at beginning of year 162 75
Net cash flows (used in)/generating from operating, investing and financing (126) 98
activities
Differences on exchange 4 (11)
Cash and cash equivalents at end of year 40 162
5. administrative expenses
2023 2022
As Restated
£'000 £'000
Staff costs (see note 10) 7,093 5,380
Legal and professional fees 781 895
Property costs 344 513
Depreciation and amortisation 3,364 3,654
Impairment of goodwill and fixed assets 1,028 -
Share option expenses 54 (92)
Adjusting items: one-off legal and other 26 369
Other expenses 3,446 3,319
16,136 14,038
6. FINANCE COSTS
2023 2022
£'000 £'000
Interest on bank overdrafts and loans 1,340 896
Amortised loan arrangement fees 68 68
Interest expense for lease arrangements (note 17) 1,725 1,404
Property financing expense 315 191
3,448 2,559
Finance income for the period totalled £36k
(2022: £2k)
7. LOSS FOR THE FINANCIAL YEAR
The audit fees disclosed in 2023 represent the fees payable for the audit for
the period ended 31 December 2023.
2023 2022
£'000 £'000
Profit/(Loss) for the financial period is arrived at after charging:
Depreciation on owned assets 938 1,363
Depreciation of assets under lease liabilities 2,408 2,210
Amortisation of intangible assets 18 81
CLA Evelyn Partners Limited Auditor's remuneration for audit services 40 281
Haysmacintyre LLP Auditor's remuneration for audit services 175 -
Amounts payable in respect of both audit and non-audit services are set out
below:
2023 2022
£'000 £'000
Fees payable to Company's auditors for the audit of the Parent Company and
consolidated financial statements:
CLA Evelyn Partners Limited audit of the Group and Company's annual accounts 40 136
CLA Evelyn Partners Limited additional fees relating to first year 2021 audit. - 116
CLA Evelyn Partners Limited audit of the subsidiaries' annual accounts - 29
Haysmacintyre LLP audit of the Group and Company's annual accounts 110 -
Haysmacintyre LLP audit of the subsidiaries' annual accounts 65 -
215 281
CLA Evelyn Partners audit charge in 2023 relates to agreed overruns relating
to 2022 annual accounts agreed post signing of the 2022 annual accounts.
8 Tax
The Group tax charge is made up as follows:
2023 2022
£'000 £'000
Current tax
Corporation tax on profits for the year 13 -
Adjustments for corporation tax on prior periods - 48
Other local taxes 38 (4)
Total current tax 51 44
Deferred tax 96 (506)
Adjustments for deferred tax in prior periods 79 20
Effect of increased tax rate on opening balance - -
Total tax charge 226 (442)
The charge for the year can be reconciled to the loss per the consolidated
income statement as follows:
2023 2022
As Restated
£'000 £'000
Profit/(loss) before tax (1,098) (590)
Tax at the standard UK corporation tax rate of 23.52% (2022: 19%) (258) (112)
Fixed asset differences 43 34
Adjustment for tax rate differences in foreign jurisdictions - 73
Adjustments for tax on prior periods 79 68
Other tax adjustments, reliefs and transfers - (4)
Remeasurement of deferred tax for changes in tax rates 1 (111)
Deferred tax not recognised (16) (26)
Factors affecting charge for the period
Non-deductible items and other timing differences 356 (310)
Chargeable gains/(losses) - -
Foreign exchange differences 21 (54)
Deferred tax eliminated - -
Group tax charge 226 (442)
The Group has a deferred tax liability of £3.3 million (2022: £3.2 million) related to the potential future gain on property revaluations.
Included within current tax are adjustments for corporation tax on prior
periods of £6k and relates to Group losses.
The Finance Bill 2021 included legislation to increase the main rate of
corporation tax from 19% to 25% from 1 April 2023. This rate change is
included above as the Finance Bill 2021 has been substantively enacted.
The Finance Bill 2023 includes legislation to implement the Organisation for
economic Co-operation and Development ("OECD") Base Erosion and Profit
Shifting ("BEPS") Pillar two income inclusion rule ("IIR") in the United
Kingdom ("UK"). The legislation introduces a multination top-up tax ("MTUT")
and the domestic top-up tax ("DTT") and both will apply to large multination
enterprises for accounting periods beginning on or after 31 December 2023. The
legislation is not thought to have any impact on the Group tax charge.
9 Profit/(LOSS) per share
2023 2022
As restated
£'000 £'000
Basic profit/(loss) per share from:
Continuing Operations (1.46p) (0.07p)
Discontinued Operations (0.58p) (0.16p)
Diluted profit/(loss) per share from:
Continuing Operations (1.39p) (0.06p)
Discontinued Operations (0.55p) (0.15p)
Basic loss per share has been calculated by dividing the loss attributable to
shareholders by the weighted average number of shares in issue during the
period.
Diluted loss per share has been calculated after adjusting the weighted
average number of shares used in the basic calculation to assume the
conversion of all potentially dilutive shares, such as share option awards.
The number of shares used in calculating basic and diluted loss per share are
reconciled below:
2023 2022
As restated
Weighted average number of ordinary shares (000s) for the purposes of basic 64,869 64,679
loss earnings per share
Effect of dilutive potential ordinary shares (000s) 3,441 3,398
Weighted average number of ordinary shares (000s) for the purposes of diluted 68,310 68,077
profit/(loss) per share
The total number of shares in issue as at 31 December 2023 was 64,935,414.
10 STAFF COSTS
The average monthly number of employees (including Directors) during the
period was:
2023 2022
Number Number
Hostel operation 277 222
Directors 6 4
283 226
The costs incurred in respect of employees (including directors) were:
2023 2022
£'000 £'000
Wages and salaries 6,073 4,680
Social security costs 978 670
Pension costs 42 30
Total staff costs 7,093 5,380
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below.
2023 2022
£'000 £'000
Short term employee benefits 446 364
Pension 8 5
Share based payment charges 57 42
511 411
Further information about the remuneration of individual directors is provided
in the Directors' Remuneration Report.
Details of directors share options is provided in the Directors' Remuneration
Report.
11 PROPERTY, PLANT AND EQUIPMENT
Freehold land and buildings Right of Use Assets Leasehold land and buildings Leasehold improvements Fixtures, fittings and equipment Assets under construction Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Cost or valuation
At 1 January 2022 9,484 36,907 31,691 4,967 3,554 - 86,603
Prior Year Adjustment (340) - (1,997) - - - (2,337)
At 1 January 2022 (as restated - see note 25) 9,144 36,907 29,694 4,967 3,554 - 84,266
Transfers 2,895 - (2,895) (305) 305 - -
Additions - - - 69 296 - 365
IFRS lease modification - (280) - - - - (280)
Revaluation - - - - - - -
Exchange movements - 1,913 - - 24 - 1,937
At 1 January 2023 as restated 12,039 38,540 26,799 4,731 4,179 - 86,288
Transfers - - - 680 (720) 40 -
Reclassification as held for sale - (5,246) - - (56) - (5,302)
Additions 2,522 - - 4 337 2,114 4,977
IFRS lease modification - 323 - - - - 323
Revaluations 2,411 - 221 - - - 2,632
Exchange movements 27 (194) - 24 (32) - (175)
At 31 December 2023 16,999 33,423 27,020 5,439 3,708 2,154 88,743
Depreciation
At 1 January 2022 439 6,866 1,997 1,036 2,656 - 12,994
Prior Year Adjustment (as restated - see note 25) (340) - (1,997) - - - (2,337)
At 1 January 2022 (as restated - see note 25) 99 6,866 - 1,036 2,656 - 10,657
Charge for the year 223 2,210 596 241 303 - 3,573
Revaluation - - - - - - -
At 1 January 2023 322 9,076 596 1,277 2,959 - 14,230
Transfers - - - 526 (526) - -
Reclassification as held for sale - (1,388) - - (30) - (1,418)
Charge for the period 169 2,408 185 318 266 - 3,346
Impairment - 83 - 65 - - 148
Revaluation (491) - (781) - - - (1,272)
At 31 December 2023 - 10,179 - 2,186 2,669 - 15,034
Net book value:
At 31 December 2023 16,999 23,244 27,020 3,253 1,039 2,154 73,709
At 31 December 2022 11,717 29,464 26,203 3,454 1,220 - 72,058
Freehold properties
The Freehold values relates to the 4 following hostels:
· The £2.9 million value of the freehold in York is based on the
external valuations as at 31 December 2023 prepared by Cushman and Wakefield.
The historic cost carrying value is £1.9 million which is the acquisition
price in 2014 of £2.4 million, less depreciation charges of £0.5 million.
· The freehold of the Glasgow property acquired in October 2019 for
£3.2 million and which has undergone renovation for £0.4 million. The £4.9
million value of the freehold in Glasgow is based on the external valuations
as at 31 December 2023 prepared by Cushman and Wakefield. The historic
carrying value is £3.3 million, which is the acquisition price of £3.2
million plus renovations totalling £0.4 million, less depreciation charges of
£0.3 million.
· The freehold of the Edinburgh property acquired in December 2023 for
£4.3 million. The freehold value is based on the external valuations as at 31
December 2023 prepared by Cushman and Wakefield. At the reporting date, a
portion of the property equivalent to the value of £2.1m is deemed to be not
ready for use, and has been classified as an asset under construction.
· The hostel in Pisa was acquired in June 2019 for £3 million, of
which £2.3 million for the freehold. The £6.7 million value of the freehold
in Pisa is based on the external valuations as at 31 December 2023 prepared by
Cushman and Wakefield. The historic carrying value is £2.0 million, which is
the acquisition value of £2.3 million for the freehold, less depreciation
charges of £0.3 million.
Right of Use Assets
The £38.4 million right of use assets all relate to properties operated by
the Group as hostels.
Right of use assets as at 31 December 2022 38,540
IFRS 16 lease modification 323
Exchange differences (194)
Transfer of assets to held-for-sale (3,858)
Right of use assets as at 2023 34,811
Leasehold, land and buildings
The Group has used external valuations on Elephant & Castle. The London
Elephant & Castle leasehold was independently valued on 31 December 2023
at £27.2 million. The valuation was performed by Cushman and Wakefield. The
Group has accounted for the finance transactions as interest-bearing
borrowings secured on the original properties held. The historic carrying
value is £16.3 million, which is the initial value at date of inception of
the lease plus £2.5 million of additions, less £2.2 million of depreciation
charges.
Leasehold improvements
Leasehold improvements comprise the capitalised refurbishment costs incurred
by the Group on the leased properties.
Valuation process
The Group provides information to valuers, including profit and cashflow
forecasts along with asset-specific business plans. These independent external
valuers hold recognised and relevant and professional qualifications and have
recent experience in the location and category of the properties being
valued. The valuers use this and other inputs including market transactions
for similar properties to produce valuations. These valuations and the
assumptions they have made are then discussed and reviewed with the management
as well as the directors. Cushman & Wakefield were engaged to value
properties now valued at £46.0m.
Valuation fees are a fixed amount agreed between the Group and the valuers in
advance of the valuation and are not linked to the valuation output.
Valuation methodology
· The value is assessed by adopting the income approach to
valuation adopting a discounted cashflow approach. Under this approach it is
assumed that the property is held for a period of 10 years and the net present
value of the earnings during this period are added to the exit value which is
discounted to present day values. Adopting an income approach also requires
the analysis of comparable transactions in the market to assess the rates of
returns investors are prepared to accept at the date of valuation.
The table below provides details of the assumptions used in the valuation of
the properties:
Location Discount rate Capitalisation rate Inflation rate Running Yield
Elephant & Castle 9.5% 7.0% 2.5% 5.96% - 8.98%
Glasgow 11.8% 9.3% 2.5% 8.93% - 11.58%
Edinburgh 10.5% 8.0% 2.5% 4.25% - 8.39%
York 11.0% 8.5% 2.5% 7.02% - 10.90%
Pisa 11.0% 8.5% 2.0% 6.82% - 10.77%
Capital Commitments
Capital commitments totalling £0.7 million (2022: £nil) were recognised in
relation to the ongoing capital refurbishment project at Edinburgh.
12 INTANGIBLE ASSETS AND GOODWILL
Website Goodwill Total
£'000 £'000 £'000
Cost
At 1 January 2022 134 13,637 13,771
Additions 5 - 5
Exchange differences - (132) (132)
At 31 December 2022 139 13,505 13,644
Additions 80 - 80
Exchange differences - (238) (238)
At 31 December 2023 219 13,267 13,486
Amortisation and Impairment
At 1 January 2022 116 1,491 1,607
Charge for the period 14 - 14
At 31 December 2022 130 1,491 1,621
Impairment - 880 880
Charge for the period 18 - 18
At 31 December 2023 148 2,371 2,519
Net book value:
At 31 December 2023 71 10,896 10,967
At 31 December 2022 as restated 9 12,014 12,023
Goodwill
Goodwill in a business combination is allocated to the cash generating units
("CGUs") that are expected to benefit from that business combination. The
Group's CGUs have been defined as each operating hostel. This conclusion is
consistent with the approach adopted in previous years and with the
operational management of the business.
Impairment
Goodwill is not amortised but tested annually for impairment. The
recoverable amount of each CGU is determined from value in use ("VIU")
calculations based on future expected cash flows discounted to present value
using an appropriate pre-tax discount rate.
Goodwill carrying values as at the 31 December 2023 are shown below.
CGU 2023 2023 2022 2022
Goodwill Headroom Goodwill Headroom
£000s £000s £000s £000s
Madrid 2,173 - 2,217 -
Paris 11 - 11 -
Gothic 712 1,307 726 2,449
Lisbon 1,328 220 1,355 1,010
Prague 207 248 211 475
Barcelona Passeig De Gracia 1,654 69 1,687 -
Vienna 5 184 5 1,626
Brussels 1,300 2,428 1,326 4,349
Pisa 779 2,924 795 4,507
Berlin 947 - 966 -
Athens 1,185 550 1,210 652
Bratislava - - 898 -
Warsaw 595 692 607 1,119
10,896 8,622 12,014 16,187
Impairment charges relating to Bratislava totalled £0.9 million for the year
ended 31 December 2023 (2022: £nil). No other impairments were deemed
necessary by Management.
The key assumptions used in the VIU calculations for all hostels are based on
forecasts approved by management performed for a 5-year period:
· A Pre-tax discount rate of 9.7% (2022: 11.0%) was calculated using
weighted average cost of capital. An assessment was made on the differing
risks between countries in which the hostels operate. Based on the
assessment it was concluded that the differences between discount rates
between each CGU are not material. The assets are similar in nature, with all
CGUs providing the provision of hostel accommodation and therefore similar
cashflows and therefore the risk associated with the assets is considered to
be consistent between CGUs. As such one discount rate has been utilised for
the purposes of performing an impairment review.
· Estimated 2023 average bed rate per property and increasing in line
with a 5.0% inflationary increase in revenue and costs over the subsequent
years.
Discount Rate
The Group calculates a WACC applying local government bond yields and tax
rates. For reference the Group WACC for Safestay plc was 9.7% (2022: 11.0%).
The discount rate applied to a CGU represents a pre-tax rate that reflects the
market assessment of the time value of money as at 31 December 2023 and the
risks specific to the CGU.
Sensitivity analysis
A sensitivity analysis was performed for the group of CGUs and management have
concluded that no reasonably possible change in any of the key assumptions
would result in the carrying value of the CGUs to exceeding their recoverable
amount.
13 TRADE AND OTHER RECEIVABLES
2023 2022
£'000 £'000
Trade and other receivables 741 620
Prepayments and accrued income 469 502
1,210 1,122
Credit risk is the risk that a counterparty does not settle its financial
obligation with the Company. At the year end, the Company has assessed the
credit risk on amounts due from suppliers, based on historic experience,
meaning that the expected lifetime credit loss was immaterial. Cash and cash
equivalents are also subject to the impairment requirements of IFRS 9 - the
identified impairment loss was none.
14 CASH AND CASH EQUIVALENTS
2023 2022
£'000 £'000
Cash and cash equivalents 1,998 5,226
The directors consider that the carrying amount of cash and cash equivalents
approximates their fair value. Cash and cash equivalents comprise cash.
15 TRADE AND OTHER PAYABLES
2023 2022
£'000 £'000
Due in less than one year
Trade payables 395 663
Social security and other taxes 1,093 150
Other creditors 156 758
Accruals and deferred income 2,374 1,557
4,018 3,128
16 BORROWINGS
2023 2022
£'000 £'000
At amortised cost
Bank Loan repayable within one year 1,000 987
Loan arrangement fees (68) (62)
932 925
Bank Loans repayable within more than one year 15,180 16,007
Property Finance Liability 7,174 7,088
22,354 23,095
Included within borrowings is CBILS (Coronavirus Business Interruption Loan
Scheme) obtained via HSBC. The government provide lenders with a guarantee on
each loan, and it may be possible that there is a government grant in the form
of the lower rate of interest than would likely have been payable in the
absence of the government guarantee. However, in the absence of further
information the total amounts are disclosed within finance costs. The loan
will be repaid at a rate of £1 million per year from April 2022 until April
2027 and the balance at 31 December 2023 is £3.3 million (2022: £4.3
million). The interest rate is 3.99% margin over base rate from year 2 onwards
and is interest free in the first year.
At 31st December 2021 a HSBC bank loan facility was taken out which was
secured against the UK freehold and long leasehold properties. The facility
ends in January 2025 and the interest rate is 2.95% margin over SONIA. The
balance owing on the loan at the reporting date is £12.7 million (2022:
£12.7 million)
17 LEASES
Lease assets are presented in the statement of financial position as follows:
2023 2022
£'000 £'000
Current 142 139
Non-current 297 453
Total 439 592
The lease asset relates fully to our contract with Casa Suecia where the Group
have outsourced, on a revenue share basis, our Madrid food and beverage
operations.
This is a contract where Safestay receives the higher of a minimum guaranteed
rent or an agreed % of the food and beverage revenue in return for Casa Suecia
receiving the profit from this income stream by managing this part of the
operation with its own staff. This arrangement commenced in July 2021 and is
for an initial five years.
In our lease asset calculations, the Directors have assumed the net profit of
Casa Suecia did not exceed the variable threshold.
2023
Minimum lease receipts due
Within 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years After 5 years Total
Lease receipts 156 156 153 - - - 466
Finance income (15) (9) (3) - - - (27)
Net present values 142 147 150 - - - 439
2022
Minimum lease receipts due
Within 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years After 5 years Total
Lease receipts 159 159 159 162 - - 640
Finance income (20) (15) (9) (3) - - (48)
Net present values 139 144 150 159 - - 592
Lease liabilities are presented in the statement of financial position as
follows:
2023 2022
£'000 £'000
Current 1,793 1,871
Non-current 24,250 30,349
Total 26,043 32,220
Total cash outflow for leases for the year ended 31 December 2023 was £3.6m
(2022: £3.5m).
The Group has leases for hostels across Europe. With the exception of
short-term leases and leases of low-value underlying assets, each lease is
reflected on the statement of financial position as a right-of-use asset and a
lease liability. Variable lease payments which do not depend on an index or a
rate (such as lease payments based on a percentage of Group sales) are
excluded from the initial measurement of the lease liability and asset and any
additional consideration is recognised through the income statement. The Group
classifies its right-of-use assets in a consistent manner to its property,
plant and equipment (Note 11).
The hostel in London Kensington Holland Park has a term of 50 years. There is
no purchase option in this lease.
Lease payments are generally linked to annual changes in an index (either RPI
or CPI). However, the Group has leases in Lisbon and Kensington Holland Park
for which a portion of the rentals are linked to revenue. The variable portion
of the lease in Lisbon and Kensington Holland Park are accounted for as a
variable rent over the period it relates to.
Each lease generally imposes a restriction that, unless there is a contractual
right for the Group to sublet the asset to another party, the right-of-use
asset can only be used by the Group. Leases are either non-cancellable or may
only be cancelled by incurring a substantive termination fee. Some leases
contain an option to purchase the underlying leased asset outright at the end
of the lease, or to extend the lease for a further term. The Group is
prohibited from selling or pledging the underlying leased assets as security.
For leases over hostels or hotels, the Group must keep those properties in a
good state of repair and return the properties in good condition at the end of
the lease. Further, the Group must insure items of property, plant and
equipment and incur maintenance fees on such items in accordance with the
lease contracts.
The table below describes the nature of the Group's leasing activities by type
of right-of-use asset recognised on balance sheet:
Right-of-use asset No of right-of-use assets leased Range of remaining term Average remaining lease term No of leases with extension options No of leases with options to purchase No of leases with variable payments linked to an index No of leases with termination options
Hostel buildings 11 5 - 42 years 12 10 0 11 0
In addition to the above, there is the London Kensington Holland Park lease
which ends in 2065. There are no such options as above.
There is a short term lease commitment relating to the commercial hub in
Warsaw. The total commitment is £18k (2022: £nil).
Lease liabilities
The lease liabilities are secured by the related underlying assets. The
undiscounted maturity analysis of lease liabilities at 31 December 2023 is as
follows:
2023
Minimum lease payments due
Within 1 year 1-5 years After 5 years Total
Lease payments 3,156 11,740 24,642 39,538
Finance charges (1,363) (4,295) (7,837) (13,495)
Net present values 1,793 7,445 16,805 26,043
2022
Minimum lease payments due
Within 1 year 1-5 years After 5 years Total
Lease payments 3,345 13,075 31,420 47,841
Finance charges (1,474) (4,876) (9,271) (15,621)
Net present values 1,871 8,199 22,149 32,220
18 DEFERRED INCOME TAX
Deferred tax assets Deferred tax liabilities Total
£'000 £'000 £'000
Balance as at 1 January 2022 1,122 (3,314) (2,192)
Transition to IAS 12 5,847 (5,373) 474
Balance at 1 January 2022 (as restated) 6,969 (8,687) (1,718)
Recognised in the income statement 257 (82) 175
Recognised in other comprehensive income - 32 32
Balance at 31 December 2022 7,226 (8,737) (1,511)
Recognised in the income statement (1,724) 1,549 (175)
Recognised included directly in equity (14) - (14)
Recognised in other comprehensive income - (171) (171)
Balance at 31 December 2023 5,488 (7,359) (1,871)
The Group has recognised deferred tax assets of £1.2m (2022: £1.4m), which
are expected to offset against future profits, in respect of tax losses. This
is on the basis that it is probable that profits will arise in the foreseeable
future, enabling the assets to be utilised. There are no unrecognised deferred
tax assets (2022: £nil).
The adoption of the amendments to IAS 12, effective 1 January 2023, resulted
in an increase in deferred tax assets of £5.8 million, an increase in
deferred tax liabilities of £5.3 million and an increase in brought forward
retained earnings at 1 January 2022 of £0.5 million. These differences arise
from timing differences between right of use assets and lease liabilities
under IFRS 16.
The summary of deferred tax asset by type is as follows:
2023 Deferred tax assets Deferred tax liabilities Total
£'000 £'000 £'000
Fixed asset timing differences 4,567 (7,359) (2,792)
Short term timing differences 2 0 2
Losses carried forward 919 - 919
5,488 (7,359) (1,871)
2022 (as restated) Deferred tax assets Deferred tax liabilities Total
£'000 £'000 £'000
Fixed asset timing differences 5,914 (8,737) (2,823)
Losses carried forward 1,312 - 1,312
7,226 (8,737) (1,511)
19 EQUITY
CALLED UP SHARE CAPITAL
£'000
Allotted, issued and fully paid
64,679,014 Ordinary shares of 1p each at 31 December 2022 647
Shares issued in the year 2
64,935,414 Ordinary Shares of 1p each at 31 December 2023 649
At the 31 December 2023, the ordinary shares rank pari passu. There are no
changes to the voting rights of the ordinary shares since the reporting date.
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share the meetings of the
Company. Ordinary shareholders are also entitled to repayment of capital.
In additional to called up share capital, there are 3,441,189 (2022 as
restated: 3,397,589) potential shares relating to share options. The value of
shares relating to share options totals £34k (2022 as restated: £34k).
SHARE PREMIUM
£'000
At 31 December 2022 23,904
Share issue 55
At 31 December 2023 23,959
OTHER COMPONENTS OF EQUITY
Merger reserve Share based payment reserve Revaluation reserve Translation reserve Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2022 1,772 510 15,996 232 18,510
Prior Year Restatements (see note 25) - (126) - - (126)
At 1 January 2022 as restated 1,772 384 15,996 232 18,384
Share based payment charge - (92) - - (92)
Property revaluation - - - - -
Deferred tax on property revaluation - - - - -
Exchange differences on translating foreign operations - - - (134) (134)
At 31 December 2022 as restated 1,772 292 15,996 98 18,158
Share based payment charge - 54 - - 54
Property revaluation - - 3,904 - 3,904
Deferred tax on property revaluation - - (171) - (171)
Exchange differences on translating foreign operations - - - 7 7
At 31 December 2023 1,772 346 19,729 105 21,952
20 SHARE BASED PAYMENTS
The Company operates a share-based payments scheme for Directors as outlined
in the Directors' Remuneration Report. Share options were awarded as part of
longer-term incentives.
The option holder may only exercise the option if, on the date of exercise,
the market value targets are achieved.
480,000 share options were granted in the period (2022: 609,000) and the
average share price target for options issued in 2023 was 24p (2022:
15p).
Grant date Exercise price per share (pence) Period within which options are exercisable Number of share options outstanding
2023 2022
2-May-14 15p 01/01/2024 to 31/12/2031 396,521 396,521
12-May-14 50p 01/01/2024 to 31/12/2031 528,695 528,695
21-May-14 50p 21/05/2017 to 20/05/2024 132,173 132,173
1-Jan-19 15p 01/01/2024 to 31/12/2031 300,000 300,000
26-Jun-19 15p 01/01/2024 to 31/12/2031 100,000 100,000
5-Sep-19 15p 01/01/2024 to 31/12/2031 100,000 100,000
2-Jan-20 15p 01/01/2024 to 31/12/2031 600,000 600,000
31-Oct-20 9p 01/01/2024 to 31/12/2031 78,900 140,100
30-Nov-20 15p 01/01/2024 to 31/12/2031 44,400 78,800
31-Dec-20 13p 01/01/2024 to 31/12/2031 54,600 97,000
31-Jan-21 13p 01/01/2024 to 31/12/2031 54,600 97,000
28-Feb-21 14p 01/01/2024 to 31/12/2031 50,800 90,100
31-Mar-21 15p 01/01/2024 to 31/12/2031 47,400 84,100
30-Apr-21 15p 01/01/2024 to 31/12/2031 47,400 47,400
31-May-21 15p 01/01/2024 to 31/12/2031 41,800 41,800
30-Jun-21 15p 01/01/2024 to 31/12/2031 39,500 39,500
31-Jul-21 15p 01/01/2024 to 31/12/2031 44,400 44,400
14-Apr-22 15p 01/01/2024 to 31/12/2031 400,000 400,000
9-Nov-22 16p 01/01/2024 to 31/12/2031 30,000 30,000
25-Nov-22 16p 01/01/2024 to 31/12/2031 50,000 50,000
15-Aug-23 24p 01/01/2024 to 31/12/2031 300,000 -
3,441,189 3,397,589
The share options are exercisable at a price equal to the average quoted
market price of the Group's shares on the date of grant. The share options
that have been issued in 2022 have a vesting period to 1 January 2024 and have
no minimum price condition. The options are forfeited if the employee leaves
the Group before the options vest. Details of these share options are
summarised in the table below:
2023 2023 2022 2022
As restated As restated
Number of share options Weighted average exercise price Number of share options Weighted average exercise price
Brought forward 1 January 3,397,589 21.5p 4,443,766 18.2p
Forfeited in the period - - (1,526,177) 18.3p
Exercised during the period (256,400) 12.9p - -
Issued in the period 300,000 24.0p 480,000 20.9p
Outstanding at 31 December 3,441,189 22.4p 3,397,589 21.5p
Exercisable at end of the period 132,173 50.0p 388,573 50.0p
No options were exercised in the period.
The fair value of the share options was calculated using the Black Scholes
model. There is a charge of £60k taken though the income statement (2022:
£42k).
The inputs are as follows:
2023 2022
Closing price of Safestay plc 23.5p 15.5p
Weighted average share price 23.6p 15.7p
Weighted average exercise price 24.2p 19.3p
Expected volatility 25% 52%
Average vesting period 1.0 years 2.0 years
Risk free rate 1.93% 1.47%
Expected dividend yield 0.00% 0.00%
The expected volatility percentage was derived from the quoted share prices
since flotation.
21 RELATED PARTY transactions
The Group has taken advantage of the exemption contained within IAS 24 -
'Related Party Disclosures' from the requirement to disclose transactions
between wholly owned group companies as these have been eliminated on
consolidation.
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below:
2023 2022
£'000 £'000
Short term employee benefits 446 364
Pension 8 5
Share based payment charges 57 42
511 411
Further information about the remuneration of individual directors is provided
in the Directors' Remuneration Report.
Details of Directors share options is provided in the Directors' Remuneration
Report and in note 20 of the accounts. The Directors share options have been
audited.
Safestay plc has a common directorship with Safeland Plc. In the year,
Safestay plc rented premises from Safeland plc on non-commercial terms. Total
rent paid to Safeland plc was £50,000 (2022: £50,000).
22 FINANCIAL INSTRUMENTS
Capital management
Total Capital is calculated as equity, as shown in the consolidated statement
of financial position, plus debt.
The Board's policy is to maintain a strong capital base with a view to
underpinning investor, creditor and market confidence and sustaining the
future development of the business. The Board regularly monitors cash balances
across the Group and evaluates borrowing levels to ensure an appropriate
gearing ratio is maintained. Through the Board's careful monitoring of its
capital, it has allowed us to purchase a freehold property in the year
entirely through cash generated from business operations. It has also
successfully refinanced in January 2024 to more favourable terms (please refer
to note 27 for more information) which will reduce the cash outflows relating
to interest charges and capital repayments. Capital consists of ordinary
shares, other capital reserves and retained earnings. To this end, the Board
monitors the Group's performance at both a corporate and individual asset
level and sets internal guidelines for interest cover and gearing.
The Executive Directors monitor the Group's current and projected financial
position against these guidelines. In order to maintain or adjust the capital
structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce
debt.
2023 2022
As Restated
£'000 £'000
Share capital 649 647
Share premium account 23,959 23,904
Retained earnings (13,801) (12,477)
Merger reserve 1,772 1,772
Share based payment reserve 346 292
Revaluation reserve 19,279 15,996
Translation reserve 105 98
Bank loans 16,180 17,000
Property Finance Liability 7,174 7,088
Lease liabilities 26,043 32,220
The Group has no externally imposed capital requirements.
Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including
the criteria for recognition, the basis of measurement and the basis on which
income and expenses are recognised, in respect of each class of financial
asset, financial liability and equity instruments are disclosed in note 1 to
these financial statements and in the tables below:
Categories of financial instruments
At 31 December 2023, the Group held the following financial assets:
2023 2022
£'000 £'000
Trade and other receivables (note 13) 1,210 1,122
Cash and cash equivalents (note 14) 1,998 5,226
Cash and cash equivalents from discontinued operations (note 4) 40 -
3,248 6,348
At 31 December 2023, the Group held the following financial liabilities:
2023 2022
As Restated
£'000 £'000
Bank loans (note 16) 16,180 17,000
Property financing liabilities (note 16) 7,174 7,088
Lease liabilities (note 17) 26,043 32,220
Trade and other payables (note 15) 4,018 3,128
53,415 59,436
All financial assets and liabilities are measured at amortised cost.
The carrying amounts of the Group's bank loans and overdrafts, lease
obligations and trade and other payables approximate to their fair value.
Total financial liabilities excludes deferred tax balances.
2023 2022
As Restated
£'000 £'000
Total liabilities (excluding deferred tax) (53,853) (59,367)
Cash and cash equivalents (note 14) 1,998 5,226
Cash and cash equivalents from discontinued operations (note 4) 40 -
Net Debt (51,815) (54,141)
Financial risk management
The Group's financial instruments comprise bank loans and overdrafts, Lease
liabilities, cash and cash equivalents, and various items within trade and
other receivables and payables that arise directly from its operations.
The main risks arising from the financial instruments are interest rate risk
and liquidity risk. The Board reviews and agrees policies for managing these
risks which are detailed below.
Foreign currency risk
The Group is exposed to foreign currency risk from overseas subsidiaries with
Group transactions carried out in Euros. Exposures to currency exchange rates
arise from the Group's overseas sales and purchases, which are primarily
denominated in Euros.
This risk is mitigated by each hostel holding a denominated bank account in
the country of operation. The Group monitors cashflows and considers foreign
currency risk when making intra-group transfers.
Foreign transactions are translated into the functional currency at the
exchange rate ruling when the transaction is entered. Foreign exchange gains
and losses resulting from the settlement of such transactions, and from the
translation at year end exchange rates, of monetary assets and liabilities are
recognised in the income statement.
The Group have performed a sensitivity analysis to determine the impact of a
fluctuation in exchange rate on the business. The Group have assumed that 10%
fluctuation in exchange rate reasonably reflects the change in the currency
pair over the last 12 months:
Profit before tax (losses)/gains Equity (losses)/gains Profit before tax (losses)/gains Equity (losses)/gains
2023 2023 2022 2022
As Restated As Restated
£'000 £'000 £'000 £'000
10% Strengthening of Sterling versus the Euro (157) (1,590) (117) (1,549)
10% Weakening of Sterling versus the Euro 172 1,749 129 1,704
Interest rate risk
The Group's interest rate risk arises from long-term borrowings. Borrowings
at variable rate expose the Group to cash flow interest rate risk which is
partially offset by cash held at variable rates.
The Group is exposed to interest rate risk on its borrowings. The £17.7
million main facility has an interest rate of 2.95% above the London
inter-bank offer rate ("LIBOR"). When the £10.2 million from the Edinburgh
sale proceeds was used to reduce the debt in July 2021, LIBOR was replaced
with 2.95% above SONIA. The £5 million CBILS in interest free in year 1 and
has an interest rate of 3.99% above base rate from year 2 until it is fully
repaid at the end of year 6. The Group carefully manages its interest rate
risk on an ongoing basis. When the bank loan was refinanced in 2020, LIBOR and
the bank base rates were significantly lower, and therefore the Board did not
implement an active risk management policy. Given that the majority of the
loans are held in the United Kingdom, the Board considers the United Kingdom
interest rate level as the key concentrated risk. Changes in interest rates
for loans held in other countries are not expected to have a material impact
on the Group.
The sensitivity analysis in the paragraph below has been determined based on
the exposure to interest rates for all borrowings subject to interest charges
at the statement of financial position date. For floating rate liabilities,
the analysis is prepared assuming the amount of the liability outstanding at
the statement of financial position date was outstanding for the whole year. A
0.5% increase or decrease is used when reporting interest rate risk internally
to key management and represents management's assessment of the reasonably
possible change in interest rates.
Based on bank borrowings, at 31 December 2023, if interest rates were 0.5%
higher or (lower) and all other variables were held constant, the Group's net
profit would increase or decrease by £92,500 (2022: £83,000). This is
attributable to the Group's exposure to interest rates on its variable rate
borrowings.
Credit Risk
Credit risk arises from the Group's cash balances held with counterparties and
trade and other receivables. Credit risk is the risk of financial loss to the
Group if a third party owing monies to the Group fails to meet its contractual
obligations. The Group limits its exposure to credit risk from trade
receivables by establishing policies to limit the levels of cash owed by third
party customers, such as guests paying in advance of their stays. Lease income
relating to Edinburgh and Madrid operates on normal payment terms of 30 days.
Where payments are not made within these normal payment terms, the credit risk
is considered to have increased since initial recognition and when the
customer defaults on their debts, it is determined that the receivables are
credit-impaired. The Group defines a default as aged debtor balances of over a
year, or if other information comes to light that suggests a customer can not
satisfy their debts. In the case of a default, the Group would provide in full
for any balance outstanding for that customer.
Trade receivables are measured at amortised cost and total £0.8 million at 31
December 2023 (2022: £0.6 million). Based on the comments above the Group
does not consider there to be any significant concentrations of risk in
relation to trade and other receivables. In addition, based on historical
default rates and adjusted forward-looking macroeconomic date, the Group has
assessed the expected lifetime credit loss in respect to be £nil (2022:
£nil).
All cash balances are held with reputable financial institutions and the Board
monitors its exposure to counterparty risk on an ongoing basis. The Group
attempts to mitigate credit risk by assessing financial counterparties.
Given the nature of the Group's operations, the Directors do not consider the
Group's credit risk, which arises mainly from cash held with mainstream UK
banks, to be significant.
The Group's financial assets, which are exposed to credit risk, are as
follows:
2023 2022
£'000 £'000
Trade receivables 789 620
Cash and cash equivalents 1,998 5,226
2,787 5,846
The directors are not aware of any factors affecting the recoverability of
outstanding balances as at 31 December 2023.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of
Directors. The Board manages liquidity risk by regularly reviewing the Group's
gearing levels, cash flow projections and associated headroom and ensuring
that excess banking facilities are available for future use. All of the
Group's long-term bank borrowings are secured on the Group's property
portfolio.
Liquidity risk
All of the Group's long-term bank borrowings are secured on the Group's
property portfolio. If the value of the portfolio were to fall significantly,
the Group risk breaching borrowing covenants. The Board regularly review the
Group's gearing levels, cash flow projections and associated headroom and
ensure that excess banking facilities are available for future use. Liquidity
risk is considered across all regions in which the Group operates in, on the
basis that short term debt obligations arise through normal trading. The
concentration of the risk exists most in the UK, due to the fact that the
Group debt obligations are held there.
The business continued to manage its liquidity risk with the renewal of its
debt facility with HSBC on the 13 January 2020 with a facility of £12.8m
until 2025. In addition, a £5.0m bank CBILs facility was secured for 6 years
on 16th December 2020, which is interest free for the first year increasing to
3.99% above base rate from year 2. Repayment of CBILs facility commenced in
April 2022.
The business continues to service this debt and make the interest payments as
they fall due. There are no off-balance sheet financing arrangements or
contingent liabilities.
Liquidity and interest risk analysis
The following tables detail the Group's remaining contractual maturity for all
financial liabilities. The tables have been drawn up based on the undiscounted
cash flows of financial liabilities based on the earliest date on which the
Group can be required to pay including interest.
Less than Later than
1 year 1-2 years 3-5 years 5 years Total
£'000 £'000 £'000 £'000 £'000
Variable interest rate borrowings 2,312 14,052 2,371 - 18,735
Property finance liabilities 219 219 657 30,660 31,755
Trade and other payables 4,018 - - - 4,018
Lease liabilities 3,434 3,434 9,796 29,546 46,210
9,983 17,705 12,824 60,206 100,718
The above amounts reflect the contractual undiscounted cash flows, which may
differ to the carrying values of the liabilities at the reporting date.
The repayment of the £5 million CBILS started in April 2022. It was agreed
with HSBC that the main debt facility would be interest only from July 2021
after the disposal of Edinburgh, which involved a £10.2 million debt
repayment to HSBC. As of January 2024, Safestay PLC refinanced, consolidating
the current debt positions and adding a Revolving Credit Facility of £2.5
million. More details of this can be found in note 27, Post Reporting Date
Events.
23 FAIR VALUES OF NON-FINANCIAL ASSETS
The following table shows the levels within the hierarchy of non-financial
assets measured at fair value on a recurring basis:
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
2022
As restated
Freehold Property - - 11,717 11,717
Leasehold Property - - 26,203 26,203
- - 37,920 37,920
2023
Freehold Property - - 16,999 16,999
Leasehold Property - - 27,020 27,020
- - 44,019 44,019
The Group's freehold and leasehold property asset is estimated based on
appraisals performed by independent, professionally qualified property
valuers. The significant inputs and assumptions are developed in close
consultation with management. The valuation process and fair value changes are
reviewed by the directors at each reporting date.
24 Other commitments and guarantees
The bank loan held by the Group of £16.0 million is scored against the
Group's assets, including freehold properties of £17.0 million, leasehold
properties totalling £27.0 million and trade and other receivables relating
to UK properties.
The Group also has guarantees totalling £1.0 million in relation to ongoing
leases.
25 PRIOR YEAR RESTATEMENTs
In prior periods, revaluation gains were incorrectly allocated against cost
rather than firstly being offset against accumulated depreciation with any
remaining surplus then being allocated against cost. Therefore, an adjustment
has been made to the prior year comparatives to reduce the cost and
accumulated depreciation of freehold and leasehold property at 1 January 2022
by £0.4 million and £2.6 million respectively. This adjustment has no impact
on the overall net book value of property plant and equipment, or on the
Income Statement or Statement of Financial Position for the period.
Following a review of the share options workings for the year ended 31
December 2023, it was noted that in prior years 1.4 million share options in
relation to option holders who had since left the business and were no longer
entitled to those options, had not been cancelled. The impact of this has been
that the share option charge in prior years has been overstated. Therefore a
prior year adjustment to the 2022 comparatives has been made in respect of
this which has resulted in a reduction in the share based payment reserve of
£0.1m at 1 January 2022 and a corresponding increase in retained earnings of
£0.1m at 1 January 2022. In addition, the 2022 comparative for administrative
expenses has been adjusted to reflect a reduction in the share option charge
of £0.1m for 2022 arising from this. The overall impact of these adjustments
is therefore to reduce the loss for the year ended 31 December 2022 by £0.1
million compared with amounts previously reported.
The impact of the above on earnings per share (including discontinued
operations) is:
2022 2021
Basic Earnings per share 0.02p 0.02p
Diluted Earnings per share 0.02p 0.02p
26 CHAnges in accounting estimates
During the period, the Directors reviewed the useful economic life of the
leasehold property at Elephant & Castle and determined that the useful
economic life should be extended from 50 years to 150 years, in line with the
term of the lease of the property. The impact of the change in accounting
estimate results in a decrease in depreciation of £0.4 million in the current
period. The impact on future periods will be a decrease in depreciation
charges of £0.4 million per annum.
27 POST REPORTING DATE EVENTS
In January 2024, the Group refinanced its existing borrowings into a single
£16 million Term Loan and added a new £2.5 million Revolving Credit Facility
("RCF") to support future growth plans. The new Term Loan and RCF are for 5
years and were provided by existing lender HSBC.
The Term Loan interest rates are £4.4 million at 3.955%, £10 million at
SONIA but capped at 4.75% with a floor of 3% and £1.6 million at SONIA, all
with an additional margin of 2.6%. The RCF has a rate of SONIA plus a margin
of 2.85%. The Term Loan is repayable at £0.1 million per quarter from March
2025 together with a final payment at completion. Interest on both the Term
Loan and RCF is payable quarterly from March 2024.
The Term Loan replaces the previous interest only £12.7 million facility with
HSBC and enables the repayment of the outstanding CBILS loan of £3.25
million, which carried a significantly higher interest rate.
On 30 April 2024, the Group acquired a property located in Cordoba, Spain for
a consideration of €2 million, funded through the Group's existing cash
balance.
In June 2024, the Group acquired a freehold property located in Brighton,
United Kingdom, for a consideration of £2.3 million, funded through both the
Group's existing cash balances, and a £1.2 million loan from the trustees of
the Sheldon Pension Fund and Sentpark Capital Limited.
The loan will be made to Safe Hostels Limited (a 100% owned subsidiary of
Safestay plc) with Safestay plc providing a written guarantee. The interest
rate on the loan is 1% per month and is serviced monthly, plus there are
arrangement and exit fees of 1% each. The repayment date is 18 months after
the drawdown date.
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