Safestay : 2022 Annual Accounts

Safestay plc

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

Final Results for the year Ended 31 December 2022

Safestay (AIM: SSTY), the owner and operator of an international brand of contemporary hostels, is pleased to announce its audited Final Results for the 12 months to 31 December 2022.

2022 Financial highlights

• Total revenues increased to £19.1million reflecting a return to near normal trading (2021: £6.4 million)
• 20% increase in average bed rate to £23.63 (2021: £19.70)
• EBITDA fell to £5.5m (2021 profit: £7.2m due to the sale of Barcelona Sea and Edinburgh hostels)
• Adjusted EBITDA increased to £5.9 million (2021 loss: £1.0 million)
• Loss after tax of £0.3m (2021: loss of 0.6m)
• Loss per share of 0.44p (2021: loss of 0.93p)
• Available cash balances of £5.2 million (2021: £4.5 million)

2022 Operational highlights

• Occupancy was 63%, still low compared to pre-covid levels of 77% (2019)
• Trading broadly uninterrupted with our 16 premium hostels open for 97% of the year
• Guest profile mostly made up of young travellers with large bookings from schools and colleges still relatively low against historic levels but showing signs of recovery
• Business overall more efficient and cost effective as a result of practices and efficiencies adopted during the covid period

Outlook

• Trading in the first four months of 2023 is significantly ahead of our budget showing the resilience of the travel market sectors in which Safestay operates
• Prospects for 2023 are encouraging on the basis that the hostels are:

• Sustaining average room rate at or above 2022 levels
• Benefiting from the return of large school and college bookings
• Continuing to move occupancy back to historic levels

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

"2022 was our first near normal trading year since the start of the pandemic and it was therefore very pleasing to see that when allowed to trade, our hostels immediately attracted back a high level of guests. Looking ahead, if occupancy continues to grow into 2023, which we believe it will, and we are able to maintain our average bed rate levels, then the business is in a strong position. Overall, I believe we are a better business having weathered the pandemic and we are now back into growth mode from a stronger base both financially and operationally".

2022 was a good year for the business and marked the return to near normal trading. For the first time in two years, the portfolio was allowed to trade freely with all 16 premium hostels open for 97% of the year. The response from guests was immediate and positive, reflecting some pent-up demand but also a return to normal travelling patterns. Revenues increased threefold to £19.1 million and with a 20% increase in average bed rate, the Group recorded EBITDA of £5.5 million, down from £7.2 million in the prior year. The Group recorded adjusted EBITDA of £5.9 million up from a £1.0 million loss in the prior year.

We have a mature and well-established hostel portfolio all located in central parts of Europe's best known cities which collectively attract millions of young visitors every year. The pandemic did not change people's desire to visit and experience these cities, it only limited their ability to do so. Now that travel restrictions are lifted, we are seeing a return to normal trading with young travellers and other groups, such as families and commercial travellers, taking advantage of Safestay's network to stay centrally, economically and safely in Europe's leading cities.

Importantly, we entered 2022 in a good financial position having reduced debt and increased liquidity with the disposal of our Edinburgh and Barcelona Sea hostels during 2021. This resulted in gearing reducing to 54% and a strengthened financial position. In addition, the Group still has a valuable property portfolio with a mix of freehold and leaseholds across the 16 strong hostel portfolio.

2023 has begun well with trading in the first four months significantly ahead of budget. The Group is well placed to continue to build on the performance of the past twelve months, expanding its visitor base supported by investment in developing a new website and membership scheme both aimed at increasing the level of direct sales.

Financial Results

Revenue

Group revenue for the financial year ended 31 December 2022, increased to £19.1 million, above both the prior year and the last year before the pandemic with just one more hostel than in 2019 (2021: £6.4m; 2019: £18.4 million).

Room revenue grew to £17.1 million (2021: £4.9 million) and food & beverage revenue together with

ancillary revenue was £2.0 million (2021: £1.3 million).

Adjusted EBITDA

The Directors consider that an adjusted EBITDA provides a key measure of performance since it removes the impact of the profit on disposal of the properties, which is not a trading activity, along with the benefit of rent concessions received. Adjusted EBITDA for the year to December 2022 was a £5.9 million profit (2021: £1.0m loss). Adjusted EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional 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.

Finance Costs

Finance costs in 2022 were £2.6 million (2021: £2.7 million) as follows:

The Group has a ongoing loan facility with HSBC UK Bank plc, which ends in January 2025. The value of the loan at 31 December 2022 was £12.7m. The Group also has a £5.0 million government backed CBILS loan secured for 6 years on 16 December 2020, with repayments commencing 16 April 2022 reducing the balance to £4.25 million at 31 December 2022.

In addition, the Group has a government backed loan in Austria (£0.1 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 2022, the finance costs include £1.4 million of lease interest (2021: £1.7 million). The £0 (2021: £1.3 million) reduction negotiated with our landlords was treated as rent concessions in administrative expenses in full in the prior year.

Earnings per Share

Basic loss per share for the year ended 31 December 2022 was 0.44p (2021: loss 0.93p) based on the

weighted average number of shares, 64,679,014 (2021: 64,679,014) in issue during the year.

The Group made a £0.3 million net loss in 2022 (2021 loss: £0.6 million).

Cash flow, capital expenditure and debt

Net cash generated from operations was £6.3 million (2021: (£1.3) million).

The Group had cash balances of £5.2 million at 31 December 2022 (2021: £4.5 million).

Outstanding bank debt at 31 December 2022 was £17 million (2021: £18 million). This includes a £12.7

million loan with HSBC (2021: £12.7 million), minus the £0.1 million amortised loan fees (2021: £0.1 million), the £5.0 million government backed CBILS loan received in December 2020 reduced by £0.75 million in 2022, and the Austrian loan £0.1 million. The lease liabilities amount to £33 million (2021: £33 million).

The gearing ratio (exclusive of lease liabilities) is 54%.

Net asset value per share fell to 46p (2021: 47p).

The value of freehold and long leasehold properties has not materially changed in the period.

Operational Review

The business had to relaunch a number of times during the pandemic according to when governments allowed the hospitality industry to trade and this varied from country to country. In 2022, the hostels were open for close to 100% of the year during which momentum built without interruption, resulting in a strong summer period and better than expected trading in the traditionally weaker months. It is hard to decipher to what extent demand in 2022 relates to pent up frustration from those unable to travel during the pandemic and how much is down to trading returning to normal. However, given occupancy is still well below historic averages, we believe the business is simply returning to normal market conditions.

The business had to be re-set for Covid, with the operational cost base significantly reduced alongside the sale of two hostels in Edinburgh and Barcelona which ensured the Group's financial security. Furthermore, on 11 March 2022, the landlord of the Holland Park hostel agreed to a reduction in the base rent of £0.25m per year.

Currently, the portfolio is made up 16 premium hostels, 4 in the UK and 12 on the continent, together selling 725,778 beds at an average price of £23.63 per night in 2022.

From nearly a standing start, the hostels performed well overall in 2022, with the European sites representing 64% of sales and the UK representing 36%. Elephant & Castle and Glasgow performed well in the UK with Pisa and Lisbon also being particularly strong performers on the continent. For the hostel in Brussels, another strong performer, negotiations around a new lease are about to commence and there is the potential to take on extra areas in the building.

The majority of guests have been young travellers with large groups from colleges and schools only making up 10% of accommodation revenue whereas historically these made up around 28% of this revenue. There is a reasonable likelihood group bookings will improve significantly in 2023 as colleges and schools were perhaps more cautious to return and take longer to prepare for trips. In addition, there has been good custom from young families and single commercial travellers.

Our marketing policy is primarily focused on the digital space and we intend to launch a new website in June. This is expected to further drive traffic and direct bookings, particularly from individual travellers. Currently, our website is responsible for 14% of overall sales. The balance of bookings come from Groups and Online Travel Agencies ('OTAs').

Alongside the launch of the new website, the Group is planning a significant marketing campaign, in part to maximise the investment in the website, but also to promote a new membership scheme, encouraging members to take advantage of member only discounts available across the portfolio. Sarah Whiddett, our new Non-Executive Director, with her extensive marketing leadership experience will make a significant contribution to this.

Safestay is positioned at the premium end of the hostel market. In order to maintain our premium positioning, it is critical that we invest in maintaining a premium level of quality and feel across the portfolio. To this end, from 1 January 2023, we have allocated 3% of total revenues in order to maintain these high standards in our hostels.