Final Results

RNS Number : 9373J

Safestay PLC

13 April 2015

Safestay PLC

("Safestay" or "the Company")

Final Results

For the Period to 31 December 2014

Highlights

· Successful listing on AIM on 2 May 2014, raising £4.8m and simultaneously acquired the Elephant & Castle hostel

· Trading highlights for Safestay Elephant & Castle* for the year to 31 December 2014:

· Revenues increased by 19.8% to £2.315m (2013: £1.933m) reflecting the growing awareness of the Safestay brand and an increase in repeat custom from schools and colleges

· Bed occupancy increased by 9.9%

· Revenue per available bed (RevPAB) increased by 21.6%

· Average bed rate (ABR) increased by 10.7%

· 62.0% increase in earnings before interest & tax to £0.972m (2013: £0.600m)

*Results provided on a Proforma basis to enable comparisons with the previous year

· Acquired an additional hostel in York and signed heads of terms for a 50-year lease on a hostel in Holland Park, London which completed on 12 January 2015 and is scheduled to commence trading in Q2 2015

· Raised £3.3m in a placing in December 2014 to fund the refurbishment of the Holland Park hostel, repay debt and provide further working capital

· Completed the refurbishment of Safestay York in December 2014

· Further operational progress expected in 2015 under Safestay's newly appointed CEO, Philip Houghton

· Looking to expand the portfolio in 2015

· Recommended final dividend of 0.3p per share

Commenting on the results, Chairman of Safestay, Larry Lipman, said:

"Hostels have sometimes had a poor reputation in the past but this is now changing with new entrants such as us introducing a new brand of luxury hostel, offering safe, stylish and fun accommodation but still for less than £25 per night. Demand is high not just from traditional hostel customers such as young adults, schools and colleges but increasingly also from cost conscious families and business travellers too.

We are aiming to build a premium pan European hostel brand and we have made good progress towards this aim in 2014 through the expansion of the portfolio, the increase in occupancy and the listing on AIM. Looking ahead, we expect to open in Holland Park and add further hostels in other principal European cities."

For further information:

Safestay
Larry Lipman, Chairman	Tel: 020 8815 1600
Colin Stone, Finance Director


Westhouse Securities (Nomad and Broker)
Tom Griffiths	Tel: 020 7601 6100
David Coaten

Novella
Tim Robertson	Tel: 020 3151 7008
Ben Heath

To access Corporate Images of Safestay:

https://www.flickr.com/photos/128855901@N03/

Chairman's Statement

Overview

The hostel sector is a large, fragmented and severely under-invested market and largely ignored by mainstream hotel operators. This was identified as an opportunity a number of years ago, in the belief that a new entrant could establish a premium brand while maintaining the key concept of a hostel, but offering it within a safe and stylish environment.

A core part of Safestay's success is our property expertise. The ability to source the right properties on competitive terms is critical, giving us a significant commercial advantage as well as underpinning the value of the Company.

We understand the processes and structures required to build a scalable business and we have put these in place to support what we believe is a very exciting opportunity. Crucially, we are continuing the process of educating the external market as to the advantages of staying at a luxury hostel and thanks to our efforts to date, luxury hostels are rapidly gaining momentum across the market.

The results we are reporting are for the 11-month period from the Company's incorporation on 29 January 2014 to 31 December 2014, although the Company's trading activities did not commence until its admission to AIM on 2 May 2014. As a result, the audited financial statements reflect the eight months' trading from that date and only offer a partial view of the Company's trading performance in 2014. To provide a more realistic picture of the trading business acquired in the period, Safestay Elephant & Castle, we have produced key figures, where possible, on a proforma basis for the full 12 months of 2014 in order to better reflect the business' progress.

Financial results

For the period 29 January 2014 to 31 December 2014, the Company generated revenues of £1.938m, leading to an operating profit of £0.580m and a profit before tax of £137k. As a consequence, earnings per share were 1.29p.

As at 31 December 2014, the Company had gross bank and loan note borrowings of £9.284m secured against its properties with an average weighted interest cost of 5.26%.

The Company has two freeholds and one leasehold property. As at 31 December 2014, its freehold property portfolio was valued at £15.0m.

The Directors are pleased to have recommended the payment of a final dividend of 0.3p per share on 26 June 2015 to shareholders on the register on 15 May 2015 for approval at the Company's AGM to be held on 2 June 2015.

Key achievements in 2014

Significant progress has been made to expand the Safestay portfolio and strengthen the brand with the addition of two new hostels following the Company's initial public offering (IPO) on AIM on 2 May 2014. The hostel sector continues to excite both consumers and investors and we are confident that Safestay's market position and leadership team provide the necessary ingredients to expand the brand into key cities in the UK and Europe.

Since Safestay's listing, the trading performance at Elephant & Castle continues to improve, delivering growth in both RevPAB (revenue per available bed) and EBITDA (earnings before interest, taxes, depreciation and amortisation). The acquisition of Safestay York followed soon after the IPO in May 2014 and the refurbishment works were completed in December 2014. We are delighted with the results of the refurbishment and the first year of trading as Safestay York is comfortably on track to meet management's expectations.

One of our major successes in 2014 was securing the heads of terms on our third property in Holland Park, London, in the face of intense competition. The lease was signed on 12 January 2015. This has enabled the business to be in a position to extend our brand footprint in the capital to almost 800 beds by summer 2015 when Safestay Holland Park is scheduled to commence trading. There is significant interest in this property and we are confident that the hostel has excellent trading potential given the building's aesthetic appeal and its highly convenient location in a very desirable central area. It also provides a platform for both synergies between the hostels and traction to further strengthen the Safestay brand in the consumer and investor markets.

London continues to be a prime tourist destination and having a robust presence in the capital will provide many benefits when it comes to supporting the expansion of the business.

In January 2015, we announced the appointment of Philip Houghton as Chief Executive who brings with him extensive multi-site hotel and leisure sector experience.

Safestay's head office function will continue to be strengthened during 2015 providing expert revenue and group sales management. Building a strong team and working closely with the business' strategic partners provides a scalable platform to support the trading performance of the current portfolio and our expansion plans.

A large proportion of our business is booked via the internet; either directly with Safestay through our own website and the group booking function or through third party agents and online travel agents (OTAs) such as Hostelworld, HostelBookers and Booking.com. There are encouraging signs that more customers are booking directly with us as this channel has more than doubled as a percentage of total revenues year-on-year. Investment is being directed into online activity to further enhance the Safestay brand and encourage continued growth in direct, non-commissionable business.

Outlook

Safestay is growing rapidly and we expect to add further hostels to the portfolio in 2015. We are currently sourcing new sites in cities across Europe that would be popular with our target market.

At the same time, we are putting in place the necessary processes and structures to facilitate our growth. As a management team, it is important for us to remain focused on perfecting the Safestay offer to ensure that we can replicate the same premium experience at each new site as they open.

Early trading in Q1 of 2015, traditionally the weakest trading quarter of the year, has seen year-on-year growth which supports our confidence that 2015 will be another successful year.

We look forward to an exciting and profitable journey ahead.

Larry Lipman

Chairman

10 April 2015

Strategic Report

Principal activity

The principal activity of the Group comprises the operating of upmarket backpacker tourist hostels under the Safestay brand in properties that are either owned or occupied on long leasehold.

Review of business and future prospects

Safestay Elephant & Castle enjoyed uninterrupted trading through the IPO period and to the financial year end on 31 December 2014. It should be noted that whilst the hostel has been trading since June 2012, Safestay plc acquired the Elephant & Castle hostel on 2 May 2014 at the time of its IPO. The reported numbers reflect the eight months' trading from the date of the acquisition.

The underlying business has met management's expectations with revenues of £1.938m and a trading EBITDA of £706k for the period from 2 May to 31 December 2014. With York freshly launched, Elephant & Castle still maturing and Holland Park scheduled to open in early summer, 2015 is set to be a year of revenue and profit growth. The management team is keen to expand the brand further and is actively sourcing new sites.

Investment is being made in a new website which will bring the current portfolio of hostels onto a single platform and allow for additional sites to be absorbed more easily going forward. In early 2015, the team has been strengthened under the leadership of the new CEO Philip Houghton with the focus on revenue management, group sales and administration. This fits into our objective of driving greater value from existing operations and having the specialised skills and resources in place to absorb new hostels in future. Safestay's internal and external resources are under constant review to ensure that the operations are optimised and growth can be managed within reasonable cash flow considerations.

Safestay has a proactive approach to recruitment and development of the talent within the organisation and values the contribution all team members make to the business and our guests' experience. Robust training plans are in place with more emphasis planned around our organisational procedures during 2015. In addition, our Elephant & Castle hostel has aligned team pay rates to comply with London living wage levels and Safestay has joined the Living Wage Foundation.

Proforma results for Elephant & Castle for the year ended 31 December 2014

The Elephant & Castle hostel achieved the following results on a 12-month proforma basis:

· Revenues increased by 19.8% to £2.315m (2013: £1.933m) reflecting the growing awareness of the Safestay brand and an increase in repeat custom from schools and colleges

· Bed revenue increased by 21.6% to £2.214m (2013: £1.820m) reflecting a 10% increase in the bed rate to an average price of £18.80 (2013: £16.99) per bed, a price point that offers exceptional value for central London

· Occupancy increased by 9.9%

· 62.0% increase in earnings before interest & tax to £0.972m (2013: £0.600m)

York & Holland Park

Safestay York was acquired on 24 May 2014 and was under refurbishment until December 2014, although it still continued to trade to some extent whilst the works were being undertaken.

There is no comparable trading performance available for the York hostel as it is a new to the Safestay portfolio, however the following points are worth noting:

· Occupancy in York in 2014 was 49.3% for the 7 months and 8 day period of ownership

· Following the completion of the acquisition of York, in the period, and Holland Park, post the period end, the number of beds within the Safestay portfolio will increase from 413 to 928

· During 2014, the Group spent approximately £0.3m on upgrading and refurbishing the York hostel and has allocated £2.0m to totally refurbishing the Holland Park hostel, which is scheduled to open in Q2 2015

Principal risks and uncertainties

The principal risks and uncertainties that could potentially have an impact on the Company's performance are detailed below.

Business risk

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 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.

A proportion of Safestay's business comes from Europe and, of this, a number of school groups use our properties. The business is therefore susceptible to changes in the source market and schools' education and travel policies, as well as exchange rate fluctuations.

Whilst demand in Safestay's markets is projected to strengthen, new competition will threaten the trading performance of the hostels. Safestay's defence to such threats is a combination of operating in premium locations and its accommodation offering. In addition, the business' focus on sales and marketing activity and customer service is key in order to protect and grow its market share as supply increases.

Safestay's ambition is to expand our portfolio of hostels in key gateway cities both in the UK and across Europe. Accessing opportunities at the right price and in the right locations is by its nature an opportunistic exercise and whilst the management team has an excellent track record in securing properties to support business growth, it is not possible to accurately predict the growth profile of the business.

Financial risk

Safestay uses bank loans to partially fund the freehold interest in the Elephant & Castle and York hostels. These loans have variable interest rates which track LIBOR. Any increases in LIBOR will increase the cost of these loans and therefore impact the net profit of the business. This risk has been partially mitigated by the use of interest rate swaps and caps.

The determining factor in Safestay's ability to acquire further hostels is governed by cash reserves and the ability to raise additional equity and debt. As such, there may be times when opportunities cannot be taken advantage of due to funds not being available or allocated elsewhere. 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 inventory 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's arrival. Safestay has a policy of full payment upfront for guests staying which is the norm for hostels. As such there are no trade debtor risks.

Approved by the Board of Directors and signed on behalf of the board.

Larry Lipman

Chairman

10 April 2015

Safestay plc

Consolidated Income Statement

Period ended 31 December 2014

	Note	2014 £'000
Revenue		1,938
Cost of sales		(204)
Gross profit		1,734
Administrative expenses		(1,154)
Operating profit		580
Finance income		1
Finance costs		(444)
Profit before tax		137
Tax		(22)
Profit for the financial period attributable to owners of the parent company		115

Basic earnings per share	2	1.29p
Diluted earnings per share	2	1.18p

The revenue and operating result for the period is derived from acquired and continuing operations in the United Kingdom.

Safestay plc

Consolidated Statement of Comprehensive Income

Period ended 31 December 2014

					2014 £'000

Profit for the period					115
Other comprehensive income Items that will not be reclassified subsequently to profit and loss
Revaluation of freehold land and buildings					206
Total comprehensive income for the period attributable to owners of the parent company					321

Safestay plc Consolidated Statement of Financial Position 31 December 2014
	Note	2014 £'000
Non-current assets
Property, plant and equipment	3	15,000
Total non-current assets		15,000
Current assets
Inventory		4
Trade and other receivables		167
Deferred tax		21
Derivative financial instruments		7
Cash and cash equivalents		3,310
Total current assets		3,509
Total assets		18,509
Current liabilities
Loans and overdrafts	4	1,314
Trade and other payables		662
Current liabilities		1,976
Non-current liabilities
Bank loans and convertible loan notes Derivative financial instruments	4	7,786 46
Total non-current liabilities		7,832
Total liabilities		9,808
Net assets		8,701
Equity
Share capital	5	192
Share premium account	6	6,410
Merger reserve	7	1,772
Share based payment reserve		6
Revaluation reserve		206
Retained earnings		115
Total equity attributable to owners of the parent company		8,701

These financial statements were approved by the Board of Directors and authorised for issue on 10 April 2015.

Signed on behalf of the Board of Directors

Larry Lipman Colin Stone

Safestay plc

Consolidated Statement of Changes in Equity

31 December 2014

				Share
		Share		based
	Share	premium	Merger	payment	Revaluation	Retained	Total
	Capital	account	Reserve	reserve	Reserve	earrnings	equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Comprehensive income
Profit for the period	-	-	-	-	-	115	115
Other comprehensive income	-	-	-	-	206	-	206
Total comprehensive income	-	-	-	-	206	115	321

Transactions with owners
Issue of shares	192	6,410	1,772	-	-	-	8,374
Share based payment charge for the period	-	-	-	6	-	-	6
Balance at 31 December 2014	192	6,410	1,772	6	206	115	8,701

Safestay plc Consolidated Statement of Cash Flow Period ended 31 December 2014
	Note		2014 £'000

Operating activities
Cash generated from operations	8		639
Net cash generated from operating activities			639
Investing activities
Interest received			1
Purchase of property, plant and equipment			(2,724)
Acquisition of subsidiary net of cash			(5,320)
Net cash Outflow from investing activities			(8,043)
Financing activities
New loans		9,917
Loan arrangement fees		(226)
Issue of ordinary shares			8,114
Fees related to the issue of shares			(1,549)
Interest paid			(356)
Loan repayments			(5,186)
Net cash generated from financing activities			10,714
Net increase in cash and cash equivalents			3,310
Cash and cash equivalents at end of period			3,310

Safestay plc

Notes to the Consolidated Accounts

Period ended 31 December 2014

1. BASIS OF PREPARATIOn

On 10 April 2015, the Directors approved this preliminary announcement for publication. Copies of this announcement are available from the Company's registered office at 1a Kingsley Way, London, N2 0FW and on its website, www.safestay.co.uk. The Annual Report and Accounts will be sent to shareholders in due course and will be available on the Company's website, www.safestay.co.uk.The financial information presented above does not constitute statutory financial statements as defined by section 435 of the Companies Act 2006 for the period ended 31 December 2014.

The financial information for the period ended 31 December 2014 is derived from the statutory financial statements for that period, prepared under IFRS, upon which the auditors have reported. The audit report was unqualified, did not include references to matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory financial statements for the period ended 31 December 2014 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The accounting policies applied in this announcement are consistent with those of the annual financial statements for the period ended 31 December 2014, as described in those annual financial statements.

2. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

2014

£'000

Profit for the period attributable to equity holders of the company

115

			2014 '000
Weighted average number of ordinary shares for the purposes of basic earnings per share			8,948
Effect of dilutive potential ordinary shares			792
Weighted average number of ordinary shares for the purposes of diluted earnings per share			9,740

3. PROPERTY, PLANT AND EQUIPMENT

	Freehold land and buildings £'000	Fixtures, fittings and equipment £'000	Total £'000
Cost
Additions	2,683	41	2,724
Acquisitions	12,128	72	12,200
Revaluation	110	-	110
At 31 December 2014	14,921	199	15,034

Depreciation
Charge for the period	96	34	130
Revaluation	(96)	-	(96)
At 31 December 2014	-	34	34

Net book value:
At 31 December 2014	14,921	79	15,000

At 31 December 2014, the carrying value of the Group's freehold property including fixtures and fittings was £15,000,000.

The Directors valued the properties at 31 December 2014 using external valuations prepared by Edward Symons LLP and the directors' consideration on of factors. The valuations are based on the discounted cash flows technique with a capitalisation rate of 8% and discount rate of 10.5% applied to forecasts of future earnings before interest, taxation and depreciation (EBITDA).

The revaluation surplus net of applicable deferred income taxes was credited to other comprehensive income and is shown in revaluation surplus. The freehold property is the only non-financial asset held at fair value. The valuation of this asset requires significant inputs that are not based on observable market data (level 3). The property's current use equate to the highest and best use.

The Group's policy is to recognise transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. No transfers occurred during the period.

The most significant inputs, all of which are unobservable, are forecast EBITDA and the capitalisation rate. The overall valuations are sensitive to these assumptions and management considers the range of reasonably possible alternative assumptions.

The following table details the sensitivity of changes in the underlying inputs

31 December 2014 valuation

		£'000	£'000	£'000

		Change in EBITDA
		5%	0%	-5%
Change in	-0.5%	16,658	15,868	15,068
Cap rate	0%	15,731	15,000	14,232
	0.5%	14,893	14,181	13,478

The historical cost of property, plant and equipment is £14,924,000.

The Group has pledged freehold property with a carrying value of £14,921,000 to secure banking facilities and loan notes granted to the Group.

4. Loans


	2014
	£000

At amortised cost
Bank loan	5,460
Convertible loan notes	2,800
Loan notes	1,024
	9,284
Unamortised borrowing costs	(184)
	9,100

Loans due within one year	1,314
Loans due after more than one year	7,786
	9,100

The Bank loan has a term of five years on which interest is payable at 3.25% over LIBOR. The Group has given security to the bank including a first ranking charge over the Group's freehold hostel in Elephant & Castle. There were no breaches in bank loan covenants as at 31 December 2014.

The convertible loan notes were issued on 2 May 2014. They are convertible into Ordinary Shares at the option of the noteholder, at any time prior to redemption, as a rate which values each Ordinary Share at 57.5p per share. The redemption period is three years from the date of issue. Interest is payable at 6% per annum. The convertible loan notes are secured by way of a charge over the Group's hostel in Elephant & Castle, ranking after the security granted to the bank.

The loan notes were issued on 24 May 2014. They are repayable in one year. The rate of interest on the loan notes is 0.75% per month for the first eight months and then 11% per annum for the remaining four months. The loan notes are secured over the Group's Hostel in York.

All of the Group's loans disclosed above comprise borrowings in sterling.

The repayment profiles of the loans are as follows:

	Convertible loan notes	Bank loan	loan notes	Total
	£000	£000	£000	£000
Due within one year	-	300	1,024	1,324
Between one and two years	-	300	-	300
Between two and five years	2,800	4,860	-	7,660
Balance at 31 December 2014	2,800	5,460	1,024	9,284

5. CALLED UP EQUITY Share capital

			£000
Allotted, issued and fully paid
1 Ordinary Share of 1p issued on 29 January 2014			-
13,217,246 Ordinary shares of 1p each issued on 2 May 2014			132
6,027,272 Ordinary Shares of 1p each issued on 22 December 2014			60
19,244,519 Ordinary Shares of 1p each as at 31 December 2014			192

At 31 December 2014, the ordinary shares rank pari passu. There are no changes to the voting rights of the ordinary shares since the balance sheet date.

On 29 January 2014, the Company issued £50,000 redeemable preference shares of £1 each which were redeemed on 2 May 2014 at par.

6. SHARE PREMIUM

			£'000
Share premium received on issue of 9,600,000 Ordinary Shares on
2 May 2014 at 49p per share			4,704
Share premium received on issue of 6,027,272 Ordinary shares issued on 22 December 2014 at 54p per share			3,255

Share issue costs			(1,549)
			6,410

7. Merger reserve

			£'000
Share premium received on issue of 3,617,246 Ordinary Shares on
2 May 2014 at 49p per share to acquire Safestay Elephant and Castle			1,772
			1,772

8. NOTES TO THE CASH FLOW STATEMENT

			2014 £'000
Profit before tax			137
Adjustments for:
Depreciation of property, plant and equipment			130
Finance cost			444
Finance income			(1)
Share based payment charge			6
Changes in working capital:
Increase in stock			(1)
Increase in other receivables			(50)
Decrease in trade and other payables			(26)
Cash generated from operations			639

9. Post balance sheet events

On 12 January 2015, Safestay plc signed a 50 year lease to rent a hostel property in Holland Park, West London. The lease payments are £660,000 per annum with an RPI increase every 5 years.

10. Business combinations

On 2 May 2014, Safestay plc acquired 100% of the partner's interest in the Safestay joint venture, which owns and operates the Safestay Elephant & Castle hostel. The joint venture was between Safeland plc and Moorfield Funds who owned 20% and 80% respectively. Moorfield Funds sold their interest for £6.242m. Safeland plc demerged their 20% interest in consideration of 3,617,246 Safestay shares.

Assets acquired and liabilities recognised at the date of acquisition were as follows:

	£'000	£'000	£'000
		Directors' adjustment	Directors' valuations
Non-current assets
Property, plant and equipment	12,200	-	12,200
Current assets
Stock	3	-	3
Trade and other receivables	117	-	117
Cash and cash equivalents	922	-	922
	1,042	-	1,042
Total assets	13,242	-	13,242
Current liabilities
Bank loans	250	-	250
Trade and other payables	645	-	645
	895	-	895
Non-current liabilities
Bank loans	4,159	137	4,296
Total liabilities	5,054	137	5,191
Net assets	8,188	(137)	8,051

Consideration transferred:
3,617,246 Safestay shares issued to Safeland plc			1,809
Cash paid to Moorfield fund			6,242
			8,051

The Directors' adjustment eliminates prepaid loan arrangement fees due to the related loan being repaid immediately following the acquisition.

11. 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 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.