Safestay : Interim results to 30th June 2020

The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR")

24 September 2020

Safestay plc

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

Interim Results

For the Six Months to 30 June 2020

Safestay (AIM: SSTY), the owner and operator of an international brand of contemporary hostels,

announces its unaudited interim results for the six months ended 30 June 2020

Trading Highlights

• Safestay operates 20 hostels with approximately 4,800 beds across 11 European and 4 UK cities
• In response to the COVID-19 pandemic, and in line with the hospitality industry globally, all our hostels closed on 1 April 2020 and a gradual reopening programme began from 26 May 2020
• As a result occupancy was 55% (based only on hostels while they were open)
• Total revenues decreased by 58% to £3.4 million (2018: £8.1 million)
• Recorded Adjusted EBITDA (post IFRS 16 adjustment) loss of £1.2 million (2019: £2.5 million profit)
• To offset the reduction in income, the Group reduced costs where practical, taking advantage of government support schemes and working with landlords to reduce rents
• In April the Group secured a £5 million overdraft facility with HSBC and as at 16 September 2020 the cash in bank was -£1 million

H2 2020 and beyond

• All hostels re-opened by 28 August, except for London Kensington Holland Park and Barcelona Gothic
• On 2 September, the Company received a £0.2 million government backed loan in Germany
• In July and August, the Company has traded at the higher end of the Board's forecast scenarios
• On 23 September, the Company agreed with HSBC in principle to replace the £5 million overdraft facility with a £5 million Coronavirus Business Interruption Loan Scheme (CBILS)

Larry Lipman, Chairman of Safestay, said:

"We made a good start to 2020, however, trading was materially impacted by the Covid-19 pandemic from March onwards. We responded quickly to protect our financial position and the safety of our guests and employees. As a result, the business is stable and it is encouraging to have now reopened nearly all our hostels. While it is still difficult to predict the pace of our recovery, we are re-engaging effectively with our customer base and we are confident that we will in time return our hostel portfolio to pre-Covid- 19 occupancy levels."

Safestay plc	Tel: [phone]
Larry Lipman
Liberum (Nomad & Joint Broker)	Tel: [phone]
Andrew Godber / Edward Thomas / Miquela Bezuidenhoudt
Novella	Tel: [phone]
Tim Robertson / Fergus Young
About Safestay

Safestay (AIM: SSTY) is the owner and operator of an international brand of contemporary hostels.

For more information visit our:

Website: www.safestay.com

Vox Markets page:https://www.voxmarkets.co.uk/company/SSTY/news/

Instagram page: www.instagram.com/safestayhostels/

Chairman's statement

Introduction

The trading results for the six months to 30 June 2020 reflect the challenges which Safestay and more generally the hospitality industry have had to face as a result of the Covid-19 pandemic. It is however pleasing to see that the Company had a strong start in January and February as an underlying reminder of the appeal of our portfolio before the pandemic took effect. I am also pleased that we were quick to implement adequate measures to protect our cash position during the lock down period and successfully executed our reopening strategy to ensure the safety of our guests and employees. We are still operating in a very uncertain environment, but we will work through these challenging times and emerge in a positive position in 2021. Since the half-year end, we have been seeing a gradual increase in occupancy across the hostels that have been open.

Financial review

Due to the closure of the hostels, the Group operated just 45% of its available bed stock for the first six months of 2020, and recorded a 58% decrease in revenues to £3.4 million (2019: £8.1 million) leading to an adjusted EBITDA (post IFRS 16 adjustment) loss of £1.2 million (2019: £2.5 million profit).

To mitigate the reduction in revenue, the Company negotiated rent reductions from landlords and applied for government support where it was available. Consequently, the Group benefited from £0.4 million of rent relief from March to June and total revenue includes £0.3 million of income received via government support schemes. In some countries, employees were paid directly by the government whilst being furloughed, which corresponded to approximately a further £0.3 million saving.

The Group recorded a loss before tax of £4.7 million (2019: loss before tax of £0.9 million) which includes £0.3 of exceptional costs in relation to the expansion projects completed in 2020. This led to a loss per share of 7.30p (2019: -1.40p per share).

In April 2020, the Company agreed a new £5 million overdraft facility from HSBC. Cash in bank as at 16 September 2020 was approximately -£1 million.

As at 30 June 2020, net asset value per share was 48.2p per share (2019: 41.8p per share) following the revaluation of the London Elephant & Castle property in September 2019 to £26.8 million, increasing from £16 million in 2017.

Operating review

Safestay currently operates 3,937 beds in 18 properties across 11 European and 4 UK cities, with another 900 beds under development in Paris and Venice where progress has been delayed due to the Covid-19 pandemic and both sites are now expected to open in 2022. While revenues decreased in the first 6 months of 2020, it is worth differentiating between the first 2 months of the year and the last 4 months when the business was impacted by the pandemic. In January and February, total revenue increased 32% versus the previous year, with an underlying like for like increase of 15%. Occupancy was 64%, up from 50% in 2019, for these first two months. In March, the level of bookings started to fall following the implementation of travel restrictions and by 1 April all hostels were closed.

The Group has capitalised on the recent renovations of the restaurants in Barcelona Passeig de Gracia and Edinburgh to increase the like for like F&B revenue by 22% in the first 2 months of the year. Thanks to the new hostels opened in 2019 and early 2020, this segment increased 46% during the same period. Following the renovation of the Bar in Lisbon in February 2020, and the addition of the Athens rooftop bar since January 2020, we hope that we can continue this trend when the business normalises.

In 2019 the Group decided to set aside an annual capex fund to improve as well as maintain the premium standards of the portfolio. Some of the works planned in 2020 were completed by the time we decided to pause the renovation program to protect our cash position in March 2020. These included the renovation of the Brussels property for £0.3 million which also included its conversion from a hotel into a 185 bed hostel, and the renovation of the Glasgow property acquired in October 2019, and its conversion into a 251 bed hostel. The renovation of the rooms in the Gothic hostel in Barcelona and the bar and showers in Lisbon, which both started in December 2019, were also completed in the first quarter of 2020. Other capex programs have been suspended for the time being.

Post period end, on average, in July 2020, 30% of the Group's bed stock was available and 16% of such bed stock was occupied. This increased respectively to 63% and 22% in August. We are encouraged that the occupancy levels gradually increased week on week as more hostels re-opened.

Acquisitions

The Group has added 414 beds in 3 hostels in 2020. The acquisition of the leasehold of the 132 bed hostel in Athens was completed in January for £1.3 million. Also in January, Safestay completed the £2.4 million acquisition of the 2 leasehold hostels in Warsaw (158 beds) and Bratislava (124 beds), both acquired from Dream Management Group Ltd. The 3 leases are capitalised in our balance sheet under IFRS 16 and have increased the total lease liability by £3.2 million.

Financing

On 13 January 2020, the Group completed the renewal of its debt facility with HSBC. The £17.9 million facility which was agreed for 5 years in April 2017 for an original amount of £18.4 million, was replaced with a new facility of £22.9 million for 5 years until 2025. The terms are similar to the previous facility, with interests of 2.45% + LIBOR and same covenants as before.

It was announced on 14 April 2020 that the Company had agreed a new £5 million overdraft facility, also from HSBC, which together with the Company's cash reserves, would satisfy the Company's working capital cash requirements during and after the lock down period. At the same time, the covenants in the Company's £22.9 million debt facility have been waived until 31 December 2020.

On 23 September 2020, the Company agreed with HSBC in principle to amend the covenant test for the period until 30 September 2021 inclusive. The Debt Service Cover Ratio and the Interest Cover Ratio were both replaced with a commitment from the Company to achieve a minimum level of adjusted EBITDA for each quarter from October 2020 to September 2021.

On 23 September 2020, the Company agreed with HSBC in principle to replace the existing £5 million overdraft facility with a £5 million Coronavirus Business Interruption Loan Scheme (CBILS). The loan has a

6 year maturity. It is interest free in the first year and 3.9% from the second year.

On 23 June, the Company received a £0.3 million government backed loan in Austria.

As disclosed in the trading update released on 24 August 202, the Company has produced forecasts under two alternative indicative scenarios, a base case and a low case. The Company has sufficient access to capital to support the business under its base case forecast scenario until March 2021 by which time this scenario predicts the business will be back to breakeven. That said, this is an unpredictable period and the Company is evaluating additional funding options to address the funding shortfall which would occur by 31 January 2021 under the assumptions contained in its low case forecast scenario. The Group owns the freeholds of the hostels in Glasgow, Pisa and York, which could therefore be disposed of, either in the form of a sale and lease back transaction or a straight disposal. The Group might also contemplate the early termination of the leases which are anticipated to generate losses in the next months, subject to an agreement being reached with the relevant landlords. The Group could also temporarily close some hostels during the winter if it is anticipated that the income for these hostels does not cover the incremental costs of opening the hostels during this period. The Board is considering a range of options in relation to the business, including raising equity, but the Board is mindful of giving all shareholders the opportunity to participate in any such equity raise.

Outlook

As at today, all properties have re-opened, with the exception of the London Kensington Holland Park hostel and Barcelona Gothic. While occupancy levels are still relatively low, the trend is upwards, and we have the capital in place to support the business into next year under our most conservative forecast. We are mindful of the need to keep flexible and adapt to changing market conditions as they arise. However, in the absence of any significant changes the underlying trend across our portfolio is positive based currently on just domestic guests, and hopefully we can soon welcome foreign travelers back to our hostels.

Larry Lipman

Chairman

24 September 2020

Condensed consolidated statement of comprehensive income

		Unaudited	Unaudited	Audited
		6 months	6 months	Year to 31
		to 30 June	to 30 June	December
		2020	2019	2019
	Note	£000	£000	£000
Revenue	2	3,412	8,083	18,379
Cost of sales		(572)	(1,223)	(2,875)
Gross profit		2,840	6,860	15,504
Administrative expenses		(6,104)	(5,972)	(12,996)
Operating profit / (loss) before exceptional		(3,264)	888	2,508
Exceptional expenses		(136)	(336)	(585)
Operating profit / (loss) after exceptional	2	(3,400)	552	1,923
Finance costs		(1,327)	(1,456)	(2,558)
Loss before tax		(4,727)	(904)	(635)
Tax		(66)	-	(325)
Total comprehensive loss for the period		(4,793)	(904)	(960)
attributable to owners of the parent company

Condensed consolidated statement of financial position

Note

Non-current assets

Property, plant and equipment

Intangible assets

Goodwill

Total non-current assets

Current assets

Stock

Trade and other receivables

Derivative financial instruments

Cash and cash equivalents

Total current assets

Total assets

Current liabilities

Borrowings

Finance lease obligations3 Trade and other payables

Total current liabilities

Non-current liabilities

Borrowings

Finance lease obligations3 Other payables

Deferred tax

Trade and other payables due in more than one year

Total non-current liabilities

Total liabilities

Net assets

Equity

Share capital

Share premium account

Other components of equity

Retained earnings

Total equity attributable to owners of the parent company

Unaudited	Unaudited	Audited
		31
30 June	30 June	December
2020	2019	2019
£000	£000	£000
89,963	66,512	87,366
1,026	1,244	1,084
15,614	11,378	12,603
106,603	79,134	101,053
64	44	85
1,185	1,057	1,408
-	-	-
(11)	8,305	2,954
1,238	9,406	4,447
107,841	88,540	105,500
(203)	280	279
1,943	2,350	1,648
3,324	3,178	2,602
5,064	5,808	4,529
22,814	17,545	17,399
48,492	37,313	46,483
-	-	-
71	105	105
217	720	767
71,594	55,683	64,754
76,658	61,491	69,283
31,183	27,049	36,217
647	647	647
23,904	23,904	23,904
15,220	6,238	15,461
(8,588)	(3,740)	(3,795)
31,183	27,049	36,217

Condensed consolidated statement of changes in equity

For the six months to 30 June 2020 (unaudited)

		Share	Share	Other	Retained	Total
		capital	premium	Components of	earnings	equity
			account	Equity
		£000	£000	£000	£000	£000
Balance at 1 January 2020
647	23,904	15,461	(3,795)	36,217
Comprehensive income
Loss for the period	-	-	-	(4,793)	(4,793)
Movement in translation	-	-	(258)	-	(258)
reserve
Total comprehensive income	-	-	(258)	(4,793)	(5,051)
Transactions with owners
Share-based payment charge for	-	-	17	-	17
the period
Balance at 30 June 2020
647	23,904	15,220	(8,588)	31,183

For the six months to 30 June 2019 (unaudited)

Balance at 1 January 2019

Comprehensive income Loss for the period

Total comprehensive income

Transactions with owners Share-basedpayment charge for the period

Balance at 30 June 2019

Share	Share	Other	Retained	Total
capital	premium	Components of	earnings	equity
	account	Equity
£000	£000	£000	£000	£000
647	23,904	6,221	(2,836)	27,936
-	-	-	(904)	(904)
-	-	-	(904)	(904)
-	-	17	-	17
647	23,904	6,238	(3,740)	27,049

Condensed consolidated statement of changes in equity For the year ended 31 December 2019 (audited)

Balance at 1 January 2019

Comprehensive income

Loss for the year

Movement in translation reserve

Total comprehensive loss

Transactions with owners

Issue of shares

Share-based payment charge for the year

Revaluation reserve

Balance at 31 December 2019

Share	Share	Other	Retained	Total
Capital	premium	Components	earnings	equity
	account	of Equity
£'000	£'000	£'000	£'000	£'000
647	23,904	6,221	(2,836)	27,936
-	-	-	(960)	(960)
		(47)		(47)
-	-	(47)	(960)	(1,007)
-	-	-		9,705
-	-	34	-	34
-	-	9,253	-	9,253
647	23,904	15,461	(3,795)	36,217

Condensed consolidated statement of cash flows		Unaudited	Unaudited	Audited
	Note	6 months	6 months	Year to 31
		to 30 June	to 30 June	December
		2020	2019	2019
		£000	£000	£000
Operating activities	5	(787)	3,538	5,445
Cash generated from operations
Income tax paid		(134)	-	(217)
Net cash generated from operating activities		(921)	3,538	5,228
Investing activities		(755)	(2,774)	(1,413)
Purchase of property, plant and equipment
Purchase of intangible assets		(29)	(2)	(24)
Acquisition of business		(3,652)	(872)	(7,122)
Payment of deferred consideration		(498)	-	(395)
Net cash outflow from investing activities		(4,934)	(3,648)	(8,954)
Cash flows from financing activities		5,348	-	1,180
Proceeds from borrowings
Repayment of borrowings		-	(851)	(528)
Proceeds from issue of share capital		-	17	-
Fees related to borrowings		(255)	-	-
Amounts paid under finance leases		(1,857)	(311)	(3,242)
Interest paid		(346)	(299)	(589)
		2,890	(1,444)	(3,179)

Cash and cash equivalents at beginning of period

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at end of period

2,954 9,859 (6,905)

(2,965) (1,554) 9,859

(11) 8,305 2,954

1. ACCOUNTING POLICIES FOR THE GROUP AND COMPANY FINANCIAL STATEMENTS

Safestay plc is listed on the AIM market of the London Stock Exchange and is incorporated and domiciled in the UK.

The Group and Company interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS regulation.

These condensed interim financial statements have not been audited, do not include all the information required for full annual financial statements and should be read in conjunction with the Group's consolidated annual financial statements for the year ended 31 December 2019.

The financial statements have been presented in sterling, prepared under the historical cost convention, except for the revaluation of freehold properties and certain financial instruments.

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 30 June 2020.

New standards and interpretations effective in the year

The following standards were effective from 1 January 2019:

• IFRS 3: Business combination - amendment effective 1 January 2020

IFRS 3 establishes different accounting requirements for a business combination as opposed to the acquisition of an asset or a group of assets that does not constitute a business. Business combinations are accounted for by applying the acquisition method, which, among other things, may give rise to goodwill. In contrast, when accounting for asset acquisitions, the acquirer allocates the transaction price to the individual identifiable assets acquired and liabilities assumed on the basis of their relative fair values and no goodwill is recognised. Therefore, whether or not an acquired set of activities and assets is a business, is a key consideration in determining how the transaction should be accounted for. The amendments made to the IFRS 3 are set out to clarify the definition of a business. The amendment also adds an optional concentration test that allows a simplified assessment of whether an acquired set of activities and assets is not a business.

Acquisitions made in the 6 months to June 2020 have been treated as business combinations under the amended IFRS 3 standard (Note 4)

2. SEGMENTAL ANALYSIS

	Unaudited	Unaudited	Audited
	6 months	6 months	Year to 31
	to 30 June	to 30 June	December
	2020	2019	2019
	£000	£000	£000
Hostel accommodation	2,400	6,571	15,115
Food and Beverages sales	404	1,128	2,492
Other income	608	384	772
Total Income	3,412	8,083	18,379

UNAUDITED 6 MONTHS TO 30 JUNE 2020	UK	Spain	Rest of	Shared	TOTAL
				Europe	services
		£'000	£'000	£'000	£'000	£'000
Revenue	1,842	728	842	-	3,412
Profit/(Loss) before tax	(571)	(811)	(1,613)	(1,732)	(4,727)
Finance costs	480	244	213	390	1,327
Operating Profit after exceptional expenses	(91)	(567)	(1,400)	(1,342)	(3,400)
Depreciation & Amortisation	734	692	620	26	2,072
Exceptional & Share based payment expense	-	-	-	136	136
Adjusted EBITDA	643	125	(780)	(1,180)	(1,192)
Rental charges (IFRS 16)	-	(757)	(604)	-	(1,361)
Adjusted EBITDA (pre-IFRS 16)		643	(632)	(1,384)	(1,180)	(2,553)

AUDITED YEAR TO 31 DECEMBER 2019	UK	Spain	Rest of	Shared	TOTAL
				Europe	services
		£'000	£'000	£'000	£'000	£'000
Revenue	9,401	4,909	4,069	-	18,379
Profit/(Loss) before tax	3,347	(387)	498	(4,093)	(635)
Finance costs	338	681	308	1,231	2,558
Operating Profit after exceptional expenses	3,685	294	806	(2,862)	1,923
Depreciation & Amortisation	1,265	1,555	692	-	3,512
Exceptional & Share based payment expense	-	-	-	619	619
Adjusted EBITDA	4,950	1,849	1,498	(2,243)	6,054
Rental charges (IFRS 16)	-	(1,504)	(744)	-	(2,248)
Adjusted EBITDA (pre-IFRS 16)		4,950	345	754	(2,243)	3,806

3. LEASES

Lease liabilities are presented in the statement of financial position as follows:

	Unaudited	Unaudited	Audited
			31
	30 June	30 June	December
	2020	2019	2019
Current	£000	£000	£000
1,943	2,350	1,648
Non-current	48,492	37,313	46,483
Total	50,435	39,663	48,131

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 balance sheet as an asset and a lease liability. With the adoption of IFRS16, operating leases under IAS17 are now categorised as a right- of-use asset. The Group continues to classify its finance leases as a lease liability and a leasehold land and buildings asset. The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment.

For leases classified as right-of-use assets, 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 extend the lease for a further term. The Group is prohibited from selling or pledging the underlying leased assets as security. The Group must keep those properties in a good state of repair and return the properties in their original 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 the type of right-of-use asset recognised on the balance sheet:

					No of	No of leases	No of
	No of right-	Range		No of leases	with	leases
	Average	leases
	of-use	of	with	variable	with
Right-of-use asset	remaining	with
assets	remaini	extension	payments	termina
	lease term	options to
	leased	ng term	options	linked to an	tion
		purchase
					index	options
Hostel buildings -		7 - 20
Operating leases	15	years	13 years	8	0	9	0
Hostel buildings -		50 - 150
Long leases	3	years	113 years	0	2	3	0

The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 30 June 2020 were as follows:

			Minimum lease payments due
	Within 1 year	1 - 2 years	2 - 3 years	3 - 4 years	4 - 5 years	After 5 years	Total
Lease payments	3,789	3,797	3,798	3,798	3,757	65,069	84,009
Finance charges	(1,846)	(1,780)	(1,712)	(1,643)	(1,569)	(25,024)	33,573
Net present values	1,943	2,017	2,086	2,156	2,188	40,046	50,435

The group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets.

4. ACQUISITIONS

The Group added 3 hostels. Athens was completed in January for £1.3 million. Also in January, Safestay acquired 2 leasehold hostels from Dream Management Group Ltd in Warsaw and Bratislava for £2.4 million. The 3 leases are capitalised in our balance sheet under IFRS 16 and have increased the total lease liability by £3.2 million.

The provisional fair values of assets and liabilities acquired:

Number of sites purchased

Provisional fair value Property, plant & equipment Right of use assets Intangible assets

Current assets Cash

Debt

Deferred revenue, trade & Other payables

Lease Liabilities Deferred tax Goodwill

Consideration

Net cash paid on acquisition Deferred payments

Total Consideration

			Unaudited	Unaudited
Athens	Bratislava	Warsaw	30 June	30 June
			2020	2019
			3	1
£'000	£'000	£'000	£'000	£'000
88	20	521	629	2,130
1,978	514	731	3,223	-
-	-	-	-	-
1	1	51	53	-
-	29	63	92	85
-	-	-	-	-
(9)	(2)	(67)	(78)	(33)
1,978	514	731	3,223
-	-	-	-	-
1,224	1,126	606	2,956	790
1,304	1,174	1,174	3,652	2,972
-	-	-	-	-
1,304	1,174	1,174	3,652	2,972

5. NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

		Unaudited	Unaudited	Audited
		6 months	6 months	Year to 31
		to 30 June	to 30 June	December
		2020	2019	2019
		£000	£000	£000
Loss before tax	(4,727)	(904)	(635)
Adjustments for:	2,072	1,614	3,512
Depreciation of property, plant and equipment and
amortisation of intangible assets	1,327	1,456	2,440
Finance costs
Loss on disposal of fixed assets	-	-	-
Share-based payments	17	17	34
Exchange movements	(303)	(67)	(2)
Changes in working capital	23	-	(39)
Decrease/(Increase) in inventory
(Increase)/Decrease in trade receivables	222	144	(170)
Increase/(Decrease) in trade and other payables	582	1,278	305
Cash generated from operating activities		(787)	3,538	5,445