Notes to the Consolidated Financial Information

31 December 2021   

 

1.       Accounting policies for the group FINANCIAL Information

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

The Group  financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Company Act 2006.

The 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 2021.

The financial information set out in this Preliminary Announcement does not constitute the Group's statutory financial
statements for the years ended 31 December 2021 or 2020. The financial information has been extracted from the

 Group's statutory financial statements for the years ended 31 December 2021 and 2020. The auditors have reported

 on the 2021 financial statements; their report was unqualified, did not include references to any matters to which the
auditors drew attention by way of emphasis and did not contain a statement under Section 498(2) or (3) of the

 Companies Act 2006.

The former auditors have reported on the 2020 financial statements, their report was qualified for a limitation of

 scope relating to a reduction of reserves and drew attention by way of emphasis to a material uncertainty related to

 going concern and contained a statement under s498(2) and 498(3). 

The statutory accounts for the year ended 31 December 2021 will be filed with the Registrar of Companies following

 the Company's Annual General Meeting. The statutory accounts for the year ended 31 December 2020 have been

 filed with the Registrar of Companies. New standards and interpretations effective in the year

The Group has adopted the new accounting pronouncements which have become effective this year, and are as follows:

·    IFRS16

The Group has adopted the amendment to IFRS 16 which provides lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification.

Applying the practical expedient, the Group has recognised the rent concessions as a variable lease payment in accordance with IFRS 16. There is a corresponding adjustment to the lease liability, derecognising the part of the lease liability that has received the concession, with the corresponding adjustment to operating expenses.

Where amounts have been deferred they do not extinguish the lessee's liability or substantially change the consideration of the lease. These have been accounted for as an increase in the accrual for the rent outstanding.

·    IFRS 3: Business combination - amendment effective 1 January 2021

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 based on their relative fair values and no goodwill is recognised. Therefore, whether 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.

Going concern

The Group is reporting an adjusted EBITDA loss of £994,000 and net current assets of £1,111,000 in 2021 when the business was again severely impacted by the pandemic and the hostels on average have been open for less than 50% of the year. Travel restrictions and local lockdowns continued to impact in some of the countries where the Group operates in Europe into 2022.

However, the Group's strategy to develop and expand the premium hostel offering provided by the Group within the UK and through its European acquisitions had proved successful until February 2020 and despite the Omicron pandemic in December 2021 through to February 2022, the Group has started to generate cash from its operation in the first quarter in 2022 when the travel restrictions were lifted. The travel industry as a whole has been impacted and continues to recover through 2022.

The directors have further reviewed the measures implemented by management to reduce the cash burn of the Group since the start of the outbreak. The monthly fixed cost base was reduced from £0.9 million to £0.6 million during the first lockdown in the second quarter of 2020, and this continued during the second wave of lockdowns from November 2020. Costs were allowed to come back into the business on a measured basis as the business re-opened in 2021, mindful of the potential for future travel restrictions and lockdown, which has helped navigate the final Omicron variant and associated restrictions. These reductions and the cost consciousness, are the results of the combined impact of the following actions implemented by management during this period:

·    The Group has taken advantage of governmental support schemes in all jurisdictions where they were available, including the job retention scheme in the UK and similar schemes in the other countries where Safestay operates hostels.

·    Variable operational costs in the hostels were mechanically reduced to zero with the absence of revenue, as necessary. The fixed operational costs, exclusive of insurance, rent and property taxes, were reduced to £0.15 million during the first lockdown and this continued until the hostels reopened. The Group maintains a minimum level of spend in safety, utilities and maintenance to keep the properties in a good condition whilst they are closed.

·    The Group benefited from business rates reliefs for the 5 hostels operated in the UK since April 2020 through to end of June 2021 and continued with a 66% relief until March 2022. It is also benefiting from the 50% relief in the year to 31 March 2023.

·    The Group continued to liaise with landlords to obtain a £1.3 million rent reduction for 2021, with deals being extended in all of the hostels apart from Berlin, Bratislava, Elephant & Castle, Madrid and Vienna. As highlighted in previous reports, in addition, the landlords with rent deferments have agreed for the majority to be after 2022.

·    Operating costs in the head office were reduced by 40% to adjust the team and spend to this unprecedented context. This includes a 40% reduction in salaries for Directors and senior management in exchange for share options since October 2020 through to July 2021.

The Group received £16.0 million proceeds from the disposal of the Edinburgh hostel which completed on 30 June 2021. Following completion, the £1 million overdraft facility was removed, and £10.2 million of HSBC debt was repaid.

Since the start of the Pandemic, management has continuously updated and adjusted the cash forecast for the next months. The most recent forecast prepared in June 2022 assumes as a prudent base case that the hostels revenue will gradually climb through the summer months.  Like for like sales for the first 5 months of the year are 80% of pre covid levels. This continues to reflect the expectation of a slow recovery of the tourism market in general outlined in last year's annual report.

The sale of Edinburgh generated enough liquidity, after the £10.2m debt repayment, for the business to mitigate the enforced downturn of revenues due to the Pandemic restrictions, and through to time when positive cash inflows are being generated.

The covenants of the debt facility were waived in June 2020, being replaced with adjusted EBITDA targets reflecting revised performances of the hostels since the first lockdown in April 2020. These also apply in June 2022 and have been met. These will then revert to the adjusted and waived covenants that have been agreed until December 2022.

Based on the latest forecast occupancy rates and average spend,  the directors have assessed the cash flow of the business against the Group's commitments and obligations and conclude  that there are no material uncertainties in terms of the ability to continue for the foreseeable future. For this reason, they continue to adopt the going-concern basis in preparing the Group's financial statements.

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.

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 is recognised when provided.

Income from the rent of student accommodation is recognised on a straight-line basis over the academic year to which the rent relates. 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.

Government Grants

Monetary resources transferred to the Group by government, government agencies or similar bodies are recognised at fair value, when the Group is certain that the grant will be received. Grants will be recognised in the profit and loss account on a systematic basis, over the same period during which the expenses, for which the grant was intended to compensate, are recognised.

Grants relating to employee costs are disclosed in Staff Costs, note 10 of the accounts. Other grants are disclosed in Exceptional Items shown in note 5 of the accounts.

Exceptional Items

The Group separately discloses on the face of the Income Statement items of income or expense which nature or amount would, without separate disclosure, distort the reporting of the underlying business.

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 using 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 Group's functional currency.

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are generally recognised in profit and loss.

Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss within finance costs. All other exchange gains and losses are presented in the statement of profit or loss within administrative expenses.

Non-monetary items that are measured at fair-value in a foreign currency are translated using the exchange rates at the date when fair-value was determined. Translation differences on assets or liabilities carried at fair-value are reported as part of the fair-value gain or loss.

The results and financial position of foreign operations that have a functional currency different to the presentation currency are translated into the presentation currency as follows:

·     assets and liabilities for each statement of financial position are translated using the closing rate at the date of that statement of financial position.

·     income and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates.

·     All resulting exchange differences are recognised in other comprehensive income.

 

Goodwill and fair-value adjustments arising on the acquisition of a foreign operation are treated as the assets and liabilities of the foreign operation and translated at the closing rate.

Business combinations

Acquisitions of subsidiaries and businesses are accounted using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to former owners of the acquire and the equity interest issued by the Group in exchange for control of the acquire.  Acquisition costs are expensed as incurred.

At the acquisition date, the identifiable assets acquired, and liabilities assumed are recognised at their fair value at the acquisition date.

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 other 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                                        50 years or term of lease if shorter

Land is not depreciated.

 

Leasehold land and buildings relate to Property from financing transactions related to Safestay Elephant and Castle and Safestay Edinburgh Hostel. In 2017, Safestay completed financing transactions on these two properties, raising gross cash proceeds of £12.6m. The sale 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 contracts took the legal form of the sale and leasebacks. However, the economic substance of the original transactions in 2017 meant that both leases have 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.

Stock

Stock 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 balance sheet 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 permits the use of 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.

Property from financing transactions included the borrowings for Safestay Elephant and Castle and Safestay Edinburgh Hostel. In 2017, Safestay completed financing transactions on these two properties, raising gross cash proceeds of £12.6m. The sale 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 contracts took the legal form of the sale and leasebacks. However, the economic substance of the original transactions in 2017 meant that both leases have historically been treated as owned by Safestay. Therefore, the transactions are accounted for as financial liabilities.

·    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 balance sheet as a right-of-use asset and a lease liability. Leases of property generally have a lease term ranging from 5 years to 19 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 balance sheet. 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 balance sheet 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.

·    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

·    Share premium account

Share premium represents amounts subscribed for share capital in excess of nominal value less the related costs of share issues.

·    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 balance sheet. 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.

·    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.

Estimates

·    The fair-value of the assets and liabilities recognised on the acquisition of an operation or entity is determined using both external valuations and directors' valuations. Details of the fair values are set out in the note 24.

·    Assessment of impairment of goodwill requires estimation of future cash flows, which are uncertain, discounted to present value which also requires estimation by management. The key assumptions used to calculate the value in use (VIU) to test the goodwill for each cash generating units (CGUs) are detailed in note 12. A Pre-tax discount rate of 9.7% (2020: 11.1%) 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.

·    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 and Edinburgh Hostel). 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 2021.

 

·    The Group has incurred tax losses, and therefore a material deferred tax asset has been recognised as these can be carried forward indefinitely and offset against probable future taxable profits after the market recovers in 2022 and the Group is expected to generate net profits from 2023 under his forecast model.

2.         Segmental analysis

An analysis of the Group's revenue from external customers for each major product and service category (excluding revenue from discontinued operations) is as follows:

	2021 £'000	2020 £'000
Hostel accommodation	4,901	3,570
Food and Beverages sales	725	744
Other income	550	120
Rental income	247	397
Total Income	6,423	4,831
Like-for-like income	5,810	3,375

 

Like-for-like income relates to all turnover less turnover associated with the discontinued operating segments (i.e. Edinburgh and Barcelona Sea hostels).

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 group.

Management considers the like-for-like income only for acquisitions and continuing operations that have been operational 12 consecutive months in the prior year. Due to the ongoing impact of Covid-19, on average our hostels have been open for just 44% of 2021. Different hostels were open for different periods of time throughout the year based on the individual circumstances, responses and policies to the ongoing coronavirus pandemic and as such the period of results is not comparable to the prior period and therefore no changes to geographical areas have been identified.

 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 and adjusted EBITDA, which is the operating profit after excluding non-cash items such as depreciation and amortisation, and removing non-recurring expenditure which would otherwise distort the cash generating nature of the segment.

Pre-IFRS 16 EBITDA was calculated in the prior period segmental analysis such that the accounts can be understood on a comparable basis and included for information purposes. As this is the second year since transition, pre-IFRS 16 adjusted EBIDTA is not considered in the current year.

2021	UK £'000	Spain £'000	Europe £'000	Shared services £'000	Total £'000
Revenue	2,422	1,363	2,638	0	6,423
Profit/(loss) before tax	6,689	(2,279)	(1,169)	(2,549)	692
Add back: Finance costs	271	618	539	1,273	2,701
Add back: Depreciation & Amortisation	1,028	1,076	1,274	395	3,773
EBITDA	7,988	(585)	644	(881)	7,166
Exceptional & Share based payment expense	(7,511)	554	-	72	(6,885)
Rent concessions	(595)	(227)	(453)	-	(1,275)
Adjusted EBITDA	(118)	(258)	191	(809)	(994)
Total assets	34,975	19,144	25,024	14,335	93,478
Total liabilities	(10,731)	(13,432)	(12,461)	(26,721)	(63,345)

 

 

2020 As restated	UK £'000	Spain £'000	Europe £'000	Shared services £'000	Total £'000
Revenue	2,455	835	1,541	-	4,831
Profit/(loss) before tax	(3,156)	(2,986)	(3,280)	(504)	(9,926)
Finance costs	963	460	541	786	2,750
Depreciation & Amortisation	1,465	2,309	1,916	-	5,690
EBITDA	(728)	(217)	(823)	282	(1,486)
Exceptional & Share based payment expense	-	-	-	541	541
Rent concessions	(495)	(207)	(202)	-	(904)
Adjusted EBITDA	(1,223)	(424)	(1,025)	823	(1,849)
Total assets	57,743	18,857	23,259	10,870	110,729
Total liabilities	(24,550)	(13,207)	(18,044)	(28,077)	(83,878)

 

 

 

The Group's non-current assets (other than financial instruments, investments accounted for using the equity method, deferred tax assets and post-employment benefit assets) are located into the following geographic regions:

 

	2021 £'000	2020 £'000
UK	35,862	59,478
Spain	18,102	21,976
Rest of Europe	23,164	24,088
Shared services	10,329	842
Total	87,457	106,384

 

Non-current assets are allocated based on their physical location.

 

Revenues from external customers in the Group's domicile, United Kingdom, as well as its major markets, Spain and the Rest of Europe, have been identified on the basis of the customer's geographical location and are disclosed as follows:

 

	2021 £'000	2020 £'000
UK	2,422	2,455
Spain	1,363	835
Rest of Europe	2,638	1,541
Total	6,423	4,831

 

3.         COST OF SALES

	2021 £'000	2020 £'000
Food and drinks	341	311
Direct room supplies and sales commissions	951	581
Total	1,292	892

 

 

4.         DISCONTINUED OPERATIONS

 

The Group completed on the disposal of two hostels in 2021. The Barcelona Sea hostel was sold in February 2021 for a loss of £554k and the Edinburgh hostel was sold in June 2021 for a profit of £7,511k. The Barcelona Sea hostel was in the operating segment of Spain and the Edinburgh hostel was in the operating segment of UK.

The income statement for the year ended 31 December 2020 has been presentational restated to show the comparative performance of the discontinued hostels.

 

5.         administrative expenses

 

	2021   £'000	2020 As restated £'000
Staff costs (see note 10)	3,331	3,823
Legal and professional fees	614	521
Property costs	482	391
Depreciation and amortisation	3,773	4,199
Impairment of goodwill	-	1,491
Share option expenses	72	279
Other expenses	2,160	598
	10,432	11,302

 

 

	2021 £'000	2020 £'000
Exceptional items - other operating income
Grant income	462	448
Profit on sale of Edinburgh Hostel	7,511	-
Rent concessions	1,275	-
	9,248	448
Exceptional items - costs
Acquisition and Development costs	-	74
Property costs	-	4
Legal and other	-	82
Refinance related fees write off	-	101
Loss on sale of Barcelona Sea Hostel	554	-
	554	261

 

Exceptional items comprise of expenses and income that, without separate disclosure, would distort the reporting of the underlying business.

The group received £448,000 in grant income from national, regional, and local governmental organisations in 2020 to support the business. This does not include grants relating to employee costs which are disclosed in Staff Costs (Note 10).

In the year 2021 property with a net book value of £14.03m (2020: Nil) was disposed of in the year. The total consideration received from this disposal was £16.66m (2020: £Nil) with the profit on disposal of £7.96m (2020: £Nil). The other main component of the profit is the release of the lease liability of £6.56 m, less the cost of investment of £0.4m, the Edinburgh sublease £0.5m and the Barcelona SEA lease intangible of £0.2m.

 

6.         FINANCE COSTS

	2021 £'000	2020 £'000
Interest on bank overdrafts and loans	695	625
Amortised loan arrangement fees	68	92
Other interest costs	-	75
Interest expense for lease arrangements (note 17)	1,741	1,558
Property financing costs	197	343
Unwinding of discount on deferred consideration	-	57
	2,701	2,750

 

 

Included within borrowings is £5.0 million CBILS (Coronavirus Business Interruption Loan Scheme) obtained via HSBC. The government provide lenders with a guarantee on each loan. This was secured for 6 years on 16^th December 2020, which is interest free for the first year increasing to 3.99% + base rate from year 2.

 

7.         LOSS FOR THE FINANCIAL YEAR

	2021 £'000	2020 £'000
Loss for the financial period is arrived at after charging:
Depreciation on owned assets	1,434	1,541
Depreciation of assets under lease liabilities	2,243	2,459
Amortisation of intangible assets	96	199
Impairment of goodwill	-	1,491
CLA Evelyn Partners Limited Auditor's remuneration for audit services	119	-
Grant Thornton UK LLP Auditor's remuneration for audit services	-	92
Fees payable to Grant Thornton UK LLP as auditors and its associates for other services	-	5

 

 

Amounts payable in respect of both audit and non-audit services are set out below:

 

 

	2021 £'000	2020 £'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	90	-
CLA Evelyn Partners Limited audit of the subsidiaries' annual accounts	29	-
Grant Thornton UK LLP audit of the Group and Company's annual accounts	-	70
Grant Thornton UK LLP audit of the subsidiaries' annual accounts	-	22
	119	92
Fees payable to the Company's auditors and its associates for other services:	2021                                    £'000	2020 £'000
Grant Thornton UK LLP Tax advice services	-	5
	-	5

 

 

The audit fees disclosed in 2021 represent the fees payable for the audit for the period ended 31 December 2021 and the non-audit fees are those incurred in the period.

 

 

8.         Tax

In the Spring Budget 2020, the UK Government announced that from 1 April 2020 the corporation tax rate would remain at 19% (rather than reducing to 17%, as previously enacted). This new law was substantively enacted on 17 March 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.

 

	2021   £'000	2020 As Restated £'000
Current tax
Corporation tax on profits for the year	103	-
Adjustments for corporation tax on prior periods	(123)	(271)
Other local taxes	116	-
Total current tax	96	(271)
Deferred tax	724	(1,682)
Adjustments for deferred tax in prior periods	559	(450)
Effect of increased tax rate on opening balance	(88)
Total tax charge	1,291	(2,403)

 

The charge for the year can be reconciled to the loss per the consolidated income statement as follows:

 

	2021   £'000	2020 As Restated £'000
Profit/(loss) before tax	692	(9,926)
Tax at the standard UK corporation tax rate of 19% (2020: 19%)	131	(1,886)
Fixed asset differences	54	-
Adjustment for tax rate differences in foreign jurisdictions	(154)	(167)
Adjustments for tax on prior periods	(122)	(750)
Other tax adjustments, reliefs and transfers	193	-
Remeasurement of deferred tax for changes in tax rates	(148)	-
Deferred tax not recognised	1,155	-
Factors affecting charge for the period
Non-deductible items and other timing differences	(1,300)	344
Chargeable gains/(losses)	1,482	-
Depreciation in excess of capital allowances	-	56
Group tax charge	1,291	(2,403)

 

The Group has a deferred tax liability of £3.326m as disclosed in note 18 related to the potential future gain on property revaluations.

 

Included within current tax are adjustments for corporation tax on prior periods of £122k and relates to Group losses.

 

9.         Profit/(LOSS) per share

 

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

	2021     £'000	2020 As restated £'000
Profit/(Loss) for the period attributable to equity holders of the Company	(599)	(7,523)

 

	2021	2020
Weighted average number of ordinary shares (000s) for the purposes of basic loss earnings per share	64,679	64,679
Effect of dilutive potential ordinary shares (000s)	4,537	4,250
Weighted average number of ordinary shares (000s) for the purposes of diluted profit/(loss) per share	69,216	68,929
Basic profit/(loss) per share	(0.93p)	(11.63p)

 

The total number of shares in issue as at 31 December 2021 was 64,679,014.

 

There is no difference between the diluted loss per share and the basic loss per share presented. Due to the loss incurred in the year, the effect of the share options in issue is anti-dilutive.

10.       STAFF COSTS

 

The average monthly number of employees (including directors) during the period was:

 

	2021 Number	2020 Number
Hostel operation	176	197
Directors	5	5
	181	202

 

The costs incurred in respect of employees (including directors) were:

	2021 £'000	2020 £'000
Wages and salaries	2,925	3,288
Social security costs	380	499
Pension costs	26	36
Total staff costs	3,331	3,823

Government grants claimed by the Group under coronavirus job retention schemes across the Group for 2021 total £240k (2020: £566k).

 

The remuneration of the directors, who are the key management personnel of the Group, is set out below.

	2021 £'000	2020 £'000
Short term employee benefits	332	444
Pension	6	16
Share based payment charges	72	257
	410	717

 

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 £'000	Right of use assets buildings £'000	Leasehold buildings £'000	Leasehold improvements £'000	Fixtures, fittings and equipment £'000	Total £'000
Cost or valuation
At 1 January 2020	7,998	37,512	41,126	4,597	3,225	94,458
Additions	362	1,326	-	106	517	2,311
Acquired in business combination	-	3,210	-	711	175	4,096
Exchange movements	51	-	-	(119)	30	(38)
At 31 December 2020	8,411	42,048	41,126	5,295	3,947	100,827
Transfers	73	-	-	(73)	-	-
Additions	32	-	-	-	275	307
Disposals	(17)	(1,610)	(13,402)	(201)	(576)	(15,806)
Revaluations	1,072	-	3,967	-	-	5,039
Derecognition of sub-leased asset	-	(640)	-	-	-	(640)
IFRS 16 lease modification	-	(2,891)	-	-	-	(2,891)
Exchange movements	(87)	-	-	(54)	(92)	(233)
At 31 December 2021	9,484	36,907	31,691	4,967	3,554	86,603
Depreciation
At 1 January 2020	144	2,425	1,616	695	2,212	7,092
Charge for the year	141	2,459	804	102	494	4,000
At 31 December 2020	285	4,884	2,420	797	2,706	11,092
Transfers	1	-	-	(1)	-	-
Charge for the year	154	2,243	671	254	355	3,677
On disposals	(1)	(261)	(1,094)	(14)	(405)	(1,775)
At 31 December 2021	439	6,866	1,997	1,036	2,656	12,994
Net book value:
At 31 December 2021	9,045	30,041	29,694	3,931	898	73,609
At 31 December 2020	8,126	37,164	38,706	4,498	1,241	89,735

 

Freehold properties

The Freehold values relates to the 3 following hostels:

·    The £3.5 million value of the freehold in York is based on the external valuations as at 31 December 2021 prepared by Cushman and Wakefield. The historic cost carrying value is £2.4 million which is the acquisition price in 2014.

·    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 2021 prepared by Cushman and Wakefield.

·    The hostel in Pisa was acquired in June 2019 for £3 million, of which £2.1 million for the freehold. The £3.5 million value of the freehold in Pisa is based on the external valuations as at 31 December 2021 prepared by Cushman and Wakefield.

Covid-19 rent concessions

The International Accounting Standards Board (IASB) has published 'Covid-19-Related Rent Concessions (Amendment to IFRS 16)' amending the standard to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification.

The £37.5 million right of use assets all relate to properties operated by the Group as hostels.

Right of use assets as at 31 December 2020	42,048
Lease disposal (Barcelona Sea)	(1,610)
IFRS 16 lease modification	(2,891)
Derecognition of sub-leased asset	(640)
Right of use assets as at 2021	36,907

 

Leasehold, land and buildings

The Group has used external valuations on Elephant & Castle. The London Elephant & Castle leasehold was independently valued on 31 December 2021 at £26.8 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.

Leasehold improvements

Leasehold improvements comprise the capitalised refurbishment costs incurred by the Group on the leased properties.

Valuation process

Initially market values of the properties were believed to have fallen due to the impact of COVID-19. The directors wanted to show that the values of the properties have recovered post COVID-19 so engaged independent external valuers to determine the market value of all three freehold properties and the long leasehold property. These independent external valuers hold recognised and relevant professional qualifications and have recent experience in the location and category of the properties being valued.

The Group provides information to valuers, including profit and cashflow forecasts along with asset-specific business plans. 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 £38.7m.

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	8%	6%	2%	3.88% - 7.39%
Glasgow	11%	8.5%	2%	5.12% - 10.95%
York	10%	8%	2%	6.27% - 9.78%
Pisa	11%	8.5%	2%	6.82% - 10.77%

 

12.       INTANGIBLE ASSETS AND GOODWILL

	Website £'000	Leasehold rights £'000	Goodwill £'000	Total £'000
Cost
At 1 January 2020	98	1,705	12,235	14,038
Additions	36	-	172	208
Disposals	-	-	(94)	(94)
Arising in business combination (note 24)	-	-	2,747	2,747
Exchange movements	-	(8)	-	(8)
At 31 December 2020	134	1,697	15,060	16,891
Disposals	-	(1,697)	(1,423)	(3,120)
At 31 December 2021	134	-	13,637	13,771
Amortisation and Impairment
At 1 January 2020	53	666	-	719
Charge for the period	39	160	-	199
Impairment	-	-	1,491	1,491
Exchange movement	-	(8)	-	(8)
At 31 December 2020	92	818	1,491	2,401
Charge for the period	24	72	-	96
On disposals	-	(890)	-	(890)
At 31 December 2021	116	-	1,491	1,607
Net book value:
At 31 December 2021	18	-	12,146	12,164
At 31 December 2020	42	879	13,569	14,490

 

 

Leasehold Rights

 

The directors identified intangible assets in the following transactions:

-      acquisition of the business on Smart City hostel in Edinburgh in 2015 identified an intangible asset in relation the lease with the University of Edinburgh, which terminates in 2027.

-      acquisition of the Barcelona Sea property in 2017 identified a sublease agreement with a tenant in-situ for the duration of the head lease. This property has been sold in the year.

Amortisation of leasehold rights is based on a straight-line basis for the term of the lease.  Amortisation is taken to the statement of comprehensive income within administrative expenses.

Goodwill

Goodwill arising from business combinations in the year is disclosed in note 25. 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 2021 are shown below.

CGU	Goodwill pre-impairment £'000	Impairment £'000	Goodwill carrying value £'000
Madrid	2,234	-	2,234
Paris	11	-	11
Gothic	1,611	(891)	720
Lisbon	1,365	-	1,365
Prague	805	(600)	205
Barcelona Passeig De Gracia	1,699	-	1,699
Vienna	5	-	5
Brussels	1,375	-	1,375
Pisa	770	-	770
Berlin	1,015	-	1,015
Athens	1,210	-	1,210
Bratislava	917	-	917
Warsaw	620	-	620
	13,637	(1,491)	12,146

 

The impairment charge was recorded in the year ended 31 December 2020. No impairment has been deemed necessary by management for the year ended 31 December 2021.

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% (2020: 11.1%) 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 2021 average bed rate per property, discounted against 2019 to reflect post covid-19 recovery transaction, and increasing in line with a 2% annual inflation rate in following years.

·   Earnings before interest, tax, depreciation, amortisation, and rent (EBITDAR) margin of 2022, adjusted to reflect the post covid-19 transition, and no hostels have a shortfall between the recoverable value and carrying value.

 

Sensitivity analysis

 

Management have reviewed all the properties and do not consider there to be an impairment. Also, the sale of the Edinburgh Hostel has also been agreed for a higher value than book value.

Headroom between the carrying and recoverable value of an asset is dependent upon sensitivities to the following assumptions:

For each of the CGU, a fall in operating margin and occupancy, or an increase in the weighted average cost of capital (WACC) by the following rates of change would result in the carrying value of goodwill falling below its recoverable amount:

CGU	Operating margin	Occupancy	WACC
Barcelona Gothic	1800bps	1500bps	500bps
Barcelona Passeig De Gracia	3200bps	2700bps	900bps
Berlin	1800bps	1200bps	600bps
Brussels	6000bps	5200bps	2700bps
Lisbon	1700bps	1500bps	500bps
Madrid	4800bps	4000bps	1600bps
Pisa	300bps	200bps	100bps
Prague	8500bps	6400bps	3900bps
Vienna	2200bps	1800bps	700bps

 

The table above demonstrates the change in assumption required for an impairment to occur.

A change of 1% in the WACC would have an overall impact of £4.2m in the recoverable value of the CGU tested.

A change of 1% in the occupancy level would have an overall impact of £1.7m in the recoverable value of the CGU tested.

A change of 1% in the Operating margin would have an overall impact of £1.2m in the recoverable value of the CGU tested.

 

13.       TRADE AND OTHER RECEIVABLES

	2021 £'000	2020 £'000
Trade and other receivables	865	1,653
Other debtors	230	26
Prepayments and accrued income	132	205
	1,227	1,884

 

Credit risk is the risk that a counterparty does not settle its financial obligation with the Group. At the year end, the Group 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 immaterial.

14.       CASH AND CASH EQUIVALENTS

	2021 £'000	2020 £'000
Cash and cash equivalents	4,482	2,125

 

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

	2021     £'000	2020 As restated £'000
Due in less than one year
Trade payables	640	686
Social security and other taxes	107	157
Other creditors	642	563
Accruals and deferred income	673	1,003
	2,062	2,409
Due in more than one year
Other payables	7	336
	2,069	2,745

 

Accruals and deferred income in 2020 have been restated and reduced by £598,000 as explained in note 26.

Payables due in more than one year in 2020 represents remainder of the discounted present value of deferred consideration due in April 2022 in relation to the Barcelona Passeig de Gracia which was acquired for €3.0 million (£2.7 million) in 2017.

 

16.       BORROWINGS

	2021 £'000	2020 £'000
At amortised cost
Bank Loan	18,013	28,380
Property financing loans	7,078	12,240
Loan arrangement fees	(137)	(266)
	24,954	40,354
Loans repayable within one year	926	311
Loans repayable after more than one year	24,028	40,043
	24,954	40,354

 

Included within borrowings is £5.0 million 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. 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 was secured against the freehold property, York hostel and subsidiary investments. The facility ends in January 2025 and the interest rate is 2.95% margin over SONIA.

17.       LEASES

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

	2021 £'000	2020 £'000
Current	78	-
Non-current	562	-
Total	640	-

 

The lease asset relates fully to our contract with Casa Suecia where we 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, we have assumed the net profit of Casa Suecia did not exceed the variable threshold.

31-Dec-21
	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	101	151	151	151	154	-	708
Finance income	(23)	(19)	(14)	(9)	(3)	-	(68)
Net present values	78	132	137	142	151	-	640

 

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

	2021   £'000	2020 As restated £'000
Current	1,922	1,932
Non-current	31,086	37,089
Total	33,008	39,021

 

Lease liabilities have been restated in 2020 and increased by £441,000 as explained in note 26.

The International Accounting Standards Board (IASB) has published 'Covid-19-Related Rent Concessions (Amendment to IFRS 16)' amending the standard to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. The impact on the current period was a £1.3 million (2020: £0.9 million) reduction in lease liability included as rent concessions in administrative expenses in 2021, reflecting the temporary reduction in rent agreed with the landlords in the 12 months ending 31 December 2021.

Total cash outflow for leases for the year ended 31 December 2021 was £1.9m (2020: £2.5m).

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 balance sheet 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. The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment (Note 10).

The hostel in London Kensington Holland Park has a term of 50 years. There is no such purchase option in this lease.

Lease payments are generally linked to annual changes in an index (either RPI or CPI). However, the Group has one lease in Lisbon which a portion of the rentals are linked to revenue. The variable portion of the lease in Lisbon is 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 - Operating leases 11 5 - 17 years 11 years 10 0 11 0   In addition to the above, there is the London Kensington Holland Park lease which ends in 2064. There are no such options as above.   Lease liabilities   The lease liabilities are secured by the related underlying assets. The undiscounted maturity analysis of lease liabilities at 31 December 2021 is as follows:
31-Dec-21
	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	3,085	3,070	2,978	3,008	2,859	32,606	47,606
Finance charges	(1,163)	(1,092)	(1,020)	(948)	(874)	(9,501)	(14,598)
Net present values	1,922	1,978	1,958	2,060	1,985	23,105	33,008

 

 

31-Dec-20
	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	3,466	3,085	3,070	2,978	3,008	47,981	63,588
Finance charges	(1,534)	(1,163)	(1,092)	(1,020)	(948)	(18,810)	(24,567)
Net present values	1,932	1,922	1,978	1,958	2,060	29,171	39,021

 

 

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.

 

 

18.       DEFERRED INCOME TAX

	Deferred tax assets £'000	Deferred tax liabilities £'000	Total £'000
Balance as at 1 January 2020 as restated	-	(1,678)	(1,678)
Recognised in the income statement	2,159	105	2,264
Recognised in other comprehensive income as restated	-	(185)	(185)
Balance at 31 December 2020 as restated	2,159	(1,758)	401
Recognised in the income statement	(1,037)	(157)	(1,194)
Recognised in other comprehensive income	-	(1,399)	(1,399)
Balance at 31 December 2021	1,122	(3,314)	(2,192)

 

The deferred tax liability in 2020 has been restated and increased by £1.758m as explained in note 26.

The Group has recognised deferred tax assets of £1.1m (2020: £2.2m), 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.

 

19.       EQUITY

CALLED UP SHARE CAPITAL

	£'000
Allotted, issued and fully paid
64,679,014 Ordinary Shares of 1p each as at 1 January 2021 and 31 December 2021	647
	647

 

At the 31 December 2021, the ordinary shares rank pari passu. There are no changes to the voting rights of the ordinary shares since the balance sheet date.

 

SHARE PREMIUM

	£'000
At 1 January 2021	23,904
At 31 December 2021	23,904

 

 

OTHER COMPONENTS OF EQUITY

	Merger reserve £'000	Share based payment reserve £'000	As restated Revaluation reserve £'000	Translation reserve £'000	Total £'000
Cost
At 1 January 2020 as restated	1,772	159	12,541	59	14,531
Share based payment charge	-	279	-	-	279
Exchange differences on translating foreign operations	-	-	-	4	4
Deferred tax on property revaluation	-	-	(185)	-	(185)
At 31 December 2020 as restated	1,772	438	12,356	63	14,629
Share based payment charge	-	72	-	-	72
Property revaluation	-	-	5,039	-	5,039
Deferred tax on property revaluation	-	-	(1,399)	-	(1,399)
Exchange differences on translating foreign operations	-	-	-	169	169
At 31 December 2021	1,772	510	15,996	232	18,510

 

 

20.       SHARE BASED PAYMENTS

The Group 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.

609,600 share options were granted in the period (2020: 1,620,400). In addition to those granted to Directors in January 2020, Directors and 2 persons discharging managerial responsibilities were awarded in lieu of a 40% reduction of salary in 2020. In 2021, the Directors and 1 person discharging managerial responsibility have continued to receive share options in lieu of salary up until July 2021.

The average share price target for options issued in 2021 was 15p (2020: 19p).

Grant date	Exercise price per share (pence)	Period within which options are exercisable	Number of share options outstanding
			2021	2020
2 May 2014	50p	2/5/2017 to 1/5/2024	396,521	396,521
12 May 2014	50p	12/5/2017 to 11/5/2024	528,695	528,695
21 May 2014	50p	21/5/2017 to 20/5/2024	38,550	38,550
14 July 2017	50p	14/7/2020 to 13/7/2027	250,000	250,000
21 July 2017	50p	21/7/2020 to 20/7/2027	500,000	500,000
11 October 2018	42p	11/10/2021 to 10/10/2028	100,000	100,000
1 January 2019	34p	01/01/2022 to 31/12/2028	500,000	500,000
29 April 2019	34p	29/04/2022 to 28/04/2029	-	500,000
26 June 2019	40p	26/06/2022 to 25/06/2029	100,000	100,000
05 Sept 2019	34p	05/09/2022 to 04/09/2029	100,000	100,000
02 Jan 2020	33p	02/01/2023 to 01/01/2030	900,000	1,200,000
31 Oct 2020	9p	31/10/2021 to 30/10/2028	186,400	186,400
30 Nov 2020	16p	30/11/2021 to 29/11/2028	104,900	104,900
31 Dec 2020	13p	31/12/2021 to 30/12/2028	129,100	129,100
31 January 2021	13p	31/01/2022 to 30/01/2029	129,100	-
28 February 2021	14p	28/02/2022 to 27/02/2029	119,900	-
31 March 2021	15p	31/03/2022 to 30/03/2029	111,900	-
30 April 2021	15p	30/04/2022 to 29/04/2029	75,200	-
31 May 2021	17p	31/05/2022 to 30/05/2029	66,400	-
30 June 2021	18p	30/06/2022 to 29/06/2029	62,700	-
31 July 2021	16p	31/07/2022 to 30/07/2029	44,400	-
			4,443,766	4,634,166

 

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 vesting period is 3 years from the date of grant and the share price must be a minimum of 60p, with the exception of the options issued since 2018 which have a target price of 50p, and the options issued in 2020 in exchange for salary reduction, which have a 1 year vesting period and no target price. 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:

 

	2021 Number of share options	2021 Weighted average exercise price	2020 Number of share options	2020 Weighted average exercise price
Brought forward 1 January	4,634,166	38.0p	3,013,766	44p
Forfeited in the period	(800,000)	33.6p	-	-
Issued in the period	609,600	15.0p	1,620,400	28p
Outstanding at 31 December	4,443,766	35.9p	4,634,166	38p
Exercisable at end of the period	2,327,789	42.8p	1,713,766	50p

 

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 £72k taken though the income statement (2020: £279k).

The inputs are as follows:

	2021	2020
Closing price of Safestay Plc	19.5p	16.0p
Weighted average share price	20.3p	18.8p
Weighted average exercise price	35.9p	38.0p
Expected volatility	35%	40%
Average vesting period	7.0 years	7.1 years
Risk free rate	1.28%	0.50%
Expected dividend yield	0.00%	0.00%

 

The expected volatility percentage was derived from the quoted share prices since flotation.

 

 

 

21.       Notes to the cashflow statement

		Restated
	2021 £'000	2020 £'000
Profit/(loss) before tax	693	(9,926)
Adjustments for:
Depreciation of property, plant and equipment and amortisation and impairment of intangible assets	3,773	5,690
Profit on disposal of fixed assets	(6,957)	-
Finance cost	2,545	2,693
Share based payment charge	72	279
Exchange movements	116	(8)
Rent concessions	(1,275)	(904)
Changes in working capital:
Decrease in inventory	12	39
Decrease/(increase) in trade and other receivables	549	(244)
(Decrease) in trade and other payables	(800)	(1,847)
Net cash from operating activities	(1,272)	(4,228)

 

 

22.       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.

	2021 £'000	2020 £'000
Short term employee benefits	336	444
Pension	6	16
Share based payment charges	72	257
	414	717

 

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 (2020:£nil).

 

23.       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. 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.

	2021   £'000	2020 As Restated £'000
Share capital	647	647
Share premium account	23,904	23,904
Retained earnings	(12,928)	(12,329)
Merger reserve	1,772	1,772
Share based payment reserve	510	438
Revaluation reserve	15,996	12,356
Translation reserve	231	63
Bank loans	18,007	28,380
Property financing loans	7,078	12,240
Lease liabilities	33,008	39,021

 

The revaluation reserve has been restated in 2020 and reduced by £1,758,000 as explained in note 26.

 

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 2021, the Group held the following financial assets:

	2021 £'000	2020 £'000
Trade and other receivables (note 13)	1,227	1,679
Cash and cash equivalents	4,482	2,125
	5,709	3,804

 

At 31 December 2021, the Group held the following financial liabilities:

	2021   £'000	2020 As restated £'000
Bank loans (note 16)	18,007	28,114
Property financing loans (note 16)	7,078	12,240
Lease liabilities (note 17)	33,008	39,021
Trade and other payables (note 15)	2,069	1,386
	60,162	80,761

 

All financial 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.

 

Financial Liability Movements

	Long term borrowings	Short term borrowings	Lease liabilities	Total
	£'000	£'000	£'000	£'000
At 1 January 2020 (restated)	29,638	267	35,904	65,809
Cash flows
Repayment of lease liabilities	-	-	(2,514)	(2,514)
Repayment of property finance loans	(331)	-	-	(331)
Proceeds received	10,361	159	-	10,520
Loan and refinancing fees	(174)	(102)	-	(276)
Non-cash
Reclassification	130	(130)	-	-
Refinance related fees write off	76	25	-	101
New leases and extension	-	-	4,536	4,536
Imputed interest and amortisation of fees	343	92	1,558	1,993
Lease modification	-	-	441	441
Rent concessions	-	-	(904)	(904)
At 31 December 2020 (restated)	40,043	311	39,021	79,375
At 1 January 2021	40,043	311	39,021	79,375
Cash flows
Repayment of lease liabilities	-	-	(1,810)	(1,810)
Repayment of property finance loans	(5,156)	-	-	(5,156)
Repayment of bank loans	(10,062)	(311)	-	(10,373)
Loan and refinancing fees	-	-	-	-
Non-cash
Reclassification	(926)	926	-	-
Government grant	(156)	-	-	(156)
Lease disposals	-	-	(1,389)	(1,389)
Imputed interest and amortisation of fees	285	-	1,471	1,756
Lease modification	-	-	(3,010)	(3,010)
Rent concessions	-	-	(1,275)	(1,275)
At 31 December 2021	24,028	926	33,008	57,962

 

	2021 £'000		2020 £'000
Total liabilities	(57,962)		(78,934)
Cash and cash equivalents	4,482		2,125
Net Debt	53,480		76,809

 

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.

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.

As outlined in going concern note 1, the business has been severely impacted by the travel restrictions and ability to meet its banking covenants as a result of Covid-19. The Group produces an annual cashflow forecasts based on agreed budgets, and as a result of Covid-19 have monitored the cashflow forecasts on a weekly basis.

The business continued to manage its liquidity risk with the renewal of its debt facility with HSBC on the 13^th January 2020 with a new facility of £22.9m for 5 years until 2025. In addition, a £5.0m bank CBILs facility was secured for 6 years on 16^th December 2020, which is interest free for the first year increasing to 3.9% + base rate from year 2.

The business continues to service is debt and make the interest payments as they fall due. There are no off balance sheet financing arrangements or contingent liabilities.

While liquidity remains closely monitored the Sea Hostel was sold February 2021 for a £0.7m consideration, and Edinburgh Hostel was sold for £16m. The monthly cost base was reduced from £0.9 million to £0.6 million during the first lockdown. The Sea disposal and sale of Edinburgh would provide sufficient headroom to manage liquidity in the short term, through to the end of December 2022, even if the impact of Covid-19 continued or the hostels remained closed. See note 1 going concern accounting policy.

However, the covenants of the existing debt facility were waived since June 2020. From June 2021 they were adjusted and replaced with adjusted EBITDA targets reflecting the current performances of the hostels since the first lockdown in April 2020. They will revert to the contractual covenants from July 2022 when it is expected that the Group will have enough trading history from the re-opening of the hostels in July 2021 to meet the 12 month historic Interest Cover (ICR) and Loan to Value ratios.

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.

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 2.45% 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% 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.

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 0.25% 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 2021, 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 £89,000 (2020: £140,000). 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.

 

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 1 year £'000	1-2 years £'000	3-5 years £'000	Later than 5 years £'000	Total £'000
Variable interest rate borrowings	1,379	1,577	16,659	-	19,615
Property financing borrowings	191	191	573	10,193	11,148
Trade and other payables	1,946	7	-	-	1,953
Lease liabilities	1,922	1,978	6,003	23,105	33,008
	5,438	3,753	23,235	33,298	65,724

 

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 will start in April 2022. The repayment under 1 year relates to the £22.9 million debt facility for £57,500 per quarter, and the repayment of the government backed loan in Vienna for £80,000 per semester. It was however agreed with HSBC that the main debt facility would be interest only from July 2021 after the disposal of Edinburgh which involves a £10.0 million debt repayment to HSBC.

24.       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 £'000	Level 2 £'000	Level 3 £'000	Total £'000
2020
Freehold Property	-	-	8,411	8,411
Leasehold Property	-	-	41,126	41,126
	-	-	49,537	49,537
2021
Freehold Property	-	-	9,484	9,484
Leasehold Property	-	-	31,691	31,691
	-	-	41,175	41,175

 

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.

25.       Business combinations

See accounting policy in note 1.

There have been no business combinations in the year ended 31 December 2021.

On 14^th January 2020, the Group acquired the leasehold of an existing 132 bed hostel in Athens via a newly registered Greek subsidiary of Safestay plc, for a consideration of €1.5m paid in full at acquisition.

On 30^th January 2020, the Group acquired an existing entity registered in Poland which owned the leasehold of a 158 bed hostel in Warsaw. At the same date, the Group acquired an existing entity registered in Slovakia which owned the leasehold of a 124 bed hostel in Bratislava. Both entities were acquired from the same party, Dream Management Group Ltd, for a consideration with €0.6m paid at completion and the outstanding amount in November 2020 for €0.3m.

	Athens	Warsaw	Bratislava	2020
Number of sites purchased				3
Fair value	£'000	£'000	£'000	£'000
Property, plant & equipment	2,092	1,179	825	4,096
Intangible assets	-	-	-	-
Current assets	1	233	-	234
Cash	-	64	4	68
Debt	(1,964)	(732)	(515)	(3,211)
Deferred revenue, trade & other payables	(9)	(1,351)	(503)	(1,863)
Goodwill	1,210	620	917	2,747
Consideration
Net cash paid on acquisition	1,330	13	728	2,071
Total Consideration	1,330	13	728	2,071

 

Goodwill recognised on each acquisition reflects the future growth of the Group and represent the first stage in establishing a pan-European network of Safestay Hostels. All goodwill acquired has been allocated to a cash generating unit.

The Board reviewed each business on acquisition for its separately identifiable assets:

·    Brand - the hostels were purchased from two selling entities, each with a large portfolio of hostels that are continuing to trade under their original brand names.  For this reason, management do not attribute the future earnings to the brands purchased; the key asset purchased is the future potential of each hostel as operated under the Safestay management team, and as an extension of the existing Safestay portfolio.

·    Advanced deposits - each acquisition resulted in the purchase of advanced deposits taken under previous management that would result in potential sales whilst under Safestay control.  The Board quantified the value of contracted sales under their original terms of sale and found the contracts to be immaterial at acquisition. 

·    Property, plant and equipment - the Board reviewed the asset registers of each entity and performed an impairment of each.  The book value of assets was agreed to represent the fair value of each asset class.

·    Intangible assets - the Board reviewed the agreements with customers and found no intangible assets for capitalisation.

 

The Group incurred acquisition costs of £0.1 million on legal fees and due diligence costs. These have been charged to operating exceptional items in the Consolidated Income Statement in 2020.

The acquisitions have contributed the following revenue and operating profits to the Group in the year ended 31 December 2020 from the date of acquisition:

	Athens	Warsaw	Bratislava
	£'000	£'000	£'000
Revenue	115	129	31
Operating profit	(179)	(201)	(151)

 

It is not practicable to identify the related cash flows, revenue and profit on an annualised basis as the months for which the businesses have been controlled by Safestay are not indicative of the annualised figures especially in the context of the Covid-19 pandemic.

The pre-acquisition trading results are not indicative of the trading expectation under Safestay's stewardship; the Group deployed its Property Management System and digital marketing platform and updated internal processes.

26.       PRIOR YEAR RESTATEMENT

IFRS 16 Adjustment

Following a review of the IFRS 16 accounting for the year to 31 December 2021, it is noted that the classification between accruals, IFRS lease liability and rent expense in the year to 31 December 2020 was found to be incorrect. This has resulted in an increased lease liability of £440,000, a decrease in accruals of £598,000 and a decrease in rent (increase in retained earnings brought forward) of £158,000.

Overall, the 2020 loss decreased and consequently the 2021 retained earnings brought forward has increased by £158,000, plus the net assets has increased by £158,000.

Deferred tax liability on the 2019 Safestay (Elephant & Castle) Ltd property revaluation

From a review of the deferred tax balances as at 31 December 2021 it is noted that the deferred tax liability relating to the property revaluation on Safestay (Elephant & Castle) Ltd was erroneously omitted from the liability for the year ended 31 December 2019.

An adjustment has been made to correct this that has reduced the property revaluation reserve by £1,758,000 and increased the deferred tax liability by £1,758,000. This has reduced net assets by £1,758,000 and has no impact on the trading profit in 2019.

27.       POST REPORTING DATE EVENTS

On the 14 April 2022 a share option modification was made by the Group on all share options currently active. This has been performed to align the historical share option vesting conditions to more appropriate benchmarks in the current economic climate.

The Group is currently not committed to any future acquisition projects or development.

Following a review of director rewards and incentives, the Remuneration Committee of the Board of Directors ("Directors") has recommended that, given the reduction in the Group's share price, that the existing awards of share options are no longer a reasonable incentive for the Group's management team (the "Management Team") and Directors and should be replaced in order to re-align the option scheme with the current share price. The Board of Directors approved this recommendation.

On 14 April 2022 the Group granted awards of options over a total of 4,020,121 ordinary shares of one (1) penny each in the Grouo ("Ordinary Shares") under the Group's existing share option scheme (the "New Options"). The New Options are exercisable on or after 1 January 2024.

A portion of the New Options have been awarded to replace all existing awards of options previously granted in the same number (the "Old Options") to the current Management Team and Directors, which were cancelled on 14 April 2022. The holders of all of the Old Options have agreed to their termination with immediate effect. Old Options that were previously priced significantly above the current share price have effectively been reissued at the current share price, with Old Options previously priced below the current share price effectively reissued at their previous exercise price.

In addition to the replacement of the Old Options, the New Options also include new share options granted to Paul Hingston, Chief Financial Officer, as part of his employment package following his appointment in February 2022.

It has also been agreed with the Business Growth Fund that Larry Lipman, the Chairman, will waive his 250,000 share options issued on 14 July 2017. He has also agreed that if he exercises any of the remaining share options, he cannot sell these shares for two years.