Chairman's Statement

Introduction

The business has come back strongly since the pandemic and these results for the six months to 30^th June 2023 show the business delivering, with a particularly good sales performance, up by 44% against 2022 and by 30% against 2019. This reflects our customers' desire to continue to travel and visit the famous cities of Europe, where our premium hostels in city centre locations are proving attractive, especially in these economically challenging times. Good demand continued into the key summer months of July and August during which the Group achieved occupancy levels of 85%. Overall, the Group is comfortably placed to achieve market expectations for the current year. 

Financial review 

The Group generated revenues of £10.5 million (2022: £7.3 million), leading to EBITDA of £2.6 million (2022: £2.5 million). EBITDA margin was 25% (2022: 34%) reduced by an increase in payroll costs and higher energy costs. Payroll costs in 2022 were abnormally low due to the difficult recruitment market, so this is a one-off post pandemic inflationary impact on payroll costs that has now stabilised. Also, new two year UK electricity contracts have now reduced annual energy bills by £0.2 million. Rental agreements with landlords have normalised and overall, the cost base is steady.

The Group recorded a loss before tax of £1.0 million (2022: loss of £0.3 million) and a loss per share of 1.4p (2021: loss of 0.5p), primarily reflecting the recent interest rate increases. As always, the majority of income is generated in the second half of the year.

Group bank borrowings as at 30 June 2023 were £16.6 million with cash at bank of £7.3 million. The primary loan is due for renewal in January 2025 and the refinancing process for this is now in progress. The directors expect to obtain at least similar terms to the current facility. The value of the Group's portfolio of properties further underpins the Group's finances. The Directors believe that the valuations of both the Elephant & Castle site of £26.8m and the combined Glasgow, Pisa and York freehold sites of £11.9 million have not changed since the December 2022 accounts.

As at 30 June 2023, accounting net asset value per share was 41.6p per share (30 June 2022: 44.6p per share), which is not reflective of freehold valuations which remain firm as can be seen from the  examples above.

Operational review

Safestay operates 16 sites, offering 3,251 beds across 11 European and 3 UK cities. The first six months have clearly shown that the business is again moving forward with good prospects to grow both organically and via acquisition.

Growth depends on increasing demand and this continues to be driven largely by young people looking to explore Europe's principal cities, and wishing to stay in clean, centrally located and attractive surroundings for a reasonable price. These young people are made up of Millennials, Generation Z and organised groups coming from schools and universities. They are typically technologically savvy, working to short decision time frames, socially active and price conscious. Safestay looks to match these characteristics, with significantly improved online marketing across social media platforms and the group website, showcasing the unique portfolio and making booking easy for stays in single or multiple hostels. These features are decreasing the Group's reliance on online travel agents.

One area of difference post pandemic has been the volume of group bookings. Pre-pandemic, group bookings made up 38% of room revenue in 2019 whereas group bookings in the period under review were 13%. There is therefore an opportunity to re-build group bookings and in August, a new office was opened in Warsaw dedicated to targeting group sales.  

Occupancy was 68.5% in H1, against 51% last year, a very good performance especially when combined with an average room rate of £23.44 and as shown by a REVPAB of £16.06 Occupancy naturally increases over the summer and so the average for the year will be higher, but still below the average achieved in 2019 of 71%, which provides a good indication of the headroom for further growth. Average bed rate has increased by c. 20% since 2019 and is a key driver of growth, in part due to the successful application of dynamic pricing under the PricePoint system which re-calculates pricing based on demand every two minutes. Business on the books is significantly higher at this point than 2022 and it is expected that it will be approximately £1m higher at the year end than 2022.

Under the guidance of our Chief Operating Officer, Peter Zielke, who joined the Group in February 2023, a primary aim has been to lift all operational standards across the portfolio and create unique experiences for our guests. Amongst areas of focus are customer engagement, area management reviews, health & safety and HR. Each of these has received specific attention with the Group importing proven systems, which in general have been used previously by the Management, to track performance and digitalise tasks where appropriate.

Since 1 January 2023, the Group has returned to an annual capex budget equivalent to 3% of annual turnover. This is essential to maintaining the Group's reputation as a leading premium hostel operator and to  protecting the quality of the portfolio by ensuring  that the buildings themselves and the contents within remain in excellent condition.

Safestay is an experienced acquirer of hostels and well- positioned to take advantage of current market conditions as the supply of  hostels and other buildings capable of being converted to hostels come to the market, but only if all internal criteria are met.

Overall, the core offer of a comfortable and safe stay in beautiful, often iconic buildings that are centrally located, in well-known and popular cities but still with a bed rate of around just £23, is unchanged. This combination remains the main driver of our business and the focus of our marketing efforts. 

Outlook

We are very pleased with the progression of the business since we were allowed to re-open post pandemic. Arguably, the Group is better positioned than before, having had to rebuild the business and done so with the benefit of doing something for the second time. Our trading results for the first half of the year and the first two months of the summer show we are comfortably on track for the year and that we are well placed to continue to increase occupancy and average bed rate into 2024.

Larry Lipman

Chairman

26 September 2023