5 September 2024

Safestay plc

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

Interim Results

23% increase in EBITDA reflects strong strategic progress and operational leverage

Accelerated expansion in 2024 to date with four outstanding new sites added to the portfolio, strengthening the Group's platform for long-term growth

Safestay (AIM: SSTY), one of Europe's largest hostel groups, is pleased to announce its Interim Results for the six months to 30 June 2024 (H1 2024 or the "Period").

H1 2024 Financial Highlights:

H1 2024 Operational Highlights:

Current Trading & Outlook

Larry Lipman, Chairman of the Group, commented:

"2024 so far has been a period of significant strategic progress for Safestay as we have continued to strengthen our position as one of Europe's leading hostel operators. During the first half of the year, we successfully added to our portfolio with two very exciting new properties in Spain, taking us to five in the market and giving us increased critical mass to drive synergies and revenue growth. We also acquired a fantastic new site in central Brighton - taking us to six in the UK - and, early in H2, entered the Budapest hostel market to expand our reach in Eastern Europe.

In addition to our portfolio expansion, we have continued to focus on driving organic growth through operational excellence, supporting a 23.1% increase in Adjusted EBITDA in H1. Our strong trading momentum has continued into H2 with encouraging sales performances and occupancy rates across the peak summer months of July and August.

Safestay's portfolio now comprises 20 sites with 17 currently serving guests in premium locations across some of Europe's great destination cities. In addition to remaining focused on delivering organic growth through our operational initiatives, we will continue to actively evaluate new opportunities where well located, attractive sites become available. We are excited by the significant long-term growth opportunities available to us as an established international operator in the highly fragmented and significant global hostel market."

Copies of this announcement are available on the Company's website, www.safestay.com

Enquiries

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Chairman's Statement

Introduction

During H1 2024 Safestay delivered a period of important strategic, operational, and financial progress. The appeal of Safestay's portfolio of premium hostels remains very strong amongst its core customer base of young travellers, families, and business travellers. This resulted in a 6.0% increase in bed nights sold during the period to 412,442 (H1 2023: 389,124), of which 42.3% were booked through more profitable direct and non-commissionable channels (H1 2023: 26.9%).

The increasing demand for our great value hostels continues to be supported by the growing popularity of the Safestay brand as well as the strength of the Group's outstanding locations across highly popular European travel locations. As a result, we delivered sales growth of 6.6% to £10.7 million. This was driven by a 1.8% increase in occupancy to 70.6% (H1 2023: 68.8%) and a 54.6% increase in non-accommodation sales to £1.6m (H1 2023: £1.0 million), in line with our main operational KPIs of increasing occupancy and total revenue per available bed ('total REVPAB').

We are pleased to report a 23.1% increase to Adjusted EBITDA for continuing operations to £3.2 million (H1 2023: £2.6 million), reflecting continued revenue growth, tight cost control and the business's operational leverage.

Strategic portfolio expansion

Safestay operates in the significant and fragmented international hostel market, which is estimated to grow to US$8.89 billion by 2027 (Source: Markets and Research, August 2022). Overall market growth continues to be driven by increasing consumer trends towards great value travel accommodation and the rise in international travel by Millennial and Gen-Z customer demographics. Our strategy is focused on continuing to drive organic revenue growth through operational excellence whilst also actively pursuing strategic expansion opportunities where great sites become available.

Safestay is an experienced acquirer of hostels and we have a proven track record of quickly integrating and improving the performance of acquired sites. We are well-positioned to take advantage as hostels and other buildings capable of being converted to hostels come to the market, but only if all internal criteria are met. Overall, our core offer of a comfortable and safe stay in beautiful, often iconic buildings that are centrally located, in well-known and popular cities, remains unchanged. During the first half of the year, we returned to more aggressive expansion of the portfolio with three new sites added across attractive European travel locations and building further critical mass in both Spain and the UK.

In April we signed an initial 20-year term management contract to run the resort-based 120 bed Calpe Seafront Hostel on Spain's Costa Blanca. The Calpe Seafront hostel is located opposite Salt Lake, home to flocks of greater flamingos, five minutes' walk from Arenal-Bol beach and a 45-minute drive from Alicante airport. It was acquired after the hostel had been put into administration during the pandemic, when trading was severely curtailed. The hostel has been closed since. As an established hostel operator in Spain, we are well positioned to take over the management under the Safestay brand and incorporate it into the Group's booking system. Prior to the pandemic, the Calpe Seafront was a successful hostel, and we are confident of being able to quickly re-establish trading and return it to being a successful business. The Group has already completed some minor refurbishment work and is targeting re-opening the property in Q4 2024 under Safestay branding, subject to receipt of necessary licences. Under the management contract, Safestay receives a fixed management fee plus a percentage of revenue and profits above certain levels. The Board believes this new operating model for the Group offers an exciting template for further potential management outsourcing transactions.

In May we continued to build critical mass in the Spanish market with the acquisition of Hotel Lineros in Cordoba for €2.0 million funded from the Group's existing cash resources. Hotel Lineros is a spectacular building and a natural fit with the Group's portfolio of unique properties. The hotel is ideally located just a short walk from Cordoba's famous ancient mosque, La Mezquita, which attracts 1.5 million visitors each year. The historic city centre is also a major tourist destination and a UNESCO world heritage site. The property is currently run as a hotel, and whilst undergoing a conversion process, is expected in the eight months to 31 December 2024 to generate meaningful revenue for the Group.

In June we acquired a freehold property in the centre of Brighton with the intention of converting it into a 220-bed hostel, subject to planning permission. The property is in the heart of Brighton - a city which attracts over 11 million visitors per year - and set over five stories. The cost of conversion is estimated at £1.0 million and should take approximately six months once planning permission is received. In its first year of trading, sales and EBITDA are projected to be £750,000 and £250,000 respectively. The total acquisition consideration was £2.3 million funded by the Group's existing cash resources and a new £1.2 million loan from the trustees of the Sheldon Pension Fund and Sentpark Capital Limited.

Operational Excellence

In addition to strategically expanding our portfolio, a key pillar of the Group's growth strategy is focused on driving organic revenue growth through operational excellence. Under the guidance of our Chief Operating Officer, Peter Zielke, a primary aim has been to lift all operational standards across the portfolio and create unique experiences for our guests that will, in turn, underpin sustainable revenue growth.

Key operational focus areas for the Group include driving occupancy rates; increasing Total REVPAB; increasing bookings through commission-free own channels supported by effective, digital-led marketing; and increasing non-accommodation sales through the provision of ancillary services to guests who are staying at our hostels. All of this is supported by our Commercial Hub in Warsaw, which was established in 2023 and is a one-stop shop for revenue management, sales and marketing, and critical HR functions.

Occupancy during the period was 70.6%, a 1.8% increase year on year (H1 2023: 68.8%), nearing pre-pandemic levels (H2 2019: 71.1%). Occupancy naturally increases over the summer and so the average for the year is expected to be higher and broadly in-line with  2019 at 71%. This improvement reflects increasing demand for Safestay's customer proposition as well as the success of our marketing initiatives and a gradual recovery in Group bookings, which represented 23% of accommodation sales in the period compared to just under 13% in the prior year.

Average Bed Rate ("ABR") fell 4.5% year-on-year (H1 2023: ABR £23.18) against the backdrop of wider consumer price pressures across the whole portfolio. In Spring 2024, management made strategic decisions to protect overall yield in lieu of ABR. These decisions meant that the Group delivered an increase of Total REVPAB by 3.2% to £18.28 (H1 2023: £17.72), aided by the Group's sharpened focus on increasing sales of food and beverage and ancillary services including laundry facilities, towel rentals, and secure luggage storage. Our dynamic pricing software, PricePoint, allows us to swiftly implement changes in pricing strategy every two minutes as the market changes.

Since 1 January 2023, the Group has returned to an annual capex budget equivalent to 3.0% of annual revenue. 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 every site remains in excellent condition.

Financial Review

The Group generated revenues from continuing operations of £10.7 million (H1 2023: £10.0 million), a 6.6% increase on the prior period. Within this, accommodation sales increased 1.3% to £9.1 million (H1 2023: £9.0 million) and non-accommodation sales increased 54.6% to £1.6m (H1 2023: £1.0 million).

Adjusted EBITDA from continuing operations increased by 23.1% to £3.2 million (H1 2023: £2.6 million). The Adjusted EBITDA margin increased 4.0% to 29.6% (H1 2023: 25.6%) reflecting a more benign cost inflation compared to the prior period, the increased proportion of sales generated through direct channels, tight cost control, and the Group's operational leverage.

The Group recorded a loss before tax from continuing operations of £113k (H1 2023: loss of £947k) and a profit for the period attributable to the owners of the parent company of £63k (H1 2023: loss of £1,003k). The Group recorded Earnings Per Share ("EPS") from continuing operations of 0.16p (H1 2023: loss of 1.46p) and basic loss per share from discontinued operations of 0.07p (H1 2023: loss of 0.08p). As always, most income is expected to be generated in the second half of the year and the Board therefore anticipates reporting further profitable growth in H2.

Net cash generated from operations was £5.0 million (H1 2023: £5.4 million), primarily due to tax payments on overseas profits.

Group bank borrowings as at 30 June 2024 were £19.8 million (H1 2023: £16.6 million). Cash at bank was £2.1 million, broadly in line with its balance at 31 December 2023 (FY 2023: £2.0 million). The year-on-year decrease (H1 2023: £7.1m) reflects £4.3 million paid for the Edinburgh acquisition in the prior year as well as the acquisitions during the period, outlined above.

In January, the Group announced the refinancing of all its existing borrowings into a single £16.0 million Term Loan and added a new £2.5 million Revolving Credit Facility ("RCF") to support future growth plans. The new Term Loan and RCF are for five years and were provided by existing lender HSBC. The Term Loan interest rates are £4.4 million at 3.955%, £10 million at SONIA but capped at 4.75% with a floor of 3% and £1.6 million at SONIA, all with an additional margin of 2.6%. The RCF has a rate of SONIA plus a margin of 2.85%. The Term Loan is repayable at £0.1 million per quarter from March 2025 together with a final payment at completion. Interest on both the Term Loan and RCF is payable quarterly from March 2024. The Term Loan replaces the previous interest only £12.7 million facility with HSBC and enables the repayment of the outstanding CBILS loan of £3.3 million which carried a significantly higher interest rate.

Current Trading & Outlook

We are very pleased with the strategic progress made during the first half of the year. This strong momentum has continued into H2 so far with strong occupancy levels in July and August and sales significantly ahead of last year at the end of August. Forward bookings for the remainder of 2024 and into 2025 are comfortably ahead of the prior year supported by a continuing recovery in group bookings. As a result of the Group's progress in H1 and its trading momentum the Board anticipates delivering further profitable growth in H2 .  

Since the period end, we have continued to develop our portfolio including through the acquisition in August of a leasehold city centre site in Budapest, Hungary, building on Safestay's established Eastern European presence in the Czech Republic, Slovakia, and Poland. In August we also took the strategic decision to surrender the lease for the Group's 52-room hotel in Vienna, removing the only loss-making property in the Group's portfolio and enabling the redeployment of capital where there are stronger returns.

In June, we successfully opened our Edinburgh Cowgate hostel following its acquisition in 2023 and we have been very encouraged by early trading and positive customer feedback, with particularly strong occupancy rates over the summer months including during the Edinburgh Fringe festival.

In the longer-term, the Board remains highly confident in Safestay's significant growth prospects. These are underpinned by the Group's growing portfolio of premium hostels in outstanding locations, as well as the Group's ability to leverage its established systems, brand, and proven operational capabilities to a sizeable and growing total addressable market. As a result, we look forward to the future with optimism and confidence.

Larry Lipman, Chairman

5 September 2024

CONSOLIDATED INCOME STATEMENT