TIDMHSW
RNS Number : 7580U
Hostelworld Group PLC
02 April 2019
LEI:213800OC94PF2D675H41
Hostelworld Group plc
("Hostelworld" or the "Group")
Preliminary Results for the Year ended 31 December 2018
Continued growth in core Hostelworld brand gross bookings of
4%
'Roadmap for Growth' programme developed post strategic
review
2 April 2019: Hostelworld, the global hostel-focussed online
booking platform, is pleased to announce its preliminary results
for the year ended 31 December 2018.
Operational & Financial Highlights
-- Continued growth in core Hostelworld brand gross bookings
o Hostelworld brand bookings growth of 4%, total Group bookings
growth flat reflecting the managed decline in supporting
brands.
-- 22% increase in bookings from the app (from 33% of bookings
in 2017 to 40% of bookings in 2018).
-- The Group generated revenue of EUR82.1m in the year (2017:
EUR86.7m) plus an additional EUR2.9m of deferred revenue which will
be recognised in 2019. Excluding the impact of deferred revenue,
Group revenue grew by 1% on a constant currency basis.
o Deferred revenue is the result of the successful rollout of
our free cancellation booking option in 2018, which was a key
product release to broaden our customer offering. EUR2.9m of
revenue collected from customers will be recognised in 2019, net of
any future cancellations, once the option to cancel the booking has
passed.
o Average Booking Value ("ABV") (gross) of EUR11.9 (2017:
EUR11.6), a 3% increase on 2017, 6% increase on a constant currency
basis.
-- Adjusted EBITDA of EUR21.4m, a 19% decrease, or an 8%
decrease when excluding the impact of deferred revenue (2017:
EUR26.4m).
-- Adjusted Earnings per Share of 18.33 euro cent (2017: 22.73 euro cent).
-- Strong cash flow generation with cash conversion of 97% and
free cash flow of EUR20.7m (2017: EUR21.5m).
-- Proposed final dividend of 9.0 euro cent per share (2017:
12.0 euro cent), resulting in full year dividend of 13.8 euro cent
per share, in line with stated dividend policy.
Strategic Developments
-- New 'Roadmap for Growth' programme developed and implemented
by CEO, Gary Morrison following the completion of a strategic
review in Q4 2018.
-- Strategic review highlighted the opportunity for significant
long-term growth in the business.
-- Strengthened management team now in place to deliver the growth plans.
-- Key area of focus in 2019 is strengthening the capability of
our core platform to improve its flexibility and the experience for
our customers.
-- Plans in place to utilise and leverage our rich data sources
to target and grow the most profitable customer segments.
-- Marketing activity and investment now focussed on driving
core customer acquisition, a move away from category
advertising.
Gary Morrison, Chief Executive Officer, commented:
"We are pleased to have reported continued growth in our core
Hostelworld brand gross bookings of 4% during the year and to have
successfully developed the 'Roadmap for Growth' programme.
Hostelworld is operating in a highly competitive market, which
is growing. We have a very relevant brand which is trusted by a
loyal and engaged customer base. Following the completion of our
strategic review, we identified and developed a 'Roadmap for
Growth' programme to allow the Group to capitalise on these
significant opportunities available and to return the business to
growth. We started work on a number of initiatives during the
second half of 2018 and we look to 2019 as a year of investment to
fund the growth drivers for 2020 and beyond. We anticipate that
organic growth will be self-funded from our existing cash resources
and cash generated from the business.
Trading in the first quarter of 2019 is in line with the Board's
expectations. We remain committed to delivering value to
shareholders and continue to assess our capital allocation approach
in line with investment choices and priorities."
Analyst Presentation
A presentation will be made to analysts today at 9.00am, a copy
of which will be available on our Group website
http://www.hostelworldgroup.com. If you would like to attend or
dial into the presentation, please contact Powerscourt on the
contact details provided below:
For further information please contact:
Hostelworld Group plc
Gary Morrison, Chief Executive
Officer +353 (0) 1 498 0700
TJ Kelly, Chief Financial Officer +353 (1) 1 498 0700
Powerscourt hostelworld@powerscourt-group.com
Lisa Kavanagh/Jana Tsiligiannis +44 (0) 20 7250 1446
Jack Hickey +353 83 4488 339
About Hostelworld Group
Hostelworld Group is the leading hostel-focussed online booking
platform, sparking social experiences for young and independent
travellers.
Our customers are not your average tourists; they crave unique
experiences that we facilitate with the best choice of hostels
around the world offered in 19 languages across the website and 13
languages on our app of our core brand Hostelworld.
We have 20 years' experience as the hostel Online Travel Agent
("OTA") experts, and today we work with over 16,500 hostel
properties globally, in addition to 20,000 other forms of budget
accommodation.
Our customers have access to an extensive database of more than
11.5 million customer reviews which allows them to choose the
hostel that's right for them.
Since 1999 we've partnered with hostels worldwide, enabling them
to manage and distribute their inventory to our highly engaged and
valuable global customer base.
This announcement contains forward-looking statements. These
statements relate to the future prospects, developments and
business strategies of Hostelworld. Forward-looking statements are
identified by the use of such terms as "believe", "could",
"envisage", "estimate", "potential", "intend", "may", "plan",
"will" or variations or similar expressions, or the negative
thereof. Any forward-looking statements contained in this
announcement are based on current expectations and are subject to
risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by those statements. If
one or more of these risks or uncertainties materialise, or if
underlying assumptions prove incorrect, Hostelworld's actual
results may vary materially from those expected, estimated or
projected. Any forward-looking statements speak only as at the date
of this announcement. Except as required by law, Hostelworld
undertakes no obligation to publicly release any update or
revisions to any forward-looking statements contained in this
announcement to reflect any change in events, conditions or
circumstances on which any such statements are based after the time
they are made.
Chairman's Statement
2018 was a year of significant activity and change for the
Hostelworld Group. Despite experiencing challenging industry
conditions during the summer months, we are pleased to report
continued growth in gross bookings from our core Hostelworld brand
of 4%, although the managed decline in our supporting brands
resulted in flat overall Group bookings. In response to customer
demand and following a pilot launch, in July we successfully rolled
out our free cancellation booking option globally, which further
enhanced and broadened our customer product offering.
In June 2018 Gary Morrison joined Hostelworld as Chief Executive
Officer, following the departure of Feargal Mooney from the Group.
Gary worked for Expedia for over seven years and brings a wealth of
experience and knowledge of the Online Travel Agent ("OTA")
marketplace. Following his arrival, Gary undertook a detailed
strategic review of the Group which he completed in November 2018.
As outlined in more detail in his Chief Executive's review, this
confirmed the significant growth opportunity for Hostelworld and
the strengths and continuing relevance of our brand, in addition to
highlighting areas that require future investment.
Results and Financial Position
Gross bookings for the year were flat given the managed decline
in our supporting brands which offset the growth of 4% in the
Hostelworld brand. As indicated at the time, the peak summer months
were impacted by unseasonably hot weather in Europe and the timing
of the World Cup. The Group's core brand, Hostelworld, currently
represents 96% of total Group bookings (2017: 93%) with this
percentage likely to increase further during 2019 as per our
strategy. The successful rollout of the free cancellation booking
option during the year led to a deferral of revenue recognition,
which has impacted reported earnings in 2018, however this has not
had an impact on cash receipts. At 31 December 2018, EUR2.9m of
revenue from free cancellation bookings was collected from
customers and deferred and will be recognised, net of any future
cancellations, in 2019 when the last cancellation date has
passed.
Revenue for the year was EUR82.1m (2017: EUR86.7m) a decrease of
5%, primarily due to the impact of the deferred revenue. Adjusted
EBITDA (as defined in the Financial Review) for the year was
EUR21.4m (2017: EUR26.4m) and operating profit for the year was
EUR6.7m (2017: EUR11.9m). Both were also impacted by the deferred
revenue.
The business continues to be strongly cash generative, with
Adjusted Free Cash Flow (as defined in the Financial Review) of
EUR20.7m (2017: EUR21.5m). Cash balances at year end were EUR26.0m
(2017: EUR21.3m), after payment of EUR16.1m of dividends during the
year (2017: EUR24.8m).
Dividend and Capital Structure
The Board is recommending a full year final dividend of 9.0 euro
cent per share which together with the interim dividend of 4.8 euro
cent per share brings the total dividend for 2018 to 13.8 euro
cent. This reflects a distribution of 75% of the Adjusted Profit
after Taxation for the year and is in line with our stated dividend
policy. The Board continues to review its approach to returning
capital to shareholders, whilst retaining flexibility to enable us
to stabilise and strengthen our core platform.
Board Composition
The composition of the Board is fully compliant with the UK
Corporate Governance Code as applied to small companies. The Board
has undertaken an appraisal of the Directors, as well as of the
Board and each sub-committee, which concluded that the Board is
functioning effectively.
There was significant change to the Board during 2018. In May
2018, we announced that Feargal Mooney who had been with
Hostelworld for 16 years would be leaving the Board in June and
would be succeeded by Gary Morrison.
Earlier in 2018, Mari Hurley who had been with the Group for 11
years as Chief Financial Officer, resigned from the Board. In
August 2018 we announced that TJ Kelly would be taking up the
position of Chief Financial Officer and would be joining the Group
and the Board in November 2018. TJ was formerly Chief Financial
Officer of Glanbia plc's Performance Nutrition division and brings
a wealth of financial experience in international consumer-focussed
businesses and a proven track record in financial leadership.
Pursuant to changes to the composition of the audit committee as
set out in the 2018 Corporate Governance Code, I stepped down as a
member of the Audit Committee in December 2018. In February 2018
Éimear Moloney was appointed as a member of both the Nomination
Committee and Remuneration Committee. There were no other changes
to the Audit Committee, Remuneration Committee and Nomination
Committee during the year.
Colleagues, Customers and Shareholders
On behalf of the Board, I would like to thank all members of the
Hostelworld team for their commitment and hard work during the
year. I would like to particularly acknowledge the dedication of
our product and technology development teams based in Dublin and
Porto. Our expanded in-house capability is key to our plans to
leverage Hostelworld's data assets and native app development
strengths and reaffirm our competitive position as a leading hostel
focussed online booking platform.
Following Gary Morrison's appointment as Chief Executive
Officer, he developed a 'Roadmap for Growth' programme and
strengthened the management team to better resource us to deliver
the significant future growth opportunities in the business. In
addition to the appointment of TJ Kelly as Chief Financial Officer,
a number of key appointments and internal promotions have been made
across the business in areas including Product, Technology, and
Analytics and Insights in order to deliver our ambitious growth
objectives.
I would also like to thank our customers and hostel partners,
whom we continue to place at the heart of our business, for their
loyalty and support.
Finally, to our shareholders for their confidence and
commitment, we look forward to returning our business to growth and
continuing to return value to our shareholders.
Michael Cawley
Chairman
1 April 2019
Chief Executive's Statement
Since its foundation twenty years ago, Hostelworld has grown
into a global business focussed on facilitating a social travelling
experience for young and independent travellers and others seeking
a sense of adventure, community and interaction with like-minded
international travellers. Since joining the business in June I have
completed my strategic review, which has confirmed why I decided to
join the Group. Hostelworld has a very relevant brand which is
trusted by a loyal and engaged customer base and has access to
exclusive inventory of high quality hostels. By leveraging our
significant accumulated data assets and native app development
skills to exploit our unique and focussed position in the hostel
ecosystem, we are not just well positioned in a growing market, but
as a market leading category specialist we can compete effectively
with the generalist lodging online travel agents ("OTAs").
It is also clear that in recent years, while Hostelworld has had
a strong track record of EBITDA delivery, this has not been matched
by consistent top line growth. Furthermore the reliance on, and
significant investment in category advertising to drive customer
acquisition has not accelerated the core business and translated
into bookings growth, despite operating in a growing market. My
strategic review, announced in November, also identified a number
of areas where there has been a lack of investment, most notably in
our core platform, that need to be addressed to ensure that we
remain competitive in our marketplace. These will be the main focus
of our attention in the coming year. At the same time, I have
identified and developed a 'Roadmap for Growth' programme in order
to capitalise on the significant opportunities for the business and
to return it to a proper growth trajectory. In order to deliver
this, I have taken steps to strengthen the management team with a
number of significant hires and internal promotions.
The main elements of our 'Roadmap for Growth' programme have now
been agreed, with a number of initiatives started during the second
half of 2018. As we look to 2019 as a year of investment to fund
the 'return to growth drivers' in 2020, there will be a number of
key focus areas for the management team as described in more detail
below. It is anticipated that organic growth will be self-funded
from our existing cash resources and cash generated from the
business. Appropriate deployment of capital against organic and
inorganic growth opportunities will be subject to continual
assessment and appraisal by the Board.
Returning to Growth
Gross bookings were flat year on year (2017: 6% growth) with
modest growth of 4% in the Hostelworld brand, which now accounts
for 96% of total bookings, being offset by the managed decline in
our supporting brands. As announced in August at the time of our
half year results, bookings growth in 2018 was impacted by some
softness in trading seen during the peak Summer months as a result
of the hot weather in Europe and the timing of the World Cup.
Our focus is on the hostel market and we are operating in a
growing market: the total value of hostel revenue is forecast to
grow from US$5.5bn in 2017 to US$6.4bn in 2020 (Source:
Phocuswright's "The Global Hostel Market Place Second Edition",
March 2018). The market is highly fragmented, but with a growing
supply base of high quality accommodation. We are seeing
significant investment and some modest consolidation by the top
chains within the hostel segment and the share of bookings made
through OTAs, such as Hostelworld, is forecast to grow at a faster
rate than the traditional hostel market. We also have a strong and
trusted brand that provides relevant and valuable customers to the
hostel sector. It is therefore imperative that we are correctly
positioned to take advantage of the growth opportunities in our
marketplace and that we appropriately invest in our core product,
platform, technological capabilities and marketing in order to
achieve this.
Our Strategy
The strategic review has highlighted the opportunity for
significant growth for the business. The positive market dynamics
showcase the potential pace for growth, which a purely hostel
focussed business can exploit. We have identified a number of key
focus areas as our strategic objectives for 2019. These are as
follows:
-- Investing in our Platform
One of the key areas of our focus in 2019 will be on
strengthening the core platform in order to improve its flexibility
and the experience of our customers bringing it up to competitive
parity. Since 2015 there was underinvestment in the total product
and engineering headcount, which was insufficient to maintain our
platform competitiveness against other OTAs. I have identified
closing this technological gap as a key priority for my management
team.
During 2018 we rolled out our free cancellation option for
customers which has now been successfully embedded, with
cancellation rates performing in line with our expectations. We
plan to make further improvements to the range of booking options
we offer our customers which will result in greater flexibility to
make online changes and a wider range of payment options, including
different currencies and different payment methods.
We plan to improve the search experience for our customers in
order to present the right hostels to the right customers at the
right time through more dynamically optimised search functions.
This will involve expanding and improving the hostels available to
our customers with unique experiences and improved site and hostel
content localisation.
We are also investing in our current platform to upgrade
connectivity for hostel owners and to offer improved and more
flexible rate plan configurations. Hostelworld has significant
exclusive inventory and in order to retain this position we need to
invest and ensure that our platform is as flexible and convenient
as possible for hostel owners to use. In recent years the use of
third party platforms has increased with these platforms typically
providing connections to multiple OTAs, including Hostelworld. This
has allowed more competitors to gain access to the hostel market.
Therefore upgrading our third party platform connectivity is a key
priority in order to defend our competitive position, ensuring we
have the best access to inventory for our customers.
-- Best-in-Class App Technology
Hostelworld launched its first app in 2010 and this has been one
of the key factors in our success over the past few years with
continued growth in bookings via our app every year. In 2018 40% of
all bookings were made via the app up from 33% in 2017. Since we
launched our iOS and Android apps in 2014, they have won industry
awards and recognition. However, in an increasingly competitive
market where our customers have more choice and options, we need to
ensure that our app has the best functionality with the most
relevant content, together with the appropriate inventory for our
chosen segment. We expect to see app usage continue to grow in the
future and this will continue to drive marketing efficiencies by
lowering our customer acquisition and transaction costs.
One of Hostelworld's key strengths is our experience and
expertise in native app development. Our software development
office in Porto which we opened in 2017 has been significantly
expanded during 2018. As at 31 December 2018 we had 53 people
employed in Porto compared to 24 at the end of 2017. During 2019
our Dublin and Porto product and development teams will continue to
update and expand our app capability. The native app development
skills that Hostelworld has developed are a key source of
competitive advantage for our business.
-- Leveraging our Data Assets
Hostelworld has millions of stored anonymised itineraries which
provide a rich data source and have historically been
under-utilised by the Group. We can use this data to better
understand the preferences of different types of customer: for
example, a single destination trip customer will typically have
different requirements and be looking for different features in
their hostel stay compared to a multi destination trip traveller
who is seeking a different type of hostel experience. By using this
data we can generate highly relevant bespoke recommendations and
suggestions for our customers. For Hostelworld, leveraging our data
will allow us to target and grow the most profitable customer
segments, such as multi destination customers.
-- Driving Customer Acquisition
In recent years Hostelworld has invested in category advertising
through some high profile celebrity advertising campaigns. However,
whilst these generated strong interest on social media, it is
difficult to measure the related core business growth and
associated returns. The conclusions of the recent strategic review
are that in 2019 these resources would be more productively
deployed in investing in our products and systems as previously
outlined and that marketing activities will be focussed on core
customer acquisition.
We know that our most engaged customer base who book for four or
more destinations per trip is significantly more valuable than
those who book two or three destinations per trip, both for
Hostelworld and for our hostel partners. Providing the right
customer to the right hostel at the right time not only increases
the chances of repeat bookings through Hostelworld, but it also
delivers the most valuable customers for the hostels. These are
customers who understand the hostel experience and who are most
likely to leave positive reviews. Hostelworld customers are also
best known for contributing to the atmosphere in the hostel, by
participating most fully in the activities of the hostel and using
in-house food and beverage facilities during their stay.
Business Model
In operating a global hostel-focussed online booking platform,
we offer a simple and comprehensive online mechanism that gives
providers of hostels and other budget accommodation a shop window
to show their accommodation to young and independent travellers. We
provide the technology solution to facilitate bookings between the
hostel and traveller, offering a high quality booking experience
that provides us with commission based revenue.
At the time of booking, hostel travellers pay a deposit directly
to us, and the remainder of the cost of their stay directly to the
hostel at the time of their visit. The deposit equates to our
revenue from the transaction. This efficient business model has
favourable working capital attributes and strong cash conversion.
Debt collection and invoicing overheads are all minimised.
During 2018, we rolled out a global free cancellation model to
further broaden our product offering. As with the other deposit
models, at the time of booking, hostel travellers pay a deposit
directly to us, and the remainder of the cost of their stay
directly to the hostel at the time of their visit. If the hostel
traveller cancels their free cancellation booking, within a
specified period, we will refund their deposit. The introduction of
the free cancellation booking option has resulted in a portion of
gross bookings being cancelled and the deposits refunded to
customers. Underlying cancellation rates are performing in line
with our expectations.
The Market
The second independent study of the global hostel market
("Second Edition") was published by Phocuswright in 2018.
The topline findings of the Second Edition include:
-- Phocuswright estimates total property count globally of
approximately 18,200 in 2016, increasing significantly from 15,700
properties in 2014.
-- Phocuswright projects 5% hostel revenue growth per year
through 2020 for the global hostel market (on pace with the global
hotel industry), when it estimates that total hostel revenue will
reach nearly US$6.4 billion in revenue.
-- Online channels accounted for 62% of global hostel revenue in
2016. OTAs are the fastest-growing channel, processing 46% of
global hostel bookings in 2016, and estimated to rise to 54% by
2020.
Phocuswright's conclusions provide us with additional confidence
in the strength of our target market and the long term growth
opportunities it offers the Group as a leading provider of bookings
into this niche market.
Investing in People
In order to deliver our 'Roadmap for Growth' programme, since my
appointment in June I have made a number of important changes to
strengthen the management team. In November, TJ Kelly joined
Hostelworld from Glanbia as our Chief Financial Officer.
In addition, I have made a number of internal promotions:
Breffni Horgan to Chief Product Officer, Noel Maher to Chief
Technology Officer and Catriona Flood to Chief Analytics Officer.
As previously described, these key areas represent clear priorities
for the Group in 2019 and beyond and I am delighted to be working
with a talented young team. This leaves us well placed to deliver
the ambitious growth objectives that I have set for the
business.
We will continue to invest in talent across the business
especially in product, technology and in our Porto office. We are
fortunate to have an excellent and diverse pool of talented
individuals working across our organisation who are critical to our
future success. I would like to thank the entire team, in Dublin,
London, Porto, Shanghai and Sydney for their hard work in 2018.
Optimising Capital Allocation
After our people, capital is our most important resource and it
is critical that we invest it wisely. My strategic review has
highlighted insufficient investment in our core platform and
product suite in recent years. Therefore my priorities for future
capital allocation are on focussed marketing programmes that will
drive growth in core customer acquisition and re-investment in our
core platform in order to reaffirm and strengthen our position as a
leading hostel-focussed online booking platform. Most of our
existing growth plans can be delivered organically using the
existing resources and experience of the Group, including more
effective leveraging of our under-utilised existing data assets.
However, we will continue to appraise complementary target
acquisitions that would accelerate our growth or provide us with a
unique capability to improve our offering to our customers or
hostel partners.
2019 will be a year of investment for Hostelworld to fund the
'return to growth' drivers for 2020 and beyond. It is anticipated
that organic growth will be self-funded through our existing cash
resources and the strong cashflows generated from the business.
Outlook
Hostelworld is operating in a highly competitive market, which
is growing. We have a very relevant brand which is trusted by a
loyal and engaged customer base. Trading in the first quarter of
2019 is in line with the Board's expectations. We remain committed
to delivering value to shareholders and continue to assess our
capital allocation approach in line with investment choices and
priorities.
Gary Morrison
Chief Executive
1 April 2019
Financial Review
Introduction
-- Hostelworld gross brand bookings growth of 4%, total Group
bookings growth flat reflecting the managed decline in supporting
brands
-- Average Booking Value ("ABV") (gross) of EUR11.89, a 3%
increase on 2017, 6% increase on a constant currency basis
-- Revenue decreased by 5%, 3% decrease on a constant currency
basis, impacted by deferred revenue. Excluding the impact of
deferred revenue, Group revenue decreased by 2% and grew by 1% on a
constant currency basis
-- EUR2.9m of revenue generated from free cancellation bookings
has been deferred (2017: EURnil) and will be recognised, net of any
future cancellations, in future periods
-- Marketing expenses represented 38% of Revenue (2017: 38%)
-- Adjusted EBITDA decreased by 19%, 17% decrease on a constant currency basis
-- Excluding the impact of deferred revenue, Adjusted EBITDA
would have decreased by EUR2.1m (8%)
-- Adjusted EBITDA margin of 26% (2017: 30%) impacted by
deferred revenue. Excluding the impact of deferred revenue,
Adjusted EBITDA margin would have been 29%
-- Strong underlying cash conversion (97%) and final proposed
dividend of 9.0 euro cent per share
Key Performance Indicators
% change
% change constant
2018 2017 Reported currency
------ ------ ----------
Gross Bookings:
Bookings - Hostelworld brand
(m) 7.27 7.00 4%
Bookings - supporting brands
and channels (m) 0.28 0.54 (47%)
Total Booking Volume (m) 7.55 7.54 0%
Net Bookings:
Net Bookings - Hostelworld
brand (m) 6.96 7.00 (1%)
Total Net Group Bookings Volume
(m) 7.24 7.54 (4%)
Average Booking Value ("ABV")
(gross) (EUR) 11.89 11.55 3% 6%
Revenue (EURm) 82.1 86.7 (5%) (3%)
Deferred Free Cancellation
Revenue (EURm) 2.9 n/a
--------------------------------- ------ ------ ---------- ----------
Adjusted EBITDA (EURm) 21.4 26.4 (19%) (17%)
--------------------------------- ------ ------ ---------- ----------
The Group believes that both gross booking volume ("Gross
Bookings", "Bookings") and booking volume net of cancellations
("Net Bookings") are key performance indicators and are critical in
assessing the operational performance of the business.
The Group's gross booking volumes were flat in 2018 (2017: 6%
growth), with 4% growth in the core Hostelworld brand (2017: 13%
growth) offset by 47% decline in the Group's supporting brands
(2017: 41% decline). The Group's core brand, Hostelworld,
represents 96% of Group bookings (2017: 93%). Bookings growth was
skewed towards H1 2018, with Hostelworld brand bookings growth of
6% (H2 2018: 2% growth) which was partially attributed to softer
booking volume in the key summer months due to the World Cup and
the unusually hot weather in Europe.
In 2018 in response to customer demand, the Group rolled out a
free cancellation booking option, to further broaden our product
offering. This booking option was rolled out on a phased basis in
H1 2018 and globally in H2 2018. As with the other deposit models,
at the time of booking, hostel travellers pay a deposit directly to
us, and the remainder of the cost of their stay directly to the
hostel at the time of their visit. If the hostel traveller cancels
their free cancellation booking, within a specified period, we will
refund their deposit.
This has led to a deferral of revenue recognition, which has
impacted reported earnings in 2018, however this has not had an
impact on cash receipts. At 31 December 2018, EUR2.9m of revenue
from free cancellation bookings was collected from customers and
deferred and will be recognised, net of any future cancellations,
in 2019 when the last cancellation date has passed. Any
cancellations that were processed by customers up to and including
31 December 2018 have been refunded and are not included in this
deferred revenue balance.
The introduction of the free cancellation booking option has
resulted in a portion of gross bookings being cancelled and
refunded to customers. Group bookings, net of any cancellations
processed by 31 December 2018, have declined by 4% in 2018, with
Hostelworld brand net bookings declining by 1%. Underlying
cancellation rates are performing in line with our
expectations.
Bookings generated from the app and mobile web channels
represented 59% of Group bookings (2017: 54%), with bookings from
the app growing by 22% during the year to 40% of all bookings. The
Group's booking volumes are seasonal and peak between May and
August during the summer travel period in the northern
hemisphere.
While the Group operates in one segment and is managed as such,
business performance is reviewed on a bookings volume and average
booking value basis for both the Hostelworld brand as well as all
supporting brands (including Hostelbookers, Hostels.com, booking
engines and affiliates).
Revenue decreased by 5% during the year to EUR82.1m (2017:
EUR86.7m), a 3% decrease on a constant currency basis, partially as
a result of the impact of EUR2.9m deferred revenue (2017: EURnil).
Excluding the impact of deferred revenue, Group revenue would have
declined by EUR1.7m (2%) and increased by 1% on a constant currency
basis during the year.
All of the marketing costs in relation to these bookings have
been recognised in the year.
Average Booking Value ("ABV") is the average value paid by a
customer for a gross booking. ABV grew by 3% during the year, and
6% in constant currency. The average commission rate in 2018
increased to 15.4% (2017: 14.3%), primarily driven by a base
commission increase during the year. The commission increase and an
increase in the underlying base price per bed were offset by the
continued decline in the number of bed nights per booking with the
continued shift to mobile bookings and the negative impact of
exchange rate movements in 2018.
The Group continues to actively manage its marketing mix with
marketing investment as a percentage of net revenue of 38% in 2018
(2017: 38%). Excluding the impact of deferred free cancellation
revenue, marketing investment would be 37% of revenue (2017: 38%).
While exchange rate movements had a negative impact on Revenue and
Adjusted EBITDA, there was a partial offsetting benefit to
marketing expenses as the majority of marketing investment is
denominated in US dollars.
Adjusted EBITDA
The Group uses Earnings before Interest, Tax, Depreciation and
Amortisation, excluding exceptional and non-cash items ("Adjusted
EBITDA") as a key performance indicator when measuring the outcome
in the business. Exceptional items by their nature and size can
make interpretation of the underlying trends in the business more
difficult. We believe this alternative performance measure reflects
the key drivers of profitability for the Group and removes those
items which do not impact underlying trading performance.
Adjusted EBITDA of EUR21.4m (2017: EUR26.4m) has decreased by
EUR5.0m (19%) in the year and by 17% on a constant currency basis.
Adjusted EBITDA as a percentage of revenue declined to 26% (2017:
30%) due in part to the impact of EUR2.9m revenue relating to free
cancellation bookings that was received but deferred in the year.
Excluding the impact of the deferral of this revenue, Adjusted
EBITDA would have declined by EUR2.1m (8%), by 5% on a constant
currency basis, and Adjusted EBITDA margin would have been 29%. Any
future cancellations (made within a specified period) will reduce
the amount of deferred revenue that can be recognised in future
periods.
Administration expenses increased by EUR1.6m (3%) to EUR61.9m in
2018. A contributory factor in this increase was the increase in
exceptional costs, and in staff and other administration costs due
to the increased investment in the technology development centre in
Porto during the year as part of the strategy of the Group to
invest in its development capacity.
Gross staff costs (excluding share based payment expense and
before the impact of capitalised development labour) increased from
EUR18.7m to EUR19.2m. Average full time equivalent headcount
increased by 13% from 254 in 2017 to 288 in 2018. Excluding the
impact of development labour capitalised in accordance with IFRS
standards (2018: EUR1.7m; 2017: EUR1.7m), share based payment
expense and the impact of bonus provisions, staff costs increased
by 3% on a constant currency basis.
Reconciliation between Operating Profit and Adjusted EBITDA:
EUR'm 2018 2017
------
Operating profit 6.7 11.9
Depreciation 1.2 1.1
Amortisation of development
costs 1.9 2.9
Amortisation of acquired intangible
assets 10.3 10.4
Exceptional items 1.6 (0.5)
Share based payment (credit)
/ expense (0.3) 0.6
------------------------------------- ------ ------
Adjusted EBITDA 21.4 26.4
------------------------------------- ------ ------
The exceptional costs for the year of EUR1.6m were primarily
restructuring related costs. In 2017 exceptional gains for the year
of EUR0.5m were due to the release of an accrual relating to
previously recognised merger and acquisition costs.
The share based payment credit of EUR0.3m (2017: EUR0.6m
expense) reflects the share based payment charge arising on the
issuance of options in accordance with the Group's Long Term
Incentive Plan ("LTIP") and Save as you Earn ("SAYE") plan offset
by the release of previously recognised expenses relating to
options which have been forfeited during the year.
Adjusted Profit after Taxation
Reconciliation between Adjusted EBITDA and Profit for the
Year:
EUR'm 2018 2017
-------
Adjusted EBITDA 21.4 26.4
Depreciation (1.2) (1.1)
Amortisation of development
costs (1.9) (2.9)
Corporation tax (0.8) (0.7)
-------------------------------------- ------- -------
Adjusted Profit after Taxation 17.5 21.7
-------------------------------------- ------- -------
Exceptional items (1.6) 0.5
Amortisation of acquired intangibles (10.3) (10.4)
Net finance costs 0.0 (0.1)
Share based payment credit
/ (expense) 0.3 (0.6)
Deferred taxation (0.2) 0.1
-------------------------------------- ------- -------
Profit for the year 5.7 11.2
-------------------------------------- ------- -------
Adjusted Profit after Taxation ("Adjusted PAT") is an
alternative performance measure that the Group uses to calculate
the dividend payout for the year, subject to Company Law
requirements regarding distributable profits. It excludes
exceptional costs, amortisation of acquired domain and technology
intangibles, impairment charges, net finance costs, share based
payment expenses and deferred taxation which can have large impacts
on the reported result for the year, and which can make underlying
trends difficult to interpret.
Adjusted PAT decreased by 19% from EUR21.7m to EUR17.5m (2017:
12% increase) and 16% on a constant currency basis due in part to
the impact of EUR2.9m revenue related to free cancellation bookings
that was received but deferred in the year.
Based on the weighted average number of shares in issue during
2018, reported Earnings per Share ("EPS"), as set out in Note 9 to
the financial statements, is 5.95 euro cent per share for the
financial year (2017: earnings per share 11.77 euro cent). Using
Adjusted PAT as the measure of earnings would result in an adjusted
EPS of 18.33 euro cent per share for the year. The corresponding
EPS for 2017 calculated on the same basis, using the weighted
average number of shares in issue as at 31 December 2017 is 22.73
euro cent per share. Adjusted EPS is an alternative performance
measure that excludes exceptional items, amortisation of acquired
domain and technology intangibles, net finance costs, share based
payment expenses and deferred taxation which can have large impacts
on the reported result for the year, and which can make underlying
trends difficult to interpret.
Given that the capital nature of the Group post IPO is fully
equity funded, there is minimal net finance costs in 2018 of
EUR0.0m (2017: EUR0.1m).
Taxation
The Group corporation tax charge of EUR0.8m (2017: EUR0.7m)
results in an effective tax rate (corporation tax as a percentage
of profit before taxation) of 11.6% (2017: 6.0%). The low effective
tax rate in 2017 was primarily as a result of carried forward tax
losses arising from the previous capital structure of the
Group.
The Group's deferred tax charge for the year ended 31 December
2018 was EUR0.2m (2017: EUR0.1m credit) and relates to the movement
in deferred tax assets offset by the movement in deferred tax
liabilities.
Adjusted Free Cash Flow Conversion
EUR'm 2018 2017
------
Adjusted EBITDA 21.4 26.4
Acquisition of intangible
assets (1.8) (1.8)
Capital expenditure (0.7) (1.8)
Interest and tax paid (0.8) (0.6)
Net movement in working capital
(1) 2.6 (0.7)
------------------------------------ ------ ------
Adjusted Free Cash Flow 20.7 21.5
------------------------------------ ------ ------
Adjusted Free Cash Flow conversion 97% 81%
------------------------------------ ------ ------
(1) changes in working capital excludes
the effects of exceptional costs
The Group has a business model which produces strong free cash
flow conversion, with a negative working capital cycle on
operational cash flows. The movement in working capital in 2018 was
at a higher level than 2017, due to the impact of EUR2.9m of
revenue related to free cancellation bookings which was collected
but deferred. This resulted in a higher adjusted free cash flow
conversion of 97% (2017: 81%). Excluding the impact of the deferral
of this revenue, adjusted free cash flow conversion would have been
85% (2017: 81%).
Total cash at 31 December 2018 was EUR26.0m (2017: EUR21.3m) and
there were no borrowings at 31 December 2018 (2017: EURnil).
Foreign Exchange Risk
The Group's primary operating currency is euro. The Group also
has significant sterling and US dollar cash flows. In 2018 the
average US dollar to euro exchange rate weakened by 5% and the
average sterling to euro exchange rate weakened by 1% in comparison
to 2017. Restated on a constant currency basis, ABV has increased
by 6%, revenue has decreased by 3% (EUR2.4m) and Adjusted EBITDA
has decreased by 17% (EUR4.3m) in 2018. Constant currency is
calculated by applying the average exchange rates for the year
ended 31 December 2018 to the financial results for the year ended
31 December 2017 on a month by month basis. The Group's principal
policy is to match cash flows of like currencies, with excess
sterling and US dollar revenues being settled into euros on a
timely basis.
Dividend
The directors are pleased to recommend a full year final
dividend payout of EUR8.6m equating to 9.0 euro cent per share.
This is in addition to the interim dividend of EUR4.6m or 4.8 euro
cent per share paid in September 2018. This payout of EUR13.2m or
13.8 euro cent per share (2017: 17.1 euro cent per share) reflects
a distribution of 75% of the Adjusted PAT for the year ended 31
December 2018 and is in line with our stated dividend policy.
The final dividend of 9.0 euro cent per share is to be approved
by shareholders at the 2019 AGM on 31 May 2019. If approved, the
dividend will be paid on 5 June 2019 to members appearing on the
register at close of business on 10 May 2019.
The Board continually reviews its approach to returning capital
to shareholders in order to ensure that the Group maintains an
efficient and prudent capital structure, which looks to provide
increased returns to shareholders, whilst at the same time
retaining flexibility for capital and other investment growth
opportunities. After payment of the proposed final dividend for
2018 the Group will have returned EUR56.7m to shareholders in
dividends since IPO in November 2015.
TJ Kelly
Chief Financial Officer
1 April 2019
HOSTELWORLD GROUP PLC
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2018
2018 2017
Note EUR'000 EUR'000
Revenue 3 82,087 86,672
Administrative expenses 4 (61,939) (60,380)
Depreciation and amortisation 4 (13,453) (14,395)
Operating profit 6,695 11,897
Financial income 20 9
Financial costs 7 (63) (75)
Profit before taxation 6,652 11,831
Taxation 8 (961) (582)
Profit for the year attributable to the equity owners of the parent company 5,691 11,249
--------- --------
Basic earnings per share (euro cent) 9 5.95 11.77
Diluted earnings per share (euro cent) 9 5.95 11.71
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
2018 2017
EUR'000 EUR'000
Profit for the year 5,691 11,249
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (2) 3
-------- --------
Total comprehensive income for the year attributable
to equity owners of the parent company 5,689 11,252
-------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
2018 2017
Note EUR'000 EUR'000
Non-current assets
Intangible assets 10 117,726 128,108
Property, plant and equipment 3,256 3,774
Deferred tax assets 99 480
-------- -------
121,081 132,362
Current assets
Trade and other receivables 11 2,814 3,966
Cash and cash equivalents 25,974 21,294
-------- -------
28,788 25,260
-------- -------
Total assets 149,869 157,622
-------- -------
Issued capital and reserves attributable to equity owners of the parent
Share capital 956 956
Foreign currency translation reserve 16 18
Share based payment reserve 630 960
Retained earnings 134,650 145,015
-------- -------
Total equity attributable to equity holders of the parent company 136,252 146,949
-------- -------
Non-current liabilities
Deferred tax liabilities 262 457
-------- -------
262 457
Current liabilities
Trade and other payables 12 12,946 9,832
Corporation tax 409 384
-------- -------
13,355 10,216
-------- -------
Total liabilities 13,617 10,673
-------- -------
Total equity and liabilities 149,869 157,622
-------- -------
The financial statements were approved by the Board of Directors
and authorised for issue on 1 April 2019 and signed on its behalf
by:
Gary Morrison TJ Kelly
Chief Executive Officer Chief Financial Officer
Hostelworld Group plc registration number 9818705 (England and
Wales)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2018
Foreign Share
Currency Based
Retained Translation Payment
Note Share Capital Earnings Other Reserves Reserve Reserve Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
As at 1 January
2017 956 154,986 3,628 15 351 159,936
-------------- --------------- -------------- --------------- -------- ---------
Total
comprehensive
income for the
year - 11,249 - 3 - 11,252
Dividends 16 - (24,848) - - - (24,848)
Release of
merger reserve - 3,628 (3,628) - - -
Credit to
equity for
equity-settled
share based
payments - - - - 609 609
As at 31
December 2017 956 145,015 - 18 960 146,949
-------------- --------------- -------------- --------------- -------- ---------
Total
comprehensive
income for the
year - 5,691 - (2) - 5,689
Dividends 16 - (16,056) - - - (16,056)
Debit to equity
for
equity-settled
share based
payments - - - - (330) (330)
As at 31
December 2018 956 134,650 - 16 630 136,252
-------------- --------------- -------------- --------------- -------- ---------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2018
2018 2017
Note EUR'000 EUR'000
Cash flows from operating activities
Profit before tax 6,652 11,831
Depreciation of property, plant and
equipment 4 1,232 1,064
Amortisation of intangible assets 4 12,221 13,331
Financial income (20) (9)
Financial expense 7 63 75
Employee equity settled share based
payment (credit)/ expense 14 (346) 623
Changes in working capital items:
Increase in trade and other payables 3,129 149
Decrease/ (increase) in trade and
other receivables 1,152 (1,340)
--------- --------
Cash generated from operations 24,083 25,724
Interest paid (63) (75)
Interest received 20 9
Income tax paid (749) (551)
--------- --------
Net cash from operating activities 23,291 25,107
--------- --------
Cash flows from investing activities
Acquisition/capitalisation of intangible
assets (1,839) (1,820)
Purchases of property, plant and equipment (714) (1,780)
Net cash used in investing activities (2,553) (3,600)
--------- --------
Cash flows from financing activities
Dividends paid 16 (16,056) (24,848)
--------- --------
Net cash used in financing activities (16,056) (24,848)
--------- --------
Net increase/ (decrease) in cash and
cash equivalents 4,682 (3,341)
Cash and cash equivalents at beginning
of year 21,294 24,632
Effect of foreign exchange rate changes (2) 3
--------- --------
Cash and cash equivalents at end of
year 25,974 21,294
--------- --------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2018
1. GENERAL INFORMATION AND BASIS OF PREPARATION
The financial information, comprising of the consolidated income
statement, consolidated statement of comprehensive income,
consolidated statement of financial position, consolidated
statement of changes in equity, consolidated statement of cash
flows and related notes, has been taken from the consolidated
financial statements of Hostelworld Group plc ("Company") for the
year ended 31 December 2018, which were approved by the Board of
Directors on 1 April 2019. The financial information does not
constitute statutory accounts within the meaning of sections 435(1)
and (2) of the Companies Act 2006 or contain sufficient information
to comply with the disclosure requirements of International
Financial Reporting Standards ("IFRS").
An unqualified report on the consolidated financial statements
for the year ended 31 December 2018 has been given by the auditors,
Deloitte. It did not include reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and did not contain any statement under section 498 (2) or
(3) of the Companies Act 2006. The consolidated financial
statements will be filed with the Registrar of Companies, subject
to their approval by the Company's shareholders at the Company's
Annual General Meeting on 31 May 2019.
The Company, is a public limited company incorporated in the
United Kingdom on the 9 October 2015. The registered office of the
Company is High Holborn House, 52 - 54 High Holborn, London, WC1V
6RL, United Kingdom.
The Company and its subsidiaries (together "the Group") provide
software and data processing services that facilitate hostel,
B&B, hotel and other accommodation bookings worldwide.
Basis of Preparation
The consolidated financial statements incorporate the financial
statements of the Company and its directly and indirectly owned
subsidiaries, all of which prepare financial statements up to 31
December. The consolidated financial statements have been prepared
in accordance with IFRS, International Financial Reporting
Interpretations Committee ("IFRIC") interpretations and those parts
of the Companies Act 2006, applicable to companies reporting under
IFRS. The Group financial statements have been prepared in
accordance with IFRSs adopted by the European Union ("the EU")
which comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB").
The consolidated financial statements have been prepared on the
historical cost basis.
The directors have assessed the ability of the Company and Group
to continue as a going concern and are satisfied that it is
appropriate to prepare the financial statements on a going concern
basis of accounting. In doing so, the directors have assessed that
there are no material uncertainties to the Company's and Group's
ability to continue as a going concern for the foreseeable future,
being a period of at least 12 months from the date of approval of
the financial statements.
2. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group's accounting policies, the
directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors considered relevant. Actual results may differ from these
estimates.
(a) The critical judgements that have been made that have the
most significant effect on the amounts recognised in the
consolidated financial statements are set out below:
Capitalisation of development costs
Development costs are capitalised in accordance with accounting
policies. Determining the amount to be capitalised requires the
directors to make assumptions regarding expected future cash
generation of the asset and expected period of benefit.
Tax provisioning
The Group, as a global business, is subject to both
international and local transfer pricing legislation. The directors
review the transfer pricing position to ensure any potential
exposure is adequately assessed.
(b) Key sources of estimation that have been made that have the
most significant effect on the amounts recognised in the
consolidated financial statements are set out below:
Useful lives for amortisation of intangible assets
Intangible assets are disclosed in note 10. The amortisation
charge is dependent on the estimated useful lives of the assets.
The directors regularly review estimated useful lives of each type
of intangible asset and change them as necessary to reflect its
current assessment of remaining lives and the expected pattern of
future economic benefit embodied in the asset. Changes in asset
lives can have a significant impact on the amortisation charges for
that year.
Impairment of goodwill and intangible assets
The directors assess annually whether goodwill has suffered any
impairment, in accordance with the relevant accounting policy and
intangible assets are assessed for possible impairment where
indicators of impairment exist. The recoverable amounts of
cash-generating units ("CGUs") are determined based on value-in-use
calculations that require the use of estimates.
The value-in-use calculations are prepared using cash flow
projections based on three year budgets approved by the directors
and extended out for a further 2 years. The cash flow projections
take into account key assumptions including historical trading
performance, anticipated changes in future market conditions,
industry and economic factors and business strategies
Further details on the assumptions used are set out in note
10.
Deferred Tax
Deferred tax assets are recognised for all unused tax losses to
the extent that it is probable that taxable profits will be
available in future periods against which the losses can be
utilised. Judgement is required to determine the amount of deferred
tax assets that can be recognised, based upon the likely timing and
level of future taxable profits.
3. REVENUE & SEGMENTAL ANALYSIS
The Group is managed as a single business unit which provides
software and data processing services that facilitate hostel, hotel
and other accommodation worldwide, including ancillary on-line
advertising revenue.
The directors determine and present operating segments based on
the information that is provided internally to the Chief Executive
Officer, who is the Company's Chief Operating Decision Maker
("CODM"). When making resource allocation decisions, the CODM
evaluates booking numbers and average booking value. The objective
in making resource allocation decisions is to maximise consolidated
financial results.
The CODM assesses the performance of the business based on the
consolidated adjusted profit/ (loss) after tax of the Group for the
year. This measure excludes the effects of certain income and
expense items, which are unusual by virtue of their size and
incidence, in the context of the Group's ongoing core operations,
such as the impairment of intangible assets and one-off items of
expenditure.
All revenue is derived wholly from external customers and is
generated from a large number of customers, none of whom is
individually significant.
The Group's major revenue-generating asset class comprises its
software and data processing services and is directly attributable
to its reportable segment operations. In addition, as the Group is
managed as a single business unit, all other assets and liabilities
have been allocated to the Group's single reportable segment.
There have been no changes to the basis of segmentation or the
measurement basis for the segment profit or loss.
Reportable segment information is presented as follows:
2018 2017
EUR'000 EUR'000
Europe 49,060 52,114
Americas 15,149 16,196
Asia, Africa and Oceania 17,878 18,362
---------- ----------
Total revenue 82,087 86,672
---------- ----------
As at 31 December 2018, EUR2,892k of revenue relating to free
cancellation bookings has been deferred (2017: EURnil).
Disaggregation of revenue is presented as follows:
2018 2017
EUR'000 EUR'000
Technology and data processing fees 79,696 84,517
Advertising revenue and ancillary services 2,391 2,155
---------- ----------
Total revenue 82,087 86,672
---------- ----------
In the year ended 31 December 2018, the Group generated 97%
(2017: 98%) of its revenues from the technology and data processing
fees that it charged to accommodation providers.
Revenue is recognised at the time the reservation is made in
respect of non-refundable commission on the basis that the Group
has met its performance obligations at the time the booking is
made. In respect of the free cancellation product, which offers the
traveller the opportunity to make a booking on a free cancellation
basis and to receive a refund of their deposit in certain
circumstances, such related revenue is not recognised until the
last cancellation date has passed as one party can withdraw from
the contract until such a date has passed. Deferred revenue is
expected to be recognised within twelve months of initial
recognition.
Advertising revenue and revenue generated from other services
are recognised over the period when the service is performed.
The Group's non-current assets are located in Ireland,
Luxembourg, Portugal and the UK. Out of the total non-current
assets in the Group of EUR121,081k (2017: EUR132,362k), the
non-current assets of the Group located in the UK are EUR1,654k
(2017: EUR2,659k) and in Portugal are EUR623k (2017: EUR617k).
4. OPERATING EXPENSES
Profit for the year has been arrived at after charging/
(crediting) the following operating costs:
2018 2017
Note EUR'000 EUR'000
Marketing expenses 31,203 33,068
Staff costs 6 17,179 17,543
Credit card processing fees 2,379 2,048
Exceptional Items 5 1,590 (494)
FX loss/ (gain) 64 (102)
Other administrative costs 9,524 8,317
---------- -------
Total administrative expenses 61,939 60,380
Depreciation of tangible fixed assets 1,232 1,064
Amortisation of intangible fixed
assets 10 12,221 13,331
---------- -------
Total operating expenses 75,392 74,775
---------- -------
Auditors' remuneration
During the year, the Group obtained the following services from
its Auditors:
2018 2017
EUR'000 EUR'000
Fees payable for the statutory audit
of the Company 41 35
Fees payable for other services:
- statutory audit of subsidiary
undertakings 96 115
- tax advisory services - -
- other assurance services - -
- corporate finance services - -
- other services 2 4
---------- --------
Total 139 154
---------- --------
5. EXCEPTIONAL ITEMS
2018 2017
EUR'000 EUR'000
Restructuring costs 1,590 -
Merger and acquisition credit - (494)
Total 1,590 (494)
---------- --------
Restructuring costs of EUR1,590k include costs relating to the
restructure of the senior management team and an internal
reorganisation of the Group's non-current assets (see note 17). The
credit of EUR494k in 2017 relates to the release of an accrual
relating to previously recognised merger and acquisition costs
within the Group.
6. STAFF COSTS
The average monthly number of people employed (including
executive directors) was as follows:
2018 2017
Average number of persons employed
Administration and sales 188 165
Development and information technology 106 89
----- -----
Total 294 254
----- -----
The aggregate remuneration costs of these employees is analysed
as follows:
2018 2017
Note EUR'000 EUR'000
Staff costs comprise:
Wages and salaries 16,194 16,073
Social security costs 1,889 1,800
Pensions costs 389 356
Other benefits 711 438
Long-term employee incentive (credit)/
costs 14 (346) 623
Capitalised development labour (1,658) (1,747)
---------- --------
Total 17,179 17,543
---------- --------
7. FINANCIAL COSTS
2018 2017
EUR'000 EUR'000
Bank charges 63 75
-------- --------
Total 63 75
-------- --------
8. TAXATION
2018 2017
EUR'000 EUR'000
Corporation tax:
Current year 776 686
Adjustments in respect of prior years (1) 24
---------- ----------
Total 775 710
Deferred tax charge/ (credit) 186 (128)
---------- ----------
Total 961 582
---------- ----------
Corporation tax is calculated at 12.5% (2017: 12.5%) of the
estimated taxable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions. The charge for the year can be reconciled
to the consolidated income statement as follows:
2018 2017
EUR'000 EUR'000
Profit before tax on continuing operations 6,652 11,831
--------- ----------------
Tax at the Irish corporation tax rate of 12.5%
(2017: 12.5%) 832 1,479
Effects of :
Tax effect of expenses that are not deductible
in determining taxable profit 622 515
Tax effect of utilisation of tax losses not previously
recognised (827) (1,662)
Capital allowances in excess of depreciation (283) (293)
Effect of different tax rates of subsidiaries
operating in other jurisdictions 201 299
Reversal of deferred tax asset on tax losses 417 220
Adjustments in respect of prior years (1) 24
--------- ----------------
Total 961 582
--------- ----------------
The tax losses arise primarily from the previous capital
structure of the Group.
The Group has an unrecognised deferred tax asset as at 31
December 2018 of EUR3,476k (31 December 2017: EUR3,125k) which has
not been recognised in the consolidated financial statements as
there is insufficient evidence that the asset will be recovered in
the foreseeable future.
9. EARNINGS PER SHARE
Basic earnings per share is computed by dividing the net profit
for the year available to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the year.
2018 2017
Weighted average number of shares in issue
('000s) 95,571 95,571
Profit for the year (EUR'000s) 5,691 11,249
------- -------
Basic earnings euro cent per share 5.95 11.77
------- -------
Diluted earnings per share is computed by dividing the net
profit for the year by the weighted average number of ordinary
shares outstanding and, when dilutive, adjusted for the effect of
all potentially ordinary shares.
2018 2017
Weighted average number of ordinary shares
in issue ('000s) 95,571 95,571
Effect of dilutive potential ordinary
shares:
Share options ('000s) 11 473
------- ------
Weighted average number of ordinary shares
for the purpose of diluted earnings per
share ('000s) 95,582 96,044
------- ------
Diluted earnings euro cent per share 5.95 11.71
------- ------
Actual earnings per share, calculated by dividing the net profit
attributable to ordinary shareholders by the actual number of
ordinary shares in issue at 31 December 2018, is 5.95 euro cent
(2017: earnings per share of 11.77 euro cent).
10. INTANGIBLE ASSETS
The table below shows the movements in intangible assets for the
year:
Capitalised
Domain Affiliates Development
Goodwill Names Technology Contracts Costs Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Cost
Balance at 1 January
2017 47,274 214,640 13,814 5,500 8,120 289,348
Additions - - 73 - 1,747 1,820
Balance at 31 December
2017 47,274 214,640 13,887 5,500 9,867 291,168
----------- ---------- ----------- ----------- ------------- ----------
Balance at 1 January
2018 47,274 214,640 13,887 5,500 9,867 291,168
Additions - - 181 - 1,658 1,839
Balance at 31 December
2018 47,274 214,640 14,068 5,500 11,525 293,007
----------- ---------- ----------- ----------- ------------- ----------
Accumulated amortisation
and impairment
Balance at 1 January
2017 (29,426) (96,304) (13,445) (5,500) (5,054) (149,729)
Charge for year - (10,149) (257) - (2,925) (13,331)
Balance at 31 December
2017 (29,426) (106,453) (13,702) (5,500) (7,979) (163,060)
----------- ---------- ----------- ----------- ------------- ----------
Balance at 1 January
2018 (29,426) (106,453) (13,702) (5,500) (7,979) (163,060)
Charge for year - (10,247) (106) - (1,868) (12,221)
Balance at 31 December
2018 (29,426) (116,700) (13,808) (5,500) (9,847) (175,281)
----------- ---------- ----------- ----------- ------------- ----------
Carrying amount
At 31 December 2017 17,848 108,187 185 - 1,888 128,108
----------- ---------- ----------- ----------- ------------- ----------
At 31 December 2018 17,848 97,940 260 - 1,678 117,726
----------- ---------- ----------- ----------- ------------- ----------
Goodwill
The goodwill balance at 31 December 2018 relates to an
investment in Hostelworld.com Limited in 2009 which resulted in a
goodwill amount of EUR17,848k. The carrying value of this balance
as at 31 December 2018 is EUR17,848k (2017: EUR17,848k).
Goodwill, which has an indefinite useful life, is subject to
annual impairment testing, or more frequent testing if there are
indicators of impairment. The recoverable amounts of the cash
generating units ("CGUs") are determined from value in use
calculations. The cash flow projections are initially based on the
three year budgets approved by the directors and extended out for a
further 2 years. The cash flow projections take into account key
assumptions including historical trading performance, anticipated
changes in future market conditions, industry and economic factors
and business strategies.
The pre-tax discount rate which has been applied in determining
value in use is 10.8% (2017: 10.7%). The discount rate is based on
the Group estimated weighted average cost of capital adjusted for
the business specific risk of the CGU. The revised discount rate in
2018 was calculated from first principles by a third party
professional advisor. Growth rates are assessed based on the
approved three year 2019 budget and over the two year forecast
period after 2021, they range from 5% to 6%. Cash flows beyond the
5 year period are extrapolated using the estimated long- term
growth rate of 2.8% (2017: 2.5%). This long term growth rate was
calculated using global rates by a third party professional
advisor.
There are no reasonably possible or material changes to the
assumptions presented above that would result in any further
impairment recorded in each of the years presented in these
financial statements.
Following impairment testing, no impairment was recognised for
goodwill in 2018.
Other Intangible Assets
Additions during the year comprised of internally generated
additions of EUR1,658k (2017: EUR1,747k) and other separately
acquired additions of EUR181k (2017: EUR73k).
There were no indicators to require an impairment test of
intangible assets in the current year.
In 2018, as a result of a strategic review of the business by
the directors, the estimated useful life of the Hostels.com domain
name was reduced to a period of 12 months from 1 July 2018, to be
amortised on a straight line basis. This had a result of increasing
the amortisation charge relating to Hostels.com by EUR305k in 2018
and similarly increasing this amortisation charge by the same
amount in 2019. Management considers that this change in relation
to Hostels.com domain name does not have implications on
goodwill.
11. TRADE AND OTHER RECEIVABLES
2018 2017
EUR'000 EUR'000
Amounts falling due within one year
Trade receivables 1,067 1,017
Prepayments 804 932
Value Added Tax 943 2,017
---------- -------
Total 2,814 3,966
---------- -------
The carrying value of trade and other receivables also
represents their fair value. Trade receivables are non-interest
bearing and trade receivable days are 5 days (2017: 4 days). Given
the nature of the business, allowance for impairment of receivables
is not material.
12. TRADE AND OTHER PAYABLES
2018 2017
EUR'000 EUR'000
Amounts falling due within one year
Trade payables 2,361 2,265
Accruals and other payables 5,937 5,273
Deferred Revenue 4,095 1,734
Payroll taxes 553 560
Total 12,946 9,832
-------------- ----------
At 31 December 2018, EUR2,892k deferred revenue related to free
cancellation bookings is included in Deferred Revenue (2017:
EURnil).
The average credit period for the Group in respect of trade
payables is 21 days (2017: 20 days). The directors consider that
the carrying amount of trade payables approximates to their fair
value.
13. COMMITMENTS AND CONTINGENCIES
(i) Operating Leases
At the reporting date, the Group had commitments under
non-cancellable operating leases which fall due as follows:
2018 2017
EUR'000 EUR'000
Operating leases
Within one year 1,124 1,017
Within two to five years 2,653 3,077
More than five years 725 1,294
-------- --------
Total 4,502 5,388
-------- --------
All operating lease commitments relate to buildings. These
relate to four leases of office space in Ireland, UK, Portugal and
China. These leases are due to expire in 2035, 2025, 2022 and 2020
respectively. If the Group was to exercise available break options,
the leases in Ireland and the UK would expire in 2025 and 2020
respectively.
The operating lease charge included in the consolidated income
statement was EUR1,144k in 2018 (2017: EUR1,040k).
(ii) Contingencies
In the normal course of business the Group may be subject to
indirect taxes on its services in certain foreign jurisdictions.
The directors perform ongoing reviews of potential indirect taxes
in these jurisdictions. Although the outcome of these reviews and
any potential liability is uncertain, no provision has been made in
relation to these taxes as the directors believe that it is not
probable that a material liability will arise.
14. SHARE-BASED PAYMENTS
Long Term Incentive Plan ("LTIP") scheme
In April 2016, the Group introduced a Long Term Incentive Plan
for executive directors and selected management. The proportion of
each award which vests, will depend on the Adjusted Earnings per
Share ("EPS") performance and Total Shareholder Return ("TSR") of
the Group over a three year period ("the performance period").
Up to 70% of the shares/options subject to an award will vest
according to the Group's adjusted EPS growth compared with target
during the performance period. Up to 30% of the shares/options
subject to an invitation will vest according to the Group's TSR
performance during the performance period measured against the TSR
performance indicators approved by the Remuneration Committee. An
award will lapse if a participant ceases to be an employee or an
officer within the Group before the vesting date and is not subject
to good leaver provisions.
During the year ended 31 December 2018, the Remuneration
Committee approved the grant of 773,797 share options pursuant to
the terms and conditions of the Group's LTIP Rules. These were
granted in three separate offerings. In 2018, EUR141k was expensed
in the consolidated income statement in relation to these awards.
EUR608k was credited to the consolidated income statement for the
year ended 31 December 2018 for the awards made in 2016 and 2017.
This credit is mainly due to the forfeiture of the 2016 awards
which will not vest in April 2019 due to vesting conditions not
being satisfied and a change in the estimate of shares that will
vest under the EPS component of the 2017 awards.
Details of the share options outstanding during the year are as
follows:
2018 2017
No. of share No. of share
options options
Outstanding at beginning of year 1,324,039 928,464
Granted during the year 773,797 847,663
Forfeited during the year (1,221,879) (452,088)
Exercised during the year - -
Expired during the year - -
------------- -------------
Outstanding at the end of the year 875,957 1,324,039
Exercisable at the end of the year - -
------------- -------------
Included in the number of options forfeited in 2018, are 562,626
options of the 2016 awards which did not meet the vesting
conditions based on performance conditions from 1 January 2016 to
31 December 2018.
The remaining awards will vest on the later of the 3rd
anniversary of the grant and the determination of the performance
condition, and will then remain exercisable until the 7th
anniversary of the date of grant, provided the individual remains
an employee or officer of the Group or is subject to good leaver
provisions. The measurement period for the 2017 and 2018 awards for
performance conditions is over 3 years from 1 January 2017 to 31
December 2019 and from 1 January 2018 to 31 December 2020
respectively.
Share options under the LTIP scheme have an exercise price of
GBPnil. The fair value, at the grant date, of the TSR-based
conditional awards was measured using a Monte Carlo simulation
model.
Fair value of options granted during the year:
At the grant date, the fair value per conditional award and the
assumptions used in the calculations are as follows:
December June 2018 April 2018 March 2017
2018
Year of potential vesting 2021 2021 2021 2020
Number of share options granted 98,520 175,723 499,554 847,663
Share price at grant date GBP1.99 GBP3.15 GBP3.86 GBP2.33
Exercise price per share option GBPnil GBPnil GBPnil GBPnil
Expected volatility of Company
share price 41.5% 47.0% 46.0% 46.0%
Expected life 3 years 3 years 3 years 3 years
Expected dividend yield 7.6% 4.8% 3.8% 5.7%
Risk free interest rate 0.75% 0.76% 0.88% 0.21%
Weighted average fair value GBP1.48 GBP2.64 GBP3.35 GBP1.92
at grant date
Remaining weighted average
life of options (years) 2.93 2.50 2.28 1.24
Expected volatility was determined in line with market
performance of the Company and comparator companies as there was
insufficient historic data available for the Company at the grant
date of the awards up to and including the June 2018 awards. The
expected volatility for the December 2018 awards was determined
based on the market performance of the Company over 2.07 years,
corresponding to the remaining time left of the measurement period.
Market based vesting conditions, such as the TSR condition, have
been taken into account in establishing the fair value of equity
instruments granted. Non-market based performance conditions, such
as the EPS conditions, were not taken into account in establishing
the fair value of equity instruments granted, however the number of
equity instruments included in the measurement of the transaction
is adjusted so that the amount recognised is based on the number of
equity instruments that eventually vest.
Save As You Earn ("SAYE") scheme
During the year ended 31 December 2018, the Remuneration
Committee approved the granting of share options under a SAYE
scheme for all eligible employees across the Group. 24 employees in
Ireland availed of the scheme in 2018 (2017: 73 employees availed
of the 2017 scheme). The scheme will last three years and employees
may choose to purchase shares at the end of the three year period
at the fixed discounted price set at the start. The share price for
the scheme has been set at a 20% discount for Irish and UK based
employees in line with amounts permitted under tax legislation in
both jurisdictions.
The total expected cost of the 2018 SAYE scheme was estimated at
EUR41k of which EUR7k has been recognised in the consolidated
income statement for the year ended 31 December 2018. The remaining
EUR34k will be charged against profit or loss in equal instalments
over the remainder of the three year vesting period. The total
expected cost of the 2017 SAYE scheme was estimated at EUR200k of
which EUR115k (2017: EUR37k) has been recognised in the
consolidated income statement for the current year.
Number of SAYE share options
granted
2018 2017
Outstanding at beginning of year 171,333 -
Granted during the year 90,819 181,208
Forfeited during the year (96,990) (9,875)
---------------- -------------
Outstanding share options granted at
end of year 165,162 171,333
---------------- -------------
Fair value of options granted during the year:
At the grant date, the fair value per conditional award and the
assumptions used in the calculations are as follows:
Scheme Irish office UK office Irish office
Grant date September 2018 July 2017 July 2017
Year of potential vesting 2021 2020 2020
Share price at grant date EUR2.40 GBP3.37 EUR4.00
Exercise price per share option EUR2.56 GBP2.78 EUR3.24
Expected volatility of company
share price 47.5% 45.0% 44.6%
Expected life 3 years 3 years 3 years
Expected dividend yield 6.9% 4.0% 4.0%
Risk free interest rate (0.40%) 0.38% 0.38%
Weighted average fair value
at grant date EUR0.45 GBP0.99 EUR1.10
Valuation model Black Scholes Black Scholes Black Scholes
Expected volatility was determined in line with market
performance of the Company and comparator companies as there was
insufficient historic data available for the Company at the grant
date of the awards.
The charge of EUR121k (2017: EUR37k) in relation to the SAYE
schemes, together with the credit in respect of the long-term
incentive plan for the year of EUR467k (2017: EUR586k expense) is
the total charge in respect of share-based payments, which has been
recognised directly in equity. The LTIP and SAYE schemes are
accounted for as equity-settled in the financial statements.
The Group recognised a credit of EUR346k (2017: EUR623k expense)
relating to equity-settled share-based payment transactions in the
consolidated income statement during the year.
Cash settled share-based payments
During 2018, the Group issued to certain individuals share
appreciation rights ("SARs"), in the form of Phantom Shares that
require the Group to pay the intrinsic value of the SAR at the date
of exercise. The Group has recorded liabilities of EUR3k and a
corresponding expense of EUR3k in relation to these SARs as at 31
December 2018 (2017: EURnil). The fair value of these SARs was
determined by using a Black Scholes model.
15. RELATED PARTY TRANSACTIONS
SUBSIDIARIES
The following is a list of the Company's current investments in
subsidiaries, including the name, country of incorporation, and
proportion of ownership interest:
Company Holding Nature of Business Registered Office
WRI Nominees DAC 100%* Holding of IP Floor 2, One Central
Park, Leopardstown, Dublin
18, Ireland
15, Boulevard Friedrich
Wilhelm Raiffeisen, L-2411
Luxembourg **
Hostelworld.com Limited 100% Technology trading Floor 2, One Central
company Park, Leopardstown, Dublin
18, Ireland
Hostelworld Services 100% Marketing and research Aviz Trade Center, Rua
Portugal LDA and development services Engenheiro Ferreira Dias,
company 924, 2(nd) Andar, Sala
E27, 4100-246 Porto,
Portugal
Hostelworld Services 100%* Marketing services High Holborn House, 52
Limited and technology trading - 54 High Holborn, London,
company WC1V 6RL, United Kingdom
* held directly by the Company
** WRI Nominees DAC is dually incorporated in Luxembourg and
Ireland with registered offices in both locations. Its place of
business is in Luxembourg. On 12 March 2019, WRI Nominees DAC was
placed in liquidation by way of members' voluntary winding up.
All subsidiaries have the same reporting date as the Company
being 31 December.
On 30 November 2018, Hostelworld Korea Limited was placed into
voluntary liquidation.
On 24 March 2017, Hostelworld Services LDA was incorporated in
Portugal. On 13 November 2017, Wings Lux 3 S.à r.l. and Cornetto
Bidco Limited transferred their shares in Hostelworld Services
Limited to the Company. On 21 December 2017, WRI Nominees DAC
purchased 96 ordinary shares in Hostelworld.com Limited which
represents a 49% ownership. Hostelworld Group plc owns the
remaining 51% directly.
During 2017, as part of a group reorganisation, Wings Lux 2 S.à
r.l., Wings Lux 3 S.à r.l., Wings Holdco Limited and Cornetto Bidco
Limited were liquidated/ wound up.
Directors' remuneration
2018 2017
EUR'000 EUR'000
Salaries, fees, bonuses and benefits in
kind 1,004 1,321
Amounts receivable under long-term incentive
schemes 44 207
Termination benefits 467 -
Pension contributions 52 58
-------- --------
Total 1,567 1,586
-------- --------
Retirement benefit charges of EUR52k (2017: EUR58k) arise from
pension payments relating to 4 executive directors (2017: 2).
Key management personnel
The Group's key management comprise the Board of Directors and
senior management having authority and responsibility for planning,
directing and controlling the activities of the Group.
2018 2017
EUR'000 EUR'000
Short term benefits 2,892 2,882
Share based payments (credit)/ charge (253) 420
Termination benefits 1,121 -
Post employment benefits 123 112
---------- ----------
Total 3,883 3,414
---------- ----------
In 2018, it was determined that the non-market vesting condition
of the 2016 LTIPs was not satisfied and there was a change in
vesting estimate for the non-market vesting condition of the 2017
LTIPs, as disclosed in note 14. This led to a reversal of the
cumulative expense recognised in 2016 and 2017 in relation to this
element of these awards in accordance with the requirements of
IFRS2 and as a result, there is a negative expense included for
share based payments in the Key Management Personnel
disclosure.
16. DIVIDENDS
Amounts recognised as distributions to equity holders in the
financial year:
2018 2017
EUR'000 EUR'000
Final 2017 dividend of EUR0.12 per share
(paid 14 June 2018) 11,468
Interim 2018 dividend of EUR0.048 per
share (paid 21 September 2018) 4,588
Final 2016 dividend of EUR0.104 per share
(paid 6 June 2017) 9,939
Supplementary 2016 dividend of EUR0.105
per share (paid 6 June 2017) 10,035
Interim 2017 dividend of EUR0.051 per
share (paid 22 September 2017) 4,874
16,056 24,848
--------- ---------
Proposed final dividend for the year ended 31
December 2018 of
EUR0.09 per share (2017: EUR0.12 per share) 8,601 11,468
--------- ---------
In accordance with the Group's dividend policy, the directors
recommend the payment of a final dividend for 2018 of EUR0.09 per
share amounting to EUR8.6m (2017: EUR0.12 per share amounting to
EUR11.5m).
The proposed dividends are to be approved by the shareholders at
the 2019 AGM on 31 May 2019.
17. EVENTS AFTER THE BALANCE SHEET DATE
As part of a group reorganisation, Hostelworld.com Limited
acquired certain assets from WRI Nominees DAC for a consideration
of EUR151m on 12 March 2019. On 12 March 2019, WRI Nominees DAC was
placed in liquidation by way of members' voluntary winding up.
There were no other significant events after the balance sheet
date.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UGUPWCUPBGBG
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April 02, 2019 02:01 ET (06:01 GMT)
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