TIDMHSW
RNS Number : 9178E
Hostelworld Group PLC
04 March 2020
LEI:213800OC94PF2D675H41
Hostelworld Group plc
("Hostelworld" or the "Group" or the "Company")
Preliminary Results for the Year ended 31 December 2019
EBITDA in line with guidance, underpinned by a return to net
bookings growth during the latter part of H2 2019; and significant
opportunities for future growth identified
04(th) March 2020: Hostelworld, a leading global OTA focussed on
the hostel market, is pleased to announce its preliminary results
for the year ended 31 December 2019
Strategic Developments
-- Strong progress on our "Roadmap for Growth" strategy to strengthen our core business, driving a return to net
bookings growth in the latter part of H2 2019 - remaining elements to be rolled out in 2020.
-- Two strategic investments in Goki Pty Limited ("Goki") and in Counter App Limited ("Counter"). Both respectively
provide tailored guest management, property management and payments solutions for the hostel industry,
strengthening our relationship with hostel owners.
-- Executive management team strengthened further during the year across Marketing, Supply, Product and Human
Resources
-- Significant potential to enhance future growth through both organic and inorganic investment opportunities,
primarily through building out a broader catalogue of experiential travel products beyond hostel accommodation.
-- With its deep knowledge of experiential travellers built up over 20 years, a trusted brand, and a loyal and
relevant customer base, the Group is uniquely positioned to help both its existing customers and new experiential
travellers Meet the World (R) together with other like-minded travellers.
-- Rebased dividend policy to a progressive dividend with a pay-out of between 20-40% of Adjusted Profit After Tax
to underpin these investments, which should see shareholder returns increasing in the medium to long term
Operational & Financial Highlights
-- While full year net revenue of EUR80.7m declined 2% (2018: -5%), H2 net revenue of EUR41.8m increased 6% (H1
2019: -9%)
-- Full year Hostelworld brand net bookings declined by 5% (2018: -1%), with a return to net bookings volume growth
during H2 2019 -1% (H1 2019: -8%), driven by Q4 2019 +1%
-- Average Net Booking Value of ("ABV") EUR11.97 (2018: EUR11.64), a 3% increase over 2018
-- Cancellations of EUR9.3m (2018: EUR5.5m) in-line with expectations, year-over-year increase reflects full year
impact of July 2018 global roll-out
-- Operating costs were flat compared to 2018, (excluding impact of exceptional costs and IFRS 16), despite our
investment in "Roadmap for Growth" initiatives and having delivered a return to growth in the latter part of H2
2019
-- Marketing costs increased to 41% of net revenue (excluding deferred revenue), (2018: 37%) driven by the full year
impact of cancellations in 2019, CPC inflation and increased paid channel investment in H2 2019
-- Adjusted EBITDA of EUR20.5m (2018: EUR22.5m) in-line with market expectations, down 9% on 2018 and 11% on a
constant currency basis
-- Return on Capital Employed of 11% (2018: 13%)
-- Adjusted Earnings per Share of 15.5 EUR cent (2018: 18.2 EUR cent)
-- Adjusted cash conversion of 53% (2018: 101%) and free cash flow of EUR10.9m (2018: EUR22.8m), impacted by one-off
timing of cash receipts and increased investment spend. Adjusting for these one-off items, and the impact of the
deferral of the revenue related to free cancellation bookings, normalised cash of 64% (2018: 90%)
-- Proposed final dividend of 2.1 EUR cent per share (2018: 9.0 EUR cent), full year dividend 6.3 EUR cent per share
(2018: 13.8 EUR cent per share) and a total distribution of 41% of Adjusted PAT, in line with the updated Group
dividend policy
Gary Morrison, Chief Executive Officer, commented:
"Following the group's return to growth in 2019, I see
significant opportunities to build a broader catalogue of
experiential travel products beyond hostel accommodation. These
types of experiences may include opportunities to study, work or
volunteer abroad, with hostel stays featuring as part of an
extended itinerary. Our research would also suggest that this
market is very fragmented, with many different marketplaces and
business models.
With the group's deep knowledge of experiential travellers built
up over 20 years, our trusted brand, and a loyal and relevant
customer base, I believe we are uniquely positioned to help both
our existing customers and new experiential travellers Meet the
World (R) together with other like-minded travellers. To execute
this strategy, the Group has increased its focus on potential
M&A opportunities in the past six months and built an extensive
pipeline of potential targets.
Overall, the Group sees significant potential for the further
deployment of capital to enhance future growth through both organic
and inorganic investment opportunities. As a result, the Board has
taken the decision to rebase the dividend policy. A rebased
progressive dividend with a pay-out of between 20-40% of Adjusted
Profit After Tax will enable investment in organic and inorganic
opportunities which should see shareholder return increase in the
medium to long term."
Outlook:
While we entered 2020 with positive momentum, trading since
late-January has been challenged by the outbreak of the COVID-19
virus which is having a significant impact on global travel demand,
within Asian markets and more recently within the European market.
As the Coronavirus has spread from region to region, we have
observed a material reduction in bookings and an increase in
marketing cost as a percentage of net revenue. This has been driven
by a significant reduction of bookings from free channels, an
increase in longer lead time cancellations across all channels and
an increase in investment in paid channels to partially offset the
bookings decline in free channels. Given that the depth and
duration of the virus outbreak is impossible to forecast at this
time, we are unable to calibrate its effect for the balance of the
year; however, if near term trends were to persist to the end of
March we estimate the impact to EBITDA to be in the range EUR3m to
EUR4m for Q1'20. With continued tight cost control and our strong
cash generative characteristics, the Group remains resilient in
volatile market conditions.
This announcement contains inside information for the purposes
of Article 7 of Regulation 596/2014 ("MAR").
For the purposes of MAR and Article 2 of Commission Implementing
Regulation (EU) 2016/1055, this announcement is being made on
behalf of the Company by TJ Kelly, Chief Financial Officer.
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
TJ Kelly, Chief Financial Officer
Rudolf O'Kane, Head of Commercial
Finance +353 (0) 1 498 0700
Powerscourt hostelworld@powerscourt-group.com
Lisa Kavanagh / Jack Shelley +44 (0) 20 7250 1446
Jack Hickey +353 83 4488 339
About Hostelworld Group
Hostelworld Group, the global hostel-focussed online booking
platform, inspires passionate travellers to Meet The World, and
come back with life-changing stories to tell. Our customers are not
your average tourists; they crave cultural connection and unique
experiences that we make possible by providing an unbeatable
selection of hostels in unmissable locations - all in the palm of
their hand.
It is the social nature and community feel of hostels and their
environment that enable travellers to embrace journeys of
discovery, adventure and meaning. We have more than 13 million
reviews across more than 17,700 hostels in more than 179 countries,
making our brand the leading online hub for social travel. Our
website operates in 19 different languages and our mobile app in 13
languages.
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
2019 was a milestone year for the Hostelworld Group, where we
marked 20 years since the formation of the business.
Gary Morrison, CEO, completed a detailed strategic review of the
business during the latter part of 2018, which identified a number
of areas of underinvestment in the business as well as a "Roadmap
for Growth" programme to capitalise on the significant
opportunities for the business. The progress achieved is covered in
more detail in the Chief Executive's Review, but the programme is
designed to strengthen our core business, to close the competitive
and technological deficits and to enhance our customers experience.
At the time we announced the "Roadmap for Growth" programme we said
that the benefits of these initiatives would be seen through a
return to growth during 2020. I am pleased to report that the
business saw a return to growth during the latter part of 2019.
Despite experiencing weaker consumer sentiment during the peak
summer months, a return to year-on-year net bookings growth started
in September and continued to build momentum during the final
quarter of the year.
We are encouraged by this strong endorsement of the Hostelworld
brand and the vindication of our strategy. In addition, we believe
that the business will be well-placed with a solid foundation to
capitalise on exciting growth opportunities and to provide our
customers with an enhanced product offering through an expanding
portfolio.
Dividend and Capital Structure
Given the growth opportunities the Board wishes to pursue, and
the resources and investment required to deliver against our
"Roadmap for Growth" strategy, the Board have determined that a
change to capital allocation policy is required. The Hostelworld
Group will require flexibility on the best use of shareholders'
funds to optimise shareholder return and to deliver against the
long-term interests of the business and shareholders.
As a consequence, the Board have taken the decision to reduce
the level of annual dividend to a range of 20% to 40% of the
Group's Adjusted Profit After Tax. The Board is recommending a full
year final dividend of 2.1 euro cent per share which together with
the interim dividend of 4.2 euro cent per share brings the total
dividend for 2019 to 6.3 euro cent per share. This equates to a
distribution of 41% of the Adjusted Profit After Taxation in
respect of 2019 and EUR62.7m having been returned to shareholders
since IPO in November 2015.
Board Composition
The composition of the Board is fully compliant with the 2018 UK
Corporate Governance Code as applied to small companies. In 2019,
an evaluation of the Board, its Committees and individual Directors
was undertaken which concluded that the Board is operating
effectively.
In May, Andy McCue informed the Board of his intention to step
down at the 2019 AGM after over three years on the Board. We thank
Andy for his contribution during that time. In August, we were
delighted to announce the appointment of Evan Cohen as an
Independent Non-Executive Director. With a background in management
and strategy consultancy, Evan brings a wealth of experience in the
technology sector having held senior positions in several
well-known global technology companies, including Lyft and
Foursquare. Evan has joined the Audit, Remuneration and Nomination
Committees following the resignation of Andy McCue.
There were no other changes to the Audit Committee, Remuneration
Committee and Nomination Committee during the year.
Colleagues, Customers and Shareholders
Following the completion of his strategic review, Gary Morrison
further strengthened the executive team with senior external hires
in the following areas: Marketing, Supply, Product and Human
Resources. With a refreshed and greatly strengthened management
team now in place, the Group is well positioned to capitalise on
the growth opportunities.
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 who have been critical to our plans to return the business to
growth.
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. We look forward to building on the positive
momentum of Q4 2019 and continuing to create value for our
shareholders.
Michael Cawley
Chairman
3 March 2020
Chief Executive's Review
2019 was a very significant milestone in Hostelworld Group's
history, marking 20 years since the company was formed. Since the
company's inception in 1999, Hostelworld has grown into a global
business with more than 13 million traveller reviews and a very
relevant brand which is trusted by a loyal and engaged customer
base. We are focussed on facilitating a social experience for young
independent travellers through showcasing our hostel owner
partners' inventory. We have always understood that our customers
are not just average tourists; they are seeking a sense of
adventure, community and interaction with other like-minded
people.
After joining the Group in mid-2018 I announced the results of
my strategic review in late November 2018 and outlined a roadmap
for growth for the next three years. At that time, I described how
growth in EBITDA had been mainly achieved through an increase in
commission rates, and an increase in the proportion of bookings
through the Hostelworld App; rather than booking volumes growing. I
also described how prolonged underinvestment in technology had led
to competitive gaps in the core platform, and that increased
"category" based advertising had failed to deliver a satisfactory
return. Consequently, I outlined a "Roadmap for Growth" program to
address these issues and to reposition the business for growth in
2020 and beyond.
During 2019 our focus has been on implementing the key elements
of the programme with delivery expected throughout 2019 and into
2020. This involved capping our commission rates at competitive
levels and redeploying our non-productive marketing expenditure
into closing out the core competitive gaps that we had previously
identified. At the time we anticipated that the benefits of these
actions would result in a return to growth in 2020, aligned with
our roadmap delivery expectations. It is therefore particularly
pleasing that this has been achieved during the final quarter of
2019.
Key Operational Highlights and Results
2019 was a challenging and competitive year, with customer
sentiment softening over key summer months. As a result, net
Hostelworld brand bookings declined 5% year-on-year, impacted by
the full year roll-out of our free cancellation booking option.
Although the macro-environment remained largely unchanged during
the remainder of 2019, performance strengthened in the second half
of the year, with a return to growth in September, that continued
for the remainder of the year, ahead of expectation. The profile of
cancelled bookings has performed in line with our expectation.
In addition to competition for customers, there was a marked
increase in cost-per-click inflation, throughout 2019. This rising
cost base was managed through a reduction in brand marketing spend,
and disciplined control of operating expenses.
During 2019, we started to implement several initiatives
outlined in our "Roadmap for Growth". We have rebuilt the core sort
order ranking algorithm from a largely static ranking to a more
dynamic, granular ranking algorithm that takes into account more
variables such as differing search characteristics observed on
desktop versus mobile web demand. Overall, we are pleased with the
improvements to date, and will continue to optimise our core search
algorithms into 2020. We have also added many features to enable
our hostel partners to load their inventory with more flexible rate
configurations than ever before, with the net result that more
hostels are now offering their lowest non-refundable rate plans to
our customers alongside their standard and free-cancellation
options. This has led to growth in non-refundable rate plan
bookings throughout the year, and we will continue to invest in
this area during 2020. During 2019 we also commenced work on
migrating our legacy payments platform to a specialist 3(rd) party
payments provider, and re-platforming our website to a progressive
web app. These are significant work items that will launch in H1
2020, and will provide our customers with more settlement
currencies, more payment options and a much faster and richer user
experience on mobile web.
Finally, we also made investments in two companies,
Australia-based Goki Pty Limited ("Goki") and Counter App Limited
("Counter") who provide respectively tailored guest management,
property management and payments solutions for the hostel industry.
Through our work with the hostel industry over the years we have
developed an understanding of the unique operational needs of the
hostel industry, and we are excited to partner with these two
companies to develop and deploy their solutions to hostel owners
worldwide.
Our Strategy
Today, our core business is focussed on serving travellers who
want to stay in hostel accommodation for the social experience and
the ability to meet people at an affordable price point. The hostel
market itself is expected to remain highly fragmented with a
growing supply base of high-quality accommodation, particularly in
Europe and Asia. Overall, the underlying annual global growth rate
for the category is expected to be around 5% through to 2022 [1] .
Within this market, online distribution will remain key for hostel
owners; with the share of bookings made through OTAs such as
Hostelworld expected to grow and account for 68% [2] of all
bookings by the end of 2020.
During 2019, we have started to implement our "Roadmap for
Growth" to strengthen our core business. Overall, we are pleased
with our progress to date, and we remain committed to rolling out
the remaining elements of our roadmap for growth during 2020. As we
look forward to 2020 and beyond, we now see additional
opportunities to grow faster than the core hostel OTA market by
providing our existing customers and hostel owners with a more
comprehensive product offering.
As noted earlier, we invested in Goki and Counter respectively
to provide solutions to help hostel owners drive up ancillary
revenues, reduce operating costs and improve the guest experience.
In particular, Goki provides a unique hostel focussed guest
management solution to hostels to allow their customers to check in
online and use their smartphone as a digital key to their room via
the Goki smart lock and App solution. The solution connects to a
wide range of third party property management systems and removes
the need for plastic key cards and paper based check in processes.
The same platform also provides hostels with the ability to create
a bookable catalogue of activities that are published within the
App, and the ability to broadcast messages to/from groups or
individual customers.
Counter is a new, flexible "all in one" workspace for smaller
chains and independent hostel owners. This product has been
designed from the ground up for the unique requirements of the
hostel industry; covering the functions of a typical property
management system with an integrated payments solution. This
product will also enable Hostelworld to offer a free upgrade path
to a much stronger product for our Backpacker Online customers and
opportunity for Extranet only customers to upgrade to a modern
PMS/payments management platform at minimal cost. Over time, we
expect to launch additional hostel focussed products and services
over the Counter platform.
Taken together, Goki and Counter will help Hostelworld
re-establish itself not only as an OTA/distributor with hostels,
but also as a leading provider of low-cost hostel focussed
technology solutions to the hostel industry. We see these
investments as supporting the evolution of the hostel industry's
transition to technology enabled operations and guest management
and strengthening our overall business relationship with hostel
owners.
Just as we see opportunities to expand our product portfolio to
hostel owners, we also see significant opportunities to build a
broader catalogue of experiential travel products beyond hostel
accommodation. These types of experiences may include opportunities
to study, work or volunteer abroad, with hostel stays featuring as
part of an extended itinerary. Our research would also suggest that
this market is very fragmented, with many different marketplaces
and business models. With the group's deep knowledge of
experiential travellers built up over 20 years, our trusted brand,
and a loyal and relevant customer base, we believe we are uniquely
positioned to help both our existing customers and new experiential
travellers Meet the World (R) together with other like-minded
travellers. To execute this strategy, the Group has increased its
focus on potential M&A opportunities in the past six months and
built an extensive pipeline of potential targets to further
accelerate our growth.
Business Model
We are a well-established global OTA focussed on the hostel
market. We provide an online platform that allows hostel owners and
to a lesser extent low-cost accommodation providers the ability to
showcase their facilities to young and independent travellers. Most
of our revenue is generated through facilitating bookings between
these accommodation providers and travellers online via our website
or, increasingly, via our App. This efficient business model has
very favourable working capital attributes and strong cash
conversion.
Since 2018, we have offered our customers a free cancellation
option, provided that the booking lead time is greater than 7 days
and that the booking is cancelled within the specified time period.
Revenues from free cancellation bookings that have been collected
from customers are deferred and only recognised in future periods
when the cancellation date has passed.
Investing in People
In the last 18 months we have taken a number of significant
steps to strengthen our executive team, which will help to address
the challenges and opportunities that have been identified for the
business.
During 2019 we made several significant external hires in key
areas. In April, Fabrizio Giulio joined as Chief Supply Officer.
Fabrizio has a wealth of experience in the industry, having worked
for over a decade with one of our competitors. In August, Yale
Varty joined as Chief Marketing Officer, having previously led the
marketing organisation at the online retailer ASOS. Jody Jordan
joined us in November as Chief Human Resources Officer, having held
similar positions at Kerry Group and Paddy Power. In February 2020,
Johnny Quach joined us as Chief Product Officer from AirHelp.
With these important roles now filled, I believe that
Hostelworld has a world-class management team to build on the
positive momentum that is being generated across our business.
Dividends/Capital Allocation
2019 was a year of investment for Hostelworld, with both organic
and inorganic growth drivers, funded from existing cash resources.
The appropriate allocation of our capital resources is critical to
ensuring the long-term growth of the business and optimisation of
our shareholder return. The board and I have therefore decided that
the annual dividend will be reduced to a range of 20% to 40% of the
Groups' Adjusted Profit After Taxation. This change in dividend
policy will enable the Group to target complementary acquisitions,
to expand our portfolio and to offer our customers a unique
proposition.
Outlook
I am pleased with the progress of our roadmap for growth
strategy to date, and the steps we have taken to strengthen our
management team. During 2020 we will continue to implement the
remaining elements of our roadmap for growth strategy and build a
broader catalogue of experiences beyond providing hostel
accommodation to enable our target customer base to explore more of
the world together with other like-minded travellers.
Consistent with our strategy, I am therefore pleased to announce
we have a very active pipeline of potential acquisition
opportunities, some of which are at advanced stages. The nature and
scale of any potential acquisitions is such that they would likely
be part funded through our existing cash reserves and bank
debt.
The susceptibility of the travel industry to a broad range of
macro-economic factors, coupled with highly competitive environment
we operate in can make the prediction of future operations
difficult.
Gary Morrison
Chief Executive
3 March 2020
Financial Review
Introduction*
-- Hostelworld brand net bookings decline of 5% reflecting an improved performance in the second half of the year
(H1 2019: -8%; H2 2019 -1%); total Group net bookings decline of 6%
-- Net Average Booking Value ("ABV") of EUR11.97, 3% growth versus 2018
-- Revenue decreased by 2% due to a contraction in booking volumes and an increase in cancelled bookings with
positive net revenue growth of 6% in the second half of the year (H1 19 -9%; H2 19 +6%)
-- Marketing expenses represented 41% of net revenue excluding deferred revenue (2018: 37%)
-- Adjusted EBITDA decreased by 9%; this decline increased to 11% on a constant currency basis
-- Adjusted EBITDA margin 25% (2018: 27%)
-- 53% Cash conversion and final proposed dividend of 2.1 euro cent per share (2018: 9.0 euro cent per share),
adjusting for impact of timing items, underlying cash conversion was 64%
-- A deferred tax asset of EUR6.9m was recognised due to a temporary difference between the carrying value and the
tax base of intangible assets which were transferred as part of a group reorganisation
* 2018 metrics have been adjusted for the impact of the Group
adopting IFRS16
2019 Key Performance Indicators
2019 Change versus PY 2018
Growth Net Bookings - Hostelworld brand 6.63m (5%)
----------------------------------------- -------------------- ---------------------------
Net Revenue EUR80.7m (2%)
------------------------------------------------------- -------------------- ---------------------------
Net Average Booking Value ("ABV") EUR11.97 3%
------------------------------------------------------- -------------------- ---------------------------
Adjusted EBITDA EUR20.5m (9%)
------------------------------------------------------- -------------------- ---------------------------
Adjusted EBITDA Margin 25% (2%)
------------------------------------------------------- -------------------- ---------------------------
Return Return on Capital Employed 11% (2%)
----------------------------------------- -------------------- ---------------------------
Adjusted Free Cash Flow Conversion 53% (48%)
------------------------------------------------------- -------------------- ---------------------------
Adjusted EPS 15.5 euro cent (15%)
------------------------------------------------------- -------------------- ---------------------------
Total Dividend per share 6.3 euro cent (54%)
------------------------------------------------------- -------------------- ---------------------------
Dividend pay-out ratio 41% (35%)
------------------------------------------------------- -------------------- ---------------------------
(1) 2018 Adjusted EBITDA has been adjusted for the impact of the
Group adopting IFRS 16 Leases.
2019, the 20(th) anniversary of the business, was a year of
substantial change for the Group. Our customer's experience became
our principle focus and we addressed previous technology and
experiential deficiencies by prioritising investment in our core
platform, focussing on our inventory, search algorithms, booking
and payment experiences. In addition, we invested in two
complementary businesses Goki Pty Limited and Counter App Limited,
both of which will provide our customers and hostel-owners with
high quality unique tools, facilitating bookings and enhancing the
experience between hostel and traveller.
Despite a challenging first half to the year, where Group net
bookings were down 10% versus H1 18; the business saw a turn-around
in performance in H2 19 with net bookings down -2% versus H2 18.
Net bookings returned to growth in September and throughout the
final quarter of 2019. This growth resulted in our full year 2019
results delivering in-line with our market guidance.
EBITDA margins remain strong 25% (2018: 27%) despite significant
direct cost inflation and we are pleased to report adjusted EPS of
15.5 euro cent per share (2018: 18.2 euro cent per share). Cash
conversion of 53% (2018: 101%) is impacted by timing of cash
receipts and increased strategic investments, excluding the impact
of the deferral of revenue related to free cancellation bookings
and one-off timing impacts, underlying cash conversion was 64%.
Return on Capital Employed (ROCE) also remains strong at 11% (2018:
13%). The decrease was primarily driven by the effect of the
reduction in net bookings during 2019.
Bookings and Revenue
The Group's net booking volumes declined by 6% in 2019 (2018: 4%
decline) which was driven by a decline in performance in our core
Hostelworld brand in the period which fell by 5% compared to the
same period last year (2018: 1% decline).
Net Average Booking Value ("ABV") is the average value paid by a
customer for a net booking. ABV increased by 3% during the year
(2018: 1%). The average commission rate in 2019 increased to 16.0%
(2018: 15.4%), primarily driven by the effects of base commission
increases in February 2018 and January 2019. These commission
increases and the positive impact of exchange rates were partially
offset by the continued decline in the number of bed nights per
booking with the continued shift to mobile bookings.
In 2018 in response to customer demand, the Group rolled out a
free cancellation booking option, to further broaden our product
offering. This led to a deferral of revenue recognition, which has
had a positive impact of EUR0.1m on reported earnings in 2019
(2018: EUR2.9m negative impact), however this has not had an impact
on cash receipts. At 31 December 2019, EUR2.8m represents the total
deferred revenue balance (2018: EUR2.9m) from free cancellation
bookings that has been collected from customers and will be
recognised in future periods, net of any future cancellations, in
2020 when the last cancellation date has passed. Any cancellations
that were processed by customers up to and including 31 December
2019 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. Total Group bookings, net of any
cancellations processed by 31 December 2019, have declined by 6% in
2019 (2018: 4% decline), with Hostelworld brand net bookings
declining by 5% (2018: 1% decline). Underlying cancellation rates
continue to perform in line with our expectations.
Group revenue decreased by 2% during the year to EUR80.7m (2018:
EUR82.1m), which corresponds to a 4% decrease on a constant
currency basis. This is partially as a result of the impact of the
free cancellation booking option with cancelled bookings increasing
to 0.5m bookings (2018: 0.3m bookings). The increase in
cancellation numbers is driven by the timing of the full global
rollout which was in July 2018. All of the marketing costs in
relation to these bookings have been recognised in the year.
The Group continues to actively manage its marketing mix with
marketing investment as a percentage of net revenue excluding
deferred revenue of 41% in 2019 (2018: 37%). This increase is
driven by higher than anticipated cost inflation in performance
marketing channels, increased cancellations in 2019 relative to
2018 due to the phased launch of the free cancellation product in
2018 and partly offset by a planned reduction in category
advertising.
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.
The Group has adopted IFRS 16 Leases from 1 January 2019. The
Group has applied the modified retrospective approach, and as a
result it has not restated prior periods on adoption in its
financial statements. For comparative purposes Adjusted EBITDA for
prior periods has been restated to reflect the impact of adopting
IFRS 16, in order to give a true and fair comparative of underlying
performance.
Restated Comparatives (EURm) 2018
------------------------------------------------------- ------
Adjusted EBITDA- as previously reported 21.4
Impact of IFRS 16 Leases if applied retrospectively 1.1
------------------------------------------------------- ------
Adjusted EBITDA - including the impact
of IFRS 16 Leases 22.5
------------------------------------------------------- ------
Adjusted EBITDA of EUR20.5m (2018: EUR22.5m) has decreased by
EUR2.0m (9%) in the year and by 11% on a constant currency basis.
Adjusted EBITDA as a percentage of revenue declined to 25% (2018:
27%). Adjusted EBITDA has been impacted by the reduction in
bookings during the period and by the rollout of the free
cancellation product, which has resulted in increased cancellation
numbers in 2019.
Administration expenses, excluding the impact of exceptionals
and IFRS 16, were flat to PY 2018 (EUR60.4m, 2018: EUR60.3m). This
was primarily as a result of an increase in marketing costs offset
by a reduction in staff and other administration costs. There was a
marked increase in cost per click inflation throughout 2019 and
this rising cost base was managed through a reduction in brand
marketing spend and disciplined control of operating expenses.
Excluding the impact of the level of development labour
capitalised in accordance with IFRS standards (2019: EUR2.3m; 2018:
EUR1.7m), share based payment expense and the impact of a bonus
accrual, staff costs increased by 4% on a constant currency
basis.
Staff costs decreased from EUR17.2m to EUR16.9m. The average
number of persons employed increased by 7% from 294 in 2018 to 314
in 2019, as the Group continues to invest in a technology
development centre in Portugal which will further increase the
development capacity of the Group.
Reconciliation between Operating Profit and Adjusted EBITDA:
EURm Adjusted Reported
2019 2018 (2) 2018
---------------------------- ---- --------- --------
Operating profit 3.3 6.8 6.7
Depreciation 2.4 2.3 1.2
Amortisation of development
costs 1.7 1.9 1.9
Amortisation of acquired
intangible assets 9.8 10.3 10.3
Exceptional items 3.1 1.6 1.6
Share based payment expense
/ (credit) 0.2 (0.3) (0.3)
------------------------------ ---- --------- --------
Adjusted EBITDA 20.5 22.5 21.4
------------------------------ ---- --------- --------
(2) 2018 Operating Profit and Adjusted EBITDA have been adjusted
for the impact of the Group adopting IFRS 16.
The exceptional costs for the year of EUR3.1m were primarily
restructuring and merger and acquisition related costs (2018:
EUR1.6m).
The share based payment expense of EUR0.2m (2018: EUR0.3m
credit) 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:
EURm Adjusted Reported
2019 2018 (3) 2018
------------------------------- ----- --------- --------
Adjusted EBITDA 20.5 22.5 21.4
Depreciation (2.4) (2.3) (1.2)
Amortisation of development
costs (1.7) (1.9) (1.9)
Net finance costs (0.2) (0.2) -
Share of results of associate (0.1) - -
Corporation tax (1.2) (0.8) (0.8)
---------------------------------- ----- --------- --------
Adjusted Profit after Taxation 14.8 17.4 17.5
Exceptional items (3.1) (1.6) (1.5)
Amortisation of acquired
intangibles (9.8) (10.3) (10.3)
Share based payment expense
/ (credit) (0.2) 0.3 0.3
Deferred taxation 6.6 (0.2) (0.2)
---------------------------------- ----- --------- --------
Profit for the period 8.4 5.6 5.7
---------------------------------- ----- --------- --------
(3) 2018 Adjusted EBITDA and Adjusted Profit after Taxation have
been adjusted for the impact of the Group adopting IFRS 16.
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, (apart from
interest on lease liabilities), 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 15% from EUR17.4m to EUR14.8m (2018:
19% decrease) and 18% on a constant currency basis reflecting the
marginal impact of the reduction in Net Bookings during the
period.
Based on the weighted average number of shares in issue during
2019, reported Earnings per Share ("EPS"), as set out in Note 9 to
the financial statements, is 8.78 euro cent per share for the
financial year (2018: earnings per share 5.84 euro cent). Using
Adjusted PAT as the measure of earnings would result in an adjusted
EPS of 15.46 euro cent per share for the year. The corresponding
EPS for 2018 calculated on the same basis, using the weighted
average number of shares in issue as at 31 December 2018 and
adjusting for the impact of IFRS 16 is 18.21 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 2019 apart
from finance charges for leased assets (EUR0.2m) which arise due to
impact of IFRS16 (2018: EUR0.2m).
Taxation
The Group corporation tax charge of EUR1.2m (2018: EUR0.8m)
results in an effective tax rate (corporation tax as a percentage
of Adjusted EBITDA) of 6.0% (2018: 3.4%) and 40.6% of reported
profit before taxation, which is after amortisation of acquired
intangible assets of EUR9.8m and exceptional costs of EUR3.1m
(2018: 11.8% of reported profit before taxation of EUR6.5m, which
is adjusted for the impact of IFRS 16).
The Groups' deferred tax credit for the year ended 31 December
2019 of EUR6.6m (2018: EUR0.2m charge) primarily relates to a group
reorganisation that is referred to in note 12 and note 19 to the
consolidated financial statements.
Adjusted Free Cash Flow Conversion
EURm
Adjusted Reported
2019 2018 (4) 2018
------------------------- ----- ---------- --------
Adjusted EBITDA 20.5 22.5 21.4
Capitalised development
spend (2.9) (1.8) (1.8)
Capital expenditure (0.2) (0.7) (0.7)
Acquisition of associate (1.1) - -
Interest and tax paid (1.7) (0.8) (0.8)
Net movement in working
capital (5) (3.7) 3.6 2.6
---------------------------- ----- ---------- --------
Adjusted Free Cash flow 10.9 22.8 20.7
---------------------------- ----- ---------- --------
Adjusted Free Cash flow
conversion 53% 101% 97%
---------------------------- ----- ---------- --------
(4) 2018 Adjusted EBITDA and Adjusted Free Cash Flow have been
adjusted for the impact of the Group adopting IFRS 16.
(5) Changes in working capital excludes the effects of
exceptional costs and cash outflow relating to investments.
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 2019 was
at a lower level than 2018 and includes the impact of a debtor
related to a group reorganisation in 2019. Adjusted free cash flow
conversion of 53% in 2019 (2018: 101%) includes the impact of
EUR2.8m (2018: EUR2.9m) of revenue related to free cancellation
bookings that was received but deferred, increased investment and
restructuring activity related costs. Excluding the impact of the
deferral of revenue related to free cancellation bookings and the
timing of specific one off cash receipts, adjusted free cash flow
conversion would have been a normalised 64% (2018: 90%).
Total cash at 31 December 2019 was EUR19.4m (2018: EUR26.0m) of
which EURnil is restricted (2018: EURnil). There were no borrowings
at 31 December 2019 (2018: EURnil).
Foreign Exchange Risk
The Group's primary operating currency is euro. The Group also
has significant sterling and US dollar cash flows. In 2019 the
average US dollar to euro exchange rate strengthened by 5% and the
average sterling to euro exchange rate strengthened by 1% in
comparison to 2018. Restated on a constant currency basis, ABV has
increased by 2%, revenue has decreased by 4% (EUR3.6m) and Adjusted
EBITDA has decreased by 11% (EUR2.6m) in 2019. Constant currency is
calculated by applying the average exchange rates for the year
ended 31 December 2019 to the financial results for the year ended
31 December 2018 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 EUR2.0m equating to 2.1 euro cent per share.
This is in addition to the interim dividend of EUR4.0m or 4.2 euro
cent per share paid in September 2019. This payout of EUR6.0m or
6.3 euro cent per share (2018: 13.8 euro cent per share) reflects a
distribution of 41% of the Adjusted PAT for the year ended 31
December 2019 and is in line with the updated dividend policy.
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. The Board reviewed the
Group's divided policy and have approved a revision of the payout
range, from 70% to 80%, to 20% to 40% of the Group's Adjusted
Profit After Tax. This change in capital allocation will provide
the Group with the flexibility needed for capital and other
investment growth opportunities, both organic and inorganic, to
optimise shareholder return.
The final dividend of 2.1 euro cent per share is to be approved
by shareholders at the 2020 AGM on 27 April 2020. If approved, the
dividend will be paid on 8 May 2020 to members appearing on the
register at close of business on 17 April 2020. After payment of
the proposed final dividend for 2019 the Group will have returned
EUR62.7m to shareholders in dividends since IPO in November
2015.
TJ Kelly
Chief Financial Officer
3 March 2020
HOSTELWORLD GROUP PLC
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2019
2019 2018
Note EUR'000 EUR'000
Revenue 3 80,672 82,087
Administrative expenses 4 (63,434) (61,939)
Depreciation and amortisation 4 (13,946) (13,453)
Operating profit 3,292 6,695
Financial income 59 20
Financial costs 7 (224) (63)
Share of results of associate 13 (116) -
Profit before taxation 3,011 6,652
Taxation 8 5,383 ( 961 )
Profit for the year attributable to the equity owners of the parent company 8,394 5,691
--------- --------
Basic earnings per share (euro cent) 9 8.78 5.95
Diluted earnings per share (euro cent) 9 8.78 5.95
HOSTELWORLD GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2019
2019 2018
EUR'000 EUR'000
Profit for the year 8,394 5,691
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (1) (2)
-------- --------
Total comprehensive income for the year attributable
to equity owners of the parent company 8,393 5,689
-------- --------
HOSTELWORLD GROUP PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
2019 2018
Note EUR'000 EUR'000
Non-current assets
Intangible assets 10 109,120 117,726
Property, plant and equipment 11 5,353 3,256
Deferred tax assets 12 6,727 99
Investment in associate 13 2,723 -
--------- --------
123,923 121,081
Current assets
Trade and other receivables 15 4,980 2,814
Cash and cash equivalents 19,365 25,974
--------- --------
2 4,345 28,788
--------- --------
Total assets 1 48,268 149,869
--------- --------
Issued capital and reserves attributable to equity owners of the parent
Share capital 956 956
Foreign currency translation reserve 15 16
Share based payment reserve 788 630
Retained earnings 13 0,013 1 34,650
--------- --------
Total equity attributable to equity holders of the parent company 131,7 72 1 36,252
--------- --------
Non-current liabilities
Deferred tax liabilities 12 144 262
Deferred consideration 13 873 -
Lease liabilities 14 3,422 -
--------- --------
4,439 262
Current liabilities
Trade and other payables 16 11,074 12,946
Lease liabilities 14 869 -
Corporation tax 114 409
--------- --------
12,057 13,355
--------- --------
Total liabilities 1 6,496 13,617
--------- --------
Total equity and liabilities 14 8,268 149,869
--------- --------
The financial statements were approved by the Board of Directors
and authorised for issue on 3 March 2020 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 2019
Share
Foreign Currency Based
Translation Payment
Note Share Capital Retained Earnings Reserve Reserve Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance at 1 January 2018 956 145,015 18 960 146,949
-------------- ------------------ -------------------------- -------- ---------
Total comprehensive
income for the year - 5,691 (2) - 5,689
Dividends 20 - (16,056) - - (16,056)
Debit to equity for
equity-settled share
based payments - - - (330) (330)
Balance at 31 December
2018 956 1 34,650 16 630 1 36,252
-------------- ------------------ -------------------------- -------- ---------
Effect of initial
application of IFRS 16 - (416) - - (416)
-------------- ------------------ -------------------------- -------- ---------
Balance at 1 January 2019
- as restated 956 134,234 16 630 135,836
Total comprehensive
income for the year - 8,394 (1) - 8,393
Dividends 20 - (12,615) - - (12,615)
Credit to equity for
equity settled share
based payments - - - 158 158
As at 31 December 2019 956 130,013 15 788 131,772
-------------- ------------------ -------------------------- -------- ---------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2019
2019 2018
Note EUR'000 EUR'000
Cash flows from operating activities
Profit before tax 3,011 6,652
Depreciation of property, plant and
equipment 4 2,425 1,232
Amortisation of intangible assets 4 11,521 12,221
Share of results of associate 13 116 -
Financial income (59) (20)
Financial expense 7 224 63
Employee equity settled share based
payment expense / (credit) 18 156 (346)
Changes in working capital items:
(Decrease) / i ncrease in trade and
other payables (2,252) 3,129
(Increase) / decrease in trade and
other receivables (2,166) 1,152
--------- --------
Cash generated from operations 12,976 2 4,083
Interest paid (224) (63)
Interest received 59 20
Income tax paid ( 1,516) ( 749 )
--------- --------
Net cash from operating activities 11,295 2 3,291
--------- --------
Cash flows from investing activities
Acquisition/capitalisation of intangible
assets 10 (2,915) (1,839)
Purchases of property, plant and equipment 11 (190) (714)
Acquisition of investment in associate 13 (1,075) -
Net cash used in investing activities (4,180) (2,553)
--------- --------
Cash flows from financing activities
Repayments of obligations under lease
liabilities (1,109) -
Dividends paid 20 (12,615) (16,056)
--------- --------
Net cash used in financing activities (13,724) (16,056)
--------- --------
Net (decrease) / increase in cash
and cash equivalents (6,609) 4,682
Cash and cash equivalents at the beginning
of year 25,974 21,294
Effect of foreign exchange rate changes - (2)
--------- --------
Cash and cash equivalents at the end
of year 19,365 25,974
--------- --------
Cash and cash equivalents comprise cash and short term bank
deposits only.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2019
1. GENERAL INFORMATION AND BASIS OF PREPARATION
Hostelworld Group plc, hereinafter "the Company", is a public
limited company incorporated in the United Kingdom on the 9 October
2015. The registered office of the Company is Floor 2, 52 Bedford
Row, London, WC1R 4LR, 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.
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 2019, which were approved by the Board of
Directors on 3 March 2020. 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 2019 has been given by the auditors,
Deloitte Ireland LLP. 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 27 April 2020.
Basis of Preparation
The consolidated financial statements have been prepared in
accordance with the European Union ("the EU") adopted International
Financial Reporting Standards ("IFRS"), International Financial
Reporting Interpretations Committee ("IFRIC") interpretations and
those parts of the Companies Act 2006, applicable to companies
reporting under IFRS.
IFRS as adopted by the European Union ("the EU") comprise
standards and interpretations approved by the International
Accounting Standards Board ("IASB"). The consolidated financial
statements comply with Article 4 of the EU IAS Regulation. IFRS
adopted by the EU differs in certain respects from IFRS issued by
the IASB. References to IFRS hereafter refer to IFRS adopted by the
EU.
The consolidated financial statements have been prepared under
the historical cost basis. The investment in associate is accounted
for using the equity method.
In the preparation of these consolidated financial statements
the accounting policies have been applied consistently by all Group
companies. The consolidated financial statements are presented in
euro, which is the functional currency of all Group companies.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the consolidated financial
statements are disclosed in note 2.
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
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the year in which the estimate is revised if the revision affects
only that year, or in the year of the revision and future years if
the revision affects both current and future years. In particular,
information about significant areas of estimation that have the
most significant effect on the amounts recognised in the
consolidated financial statements are described below and in the
respective notes to the consolidated financial statements.
(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 the Group's
accounting policies. Determining the amount to be capitalised
requires the directors to make assumptions regarding expected
future cash generation of the asset.
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.
Lease term of contracts with extension or break options
The lease term is determined as the non-cancellable term of the
lease, together with any periods covered by an option to extend the
lease if it is reasonably certain to be exercised, or any periods
covered by an option to terminate the lease (break option), if it
is reasonably certain not to be exercised. The Group has a number
of leases which contain break options and applies judgement in
evaluating whether it is reasonably certain not to exercise the
option. On commencement of a lease the directors consider all
relevant factors that create an incentive for it to exercise the
option. After the commencement date, the directors reassess the
lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to
exercise (or not to exercise) the option.
Deferred tax asset recognition
Deferre d tax assets are recognised to the extent that it is
probable that taxable profits will be available in future periods
against which the reversal of temporary differences can be
deducted. Recognition, therefore, involves judgement regarding the
future financial performance of the particular legal entity or tax
group in which the deferred tax asset exists. The directors have
assessed that it is probable that the deferred tax asset will be
utilised based on the approved five year budget and long term
forecasts.
Exceptional items
Exceptional items by their nature and size can make
interpretation of the underlying trends in the business more
difficult. Such items may include restructuring, material merger
and acquisition costs, profit or loss on disposal or termination of
operations, litigation settlements, legislative changes, material
acquisition integration costs and profit or loss on disposal of
investments. Judgement is used in assessing the particular items
which by virtue of their scale and nature should be disclosed as
exceptional items.
(b) The key sources of estimation uncertainty 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. These calculations are prepared using cash flow
projections based on five-year budgets approved by the directors
and are discounted to net present value using an appropriate
discount rate. The tests are dependent on estimates in particular
in relation to the forecasting of future cash flows, the discount
rates applied to these cash flows, the expected long-term growth
rate of the applicable business and terminal values. Such estimates
are subject to change as a result of changing economic
conditions.
Further details on the assumptions used are set out in note
10.
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:
2019 2018
EUR'000 EUR'000
Europe 46,994 49,060
Americas 15,672 15,149
Asia, Africa and Oceania 18,006 17,878
---------- ----------
Total revenue 80,672 82,087
---------- ----------
As at 31 December 2019, EUR2,777k of revenue relating to free
cancellation bookings has been deferred (2018: EUR2,892k).
Disaggregation of revenue is presented as follows:
2019 2018
EUR'000 EUR'000
Technology and data processing fees 78,571 79,696
Advertising revenue and ancillary services 2,101 2,391
---------- ----------
Total revenue 80,672 82,087
---------- ----------
In the year ended 31 December 2019, the Group generated 97%
(2018: 97%) 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, the UK,
Portugal and Australia. Out of the total non-current assets in the
Group of EUR123,923k (2018: EUR121,081k), the non-current assets of
the Group located in the UK are EUR947k (2018: EUR1,654k), in
Portugal EUR483k (2018: EUR623k) and in Australia EUR2,723k (2018:
EURNil).
4. OPERATING EXPENSES
Profit for the year has been arrived at after charging/
(crediting) the following operating costs:
2019 2018
Note EUR'000 EUR'000
Marketing expenses 3 2,712 3 1,203
Staff costs 6 1 6,881 1 7,179
Credit card processing fees 2,515 2,379
Exceptional items 5 3,066 1,590
FX loss 72 64
Other administrative costs 8,188 9,524
---------- -------
Total administrative expenses 6 3,434 6 1,939
Depreciation of tangible fixed assets 11 2,425 1,232
Amortisation of intangible fixed
assets 10 11,521 12,221
---------- -------
Total operating expenses 7 7,380 7 5,392
---------- -------
Auditors' remuneration
During the year, the Group obtained the following services from
its auditors:
2019 2018
EUR'000 EUR'000
Fees payable for the statutory audit
of the Company 42 41
Fees payable for other services:
- statutory audit of subsidiary
undertakings 181 96
- tax advisory services - -
- other assurance services 10 -
- corporate finance services - -
- other services - 2
---------- --------
Total 233 139
---------- --------
5. EXCEPTIONAL ITEMS
2019 2018
EUR'000 EUR'000
Merger and acquisition costs 2,115 -
Restructuring costs 951 1,590
Total 3,066 1,590
---------- --------
Merger and acquisition costs of EUR2,115k relates to
professional fees incurred in the year on related activity.
Restructuring costs of EUR951k (2018: 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
19).
6. STAFF COSTS
The average monthly number of people employed (including
executive directors) was as follows:
2019 2018
Average number of persons employed
Administration and sales 189 188
Development and information technology 125 106
----- -----
Total 314 294
----- -----
The aggregate remuneration costs of these employees is analysed
as follows:
2019 2018
Note EUR'000 EUR'000
Staff costs comprise:
Wages and salaries 16,026 16,194
Social security costs 2,177 1,889
Pensions costs 466 389
Other benefits 347 711
Long-term employee incentive costs
/ (credit) 18 156 (346)
Capitalised development labour (2,291) (1,658)
------------------ --------
Total 16,881 17,179
------------ --------
7. FINANCIAL COSTS
2019 2018
EUR'000 EUR'000
Interest on lease liabilities 11 178 -
Other finance costs 46 63
-------- --------
Total 224 63
-------- --------
8. TAXATION
2019 2018
EUR'000 EUR'000
Corporation tax:
Current year 1,184 776
Adjustments in respect of prior years 38 (1)
---------- ----------
Total 1,222 775
Origination and reversal of temporary
differences (6,605) 186
---------- ----------
Total (5,383) 961
---------- ----------
Corporation tax is calculated at 12.5% (2018: 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:
2019 2018
EUR'000 EUR'000
Profit before tax on continuing operations 3,011 6,652
--------- ----------------
Tax at the Irish corporation tax rate of 12.5%
(2018: 12.5%) 376 832
Effects of:
Tax effect of expenses that are not deductible
in determining taxable profit 371 622
Tax effect of utilisation of tax losses not previously
recognised - (827)
Depreciation in excess of / (less than) capital
allowances 123 (283)
Effect of different tax rates of subsidiaries
operating in other jurisdictions 261 201
Reversal of deferred tax asset on tax losses - 417
Recognition of deferred tax asset due to group (6,552) -
reorganisation
Adjustments in respect of prior years 38 (1)
--------- ----------------
Total (5,383) 961
--------- ----------------
The tax losses utilised in 2018 arise primarily from the
previous capital structure of the Group.
The Group has no unrecognised deferred tax asset as at 31
December 2019 as a result of the liquidation of WRI Nominees DAC
during the year (31 December 2018: EUR3,476k).
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.
2019 2018
Weighted average number of shares in issue
('000s) 95,571 95,571
Profit for the year (EUR'000s) 8,394 5,691
------- --------
Basic earnings per share (euro cent) 8.78 5.95
------- --------
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.
2019 2018
Weighted average number of ordinary shares
in issue ('000s) 95,571 95,571
Effect of dilutive potential ordinary
shares:
Share options ('000s) 5 11
------- ---------
Weighted average number of ordinary shares
for the purpose of diluted earnings per
share ('000s) 95,576 95,582
------- ---------
Diluted earnings per share (euro cent) 8.78 5.95
------- ---------
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 2019, is 8.78 euro cent
(2018: 5.95 euro cent).
IFRS 16 Adoption
As a result of adopting IFRS 16 on 1 Jan 2019, the profit for
the year was reduced by EUR104k to EUR8,394k in comparison to if
IAS 17 had been effective. This impact of this new standard on
basic earnings per share was a reduction from 8.89 euro cent to
8.78 euro cent. Diluted earnings per share reduced from 8.89 euro
cent to 8.78 euro cent also.
10. INTANGIBLE ASSETS
The table below shows the movements in intangible assets for the
year:
Capitalised
Domain Development
Goodwill Names Technology Affiliates Contracts Costs Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Cost
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
----------- ---------- ----------- --------------------- --------------------- ----------
Balance at 1 January
2019 47,274 214,640 14,068 5,500 11,525 293,007
Additions - 68 - - 2,847 2,915
Balance at 3 1
December 2019 47,274 214,708 14,068 5,500 14,372 295,922
----------- ---------- ----------- --------------------- --------------------- ----------
Accumulated
amortisation and
impairment
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 a t 31
December 2018 (29,426) (116,700) (13,808) (5,500) (9,847) (175,281)
----------- ---------- ----------- --------------------- --------------------- ----------
Balance at 1 January
2019 (29,426) (116,700) (13,808) (5,500) (9,847) (175,281)
Charge for year - (9,674) (103) - (1,744) (11,521)
Balance a t 31
December 2019 (29,426) (126,374) (13,911) (5,500) (11,591) (186,802)
----------- ---------- ----------- --------------------- --------------------- ----------
Carrying amount
At 31 December 2018 17,848 97,940 260 - 1,678 117,726
----------- ---------- ----------- --------------------- --------------------- ----------
At 31 December 2019 17,848 88,334 157 - 2,781 109,120
----------- ---------- ----------- --------------------- --------------------- ----------
Goodwill
The carrying value of the goodwill balance at 31 December 2019
is EUR17,848k (2018: EUR17,848k) and relates to an investment in
Hostelworld.com Limited in 2009.
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 five
year budgets approved by the directors and include future
profitability, capital expenditure requirements and working capital
investment. The cash flow projections also take into account
historical trading performance, anticipated changes in future
market conditions, industry and economic factors and business
strategies.
Capital expenditure requirements to maintain the CGUs
performance and profitability assume that historic investment
patterns will be maintained. Working capital requirements are
forecast to move in line with activity.
The pre-tax discount rate which has been applied in determining
value in use is 12.2% (2018: 10.8%). The pre-tax discount rate is
based on the Group weighted average cost of capital, calculated
using the Capital Asset Pricing Model adjusted for the business
specific risk of the CGU. Growth rates are assessed based on the
approved five year 2020 budget and they range from 3% to 10%. Cash
flows beyond the 5 year period are extrapolated using the estimated
long- term growth rate of 2.8% (2018: 2.8%). 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 2019.
Other Intangible Assets
Additions during the year comprised of internally generated
additions of EUR2,532k (2018: EUR1,658k) and other separately
acquired additions of EUR383k (2018: EUR181k).
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. PROPERTY, PLANT AND EQUIPMENT
The table below shows the movements in property, plant and
equipment for the year:
Right of
Use Assets Leasehold
(Leasehold Property Fixtures Computer
Property) Improvements & Equipment Equipment Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Cost
Balance at 1 January
2018 - 1,753 787 3,746 6,286
Additions - 102 36 576 714
Disposals - - - (83) (83)
Balance at 31 December
2018 - 1,855 823 4,239 6,917
------------ -------------- ------------- ----------- --------
Balance at 1 January
2019 - as restated 4,294 1,855 823 4,239 11,211
Additions 39 22 - 168 229
Disposals - - - (748) (748)
------------ -------------- ------------- ----------- --------
Balance at 31 December
2019 4,333 1,877 823 3,659 10,692
------------ -------------- ------------- ----------- --------
Accumulated depreciation
Balance at 1 January
2018 - (380) (315) (1,817) (2,512)
Charge for year - (272) (120) (840) (1,232)
Disposals - - - 83 83
Balance at 31 December
2018 - (652) (435) (2,574) (3,661)
------------ -------------- ------------- ----------- --------
Balance at 1 January
2019 - as restated - (652) (435) (2,574) (3,661)
Charge for year (1,061) (317) (125) (922) (2,425)
Disposals - - 747 747
------------ -------------- ------------- ----------- --------
Balance at 31 December
2019 (1,061) (969) (560) (2,749) (5,339)
------------ -------------- ------------- ----------- --------
Carrying amount
At 31 December 2018 - 1,203 388 1,665 3,256
------------ -------------- ------------- ----------- --------
At 31 December 2019 3,272 908 263 910 5,353
------------ -------------- ------------- ----------- --------
The adoption of IFRS 16 on 1 January 2019, resulted in the Group
recognising right of use assets of EUR4,294k on that date. These
assets relate to the Group's lease commitments for office space in
Ireland, UK and Portugal. The average lease term is 7 years. The
maturity analysis of lease liabilities is presented in note 14.
Amounts recognised in consolidated income statement
2019
EUR'000
Depreciation expense on right of
use assets 1,061
Interest expense on lease liabilities 178
Expense relating to short term leases 5
--------
Total 1,244
--------
At 31 December 2019, the Group is committed to EUR6k (2018:
EUR11k) for short term leases. The total cash outflow for leases
amount to EUR1,293k during 2019.
On 3 October 2019, Hostelworld Services Limited entered into a 2
year lease to rent property, which had not commenced by the year
end and as a result, a lease liability and right of use asset has
not been recognised at 31 December 2019. The aggregate future cash
outflows to which the Group is exposed in respect of this contract
is fixed payments of EUR596k in 2020, EUR926k in 2021 and EUR81k in
2022.
12. DEFERRED TAXATION
The following are the major deferred taxation liabilities and
assets recognised by the Group and movements thereon during the
current and prior reporting year:
Accelerated
Taxation Taxation
Depreciation Losses Total
EUR'000 EUR'000 EUR'000
As at 1 January 2018 (394) 417 23
Credited/ (charged) to the income statement 231 (417) (186)
As at 1 January 2019 (163) - (163)
Credited to retained earnings (IFRS
16 adoption) 141 - 141
Credited to the income statement 6,605 - 6,605
-------------- --------- --------
As at 31 December 2019 6,583 - 6,583
-------------- --------- --------
The following is the analysis of the deferred taxation balances
for financial reporting purposes:
2019 2018
EUR'000 EUR'000
Deferred taxation assets 6,727 99
Deferred taxation liabilities (144) (262)
---------- ----------
Net deferred taxation assets/ (liabilities) 6,583 (163)
---------- ----------
On 12 March 2019, a deferred tax asset of EUR6,862k was
recognised due to a temporary difference between the carrying value
and the tax base of intangible assets which were transferred as
part of a group reorganisation (see note 19). The deferred tax
credit of EUR6,605k primarily relates to this temporary
difference.
The 2018 credit of EUR186k relates to the movement in deferred
tax assets offset by the movement in deferred tax liabilities.
The Irish standard rate of corporation tax continued to be 12.5%
through the year and comparative years. The tax rate ruling in the
UK is 19%, and will reduce to 17% on 1 April 2020. The Portugese
standard rate of corporation tax continued to be 21% through the
year and comparative years.
13. INVESTMENT IN ASSOCIATE
In July 2019, the Group purchased 7,645,554 shares (49% of the
share capital) of Goki Pty Limited, an Australian resident company.
Goki Pty Limited's principal activity is software development and
principal place of business is Australia. The purchase
consideration for the transaction was USD 3,000k (EUR2,653k) and
the directly attributable costs EUR185k.
Subsequently, this investment in an associate was accounted for
using the equity method. The Group has significant influence but
not control over the entity, due to the nature of its voting
rights. The Group controls 49% of the voting rights and is not
entitled to appoint 50% or more of the total number of directors to
the Board.
The purchase consideration is to be paid in three equal
instalments. The first was paid in July 2019 and the two subsequent
payments will be made on the 1(st) and 2(nd) anniversary of this
date. The present value of the amount due in 2021 (EUR873k) is
recognised in non-current liabilities in the consolidated statement
of financial position. This financial liability was recognised
initially at fair value and subsequently stated at amortised cost
using the effective interest method. The amount due in 2020
(EUR890k) is recognised in current liabilities (note 16).
Summarised financial information in respect of Goki Pty Limited
is set out below. This represents the amounts in Goki Pty Limited's
financial statements prepared in accordance with IFRSs.
Statement of financial position of Goki Pty Limited as at 31
December 2019
2019
EUR'000
Non-current assets 7
Current assets 2,441
Non-current liabilities -
Current liabilities (46)
----------
Equity attributable to owners of the
company 2,402
----------
Group share of results of associate (116)
------
Reconciliation of the above summarised financial information to
the carrying amount of the Group's interest in Goki Pty Limited
recognised in the consolidated financial statements:
2019
EUR'000
Net assets of Goki Pty Limited 2,402
Proportion of the Group's ownership interest
in the associate 49%
Group share of net assets 1,177
Goodwill and transaction costs 2,868
Other adjustments (1,322)
Carrying amount of the Group's interest in
associate 2,723
----------
Other adjustments relate to the elimination of the Group's 49%
equity investment within the net assets of Goki Pty Limited.
Commitment to extend loan to associate
Under the terms of the shareholder purchase agreement, there is
a USD 500k loan facility option available to Goki Pty Limited by
the Group until July 2022. This loan is interest bearing and if
drawn, repayable in full in July 2022. The Group treats this
facility as a commitment to extend loan to associate until such
time as it becomes probable that it will be required.
The directors assessed the credit risk of this commitment and
determined there was no evidence to recognise an expected credit
loss on it.
14. LEASE LIABILITIES
The adoption of IFRS 16 on 1 January 2019, resulted in the Group
recognising right of use assets of EUR4,294k and corresponding
lease liabilities of EUR5,361k on that date. These leases relate to
the Group's lease commitments for office space in Ireland, UK and
Portugal. The maturity analysis of these lease liabilities is as
follows:
2019
EUR'000
Maturity analysis
Year 1 999
Year 2 916
Year 3 883
Year 4 838
Year 5 838
Onwards 243
-------
4,717
Less effect of discounting 426
-------
Total 4,291
-------
These liabilities are classified in the consolidated statement
of financial position as:
Non-current lease liabilities 3,422
Current lease liabilities 869
----------
Total 4,291
----------
The Group does not face a significant liquidity risk with regard
to its lease liabilities
15. TRADE AND OTHER RECEIVABLES
2019 2018
EUR'000 EUR'000
Amounts falling due within one year
Trade receivables 873 1,067
Prepayments and other receivables 2,291 804
Value Added Tax 1,816 943
---------- -------
Total 4,980 2,814
---------- -------
The carrying value of trade and other receivables also
represents their fair value. Trade receivables are non-interest
bearing and trade receivable days are 4 days (2018: 5 days). Given
the nature of the business, allowance for impairment of receivables
is not material.
16. TRADE AND OTHER PAYABLES
2019 2018
EUR'000 EUR'000
Amounts falling due within one year
Trade payables 2,493 2,361
Accruals and other payables 3,778 5,937
Deferred revenue 3,303 4,095
Deferred consideration (note 13) 890 -
Payroll taxes 610 553
Total 11,074 12,946
-------------- ----------
At 31 December 2019, EUR2,777k deferred revenue related to free
cancellation bookings is included in deferred revenue (2018:
EUR2,892k).
The average credit period for the Group in respect of trade
payables is 18 days (2018: 21 days). The directors consider that
the carrying amount of trade payables approximates to their fair
value.
17. 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.
18. 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 2019, the Remuneration
Committee approved the grant of 1,267,463 share options pursuant to
the terms and conditions of the Group's LTIP Rules (2018: 773,797
options). These were granted in four separate offerings.
In 2019, EUR77k was expensed in the consolidated income
statement in relation to the Group's LTIP schemes (2018: EUR467k
credit). During the year, there was a change in the estimate of
shares that will vest under the EPS component of the 2018 and 2019
awards.
Details of the share options outstanding during the year are as
follows:
2019 2018
No. of share No. of share
options options
Outstanding at beginning of year 875,957 1,324,039
Granted during the year 1,267,463 773,797
Forfeited during the year (641,773) (1,221,879)
Exercised during the year - -
Expired during the year - -
------------- ----------------
Outstanding at the end of the year 1,501,647 875,957
Exercisable at the end of the year - -
------------- ----------------
Included in the number of options forfeited in 2019, are 373,210
options of the 2017 awards which did not meet the vesting
conditions based on performance conditions from 1 January 2017 to
31 December 2019. (2018: 562,626 options of the 2016 awards were
forfeited as they did not meet their required vesting
conditions).
If the conditions are met, 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 2018 and 2019
awards for performance conditions is over 3 years from 1 January
2018 to 31 December 2020 and from 1 January 2019 to 31 December
2021 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:
April 2019 June 2019 August 2019 November
2019
Year of potential vesting 2022 2022 2022 2022
Number of share options granted 933,995 76,204 187,842 69,422
Share price at grant date GBP1.95 GBP2.07 GBP1.50 GBP1.32
Exercise price per share option GBPnil GBPnil GBPnil GBPnil
Expected volatility of Company
share price 46.1% 42.1% 40.0% 40.1%
Expected life 3 years 3 years 3 years 3 years
Expected dividend yield 4.3% 4.9% 4.9% 6.0%
Risk free interest rate 0.71% 0.56% 0.43% 0.51%
Weighted average fair value GBP1.93 GBP1.97 GBP1.27 GBP1.16
at grant date
Remaining weighted average
life of options (years) 2.26 2.42 2.64 2.88
Expected volatility was determined based on the market
performance of the Company over a period of 36 months prior to the
date of grant for all the 2019 awards.
For all awards up to and including the June 2018 awards,
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. For the December 2018 awards, expected volatility 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 2019, the Remuneration
Committee approved the granting of share options under a SAYE
scheme for all eligible employees across the Group. 31 employees
availed of the scheme in 2019 (2018: 24 employees availed of the
2018 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 2019 SAYE scheme was estimated at
EUR63k of which EUR11k has been recognised in the consolidated
income statement for the year ended 31 December 2019. The remaining
EUR52k 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 2018 SAYE scheme was estimated at
EUR41k of which EUR34k (2018: EUR7k) has been recognised in the
consolidated income statement to date.
Number of SAYE share options
granted
2019 2018
Outstanding at beginning of year 165,162 171,333
Granted during the year 258,757 90,819
Forfeited during the year (133,327) (96,990)
---------------- -------------
Outstanding share options granted at
end of year 290,592 165,162
---------------- -------------
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 UK office Irish office
Grant date October 2019 October 2019
Year of potential vesting 2022 2022
Share price at grant date GBP1.30 EUR1.52
Exercise price per share option GBP1.17 EUR1.30
Expected volatility of company
share price 39.5% 39.5%
Expected life 3 years 3 years
Expected dividend yield 9.3% 9.3%
Risk free interest rate 0.51% 0.51%
Weighted average fair value
at grant date GBP0.21 EUR0.24
Valuation model Black Scholes Black Scholes
Scheme UK office Irish office Irish office
Grant date July 2017 July 2017 September
2018
Year of potential vesting 2020 2020 2021
Share price at grant date GBP3.37 EUR4.00 EUR2.40
Exercise price per share option GBP2.78 EUR3.24 EUR2.56
Expected volatility of company
share price 45.0% 44.6% 47.5%
Expected life 3 years 3 years 3 years
Expected dividend yield 4.0% 4.0% 6.9%
Risk free interest rate 0.38% 0.38% (0.40%)
Weighted average fair value
at grant date GBP0.99 EUR1.10 EUR0.45
Valuation model Black Scholes Black Scholes Black Scholes
Expected volatility was determined in line with market
performance of the Company for the 2019 schemes. For the 2017 and
2018 schemes, 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 EUR79k (2018: EUR121k) in relation to the SAYE
schemes, together with the charge in respect of the long-term
incentive plan for the year of EUR77k (2018: EUR467k credit) is the
total charge in respect of share-based payments. The LTIP and SAYE
schemes are accounted for as equity settled in the financial
statements.
Overall, the Group recognised an expense of EUR156k (2018:
EUR346k credit) 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 EUR7k and a
corresponding expense of EUR7k in relation to these SARs as at 31
December 2019 (2018: EUR3k). The fair value of these SARs was
determined by using a Black Scholes model.
19. 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
Hostelworld.com Limited Floor 2, One Central
196 Ordinary shares Technology trading Park, Leopardstown, Dublin
@EUR1 100%* company 18, Ireland
Hostelworld Services
Portugal LDA Marketing and research Rua Antònio Nicolau
500 Ordinary shares and development services D'Almeida, 45, 5th Floor,
@EUR1 100% company 4100-320 Oporto, Portugal
Hostelworld Services
Limited Marketing services Floor 2, 52 Bedford Row,
104,123 Ordinary shares and technology trading London, WC1R 4LR, United
@GBP0.001 100%* company Kingdom
Counter App Limited Floor 2, One Central
51 Ordinary shares Park, Leopardstown, Dublin
@EUR1 51% Technology company 18, Ireland
* held directly by the Company
All subsidiaries have the same reporting date as the Company
being 31 December.
On 12 March 2019, Hostelworld.com Limited acquired intangible
assets from WRI Nominees DAC for a consideration of EUR151m. Both
of these companies are 100% owned subsidiaries of Hostelworld Group
plc. While this transaction had no impact on our underlying trade,
the reorganisation resulted in the recognition of a deferred tax
asset of EUR6.9m. On the same date, WRI Nominees DAC was liquidated
by way of members' voluntary winding up.
On 1 August 2019, Hostelworld Technology Solutions Limited was
incorporated in Ireland and became a 100% owned subsidiary of
Hostelworld.com Limited. On 8 November 2019, following a share
subscription, Hostelworld Technology Solutions became a 51% owned
subsidiary of Hostelworld.com Limited. There has been no trading
activity in this entity to date. On 7 February 2020, Hostelworld
Technology Solutions Limited changed its name to Counter App
Limited.
On 30 November 2018, Hostelworld Korea Limited was placed into
voluntary liquidation.
ASSOCIATES
The following details the Company's current investment in
associates, including the name, country of incorporation, and
proportion of ownership interest:
Company Holding Nature of Business Registered Office
Goki Pty Limited 49% Technology company 477 Kent St, Sydney NSW
2000, Australia
On 21 June 2019, Hostelworld.com Limited signed an agreement to
purchase 7,645,554 shares in an Australian incorporated proprietary
company limited by shares. The purchase consideration for this
transaction was USD 3m. This transaction was completed on 22 July
2019 and on this date, an investment in associate was recognised in
the consolidated financial statements.
Under the terms of the shareholder purchase agreement, there is
a USD 500k loan facility option available to Goki Pty Limited by
the Group until July 2022.
Directors' remuneration
2019 2018
EUR'000 EUR'000
Salaries, fees, bonuses and benefits in
kind 1,107 1,004
Amounts receivable under long-term incentive
schemes 44 44
Termination benefits - 467
Pension contributions 61 52
-------- --------
Total 1,212 1,567
-------- --------
Retirement benefit charges of EUR61k (2018: EUR52k) arise from
pension payments relating to 2 executive directors (2018: 4).
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.
2019 2018
EUR'000 EUR'000
Short term benefits 2,607 2,892
Share based payments charge / (credit) 72 (253)
Termination benefits 854 1,121
Post employment benefits 118 123
---------- ----------
Total 3,651 3,883
---------- ----------
20. DIVIDENDS
Amounts recognised as distributions to equity holders in the
financial year:
2018 2017
EUR'000 EUR'000
Final 2018 dividend of EUR0.09 per share
(paid 5 June 2019) 8,601
Interim 2019 dividend of EUR0.042 per
share (paid 20 September 2019) 4,014
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
12,615 16,056
-------- ---------
Proposed final dividend for the year ended 31
December 2019 of
EUR0.021 per share (2018: EUR0.09 per share ) 2,007 8,601
-------- ---------
In accordance with the updated Group's dividend policy, the
directors recommend the payment of a final dividend for 2019 of
EUR0.021 per share amounting to EUR2.0m (2018: EUR0.09 per share
amounting to EUR8.6m).
The proposed dividends are to be approved by the shareholders at
the 2020 AGM on 27 April 2020.
21. EVENTS AFTER THE BALANCE SHEET DATE
The directors have recommended a final dividend of 2.1 euro cent
per share to be paid on 8 May 2020 (see note 20).
There have been no other significant events, outside the
ordinary course of business, affecting the Group since 31 December
2019.
[1] Source: Phocuswright's The Global Hostel Marketplace Third
Edition. Draft. Unpublished.
[2] Source: Phocuswright's The Global Hostel Marketplace Third
Edition. Draft. Unpublished.
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Authority to act as a Primary Information Provider in the United
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contact rns@lseg.com or visit www.rns.com.
END
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