annual report 2017 Hostelworld Annual Report 2017 Hostelworld Annual Report 2017 our mission Our Purpose Inspire passionate travellers to see the world, meet new people and come back with extraordinary stories to tell. What We Do Throughout their journey we connect travellers with the best choice of hostels as well as valued travel services to make their trip go further. Our Ambition Be the leading online hub for hostel customers who want to “Meet the World”. 2 3 downtown hostel COPENHAGEN Hostelworld Annual Report 2017 Hostelworld Annual Report 2017 about hostelworld Hostelworld Group (“the Group”) operates We are a key distribution channel for hostels the world’s leading hostel-focussed online worldwide offering them a market-leading booking platform. proposition by providing: We are the leading brand for young and > A lower cost distribution channel than independent travellers seeking a social most other major OTAs travel experience through our flagship brand Hostelworld and supporting brands Hostelbookers > Access and promotion across a range of and Hostels.com. platforms to a global customer base with an attractive demographic profile We are different from other Online Travel Agents (“OTAs”) because we focus on hostels, maintain a > Access to BackPack Online, the Group’s leading global hostel database with over 16,000 online property management system hostels and approximately 20,000 other forms of budget accommodation available globally. > Access to the Group’s booking engine technology We also manage an extensive customer-generated review database consisting of more than 10 million post-stay reviews since 2005. LES PIAULES PARIS 4 5 Hostelworld Annual Report 2017 Hostelworld Annual Report 2017 Contents Overview 2017 Highlights Story So Far STRATEGIC REPORT Chairman’s Statement Chief Executive’s Statement Financial Review Principal Risks and Uncertainties Corporate Social Responsibility Governance Chairman’s Introduction Directors’ Biographies Corporate Governance Statement Report of the Audit Committee Report of the Nomination Committee Chairman of the Remuneration Committee’s Annual Statement Summary of Directors’ Remuneration Policy Annual Report on Remuneration Directors’ Report Independent Auditor’s Report FINANCIAL STATEMENTS Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Statement of Financial Position Company Statement of Changes in Equity Notes to the Company Financial Statements ADDITIONAL INFORMATION Shareholder Information 10 13 17 21 27 32 40 46 48 50 59 66 71 74 78 90 100 112 113 114 115 116 117 150 151 152 158 Lub d phuket PATONG 6 7 generator COPENHAGEN Overview 2017 Highlights Story So Far 10 12 8 9 Hostelworld Annual Report 2017 | Overview Hostelworld Annual Report 2017 | Overview 2017 highlights ADJUSTED EBITDA Bookings 7.1m +6% 7.5m 87% 93% +13% Hostelworld Brand Other Brands ADJUSTED PROFIT AFTER TAX net revenue 13% 2016 7% 2017 €80.5m +8% €86.7m H2 H1 H2 H1 2016 2017 €23.9m +10% €26.4m H2 H1 H2 H1 2016 2017 €19.4m +12% H2 H1 €21.7m H2 H1 2016 2017 ADJUSTED FREE CASH FLOW €21.5m €21.5m +0% 90% adj. cash conversion H2 H1 H2 H1 81% adj. cash conversion Definitions for Non-GAAP measures (Adjusted EBITDA, Adjusted Profit after Tax, and Adjusted Free Cashflow) are set out on pages 27 to 31 in the Financial Review. 2016 2017 10 11 Hostelworld Annual Report 2017 | Overview Hostelworld Annual Report 2017 | Overview Ostello Bello MILAN Hellman & Friedman LLC, a US private equity firm, acquired the Group Acquired the Hostels.com business and brand 2003 2009 2006 1999 Opened office in Shanghai Launch of the Hostelworld website, providing an online booking platform and back-end property management system Released new suite of Hostelworld booking apps for iOS and Android 2015 2014 Opened office in Seoul, South Korea 2017 2016 Opened technology development centre in Porto, Portugal Listed on the London and Irish Stock Exchanges Rebranding of Hostelworld with ‘Meet the world’ 2013 Change of revenue model with the introduction of the commission bidding tool (‘Elevate’), as well as a premium listings feature on its Hostelworld platform Acquired the Hostelbookers business, based in the UK Story So Far... 12 12 13 13 STRATEGIC REPORT Chairman’s Statement Chief Executive’s Statement Financial Review Principal Risks and Uncertainties Corporate Social Responsibility 17 21 27 32 40 14 15 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Chairman’s Statement I am pleased to present my first Chairman’s The Board continues to review its approach to statement for Hostelworld, having assumed the returning capital to shareholders, providing role of Chairman on 1 December 2017. returns to shareholders whilst retaining flexibility for capital and other investment opportunities. 2017 was a year of strong bookings growth for Hostelworld, in the midst of continued challenges Board Composition for the travel industry. The industry continues to be impacted by Brexit uncertainty and terrorist The composition of the Board is fully compliant attacks, which particularly affect our key European with the UK Corporate Governance Code as destinations. We have continued to create value applied to small companies. The Board has for our shareholders by meeting customer needs undertaken an appraisal of the directors, as well in a rapidly changing marketplace. as of the Board and each sub-committee, which Results and financial position concluded that the Board is functioning effectively. As was announced in our interim results, Richard Overall Group bookings grew by 6% in the Segal stepped down from the Board as Chairman year, compared to a decline of 1% in 2016, with on 1 December 2017 and as director on 31 bookings in the Hostelworld brand growing by December 2017 after a period of six years with 13% in the year (2016: 18%). It was a year in which the business. I would like to thank Richard for his we saw very strong growth of 11% in H1 2017 valuable guidance and contribution to the Group somewhat offset by lower bookings growth of 1% during his tenure as non-executive Chairman. in the latter part of the year as we lapped stronger comparatives. The Group’s flagship brand, Carl Shepherd was appointed as Non-Executive Hostelworld, represented 93% of total Group Director on 1 October 2017 and brings a wealth of bookings as compared with 87% in 2016. On a experience in the online travel industry, as Group basis net revenue increased by 8% in 2017, co-founder of Homeaway Inc. Éimear Moloney was compared to a 4% decline in 2016. appointed as Non-Executive Director on Adjusted EBITDA for the year was €26.4m (2016: investment management and business experience. 27 November 2017, bringing with her years of senior €23.9m) and operating profit for the year was €11.9m (2016: €0.2m) which, as stated in Following these appointments, a number of our pre-close update, is in line with the Board’s changes have been made to the composition of expectations for the year. the sub-committees of the Board. Andy McCue has assumed the role of Senior Independent Director The business continues to be strongly cash and remains as Chair of the Remuneration generative, with adjusted free cash flow of €21.5m Committee. Éimear Moloney now serves as Chair (2016: €21.5m), contributing to a strong balance of the Audit Committee. sheet at the year end. Cash balances at year end were €21.3m (2016: €24.6m), after payment of In December, Mari Hurley announced her intention €24.8m of dividends during the year. to resign as Chief Financial Officer and Director. Dividend and Capital Structure The Board is recommending a full year final dividend of 12.0 euro cent per share which reflects the distribution of 75% of the Adjusted Profit after Taxation for the year. I would like to thank her for her strong financial leadership during her eleven years with the Group and to wish her well in her future endeavours. 17 michael cawley Chairman Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report People 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 efforts of our new software development team based in Porto. Outlook The continued investment in our technology development capability and brand has placed the Group in a good position to capture future growth in the hostel sector. These factors together with the strong skillset of our people and an increased focus on product innovation will enhance our prospects in our core marketplace and provide opportunities for incremental growth in the years ahead. Michael Cawley Chairman 9 April 2018 18 Madama MILAN 19 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Chief Executive’s Statement Hostelworld continues to be a young and Technology and Mobile ambitious global business which focusses on facilitating a social travel experience 2017 was a transformational year for Hostelworld for millennials and others seeking a sense technology. Alongside our continuous delivery of of adventure, community and interaction mobile and website products, we also commissioned with like-minded international travellers. By and set up a new software development office in focussing on hostels, and a young demographic Porto, where we had 24 people employed at 31 customer base, we believe we are better December 2017. Based on its initial success, we positioned to benefit from the inherent growth plan to substantially expand this new software of the sector and to compete more effectively delivery centre during 2018, as we expect it to play with generalist online travel agents (OTAs). a significant role in Hostelworld’s future success. In addition to investing in new capacity, we also placed Our growth has been delivered through continued considerable focus on training and upskilling to investment in our core technology platform and ensure an agile and delivery focussed culture which in an expanding array of differentiated product will increase future efficiency, morale and knowledge features, which aim to address a larger community retention across the entire technology division. of hostel guests and increase our revenue per customer. We do this through continued In terms of product delivery, mobile led the investment in technology (in particular mobile), way with innovative products such as the highly brand marketing, and geographic diversification popular Speak The World translation tool, as supported by a range of pricing initiatives. well as pilot launches of Hostel Chat and Extend Growth Your Stay. Our mobile first strategy has resulted in mobile (including tablet) representing 54% of Hostelworld group bookings for the year (2016: Bookings for the Group’s primary Hostelworld 47%). In terms of offering better flexibility to our brand, which contribute 93% of total Group customers and providing better yield management bookings, grew by 13% in the year (2016: 18%). tools to our hostel partners, we completed the Total Group bookings and revenues for the year rollout of non-refundable rates and followed this increased by 6% and 8% respectively (2016: 1% up in 2018 with the pilot launch of free cancellation decline and 4% decline) as we successfully focussed bookings, a product which allows us to offer our on driving bookings growth in our flagship brand, customers greater flexibility and improves our own and proactively managed the decline in our competitive position. The pilot launch resulted in supporting brands. a noticeable increase in conversion and booking levels, and we therefore plan to introduce this We are pleased with the continued progress model more widely, which we see as a key strategic made in managing our marketing investment, move for the business. We anticipate this product driving efficiencies in cost-per-click and cost-per- to be earnings enhancing in the medium term booking which has resulted in a more profitable but will result in a deferral of revenue recognition booking mix. In 2017, bookings from not-paid- which will impact reported earnings in 2018, its for channels increased to 63% of overall Group first year, but will not impact on cash receipts. bookings (2016: 61%), and marketing expenses as a percentage of net revenue decreased to Brand marketing 38% (2016: 41%). We are confident that our marketing and mobile led strategy, with the Strong performance in Hostelworld brand goal of diversifying online marketing channels bookings (+13%) and bookings growth from and increasing Hostelworld brand awareness, direct channels are encouraging signs that will continue to deliver an efficient customer Hostelworld’s brand activity is having a positive acquisition strategy, driving future growth. effect for the business. The focus for brand activity 21 feargal mooney Chief Executive Officer Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report has been driving reach and penetration in more a useful translation tool which allows travellers markets globally, whilst also being present in to speak in 45 different languages. The campaign Asia Implementing our strategy those markets more frequently. Hostelworld is not only generated a huge amount of PR across Inbound growth remained strong with 12% year Through 2017 we have continued to develop and seeing signs across many of the brand channels 16 markets, but saw a 100% increase in app on year (“YoY”) increase in bookings to Asian implement our strategy. As part of this process we that this strategy is paying off, including through downloads across the key summer months, and destinations during 2017. Asia now represents 21% have simplified our strategy to three key objectives healthy growth in app downloads (up 49% to 2.2m has produced over 3.5 million translations to date. of group-wide bookings with Thailand consistently to ensure focus and delivery across the business. downloads in 2017). featuring in our top 3 global destinations over the Through Social, Hostelworld’s following has course of 2017. Vietnam was the fastest growing This will also ensure we remain properly focussed on Following 2016’s award winning In Da Hostel reached over 2m fans across Facebook, Twitter, destination in our global top 10 with 22% YoY the customer and maintain our competitive position with 50 Cent campaign, Hostelworld continued YouTube and Instagram combined; a 50% increase growth over 2016. Indonesia is another high growth in our core markets. We will continue to raise the its successful ‘Unexpected Guest’ strategy, in the period. Greater reach and penetration of destination in the region with 32% YoY growth awareness of the hostelling concept amongst with a hugely provocative, perception-busting markets globally on Social has contributed to over in bookings. We continue to focus on adding current and potential category users, build on the campaign involving Charlie Sheen’s antics in 12m unique visitors to the Hostelworld Blog – supplementary supply in the Asian region and social nature of our customer base to develop the hostels. Launching in March 2017, this campaign driving traffic through the marketing funnel. appointed an agent in Thailand in the latter half of Hostelworld Community and increasingly drive contributed to the 13% growth in Hostelworld brand bookings in 2017. Supporting our brand initiatives, we launched a major PR event in September, creating the 2017 also saw our first product-driven marketing world’s first ever Sand Hostel on the Gold Coast, campaign, with the launch of Speak The World. Australia. This was Hostelworld’s most successful With the objective of differentiating Hostelworld’s PR campaign to date and brought to life the key app from the competition whilst also driving attributes of the hostel experience that feature the year, to support our Shanghai based team and revenue per customer across our base. bolster inventory in this key inbound market. Outbound growth proved more challenging in 2017. The transition to a single brand in the Korean market coupled with both global and Asian political unrest hampered progress in the During 2018 our strategic objectives will be: 1. Competing on Core Product Functionality and Differentiating USPs. Our customers continue to expect a booking platform that app downloads, Speak The World leveraged across all of our brand campaigns: sociability, region. In response to this, however, we launched delivers a simple, seamless experience that is Hostelworld’s strong brand positioning to create security and availability of private rooms. a number of new initiatives in Korea including flexible and fast when booking a hostel. We will oxotel hostel CHIANG MAI Hostelworld hosted travel seminars and the continue to invest in our core technology to company’s first ever student ambassador program. ensure we keep pace in delivering content and We also worked closely with several key influencers features across all our channels and platforms in the market. In addition we transitioned to a new that not only meet fast changing customer paid search agency and expanded the team on the expectations, but also differentiates our ground leaving us well positioned to explore new offering from generalist OTAs. opportunities for growth in 2018 and beyond. Pricing and yield management 2. Increasing Customer Lifetime Value. We will deliver products and features that are unique to the hostel product and enhance our The year saw encouraging growth in our Elevate customers experience before, during and after programme, with 34% of 2017 Group bookings the trip. In this context, we aim to increase delivered to properties participating in Elevate, customer loyalty thereby increasing the lifetime an increase from 30% in 2016. value of our customers. The Elevate programme gives accommodation 3. Building the Hostelworld Community. providers the opportunity to increase their The Hostel marketplace revolves around prominence in search lists dynamically in exchange the sociability of hostel customers. Through for a higher commission rate of up to 10% above enhanced blog features encouraging the relevant base commission rate. We also community engagement, as well as expanding offer a premium listing feature, which enables our range of social features such as Hostel accommodation providers to purchase fixed slots Noticeboard, Hostel Chat and more, we at the top of Hostelworld’s and our other brands’ will enable social interaction with other results on a monthly cycle. In 2017, we continued hostel travellers and with hostel operators to expand the offering of revenue management throughout the journey, building a unique services to our properties so as to assist them in Hostelworld Community. improving their yield per bednight. In February 2018, we continued our program of pricing initiatives, introducing changes to base rate commissions which will contribute to ABV during 2018. 22 23 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Business model > Phocuswright projects 5% hostel revenue growth per year through 2020 for the global Outlook In operating the world’s leading hostel-focussed hostel market (on pace with the global hotel In recognition of the importance of technology in model more widely, which we see as a key strategic online booking platform, we offer a simple industry), when it estimates that the total hostel our business, we invested in a new development move for the business. We anticipate this product and comprehensive online mechanism that market will reach nearly $6.4 billion in revenue. centre in Porto in 2017 and plan to substantially to be earnings enhancing in the medium term gives providers of hostels and other budget expand our commitment there in 2018 in order but will result in a deferral of revenue recognition accommodation a shop window to show their > Online channels accounted for 61% of global to increase the pace and volume of new product which will impact reported earnings in 2018, its accommodation to young independent travellers. hostel revenue in 2016 with 75% of online hostel features and functionality for our customers and first year, but will not impact on cash receipts. We facilitate bookings between the two, offering a bookings made via an online travel agent. hostel partners. top-class booking experience that provides us with commission-based revenue. Phocuswright’s conclusions give us additional confidence in the strength of our target market Market conditions, particularly in Europe, remain technology investment will substantially improve uncertain and while volume bookings in the first our offering to customers and our competitive This new product together with increased At the time of booking, hostel travellers pay a and the long term growth opportunities it offers quarter of 2018 are in line with expectations, position and underpins the Board’s confidence that deposit directly to us, and the remainder of the the Group as a leading provider of bookings weaker exchange rates, particularly for the US we will see bookings growth in 2018 and beyond. cost of their stay directly to the hostel at the time into this niche market. dollar, remain a significant headwind. of their visit. The deposit equates to our revenue from the transaction. This efficient business People model has favourable working capital attributes We continued our program of pricing initiatives in Chief Executive Q1 2018, with changes to base rate commissions 9 April 2018 Feargal Mooney and strong cash conversion. Debt collection In December 2017, we announced that Mari making a positive contribution to ABV. In addition, the pilot launch of our new free cancellation booking option in February 2018, resulted in a noticeable increase in conversion and booking levels. We therefore plan to introduce this st christopher’s PARIS and invoicing overheads are all minimised. Hurley would be leaving the business to take up an During 2017, we rolled out a new offering to opportunity outside the Group during the first half accommodation providers and consumers which of 2018. I would like to thank Mari for her significant enabled properties to offer a non refundable contribution to Hostelworld over many years with rate product which retained the simplicity of the Group and wish her well for the future. the original Hostelworld model, whilst offering customers and properties alike the benefits of this In January 2018, we welcomed Kristof Fahy as our choice in product offering. We will continue to test first ever Chief Customer Officer, reflecting our alternative product offerings during 2018 so as increased focus on ensuring that the customer to offer customers a wider choice. In this regard remains at the heart of our strategy, and that our in early 2018 we have piloted a free cancellation investments in technology and marketing are always model to further broaden our product offering. informed by the rapidly changing preferences of our The market young demographic customer base. During 2017, we expanded our technology The first independent study of the global capacity with the addition of a new, young and hostel market (“First Edition”) was published by ambitious technology team in Porto, and we will Phocuswright in May 2016 with a follow-on study continue to expand this presence during 2018. (“Second Edition”) published in April 2018. Both studies relied on hostel operator surveys (1,000 We continue to invest in talent across the business respondents) while the First Edition also included especially in technology, marketing and other a consumer survey of 2,700 hostel travellers from customer facing functions. We are fortunate to six key consumer markets and 800 non-hostel retain an excellent and diverse pool of talented travellers and interviews with key hostel operators individuals working in our global team who and stakeholders. are critical to our success and who deliver an exceptional service to our customers. I would like The topline findings of the most recent Second to thank the entire team, in Dublin, London, Porto, Edition include: Seoul, Shanghai and Sydney, for their work in 2017. > Phocuswright estimates total property count globally of approximately 18,200 in 2016, increasing significantly from 15,600 properties in 2014. 24 25 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Financial Review Introduction > Strong Hostelworld brand bookings growth of 13%, total Group bookings growth of 6% > Gross Average Booking Value of €11.6, flat on 2016 > Net revenue increased by 10% on a constant currency basis; 8% on a reported basis > Marketing expenses represented 38% of Net Revenue (2016: 41%) > Increase in Adjusted EBITDA of 13% on a constant currency basis; 10% on a reported basis > Adjusted EBITDA margin of 30% (2016: 30%) > Strong underlying cash conversion (81%) and final dividend of 12.0 euro cent per share Key Performance Indicators 2017 2016 % change reported % change constant currency Bookings – Hostelworld brand (m) Bookings – supporting brands and channels (m) Total Booking Volume (m) Average Booking Value (“ABV”) (gross) (€) Net Revenue (€m) ADJUSTED EBITDA 7.0 0.5 7.5 11.6 86.7 26.4 6.2 0.9 7.1 11.6 80.5 23.9 13% -41% 6% 0% 8% 10% – – – 2% 10% 13% Group bookings increased by 6% in 2017, driven The associated Total Transaction Values (“TTV”) by strong booking performance in the core in 2017 were €576m (2016: €559m), while the Hostelworld brand which grew 13% in the year. average commission rate in 2017 increased to The strong growth was skewed towards H1 2017, 14.3% (2016: 13.8%). with Group bookings growth of 11% (H2 2017: 1% growth) which was partially attributed to different While the Group operates in one segment and is demand seasonality between 2017 and 2016, managed as such, business performance is reviewed particularly pronounced in European destinations on a bookings volume and average booking value as a result of geopolitical events. basis for both the Hostelworld brand as well as all supporting brands (including Hostelbookers, The Group’s core brand, Hostelworld, represents Hostels.com, booking engines and affiliates). 93% of Group bookings (2016: 87%). The Group has continued to deliberately focus its marketing Group net revenue increased by €6.2m (2016: decline initiatives and technology investments on this of €3.0m) during the year, an 8% increase year on brand, whilst bookings of the Group’s supporting year and a 10% increase in constant currency. brands declined by 41% in 2017 (2016: 53% decline). ABV was flat during the year, reflecting a 3.5% Bookings in not-paid-for channels represented increase in H1 2017 and a 4% decrease in H2 63% of total bookings (2016: 61%). The Group’s 2017. An increase in the underlying base price per booking volumes are seasonal and peak between bed and the positive impact of pricing initiatives, May and August during the summer travel period including Elevate, were offset by the continued in the northern hemisphere. decline in the number of bed nights per booking and the negative impact of exchange rate movements in 2017. On a constant currency basis ABV grew by 2% for the full year. 27 mari hurley Chief Financial Officer Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report The Group continues to actively manage its Group Adjusted EBITDA of €26.4m (2016: €23.9m) marketing mix with marketing investment as a has increased by €2.5m (10%) in the year and by percentage of net revenue declining from 41% 13% on a constant currency basis. Adjusted EBITDA in 2016 to 38% in 2017. While exchange rate as a percentage of Net Revenue remained stable at movements had a negative impact on Net Revenue 30% (2016: 30%). and Adjusted EBITDA, there was a partial offsetting benefit to marketing expenses as the majority of Administration expenses increased by €3.0m marketing investment is denominated in US dollars. (5%) to €60.4m in 2017. A contributory factor in Adjusted EBITDA this increase was the increase in staff and other administration costs due to the investment in a technology development centre in Portugal The Group uses Earnings before Interest, Tax, during the year which will further increase the Depreciation and Amortisation, excluding development capacity of the Group. exceptional and non-cash items (Adjusted EBITDA) as a key performance indicator when measuring Gross staff costs (excluding share based payment the outcome in the business from one period to expense) increased from €16.3m to €18.7m. the next, and against budget. Exceptional items Average headcount increased by 5% from 241 by their nature and size can make interpretation in 2016 to 254 in 2017. Excluding the impact of of the underlying trends in the business more the level of development labour capitalised in difficult. We believe this non-GAAP measure accordance with IFRS standards (2017: €1.7m; reflects the key drivers of profitability for the 2016: €2.3m), share based payment expense and Group and removes those items which do not the impact of a bonus accrual in 2017, staff costs impact underlying trading performance. increased by 5% on a constant currency basis. Reconciliation between Operating Profit and Adjusted EBITDA: 2017 11.9 1.1 2.9 10.4 0.0 (0.5) 0.6 26.4 2016 0.2 0.9 3.2 10.6 8.2 0.4 0.4 23.9 €’m Operating profit Depreciation Amortisation of development costs Amortisation of acquired intangible assets Impairment charge Exceptional items Shared based payment expense ADJUSTED EBITDA Exceptional gains for the year of €0.5m were due to the release of an accrual relating to previously recognised merger and acquisition costs (2016: exceptional costs of €0.4m were primarily redundancy related costs). Adjusted Profit after Taxation €’m Adjusted EBITDA Depreciation Amortisation of development costs Corporation tax Adjusted Profit after Taxation Exceptional costs Amortisation of acquired intangibles Net finance costs Share based payment expense Impairment charges Deferred taxation PROFIT FOR THE YEAR 2017 26.4 (1.1) (2.9) (0.7) 21.7 0.5 (10.4) (0.1) (0.6) 0.0 0.1 11.2 2016 23.9 (0.9) (3.2) (0.5) 19.4 (0.4) (10.6) (0.1) (0.4) (8.2) 1.1 0.8 Adjusted Profit after Taxation (“Adjusted PAT”) Based on the weighted average shares in issue is a metric that the Group uses to calculate the during 2017, reported Earnings per Share (“EPS”), dividend payout for the year, subject to Company as set out in Note 10 to the financial statements, Law requirements regarding distributable profits. is 11.77 euro cent per share for the financial year It excludes exceptional costs, amortisation of (2016: earnings per share 0.82 euro cent). Using acquired domain and technology intangibles, Adjusted PAT as the measure of earnings would impairment charges, net finance costs, share result in an adjusted EPS of 22.73 euro cent per based payment expenses and deferred taxation share for the year. The corresponding EPS for 2016 which can have large impacts on the reported calculated on the same basis, using the weighted result for the year, and which can make underlying average number of shares in issue as at 31 trends difficult to interpret. December 2016 is 20.27 euro cent per share. Adjusted PAT increased by 12% from €19.4m to €21.7m (2016: 8% decline) and 16% on a constant currency basis during the year. 28 29 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Net Finance Costs Taxation Adjusted Free Cash Flow Conversion Given that the capital nature of the Group post IPO The Group corporation tax charge of €0.7m (2016: is fully equity funded, there is minimal net finance €0.5m) results in an effective tax rate (corporation tax costs in 2017 of €0.1m (2016: €0.1m). as a percentage of Adjusted EBITDA) of 2.7% (2016: Share Based Payment Expense 2.0%) and 6% of reported profit before taxation (2016: 352%, which is after an impairment charge of €8.2m). The low effective tax rate is primarily as a The Group implemented a long term incentive plan result of carried forward tax losses arising from the in April 2016 and a Save As You Earn (“SAYE”) scheme previous capital structure of the Group. in 2017 as detailed in the Remuneration Report. In accordance with IFRS2, the Group has recognised The Group’s deferred tax credit for the year ended a non-cash charge of €0.6m in 2017 (2016: €0.4m). 31 December 2017 was €0.1m and it relates to Impairment Charge the amortisation of deferred tax liabilities and recognition of deferred tax assets reduced by the amortisation of deferred tax assets. The overall The impairment charge of €8.2m in 2016 was net deferred tax credit of €1.1m in 2016 mainly a result of a review of trading performance of relates to the reduction in carrying value of the €’m Adjusted EBITDA Acquisition of Intangible assets Capital expenditure Interest and tax paid Net movement in working capital (1) ADJUSTED FREE CASH FLOW Adjusted Free Cash Flow Conversion 2017 2016 26.4 (1.8) (1.8) (0.6) (0.7) 21.5 81% 23.9 (2.4) (0.7) (0.3) 1.0 21.5 90% (1) changes in working capital excludes the effects of exceptional costs The Group has a business model which produces Dividend the Hostelbookers brand. At 31 December 2017, deferred tax liability arising from the impairment strong free cash flow conversion, with 81% of there are no indicators that the Hostelbookers of the Hostelbookers intellectual property assets. Adjusted EBITDA converting into cash during The Group maintains an attractive dividend policy, intellectual property assets are carried at an amount higher than their recoverable amount. les piaules PARIS the year (2016: 90%). In 2017, there was a higher and the directors are pleased to recommend a full investment in capital expenditure with a total of year final dividend payout of €11.5m equating to €1.8m in the year (2016: €0.7m), primarily due to 12.0 euro cent per share. This is in addition to the the opening of a development centre in Portugal. interim dividend payout of €4.8m or 5.1 euro cent The movement in working capital in 2017 was at per share paid in September 2017. This payout a lower level than in 2016 due to a delay in a VAT of €16.3m or 17.1 euro cent per share reflects a reclaim, which was received in early 2018. Adjusting distribution of 75% of the Adjusted PAT for the year for this the adjusted free cash flow conversion ended 31 December 2017, and an increase of 13% would have been 86% in 2017 (2016: 90%). on the dividend for 2016 (15.2 euro cent per share). On 21 October 2015, in connection with the IPO, the Group entered into a working capital facility with AIB The final dividend of 12.0 euro cent per share is to Bank plc (the “Revolving Credit Facility”) for €2.5m. be approved by shareholders at the 2018 AGM on There were no draw downs under this facility from 11 June 2018. If approved, the dividend will be paid the date it was entered in to, and as a result during on 14 June 2018 to members appearing on the 2017 this facility was cancelled by the Group. register at close of business on 11 May 2018. Total cash at 31 December 2017 was €21.3m (2016: The Board continually reviews its approach to €24.6m), of which €nil is restricted (2016: €nil). returning capital to shareholders in order to There were no borrowings at 31 December 2017 ensure that the Group maintains an efficient and (2016: €nil). Foreign Exchange Risk prudent capital structure, which looks to provide increased returns to shareholders, whilst at the same time retaining flexibility for capital and other investment growth opportunities. After payment of The Group’s primary operating currency is the the proposed final dividend for 2017 the Group will euro. The Group also has significant sterling have returned €43.5m to shareholders in dividends and US dollar cash flows. Restated on a constant since listing in November 2015. currency basis, revenues have increased by 10% and Adjusted EBITDA has increased by 13% in Mari Hurley 2017. Constant currency is calculated by applying Chief Financial Officer the average exchange rates for the year ended 31 9 April 2018 December 2017 to the financial results for the year ended 31 December 2016. 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. 30 31 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Principal Risks and Uncertainties The Board takes overall responsibility for The Group’s risk register identifies key risks and identifying the nature and extent of the risks monitors progress in managing and mitigating to be managed by the Group to ensure that them and is reviewed at least annually by the strategy can be successfully implemented. The Board. The most material risks facing the Group Audit Committee monitors certain risk areas are set out below, together with comments and the internal control system, as set out in on how they are addressed to minimise their the report on governance. potential impact. Individually or together, these risks could affect our ability to operate as planned, The nature of the principal risks and uncertainties and could have a significant impact on revenue faced by the Group is on the whole unchanged, and shareholder returns. Additional risks and although, external geopolitical factors, including uncertainties, including those that have not Brexit, continue to impact the Group’s risk profile been identified to date or are currently deemed in certain areas. The most significant of these immaterial, may also, individually or together, factors is the volatility in exchange rates to the have a negative impact on our revenue, returns, euro, in particular that of the US dollar and the or financial condition. continued incidence of terrorism. freehand CHICAGO Risk Description and Impact Management and Mitigation Direction of Change 1. Macroeconomic Revenue is derived from the wider Our business is a global one, with a Conditions leisure travel sector. A decline in dispersed population of users, and macroeconomic conditions could result a geographically dispersed set of in a reduction in leisure travel, and destinations. Whilst market conditions declining revenues. may decline in certain regions, the globally diversified nature of the business Significant movements in FX rates significantly mitigates this. Our continued can have a dramatic impact on travel expansion in Asia will further diversify volumes, revenues and travel patterns. our business and address this risk. Increased volatility in currency markets have heightened this risk. FX movements may impact travel decisions and travel patterns by customers, but typically there is a degree of counterbalancing movement e.g. the weakening of the US dollar against the euro means fewer US travellers visiting the Eurozone, but decreased marketing costs from US denominated suppliers such as Google. FX translation risk is mitigated through matching foreign currency cash outflows and foreign currency cash inflows and by minimising holdings of excess non-Euro currency above anticipated outflow requirements. 2. Impact of The threat of terrorist attacks in key Our target 18-34 year old population terrorism threat cities and on aircraft in flight may tend to be both flexible as to on leisure travel reduce the appetite of the leisure destination, and less concerned about traveller to undertake trips particularly risk-taking than other sectors in the to certain geographies, resulting in leisure travel industry. declining revenues. Increased incidence of terrorism impacts also acts as a mitigant, and this will be consumer confidence and can shift further addressed by our continued demand away from certain destinations. expansion in Asia. The dispersed nature of our business 3. Competition The business operates in an increasingly We continue to build on our strong competitive marketplace and our relative market position and have increased our scale and size could impact our ability percentage of not-paid-for bookings. to keep pace with changes in customer Our strength in not-paid-for channels behaviour and technology change. means that a competitor would have to engage in significant marketing spend Increased competition from other to attain market share. Furthermore, online travel agents (“OTAs”) or from the marketing the social nature of the alternative accommodation sector via hostelling experience is not easily websites such as Airbnb, or a disruptive replicated as an offering by more new entrant such as big hotel chains generalist OTAs. into the hostel segment or loss of key accommodation suppliers could impact We continue to expand our global revenue due to potential loss of traffic or footprint, which meets emerging could increase traffic acquisition costs. demand and also strengthens our Demand for our services could suffer, overall market positioning. reducing revenue and margins. We undertake regular research to track performance in key markets and seek feedback from customers as to the relevancy and competitiveness of our proposition as well as propensity to recommend to others. 32 33 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Risk Description and Impact Management and Mitigation Direction of Change Risk Description and Impact Management and Mitigation Direction of Change 4. Search Engine Traffic to our websites is primarily The Group invests heavily in recruiting 7. Regulation The global nature of our business We monitor regulatory matters in Algorithms generated through internet search and retaining key personnel with engines such as Google, from non-paid the requisite skills and capabilities (organic) searches and through the in SEO. This in-house expertise is purchase of travel-related keywords supplemented by the deployment of (paid search). We therefore rely leading technology tools. In addition, significantly on practices such as Search to mitigate the impact of reduced SEO Engine Optimisation (“SEO”) to improve exposure and bookings, the Group has our visibility in relevant search results. continued its investment in brand. Search engines, including Google, frequently update and change the logic The search marketing team works that determines the placement and closely with Google to understand any display of results of a user’s search, changes in functionality to the adwords which can negatively impact placement platform so that we can avail of any of our paid and organic results in search efficiencies in our search traffic. The results. This could lead to a decrease in Group participates in alpha and beta bookings and thus revenue. It could also feature tests that give Hostelworld first result in having to replace free traffic mover advantage with new functionality with paid traffic, which would negatively that can help drive efficiency. impact margins. 5. Brand Consumer trust in our brand is essential We invest in brand awareness to ongoing revenue growth. Negative campaigns and proactively monitor publicity around our products or our brand impact, including actively services could negatively impact on managing our brand profile through traveller and accommodation provider social media channels. Our customer confidence and result in loss of revenue. service team strive to ensure that customers have a positive experience at all stages of interacting with us. 6. Data Security We capture personal data from our Systems and processes are in place customers, including credit card details to restrict access to personal and and retain this on our systems for a transactional data and detect misuse, and certain period. There is a risk of a cyber all credit card details are encrypted and security related attack or disruption, deleted in line with our Retention Policy including by criminals, hacktivists or which itself is in line with best practice foreign governments on our systems or those of third party suppliers. Hostelworld continues to be fully Cybercrime including unauthorised payment card industry (i.e. is “PCI compliant with the guidelines of the access to confidential information compliant”). and systems would have significant reputational impact and could result in The Group is currently implementing a financial or other penalties. compliance program in relation to GDPR. means we are exposed to issues locations in which we provide services regarding competition, licensing of with a particular focus on those areas local accommodation, language usage, where we have local operations. web-based trading, tax, intellectual property, trademarks, data security Suitable experienced expertise has been and commercial disputes in multiple engaged to ensure compliance with the jurisdictions. Listing Rules. In addition, as a listed company on the We continue to work with local London and Irish Stock Exchanges, legislators and business interests adherence to the Listing Rules is in New York, a key destination, to required. advocate for changes to local licensing regulations for the hostel product. Compliance with new regulations can mean incurring unforeseen costs, and Developments to international laws non-compliance could result in penalties and regulations continue to be closely and reputational damage. monitored as Brexit proceeds. The Uncertainty remains as to the impact of Head Office in Dublin provides some Brexit on UK and international laws and natural mitigation to the potential Group’s multinational structure with regulations including matters such as impact. travel visas or work visas for our UK staff. bunka hostel TOKYO 34 35 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Risk 8. Tax Description and Impact Management and Mitigation Direction of Change Risk Description and Impact Management and Mitigation Direction of Change The taxation of e-commerce businesses In collaboration with our tax advisers, is constantly being evaluated and a Big 4 professional services firm, we developed by tax authorities around the assess possible tax impacts in the world. The taxation of online transactions jurisdictions in which we operate to in the travel space remains unsettled in ensure our tax obligations are aligned to the United States in particular. the operational nature of our business. Due to the global nature of our business, tax authorities in other jurisdictions may consider that taxes are due in their jurisdiction, for example because the customer is resident in that jurisdiction or the travel service is deemed to be supplied in such jurisdiction. If those tax authorities take a different view than the Group as to the basis on which the Group is subject to tax, it could result in the Group having to account for tax that it currently does not collect or pay, which could have a material adverse effect on the Group’s financial condition and results of operation if it could not reclaim taxes already accounted for in the jurisdictions the Group considers relevant. The Group has historically had a low effective tax rate due to the Group’s capital and corporate structure and the effect of carried forward tax losses. Changes to tax legislation or the interpretation of tax legislation or changes to tax laws based on recommendations made by the OECD in relation to its Action Plan on Base Erosion and Profits Shifting (“BEPS”) or national governments may result in additional material tax being suffered by the Group or additional reporting and disclosure obligations. 9. Business Failure in our IT systems or those As an e-commerce organisation, the Continuity on which we rely such as third Group’s business continuity plan party hosted services could disrupt focusses on the continued operation of availability of our booking engines and the core front end websites to ensure payments platforms, or availability of that our e-commerce trading systems administrative services at our office can continue to take bookings. locations, with a knock-on reduction in financial performance. The Group has comprehensive business continuity and disaster recovery capabilities. Both the e-commerce trading systems as well as key corporate systems are covered. 10. People The Group is dependent on ability to The Group has put in place strong attract, retain and develop creative, recruitment processes, effective HR committed and skilled employees so as policies and procedures and introduced to achieve its strategic objectives. a long-term incentive plan for key management. The Group also operates from six global offices, which provides flexibility for location of recruitment of key talent, thereby opening up a larger pool of talent for selection. Lub d Makati MANILA 36 37 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Viability Statement In accordance with provision C.2.2 of the UK The scenarios tested on principal risks included: Corporate Governance Code 2016, the directors have assessed the viability of the Group over a three year period, taking into account the Group’s current position and the potential impact of the principal risks and uncertainties outlined above. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are > Macroeconomic/Terrorism/Brand damage: Shortfall in the number of bookings forecast > Macroeconomic Shock/FX/ Brand Damage to Hostels as Accommodation Category: A continual decline in the average booking outlined in the Financial Review on pages 27 to 31. value (“ABV”) Based on this assessment, the directors confirm that they have a reasonable expectation that the > Increased Competition or Change in Search Group will be able to continue in operation and meet its liabilities as they fall due over the period Engine Algorithms: An increase in the cost per paid booking to 31 December 2020. The mitigating actions that were modelled included The directors have determined that a three year a reduction in variable overheads and a reduced period to 31 December 2020 is an appropriate reliance on certain channels to market. The results period over which to provide its viability statement. of this stress testing showed that, due to the stability This is the period reviewed by the Board in our of the core business, the responsive business model budgeting and forecasting process. In making and the strong cash balance on the balance sheet, this statement, the Board carried out a robust the Group would be able to withstand the impact assessment of the principal risks facing the Group, of these scenarios occurring over the period of including those that would threaten its business the financial forecasts by making adjustments to model, future performance, solvency or liquidity. its operating plans within the normal course of The Board considers annually a three year, bottom and viability above, the directors confirm that they up forecast. The output of this forecast is used have a reasonable expectation that the Group will be to perform KPI analysis, which includes a review able to continue in operation and meet its liabilities of sensitivity to ‘business as usual’ risks, such as as they fall due over the three year period ended business. Based on their assessment of prospects profit growth and severe but plausible events. It 31 December 2020. also considers the ability of the Group to convert earnings into cash. The results take into account The directors also consider it appropriate to prepare the availability and likely effectiveness of the the financial statements on the going concern basis, mitigating actions that could be taken to avoid or as explained in the Basis of Preparation paragraph reduce the impact or occurrence of the identified in Note 1 to the financial statements. underlying risks. Although the forecast reflects the directors’ best estimate of the future prospects of the business, they have also tested the potential impact on the Group of a number of scenarios over and above those included in the plan, by quantifying their financial impact and overlaying this on the detailed financial forecasts in the plan. These scenarios, which are based on aspects of the principal risks as outlined on pages 32 to 37 represent severe but plausible circumstances that the Group could experience. 38 39 Steel House Copenhagen COPENHAGEN Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Corporate Social Responsibility At Hostelworld Group, we recognise that we have a commitment to conduct ourselves in a responsible and ethical manner at all times in the Service Excellence, Pace, Innovation, Respect, Initiative and Team Together and our people are encouraged to reflect and model our SPIRIT values wider world. We demonstrate this commitment in all aspects of the business. in the way we behave towards our people, our the communities in which we operate. theme, we believe that diversity is not only Our People valuable but essential in our role as an enabler of global travel. We believe that recruitment, selection and promotion should be based on merit, suppliers, our customers, our shareholders and As a company that has ’Meet the World’ as its Senior Management Team (1) generator PARIS Gender A breakdown of our Board, Senior Management Team and all employees by gender as at 31 December 2017 is set out below: Directors (1) Other staff Number % Male Female 5 4 128 2 1 142 Male 71.5% 80% 47.5% Female 28.5% 20% 52.5% (1) Executive Directors are included in each of Directors and Senior Management Team Our people are our most important asset. Not and should not be impacted by age, gender, sexual only do they contribute to the Group with their orientation, civil status, family status, disability, Age exceptional knowledge and skills, but they membership of the travelling community, race, embody the Hostelworld spirit and culture. Our religious beliefs or political opinions. The Group Group culture centres on an inclusive and open is committed to ensuring and maintaining an work environment for all and we believe open environment that is free from bullying and/or communication with our people is key to aligning harassment and where the dignity of each and and achieving our goals. every person at work is respected and upheld. Our success in this area is demonstrated by the We recognise that in order to achieve our goals fact that our staff of 280 people come from a it is important that our people are kept informed variety of backgrounds, cultures and age groups, of business decisions and are provided with and represent 29 nationalities. opportunities to share their valuable inputs. Age Employees 9% 10% 25 or Less 26–34 35–44 45+ 27 141 87 25 31% 25 or Less 26–34 35–44 45+ 50% We promote an atmosphere of transparency and In February 2017, we were again formally In 2017 we launched a Save as You Earn (“SAYE”) We have a Whistleblowing Policy in place that sets openness companywide through our on-boarding recognised as a Best Workplace by Great Place scheme for employees in our Dublin and London out how a colleague can raise a concern, the way process, quarterly All Hands briefings, regular to Work, Ireland. The purpose of the programme offices. Our SAYE Plan provides employees with the Group will respond, and how the rights of manager updates, ongoing updates to our Heads is to assist organisations to build a culture of the chance to share in the future success of our colleagues who raise a concern and also those who of functional departments and our monthly trust and embrace employment best practices, business and align to shareholder interest. are the subject of reports are to be protected. We Breakfast Mornings with Feargal, our CEO. synonymous with providing colleagues with a have an independent whistleblowing hotline that great environment to come to work in. Our people are expected to abide by our all staff can access confidentially should they not We understand the importance of recognising our people for their contributions to the Group overall. Bi-monthly, our Leadership Team nominates six employees whom they feel have portrayed our SPIRIT values. Our Group’s values are general Code of Conduct, which outlines specific feel safe reporting a concern internally. principles of behaviour all colleagues are expected to display at all times in the key areas of integrity, confidentiality, lawful behaviour and disclosure of interests. 40 41 Hostelworld Annual Report 2017 | Strategic Report Hostelworld Annual Report 2017 | Strategic Report Our Hostel Partners Other charitable initiatives during 2017 included colleagues fundraising and participating in a Tag We believe our emissions are impacted by the The energy consumption in the Group’s Porto, Seoul, growth of the business, which requires us to Sydney and Shanghai offices has been estimated We continually invest in tools and products which Rugby blitz in aid of Debra Ireland, the Christmas expand our office space, open new offices, and on a per person basis based on the actual energy our suppliers can use to enhance the value they Shoebox Appeal with Team Hope, donating to the have our people travel more. We have therefore consumption in the Group’s Dublin office, and is not add to their customers. This not only builds long St. Vincent de Paul Christmas Food Appeal, and chosen to use an intensity ratio measured on considered material to the below disclosure. term partnerships, with all the value those entail, organising a Christmas Market cake sale in aid of emissions per €m of net revenue in order to put but enhances their attractiveness to customers, Plan International. In London colleagues organised the GHG in context for the size of the business. The Group is committed to monitoring and increasing bookings and resulting in a positive a Christmas Jumper Day in aid of Save the Children. reviewing its carbon emissions and in particular its impact on our own revenue. We also organise for employees to attend local Hostelworld Group is an internet-based business employee business travel, which accounts for 57% blood donation clinics once a month, encouraging which leases its premises and does not have a of its total carbon emissions in 2017 (2016: 54%). We work with hostel chains, which are increasingly them to become regular blood donors. prevalent. However, a large proportion of the accommodation suppliers we deal with continue to In late 2017, we introduced a new printing retail footprint. The main GHG releasing activities over which the Group has influence are use of purchased electricity and business travel. The be independent hostels, which would not have the system into the Dublin office. Our new printing Group has no owned vehicles. resources to build the tools which Hostelworld can system helps us to align more with corporate provide. We build and nurture mutually beneficial responsibility and environmental concerns as it relationships that allow both Hostelworld and our is over 70% more energy efficient than our old Greenhouse Gas Emissions 2017 hostel partners to enhance yields. printer fleet. It will also reduce wasted paper from Scope 1 – Emissions from operations Scope 2 – Emissions from energy usage Scope 3 – Emissions from employee travel Total Intensity Ratio (tCO2e/€m) 2017 tCO2e Nil 190.9 258.1 449.0 5.2 2016 tCO2e Nil 159.4 190.9 350.3 4.4 Scope 1 – All direct GHG emissions Scope 2 – All indirect emissions due to consumption of purchased electricity Scope 3 – Voluntary disclosure of other indirect emissions where Hostelworld Group has the ability to influence them Our Customers uncollected printing jobs as employees have to manually release their documents from the printer before printing takes place. We continually anticipate the needs of our customers. This includes providing a 24x7 global Modern Slavery Act 2015 customer service desk, and a booking guarantee, whereby if a customer’s booking details cannot The Modern Slavery Act 2015 (the “Act”) requires be found at check-in, we credit their account with large organisations operating in the United their full deposit and an additional $50 towards Kingdom to make a public statement outlining how other deposits for bookings made within six they keep their supply chains free from slavery and months. We offer 24/7 Customer Service in 19 human trafficking. We published a statement on languages – helping our customers to Meet the our website on 27 June 2017 outlining the steps World with ease. Our Shareholders taken by the Group to ensure that slavery and human trafficking is not taking place within the business or any supply chain and we will continue to monitor our obligations under the Act. We are committed to building long-term relationships with our shareholders through open Greenhouse Gas Emission statement and transparent communication. Our Company Secretary is available to shareholders, and the Greenhouse Gas (GHG) emissions for the Senior Independent Director and Chairman are financial year ended 31 December 2017 have available to shareholders through the Company been measured as required under the Large and Secretary if required. Our Communities Medium-sized Companies and Groups (Account and Reports) Regulations 2008 as amended in 2013. We have used the GHG Protocol Corporate As a technology company that facilitates global Accounting and Reporting standards (revised travel, we encourage and support our colleagues edition), data gathered to fulfil the requirements in engaging with the communities we both work in under the CRC Energy Efficiency scheme, and and travel to. In 2017, Hostelworld again partnered emission factors from Defra, UK Government with Techies4TempleStreet Irish charity event conversion factors for Company Reporting (2017) which brings together the technology community to calculate the disclosures, where they are not based in Ireland to fundraise over €225,000 for separately disclosed by a supplier. Temple Street Children’s Hospital, Dublin. 42 43 Governance Chairman’s Introduction to Governance Directors’ Biographies Corporate Governance Statement Report of the Audit Committee Report of the Nomination Committee Chairman of the Remuneration Committee’s Annual Statement Summary of Directors’ Remuneration Policy Annual Report on Remuneration Directors’ Report Independent Auditor’s Report 46 48 50 59 66 71 74 78 90 100 44 45 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Chairman’s Introduction I am pleased to introduce this Report, which On 19 December 2017 we announced that Mari is my first since becoming Chairman on Hurley had informed the Board of her intention to 1 December 2017. stand down as CFO during the first half of 2018 to pursue a new opportunity outside the Group. The The Hostelworld Corporate Governance Report for Board has commenced a process to replace her. 2017 sets out how the Company has applied the main principles of good governance contained in Board Evaluation the UK Corporate Governance Code for the year ended 31 December 2017 and reports on the In 2017, a formal evaluation of the Board, activities of the Nomination, Remuneration and its Committees and individual directors was Audit Committees during the year. undertaken. This review was facilitated by the The Board recognises the importance of, and is that the Board is operating effectively and committed to promoting high standards of plc cohesively with a good balance of support and Corporate Governance. The directors are fully aware challenge. A summary of the process undertaken Company Secretary. The evaluation established of their duties and responsibilities under the UK is included on page 55. Corporate Governance Code 2016, the Disclosure and Transparency Rules and the Listing Rules. Shareholder Engagement Compliance with UK Corporate Governance Code 2016 We are committed to engaging regularly with our shareholders to address any queries and concerns. In April 2016, the Financial Reporting Council We will continue to review developments in published an updated version of the Corporate Corporate Governance best practice with the Governance Code (the “2016 Code”). The 2016 Code objective of ensuring that our processes are applied to the Company for the first time during aligned to the needs of the business, help 2017 and, on behalf of the Board, I am pleased to us manage risk and provide assurance and report that the Company is in full compliance. accountability in a transparent way for the benefit Board Composition, Diversity and Succession of all our shareholders and stakeholders. I look forward to reporting to you next year as to how our governance arrangements Diversity and succession have been important continue to develop. considerations for the Board during 2017. They are reviewed by the Nomination Committee and Michael Cawley continue to be an area of ongoing focus for the Chairman Board and management. We currently have six 9 April 2018 board members, comprising two executives, myself and three other non-executives. Of the six board members, two are female, five are resident in Europe and one is resident in the United States of America. Five have travel/leisure sector executive experience and one comes from another industry sector. In my opinion, we have an excellent mix of skills and styles which ensures good debate and well considered decisions. 46 47 ostello bello grande MILAN Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Directors’ Biographies Michael Cawley Feargal Mooney Mari Hurley Andy McCue Éimear Moloney Carl Shepherd Role: Chair of the Board; Chair of the Nomination Committee; member of the Audit Committee; member of the Remuneration Committee Age: 63 Nationality: Irish Qualifications: Michael holds a Bachelor of Commerce degree from University College Cork and is a fellow of the Institute of Chartered Accountants in Ireland. Joined Group: October 2015 Independent: N/A* Sector Experience: Airlines; motor; betting and gaming; construction. Other board and management experience: Michael is also a non- executive director of Ryanair Holdings plc, having joined the Board in August 2014. Michael had previously served as Deputy Chief Executive Officer and Chief Operating Officer of Ryanair from 2003 to March 2014 and before that as Ryanair’s Chief Financial Officer and Commercial Director from 1997. Michael also holds directorships in Paddy Power Betfair plc, Kingspan Group plc, Mazine Limited, Prepaypower Holdings Limited, GMS Professional Imaging Limited, Gowan Group Limited, Flybondi Limited, Linked P2P Limited and Meadowbrook Heights Unlimited. Prior to joining Ryanair, Michael was Group Finance Director of Gowan Group Limited. Michael is also Chairman of Fáilte Ireland Authority. *Independent on appointment 48 Role: Chief Executive Officer; Chair of the Disclosure Committee Role: Chief Financial Officer; member of the Disclosure Committee Age: 48 Age: 47 Role: Senior Independent Non- Executive Director; Chair of the Remuneration Committee; member of the Audit Committee; member of the Nomination Committee Role: Non-Executive Director; Chair of the Audit Committee; member of the Remuneration Committee; member of the Nomination Committee Role: Non-Executive Director; member of the Audit Committee; member of the Remuneration Committee; member of the Nomination Committee Nationality: Irish Nationality: Irish Age: 47 Age: 65 Qualifications: Mari has a Bachelor of Commerce degree from University College Cork and a Masters of Accounting from University College Dublin. She is also a fellow of the Institute of Chartered Accountants in Ireland. Mari completed the Advanced Management Program at Harvard Business School in 2006. Joined Group: May 2007 Independent: N/A Sector Experience: Financial services; property; utilities. Other board and management experience: Prior to joining the Group, Mari was Finance Director at Sherry FitzGerald Group and previously worked at Bear Stearns. She is currently a non-executive director of Ervia and the National Asset Management Agency. Qualifications: Feargal has a Bachelor of Commerce degree from University College Galway and a MSc. Investment and Treasury from Dublin City University. He is a graduate of the Leadership 4 Growth Management Program at Stanford GSB and a member of the CFA Institute. Joined Group: February 2002 Independent: N/A Sector Experience: Pharmaceuticals; technology. Other board and management experience: Prior to joining the Group, Feargal held a role in financial planning and analysis at Baltimore Technologies and previously held the position of financial analyst at Pfizer Inc. in New York. Feargal is also a non-executive director of Meetingsbooker Limited. Resignation in 2017 Richard Segal Role: Former Chair of the Board and Chair of the Nomination Committee Resigned: As Chair of the Board and of the Nomination Committee on 1 December 2017 and as Board member on 31 December 2017. Age: 43 Nationality: British Qualifications: Andy has a M.A. in Economics and Management from the University of Cambridge and a Masters in Finance from the London Business School. Joined Group: October 2015 Independent: Yes Sector Experience: E-Commerce; betting and gaming; management and strategy consulting. Other board and management experience: Andy is currently the Chief Executive Officer of The Restaurant Group plc. Andy previously held the positions of Chief Executive, Chief Operating Officer and Head of Retail UK and Ireland at Paddy Power Betfair plc. Prior to this, Andy was a principal at OC&C Strategy Consultants and also worked at Arthur Andersen Business Consulting. Andy also holds directorships in The Restaurant Group plc and subsidiary companies. Nationality: Irish Nationality: American Qualifications: B.A. Accounting and Finance and MSc. Investment and Treasury from Dublin City University. Éimear is also a fellow of the Institute of Chartered Accountants in Ireland. Qualifications: Carl has a M.A. in Business Administration from the University of Texas. Joined Group: October 2017 Joined Group: November 2017 Independent: Yes Independent: Yes Sector Experience: Financial services Other board and management experience: Éimear has held senior investment manager roles in Zurich Life Assurance (Ireland) plc, for 17 years up to December 2017, with responsibility for all major markets including the Irish, U.S. and U.K. equity portfolios, sector, stock analysis and selection. Éimear previously worked with Bankers Trust Funds Management Ltd in Australia and also with Crowe Horwath, Chartered Accountants in Ireland. Sector Experience: On-line travel industry Other board and management experience: Carl was co-founder of HomeAway Inc. where he served on the Board of Directors and was the company’s founding Chief Operating Officer and Chief Strategic and Development Officer until its sale to Expedia in 2015. Carl is currently on the board of @Leisure Group, Turnkey Vacation Rentals and OnceThere Inc. Carl’s previous roles include COO and Chief Development Officer of Hoover’s Online. 49 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance casa gracia BARCELONA Corporate Governance Statement Election of directors judgement to bear on a number of key issues for the Group, including strategy, performance and risk The Board may appoint any person to be a director, management. Their collective range of knowledge either to fill a vacancy or as an addition to the and viewpoints ensures a high quality of debate existing Board, subject to the limits of Board and input into key decisions, and ensures the Board The Board is collectively responsible for leading, > Andy McCue (Senior Independent Director and size and composition as set out in the Articles of Hostelworld Group plc is effective. Having due monitoring and controlling the Group, and with Chairman of the Remuneration Committee), of Association. Any director so appointed by the regard to the level of financial and commercial promoting its long-term success. It is accountable Éimear Moloney (Chairperson of the Audit Board shall hold office until the AGM following their experience required for the Board to operate to shareholders for the overall direction and Committee) and Carl Shepherd; all three being appointment, and must put themselves forward for effectively, it is felt that collectively the Board has a control of the Company’s business and that of its independent non-executive directors; and election by the shareholders. subsidiaries. It provides leadership, oversight and broad range of sector and financial experience and that the current number of non-executive directors control designed to achieve sustained business > Feargal Mooney (Chief Executive Officer) and Each Director shall retire from office at the third is sufficient for the Board to fulfil its duties. growth, enhanced shareholder value and the Mari Hurley (Chief Financial Officer), both AGM after the AGM or general meeting (as the protection of interests of employees and other executive directors. stakeholders whilst promoting a culture of the case may be) at which he was previously elected, Board role or shall be subject to more frequent re-election by highest standards of integrity, transparency and The Board operates in accordance with the the members as the Board may determine from The Board has delegated authority for the day-to-day accountability. A key objective of the governance Company’s Articles of Association, and its operation time to time and in line with market practice. operation of the business within defined parameters framework at Hostelworld is to ensure is governed by the Board Charter and the Schedule to the Executive Leadership Team, consisting of the compliance with applicable legal requirements of Matters Reserved for the Board. In addition, the An evaluation of the skills, knowledge, executive directors and senior managers who have and with best practice in governance. Board has established a number of Committees, as independence and experience of each director responsibility for all areas of the business. indicated below, each of which has its own terms of took place in 2017 and following recommendations As part of its role, the Board provides entrepreneurial reference, which are reviewed at least annually. from the Nomination Committee, the Board The Board may appoint committees as it thinks fit leadership and strategic guidance to management, considers that all directors continue to be effective to exercise certain of its powers and has delegated in the constructive challenge of proposals, the Biographies of the directors are provided on and committed to their roles, and that the non- certain responsibilities to Board Committees namely: monitoring of performance, and the setting of both pages 48 to 49. short and longer term objectives. The Board works to ensure that the Group has sufficient human and Length of appointments financial capital to meet its objectives, and that executive directors are independent and able to devote sufficient time to their duties. > Audit Committee Accordingly, all Directors (with the exception of > Nomination Committee > Remuneration Committee appropriate controls are in place and operational to Non-executive appointments to the Board are for Mari Hurley given her recent resignation) will seek > Disclosure Committee safeguard the assets of the Group. an initial term of three years, subject to election at re-election at the Company’s forthcoming AGM on the Company’s AGM. Non-executive directors are 11 June 2018. The Board is currently comprised of six members, usually expected to serve two three year terms, two executive and four non-executive directors as unless otherwise agreed with the Board upon follows: appointment, although the Board may invite a director to serve for an additional period. > Michael Cawley, the non-executive Chairman of the Board and Nomination Committee, who was independent on appointment; 50 Board composition The Board has established a Disclosure Committee with membership consisting of Feargal Mooney and Mari Hurley, the executive directors. Its remit is to oversee the disclosure of information by the Our board members are all deeply committed to Company to meet its obligations under the Market the long term success of the business. The Board Abuse Regulation (“MAR”) and the Listing Rules. is comprised of directors from a diverse range of This responsibility includes maintaining procedures, backgrounds, each of whom brings independent systems and controls for the identification, 51 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance treatment and disclosure of inside information and adequate succession planning for the Board Attendance at meetings for complying with the obligations falling on the and senior management; Company and its directors and employees under the MAR and the Listing Rules of the London Stock > Determining the remuneration policy for Exchange and of the Irish Stock Exchange. the directors and other senior executives Board/Committee (No. of Meetings held during the year when the director was a member) following recommendations of the Board Audit Remuneration Nomination Disclosure The Committee also determines (after consulting Remuneration Committee, including use of with advisers) whether information submitted to the share incentive plans; Committee requires disclosure to the market. It is also responsible for the creation and maintenance > Determining the division of responsibilities of insider lists and for reviewing all regulatory between the Chairman, Chief Executive and announcements, shareholder circulars and other other executive directors, and approving documents issued by the Company to ensure that how authority may be delegated to they comply with legal and regulatory requirements, subcommittees of the Board, the Chief if not already reviewed by the Board. Its terms of Executive, and other staff; reference are reviewed at least annually. As required by the 2016 Code, specific areas of shareholders, employees, customers and the > Considering the balance of interests between delegation are set out in the terms of reference community; for each of the Audit Committee, Remuneration Committee and Nomination Committee. The > Review of the Group’s overall corporate terms of reference of the Audit, Remuneration governance framework including any matters Richard Segal (i) Feargal Mooney Mari Hurley Michael Cawley Andy McCue Carl Shepherd (ii) Éimear Moloney (iii) 9 / 9 9 / 9 9 / 9 9 / 9 7 / 9 3 / 3 1 / 1 i. Resigned 31 December 2017 ii. Appointed 1 October 2017 iii. Appointed 27 November 2017 3 / 3 3 / 3 7 / 7 - - 3 / 3 3 / 3 1 / 1 1 / 1 - - 3 / 3 3 / 3 1 / 1 - - - 7 / 7 7 / 7 3 / 3 - - 2 / 2 2 / 2 - - - - and Nomination Committees are available on the relating to compliance with the 2016 Code; and There were 9 board meetings held in 2017, 7 which Directors may request that any relevant concern Company’s website, and reports of each of these were scheduled board meetings and all of which they have be minuted at any Board or Committee Committees are set out below. Certain matters, > Any decision relating to the prosecution, had full attendance. Two board meetings were meeting, and minutes are circulated for review however, are reserved for the Board’s decision, defence or settlement of material litigation. held by teleconference to deal with specific items in advance of approval and signing at the next and are not delegated to the Company’s executive of business and were convened at short notice. meeting, or as appropriate. directors. The schedule of these matters includes, The schedule of Matters Reserved for the Board is but is not limited to: reviewed annually and updated as appropriate. > Responsibility for the overall leadership of the Board and Committee meetings Company and setting the Company’s values, Where a director is unable to attend a meeting, all papers for the meeting are issued to them, their views are solicited in advance of the meeting, and updates are provided to them after the meetings standards and objectives as well as approval of The Board has scheduled regular meetings where appropriate. annual budgets; throughout the year and holds other meetings as required. At scheduled meetings, the Board > Approving the strategic aims and objectives of addresses: the Group; > Progress against previously agreed actions; > Oversight of the Group’s day to day operations > Business performance; including maintenance of sound internal control > Financial performance; and risk management systems and compliance > Operational matters of particular note for the with statutory and regulatory obligations; Board; > Controlling the Company’s capital structure; > Reports of Board Committees. > Strategic considerations; and > Approval of the annual report and accounts, Other meetings are held on an ad hoc basis as dividend policy, changes in accounting policies, required, and matters addressed will vary according or matters that may impact the Company’s tax to the demands of the business at that time. residency; > Ensuring a satisfactory dialogue with staff members or external advisors may be invited shareholders; to any Board Meeting to present on their particular Members of the executive leadership team or other areas of expertise. > Approving the structure, size, composition and membership of the Board, and ensuring 52 nice way hostel PORTO 53 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Division of responsibilities The SID is available to shareholders if they have concerns that cannot be addressed through > To ensure good information flows between the 1 December 2017 following the resignation of Board and its Committees, senior management Richard Segal as Chairman and a similar exercise The Board takes collective responsibility for the the Chairman, Chief Executive Officer or Chief and non-executive directors; will be conducted in relation to Michael Cawley’s management of the Group. Within the Board, Financial Officer. the roles and responsibilities of the Chairman and CEO are clearly delineated and are held by Support to directors different individuals, and there is also a Senior Independent Director. > To ensure board and committee procedures are followed; performance as Chairman during 2018. The Board regards all of the non-executive directors as ‘‘independent non-executive directors’’ To assist the directors in performing their duties, they have full and timely access to all relevant > To facilitate director induction and assist with within the meaning of the 2016 Code and free from professional development; and any relationship that could materially interfere with Michael Cawley, as Chairman, is the link between information. For Board meetings, this consists of a the exercise of their independent judgement. the Board and the Company and is responsible formal agenda, minutes of previous meetings and > To advise the board on corporate governance for leadership and governance of the Board, a comprehensive set of Board papers including obligations and developments in best practice. The Nomination Committee reviewed the results including setting the Board’s agenda. He oversees regular updates and reports of special matters of the Board evaluation and director appraisal the operation and overall effectiveness of the of interest. The directors are entitled to take Specific business related presentations are given process and recommended to the Board, after Board, ensuring that it has a common purpose, independent professional advice at the Company’s by senior management and department heads as evaluating the balance of skills, knowledge, is effective as a group by creating and managing expense in the furtherance of their duties, where part of board meetings where appropriate. independence and experience of each director, constructive relationships between the executive considered necessary. and non-executive directors and at individual director level, that it upholds and promotes high All newly appointed directors receive a standards of integrity and corporate governance. comprehensive induction briefing on their duties The Chairman ensures the directors receive and responsibilities as directors of a publicly accurate and timely information, enabling quoted company. This induction also includes Board effectiveness and evaluation given her recent resignation) seek election/re- election at the Company’s forthcoming AGM. that all directors (with the exception of Mari Hurley A formal internal evaluation of the Board, Committees and individual directors was undertaken during the year. This included External directorships them to play a full and constructive role in the meetings with members of the executive completion of a detailed questionnaire by each Any external directorships or other significant development and determination of the Group’s leadership team together with briefings on the of the board directors, covering the Board’s commitments of the executive directors require strategy. He ensures that there is effective Group’s business and its industry. The programme role, knowledge and skills, board meetings prior approval of the Board. Each of the directors communication with the shareholders and that of induction takes account of prior experience and and information flows, board composition, hold external directorships and these are disclosed the Board is aware of the views of its major business perspectives and on the committees on succession planning, risk management, relations within their profiles on pages 48 to 49. shareholders. The Chairman is non-executive and which he or she will serve. with shareholders and each of the Board independent of the executive management. Committees. The results were analysed by the Executive directors are permitted to retain Directors have access to ongoing training Company Secretary who prepared a report any fees paid in respect of approved external Feargal Mooney, as CEO, reports to the Chairman as required and, as part of the annual Board for the Chairman. The report and completed appointments. As noted above, at the date of this and the Board, and is entrusted with ongoing evaluation and director appraisal process in 2017, questionnaires were reviewed by the Chairman report, CEO Feargal Mooney is a non-executive management of the Group’s business. He and the Chairman discussed any individual training and the principal findings were fed back to and director of Meetingsbooker Limited for which he his senior executives bring forward to the Board and development needs with each director. discussed with the Board. proposals for the development and strategy of the The directors are also encouraged personally earned no remuneration in 2017 (2016: Nil). CFO Mari Hurley is a non-executive director of the business. The CEO is responsible for execution of to identify any additional training requirements The evaluation established that the Board National Asset Management Agency (“NAMA”) and the agreed strategy and implementation of the that would assist them in carrying out their role. and its Committees were operating effectively of Ervia, for which she received remuneration of decisions of the Board. During the year, training included a briefing and update on the Market Abuse Regulation, legal and and efficiently with good leadership and €60,000 and €15,750 respectively in 2017 (2016: accountability and that as a group, the Board has €60,000 and €15,750). It is expected that all non-executive directors regulatory updates and business presentations the appropriate depth and breadth of skills and constructively challenge management proposals to the Board by the Chief Revenue Officer, Head experience to be effective. where appropriate, and contribute their expertise of Brand and Head of Customer Acquisition. The Chairman and certain other non-executive directors each hold other directorships, and the and knowledge towards the development of The Chairman will continue to review individual The Chairman also conducted an appraisal of the Board is satisfied that they still have sufficient the Group. training needs of directors on an ongoing basis and as part of the formal annual appraisal process. Andy McCue is the Board’s Senior Independent performance of each director, having taken into capacity to devote adequate time to Company account the views of the other directors. He reported matters. The Board considers that these that each director continues to perform effectively other directorships considerably enhance the Director (“SID”) having succeeded Michael Cawley All directors also have access to the advice and and demonstrates strong commitment to the role. contribution of the directors to the Board of in the role on 1 December 2017. The SID’s primary services of the Company Secretary. The Company role is to provide a sounding board for the Secretary acts as Secretary to each of the Board Chairman and to serve as an intermediary for the Committees reporting in these roles directly to other directors and to ensure that the views of the their Chairperson. Paula Phelan, as Company non-executive directors are heard. The SID meets Secretary, assists the Chairman in ensuring the with the other non-executive directors without effective operation of the Board and has the the executive directors present and also leads the following responsibilities: annual evaluation of the Chairman’s performance. Hostelworld Group plc. In addition, an assessment of the former Chairman’s performance was carried out in 2017 by the non-executive directors, led by the SID, who provided feedback to him individually that concluded that he performed effectively. Michael Cawley was appointed Chairman on 54 55 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Shareholder Relations directors are available to meet with shareholders. Arrangements can be made to meet with them Hostelworld recognises the importance of through the Company Secretary. communicating with its shareholders to ensure that its strategy, performance and accountability Annual General Meeting are understood and that it remains accountable to shareholders. The AGM of the Company will take place at 12 noon on 11 June 2018 at Hostelworld Group plc, The Company formally updates the market on its Floor 2, One Central Park, Leopardstown, Dublin financial performance at least twice a year, at the 18, Ireland. The Annual Report and Financial half year and full year results. These updates are Statements and Notice of the Annual General posted on the Group’s website and are available Meeting are sent to shareholders at least 20 to all shareholders. These are accompanied by working days prior to the date of the meeting to formal investor roadshows in Ireland, the UK provide the shareholders with adequate time to and other investment centres. There is also an consider the proposed resolutions. The Notice of ongoing programme of meetings with institutional the Annual General Meeting sets out the business investors, fund managers and analysts and of the meeting and an explanatory note on all conferences, covering a wide range of issues within resolutions to be considered at the meeting. the constraints of publicly available information, Separate resolutions will be proposed on each including strategy, performance and governance. substantive issue. All shareholders will have the opportunity to attend and vote, in person or by The Board is kept informed of the views of proxy, at the AGM. shareholders through the executive directors’ attendance at investor presentations and results At the Company’s AGM held on 1 June 2017, presentations. Furthermore relevant feedback from the Company proposed a resolution to disapply such meetings, investor relations reports and broker pre-emption rights over a further 5% of shares in notes are provided to the Board on a regular basis. addition to a general 5% disapplication. This further 5% would only have been for use in connection The Board ensures that any price sensitive with a specified capital investment. The resolution information is released to all shareholders, was proposed in line with Pre-Emption Group institutional and private, at the same time. guidance in order to give the Company flexibility Questions from individual shareholders are and not in connection with any particular need. generally dealt with by the executive directors. The resolution was voted down by shareholders The Chairman, in line with the 2016 Code, by a margin of 0.54% as certain Company will, as required, ensure that the views, shareholders had internal voting guidelines issues and concerns of major shareholders directing them to vote against such disapplication are communicated to the directors so that resolutions. The Company has decided not to appropriate action can be taken. propose this resolution at the 2018 AGM. The Company uses RNS (Regulatory News The Chairman and all directors will be available Service) to publish its Company announcements. at the AGM to answer shareholders’ questions. Announcements, investor presentations and annual reports are available to all shareholders Results of resolutions proposed at the AGM on the Company’s corporate website, will be published on the Company’s website www.hostelworldgroup.com. www.hostelworldgroup.com following the AGM. Shareholders can contact the Company through Approved by the Board the Company Secretary. and signed on its behalf: Andy McCue, the Senior Independent Director is Paula Phelan an additional point of contact for shareholders, Company Secretary should they feel their concerns are not being 9 April 2018 properly addressed through the normal channels. The SID and other non-executive 56 57 generator VENICE Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Report of the Audit Committee Dear Shareholders performance, including reviewing significant financial reporting issues and estimates and I am pleased to introduce the Report of the judgements they contain; Audit Committee for 2017, which is my first Audit Committee Report since becoming Chairperson. > Review and challenge where necessary the Membership use of or changes to accounting policies, the methods used to account for significant or unusual transactions where different > Éimear Moloney (Chairperson – appointed approaches are possible, the clarity and 1 December 2017) > Michael Cawley > Andy McCue completeness of disclosure in the Company’s financial reports and the context in which statements are made, and all material > Carl Shepherd (appointed 6 October 2017) information presented with the financial > Richard Segal (resigned 31 December 2017) statements, such as the operating and financial review and the corporate governance Members of the Committee are appointed by the statement insofar as it relates to the audit Board on the recommendation of the Nomination and risk management; Committee. Appointments to the Committee are for an initial period of three years, subject > Ensure that there are appropriate procedures to review of the Committee’s composition by in place to monitor and evaluate the general the Board. Provided the members continue business risks facing the Group; the Board to be independent, this may be extended by has delegated the management of certain no more than two further three year periods. risk areas to the Committee with the Board As the Company is recognised as a smaller retaining overall responsibility; company under the UK Corporate Governance Code, the Company Chairman is also allowed to > Review the adequacy and effectiveness of the be a member of the Committee. In accordance Company’s internal financial controls and the with provision C3.1 of the Code, I confirm that Company’s statements on these matters; both myself and Michael Cawley have recent and relevant financial experience and I am > Perform an annual assessment of the pleased to confirm that the Committee as a Company’s compliance with the 2016 Code; whole has competence relevant to the sector in which the Company operates. Further details > Review the adequacy and security of the of the Committee members’ qualifications and Company’s arrangements for its employees to experience are available on pages 48 to 49. raise concerns, in confidence, about possible The Company Secretary acts as secretary to the other matters; Committee. Role of the Committee detecting fraud; > Review the Company’s procedures for wrongdoing in financial reporting or The roles and responsibilities of the Committee are > Review the Company’s systems and controls summarised below. The full schedule of roles and for the prevention of bribery and receive and responsibilities are contained in the Committee’s review reports on non-compliance; Terms of Reference, which are available on the Company’s website www.hostelworldgroup.com. > Consider annually whether there is a need for > Monitor the integrity of the financial statements of the Company and any formal > Oversee the relationship with the external announcement relating to its financial auditor, including selection, appointment, an internal audit function; and 59 Éimear moloney Chairperson, Audit Committee Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance removal, terms of engagement, approval of > removing immaterial items; and Significant issues remuneration, assessing independence and objectivity, assessing effectiveness of the audit > explaining the links between information in the In reviewing the financial statements with management and the auditors, the Committee has discussed process, and setting policy on the use of non- Annual Report, such as objectives, KPIs and risks. and debated the critical accounting judgements. The significant issues considered by the Committee in audit services. respect of the 2017 Annual Report are as follows: Fair, balanced and understandable satisfied that the Annual Report and Financial Having conducted its review, the Committee is Statements are fair, balanced and understandable The 2016 Code requires the Board to report on and provide the information necessary for whether the Annual Report taken as a whole shareholders to assess the Company’s position provides a fair, balanced and understandable and performance, and following recommendation assessment of the Group’s position and prospects by the Audit Committee the Board confirmed that and whether it provides the necessary information the Annual Report and Financial Statements are to assess the Group’s performance, business fair, balanced and understandable. The ultimate model and strategy. decision to recommend the Annual Report and Financial Statements to the shareholders is taken by At the request of the Board, the Audit Committee the Board, as set out in the Directors’ Responsibility has undertaken the detailed work in making this Statement on page 98. assessment, including consideration of the scope of work carried out by the auditors, the materiality Meetings levels considered by them, the focus of their work, the work undertaken by management in Under its terms of reference, the Committee the preparation of the accounts and the Annual is required to meet at least twice a year. The Report, the analysis performed of changes to Committee met on three occasions during 2017. applicable standards and reporting requirements, Individual attendance at these meetings is set out and the arrangements for review and verification on page 53. The Committee’s agenda is linked to of the information contained in the Annual Report. events in the Group’s financial calendar. The Committee reviewed a draft of the whole Meetings are attended by the Committee Annual Report at a meeting in advance of giving members and others being principally the Chief their final opinion and ahead of final approval Financial Officer who attends by invitation and by the Board. The Committee was provided with the Company Secretary. Other members of all relevant information and in particular with executive management may be invited to attend briefings from management on how specific to provide a deeper level of insight or expertise issues are managed and challenged management in certain areas. The Deloitte audit partner and as required. The review by the Committee in PricewaterhouseCoopers (“PwC”), as outsourced considering whether the Annual Report as a whole internal audit provider, are invited to attend is fair, balanced and understandable included: certain meetings and the Committee also met privately with each of them, without executive > considering whether the content of the front half management present, in 2017. of the Annual Report, in particular the business review, provides a fair and balanced assessment Reporting that covers both positive and negative aspects of performance and developments; The Chairperson of the Audit Committee reports to the Board on the activities of the Committee. The > ensuring that the links between discussions of Chairperson of the Committee attends the Annual performance, financial position and cash flows, General Meeting to answer questions on the report including the use of appropriate performance on the Committee’s activities and matters within measures and the financial statements are clear; the scope of the Committee’s responsibilities. > considering that the information provided The Audit Committee activities during 2017 are set on the Company, the environment in which it out under the following relevant headings. operates and the risks it faces are specific to the Group and not explained in general terms; Significant Issue Description and Resolution Carrying value of Goodwill and The largest asset on the Group statement of financial position relates to the goodwill and intangible assets reflecting the underlying value of the Intangible Assets brands and technology acquired, with a carrying value at 31 December 2017 of €128.1m. This represented 81% of the Group’s total assets. In 2016 the Group recorded an impairment charge of €8.2m as a result of a review of trading performance of the Hostelbookers brand. Under IFRS, goodwill is not amortised but is subject to an annual impairment review. An impairment review is required to be performed for other intangible assets where there is an indicator of impairment. Goodwill is allocated to Cash Generating Units (“CGUs”) and a model has been developed to calculate the value in use of the assets and to review the carrying value of goodwill and other intangibles for impairment. Management have performed impairment reviews at year end on the Group’s carrying value of goodwill, all of which relates to the Hostelworld brand. The cash-flow forecasts were based on the budgets approved by the Board. The Committee has reviewed the assumptions around growth rates and discount rates. The Committee discussed with the external auditor its review of the assumptions used. The Committee also reviewed the carrying value of other intangibles and is satisfied that there was no indication of impairment at 31 December 2017. Following these discussions, the Committee is satisfied that there was no impairment of goodwill and other intangibles as at 31 December 2017, and that the controls over management’s impairment review process are adequate. Capitalisation of The Group incurs significant internal costs in respect of the ongoing Development Costs development of its IT systems and core technology and product platforms. The accounting for these costs as either development costs (which are capitalised as intangibles) or expensed as incurred involves judgement. In the year ended 31 December 2017 €1.7m (2016: €2.4m) of development costs were capitalised in accordance with the criteria as set out in IAS 38. Capitalised development costs carried in the balance sheet amounted to €1.9m at 31 December 2017 (2016: €3.1m). The Committee has reviewed management’s application of the accounting policy adopted and the assessment as to whether current projects meet the criteria required for costs to be capitalised (including feasibility of completion, intention to complete, probable economic benefits, availability of resources to complete, and ability to measure expenditure). The Committee also held discussions with the external auditor on their review of this area. The Committee considers the approach taken and the application of the policy to be appropriate. 60 61 61 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Significant Issue Description and Resolution Transfer Pricing The Group as a global business operates in an increasingly complex All requirements to engage the external auditors Management note that risks cannot necessarily for material non-audit services must be notified to be eliminated, hence the Group’s internal control the Chairman of the Audit Committee in advance, environment is designed to identify, evaluate, and non-audit work with an expected cost in mitigate and monitor the risks faced by the international corporate tax environment. It is subject to taxation in a number excess of €30,000 must be subject to competitive business, and report to the Board in a timely of jurisdictions and cross–border transactions can be challenged by tax authorities. The Group has a number of intercompany agreements within its Group structure including management services, marketing services, research and development and intellectual property licence agreements. The Group seeks regular updates from its tax advisors, EY, on any new developments in the international tax environment, particularly the policy efforts being led by the OECD around the Base Erosion and Profit Shifting initiative (“BEPS”). The Committee also discussed this matter with the external auditors and their transfer pricing specialist team. The Committee considers that the tax provisions and related disclosures which have been made are reasonable. Corporate Governance The Group is required to comply with the provisions of the UK Corporate Governance Code or explain reasons for non-compliance. The more significant of the disclosure requirements include those in relation to principal risks and uncertainties, the fair, balanced and understandable statement and the viability statement. The Committee has reviewed the disclosures in the Annual Report, and, having discussed them with management and the Group’s auditors, is satisfied that the additional reporting and disclosure requirements have been met. Other Matters The Committee has also considered a number of other judgements which have been made by management including those relating to revenue recognition, accruals and estimates and deferred tax and considers that the judgements which have been made are reasonable. tender and approved by the Committee. manner. To assist in managing risk, the Group has: During 2017, Deloitte were engaged to provide non-audit services to the Group totalling €4,000. > a clear organisational structure with appropriate lines of responsibility; The Committee assesses the independence of the external auditor and the effectiveness > a comprehensive annual planning and of the external audit process before making budgeting process; recommendations to the Board in respect of their appointment or re-appointment. In assessing the > clear delegations of authority for the Board effectiveness of the external auditor, the Audit for relevant matters, and a comprehensive Committee assesses the expertise and industry schedule of matters reserved for the Board; knowledge of the audit partner and team and the response to dealing with areas of risk, as well as > internal control systems and procedures to receiving feedback from executive management implement and monitor the use of these on the audit process. delegated authorities; In assessing independence and objectivity, the > financial control, budgeting and forecasting Committee considers the level and nature of systems, with regular reporting, variance services provided by the external auditor as well analysis and reviews of key performance as the confirmation from the external auditor that indicators; it has remained independent within the meaning of the APB Ethical Standards for Auditors. The > robust systems by which the Group’s financial Committee’s assessment of the external auditor’s statements are prepared, which included independence took into account the non-audit assessment of key financial reporting risks services provided during the year. The Committee arising through complexity of transactions, concluded that the nature and extent of the non- changes to the business, and changes in audit fees did not compromise the independence accounting standards; of the auditor. Having reviewed the auditor’s independence and commercially focussed finance function that performance, the Audit Committee recommends is fully conversant with the operations of the > an experienced, suitably qualified and External auditors The Committee will however continue to review the relationship with the external auditor and may that Deloitte be re-appointed as the Company’s business; auditor at the next Annual General Meeting. The Audit Committee oversees the relationship re-tender its audit contract prior to this date if it with the external auditor. considers this necessary. Deloitte were first appointed auditor to the The external auditor is required to rotate the Internal controls and risk management > a code of conduct setting out behavioural and ethical standards, supported by clear anti-bribery and corruption guidelines, and a whistleblowing policy with an external Hostelworld Group in 2004 however the first year audit partner responsible for the Group audit The directors recognise that the monitoring and independent hotline. that they were appointed to Hostelworld Group plc every five years. In this regard, Daniel Murray was assessment of the internal controls environment as a listed plc entity was in relation to the audit for appointed audit partner for the year ended is a necessary step to ensure the Board can place In the Board’s view, the ongoing information it the financial year ended 31 December 2015. In the 31 December 2017 replacing Richard Howard. reliance on the reported financial position and receives is sufficient to enable it to review the UK, mandatory audit tendering is required every prospects of the Group. ten years with mandatory rotation of auditors of To ensure there can be no reason for audit effectiveness of the Group’s system of internal control. The directors confirm that they have Public Interest Entities (“PIEs”) required at least independence to be impacted, the Company has Responsibility for the ongoing monitoring of the reviewed the effectiveness of internal control every twenty years. Transitional arrangements in place a policy on the provision of non-audit effectiveness of the Group’s internal control systems, and considered the significant risks affecting the require Hostelworld to put its audit out to tender services. Under the policy, except in exceptional together with the management of certain risk areas, business and the way in which these risks are by 17 June 2023. This is on the basis of Deloitte, circumstances, non-audit fees to the audit firm is delegated by the Board to the Audit Committee. managed as part of its responsibility to monitor the the existing auditor, being in place for a period of should not exceed 70% of the amount of the audit between 11 and 20 years. Accordingly the Group fee for the current financial year. will need to run a tender process by 17 June 2023. 62 62 63 63 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Company’s risk management and internal control Whistleblowing systems. The risks identified on pages 33 to 37 are those that could have a material adverse impact on The Audit Committee is responsible for ensuring the Group’s prospects, its financial condition and that the Group maintains suitable whistleblowing the results of its operations. The actions taken to arrangements for the Company’s employees. mitigate the risks described in the Principal Risks and The Group’s whistleblowing policy contains Uncertainties, cannot provide assurance that other arrangements for an independent external service risks will not materialise and/or adversely affect the provider to receive complaints in confidence operating results and financial position of the Group. should staff not feel comfortable raising them Internal audit through existing internal channels. The Committee reviewed the Group’s whistleblowing facilities during the year to ensure that it continues to meet As part of its ongoing work programme, the the needs of the Group. Audit Committee is required to annually assess the need for an internal audit function. In early No concerns were raised during 2017. 2016, this review resulted in the Committee deciding to formalise its approach to internal Annual evaluation of performance audit and to set up an outsourced internal audit function. The decision was made in order to The Committee’s effectiveness was reviewed as part provide independent assurance that the system of an internal formal annual evaluation process of internal controls is operating correctly, and in the final quarter of the year. The Committee not by any particular concern, or any perception considered the outcome of the evaluation and is of existing internal control weakness. PwC were satisfied that it is performing effectively. selected following a tender process to provide an outsourced internal audit function for the Group. I will be available at the AGM to answer any Following a review in December 2017 which questions on the work of the Committee. concluded that this approach is cost-effective, provides access to a greater depth of expertise Éimear Moloney covering a broad range of risks, and provides Chairperson, Audit Committee flexibility, allowing the Group to vary the level of 9 April 2018 resources as and when required, the Committee renewed the contract with PwC. The Internal Audit Plan, setting out areas of focus was agreed by the Audit Committee with the Internal Auditors. In 2017, the Audit Committee received five reports from PwC covering a review of data protection compliance, business continuity management, payroll key controls, third party management of a key supplier contract and Distributed Denial of Service (“DDoS”) readiness. The Audit Committee subsequently follows up to ensure internal audit findings or recommendations are acted upon by management. There were three overdue internal audit findings from 2017 at year end, all of which have since been successfully closed out. The internal audit plan for 2018 was set following consultation with the Audit Committee and focuses on a review of IT change management processes, new payment model, information security and data protection compliance/GDPR readiness. 64 64 65 clink 78 LONDON Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance generator COPENHAGEN Report of the Nomination Committee Dear Shareholders remain independent and subject to review of the Committee’s composition by the Board. There is no I am pleased to present, on behalf of the Board, age limit for directors. the Report of the Nomination Committee (“the Committee”) outlining the work of the The Company Secretary acts as Secretary to the > Making recommendations to the Board appointments of Carl Shepherd and Éimear regarding the Board’s policy on boardroom Moloney to the Board and continues to ensure diversity and reviewing its implementation; that there is a robust succession plan in place for senior management and Board positions; > Identifying and nominating candidates for approval by the Board to fill Board vacancies > An internal evaluation of the Board, taking into account the need for diversity and Committees and individual directors took a balance of skills, experience, independence place in 2017. The Committee considered and knowledge; the outcome of this evaluation and any area identified relevant to the Nomination Nomination Committee during 2017. Committee, and other executives may be invited to > Reviewing annually the time needed to fulfil Committee will form part of the agenda of the attend when deemed appropriate. the roles of Chairman, Senior Independent Committee for the coming year; The Members of the Committee comprise of the following independent non-executive directors: Role of the Committee Director and each Non-Executive Director (taking into account committee memberships) > The Committee reviewed its terms of reference and ensuring that each individual has sufficient during the year to ensure the contents > Michael Cawley (Chairman appointed The Committee is responsible for all aspects of the time available to devote to their role; and remained relevant and appropriate and best 1 December 2017) > Andy McCue > Carl Shepherd (appointed 6 October 2017) appointment of directors of the Company. This includes, but is not limited to: > Making recommendations to the Board on Committee; and the appointment and re-appointment of both reflect the role and responsibilities of the > Éimear Moloney (appointed 9 February 2018) > Regularly reviewing the structure, size and Executive and Non-Executive directors. > The Committee recommended to the Board > Richard Segal (resigned 31 December 2017; composition of the Board, including the balance resigned as Chairman 1 December 2017) of skills, experience, independence, knowledge and diversity to ensure optimum size and Under the terms of reference of the Committee composition, taking into account the Company’s it must have a minimum of three members current requirements, the results of the Board appointed by the Board, of whom a majority performance evaluation, its status as a UK and should be independent non-executive directors. Irish listed plc, the future development of the Activities of the Nomination Committee The Committee met on seven occasions during 2017. Individual attendance at these meetings is set out on page 53. The principal activities of the that all directors (with the exception of Mari Hurley given her recent resignation) be put forward for re-election/election at the Company’s 2018 AGM. The terms of reference are available on the Company, and making recommendations to the Committee throughout the year are detailed below: Company’s website at www.hostelworldgroup.com. Board with regard to any changes; Appointments to the Committee are for a period > Reviewing succession plans for the directors, of up to three years, which may be extended including the Chairman, CEO and senior for two further periods of up to three years, management; provided the majority of the Committee members 66 > The Committee considered Board composition and succession to ensure that the Company has the appropriate level of skills and diversity. The Committee recommended the 67 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Board Composition and Succession Carl Shepherd was identified by the Nomination Board diversity Committee as a suitable candidate and the Board composition and succession has been an Committee recommended his appointment as a We aim to have a Board that is well-balanced and value for the Company and that when there is a important consideration for the Group during 2017 non-executive director to the Board. has the appropriate skills, knowledge, experience vacancy on the Board, selection is on the basis of which included the appointment of two new non- The Committee also engaged the services of and diversity for the needs of the business. Diversity merit against objective criteria to ensure that the executive directors. KPMG to facilitate a recruitment process to identify candidates who would be suitable to is considered in its broadest sense and includes best individual is appointed for the role. age, gender, cultural, geographical diversity and In August 2017, Richard Segal indicated his assume the role of Chair of the Audit Committee. business background. During 2018, we will review Diversity is embraced at Hostelworld and the intention to resign from the Board. On 1 December A list of potential candidates was reviewed our Board policy on diversity as appropriate to Group strives to create a culture that values and 2017 he resigned as Chairman of the Board and of by the Committee and interviewed. Following ensure that the Group continues to derive the respects diversity and inclusion, not only gender the Nomination Committee and subsequently as a this process, on the recommendation of the benefits of a diverse Board. diversity but also cultural and age diversity. Board member on 31 December 2017. I succeeded Nomination Committee, the Board approved the Richard Segal as Chairman of the Board and of the appointment of Éimear Moloney as non-executive The Nomination Committee considered diversity The Group will continue to monitor diversity Nomination Committee on 1 December 2017 and director with effect from 27 November 2017 on the Board in 2017 and in particular noted the both on the Board, its Committees and across Andy McCue was appointed Senior Independent and as Chairperson of the Audit Committee with gender imbalance on certain committees, the the business to ensure diversity and equal Director on 1 December 2017. effect from 1 December 2017. KPMG had no other business background and geographical diversity of opportunities. connection with the Company in 2017. Board members. This matter was addressed by the During the year a search was undertaken for a appointment of Carl Shepherd and Éimear Moloney I will be available at the AGM to answer any non-executive director with experience in the The Committee will also oversee the recruitment as non-executive directors during the year. questions that shareholders may have on the work travel/accommodation/digital sector and, on the of a Chief Financial Officer in 2018 following the of the Committee. recommendation of the Nomination Committee, the announcement, in December 2017, that Mari The Board is keen to ensure that the Group Board approved the appointment of Carl Shepherd Hurley would be leaving the business to take up an benefits from the existence of a high quality Board Michael Cawley with effect from 1 October 2017. Carl brings an opportunity outside of the Group during the first and it was agreed that, in relation to Board and Chairman, Nomination Committee Committee appointments, diversity remains a key 9 April 2018 TOC Hostel SEVILLE immense wealth of listed company experience in half of 2018. the international on-line travel industry. Again, with succession in mind, the Committee oversaw and then recommended to the Board Board evaluation and re-election of directors the appointment of Éimear Moloney as an The Committee carried out an evaluation of its own additional non-executive director and Chairperson performance for the year ended 31 December 2017 of the Audit Committee. Éimear’s strong investment and concluded it was satisfactory. The results of the management experience will be of enormous Board evaluation and director appraisal process as benefit to the Group as we execute on our strategic described on page 55 were also noted. The process objectives and continue to grow the business. established that the Board is operating effectively In undertaking the search for the non-executive and challenge. It recommended to the Board, directors during the year, the Committee identified after evaluating the balance of skills, knowledge, a shortlist of candidates based on: independence and experience of each director, and cohesively with a good balance of support that all directors, with the exception of Mari Hurley > A review of the list of potential candidates given her recent resignation, will seek re-election/ provided by Skill Capital prior to the IPO election at the Company’s forthcoming AGM. in 2015; and > Identification of potential candidates in the market by the former Chairman, myself and the CEO based on the candidate’s skills, knowledge and experience being complementary to the Company. 68 69 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Chairman of the Remuneration Committee’s Annual Statement Dear Shareholders Key activities of the Remuneration Committee in 2017 As Chairman of the Remuneration Committee, I am pleased to present the Company’s As described earlier in this Annual Report, Remuneration Report for the year to 31 2017 was a year of strong performance December 2017. for Hostelworld, in the midst of continued challenges for the travel industry. The current Directors’ Remuneration Policy was subject to a binding shareholder vote at the 2016 As also described earlier, there were a number of AGM and the Remuneration Committee was Board changes announced during the year: very pleased to receive strong support from our shareholders, with 89.63% of votes being in favour. > Carl Shepherd joined the Board on 1 October; As outlined last year, the remuneration policy is > Richard Segal stepped down as Company designed to support the Company’s culture and Chairman on 1 December and was replaced by strategic objectives while offering competitive Michael Cawley. Richard left the Board on remuneration to enable the business to attract, 31 December; retain and motivate the high-calibre talent needed to help ensure we are successful, aligning > Andy McCue became Senior Independent all stakeholders’ interests. This is achieved Director on 1 December, taking over from by the strong focus on performance-related Michael Cawley; compensation and the use of appropriate performance conditions. > Also on 1 December, Éimear Moloney (who became a Non-Executive Director on We believe that this policy continues to be fit for 27 November) took over from Michael Cawley purpose and therefore do not propose to make as Chair of the Audit Committee; and any amendments this year. For ease of reference, a summary of the current policy has been included > On 19 December it was announced that Mari in this report. However, in anticipation of formal Hurley had resigned as Chief Financial Officer. shareholder approval being required for the renewal of the current policy at the 2019 AGM, the It was in this context that the Remuneration Committee will undertake a review of the policy in 2018. Upon completion of this review, we will Committee met 3 times and undertook the following activities: engage with our major shareholders regarding our proposed approach for 2019 onwards. > Finalising the 2016 Remuneration Report; Members of the Remuneration Committee > Determining the salary increases for the Executive Directors that applied for 2017; Committee membership is as follows: > Agreeing the final outturn of the 2016 annual > Andy McCue (Chairman) > Michael Cawley bonus scheme for the Executive Directors which was, as reported last year, a nil payout; > Carl Shepherd (appointed 6 October 2017) > Agreeing the structure of the 2017 annual > Richard Segal (resigned 31 December 2017) bonus scheme for the Executive Directors, > Éimear Moloney (appointed 9 February 2018) including bonus opportunity, metrics and 71 ANDY MCCUE Chairman, Remuneration Committee Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance specific targets to be employed. As noted How we will apply our policy in 2018 on page 80, the Executive Directors’ bonus Furthermore, as noted above, in addition to its > The Annual Report on Remuneration which normal duties and responsibilities, the Committee sets out payments made to the directors and opportunity was unchanged from 2016 with The structure of remuneration arrangements for will conduct a full review of the Directors’ details the link between Company performance the same metrics also used (albeit with it 2018 will remain largely unchanged from that Remuneration Policy in 2018 with a view to and remuneration for the 2017 financial year. agreed by the Committee during the year applied in 2017. The Remuneration Committee presenting a new policy for formal shareholder The Annual Report on Remuneration together that the weighting originally placed on reviewed Feargal Mooney’s salary and determined approval at the 2019 AGM. When conducting with this statement is subject to an advisory Adjusted profit before tax (“Adjusted PBT”) be that an increase of 2% was warranted following this review, the Committee will take due account shareholder vote at the AGM on 11 June 2018. increased with a corresponding reduction in a benchmarking exercise (which is no higher of market conditions and best practice (noting any the original weighting placed on bookings, this than the typical salary increase across the wider proposed changes to the regulatory landscape) I hope that you find the information in this Report adjustment being made to reflect a weaker workforce). No review of Mari Hurley’s salary was while also ensuring that the policy continues helpful and informative and I look forward to your demand backdrop, and to ensure management undertaken due to her resignation. to reflect and be supportive of the Company’s continued support at the AGM. focussed on profitable growth during this strategy and culture and takes due account of period which supports the generation of long- Feargal Mooney will continue to have the stakeholder views. term returns to shareholders); opportunity to earn a bonus of up to 102.6% of salary. Mari Hurley will not participate in Structure of this report > Agreeing the approach to the second award the bonus plan for 2018. The metrics used to I am always happy to hear from the Company’s shareholders and you can contact me via the Company Secretary if you have any questions on this Report or more generally in relation to the made under the Company’s Long-Term determine bonus payouts (if any) will continue This report has been prepared in accordance with Company’s remuneration. Incentive Plan (LTIP) in 2017, including to relate to Adjusted PBT, bookings and personal The Large and Medium-sized Companies and the quantum, metrics, targets and award performance. population. As noted on page 81, the 2017 Groups (Accounts and Reports) (Amendment) Andy McCue Regulations 2013, the UKLA Listing Rules and the Chairman, Remuneration Committee awards were structured in a similar manner to A further award will also be made under the LTIP UK Corporate Governance Code. The report is split 9 April 2018 the first awards made under the LTIP in 2016 to Feargal Mooney over shares worth 125% of into three parts: with the Remuneration Committee agreeing salary (i.e. the same quantum as last year). Mari (pursuant to policy) that subsisting and future Hurley will not receive an LTIP award. Also as was > This Annual Statement. > A brief summary of the Company’s current remuneration policy for directors. freehand MIAMI LTIP awards will be subject to the dividend the case with the 2017 awards, the 2018 awards equivalent facility contained in the plan rules; will be subject to a blend of stretching Adjusted Earnings Per Share (“Adjusted EPS”) and absolute > Agreeing the establishment of employee Save Total Shareholder Return (“TSR”) targets. As You Earn (“SAYE”) share plans for colleagues in the UK and Ireland; As a result, the Committee has maintained a strong linkage between the Company’s underlying strategy > Undertaking a tender exercise for the role of and its senior Executive remuneration policy. independent advisers to the Remuneration Committee which resulted in the appointment of Korn Ferry Hay Group as new advisers; and Remuneration Committee activities for 2018 > Drafting the 2017 Remuneration Report. During the first part of 2018, the Committee has: Remuneration outcomes for 2017 > Determined Feargal Mooney’s pay arrangements for 2018; As noted above, Hostelworld delivered a strong set of results in 2017. This was reflected in the > Agreed the fee arrangements for Michael payouts under the annual bonus scheme which Cawley as new Chairman; amounted to 75% of salary for Feargal Mooney (73% of his maximum bonus opportunity). Following her > Agreed the termination arrangements for Mari resignation, the Committee determined that Mari Hurley (as described more fully on page 83); and Hurley should not be entitled to a bonus for 2017. Full details of performance against the annual bonus > Finalised this report. targets in 2017 can be found on page 80 to 81. No LTIP awards have thus far vested, with the first award made in 2016 capable of vesting (subject to performance) in 2019. 72 73 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Summary of Directors’ Remuneration Policy Introduction Base Salary Opportunity > CEO: 10% of base salary Provides a base level of remuneration to support > CFO: 6% of base salary recruitment and retention of Executive Directors with the necessary experience and expertise to Performance metrics used, weighting and deliver the Company’s strategy. time period applicable None. The current Directors’ Remuneration Policy was A summary of the current policy is included below Operation approved by shareholders at the AGM on 26 for reference to assist with the understanding Salaries are reviewed annually and any changes Annual Bonus Plan May 2016 (89.63% of votes cast being in favour) of the contents of this report. The full policy is are effective from 1 January in the financial year. and became effective from that date. There are detailed in our 2015 Annual Report, which can be no proposals to amend this policy at the AGM found in the ‘Investors’ section under ‘Reports and Opportunity The Annual Bonus Plan provides a significant incentive to the Executive Directors linked to on 11 June 2018, although this policy will be Presentations’ on the Company’s website, Base salaries will be set at an appropriate level achievement in delivering goals that are closely reviewed in 2018 with a view to presenting a www.hostelworldgroup.com. within a comparator group of listed companies aligned with the Company’s strategy and the new policy for formal shareholder approval at the 2019 AGM. The following is a summary of each element of remuneration and how it supports the Company’s short and long term strategic objectives. Sophie’s hostel PRAGUE of comparable size and will normally increase in creation of value for shareholders. line with increases made to the wider employee workforce. Operation Performance metrics used, weighting and the bonus payable after the year end based on time period applicable performance against targets. The Remuneration Committee will determine None. Benefits Annual bonuses are paid in cash after the end of the financial year to which they relate. Provides a competitive level of benefits. Operation The Executive Directors receive benefits which Opportunity > CEO: 102.6% > CFO: 72% include, but are not limited to, family private Performance metrics used, weighting and health cover and life assurance cover (including time period applicable tax if any). Opportunity Performance is measured over the financial year. Bonuses are only paid if threshold levels of The maximum will be set at the cost of providing Adjusted PBT for the Group are met. The the benefits described. bonus payout is then determined based on the satisfaction of a range of key financial and non- Performance metrics used, weighting and financial objectives. time period applicable None. Pensions Provide market competitive retirement benefits to employees. Operation Discretion may also be exercised in cases where the Remuneration Committee believes that the bonus outcome is not a fair and accurate reflection of business performance. Long-Term Incentive Plan (LTIP) Awards are designed to incentivise the Executive The Remuneration Committee maintains the Directors to maximise total shareholder returns by ability to provide pension funding in the form of successfully delivering the Company’s objectives a salary supplement, which would not form part and to share in the resulting increase in total of the salary for the purposes of determining the shareholder value. extent of participation in the Company’s incentive arrangements. 74 75 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Operation Awards are granted annually to Executive Non-Executive Director fees Illustration of remuneration policy Directors in the form of nil cost options. These will The Company provides a level of fees to support The chart below illustrates how the above policy shapes Feargal Mooney’s remuneration package (based vest at the end of a three year period subject to: recruitment and retention of Non-Executive on his salary and pension with effect from 1 January 2018 and benefits assumed to be in line with 2017 > the Executive Director’s continued employment and assist with establishing and monitoring the Mari Hurley has not been included in this analysis following her resignation. The elements of at the date of vesting; and Company’s strategic objectives. remuneration have been categorised into three components: (i) Fixed; (ii) Annual Bonus; and (iii) LTIP, Directors with the necessary experience to advise levels), under three different performance scenarios: (i) Minimum; (ii) On-target; and (iii) Maximum. > satisfaction of the performance conditions. with the assumptions set out below: Operation The Remuneration Committee may award dividend Non-Executive Directors are paid a base fee and equivalents on awards to the extent that these vest. additional fees for acting as Senior Independent Opportunity Director and as Chairman of the Board’s Audit and Remuneration committees. Fees are Maximum award of 150% of base salary in normal reviewed annually based on equivalent roles in circumstances. an appropriate comparator group used to review salaries paid to the Executive Directors. 25% of the award will vest for threshold performance. 100% of the award will vest for Opportunity maximum performance. Straight line vesting The base fees for Non-Executive Directors are set between these points. at a market rate. Element Minimum On-Target Maximum Salary, benefits and pension Included Included Included Annual Bonus No bonus payable 57.5% of base salary 102.6% of salary Long-Term Incentive Plan No LTIP vesting 62.5% of the maximum opportunity of 125% of salary 125% of base salary In accordance with the relevant regulations, share price growth has not been included within the Performance metrics used, weighting and Performance metrics used, weighting and illustrations below, nor have dividend equivalents on the LTIP awards. time period applicable time period applicable The performance conditions for awards are None. currently split between Adjusted EPS growth (70%) and TSR (30%). In relation to the above bonus plan and LTIPs, Malus is applied up to the date of the bonus Discretion may also be exercised in cases where determination and during the three year period the Remuneration Committee believes that from grant to vesting for the LTIP. Clawback the vesting outcome is not a fair and accurate will apply for two years from the date of bonus reflection of business performance. determination and for the two year period post CEO Maximum 33% 30% 37% €1,421k On-Target 45% 23% 32% €998k vesting for the LTIP. Minimum 100% €469k Shareholding Requirement To support long term commitment to the Company and the alignment of Executive Director interests with those of shareholders. Operation The Remuneration Committee has adopted formal shareholding guidelines that will encourage the Executive Directors to build up over a five year period and then subsequently hold a shareholding equivalent to a percentage of base salary. Adherence to these guidelines is a condition of continued participation in the equity incentive arrangements. Requirement > 150% of base salary. €0 €200 €400 €600 €800 €1,000 €1,200 €1,400 €1,600 Salary, Benefits & Pension Bonus LTIP Yes! Lisbon LISBON 76 77 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Annual Report on Remuneration Single total figure of remuneration Executive Directors The table below sets out the single total figure of remuneration and breakdown for each Executive Director in respect of the 2017 financial year. Comparative figures for the 2016 financial year have also been provided. Figures provided have been calculated in accordance with The Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (Schedule 8 to the Regulations). Salary (€’000) Benefits (1) (€’000) Bonus (2) (€’000) LTIP (€’000) Pension (€’000) Other (€’000) Total (€’000) 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Feargal Mooney Mari Hurley 410.0 400.0 8.9 8.7 308.9 282.0 275.0 4.8 4.7 - - - - - - - 41.0 40.0 16.9 16.5 - - 850.0(3) 768.8 1,298.7 - 303.7 296.2 (1) Benefits represent payments for health insurance and life assurance policies. (2) An explanation of the bonuses paid for 2017 is set out later in this report. (3) As reported last year and as disclosed in the IPO Admission document, the former controlling shareholder of the Group, H&F Wings Lux 1 S.à r.l. (“Lux 1”) intended to pay a discretionary bonus to the Executive Directors and Senior Management to reflect their ongoing contribution to the Group. As stated in the Admission document, this discretionary bonus is not part of the forward looking remuneration policy. At the time of listing it was confirmed that the maximum aggregate amount that may be paid would not exceed €7,000,000. It was subsequently agreed that an aggregate discretionary bonus payment of €1,559,000 (€1,400,000 net of employer taxes) would be made to certain Executive Directors and Senior Management employees, following consultation with the Remuneration Committee. On 3 June 2016 Feargal Mooney received an award of €850,000. The Group did not bear any costs associated with this payment. generator BERLIN Non-Executive Directors The table below sets out the single total figure of remuneration and breakdown for each Non-Executive Director. Fees 145.0 74.0 67.0 15.0 5.9 Richard Segal(1) Michael Cawley(2) Andy McCue(3) Carl Shepherd(6) Éimear Moloney(5) 2017 2016 Taxable benefits Other payments Total Fees Taxable benefits Other payments - - - - - - - - - - 145.0 145.0 74.0 63.0 67.0 61.5 15.0 5.9 - - - - - - - - - - - - Total 145.0 63.0(4) 61.5(4) - (1) Stepped down as Company Chairman and Chair of Nominations Committee on 1 December 2017. (2) Senior Independent Director and Chair of Audit Committee until 1 December 2017. From 1 December 2017 Company Chairman. (3) Chair of Remuneration Committee and, from 1 December 2017, Senior Independent Director. (4) As reported last year, at the date of their appointment (14 October 2015), fees to Michael Cawley and Andy McCue in respect of their additional duties as Senior Independent Director and Chair of Audit Committee (Michael Cawley), and Chair of the Remuneration Committee (Andy McCue) were paid in advance as a single payment for the 12 month period to 13 October 2016. Fees in respect of these services after this period were, and continue to be, paid monthly. This is now in line with the payment of the base fees paid to Non-Executive Directors, which have been paid monthly since listing. Therefore the fees paid to Michael Cawley and Andy McCue for 2016 include a full year of their respective Non-Executive Director base fees and a pro-rata payment in respect of their additional duties as Senior Independent Director and/or Chair of Committee over the period from 14 October 2016 to 31 December 2016. (5) Appointed to the Board on 27 November 2017 and Chair of the Audit Committee from 1 December 2017. (6) Appointed to the Board on 1 October 2017. Additional information regarding single figure table The Remuneration Committee considers that performance conditions for all incentives are suitably realistic yet stretching, having regard to the business strategy, shareholder expectations, the markets in which the Group operates and external advice. To the extent that any performance condition is not met, the relevant part of the award will lapse. There is no retesting of performance. 78 79 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Bonus awards In last year’s Report, it was indicated that the intention was to use the same metrics and weightings for the 2017 bonus as were used for 2016, namely: > Adjusted PBT – 50% weighting > Bookings – 30% weighting > Personal performance – 20% weighting However, it was agreed during the year that the weighting on Adjusted PBT should be increased with a corresponding reduction in the weighting applied to bookings as set out below. This adjustment was made to reflect a weaker demand backdrop and to ensure management focussed on profitable growth, which supports the generation of long-term returns to shareholders: > Adjusted PBT – 63.3% weighting > Bookings – 16.7% weighting > Personal performance – 20% weighting (i.e. as previously indicated) The table below sets out the details of the performance conditions that were used to determine the annual bonus outturn over the 2017 financial year for Feargal Mooney. Following her resignation, the Committee determined that Mari Hurley should not be entitled to a bonus for 2017. As in previous years, no bonus is payable unless a threshold level of Adjusted PBT is met: 2017 bonus outturn – Feargal Mooney Performance metric Threshold performance level % of max payout of relevant element at threshold Maximum performance level % of max payout of relevant element at max Actual performance Resulting payout (% of award) Adjusted Profit Before Tax(1) €21.5m 5.4% €25.4m 100% €24.3m 73.4% Bookings 6.9m 12.2% 7.7m 100% 7.5m 82.4% Personal Performance(2) €21.5m Adjusted PBT and personal performance 6.8% €25.4m Adjusted PBT and personal performance 100% €24.3m Adjusted PBT with personal performance summarised below 65.9% (1) For the 2017 financial year, Adjusted PBT before bonus payments was used as an underpin on which any payout under the annual bonus is contingent. (2) For personal performance, the level of bonus payment was calculated relative to the achievement of individual objectives and resulting performance rating, together with the level of Adjusted PBT performance. More particularly, the objectives set for Feargal Mooney and how he performed against such targets were as follows (with the Committee considering that disclosing any further information would raise issues of commercial sensitivity and so would not be in shareholders’ interests): Objective/Metrics Group bookings growth vs budget Gross ABV of €11.39 EBITDA margin performance of at least 30% Operational objectives e.g. effective delivery of at least three product enhancements, establishment of a new nearshore development centre Cultural objectives e.g. fostering a Group-wide culture of excellence which is dynamic, decisive and results oriented with robust appraisal and development processes Performance assessment Partially achieved Fully achieved Fully achieved Fully achieved Fully achieved Based on overall performance, the table below summarises the annual bonus awarded to Feargal Mooney in respect of 2017: Director Maximum bonus opportunity (% of salary) Bonus awarded (% of maximum) Bonus awarded (% of salary) Bonus awarded (€) Feargal Mooney 102.6% 73.4% 75.3% €308,894 Long term incentives awarded in 2017 The table below sets out the details of the LTIP awards granted in the 2017 financial year. Vesting will be determined according to the achievement of performance conditions as outlined below. Director LTIP Value of award Face value of award (€’000) Number of shares awarded Exercise Price (€) Percentage of award vesting at threshold performance Performance period end date Feargal Mooney LTIP – nil cost option 125% of salary 512.5 194,121 Nil 25% Mari Hurley LTIP – nil cost option 90% of salary 253.8 96,132 Nil 25% 31 December 2019 31 December 2019 Weighting Adjusted EPS (70%) Absolute TSR (30%) Adjusted EPS (70%) Absolute TSR (30%) The awards were granted on 29 March 2017. The number of shares awarded was calculated using the closing share price on 28 March 2017, which was 228.25p. To the extent the awards vest a dividend equivalent award will be made at the end of the vesting period. The Adjusted EPS condition applying to 70% of the awards is provided in the table below. Annual average Adjusted EPS growth Vesting Less than 6.6% p.a. 6.6% p.a. 14.0% p.a. or above 0% 25% 100% Between 6.6% p.a. and 14.0% p.a. Straight line vesting between 25% and 100% 80 81 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance The Absolute TSR condition applying to 30% of the awards is provided in the table below. In summary, TSR The Absolute TSR condition applying to 30% of the awards is provided in the table below. is the change in the capital value of a listed quoted company over a period, with dividends deemed to have been re-invested, expressed as a plus or minus percentage of the opening value. Annualised TSR of the Company over the three year period to 31 December 2019 Less than 10.0% p.a. 10.0% p.a. 15.0% or above Vesting 0% 25% 100% Between 10.0% and 15.0% Straight line vesting between 25% and 100% As noted above, the Committee has determined that Mari Hurley’s LTIP awards will lapse due to her resignation. Past LTIP awards Annualised TSR of the Company over the three year period to 31 December 2018 Less than 10.0% p.a. 10.0% p.a. 15.0% or above Vesting 0% 25% 100% Between 10.0% and 15.0% Straight line vesting between 25% and 100% As noted above, the Committee has determined that Mari Hurley’s LTIP awards will lapse due to her resignation. Payments to past directors / payments for loss of office There were no payments to past directors in the financial year. The following awards were granted under the LTIP in 2016: As noted above, on 19 December 2017 it was announced that Mari Hurley intended to resign from the Board. Details of her termination arrangements are as follows: Director LTIP Value of award Face value of award (€’000) Number of shares awarded Exercise Price (€) Percentage of award vesting at threshold performance Performance period end date Weighting Adjusted > Salary, benefits and pension – pursuant to her contract of employment and the remuneration policy, Mari will continue to receive salary, benefits and pension during her six month notice period (including any period of “garden leave”) Feargal Mooney LTIP – nil cost 125% of option salary 500.0 215,918 Nil 25% Mari Hurley LTIP – nil cost 90% of option salary 247.5 106,879 Nil 25% 31 December EPS (70%) 2018 Absolute TSR (30%) Adjusted 31 December EPS (70%) 2018 Absolute TSR (30%) > Annual bonus – the Committee has determined that Mari will not receive a bonus for 2017 and will not be eligible to participate in the 2018 bonus plan > LTIP – the Committee has determined that Mari’s subsisting awards will lapse upon her cessation of employment and that Mari will receive no further LTIP awards The awards were granted on 5 April 2016. The number of shares awarded was calculated using the closing share price on Admission, which was 185p, as disclosed in the Admission document. To the extent the Statement of directors’ shareholdings and share interests awards vest a dividend equivalent award will be made at the end of the vesting period. The Remuneration Committee has adopted formal shareholding guidelines that encourage the Executive The Adjusted EPS condition applying to 70% of the awards is provided in the table below. 150% of base salary. The number of shares of the Company in which current Directors had a beneficial Directors to build up over a five year period and then subsequently hold a shareholding equivalent to interest and details of long-term incentive interests as at 31 December 2017 are set out in the table below. Annual average Adjusted EPS growth Vesting Less than 6.6% p.a. 6.6% p.a. 14.0% p.a. or above 0% 25% 100% Between 6.6% p.a. and 14.0% p.a. Straight line vesting between 25% and 100% Shareholding requirement (% of salary) Current shareholding* (% of salary) Beneficially Owned Shares Unvested LTIP interests subject to performance conditions Shareholding requirement met? 150% 253% 240,033 410,039 Yes 150% 30% 19,504 203,011 No Director Feargal Mooney Mari Hurley *The share price of 383 pence as at 31 December 2017 has been taken for the purpose of calculating the current shareholding as a percentage of salary. Unvested LTIP awards do not count towards satisfaction of the shareholding guidelines. 82 83 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Non-Executive Directors are not subject to a shareholding requirement. Details of their interests in shares Chief Executive Officer historical remuneration are set out below: Director Richard Segal Michael Cawley Andy McCue Carl Shepherd Éimear Moloney Shares held 31 December 2017 or Date of resignation 39,008 20,000 25,000 - - No changes in the above directors’ interests have taken place between 31 December 2017 and the date of this report. Comparison of overall performance and pay (TSR graph) The table below sets out the total remuneration delivered to the Chief Executive Officer over the last four years valued using the methodology applied to the single total figure of remuneration. The Remuneration Committee does not believe that the remuneration payable in its more formative years as a private company bears any comparative value to that paid in its later years and therefore the Remuneration Committee has chosen to disclose remuneration only for the four most recent financial years (reflecting disclosure made in previous reports): Chief Executive Officer 2017 2016 2015 2014 Total Single Figure (€’000) 768.8 1,298.7 395.0 413.1 Annual bonus payment level achieved (% of maximum opportunity) LTIP vesting level achieved (% of maximum opportunity) 73.4% n/a 0% n/a 0% n/a 14.9% n/a The graph below shows the value of £100 invested in the Company’s shares since listing compared to the It should be noted that the Company only introduced the LTIP on Admission. FTSE SMALLCAP index. The graph shows the Total Shareholder Return generated by both the movement in share value and the reinvestment of dividend income over the same period. The Remuneration Committee considers that the FTSE SMALLCAP index is the appropriate index given the current magnitude and Change in Chief Executive Officer’s remuneration compared with employees nature of operations and market capitalisation. This graph has been calculated in accordance with the The following table sets out the change in the remuneration paid to the Chief Executive Officer from 2016 Regulations. It should be noted that the Company listed on 28 October 2015 (with grey market trading to 2017 compared with the average percentage change for all employees. until 2 November 2015) and therefore only has a listed share price for the period from 28 October 2015 to 31 December 2017. Total Shareholder Return (£) Hostelworld Group FTSE Small Cap ) £ ( n r u t e r r e d l o h e r a h s l a t o T 250 200 150 100 50 31/12/2015 31/03/2016 30/06/2016 30/09/2016 30/12/2016 31/03/2017 30/06/2017 29/09/2017 29/12/2017 Salary Taxable benefits Bonus 2017 (€’000) 2016 (€’000) % change 2017 (€’000) 2016 (€’000) % change 2017 (€’000) 2016 (€’000) % change Chief Executive Officer 410.0 400.0 2.5% 8.9 8.7 2.3% 308.9 Total pay 14,385 14,162 1.6% 307.6 238.5 29.0% 1,367.3 - - n/a n/a Average number of employees Average per employee 254 241 5.4% 254 241 5.4% 254 241 5.4% 56.6 58.8 (3.7%) 1.2 1.0 20% 5.4 - n/a The Chief Executive Officer’s remuneration disclosed in the table above has been calculated to take into account base salary, taxable benefits and annual bonus. To reflect the relevant regulations, the employee pay figures (on which the average percentage change is based) is calculated using the increase in the earnings of all Group employees (i.e. those based in Ireland, the UK and other jurisdictions) from calendar years 2016 and 2017 which, for base salary, gives a reduction of 3.7%. However, when the salaries of all staff employed in the UK and Ireland only are compared on a matched sample basis (i.e. comparing those employees that were employed at both 31 December 2016 and 31 December 2017) the average base salary increased by 5.5%. 84 85 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Relative importance of the spend on pay Changes to Non-Executive Director fees No changes are proposed to the current fee components in place. The breakdown of fee components will The table below sets out the relative importance of spend on pay in the 2016 and 2017 financial years remain as follows: compared with other disbursements. All figures provided are taken from the relevant Company Accounts. Disbursements from profit in 2017 financial year (€m) Disbursements from profit in 2016 financial year (€m) Profit distributed by way of dividend/share buybacks Overall spend on pay including Executive Directors 24.8 19.0 7.2 16.7 Shareholder voting at general meeting % change 244.4% 13.8% Role Chairman Fee Senior Independent Director Fee Base Non-Executive Director Fee Chair of Audit Committee Fee Fees (€) 145,000 7,000 60,000 7,000 Chair of Remuneration Committee Fee 7,000 Benefits and pension No changes are proposed to benefits or pension. The Committee is committed to shareholder dialogue, to ensure optimal alignment for all stakeholders Annual Bonus Plan and to ensure shareholders’ views are taken into account in shaping remuneration policy and practice. The The maximum bonus opportunity for Feargal Mooney remains at 102.6% of base salary. Mari Hurley will Annual Report on Remuneration was subject to an advisory shareholder vote at the AGM on 1 June 2017, not participate in the bonus plan. the results of which were as follows: Resolution For Against Withheld Ordinary Resolution to approve the Directors’ remuneration report for the year ended 31 December 2016 78,081,452 (99.03%) 764,544 (0.97%) 2,660 Implementation of remuneration policy in financial year 2018 The proportion of the total bonus allocated to individuals will be based on the achievement of key strategic objectives which for the 2018 financial year will include: > Adjusted PBT (50% weighting); > Bookings (30% weighting); and > Personal performance (20% weighting). To simplify the bonus structure and to align it to common practice, the linear relationship between amounts payable under the personal performance element and the Adjusted PBT target range will be removed. However, the payment of any bonus (including the personal element) will continue to be subject The Remuneration Committee proposes to implement the policy for 2018 as set out below: to the achievement of the threshold Adjusted PBT target. Salary The Remuneration Committee is of the opinion that given the commercial sensitivity arising in relation Salaries were reviewed during the year. Feargal Mooney’s salary was increased with effect from 1 January to the detailed targets used for the annual bonus, disclosing precise targets for the bonus plan in advance 2018 as set out below: would not be in shareholder interests. Performance achieved and awards made will be published at the end of the performance periods so shareholders can fully assess the basis for any pay-outs under the Name Salary (€) Percentage Change annual bonus plan. 2018 2017 Feargal Mooney 418,200 410,000 2% This salary increase is no higher than the typical salary increase across the wider workforce. Mari Hurley’s salary was not reviewed given her resignation. 86 87 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance LTIP award It is intended that a grant under the LTIP will be made during 2018. Feargal Mooney will receive an award over shares worth 125% of salary as per last year. Mari Hurley will not receive an award. Composition and terms of reference of the Remuneration Committee During the year the Remuneration Committee conducted a tender exercise for the role of its independent advisors, culminating in the The Board has delegated to the Remuneration appointment of Korn Ferry Hay Group as its new The performance conditions will be based 70% on Adjusted EPS performance and 30% on absolute TSR Committee, under agreed terms of reference, advisors in October 2017. Following this date, measured over a three year period as follows: Annual average Adjusted EPS growth Vesting Less than 6.6% p.a. 6.6% p.a. 14.0% p.a. or above 0% 25% 100% Between 6.6% p.a. and 14.0% p.a. Straight line vesting between 25% and 100% Annualised TSR of the Company over the three year period to 31 December 2020 Less than 10.0% p.a. 10.0% p.a. 15.0% or above Vesting 0% 25% 100% Between 10.0% and 15.0% Straight line vesting between 25% and 100% generator VENICE responsibility for the remuneration policy Korn Ferry Hay Group advised the Company on and for determining specific packages for the all aspects of remuneration policy for Executive Chairman, Executive Directors and such other Directors and members of the Executive team. senior employees of the Group as the Board may The Remuneration Committee was satisfied determine from time to time. The terms that the advice received was objective and of reference for the Remuneration Committee independent. Korn Ferry Hay Group is a member are available on the Company’s website, of the Remuneration Consultants Group and the www.hostelworldgroup.com, and from the voluntary code of conduct of that body is designed Company Secretary at the registered office. to ensure objective and independent advice is All members of the Remuneration Committee Hay Group received fees of £8,000 for their advice are independent Non-Executive Directors, apart during part of the year. Fees were charged on a given to remuneration committees. Korn Ferry from former Chairman Richard Segal and current cost incurred basis. Chairman Michael Cawley, who were independent on appointment. The Remuneration Committee On behalf of the Board receives assistance from the CEO, CFO, Chief HR Officer and Company Secretary, who attend Andy McCue meetings by invitation, except when issues relating Chairman, Remuneration Committee to their own remuneration are being discussed. 9 April 2018 The Remuneration Committee met 3 times during 2017. Meeting attendance is shown on page 53 of this Report. Advisors to the Remuneration Committee During part of the financial year the Committee took advice from PricewaterhouseCoopers LLP (PwC) who were retained as external independent remuneration advisors to the Committee. During that part of the year, PwC advised the Company on all aspects of remuneration policy for Executive Directors and members of the Executive team. The Remuneration Committee was satisfied that the advice received was objective and independent. PwC is a member of the Remuneration Consultants Group and the voluntary code of conduct of that body is designed to ensure objective and independent advice is given to remuneration committees. PwC received fees of £13,500 for their advice during part of the year. Fees were charged on a cost incurred basis. 88 89 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Disclosures under Listing Rule 9.8.4R The table below is included to comply with the disclosure requirements under LR 9.8.4R. The information required by the Listing Rules can be found in the Annual Report at the location stated below: Requirement Referenced A statement of the amount of interest capitalised by the Group during the Not applicable period under review with an indication of the amount and treatment of any related tax relief Any information required by LR 9.2.18R (publication of unaudited financial Not applicable information) Details of any long-term incentive schemes as required by LR 9.4.3R Directors’ Remuneration Report on pages 71 to 73. Details of any arrangements under which a director has waived or agreed to Not applicable waive any emoluments from the Company or any subsidiary undertaking Details of any agreement under which a director has agreed to waive any Not applicable future emoluments together with those relating to emoluments which were waived during the period under review Details of any post balance sheet events Directors’ Report on pages 90 to 98 Details of any allotment for cash of equity securities made during the period No such share otherwise than to holders of the Company’s equity shares in proportion to allotments made their holdings, which has not been specifically authorised by the Company’s shareholders Details of any allotment for cash of equity securities made during the period No such allotments otherwise than to holders of a major subsidiary undertaking’s equity shares made in proportion to their holdings, which has not been specifically authorised by the major subsidiary undertaking’s shareholders Details of the participation of any parent undertaking in a placing in the Not applicable Company Details of any contract of significance subsisting during the year, between Directors’ Report on the Company or one of its subsidiaries and any party of which a director pages 90 to 98 has an interest; and between the Company or one of its subsidiaries, and a controlling shareholder freehand NEW YORK Directors’ Report The directors have pleasure in submitting their report and the audited financial statements of Hostelworld Group plc (the “Company”) and its subsidiaries (together the “Group”) for the financial year to 31 December 2017. Statutory information This section of the Annual Report includes > The Corporate Governance Report on pages 50 additional information required to be disclosed to 56, which sets out the Company’s statement under the Companies Act 2006 (the “Companies with regard to its adoption of the UK Corporate Act”), the UK Corporate Governance Code, the Governance Code. The Corporate Governance disclosure and transparency rules (“DTRs”) and Statement forms part of this Directors’ Report the listing rules (“Listing Rules”) of the Financial and is incorporated into it by reference; Conduct Authority. > The Audit Committee Report on pages 59 to 64; Certain information required to be included in the and Directors’ Report can be found elsewhere in this Annual Report, as highlighted throughout this > The Directors’ Remuneration Report on pages report and also including: 71 to 73. > The Strategic Report, which can be found > This Directors’ Report, on pages 90 to 98, on pages 17 to 43, which sets out the together with the Strategic Report on pages development and performance of the Group’s 17 to 43, form the Management Report for the business during the financial year, the purposes of DTR 4.1.5R. position of the Group at the end of the year and a description of the principal risks and uncertainties (including the financial risk management position); 90 91 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Requirement Referenced Details of contracts for the provision of services to the Company or any of its Directors’ Report on subsidiary undertakings by a controlling shareholder pages 90 to 98, Note 20 in the Financial Statements on page 145 Details of any arrangement under which a shareholder has waived or Not applicable agreed to waive any dividends Details of any arrangement where a shareholder has agreed to waive future Not applicable dividends together with those relating to dividends which are payable during the period under review Board statement in respect of relationship agreement with a controlling Not applicable shareholder Curiocity Durban DURBAN Board of directors The Company is tax resident in Ireland and its principal place of business is at 2nd Floor, One The appointment and replacement of directors Central Park, Leopardstown, Dublin 18, Ireland. of the Company is governed by the Articles of The Company’s registered office is at High Holborn Association. House, 52-54 High Holborn, London WC1V 6RL. The directors who served on the Board throughout As at 31 December 2017 and as at the date of the year, except as noted, were as follows: this Directors’ Report, the Company’s issued share capital comprises 95,570,778 ordinary > Michael Cawley (non-executive Chairman – shares of €0.01 (“shares”). The ISIN of the shares appointed as Chairman on 1 December 2017) is GB00BYYN4225. Further information on the Company’s share capital are provided in Note 15 > Feargal Mooney (Chief Executive Officer) to the Group’s financial statements contained on page 139. All the information detailed in Note 15 > Mari Hurley (Chief Financial Officer) on page 139 forms part of this Directors’ Report and is incorporated into it by reference. > Andy McCue (non-executive Senior Independent Director (“SID”) – appointed as At the Annual General Meeting of the Company SID on 1 December 2017) to be held on 11 June 2018, the directors will seek authority from shareholders to allot shares in > Éimear Moloney (non-executive director the capital of the Company (i) up to a maximum appointed on 27 November 2017) nominal amount of €318,569.26 (31,856,926 shares of €0.01 each) being one-third of the Company’s > Carl Shepherd (non-executive director issued share capital and (ii) up to a further appointed on 1 October 2017) €318,569.26 (31,856,926 shares of €0.01 each) where the allotment is in connection with a rights > Richard Segal (former non-executive Chairman issue, being one-third of the Company’s issued – resigned as Chairman on 1 December 2017 share capital. The power will expire at the earlier and from the Board on 31 December 2017) of 30 June 2019 and the conclusion of the annual Biographical details of the directors together with membership of the various committees are set out The directors are also seeking authority from general meeting of the Company held in 2019. on pages 48 to 49. shareholders to allot ordinary shares for cash without first offering them to existing shareholders Amendment of articles of association in proportion to their existing shareholdings. The resolution seeks authority to disapply pre-emption The Company’s Articles of Association may only rights over 5% of the Company’s issued ordinary be amended by way of a special resolution share capital. The power will expire at the earlier at a general meeting of the shareholders. No of 30 June 2019 and the conclusion of the annual amendments are proposed to be made at the general meeting of the Company held in 2019. forthcoming Annual General Meeting. Incorporation, share capital and structure The directors intend to follow the Pre-Emption Group’s Statement of Principles regarding cumulative usage of authority within a rolling 3-year period. The principles provide that usage in The Company was incorporated and registered in excess of 7.5% of issued ordinary share capital of England and Wales as a public limited company the Company (excluding treasury shares) should with registration number 9818705. The Company’s not take place without prior consultation with issued share capital comprises ordinary shares of shareholders. The power will expire at the earlier €0.01 each which are traded on the London Stock of 30 June 2019 and the conclusion of the annual Exchange’s main market for listed securities and on general meeting of the Company held in 2019. the Irish Stock Exchange’s main securities market. The liability of the members of the Company is limited. 92 93 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Authority to purchase own shares of the meeting or adjourned meeting. No member Substantial shareholders shall be entitled to vote at any general meeting The directors will seek authority from shareholders either in person or by proxy, in respect of any At 31 December 2017, the Company had been notified, in accordance with chapter 5 of the Financial Conduct at the forthcoming Annual General Meeting for share held, unless all amounts presently payable Authority’s Disclosure and Transparency Rules (“DTR5 Notification”), of the following significant interests: the Company to purchase, in the market, up to in respect of that share have been paid. Save as a maximum of 10% of its own ordinary shares noted, there are no restrictions on voting rights nor either to be cancelled or retained as treasury any agreement that may result in such restrictions. shares. The directors will only use this power after careful consideration, taking into account the Restrictions on transfer of securities financial resources of the Company, the Company’s share price and future funding opportunities. The Articles do not contain any restrictions on the The directors will also take into account the transfer of ordinary shares in the Company other effects on earnings per share and the interests of than the usual restrictions applicable where any shareholders generally. amount is unpaid on a share. Certain restrictions Rights attaching to shares are also imposed by laws and regulations (such as insider trading and marketing requirements relating to close periods) and requirements of All shares have the same rights (including voting the Market Abuse Regulation and the Company’s and dividend rights and rights on a return of security dealing code whereby directors and capital) and restrictions as set out in the Articles, all employees of the Company require advance described below. Except in relation to dividends clearance to deal in the Company’s securities. which have been declared and rights on a liquidation of the Company, the shareholders have Change of control no rights to share in the profits of the Company. Save in respect of a provision of the Company’s The Company’s shares are not redeemable. share schemes which may cause options and awards However, following any grant of authority from granted to employees under such schemes to vest shareholders, the Company may purchase or on takeover, there are no agreements between the contract to purchase any of the shares on or off Company and its directors or employees providing market, subject to the Companies Act and the for compensation for loss of office or employment requirements of the Listing Rules. (whether through resignation, purported redundancy or otherwise) because of a takeover bid. No shareholder holds shares in the Company which carry special rights with regard to control of 2018 Annual General Meeting the Company. Voting rights The Annual General Meeting (“AGM”) will be held at 12 noon on 11 June 2018 at Hostelworld Group plc, Floor 2, One Central Park, Leopardstown, Each ordinary share entitles the holder to vote at Dublin 18, Ireland. general meetings of the Company. A resolution put to the vote of the meeting shall be decided on The Notice of Meeting which sets out the a show of hands unless a poll is demanded. On a resolutions to be proposed at the forthcoming show of hands, every member who is present AGM specifies deadlines for exercising voting in person or by proxy at a general meeting of the rights and appointing a proxy or proxies to vote in Company shall have one vote. On a poll, every relation to resolutions to be passed at the AGM. member who is present in person or by proxy All proxy votes will be counted and the numbers shall have one vote for every share of which they for, against or withheld in relation to each are a holder. The Articles provide a deadline for resolution will be announced at the AGM and submission of proxy forms of not less than 48 published on the Company’s website. hours before the time appointed for the holding Number of ordinary shares / voting rights notified Percentage of voting rights over ordinary shares of €0.01 each and nature of holding Shareholder Woodford Investment Management Limited The Capital Group Companies, Inc. 24,307,394 14,635,962 Standard Life Aberdeen plc 6,893,296 Burgundy Asset Management Limited Majedie Asset Management Limited Unicorn Asset Management Limited Santander Asset Management UK Limited 5,252,294 4,722,404 4,610,000 4,392,664 Miton Group plc 4,365,172 Allianz Global Investors GmbH 4,046,400 Legal & General Group plc 3,059,562 25.43% (direct) 15.31% (indirect) 7.21% (indirect) 5.50% (indirect) 4.94% (indirect) 4.82% (indirect) 4.60% (indirect) 4.57% (indirect) 4.23% (direct – 0.03%; indirect – 4.20%) 3.20% (direct) As at the date of this report, two further DTR5 Notifications had been received from the following: The Capital Group Companies, Inc. notified the Company on 7 February 2018 of a decrease in their holding to 13,643,962 ordinary shares representing 14.28% of the issued share capital of the Company (14.28% – indirect holding). Legal & General Group plc notified the Company on 20 March 2018 of an increase in their holding to 5,162,569 ordinary shares representing 5.40% of the issued share capital of the Company (4.95% direct holding; 0.45% indirect holding). 94 95 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Transactions with related parties and therefore of the future success of the Group. Independent auditors > Select suitable accounting policies and then Accordingly the majority of the Group’s research apply them consistently; Please refer to note 20 of the consolidated and development expenditure is predominantly Deloitte has confirmed its willingness to continue in financial statements on pages 144 to 145. related to this area. office as auditor of the Group. In accordance with > Make judgments and accounting estimates section 489 of the Companies Act 2006, separate that are reasonable and prudent; and Events post year end Suppliers resolutions for the re-appointment of Deloitte as No significant events have occurred between 31 The Group’s policy is to pay suppliers and creditors to determine the remuneration will be proposed at concern basis unless it is inappropriate December 2017 and the date of the signing of this sums due in accordance with the payment terms the forthcoming AGM of the Company. to presume that the Company will continue Directors’ Report. agreed in the relevant contract with each such supplier/creditor, provided the supplier has Disclosure of information to auditor in business. auditors of the Group and for the Audit Committee > Prepare the financial statements on the going Future developments complied with its obligations. The Group will continue to pursue new Environmental developments to enhance shareholder value, through a combination of organic growth, product Information on the Group’s greenhouse gas delivery, expansion of our software technology emissions is set out in the Corporate Social team in Porto and other development and Responsibility section on page 43 and forms part investment opportunities. of this report by reference. Going concern Financial instruments Each of the directors has confirmed that: International Accounting Standard 1 requires that In preparing the Group financial statements, i. So far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and directors: > Properly select and apply accounting policies; > Present information, including accounting ii. The director has taken all the steps that he/she ought to have taken as a director to make him/ policies, in a manner that provides relevant, reliable, comparable and understandable herself aware of any relevant audit information information; and to establish that the Company’s auditor is The directors have prepared cash flow forecasts Details of the financial risk management objectives aware of that information. > Provide additional disclosures when that include key assumptions in respect of the and policies of the Group, including exposure of compliance with the specific requirements trading subsidiary’s booking numbers, booking the entity to price risk, credit risk, liquidity risk and This confirmation is given and should be in IFRSs are insufficient to enable users profiles, commission rates and marketing costs. cash flow risk are given on pages 146 to 147 in interpreted in accordance with the provisions of to understand the impact of particular In making their assessment, management have Note 21 to the consolidated financial statements. Section 418 of the Companies Act 2006. transactions, other events and conditions on performed sensitivity analysis on the forecasts. After making appropriate enquiries, the directors Political contributions have a reasonable expectation that the Company Directors’ responsibilities statement performance; and the entity’s financial position and financial and the Group as a whole have adequate During the year, no political donations were made. The directors are responsible for preparing the > Make an assessment of the Company’s ability resources to continue in operational existence for the foreseeable future (at least one year from External branches the date when financial statements are signed) Annual Report and the financial statements in to continue as a going concern. accordance with applicable law and regulations. The directors are responsible for keeping on both base case and sensitised forecasts. Hostelworld Group plc is registered as a branch in Company law requires the directors to prepare adequate accounting records that are sufficient Accordingly, the financial statements have been Ireland with branch registration number 908295. financial statements for each financial year. Under to show and explain the Company’s transactions prepared on a going concern basis. Indemnities and insurance Hostelworld Services Limited, a U.K. subsidiary of the Company, is registered as a branch in Australia with Australian registered body number The Company maintains appropriate insurance to 613076556. cover directors’ and officers’ liability for itself and its subsidiaries. The Company also indemnifies Results and dividends the directors under a qualifying indemnity for the that law the directors are required to prepare the and disclose with reasonable accuracy at any time Group financial statements in accordance with the financial position of the Company and enable International Financial Reporting Standards (IFRSs) them to ensure that the financial statements as adopted by the European Union and Article 4 of comply with the Companies Act 2006. They are the IAS Regulation and have elected to prepare the also responsible for safeguarding the assets of the parent company financial statements in accordance Company and hence for taking reasonable steps with FRS 101 Reduced Disclosure Framework for the prevention and detection of fraud and (“Relevant Financial Reporting Framework”) and other irregularities. purposes of section 236 of the Companies Act 2006 The Group’s and Company’s audited financial applicable law. Under company law the directors and the Articles of Association. Such indemnities statements for the year are set out on pages 112 must not approve the accounts unless they are The directors are responsible for the maintenance contain provisions that are permitted by the to 155. In accordance with the Group’s dividend satisfied that they give a true and fair view of the and integrity of the corporate and financial director liability provisions of the Companies Act policy, the directors recommend the payment of state of affairs of the Company and of the profit or information included on the Company’s website. and the Company’s Articles of Association. a final dividend for the year ended 31 December loss of the Company for that period. Legislation in the United Kingdom governing Research and development 2017 of 12.0 euro cent per share amounting to €11.5m, to members appearing on the register at close of business on 11 May 2018. This is to be In preparing the parent Company’s financial statements may differ from legislation in other statements, the directors are required to: jurisdictions. the preparation and dissemination of financial Innovation, specifically in the proposition on the approved by the shareholders at the 2018 AGM. websites and mobile apps for both customers and hostel partners, is a critical element of the strategy 96 97 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Responsibility Statement We confirm that to the best of our knowledge: > The financial statements, prepared in accordance with the Relevant Financial Reporting Framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; > The strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and > The annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. This responsibility statement was approved by the Board of directors on 9 April 2018 and is signed on its behalf by: Paula Phelan Company Secretary 9 April 2018 98 generator PARIS 99 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance ecomama AMSTERDAM Independent Auditor’s Report TO THE MEMBERS OF HOSTELWORLD GROUP PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion on the financial statements of Hostelworld Group plc In our opinion, the Group and Parent Company The Parent Company financial statements: financial statements: Basis for opinion We conducted our audit in accordance with interest entities, and we have fulfilled our other International Standards on Auditing (UK) (ISAs (UK)) ethical responsibilities in accordance with these and applicable law. Our responsibilities under those requirements. We confirm that the non-audit standards are described below in the “Auditor’s services prohibited by the FRC’s Ethical Standard responsibilities for the audit of the financial were not provided to the Group or Parent Company. statements” section of our report. We are independent of the Group and Parent obtained is sufficient and appropriate to provide a Company in accordance with the ethical basis for our opinion. We believe that the audit evidence we have requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, as applied to listed public > the Company statement of financial position; Summary of our audit approach > give a true and fair view of the assets, liabilities > the Company statement of changes in equity; and financial position of the Group and Parent Company as at 31 December 2017 and of the and the related notes 1 to 31, including a summary profit of the Group for the financial year then of significant accounting policies as set out in note ended; and 2 to the financial statements. > have been properly prepared in accordance The relevant financial reporting framework that with the relevant financial reporting frameworks has been applied in the preparation of the Group and, in particular, with the requirements of financial statements is the Companies Act 2006, the Companies Act 2006 and, as regards the International Financial Reporting Standards (IFRS) as Group financial statements, Article 4 of the IAS adopted by the European Union and IFRS as issued Regulation. The financial statements we have audited comprise: by the International Accounting Standards Board (“the relevant financial reporting framework”). The financial reporting framework that has been The Group financial statements: applied in the preparation of the Parent Company financial statements is the Companies Act 2006 > the consolidated income statement; and United Kingdom Accounting Standards, > the consolidated statement of comprehensive including FRS101 “Reduced Disclosure Framework” income; (“the relevant financial reporting framework”). > the consolidated statement of financial position; > the consolidated statement of changes in equity; > the consolidated statement of cash flows; Key audit matters The key audit matters that we identified in the current year were: > Carrying value of intangible assets > Capitalisation of development costs > Taxation provisions There have been no significant changes to the key audit matters since the prior financial year report. Materiality The materiality that we used for the Group financial statements was €1m, which was determined on the basis of approximately 5% of adjusted profit before tax (“adjusted PBT”). Scoping The structure of the Group’s finance function is such that the central Group finance team in Dublin provides support to Group entities for the accounting of the majority of transactions and balances. The audit work covering all of the Group’s revenues and 99% of its net assets is undertaken and performed by an audit team based in Dublin. Significant changes in There is no significant changes to our approach since 2016. This is our approach consistent with the fact that the operations of the Group are largely unchanged from the previous year. 100 101 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Conclusions relating to principle risks, going concern and viability statement > the directors’ explanation on page 38 as to how they have assessed the prospects of the Group and Parent Company over what period they We have nothing to report in respect of the have done so and why they consider that period following information in the annual report, in to be appropriate, and their statement as to relation to which ISAs (UK) require us to report to whether they have a reasonable expectation you whether we have anything material to add or that the Group and Parent Company will draw attention to: be able to continue in operation and meet its liabilities as they fall due over the period > the disclosures on pages 32 to 37 that describe of their assessment, including any related the principal risks and explain how they are disclosures drawing attention to any necessary being managed or mitigated; qualifications or assumptions. > the directors’ confirmation on page 38 that Key audit matters they have carried out a robust assessment of the principal risks facing the Group and Parent Key audit matters are those matters that, in our Company, including those that would threaten professional judgement, were of most significance its business model, future performance, in our audit of the financial statements of the solvency or liquidity; current financial year and include the most significant assessed risks of material misstatement > the directors’ statement in note 1 to the (whether or not due to fraud) we identified, financial statements about whether the including those which had the greatest effect directors considered it appropriate to adopt the on: the overall audit strategy, the allocation of going concern basis of accounting in preparing resources in the audit; and directing the efforts of the financial statements and directors’ the engagement team. identification of any material uncertainties to the Group and Parent Company’s ability These matters were addressed in the context of to continue to do so over a period of at least our audit of the financial statements as a whole, twelve months from the date of approval of the and in forming our opinion thereon, and we do not financial statements; provide a separate opinion on these matters. > whether the directors’ statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or generator STOCKHOLM Carrying value of Intangible Assets Key audit matter At 31 December 2017, intangible assets (including goodwill) had a description carrying value of €128.1m representing 81% of the Group’s total assets. The Group recorded an impairment charge of €8.2m in respect of domain names during the prior financial year. Group management has allocated goodwill to Cash Generating Units (CGUs) and has developed a model to calculate the value in use of the assets and to review the carrying value of goodwill and other intangibles for impairment. There is a risk that incorrect inputs or inappropriate assumptions could be included in the impairment assessment model calculated by management leading to an impairment charge that has not been included in the Group’s financial statements. The value in use calculations rely on management’s assumptions, including growth rate, discount rate and cashflow projections. Small variances in key assumptions have the potential to reduce the value in use calculation and accordingly the headroom significantly. Intangible assets other than goodwill are amortised over their expected useful life. The expected useful life of an intangible asset is an area of estimation and can have an impact on the amortisation charge for the year. Refer to Notes 3 and 11 to the financial statements. The Audit Committee has included their assessment of this risk on page 61. How the scope of our We evaluated the design and determined the implementation of audit responded to the the controls in place for determining when an impairment review key audit matter is required for intangible assets. Where an impairment review was required, we challenged the underlying assumptions and obtained audit evidence to test those assumptions within the Group’s impairment model, including cashflow projections and growth rates, which we compared to relevant industry data. We used our internal valuation experts to determine an acceptable range of discount rates and compared our range to that determined by management. We performed a sensitivity analysis on the underlying assumptions noted above to determine if there were any scenarios whereby a reasonably possible expectation of impairment could be present. For intangible assets other than goodwill, we assessed the basis used by management in determining the expected useful lives and the resulting amortisation charge and performed an independent assessment of the appropriateness of the expected useful lives used. We assessed whether the disclosures in relation to goodwill and intangibles were appropriate and met the requirement of accounting standards. 102 103 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Carrying value of Intangible Assets Taxation Provisions Key observations We have no observations that impact on our audit in respect of the Key audit matter The global nature of the Group’s business means it is subject to valuation of intangible assets. description taxation in numerous jurisdictions and cross-border transactions can Capitalisation of Development Costs Key audit matter At 31 December 2017, capitalised development costs amounted description to €1.9m. Development expenditure in relation to internally generated intangible assets is capitalised when all of the criteria as set out in IAS 38 “Intangible Assets” are met. There is a risk that additions are made to capitalised development costs before all the required capitalisation criteria are met. Expenditure is capitalised from the date when the intangible asset first meets the recognition criteria and is amortised over its expected economic useful life. In determining the amount to be capitalised management make judgements regarding expected future cash generation of the asset and expected period of benefit. Refer to Notes 3 and 11 to the financial statements. The Audit Committee has included their assessment of this risk on page 61. How the scope of our In response to this key audit matter, we obtained an understanding audit responded to the of the process and related controls for ensuring appropriate key audit matter capitalisation of development costs. We evaluated the design and determined the implementation of the controls in place to separately identify the time on development activities. We selected a sample of the capitalised expenditure and completed procedures to determine whether the expenditure was recorded accurately and whether it met the required capitalisation criteria in accordance with IAS 38. We agreed the amount of development costs capitalised to underlying documentation detailing cost per project, including timesheet data. Key observations No significant matters that impact on our audit arose from our work. be challenged by taxation authorities resulting in tax exposures. As a result of the interaction of tax laws in different jurisdictions, there is significant complexity in determining the most appropriate transfer pricing rates and thus the appropriate tax liabilities in each. There is a risk that tax authorities could have different interpretations to those of the directors resulting in potential misstatement of taxation provisions. Refer to Note 3 and 9 to the financial statements. The Audit Committee has included their assessment of this risk on page 62. How the scope of our We obtained an understanding of the Group’s tax strategy and audit responded to the management’s process for determining the appropriate transfer key audit matter pricing rates applicable to cross-border transactions. Assisted by our transfer pricing tax specialists, who are part of the audit team, we reviewed material cross-border intergroup agreements and transactions and the underlying data used in determining applicable royalty and mark-up rates and assessed the appropriateness of the royalties and mark-up rates being used. We challenged and evaluated management’s assumptions and critical estimates and judgements in respect of tax exposures, based on the royalty and mark-up rates utilised and their interpretation of the relevant tax laws in jurisdictions where the Group has significant operations. Key observations We have no observations that impact on our audit in respect of the amounts and disclosures related to the taxation provisions. Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters. 104 105 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance Our application of materiality accounting of the majority of transactions and balances. The audit work was undertaken and misstatements, we are required to determine In preparing the financial statements, the whether there is a material misstatement in the directors are responsible for assessing the Group We define materiality as the magnitude of performed by an audit team based in Dublin. financial statements or a material misstatement and Parent Company’s ability to continue as a misstatement that makes it probable that the of the other information. If, based on the work going concern, disclosing as applicable, matters economic decisions of a reasonably knowledgeable Our Group audit was scoped on an entity level we have performed, we conclude that there is a related to going concern and using the going person, relying on the financial statements, would basis, assessing components against the risk of material misstatement of this other information, concern basis of accounting unless the directors be changed or influenced. We use materiality both material misstatement at the Group level. we are required to report that fact. We have either intend to liquidate the Group and Parent in planning the scope of our audit work and in Based on this assessment, we focussed our work nothing to report in this regard. Company or to cease operations, or have no evaluating the results of our work. on 4 legal entities covering 100% of revenue and realistic alternative but to do so. Based on our professional judgement, we subject to a full scope audit, were Hostelworld determined materiality for the Group to be Group plc, Hostelworld.com Limited, Hostelworld €1m, which is approximately 5% of adjusted Services Limited and WRI Nominees DAC. 99% of net assets. These legal entities, which were In this context, we also have nothing to report with regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements Auditor’s responsibilities for the audit of the financial statements PBT. The items adjusted in the adjusted PBT are of the other information where we conclude that Our objectives are to obtain reasonable assurance explained further in the Financial Review. We have At the parent entity level, we also tested the those items meet the following conditions: about whether the financial statements as a whole considered the adjusted PBT to be the appropriate consolidation process and carried out review are free from material misstatement, whether due benchmark for determining materiality because procedures to confirm our conclusion that there > Fair, balanced and understandable – the to fraud or error, and to issue an auditor’s report it is the most important measure for users of were no significant risks of material misstatement statement given by the directors that they that includes our opinion. Reasonable assurance the Group’s financial statements. It is also a key of the aggregated financial information of the consider the annual report and financial is a high level of assurance, but is not a guarantee measure used by the Group in reporting results remaining components not subject to a full scope statements taken as a whole is fair, balanced that an audit conducted in accordance with ISAs (UK) to allow a better understanding of the adjusted audit or specified audit procedures. trading of the Group. We have considered quantitative and qualitative factors such as understanding the entity and its environment, Other information and understandable and provides the will always detect a material misstatement when it information necessary for shareholders to exists. Misstatements can arise from fraud or error assess the Group and Parent Company’s and are considered material if, individually or in the position and performance, business model and aggregate, they could reasonably be expected to history of misstatements, complexity of the Group The directors are responsible for the other strategy, is materially inconsistent with our influence the economic decisions of users taken on and reliability of the control environment. information. The other information comprises the knowledge obtained in the audit; or the basis of these financial statements. information included in the annual report, other We agreed with the Audit Committee that than the financial statements and our auditor’s > Audit committee reporting – the section A further description of our responsibilities for we would report to the Committee all audit report thereon. Our opinion on the financial describing the work of the audit committee the audit of the financial statements is located differences in excess of €50k (2016: €45k) for statements does not cover the other information does not appropriately address matters on the Financial Reporting Council’s website at: the Group, as well as differences below that and, except to the extent otherwise explicitly communicated by us to the audit committee; or www.frc.org.uk/auditorsresponsibilities. This threshold that, in our view, warranted reporting stated in our report, we do not express any form of description forms part of our auditor’s report. on qualitative grounds. We also report to the assurance conclusion thereon. > Directors’ statement of compliance with the UK Audit Committee on disclosure matters that we Corporate Governance Code – the parts of the We communicate with those charged with identified when assessing the overall presentation In connection with our audit of the financial directors’ statement required under the Listing governance regarding, among other matters, of the financial statements. statements, our responsibility is to read the other information and, in doing so, consider whether An overview of the scope of our audit the other information is materially inconsistent Rules relating to the Company’s compliance with the planned scope and timing of the audit and the UK Corporate Governance Code containing significant audit findings, including any significant provisions specified for review by the auditor in deficiencies in internal control that the auditor with the financial statements or our knowledge accordance with Listing Rule 9.8.10R(2) do not identifies during the audit. The structure of the Group’s finance function obtained in the audit or otherwise appears properly disclose a departure from a relevant is such that the central Group finance team in to be materially misstated. If we identify such provision of the UK Corporate Governance Code. This report is made solely to the Company’s Dublin provides support to Group entities for the material inconsistencies or apparent material Adjusted PBT €22.5m Group Materiality Group materiality €1m Component materiality range €0.15m to €1m Audit Committee reporting threshold €0.05m Responsibilities of directors members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state As explained more fully in the Directors’ to the Company’s members those matters we are Responsibilities Statement, the directors are required to state to them in an auditor’s report responsible for the preparation of the financial and for no other purpose. To the fullest extent statements and for being satisfied that they give permitted by law, we do not accept or assume a true and fair view, and for such internal control responsibility to anyone other than the Company as the directors determine is necessary to enable and the Company’s members as a body, for our the preparation of financial statements that are audit work, for this report, or for the opinions we free from material misstatement, whether due to have formed. fraud or error. 106 107 Hostelworld Annual Report 2017 | Governance Hostelworld Annual Report 2017 | Governance REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS We have nothing to report in respect of the provisions in the Companies Act 2006 which Opinions on other matters prescribed by the Companies Act 2006 require us to report to you if, in our opinion, certain disclosures of directors’ remuneration have not been made or the part of the directors’ remuneration report to be audited is not in agreement with the In our opinion the part of the directors’ accounting records and returns. remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. Other matters which we are required to address In our opinion, based on the work undertaken in Following the recommendation of the audit the course of the audit: committee, we were appointed by the Board at its annual general meeting in 2015 to audit the > the information given in the strategic report financial statements for the year ending and the directors’ report for the financial year 31 December 2015 and subsequent financial for which the financial statements are prepared periods. The period of total uninterrupted is consistent with the financial statements; and engagement including previous renewals and reappointments of the firm is 3 years, covering > the strategic report and the directors’ report the years ending 31 December 2015 to have been prepared in accordance with 31 December 2017. applicable legal requirements. Our audit opinion is consistent with the additional In the light of the knowledge and understanding report to the audit committee we are required to of the Group and of the Parent Company and their provide in accordance with ISA (UK) 260. environment obtained in the course of the audit, we have not identified any material misstatements Daniel Murray (Senior Statutory Auditor) in the strategic report or the directors’ report. For and on behalf of Deloitte Chartered Accountants and Statutory Audit Firm Matters on which we are required to report by exception Dublin, Ireland 9 April 2018 We have nothing to report in respect of the provisions in the Companies Act 2006 which require us to report to you if, in our opinion: > we have not received all the information and explanations we require for our audit; or adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or > the Parent Company financial statements are not in agreement with the accounting records and returns. 108 109 mosaic house PRAGUE generator LONDON FINANCIAL STATEMENTS Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash flows Notes to the Consolidated Financial Statements Company Statement of Financial Position Company Statement of Changes in Equity Notes to the Company Financial Statements 112 113 114 115 116 117 150 151 152 110 111 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements Consolidated Income Statement for the year ended 31 December 2017 Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 31 DECEMBER 2017 Revenue Administrative expenses Depreciation and amortisation Impairment losses Operating profit Financial income Financial costs Profit before taxation Taxation Profit for the year attributable to the equity owners of the parent company Basic earnings per share (euro cent) Diluted earnings per share (euro cent) Notes 4 5 5 5 8 9 10 10 2017 €’000 86,672 (60,380) (14,395) - 11,897 9 (75) 11,831 (582) 2016 €’000 80,514 (57,397) (14,731) (8,199) 187 5 (59) 133 651 11,249 784 11.77 11.71 0.82 0.82 Profit for the year: 2017 €’000 11,249 2016 €’000 784 Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations 3 (680) Total comprehensive income for the year attributable to equity owners of the parent company 11,252 104 The Independente Hostel LISBON 112 113 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements Consolidated Statement of Financial Position AS AT 31 DECEMBER 2017 Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2017 Notes 2017 €’000 2016 €’000 Share Capital €’000 Retained Earnings €’000 Other Reserves €’000 Notes Foreign Currency Translation Reserve €’000 Share Based Payment Reserve €’000 Non-current assets Intangible assets Property, plant and equipment Deferred tax assets Current assets Trade and other receivables Cash and cash equivalents Total assets Issued capital and reserves attributable to equity owners of the parent Share capital Other reserves Foreign currency translation reserve Share based payment reserve Retained earnings Total equity attributable to equity holders of the parent company Non-current liabilities Deferred tax liabilities Current liabilities Trade and other payables Corporation tax Total liabilities Total equity and liabilities 11 12 13 14 15 16 13 17 128,108 139,619 3,774 480 3,058 659 132,362 143,336 3,966 21,294 25,260 2,627 24,632 27,259 157,622 170,595 956 - 18 960 956 3,628 15 351 145,015 154,986 146,949 159,936 457 457 9,832 384 10,216 10,673 157,622 764 764 9,669 226 9,895 10,659 170,595 As at 1 January 2016 956 161,418 3,628 695 Total comprehensive income for the year Dividends 22 Credit to equity for equity- settled share based payments - - - 784 (7,216) - - - - (680) - - Total €’000 166,697 104 (7,216) - - - 351 351 As at 31 December 2016 956 154,986 3,628 15 351 159,936 Total comprehensive income for the year Dividends Release of merger reserve Credit to equity for equity- settled share based payments 22 16 - - - - 11,249 (24,848) - - 3,628 (3,628) - As at 31 December 2017 956 145,015 - - 3 - - - - - - 609 11,252 (24,848) - 609 18 960 146,949 HOSTEL CHE TULUM TULUM The financial statements were approved by the Board of Directors and authorised for issue on 9 April 2018 and signed on its behalf by: Feargal Mooney Chief Executive Officer Mari Hurley Chief Financial Officer Hostelworld Group plc. registration number 9818705 (England and Wales) 114 115 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements Consolidated Statement of Cash Flows FOR THE YEAR ENDED 31 DECEMBER 2017 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2017 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 High Holborn House, 52 - 54 High Holborn, London, WC1V 6RL, United Kingdom. The Company and its subsidiaries (together “the Group”) provide software and data processing services that facilitate hostel, B&B, hotel and other accommodation bookings worldwide. Basis of Preparation The consolidated financial statements incorporate the financial statements of the Company and its directly and indirectly owned subsidiaries, all of which prepare financial statements up to 31 December. The consolidated financial statements have been prepared in accordance with 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. The Group financial statements have been prepared in accordance with IFRSs adopted by the European Union (“the EU”) which comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”). The consolidated financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below. 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 Group’s and Company’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. Notes 5 5 5 5 8 19 Cash flows from operating activities Profit before tax Depreciation of property, plant and equipment Amortisation of intangible assets Impairment of intangible assets Loss on disposal of property, plant and equipment Financial income Financial expense Employee equity settled share based payment expense Changes in working capital items: Increase/ (decrease) in trade and other payables Increase in trade and other receivables Cash generated from operations Interest paid Interest received Income tax paid Net cash from operating activities Cash flows from investing activities Acquisition/capitalisation of intangible assets Purchases of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Dividends paid 22 Net cash used in financing activities Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes Cash and cash equivalents at end of year Changes in liabilities arising from financing activities 2017 €’000 11,831 1,064 13,331 - - (9) 75 623 149 (1,340) 25,724 (75) 9 (551) 25,107 (1,820) (1,780) (3,600) (24,848) (24,848) (3,341) 24,632 3 21,294 2016 €’000 133 886 13,845 8,199 19 (5) 59 362 (1,553) (24) 21,921 (59) 5 (280) 21,587 (2,500) (746) (3,246) (7,216) (7,216) 11,125 13,620 (113) 24,632 Borrowings Total liabilities from financing activities 1 January Financing Non-cash 31 December 2017 cash flows changes 2017 - - - - - - - - 116 117 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The principal accounting policies applied in the preparation of the consolidated financial statements Basis of consolidation are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 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 3. New standards, amendments and interpretations issued, but not yet effective The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company: > > > has power to govern the financial and operating policies of the investee; is exposed, or has rights, to variable return from its investment with the investee; and has the ability to use its power to affect its returns. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Business combinations At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective: Acquisitions of businesses are accounted for using the acquisition method. The consideration IFRS 2 (Amendment) Classification and Measurement of Share-based Payment Transactions 1 January 2018 acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group transferred in a business combination is measured at fair value, which is calculated as the sum of the IFRS 9 Financial Instruments IFRS 9 (Amendment) Financial Instruments IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases IFRS 17 Insurance Contracts IAS19 (Amendment) Employee Benefits IAS 28 (Amendment) Long-term interests in Associates and Joint Arrangements IAS 40 (Amendment) Transfers of Investment Property Annual Improvements to IFRS Standards 2014-2016 Cycle (Amendment) Annual Improvements to IFRS Standards 2015-2017 Cycle (Amendment) IFRIC 22 Foreign Currency Transactions and Advance Consideration IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2018 1 January 2019 1 January 2018 1 January 2019 1 January 2021 1 January 2019 1 January 2019 1 January 2018 1 January 2018 1 January 2019 1 January 2018 1 January 2019 to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: > deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; > liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at It is not expected that IFRS 2 will have a material impact on the classification and measurement of the acquisition date; and share-based payments. It is not expected that IFRS 9 will have a material impact on the measurement of financial instruments. > assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non- current Assets Held for Sale and Discontinued Operations are measured in accordance with that IFRS 15 introduces a five-step approach to the timing of revenue recognition based on performance standard obligations in customer contracts. With respect to revenue from customer bookings, management believes adopting IFRS15 will have no material impact because of the following: The Group’s revenue is earned by providing software and data processing services to hostel, hotel and other accommodation providers and therefore recognised on a booked basis when our performance obligations are met as per the Group’s terms of business and booking conditions. However, in 2018 the Group has also introduced a new product which offers the customer the opportunity to make a booking on a free cancellation basis in certain circumstances. Such revenue will not be recognised in the income statement until the last cancellation date has passed. The directors are currently evaluating the impact of IFRS 16 for future periods. IFRS 16, “Leases” provides guidance on the classification, recognition and measurement of leases to help provide useful information to the users of financial statements. The main aim of this standard is to ensure material leases will be reflected on the balance sheet. The new standard will replace IAS 17 “Leases” and is effective for annual periods beginning on or after 1 January 2019 unless adopted early. As set out in note 18, the operating leases in the Group relate primarily to three office premises. 118 119 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue recognition Taxation The Group generates substantially all of its revenues from the technology and data processing fees The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently and service fees that it charges to accommodation providers and the transaction service fees it payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in charges to consumers. The Group also generates revenues from technology and data processing fees the consolidated income statement because it excludes items of income or expense that are taxable that it charges to providers of other travel products and associated transaction service fees, from or deductible in other years and it further excludes items that are never taxable or deductible. The cancellation protection fees, payment protection fees and from advertising services. Group’s liability for current tax is calculated using tax rates that have been enacted or substantively 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 obligations at the time the booking is made. Where the Group Deferred tax is the tax expected to be payable or recoverable on differences between the carrying provides an ancillary service to allow a flexible booking option which allows a booking to be cancelled amounts of assets and liabilities in the financial statements and the corresponding tax bases used for no charge or a new booking to be made, such revenue is deferred, until such time as the related in the computation of taxable profit, and is accounted for using the liability method. Deferred tax cancellation date has passed or for a six month period from the date of cancellation, at which time liabilities are generally recognised for all taxable temporary differences and deferred tax assets the credit expires. Ancillary advertising revenues are recognised over the period when the service is are recognised to the extent that it is probable that taxable profits will be available against which performed. Revenue is measured at the fair value of the consideration received or receivable. deductible temporary differences can be utilised. enacted by the reporting date. Revenue is stated net of discount, sales taxes and value added taxes. Exceptional items Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Exceptional items by their nature and size can make interpretation of the underlying trends in the The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the business more difficult. Such items may include restructuring, material merger and acquisition costs, extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of profit or loss on disposal or termination of operations, litigation settlements, legislative changes and the asset to be recovered. profit or loss on disposal of investments. Judgment is used by the Group in assessing the particular items which by virtue of their scale and nature should be disclosed as exceptional items. Operating leases Leases where a significant proportion of the risks and rewards of ownership is retained by the lessor are classified as operating leases. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense and are spread over the life of the lease. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the reporting date. Deferred tax is charged or credited in profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 120 121 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Foreign currencies Retirement benefits costs The individual financial statements of each Group company are presented in the currency of the Contributions made in respect of employees’ pension schemes are charged through the consolidated primary economic environment in which it operates (its functional currency). For the purpose of income statement in the period they become payable. The Group pays contributions to privately the consolidated financial statements, the results and financial position of each Group company are administered pension insurance plans. The Group has no further payment obligations once the expressed in euro, which is the functional currency of the parent company and the presentation contributions have been paid. The contributions are recognised as employee benefit expense when currency for the consolidated financial statements. they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange Property, plant and equipment prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities reduction in the future payments is available. denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated Non-monetary items at fair value that are denominated in foreign currencies are translated at impairment losses. the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method Exchange differences arising on the settlement of monetary items, and on the retranslation of are reviewed at each year end, with the effect of any changes in estimate accounted for on a monetary items, are included in the consolidated income statement for the period. For the purpose of prospective basis. presenting consolidated financial statements, the assets and liabilities of the Group’s operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated Depreciation is provided on the following basis: at the appropriate exchange rates for the period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in a separate component of equity (foreign currency Leasehold property improvements: 5-10 years straight line translation reserve). Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Computer equipment: Fixtures and equipment: 4-5 years straight line 6-7 years straight line CZECH INN PRAGUE Leasehold improvements are improvements made to buildings leased by the Group when it has the right to use these leasehold improvements over the term of the lease. The improvements will revert to the lessor at the expiration of the lease. The cost of a leasehold improvement is depreciated over the shorter of: 1. 2. the remaining lease term, or the estimated useful life of the improvement. Intangible assets (a) Goodwill Goodwill is initially measured as the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Identifiable intangible assets, meeting either the contractual-legal or separability criterion are recognised separately from goodwill. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Where the fair value of the interest acquired in an entity’s assets, liabilities and contingent liabilities exceeds the consideration paid, the excess is recognised immediately as a gain in the consolidated income statement. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicated that the carrying value may be impaired. 122 123 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Intangible assets (Continued) Impairment of tangible and intangible assets other than goodwill For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating At the end of each reporting period, the directors review the carrying amounts of the Group’s units (“CGU”) that is expected to benefit from the synergies of the combination. tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is If the recoverable amount of the cash-generating unit is less than its carrying amount, the estimated in order to determine the extent of the impairment loss (if any). Where it is not possible impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the to estimate the recoverable amount of an individual asset, the directors estimate the recoverable unit and then to the other assets of the unit on a pro-rata basis based on the carrying amount of amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in basis of allocation can be identified, corporate assets are also allocated to individual cash-generating the consolidated income statement. An impairment loss recognised for goodwill is not reversed in units, or otherwise they are allocated to the smallest group of cash-generating units for which a subsequent periods. reasonable and consistent allocation basis can be identified. Faloe Hostel KOTA KINABALU On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. (b) Other intangible assets The group has four classes of intangible asset: domain names, technology assets, affiliate contracts and development costs. Other intangible assets including domain names and computer software are capitalised at their fair value and amortised to the consolidated income statement, generally on a straight line basis over their estimated useful lives except for the Hostelbookers domain name which is amortised on a reducing balance basis (see note 11): > Domain names > > > Technology assets Affiliate contracts Capitalised development costs 8-20 years 4 years 5 years 2-3 years The residual value associated with all intangible assets is deemed to be nil. Expenditure on research activities is recognised as an expense in the period in which it is incurred. Development expenditure in relation to internally-generated intangible assets is capitalised when all of the following have been demonstrated; the technical feasibility of completing the intangible asset so that it will be available for use; the intention to complete the project to which the intangible asset relates and use it; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially capitalised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is charged through profit or loss in the period in which it is incurred. 124 125 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of tangible and intangible assets other than goodwill (Continued) Financial instruments Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested (a) Financial assets for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in on IAS 39 categories and classification criteria. The Group has one financial asset held within ‘Trade The directors determine the classification of the Group’s financial assets at initial recognition based use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate and other receivables’. that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carried at amortised cost using the effective interest method. carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the consolidated income Trade and other receivables are non-derivative financial assets with fixed or determinable payments statement, unless the relevant asset is carried at a revalued amount, in which case the impairment that are not quoted in an active market. They are included in current assets, except for maturities loss is treated as a revaluation decrease. greater than 12 months after the end of the reporting period. These are classified as non-current After initial measurement at fair value plus transaction costs, financial assets are subsequently Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash- generating unit) is increased to the revised estimate of its recoverable amount. The increased carrying amount cannot exceed the carrying amount that would have been determined had no assets. (b) Impairment of financial assets impairment loss been recognised for the asset (or the cash-generating unit) in prior years. A reversal The directors assess at each reporting date whether there is any objective evidence that a financial of an impairment loss is recognised immediately in the consolidated income statement, unless the asset or a group of financial assets is impaired. If objective evidence of impairment is identified, the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is amount of the impairment loss is measured as the difference between the financial asset’s carrying treated as a revaluation increase. freehand NEW YORK amount and the present value of estimated future cash flows discounted at the asset’s effective interest rate. Impairment of financial assets is reported in the consolidated income statement. (c) Financial liabilities The directors determine the classification of the Group’s financial liabilities at initial recognition. The Group’s financial liabilities are classified as trade and other payables. (d) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short- term highly liquid investments with original maturities of three months or less. 126 127 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Share-based payments Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 19. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) (b) Key sources of estimation that have been made that have the most significant effect on the amounts recognised in the consolidated financial statements are set out below: Useful lives for amortisation of intangible assets Intangible assets are disclosed in Note 11. The amortisation charge is dependent on the estimated The fair value determined at the grant date of the equity-settled share-based payments is expensed useful lives of the assets. The directors regularly review estimated useful lives of each type of on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments intangible asset and change them as necessary to reflect its current assessment of remaining lives that will eventually vest. At each reporting date, the Group revises its estimate of the number of and the expected pattern of future economic benefit embodied in the asset. Changes in asset lives equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. can have a significant impact on the amortisation charges for that year. The impact of the revision of the original estimates, if any, is recognised in the consolidated income statement such that the cumulative expense reflects the revised estimate, with a corresponding Impairment of goodwill and intangible assets adjustment to the share based payment reserve. Dividends The directors assess annually whether goodwill has suffered any impairment, in accordance with the relevant accounting policy, and the recoverable amounts of cash-generating units are determined based on value-in-use calculations that require the use of estimates. Intangible assets are assessed Final dividends are recorded in the Group’s accounts in the period in which they are approved by the for possible impairment where indicators of impairment exist. Company’s shareholders. Interim dividends are recorded in the period in which they are paid. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY Following an impairment review of the Hostelbookers intellectual property assets in 2016 (see Note 11), the directors reassessed the estimated remaining useful life of the related domains as being 8 years from the start of that year. The Group had previously assessed the useful economic life as being 17 remaining years from the start of 2016. This had an impact of increasing the amortisation charge In the application of the Group’s accounting policies, the directors are required to make judgements, for that year by €629k and by €462k in 2017. estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical Further details on the assumptions used are set out in Note 11. experience and other factors considered relevant. Actual results may differ from these estimates. (a) The critical judgements that have been made that have the most significant effect on the amounts recognised in the consolidated financial statements are set out below: Capitalisation of development costs Development costs are capitalised in accordance with accounting policies in Note 2. Determining the amount to be capitalised requires the directors to make assumptions regarding expected future cash generation of the asset and expected period of benefit. Tax provisioning The Group, as a global business, is subject to both international and local transfer pricing legislation. The directors review the transfer pricing position to ensure any potential exposure is adequately assessed. Deferred Tax Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profits will be available in future periods against which the losses can be utilised. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits. 128 129 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 4. REVENUE & SEGMENTAL ANALYSIS 5. OPERATING EXPENSES The Group is managed as a single business unit which provides software and data processing Profit for the year has been arrived at after charging/ (crediting) the following operating costs: 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 CEO, 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 segmental revenue is derived wholly from external customers and, as the Group has a single reportable segment, inter-segment revenue is zero. Revenue 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: Europe Americas Asia, Africa and Oceania Total revenue 2017 €’000 52,114 16,196 18,362 86,672 2016 €’000 49,497 14,938 16,079 80,514 The Group’s non-current assets are located in Ireland, Luxembourg, Portugal, Korea and the UK. Out of the total non-current assets in the Group of €132,362k (2016: €143,336k), the non-current assets of the group located in the UK are €2,659k (2016: €4,259k). Marketing expenses Credit card processing fees Staff costs Loss on disposal of property, plant and equipment FX gain Exceptional Items Other administrative costs Total administrative expenses Depreciation of property, plant and equipment Amortisation of intangible fixed assets Impairment of intangible assets Total operating expenses Auditors’ remuneration During the year, the Group obtained the following services from its Auditors: Fees payable for the statutory audit of the Company Fees payable for other services: Notes 7 6 12 11 11 2017 €’000 33,068 2,048 17,543 - (102) (494) 8,317 2016 €’000 32,842 1,931 14,359 19 (214) 449 8,011 60,380 57,397 1,064 13,331 - 74,775 886 13,845 8,199 80,327 2017 €’000 35 2016 €’000 35 – statutory audit of subsidiary undertakings 115 115 – tax advisory services – other assurance services – corporate finance services – other services Total - - - 4 154 - - - 12 162 130 131 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 6. EXCEPTIONAL ITEMS 8. FINANCIAL COSTS Merger and acquisition credit Redundancy costs Integration and relocation credit Total 2017 €’000 (494) - - (494) 2016 €’000 (64) 526 (13) 449 Bank charges Total 9. TAXATION The credit of €494k in 2017 relates to the release of an accrual relating to previously recognised merger and acquisition costs within the Group. In 2016, foreign exchange rate and other movements between recognition and settlement dates drove the write back of certain previously recognised exceptional items. Redundancy costs mostly relate to the restructuring of certain Group functions following the consolidation of Hostelbookers onto the Hostelworld technology platform. 7. STAFF COSTS The average monthly number of people employed (including executive directors) was as follows: Average number of persons employed: Administration and sales Development and information technology Total 2017 2016 165 89 254 154 87 241 The aggregate remuneration costs of these employees is analysed as follows: Notes 2017 €’000 2016 €’000 Staff costs comprise: Wages and salaries Social security costs Pensions costs Other benefits Long-term employee incentive costs 19 Capitalised development labour Total 16,073 1,800 356 438 623 (1,747) 17,543 14,162 1,591 316 239 362 (2,311) 14,359 2017 €’000 75 75 2017 €’000 686 24 710 (128) 582 2016 €’000 59 59 2016 €’000 440 27 467 (1,118) (651) Corporation tax: Current year Adjustments in respect of prior years Total Deferred tax credit Total Notes 13 Corporation tax is calculated at 12.5% (2016: 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: Profit before tax on continuing operations Tax at the Irish corporation tax rate of 12.5% (2016: 12.5%) Effects of: Tax effect of expenses that are not deductible in determining taxable profit Tax effect of utilisation of tax losses not previously recognised Capital allowances in excess of depreciation Effect of different tax rates of subsidiaries operating in other jurisdictions Reversal of deferred tax asset on tax losses Adjustments in respect of prior years Total 2017 €’000 11,831 1,479 2016 €’000 133 17 515 436 (1,662) (166) (293) (1,753) 299 220 24 582 134 654 27 (651) 132 133 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 9. TAXATION (CONTINUED) 11. INTANGIBLE ASSETS The Group has an unrecognised deferred tax asset as at 31 December 2017 of €3,125k (31 December 2016: €3,527k) which has not been recognised in the consolidated financial statements as there is insufficient evidence that the asset will be recovered in the foreseeable future. The table below shows the movements in intangible assets for the year: Goodwill €’000 Domain Names €’000 Technology €’000 Affiliates Contracts €’000 Capitalised Development Costs €’000 Total €’000 10. EARNINGS PER SHARE Cost 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. Weighted average number of shares in issue (‘000s) Profit for the year (€’000s) Basic earnings euro cents per share 2017 95,571 11,249 11.77 2016 95,571 784 0.82 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. Weighted average number of ordinary shares in issue (‘000s) Effect of dilutive potential ordinary shares: Share options (’000s) Weighted average number of ordinary shares for the purpose of diluted earnings per share (‘000s) Diluted earnings euro cents per share 2017 95,571 2016 95,571 473 - 96,044 95,571 11.71 0.82 Balance at 1 January 2016 47,274 214,640 13,325 5,500 5,735 286,474 Additions Transfers from tangible assets Effect of foreign currency exchange difference - - - - - - 118 383 (12) - - - 2,385 - - 2,503 383 (12) Balance at 31 December 2016 47,274 214,640 13,814 5,500 8,120 289,348 Balance at 1 January 2017 47,274 214,640 13,814 5,500 8,120 289,348 Additions - - 73 - 1,747 1,820 Balance at 31 December 2017 47,274 214,640 13,887 5,500 9,867 291,168 Accumulated amortisation and impairment Balance at 1 January 2016 (29,426) (77,789) (12,936) (5,500) (1,851) (127,502) Charge for year Impairment Transfer from tangible assets Effect of foreign currency exchange difference - - - - (10,316) (8,199) - - (326) - (187) 4 - - - - (3,203) (13,845) - - - (8,199) (187) 4 Actual earnings per share, calculated by dividing the net profit attributable to ordinary shareholders Balance at 31 December 2016 (29,426) (96,304) (13,445) (5,500) (5,054) (149,729) by the actual number of ordinary shares in issue at 31 December 2017, is 11.77 euro cent (2016: earnings per share of 0.82 euro cent). Balance at 1 January 2017 (29,426) (96,304) (13,445) (5,500) (5,054) (149,729) Charge for year - (10,149) (257) - (2,925) (13,331) Balance at 31 December 2017 (29,426) (106,453) (13,702) (5,500) (7,979) (163,060) Carrying amount At 31 December 2016 17,848 118,336 At 31 December 2017 17,848 108,187 369 185 - - 3,066 139,619 1,888 128,108 134 135 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 11. INTANGIBLE ASSETS (CONTINUED) 12. PROPERTY, PLANT AND EQUIPMENT Goodwill The table below shows the movements in property, plant and equipment for the year: The goodwill balance at 31 December 2017 relates to an investment in Hostelworld.com Limited in 2009 which resulted in a goodwill amount of €17,848k. The carrying value of this balance as at 31 December 2017 is €17,848k (2016: €17,848k). Leasehold Property Improvements €’000 Fixtures & Equipment €’000 Computer Equipment €’000 Goodwill, which has an indefinite useful life, is subject to annual impairment testing, or more frequent Cost testing if there are indicators of impairment. The cash flow projections are initially based on the three year budgets approved by the directors and extended out for a further 2 years. The cash flow Balance at 1 January 2016 projections take into account key assumptions including historical trading performance, anticipated changes in future market conditions, industry and economic factors and business strategies. The pre-tax discount rate which has been applied in determining value in use is 10.7% (2016: 13.7%). The discount rate is based on the Group estimated weighted average cost of capital adjusted for the business specific risk of the CGU. The revised discount rate in 2017 of 10.7% was calculated from first principles by a third party professional advisor. Based on the 2018 budget, growth rates are assessed based on approved budgets and forecast and range from 5% to 8% over the forecast period after Additions Disposals Transfer to intangible assets Effect of foreign currency exchange differences Balance at 31 December 2016 2018. Cash flows beyond the 5 year period are extrapolated using the estimated long- term growth Balance at 1 January 2017 rate of 2.5% (2016: 2%). There are no 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 2017. Other Intangible Assets Additions during the year comprised of internally generated additions of €1,747k (2016: €2,311k) and other separately acquired additions of €73k (2016: €192k). There were no indicators to require an impairment test of intangible assets in the current year. In 2016, following a review of trading performance and due to bookings and revenue being less than previously projected, the directors reassessed the estimated cash flows associated with the Hostelbookers intellectual property assets. This led to the recognition of an impairment charge of €8,199k in relation to the value of the Hostelbookers domain names. The estimated useful life of these domain names was also reduced to a period of 8 years from 1 January 2016 to be amortised on a reducing balance basis. The cash flow projections take into account key assumptions including historical trading performance, anticipated changes in future market conditions, industry and economic factors and business strategies. There are no material changes to the assumptions presented above that would result in any further impairment recorded in the current year. Additions Disposals Balance at 31 December 2017 Accumulated depreciation Balance at 1 January 2016 Charge for year Disposals Transfer to intangible assets Effect of foreign currency exchange differences Balance at 31 December 2016 Balance at 1 January 2017 Charge for year Disposals Balance at 31 December 2017 Carrying amount At 31 December 2016 At 31 December 2017 1,304 16 - - (41) 1,279 1,279 474 - 1,753 (65) (154) - - 6 (213) (213) (167) - (380) 1,066 1,373 712 12 (7) - (28) 689 689 98 - 787 (69) (125) 1 - 4 (189) (189) (126) - (315) 500 472 Total €’000 4,934 746 (574) (383) (132) 4,591 4,591 1,780 (85) 6286 (1,411) (886) 548 187 29 2,918 718 (567) (383) (63) 2,623 2,623 1,208 (85) 3,746 (1,277) (607) 547 187 19 (1,131) (1,533) (1,131) (771) 85 (1,817) 1,492 1,929 (1,533) (1,064) 85 (2,512) 3,058 3,774 136 137 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 13. DEFERRED TAXATION 15. SHARE CAPITAL The following are the major deferred taxation liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period: Accelerated taxation depreciation €’000 Taxation losses €’000 As at 1 January 2016 Credited/ (charged) to the income statement Effect of foreign currency exchange differences As at 1 January 2017 Credited/(charged) to the income statement As at 31 December 2017 (2,529) 1,772 15 (742) 348 (394) 1,291 (654) - 637 (220) 417 The following is the analysis of the deferred taxation balances for financial reporting purposes: Deferred taxation assets Deferred taxation liabilities Net deferred taxation assets/ (liabilities) 2017 €’000 480 (457) 23 Total €’000 (1,238) 1,118 15 (105) 128 23 2016 €’000 659 (764) (105) Deferred taxation assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability settled, based on tax rates that have been acted or substantially enacted at the reporting date. The Irish standard rate of corporation tax continued to be 12.5% through the period and comparative periods. The tax rate ruling in Luxembourg for 2017 was 27.08% (2016: 29.22%) and will reduce to 26.01% in 2018. The tax rate ruling in the UK was 20% up to 1 April 2017 when it reduced to 19%, and will reduce to 17% on 1 April 2020. 14. TRADE AND OTHER RECEIVABLES Amounts falling due within one year Trade receivables Prepayments and accrued income Value Added Tax Total 2017 €’000 1,017 932 2,017 3,966 2016 €’000 892 731 1,004 2,627 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 (2016: 4 days). Given the nature of the business, allowance for impairment of receivables is not material. Allotted, Called-up and fully paid 95,570,778 ordinary shares of €0.01 each (2016: 95,570,778 ordinary shares of €0.01 each ) Total 2017 €’000 2016 €’000 956 956 956 956 The Group has one class of ordinary shares which carry no right to fixed income. The share capital of the Group is represented by the share capital of the parent company, Hostelworld Group plc. This company was incorporated on 9 October 2015 to act as the holding company of the Group, and as a management services company. 16. OTHER RESERVES Merger reserve Total 2017 €’000 - - 2016 €’000 3,628 3,628 The merger reserve arose upon acquisition of Wings Lux 2 S.à r.l. in November 2015. Following the liquidation of Wings Lux 2 S.à r.l. in December 2017, this merger reserve was released. 17. TRADE AND OTHER PAYABLES Amounts falling due within one year Trade payables Accruals and other payables Payroll taxes Value Added Tax Total 2017 €’000 2,265 7,007 560 - 9,832 2016 €’000 3,344 5,797 524 4 9,669 The average credit period for the Group in respect of trade payables is 20 days (2016: 32 days). The directors consider that the carrying amount of trade payables approximates to their fair value. 138 139 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 18. COMMITMENTS AND CONTINGENCIES 19. SHARE-BASED PAYMENTS (CONTINUED) (i) Operating leases At the reporting date, the Group had commitments under non-cancellable operating leases which fall due as follows: Operating leases Within one year Within two to five years More than five years Total 2017 €’000 1,017 3,077 1,294 5,388 2016 €’000 933 3,118 1,864 5,915 Up to 70% of the shares/options subject to an invitation 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 invitation will lapse if a participant ceases to be an employee or an officer within the Group before the vesting date. A summary of the status of the LTIPs granted as at 31 December 2017 is presented below: Option series Number Grant date Expiry date Exercise price Fair value at grant date 2016 LTIP 2017 LTIP 928,464 847,663 5 April 2016 5 April 2023 29 March 2017 29 March 2024 £Nil £Nil £2.07 £1.92 All operating lease commitments relate to buildings. These relate to three leases of office space in Ireland, UK and Portugal. These leases are due to expire in 2035, 2025 and 2022 respectively. If the Group was to exercise available break options, the leases in Ireland and the UK would expire in 2025 Details of the share options outstanding during the year are as follows: and 2020 respectively. The operating lease charge included in the consolidated income statement was €1,040k in 2017 (2016: €1,003k). (ii) Contingencies In the normal course of business the Group may be subject to indirect taxes on its services in certain foreign jurisdictions. The directors perform ongoing reviews of potential indirect taxes in these jurisdictions. Although the outcome of these reviews and any potential liability is uncertain, no provision has been made in relation to these taxes as the directors believe that it is not probable that a material liability will arise. 19. SHARE-BASED PAYMENTS Outstanding at beginning of year Granted during the year Forfeited during the year Exercised during the year Expired during the year 2017 No. of share options 2016 No. of share options 928,464 847,663 (452,088) - - - 928,464 - - - Outstanding at the end of the year 1,324,039 928,464 Exercisable at the end of the year - - The awards will vest on the later of the 3rd anniversary of the grant and the determination of the Since 2016, the Group has a share option scheme for executives and selected management of performance condition, and will then remain exercisable until the 7th anniversary of the date of the Company and its subsidiaries. During the year ended 31 December 2017, the Remuneration grant, provided the individual remains an employee or officer of the Group. Although the awards will Committee approved the granting of shares under a Save As You Earn (“SAYE”) scheme for all eligible vest in 2019 and 2020 the measurement period for performance conditions is over 3 years from employees across the Group. Both schemes are accounted for as equity-settled in the financial 1 January 2016 to 31 December 2018 and from 1 January 2017 to 31 December 2019 respectively. statements. The Group recognised an expense of €623k (2016: €362k) relating to equity-settled share- based payment transactions in the consolidated income statement during the year. Long Term Incentive Plan (“LTIP”) scheme In April 2016, the Group introduced a Long Term Incentive Plan. An invitation to participate was made to executive directors and selected management in April 2016 and in March 2017. The proportion of the invitation 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”). The invitations made in 2016 and 2017 will potentially vest in 2019 and 2020 respectively. Share options under the LTIP scheme have an exercise price of nil. The remaining weighted average life for share options outstanding is 1.26 years (2016 grant) and 2.24 years (2017 grant). In 2017, the Remuneration Committee approved the application of dividend equivalents to the 2016 awards The incremental fair value of €226k will be expensed over the remaining vesting period. 140 141 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 19. SHARE-BASED PAYMENTS (CONTINUED) 19. SHARE-BASED PAYMENTS (CONTINUED) Fair value of options granted during the year: At the invitation grant date, the fair value per conditional award and the assumptions used in the calculations are as follows: Invitation grant award date Year of potential vesting Share price at grant date Exercise price per share option Expected volatility of Company share price Expected life Expected dividend yield Risk free interest rate Weighted average fair value at grant date 29 March 2017 5 April 2016 2020 £2.33 £Nil 46% 3 years 5.7% 0.21% £1.92 2019 £2.49 £Nil 30% 3 years 5.1% 0.4% £2.07 Valuation model Monte Carlo model Monte Carlo model 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. 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 Outstanding at beginning of year Granted during the year Cancelled during the year Outstanding share options granted at end of year Fair value of options granted during the year: No. of share options granted 2017 - 181,208 (9,875) 171,333 At the invitation grant date, the fair value per conditional award and the assumptions used in the calculations are as follows: Scheme Invitation grant award date Year of potential vesting Share price at grant date Exercise price per share option Expected volatility of company share price Expected life Expected dividend yield Risk free interest rate Weighted average fair value at grant date UK office 5 July 2017 Irish office 5 July 2017 2020 £3.37 £2.78 45.0% 3 years 4.0% 0.38% £0.99 2020 €4.00 €3.24 44.6% 3 years 4.0% 0.38% €1.10 Valuation model Black-Scholes model Black-Scholes model During the year ended 31 December 2017, the Remuneration Committee approved the granting of share options under a SAYE scheme for all eligible employees based in Ireland and the UK. 73 Expected volatility was determined in line with market performance of the Company and employees availed of the scheme. The scheme will last three years and employees may choose to comparator companies as there was insufficient historic data available for the Company at the grant purchase shares at the end of the three year period at the fixed discounted price set at the start. The date of the awards. share price for the scheme has been set at a 20% discount in line with amount permitted under tax legislation in both jurisdictions. The charge of €37k in relation to the SAYE scheme, together with the expense in respect of the long-term incentive plan for the year of €586k (2016: €362k) is the total charge in respect of share- The total expected cost of the SAYE scheme was estimated at €200k over the three year service period based payments, which has been recognised directly in equity. of which €37k has been recognised in the consolidated income statement for the year ended 31 December 2017. The remaining €163k will be charged against profit or loss in equal instalments over the remainder of the three year vesting period. 142 143 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 20. RELATED PARTY TRANSACTIONS 20. RELATED PARTY TRANSACTIONS (CONTINUED) Subsidaries Directors’ remuneration The following is a list of the Company’s current investments in subsidiaries, including the name, country of incorporation, and proportion of ownership interest: Company Holding Nature of Business Registered Office WRI Nominees DAC 100%* Holding of IP Hostelworld.com Limited 100% Technology trading company Floor 2, One Central Park, Leopardstown, Dublin 18, Ireland 5, Rue Guillaume Kroll, L-1882 Luxembourg ** Floor 2, One Central Park, Leopardstown, Dublin 18, Ireland Unit 1103, Hongwoo 2 Building, 22 Hostelworld Korea Limited 100% Marketing services company Seocho-daero, 78-gil, Seocho-gu, Hostelworld Services Portugal LDA 100% Marketing and research and development services company Hostelworld Services Limited 100%* Marketing services and technology trading company * held directly by the Company ** WRI Nominees DAC is dually incorporated in Luxembourg and Ireland with registered offices in both locations. Its place of business is in Luxembourg. Seoul, Republic of Korea Aviz Trade Center, Rua Engenheiro Ferreira Dias, 924, 2nd Andar, Sala E27, 4100-246 Porto, Portugal High Holborn House, 52 - 54 High Holborn, London, WC1V 6RL, United Kingdom All subsidiaries have the same reporting date as the Company being 31 December. Salaries, fees, bonuses and benefits in kind Amounts receivable under long-term incentive schemes Pension contributions Total Key management personnel 2017 €’000 1,321 207 58 1,586 2016 €’000 958 122 57 1,137 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. Short term benefits Share based payments Post employment benefits Total 2017 €’000 2,882 420 112 3,414 2016 €’000 2,090 252 112 2,454 During 2016, the former controlling shareholder of the Group, H&F Wings Lux 1 S.à r.l. paid a discretionary bonus payment of €1,559k (€1,400k net of employer taxes) to certain senior management and employees of the Group in relation to their performance up to the date of On 24 March 2017, Hostelworld Services Portugal LDA was incorporated. On 13 November 2017, Admission. The Group did not bear any costs associated with this payment. Mr. Feargal Mooney, Wings Lux 3 S.à r.l. and Cornetto Bidco Limited transferred their shares in Hostelworld Services executive director and CEO, received an award of €850k. Limited to the Company. On 21 December 2017, WRI Nominees DAC purchased 96 ordinary shares in Hostelworld.com Limited which represents a 49% ownership. Hostelworld Group plc owns the remaining 51% directly (2016: 100%). During 2017, as part of a group reorganisation, Wings Lux 2 S.à r.l., Wings Lux 3 S.à r.l., Wings Holdco Limited and Cornetto Bidco Limited were liquidated/ wound up. In 2016, Boo Travel Limited, Wings Corporate Services Limited, WRI Holdings, Wings Bidco Limited and Web Reservations International were liquidated by way of members’ voluntary winding up and Anytrip.com Limited was dissolved. On 28 June 2016, Hostelworld.com Limited converted to a private company limited by shares and WRI Nominees Limited converted to a designated activity company. On 14 March 2016, Hostelworld Korea Limited was incorporated. 144 145 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 21. FINANCIAL RISK MANAGEMENT 21.1 Financial risk factors 21. FINANCIAL RISK MANAGEMENT (CONTINUED) 21.1 Financial risk factors (Continued) The directors manage the Group’s capital, consisting of both debt and equity, to ensure that the Interest rate risk Group will be able to continue as a going concern while also maximising the return to stakeholders. As part of this process, the directors review financial risks such as liquidity risk, credit risk, foreign The Group is not materially exposed to interest rate risk. exchange risk and interest rate risk regularly. Liquidity risk Credit risk and foreign exchange risk The directors monitor the credit rate risks associated with loans, trade receivables and cash and Cash flow forecasting is monitored by rolling forecasts of the Group’s liquidity requirements to cash equivalent balances on an on-going basis. The majority of the Group’s trade receivable ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its balances are due for maturity within 6 days and largely comprise amounts due from the Group’s undrawn committed borrowing facilities at all times so that the Group does not breach borrowing payment processing agents. Accordingly, the associated credit risk is determined to be low. These limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into trade receivable balances, which consist of euro, US dollar and Sterling amounts, are settled within consideration the Group’s debt financing plans. a relatively short period of time, which reduces any potential foreign exchange exposure risk. The credit risk on cash balances is limited because the counterparties are banks with high credit ratings The table below analyses the Group’s financial liabilities into relevant maturity groupings based assigned by international credit rating agencies. The carrying value of trade receivables, trade on the remaining period at the reporting date to the contractual maturity date. The Group had no payables and cash and cash equivalents is a reasonable approximation of their fair value. The Group derivative financial liabilities in the current or prior year. The amounts disclosed in the table are the does not enter into or trade financial instruments, including derivative financial instruments, for contractual undiscounted cash flows. Up to 1 year Trade and other payables Total up to 1 year Over 5 years Trade and other payables Total over 5 years Total Notes 17 2017 €’000 9,832 9,832 2017 €’000 - - 2016 €’000 9,669 9,669 2016 €’000 - - 9,832 9,669 speculative purposes. 21.2 Capital management The directors’ objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the directors may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets. The directors believe the Group’s capital requirement will be met from retained earnings. The Group is not subject to any externally imposed capital requirements. The company will ensure it retains sufficient reserves to manage its day to day cash requirements, including capital expenditure requirements, whilst ensuring appropriate dividends are distributed to shareholders. 146 147 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 22. DIVIDENDS 23. PARENT COMPANY EXEMPTION Amounts recognised as distributions to equity holders in the financial year: The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual income statement and related notes. 24. EVENTS AFTER THE BALANCE SHEET DATE There were no significant events after the balance sheet date. Final 2016 dividend of €0.104 per share (paid 6 June 2017) Supplementary 2016 dividend of €0.105 per share (paid 6 June 2017) Interim 2017 dividend of €0.051 per share (paid 22 September 2017) Final 2015 dividend of €0.0275 per share (paid 31 May 2016) Interim 2016 dividend of €0.048 per share (paid 27 September 2016) 2017 €’000 9,939 10,035 4,874 - - 24,848 2016 €’000 - - - 2,628 4,588 7,216 Proposed final dividend for the year ended 31 December 2017 of €0.12 per share (2016: €0.104 per share) 11,468 9,939 In accordance with the Group’s dividend policy, the directors recommend the payment of a final dividend for 2017 of €0.12 per share amounting to €11.5m (2016: €0.104 per share amounting to €9.9m). The proposed dividends are to be approved by the shareholders at the 2018 AGM on 11 June 2018. lucky lake AMSTERDAM 148 149 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements Company Statement of Financial Position AS AT 31 DECEMBER 2017 Company Statement of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2017 ASSETS Investments Total non-current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets EQUITY Issued capital Share based payment reserve Accumulated reserves Total equity attributable to equity holders of the parent Current liabilities Trade and other payables Total current liabilities Total liabilities Total equity and liabilities Notes 2017 €’000 2016 €’000 28 29 30 31 206,306 206,306 211,122 211,122 239 291 530 942 1,179 2,121 206,836 213,243 956 985 956 362 186,566 207,179 188,507 208,497 18,329 18,329 18,329 4,746 4,746 4,746 206,836 213,243 The Company reported a profit for the financial year ended 31 December 2017 of €4,235k (2016: €1,998k). The financial statements of Hostelworld Group plc were approved by the Board of Directors and authorised for issue on 9 April 2018 and signed on its behalf by: Feargal Mooney Chief Executive Officer Mari Hurley Chief Financial Officer Hostelworld Group plc. registration number 9818705 (England and Wales) As at 1 January 2016 Dividends Credit to equity for equity-settled share based payments Total comprehensive income for the year As at 31 December 2016 Dividends Credit to equity for equity-settled share based payments Total comprehensive income for the year Share Capital €’000 956 - - - 956 - - - Retained Earnings €’000 212,397 (7,216) - 1,998 207,179 (24,848) - 4,235 As at 31 December 2017 956 186,566 Share Based Payment Reserve €’000 - - 362 - 362 - 623 - 985 Total €’000 213,353 (7,216) 362 1,998 208,497 (24,848) 623 4,235 188,507 STAR HOSTEL TAIPEI MAIN STATION TAIPEI 150 151 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements Notes to the Company Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2017 25. ACCOUNTING POLICIES 25. ACCOUNTING POLICIES (CONTINUED) The significant accounting policies adopted by the Company are as follows: Foreign currencies Basis of preparation Transactions in currencies other than euro are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are The separate financial statements are presented as required by the Companies Act 2006. The denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) Gains and losses arising on retranslation are included in the income statement. issued by the Financial Reporting Council. The financial statements have therefore been prepared in accordance with FRS 101 (Financial Reporting Standard 101) ‘Reduced Disclosure Framework’ as Share-based payments issued by the Financial Reporting Council. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions measured at the fair value of the equity instruments at the grant date. The fair value excludes the available under that standard in relation to financial instruments, fair value measurements, capital effect of non-market-based vesting conditions. Details regarding the determination of the fair value management, presentation of comparative information in respect of certain assets, presentation of of equity-settled share-based transactions are set out in note 19 to consolidated financial statements. a cash flow statement, standards not yet effective, financial risk management, impairment of assets, related party transactions and where required, equivalent disclosures are given in the consolidated The fair value determined at the grant date of the equity-settled share-based payments is expensed Equity-settled share-based payments to employees and others providing similar services are financial statements. The financial statements are prepared on the historical cost basis. Investments in subsidiaries Investments in subsidiary undertakings are stated at cost less any allowance for impairment. Taxation on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the income statement such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share based payment reserve. Dividends The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently Company’s shareholders. Interim dividends are recorded in the period in which they are paid. Final dividends are recorded in the Group’s accounts in the period in which they are approved by the payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in Accounting estimates and judgements other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the The preparation of financial statements in conformity with FRS 101 (as issued by the FRC) requires balance sheet date. management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying The estimates and associated assumptions are based on historical experience and various other amounts of assets and liabilities in the financial statements and the corresponding tax bases used factors that are believed to be reasonable under the circumstances, the results of which form the in the computation of taxable profit, and is accounted for using the balance sheet liability method. basis of making judgements about carrying values of assets and liabilities that are not readily Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred apparent from other sources. Actual results may differ from these estimates. The estimates and tax assets are recognised to the extent that it is probable that taxable profits will be available against underlying assumptions are reviewed on an ongoing basis. which deductible temporary differences can be utilised. Key sources of estimation that have been made that have the most significant effect on the amounts The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the recognised in the financial statements are set out below: extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Carrying value of investments in subsidiaries Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability The directors assess annually whether the carrying value of the investments in subsidiaries has is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except suffered any impairment, in accordance with the relevant accounting policy and the recoverable when it relates to items charged or credited directly to equity, in which case the deferred tax is also amounts of cash generating units are determined based on value in use calculations that require the dealt with in equity. use of estimates. 152 153 Hostelworld Annual Report 2017 | Financial Statements Hostelworld Annual Report 2017 | Financial Statements 26. PROFIT FOR THE YEAR 29. TRADE AND OTHER RECEIVABLES As permitted by s408 of the Companies Act 2006 the Company has elected not to present its own income statement or statement of comprehensive income for the year. The profit attributable to the Company is disclosed in the footnote to the Company’s statement of financial position. The auditor’s remuneration for the audit and other services is disclosed in note 5 to the consolidated financial statements. 27. STAFF COSTS The average monthly number of people employed by the Company (including executive directors) during the year was 3 (2016: 3). Amounts falling due within one year Prepayments and accrued income Value Added Tax Amount due from related parties Other debtors Total The aggregate remuneration costs of these employees is analysed as follows: 30. SHARE CAPITAL Staff costs comprise: Wages and salaries Social security costs Pensions costs Other benefits Long-term employee incentive costs Total 28. INVESTMENTS 2017 €’000 1,681 114 75 23 273 2016 €’000 965 111 67 19 163 2,166 1,325 The carrying value of the Company’s subsidiaries at 31 December 2017 are as follows: At 1 January Additions Disposal At 31 December 2017 €’000 211,122 5,199 (10,015) 206,306 2016 €’000 210,923 199 - 211,122 The Company’s subsidiaries directly owned by the Company, are disclosed in note 20. Additions relate to investments in Hostelworld Services Portugal Lda, Hostelworld Services Limited and capital contributions arising from the administration of the Group’s share option scheme. The disposal relates to Wings Lux 2 S.à r.l. which was liquidated during the year. Allotted, called-up and fully paid 95,570,778 ordinary shares of €0.01 each (2016: 95,570,778 ordinary shares of €0.01 each) Total 31. TRADE AND OTHER PAYABLES Amounts falling due within one year Trade payables Accruals Amount due to related parties Total 2017 €’000 2016 €’000 182 23 28 6 239 2017 €’000 956 956 2017 €’000 113 863 17,353 18,329 120 30 792 - 942 2016 €’000 956 956 2016 €’000 112 216 4,418 4,746 154 155 ADDITIONAL ADDITIONAL INFORMATION INFORMATION Shareholder Information 158 156 157 Hostelworld Annual Report 2017 | Additional Information Hostelworld Annual Report 2017 | Additional Information Shareholder Information Advisers Financial Calendar Shareholder’s Enquiries Solicitors Independent Auditors AGM 11 June 2018 All administrative enquiries relating to shareholdings (for example, notification of change of address, loss of share certificates, dividend payments) should be addressed to the Payment of 2017 Final Dividend 14 June 2018 Company’s registrars: Announcement of 2018 Interim Results 21 August 2018 UK Registrar Computershare Investor Services plc Share Price During the year ended 31 December 2017, the range of the market prices of the Company’s The Pavillions Bridgwater Road Bristol BS99 6ZZ United Kingdom ordinary shares on the London Stock Exchange was: Irish Registrar Computershare Investor Services (Ireland) Ltd Last price as at 29 December 2017 Lowest price during the year Highest price during the year Daily information on the Company’s share price can be obtained on our website: www.hostelworldgroup.com £3.83 £1.91 £3.85 Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Ireland Company Secretary and Registered Office Ms. Paula Phelan Hostelworld Group plc High Holborn House 52-54 High Holborn London WC1V 6RL United Kingdom Company Registration Number 9818705 McCann FitzGerald Riverside One Sir John Rogerson’s Quay Dublin 2 Ireland Travers Smith LLP 10 Snow Hill London EC1A 2AL United Kingdom Financial Public Relations Powerscourt 25 Lower Leeson Street Dublin 2 Ireland Banking Allied Irish Banks plc 1 Lower Baggot Street Dublin 2 Ireland Deloitte Chartered Accountants and Statutory Audit Firm Deloitte & Touche House Earlsfort Terrace Dublin 2 Ireland Brokers Numis Securities Limited 10 Paternoster Square London EC4M 7LT United Kingdom J&E Davy Davy House 49 Dawson Street Dublin 2 Ireland TOC hostel BARCELONA 158 159 The Dorm LISBON