Hostelworld Group PLC
Annual Report 2018

Plain-text annual report

Hostelworld Annual Report 2018 | Overview Hostelworld Annual Report 2018 | Overview HOSTELWORLD’S VISION OUR PURPOSE Inspire passionate travellers to see the world, meet new people and come back with extraordinary stories to tell. OUR MISSION To create a platform that connects our hostel partners and hostel guests with the most customised tech solutions, and offers the best choice of hostels and travel experiences around the world. OUR AMBITION To reaffirm our position as the world’s leading online booking platform for hostel travellers. GENERATOR COPENHAGEN COPENHAGEN 3 Hostelworld Annual Report 2018 | Overview ABOUT HOSTELWORLD GROUP Hostelworld Group is the leading hostel-focussed online booking platform, sparking social experiences for young and independent travellers. Our customers are not your average tourists; they crave unique experiences that we facilitate with the best choice of hostels around the world offered in 19 languages across the website and 13 languages on the app of our core brand Hostelworld. We have 20 years’ experience as the hostel Online Travel Agent (“OTA”) experts, and today we work with over 16,500 hostel properties globally, in addition to 20,000 other forms of budget accommodation. Our customers have access to an extensive database of more than 11.5 million customer reviews which allows them to choose the hostel that’s right for them. Since 1999 we’ve partnered with hostels worldwide, enabling them to manage and distribute their inventory to our highly engaged and valuable global customer base. 4 CASA ELEMENTO MINCA Hostelworld Annual Report 2018 | Overview Hostelworld Annual Report 2018 | Overview Hostelworld Annual Report 2018 | Overview Hostelworld Annual Report 2018 | Overview CONTENTS CONTENTS OVERVIEW OVERVIEW 10 10 12 12 Our Journey Our Journey 2018 Summary 2018 Summary 01 01 04 04 FINANCIAL STATEMENTS FINANCIAL STATEMENTS 120 120 121 121 122 122 123 123 124 124 125 125 156 156 157 157 158 158 Consolidated Income Statement Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Company Statement of Finanical Position Company Statement of Finanical Position Company Statement of Changes in Equity Company Statement of Changes in Equity Notes to the Company Financial Statements Notes to the Company Financial Statements STRATEGIC REPORT STRATEGIC REPORT 02 02 17 17 20 20 25 25 30 30 37 37 Chairman’s Statement Chairman’s Statement Chief Executive’s Statement Chief Executive’s Statement Financial Review Financial Review Principal Risks and Uncertainties Principal Risks and Uncertainties Corporate Social Responsibility Corporate Social Responsibility ADDITIONAL INFORMATION ADDITIONAL INFORMATION 164 164 165 165 Shareholder Information Shareholder Information Advisers Advisers 05 05 03 03 GOVERNANCE GOVERNANCE 45 45 46 46 48 48 59 59 66 66 71 71 76 76 86 86 98 98 106 106 Chairman’s Introduction to Governance Chairman’s Introduction to Governance Directors’ Biographies Directors’ Biographies Corporate Governance Statement Corporate Governance Statement Report of the Audit Committee Report of the Audit Committee Report of the Nomination Committee Report of the Nomination Committee Chairman of the Remuneration Committee’s Annual Statement Chairman of the Remuneration Committee’s Annual Statement Directors’ Remuneration Policy Directors’ Remuneration Policy Annual Report on Remuneration Annual Report on Remuneration Directors’ Report Directors’ Report Independent Auditor’s Report Independent Auditor’s Report 6 6 FREEHAND LOS ANGELES FREEHAND LOS ANGELES LOS ANGELES LOS ANGELES 01 THE INDEPENDENTE HOSTEL & SUITES LISBON OVERVIEW 10 Our Journey 12 2018 Summary Hostelworld Annual Report 2018 | Overview Hostelworld Annual Report 2018 | Overview OUR JOURNEY A Celebration of 20 years Launch of the Hostelworld website, providing an online booking platform and back-end property management system 2003 Opened office in Shanghai 2009 Acquired the Hostelbookers business, based in the UK 1999 Acquired the Hostels.com business and brand 2006 Hellman & Friedman LLC, a US private equity firm, acquired the Group 2013 Listed on the London and Euronext Dublin Stock Exchanges Rebranding of Hostelworld with ‘Meet the world’ 2017 Roadmap to Growth programme 2019 2015 Opened technology development centre in Porto, Portugal 2018 Celebrating 20 years of Hostelworld 2014 Released new suite of Hostelworld booking apps for iOS and Android 10 11 Hostelworld Annual Report 2018 | Overview Hostelworld Annual Report 2018 | Overview Hostelworld Annual Report 2018 | Overview Hostelworld Annual Report 2018 | Overview 2018 SUMMARY 2018 SUMMARY 2018 2018 2017 2017 2018 2018 2017 2017 2018 2018 2017 2017 Bookings Bookings Net Revenue Net Revenue 7.6m 7.6m Gross bookings Gross bookings €7.6m €7.6m €7.5m €7.5m 2018 2018 Hostelworld Brand Hostelworld Brand Other Brands Other Brands Adjusted EBITDA Adjusted EBITDA 7.2m 7.2m Net bookings Net bookings 2017 2017 Hostelworld Brand Hostelworld Brand Other Brands Other Brands €7.2m €7.2m €7.5m €7.5m €82.1m €82.1m €82.1m €82.1m €86.7m €86.7m Adjusted Profit Adjusted Profit After Tax After Tax €21.4m €21.4m €21.4m €21.4m €26.4m €26.4m €17.5m €17.5m €17.5m €17.5m €21.7m €21.7m 2018 2018 2017 2017 2018 2018 2017 2017 Deferred Revenue Deferred Revenue - Free Cancellation Booking - Free Cancellation Booking Revenue Revenue €2.9m €2.9m 2018 2018 €2.9m €2.9m 2017 2017 €0m €0m Definitions Definitions Adjusted EBITDA - Earnings before interest, tax, depreciation and amortisation, excluding exceptional and non-cash items; Adjusted EBITDA - Earnings before interest, tax, depreciation and amortisation, excluding exceptional and non-cash items; Adjusted Profit after Tax – Profit after tax excluding exceptional costs, amortisation of acquired domain and technology Adjusted Profit after Tax – Profit after tax excluding exceptional costs, amortisation of acquired domain and technology intangibles, impairment charges, net finance costs, share based payment expenses and deferred taxation; intangibles, impairment charges, net finance costs, share based payment expenses and deferred taxation; Adjusted Free Cash Flow – Free cash flow adjusted for capital expenditure, acquisition of intangible assets, net finance costs Adjusted Free Cash Flow – Free cash flow adjusted for capital expenditure, acquisition of intangible assets, net finance costs and net movement in working capital excluding the effect of exceptional costs. and net movement in working capital excluding the effect of exceptional costs. 12 12 Adjusted Free Adjusted Free Cash Flow Cash Flow 2018 2018 2017 2017 €20.7m €20.7m €20.7m €20.7m €21.5m €21.5m 97% adjusted cash conversion 97% adjusted cash conversion 81% adjusted cash conversion 81% adjusted cash conversion 13 13 02 UNITE HOSTEL BARCELONA BARCELONA STRATEGIC REPORT 17 Chairman’s Statement 20 25 30 37 Chief Executive’s Statement Financial Review Principal Risks and Uncertainties Corporate Social Responsibility Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report CHAIRMAN’S CHAIRMAN’S STATEMENT STATEMENT 2018 was a year of significant activity and 2018 was a year of significant activity and cancellations, in 2019 when the last cancellation cancellations, in 2019 when the last cancellation change for the Hostelworld Group. Despite change for the Hostelworld Group. Despite date has passed. date has passed. experiencing challenging industry conditions experiencing challenging industry conditions during the summer months, we are pleased to during the summer months, we are pleased to Revenue for the year was €82.1m (2017: €86.7m) a Revenue for the year was €82.1m (2017: €86.7m) a report continued growth in gross bookings from report continued growth in gross bookings from decrease of 5%, due to the impact of the deferred decrease of 5%, due to the impact of the deferred our core Hostelworld brand of 4%, although our core Hostelworld brand of 4%, although revenue. Adjusted EBITDA (as defined in the revenue. Adjusted EBITDA (as defined in the the managed decline in our supporting brands the managed decline in our supporting brands Financial Review) for the year was €21.4m (2017: Financial Review) for the year was €21.4m (2017: resulted in flat overall Group bookings. In resulted in flat overall Group bookings. In €26.4m) and operating profit for the year was €26.4m) and operating profit for the year was response to customer demand and following a response to customer demand and following a €6.7m (2017: €11.9m). Both were also impacted by €6.7m (2017: €11.9m). Both were also impacted by pilot launch, in July we successfully rolled out our pilot launch, in July we successfully rolled out our the deferred revenue. the deferred revenue. free cancellation booking option globally, which free cancellation booking option globally, which further enhanced and broadened our customer further enhanced and broadened our customer The business continues to be strongly cash The business continues to be strongly cash product offering. product offering. generative, with Adjusted Free Cash Flow (as generative, with Adjusted Free Cash Flow (as defined in the Financial Review) of €20.7m (2017: defined in the Financial Review) of €20.7m (2017: In June 2018 Gary Morrison joined Hostelworld as In June 2018 Gary Morrison joined Hostelworld as €21.5m). Cash balances at year end were €26.0m €21.5m). Cash balances at year end were €26.0m Chief Executive Officer, following the departure of Chief Executive Officer, following the departure of (2017: €21.3m), after payment of €16.1m of (2017: €21.3m), after payment of €16.1m of Feargal Mooney from the Group. Gary worked for Feargal Mooney from the Group. Gary worked for dividends during the year (2017: €24.8m). dividends during the year (2017: €24.8m). Expedia for over seven years and brings a wealth Expedia for over seven years and brings a wealth of experience and knowledge of the Online Travel of experience and knowledge of the Online Travel Dividend and Capital Structure Dividend and Capital Structure Agent (“OTA”) marketplace. Following his arrival, Agent (“OTA”) marketplace. Following his arrival, Gary undertook a detailed strategic review of the Gary undertook a detailed strategic review of the The Board is recommending a full year final The Board is recommending a full year final Group which he completed in November 2018. Group which he completed in November 2018. dividend of 9.0 euro cent per share which dividend of 9.0 euro cent per share which As outlined in more detail in his Chief Executive’s As outlined in more detail in his Chief Executive’s together with the interim dividend of 4.8 euro together with the interim dividend of 4.8 euro review, this confirmed the significant growth review, this confirmed the significant growth cent per share brings the total dividend for 2018 cent per share brings the total dividend for 2018 opportunity for Hostelworld and the strengths opportunity for Hostelworld and the strengths to 13.8 euro cent. This reflects a distribution of to 13.8 euro cent. This reflects a distribution of and continuing relevance of our brand, in and continuing relevance of our brand, in 75% of the Adjusted Profit after Taxation for the 75% of the Adjusted Profit after Taxation for the addition to highlighting areas that require future addition to highlighting areas that require future year and is in line with our stated dividend policy. year and is in line with our stated dividend policy. investment. investment. Results and Financial Position Results and Financial Position The Board continues to review its approach to The Board continues to review its approach to returning capital to shareholders, whilst retaining returning capital to shareholders, whilst retaining flexibility to enable us to stabilise and strengthen flexibility to enable us to stabilise and strengthen our core platform. our core platform. Gross bookings for the year were flat given Gross bookings for the year were flat given the managed decline in our supporting brands the managed decline in our supporting brands Board Composition Board Composition which offset the growth of 4% in the Hostelworld which offset the growth of 4% in the Hostelworld brand. As indicated at the time, the peak summer brand. As indicated at the time, the peak summer months were impacted by unseasonably hot months were impacted by unseasonably hot weather in Europe and the timing of the World weather in Europe and the timing of the World Cup. The Group’s core brand, Hostelworld, Cup. The Group’s core brand, Hostelworld, currently represents 96% of total Group bookings currently represents 96% of total Group bookings (2017: 93%) with this percentage likely to (2017: 93%) with this percentage likely to increase further during 2019 as per our strategy. increase further during 2019 as per our strategy. The successful rollout of the free cancellation The successful rollout of the free cancellation booking option during the year led to a deferral booking option during the year led to a deferral of revenue recognition, which has impacted of revenue recognition, which has impacted reported earnings in 2018, however this has not reported earnings in 2018, however this has not had an impact on cash receipts. At 31 December had an impact on cash receipts. At 31 December 2018, €2.9m of revenue from free cancellation 2018, €2.9m of revenue from free cancellation bookings was collected from customers and bookings was collected from customers and deferred and will be recognised, net of any future deferred and will be recognised, net of any future The composition of the Board is fully compliant The composition of the Board is fully compliant with the UK Corporate Governance Code as with the UK Corporate Governance Code as applied to small companies. The Board has applied to small companies. The Board has undertaken an appraisal of the Directors, as undertaken an appraisal of the Directors, as well as of the Board and each sub-committee, well as of the Board and each sub-committee, which concluded that the Board is functioning which concluded that the Board is functioning effectively. effectively. There was significant change to the Board during There was significant change to the Board during 2018. In May 2018, we announced that Feargal 2018. In May 2018, we announced that Feargal Mooney who had been with Hostelworld for 16 Mooney who had been with Hostelworld for 16 years would be leaving the Board in June and years would be leaving the Board in June and would be succeeded by Gary Morrison. would be succeeded by Gary Morrison. 17 17 “Our expanded “Our expanded in-house capability in-house capability is key to our plans is key to our plans to reaffirm our to reaffirm our competitive position competitive position as a leading hostel as a leading hostel focussed online focussed online booking platform.” booking platform.” Michael Cawley Michael Cawley Chairman Chairman JUMBO STAY STF/IYHF JUMBO STAY STF/IYHF STOCKHOLM STOCKHOLM Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Earlier in 2018, Mari Hurley who had been with Earlier in 2018, Mari Hurley who had been with Following Gary Morrison’s appointment as Chief Following Gary Morrison’s appointment as Chief the Group for 11 years as Chief Financial Officer, the Group for 11 years as Chief Financial Officer, Executive Officer, he developed a ‘Roadmap Executive Officer, he developed a ‘Roadmap resigned from the Board. In August 2018 we resigned from the Board. In August 2018 we for Growth’ programme and strengthened for Growth’ programme and strengthened announced that TJ Kelly would be taking up the announced that TJ Kelly would be taking up the the management team to better resource the management team to better resource position of Chief Financial Officer and would be position of Chief Financial Officer and would be us to deliver the significant future growth us to deliver the significant future growth joining the Group and the Board in November joining the Group and the Board in November opportunities in the business. In addition to the opportunities in the business. In addition to the 2018. TJ was formerly Chief Financial Officer of 2018. TJ was formerly Chief Financial Officer of appointment of TJ Kelly as Chief Financial Officer, appointment of TJ Kelly as Chief Financial Officer, Glanbia plc’s Performance Nutrition division Glanbia plc’s Performance Nutrition division a number of key appointments and internal a number of key appointments and internal and brings a wealth of financial experience in and brings a wealth of financial experience in promotions have been made across the business promotions have been made across the business international consumer-focussed businesses and international consumer-focussed businesses and in areas including Product, Technology, and in areas including Product, Technology, and a proven track record in financial leadership. a proven track record in financial leadership. Analytics and Insights in order Analytics and Insights in order Pursuant to changes to the composition of the Pursuant to changes to the composition of the audit committee as set out in the 2018 Corporate audit committee as set out in the 2018 Corporate I would also like to thank our customers and I would also like to thank our customers and Governance Code, I stepped down as a member Governance Code, I stepped down as a member hostel partners, whom we continue to place at hostel partners, whom we continue to place at of the Audit Committee in December 2018. In of the Audit Committee in December 2018. In the heart of our business, for their loyalty and the heart of our business, for their loyalty and to deliver our ambitious growth objectives. to deliver our ambitious growth objectives. February 2018 Éimear Moloney was appointed February 2018 Éimear Moloney was appointed support. support. as a member of both the Nomination Committee as a member of both the Nomination Committee and Remuneration Committee. There were and Remuneration Committee. There were Finally, to our shareholders for their confidence Finally, to our shareholders for their confidence no other changes to the Audit Committee, no other changes to the Audit Committee, and commitment, we look forward to returning and commitment, we look forward to returning Remuneration Committee and Nomination Remuneration Committee and Nomination our business to growth and continuing to return our business to growth and continuing to return Committee during the year. Committee during the year. value to our shareholders. value to our shareholders. Colleagues, Customers and Colleagues, Customers and Shareholders Shareholders On behalf of the Board, I would like to thank On behalf of the Board, I would like to thank all members of the Hostelworld team for their all members of the Hostelworld team for their commitment and hard work during the year. commitment and hard work during the year. I would like to particularly acknowledge the I would like to particularly acknowledge the dedication of our product and technology dedication of our product and technology development teams based in Dublin and Porto. development teams based in Dublin and Porto. Our expanded in-house capability is key to our Our expanded in-house capability is key to our plans to leverage Hostelworld’s data assets and plans to leverage Hostelworld’s data assets and native app development strengths and reaffirm native app development strengths and reaffirm our competitive position as a leading hostel our competitive position as a leading hostel focussed online booking platform. focussed online booking platform. Michael Cawley Michael Cawley Chairman Chairman 1 April 2019 1 April 2019 18 18 ECOMAMA ECOMAMA AMSTERDAM AMSTERDAM Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report CHIEF EXECUTIVE’S CHIEF EXECUTIVE’S STATEMENT STATEMENT Since its foundation twenty years ago, Since its foundation twenty years ago, Hostelworld has grown into a global Hostelworld has grown into a global business focussed on facilitating a business focussed on facilitating a social travelling experience for young social travelling experience for young and independent travellers and and independent travellers and others seeking a sense of adventure, others seeking a sense of adventure, community and interaction with like- community and interaction with like- minded international travellers. Since minded international travellers. Since joining the business in June I have joining the business in June I have completed my strategic review, which completed my strategic review, which has confirmed why I decided to join the has confirmed why I decided to join the Group. Hostelworld has a very relevant Group. Hostelworld has a very relevant brand which is trusted by a loyal and brand which is trusted by a loyal and engaged customer base and has access engaged customer base and has access to exclusive inventory of high quality to exclusive inventory of high quality hostels. By leveraging our significant hostels. By leveraging our significant accumulated data assets and native accumulated data assets and native app development skills to exploit our app development skills to exploit our unique and focussed position in the unique and focussed position in the hostel ecosystem, we are not just well hostel ecosystem, we are not just well positioned in a growing market, but as positioned in a growing market, but as a market leading category specialist a market leading category specialist we can compete effectively with the we can compete effectively with the generalist lodging online travel agents generalist lodging online travel agents (“OTAs”). (“OTAs”). It is also clear that in recent years, while It is also clear that in recent years, while Hostelworld has had a strong track record of Hostelworld has had a strong track record of EBITDA delivery, this has not been matched EBITDA delivery, this has not been matched by consistent top line growth. Furthermore by consistent top line growth. Furthermore the reliance on, and significant investment the reliance on, and significant investment in category advertising to drive customer in category advertising to drive customer acquisition has not accelerated the core business acquisition has not accelerated the core business and translated into bookings growth, despite and translated into bookings growth, despite operating in a growing market. My strategic operating in a growing market. My strategic review, announced in November, also identified review, announced in November, also identified a number of areas where there has been a a number of areas where there has been a lack of investment, most notably in our core lack of investment, most notably in our core platform, that need to be addressed to ensure platform, that need to be addressed to ensure that we remain competitive in our marketplace. that we remain competitive in our marketplace. These will be the main focus of our attention These will be the main focus of our attention in the coming year. At the same time, I have in the coming year. At the same time, I have identified and developed a ‘Roadmap for identified and developed a ‘Roadmap for Growth’ programme in order to capitalise on the Growth’ programme in order to capitalise on the significant opportunities for the business and to significant opportunities for the business and to return it to a proper growth trajectory. In order to return it to a proper growth trajectory. In order to deliver this, I have taken steps to strengthen the deliver this, I have taken steps to strengthen the management team with a number of significant management team with a number of significant 20 20 hires and internal promotions. hires and internal promotions. The main elements of our ‘Roadmap for Growth’ The main elements of our ‘Roadmap for Growth’ programme have now been agreed, with a programme have now been agreed, with a number of initiatives started during the second number of initiatives started during the second half of 2018. As we look to 2019 as a year of half of 2018. As we look to 2019 as a year of investment to fund the ‘return to growth drivers’ investment to fund the ‘return to growth drivers’ in 2020, there will be a number of key focus in 2020, there will be a number of key focus areas for the management team as described in areas for the management team as described in more detail below. It is anticipated that organic more detail below. It is anticipated that organic growth will be self-funded from our existing cash growth will be self-funded from our existing cash resources and cash generated from the business. resources and cash generated from the business. Appropriate deployment of capital against Appropriate deployment of capital against organic and inorganic growth opportunities will organic and inorganic growth opportunities will be subject to continual assessment and appraisal be subject to continual assessment and appraisal by the Board. by the Board. Returning to Growth Returning to Growth Gross bookings were flat year on year (2017: Gross bookings were flat year on year (2017: 6% growth) with modest growth of 4% in the 6% growth) with modest growth of 4% in the Hostelworld brand, which now accounts for 96% Hostelworld brand, which now accounts for 96% of total bookings, being offset by the managed of total bookings, being offset by the managed decline in our supporting brands. As announced decline in our supporting brands. As announced in August at the time of our half year results, in August at the time of our half year results, bookings growth in 2018 was impacted by some bookings growth in 2018 was impacted by some softness in trading seen during the peak Summer softness in trading seen during the peak Summer months as a result of the hot weather in Europe months as a result of the hot weather in Europe and the timing of the World Cup. and the timing of the World Cup. Our focus is on the hostel market and we are Our focus is on the hostel market and we are operating in a growing market: the total value operating in a growing market: the total value of hostel revenue is forecast to grow from of hostel revenue is forecast to grow from US$5.5bn in 2017 to US$6.4bn in 2020 (Source: US$5.5bn in 2017 to US$6.4bn in 2020 (Source: Phocuswright’s “The Global Hostel Market Place Phocuswright’s “The Global Hostel Market Place Second Edition”, March 2018). The market is Second Edition”, March 2018). The market is highly fragmented, but with a growing supply highly fragmented, but with a growing supply base of high quality accommodation. We are base of high quality accommodation. We are seeing significant investment and some modest seeing significant investment and some modest consolidation by the top chains within the consolidation by the top chains within the hostel segment and the share of bookings made hostel segment and the share of bookings made through OTAs, such as Hostelworld, is forecast to through OTAs, such as Hostelworld, is forecast to grow at a faster rate than the traditional hostel grow at a faster rate than the traditional hostel market. We also have a strong and trusted brand market. We also have a strong and trusted brand that provides relevant and valuable customers to that provides relevant and valuable customers to the hostel sector. It is therefore imperative that the hostel sector. It is therefore imperative that we are correctly positioned to take advantage we are correctly positioned to take advantage of the growth opportunities in our marketplace of the growth opportunities in our marketplace and that we appropriately invest in our core and that we appropriately invest in our core product, platform, technological capabilities and product, platform, technological capabilities and marketing in order to achieve this. marketing in order to achieve this. Our Strategy Our Strategy The strategic review has highlighted the The strategic review has highlighted the opportunity for significant growth for the opportunity for significant growth for the to the hostel market. Therefore upgrading our to the hostel market. Therefore upgrading our third party platform connectivity is a key priority third party platform connectivity is a key priority in order to defend our competitive position, in order to defend our competitive position, ensuring we have the best access to inventory for ensuring we have the best access to inventory for business. The positive market dynamics showcase business. The positive market dynamics showcase our customers. our customers. the potential pace for growth, which a purely the potential pace for growth, which a purely hostel focussed business can exploit. We have hostel focussed business can exploit. We have identified a number of key focus areas as our identified a number of key focus areas as our strategic objectives for 2019. These are as follows: strategic objectives for 2019. These are as follows: ► Investing in our Platform ► Investing in our Platform One of the key areas of our focus in 2019 will One of the key areas of our focus in 2019 will be on strengthening the core platform in order be on strengthening the core platform in order to improve its flexibility and the experience of to improve its flexibility and the experience of our customers bringing it up to competitive our customers bringing it up to competitive parity. Since 2015 there was underinvestment in parity. Since 2015 there was underinvestment in the total product and engineering headcount, the total product and engineering headcount, which was insufficient to maintain our platform which was insufficient to maintain our platform competitiveness against other OTAs. I have competitiveness against other OTAs. I have identified closing this technological gap as a key identified closing this technological gap as a key priority for my management team. priority for my management team. During 2018 we rolled out our free cancellation During 2018 we rolled out our free cancellation option for customers which has now been option for customers which has now been successfully embedded, with cancellation rates successfully embedded, with cancellation rates performing in line with our expectations. We plan performing in line with our expectations. We plan to make further improvements to the range of to make further improvements to the range of booking options we offer our customers which booking options we offer our customers which will result in greater flexibility to make online will result in greater flexibility to make online changes and a wider range of payment options, changes and a wider range of payment options, including different currencies and different including different currencies and different payment methods. payment methods. We plan to improve the search experience for our We plan to improve the search experience for our customers in order to present the right hostels customers in order to present the right hostels to the right customers at the right time through to the right customers at the right time through more dynamically optimised search functions. more dynamically optimised search functions. This will involve expanding and improving the This will involve expanding and improving the hostels available to our customers with unique hostels available to our customers with unique experiences and improved site and hostel content experiences and improved site and hostel content localisation. localisation. We are also investing in our current platform We are also investing in our current platform to upgrade connectivity for hostel owners and to upgrade connectivity for hostel owners and to offer improved and more flexible rate plan to offer improved and more flexible rate plan configurations. Hostelworld has significant configurations. Hostelworld has significant exclusive inventory and in order to retain this exclusive inventory and in order to retain this position we need to invest and ensure that our position we need to invest and ensure that our platform is as flexible and convenient as possible platform is as flexible and convenient as possible for hostel owners to use. In recent years the for hostel owners to use. In recent years the use of third party platforms has increased with use of third party platforms has increased with these platforms typically providing connections these platforms typically providing connections to multiple OTAs, including Hostelworld. This to multiple OTAs, including Hostelworld. This has allowed more competitors to gain access has allowed more competitors to gain access ► Best-in-Class App Technology ► Best-in-Class App Technology Hostelworld launched its first app in 2010 and this Hostelworld launched its first app in 2010 and this has been one of the key factors in our success has been one of the key factors in our success over the past few years with continued growth in over the past few years with continued growth in bookings via our app every year. In 2018 40% of bookings via our app every year. In 2018 40% of all bookings were made via the app up from 33% all bookings were made via the app up from 33% in 2017. Since we launched our iOS and Android in 2017. Since we launched our iOS and Android apps in 2014, they have won industry awards apps in 2014, they have won industry awards and recognition. However, in an increasingly and recognition. However, in an increasingly competitive market where our customers have competitive market where our customers have more choice and options, we need to ensure that more choice and options, we need to ensure that our app has the best functionality with the most our app has the best functionality with the most relevant content, together with the appropriate relevant content, together with the appropriate inventory for our chosen segment. We expect to inventory for our chosen segment. We expect to see app usage continue to grow in the future and see app usage continue to grow in the future and this will continue to drive marketing efficiencies this will continue to drive marketing efficiencies by lowering our customer acquisition and by lowering our customer acquisition and transaction costs. transaction costs. One of Hostelworld’s key strengths is our One of Hostelworld’s key strengths is our experience and expertise in native app experience and expertise in native app development. Our software development office development. Our software development office in Porto which we opened in 2017 has been in Porto which we opened in 2017 has been significantly expanded during 2018. As at 31 significantly expanded during 2018. As at 31 December 2018 we had 53 people employed December 2018 we had 53 people employed in Porto compared to 24 at the end of 2017. in Porto compared to 24 at the end of 2017. During 2019 our Dublin and Porto product and During 2019 our Dublin and Porto product and development teams will continue to update development teams will continue to update and expand our app capability. The native and expand our app capability. The native app development skills that Hostelworld has app development skills that Hostelworld has developed are a key source of competitive developed are a key source of competitive advantage for our business. advantage for our business. ► Leveraging our Data Assets ► Leveraging our Data Assets Hostelworld has millions of stored anonymised Hostelworld has millions of stored anonymised itineraries which provide a rich data source itineraries which provide a rich data source and have historically been under-utilised by the and have historically been under-utilised by the Group. We can use this data to better understand Group. We can use this data to better understand the preferences of different types of customer: the preferences of different types of customer: for example, a single destination trip customer for example, a single destination trip customer will typically have different requirements and will typically have different requirements and be looking for different features in their hostel be looking for different features in their hostel stay compared to a multi destination trip stay compared to a multi destination trip traveller who is seeking a different type of hostel traveller who is seeking a different type of hostel experience. By using this data we can generate experience. By using this data we can generate highly relevant bespoke recommendations and highly relevant bespoke recommendations and suggestions for our customers. For Hostelworld, suggestions for our customers. For Hostelworld, 21 21 Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report leveraging our data will allow us to target and leveraging our data will allow us to target and and strong cash conversion. Debt collection and and strong cash conversion. Debt collection and grow the most profitable customer segments, grow the most profitable customer segments, invoicing overheads are all minimised. invoicing overheads are all minimised. such as multi destination customers. such as multi destination customers. During 2018, we rolled out a global free During 2018, we rolled out a global free ► Driving Customer Acquisition ► Driving Customer Acquisition cancellation model to further broaden our cancellation model to further broaden our product offering. As with the other deposit product offering. As with the other deposit In recent years Hostelworld has invested in In recent years Hostelworld has invested in models, at the time of booking, hostel travellers models, at the time of booking, hostel travellers category advertising through some high profile category advertising through some high profile pay a deposit directly to us, and the remainder pay a deposit directly to us, and the remainder celebrity advertising campaigns. However, whilst celebrity advertising campaigns. However, whilst of the cost of their stay directly to the hostel of the cost of their stay directly to the hostel these generated strong interest on social media, these generated strong interest on social media, at the time of their visit. If the hostel traveller at the time of their visit. If the hostel traveller it is difficult to measure the related core business it is difficult to measure the related core business cancels their free cancellation booking, within cancels their free cancellation booking, within growth and associated returns. The conclusions of growth and associated returns. The conclusions of a specified period, we will refund their deposit. a specified period, we will refund their deposit. the recent strategic review are that in 2019 these the recent strategic review are that in 2019 these The introduction of the free cancellation booking The introduction of the free cancellation booking resources would be more productively deployed resources would be more productively deployed option has resulted in a portion of gross bookings option has resulted in a portion of gross bookings in investing in our products and systems as in investing in our products and systems as being cancelled and the deposits refunded to being cancelled and the deposits refunded to previously outlined and that marketing activities previously outlined and that marketing activities customers. Underlying cancellation rates are customers. Underlying cancellation rates are will be focussed on core customer acquisition. will be focussed on core customer acquisition. performing in line with our expectations. performing in line with our expectations. We know that our most engaged customer base We know that our most engaged customer base The Market The Market who book for four or more destinations per trip who book for four or more destinations per trip is significantly more valuable than those who is significantly more valuable than those who book two or three destinations per trip, both book two or three destinations per trip, both for Hostelworld and for our hostel partners. for Hostelworld and for our hostel partners. Providing the right customer to the right hostel Providing the right customer to the right hostel at the right time not only increases the chances at the right time not only increases the chances of repeat bookings through Hostelworld, but it of repeat bookings through Hostelworld, but it also delivers the most valuable customers for the also delivers the most valuable customers for the hostels. These are customers who understand the hostels. These are customers who understand the hostel experience and who are most likely to leave hostel experience and who are most likely to leave positive reviews. Hostelworld customers are also positive reviews. Hostelworld customers are also best known for contributing to the atmosphere best known for contributing to the atmosphere in the hostel, by participating most fully in the in the hostel, by participating most fully in the activities of the hostel and using in-house food activities of the hostel and using in-house food and beverage facilities during their stay. and beverage facilities during their stay. Business Model Business Model In operating a global hostel-focussed online In operating a global hostel-focussed online booking platform, we offer a simple and booking platform, we offer a simple and comprehensive online mechanism that comprehensive online mechanism that gives providers of hostels and other budget gives providers of hostels and other budget accommodation a shop window to show their accommodation a shop window to show their accommodation to young and independent accommodation to young and independent travellers. We provide the technology solution travellers. We provide the technology solution to facilitate bookings between the hostel to facilitate bookings between the hostel and traveller, offering a high quality booking and traveller, offering a high quality booking experience that provides us with commission experience that provides us with commission based revenue. based revenue. The second independent study of the global The second independent study of the global hostel market (“Second Edition”) was published by hostel market (“Second Edition”) was published by Phocuswright in 2018. Phocuswright in 2018. The topline findings of the Second Edition include: The topline findings of the Second Edition include: ► Phocuswright estimates total property count ► Phocuswright estimates total property count globally of approximately 18,200 in 2016, globally of approximately 18,200 in 2016, increasing significantly from 15,700 properties increasing significantly from 15,700 properties in 2014. in 2014. ► Phocuswright projects 5% hostel revenue ► Phocuswright projects 5% hostel revenue growth per year through 2020 for the global growth per year through 2020 for the global hostel market (on pace with the global hotel hostel market (on pace with the global hotel industry), when it estimates that total hostel industry), when it estimates that total hostel revenue will reach nearly US$6.4 billion in revenue will reach nearly US$6.4 billion in revenue. revenue. ► Online channels accounted for 62% of global ► Online channels accounted for 62% of global hostel revenue in 2016. OTAs are the fastest- hostel revenue in 2016. OTAs are the fastest- growing channel, processing 46% of global growing channel, processing 46% of global hostel bookings in 2016, and estimated to rise hostel bookings in 2016, and estimated to rise to 54% by 2020. to 54% by 2020. Phocuswright’s conclusions provide us with Phocuswright’s conclusions provide us with additional confidence in the strength of our additional confidence in the strength of our target market and the long term growth target market and the long term growth opportunities it offers the Group as a leading opportunities it offers the Group as a leading provider of bookings into this niche market. provider of bookings into this niche market. At the time of booking, hostel travellers pay a At the time of booking, hostel travellers pay a deposit directly to us, and the remainder of the deposit directly to us, and the remainder of the cost of their stay directly to the hostel at the time cost of their stay directly to the hostel at the time of their visit. The deposit equates to our revenue of their visit. The deposit equates to our revenue from the transaction. This efficient business from the transaction. This efficient business model has favourable working capital attributes model has favourable working capital attributes Investing in People Investing in People In order to deliver our ‘Roadmap for Growth’ In order to deliver our ‘Roadmap for Growth’ programme, since my appointment in June I have programme, since my appointment in June I have made a number of important changes to strengthen made a number of important changes to strengthen the management team. In November, TJ Kelly joined the management team. In November, TJ Kelly joined 22 22 Hostelworld from Glanbia as our Chief Financial Officer. Hostelworld from Glanbia as our Chief Financial Officer. Outlook Outlook In addition, I have made a number of internal In addition, I have made a number of internal promotions: Breffni Horgan to Chief Product promotions: Breffni Horgan to Chief Product Hostelworld is operating in a highly competitive Hostelworld is operating in a highly competitive Officer, Noel Maher to Chief Technology Officer Officer, Noel Maher to Chief Technology Officer market, which is growing. We have a very relevant market, which is growing. We have a very relevant and Catriona Flood to Chief Analytics Officer. and Catriona Flood to Chief Analytics Officer. We will continue to invest in talent across the We will continue to invest in talent across the business especially in product, technology and business especially in product, technology and in our Porto office. We are fortunate to have an in our Porto office. We are fortunate to have an brand which is trusted by a loyal and engaged brand which is trusted by a loyal and engaged customer base. Trading in the first quarter of customer base. Trading in the first quarter of 2019 is in line with the Board’s expectations. 2019 is in line with the Board’s expectations. We remain committed to delivering value to We remain committed to delivering value to excellent and diverse pool of talented individuals excellent and diverse pool of talented individuals shareholders and continue to assess our capital shareholders and continue to assess our capital working across our organisation who are critical to working across our organisation who are critical to allocation approach in line with investment allocation approach in line with investment our future success. I would like to thank the entire our future success. I would like to thank the entire choices and priorities. choices and priorities. team, in Dublin, London, Porto, Shanghai and team, in Dublin, London, Porto, Shanghai and Sydney for their hard work in 2018. Sydney for their hard work in 2018. Gary Morrison Gary Morrison Chief Executive Chief Executive 1 April 2019 1 April 2019 Optimising Capital Allocation Optimising Capital Allocation After our people, capital is our most important After our people, capital is our most important resource and it is critical that we invest it wisely. resource and it is critical that we invest it wisely. My strategic review has highlighted insufficient My strategic review has highlighted insufficient investment in our core platform and product investment in our core platform and product suite in recent years. Therefore my priorities suite in recent years. Therefore my priorities for future capital allocation are on focussed for future capital allocation are on focussed marketing programmes that will drive growth marketing programmes that will drive growth in core customer acquisition and re-investment in core customer acquisition and re-investment in our core platform in order to reaffirm and in our core platform in order to reaffirm and strengthen our position as a leading hostel- strengthen our position as a leading hostel- focussed online booking platform. Most of focussed online booking platform. Most of our existing growth plans can be delivered our existing growth plans can be delivered organically using the existing resources and organically using the existing resources and experience of the Group, including more effective experience of the Group, including more effective leveraging of our under-utilised existing data leveraging of our under-utilised existing data assets. However, we will continue to appraise assets. However, we will continue to appraise complementary target acquisitions that would complementary target acquisitions that would accelerate our growth or provide us with a accelerate our growth or provide us with a unique capability to improve our offering to our unique capability to improve our offering to our customers or hostel partners. customers or hostel partners. 2019 will be a year of investment for Hostelworld 2019 will be a year of investment for Hostelworld to fund the ‘return to growth’ drivers for 2020 to fund the ‘return to growth’ drivers for 2020 and beyond. It is anticipated that organic growth and beyond. It is anticipated that organic growth will be self-funded through our existing cash will be self-funded through our existing cash resources and the strong cashflows generated resources and the strong cashflows generated from the business. from the business. 23 23 Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report FINANCIAL REVIEW FINANCIAL REVIEW Introduction Introduction ► Hostelworld gross brand bookings growth of 4%, total Group bookings growth flat reflecting the ► Hostelworld gross brand bookings growth of 4%, total Group bookings growth flat reflecting the managed decline in supporting brands managed decline in supporting brands ► Average Booking Value (“ABV”) (gross) of €11.89, a 3% increase on 2017, 6% increase on a constant ► Average Booking Value (“ABV”) (gross) of €11.89, a 3% increase on 2017, 6% increase on a constant currency basis currency basis ► Revenue decreased by 5%, 3% decrease on a constant currency basis, impacted by deferred revenue. ► Revenue decreased by 5%, 3% decrease on a constant currency basis, impacted by deferred revenue. Excluding the impact of deferred revenue, Group revenue decreased by 2% and grew by 1% on a Excluding the impact of deferred revenue, Group revenue decreased by 2% and grew by 1% on a constant currency basis constant currency basis ► €2.9m of revenue generated from free cancellation bookings has been deferred (2017: €nil) and will be ► €2.9m of revenue generated from free cancellation bookings has been deferred (2017: €nil) and will be recognised, net of any future cancellations, in future periods recognised, net of any future cancellations, in future periods ► Marketing expenses represented 38% of Revenue (2017: 38%) ► Marketing expenses represented 38% of Revenue (2017: 38%) ► Adjusted EBITDA decreased by 19%, 17% decrease on a constant currency basis ► Adjusted EBITDA decreased by 19%, 17% decrease on a constant currency basis ► Excluding the impact of deferred revenue, Adjusted EBITDA would have decreased by €2.1m (8%) ► Excluding the impact of deferred revenue, Adjusted EBITDA would have decreased by €2.1m (8%) ► Adjusted EBITDA margin of 26% (2017: 30%) impacted by deferred revenue. Excluding the impact of ► Adjusted EBITDA margin of 26% (2017: 30%) impacted by deferred revenue. Excluding the impact of deferred revenue, Adjusted EBITDA margin would have been 29% deferred revenue, Adjusted EBITDA margin would have been 29% ► Strong underlying cash conversion (97%) and final proposed dividend of 9.0 euro cent per share ► Strong underlying cash conversion (97%) and final proposed dividend of 9.0 euro cent per share Key Performance Indicators Key Performance Indicators Gross Bookings: Gross Bookings: Bookings – Hostelworld brand (m) Bookings – Hostelworld brand (m) Bookings – supporting brands and channels (m) Bookings – supporting brands and channels (m) Total Booking Volume (m) Total Booking Volume (m) Net Bookings: Net Bookings: Net Bookings – Hostelworld brand (m) Net Bookings – Hostelworld brand (m) Total Net Group Bookings Volume (m) Total Net Group Bookings Volume (m) Average Booking Value ("ABV") (gross) (€) Average Booking Value ("ABV") (gross) (€) Revenue (€m) Revenue (€m) Deferred Free Cancellation Revenue (€m) Deferred Free Cancellation Revenue (€m) Adjusted EBITDA (€m) Adjusted EBITDA (€m) 2018 2018 2017 2017 % Change % Change Reported Reported % Change % Change Constant Currency Constant Currency 7.27 7.27 0.28 0.28 7.55 7.55 6.96 6.96 7.24 7.24 11.89 11.89 82.1 82.1 2.9 2.9 21.4 21.4 7.00 7.00 0.54 0.54 7.54 7.54 7.00 7.00 7.54 7.54 11.55 11.55 86.7 86.7 n/a n/a 26.4 26.4 4% 4% (47%) (47%) 0% 0% (1%) (1%) (4%) (4%) 3% 3% (5%) (5%) 6% 6% (3%) (3%) (19%) (19%) (17%) (17%) The Group believes that both gross booking The Group believes that both gross booking bookings (2017: 93%). Bookings growth was bookings (2017: 93%). Bookings growth was volume (“Gross Bookings”, “Bookings”) and volume (“Gross Bookings”, “Bookings”) and skewed towards H1 2018, with Hostelworld brand skewed towards H1 2018, with Hostelworld brand booking volume net of cancellations (“Net booking volume net of cancellations (“Net bookings growth of 6% (H2 2018: 2% growth) bookings growth of 6% (H2 2018: 2% growth) Bookings”) are key performance indicators Bookings”) are key performance indicators which was partially attributed to softer booking which was partially attributed to softer booking and are critical in assessing the operational and are critical in assessing the operational volume in the key summer months due to the volume in the key summer months due to the performance of the business. performance of the business. World Cup and the unusually hot weather in World Cup and the unusually hot weather in The Group’s gross booking volumes were flat The Group’s gross booking volumes were flat Europe. Europe. in 2018 (2017: 6% growth), with 4% growth in in 2018 (2017: 6% growth), with 4% growth in In 2018 in response to customer demand, the In 2018 in response to customer demand, the the core Hostelworld brand (2017: 13% growth) the core Hostelworld brand (2017: 13% growth) Group rolled out a free cancellation booking Group rolled out a free cancellation booking offset by 47% decline in the Group’s supporting offset by 47% decline in the Group’s supporting option, to further broaden our product offering. option, to further broaden our product offering. brands (2017: 41% decline). The Group’s core brands (2017: 41% decline). The Group’s core This booking option was rolled out on a phased This booking option was rolled out on a phased brand, Hostelworld, represents 96% of Group brand, Hostelworld, represents 96% of Group basis in H1 2018 and globally in H2 2018. As with basis in H1 2018 and globally in H2 2018. As with 25 25 “The Group’s “The Group’s business model business model continues continues to produce to produce strong free cash strong free cash flow conversion.” flow conversion.” TJ Kelly TJ Kelly Chief Financial Officer Chief Financial Officer MEMORY HOSTEL MEMORY HOSTEL DA NANG DA NANG Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report the other deposit models, at the time of booking, the other deposit models, at the time of booking, All of the marketing costs in relation to these All of the marketing costs in relation to these of deferred revenue that can be recognised in of deferred revenue that can be recognised in Gross staff costs (excluding share based payment Gross staff costs (excluding share based payment hostel travellers pay a deposit directly to us, and hostel travellers pay a deposit directly to us, and bookings have been recognised in the year. bookings have been recognised in the year. future periods. future periods. the remainder of the cost of their stay directly to the remainder of the cost of their stay directly to expense and before the impact of capitalised expense and before the impact of capitalised development labour) increased from €18.7m to development labour) increased from €18.7m to the hostel at the time of their visit. If the hostel the hostel at the time of their visit. If the hostel Average Booking Value (“ABV”) is the average Average Booking Value (“ABV”) is the average Administration expenses increased by €1.6m (3%) to Administration expenses increased by €1.6m (3%) to €19.2m. Average full time equivalent headcount €19.2m. Average full time equivalent headcount traveller cancels their free cancellation booking, traveller cancels their free cancellation booking, value paid by a customer for a gross booking. ABV value paid by a customer for a gross booking. ABV €61.9m in 2018. A contributory factor in this increase €61.9m in 2018. A contributory factor in this increase increased by 13% from 254 in 2017 to 288 in 2018. increased by 13% from 254 in 2017 to 288 in 2018. within a specified period, we will refund their within a specified period, we will refund their grew by 3% during the year, and 6% in constant grew by 3% during the year, and 6% in constant was the increase in exceptional costs, and in staff was the increase in exceptional costs, and in staff Excluding the impact of development labour Excluding the impact of development labour deposit. deposit. currency. The average commission rate in 2018 currency. The average commission rate in 2018 increased to 15.4% (2017: 14.3%), primarily driven increased to 15.4% (2017: 14.3%), primarily driven and other administration costs due to the increased and other administration costs due to the increased capitalised in accordance with IFRS standards (2018: capitalised in accordance with IFRS standards (2018: investment in the technology development centre in investment in the technology development centre in €1.7m; 2017: €1.7m), share based payment expense €1.7m; 2017: €1.7m), share based payment expense This has led to a deferral of revenue recognition, This has led to a deferral of revenue recognition, by a base commission increase during the year. by a base commission increase during the year. Porto during the year as part of the strategy of the Porto during the year as part of the strategy of the and the impact of bonus provisions, staff costs and the impact of bonus provisions, staff costs which has impacted reported earnings in which has impacted reported earnings in The commission increase and an increase in the The commission increase and an increase in the Group to invest in its development capacity. Group to invest in its development capacity. increased by 3% on a constant currency basis. increased by 3% on a constant currency basis. 2018, however this has not had an impact on 2018, however this has not had an impact on underlying base price per bed were offset by the underlying base price per bed were offset by the cash receipts. At 31 December 2018, €2.9m of cash receipts. At 31 December 2018, €2.9m of continued decline in the number of bed nights continued decline in the number of bed nights revenue from free cancellation bookings was revenue from free cancellation bookings was per booking with the continued shift to mobile per booking with the continued shift to mobile collected from customers and deferred and will collected from customers and deferred and will bookings and the negative impact of exchange bookings and the negative impact of exchange be recognised, net of any future cancellations, be recognised, net of any future cancellations, rate movements in 2018. rate movements in 2018. in 2019 when the last cancellation date has in 2019 when the last cancellation date has passed. Any cancellations that were processed by passed. Any cancellations that were processed by The Group continues to actively manage its The Group continues to actively manage its customers up to and including 31 December 2018 customers up to and including 31 December 2018 marketing mix with marketing investment as a marketing mix with marketing investment as a have been refunded and are not included in this have been refunded and are not included in this percentage of net revenue of 38% in 2018 (2017: percentage of net revenue of 38% in 2018 (2017: deferred revenue balance. deferred revenue balance. 38%). Excluding the impact of deferred free 38%). Excluding the impact of deferred free cancellation revenue, marketing investment cancellation revenue, marketing investment The introduction of the free cancellation booking The introduction of the free cancellation booking would be 37% of revenue (2017: 38%). While would be 37% of revenue (2017: 38%). While option has resulted in a portion of gross bookings option has resulted in a portion of gross bookings exchange rate movements had a negative impact exchange rate movements had a negative impact being cancelled and refunded to customers. being cancelled and refunded to customers. on Revenue and Adjusted EBITDA, there was a on Revenue and Adjusted EBITDA, there was a Group bookings, net of any cancellations Group bookings, net of any cancellations partial offsetting benefit to marketing expenses partial offsetting benefit to marketing expenses processed by 31 December 2018, have declined by processed by 31 December 2018, have declined by as the majority of marketing investment is as the majority of marketing investment is 4% in 2018, with Hostelworld brand net bookings 4% in 2018, with Hostelworld brand net bookings denominated in US dollars. denominated in US dollars. declining by 1%. Underlying cancellation rates are declining by 1%. Underlying cancellation rates are performing in line with our expectations. performing in line with our expectations. Adjusted EBITDA Adjusted EBITDA Bookings generated from the app and mobile Bookings generated from the app and mobile web channels represented 59% of Group web channels represented 59% of Group bookings (2017: 54%), with bookings from the bookings (2017: 54%), with bookings from the app growing by 22% during the year to 40% of app growing by 22% during the year to 40% of all bookings. The Group’s booking volumes are all bookings. The Group’s booking volumes are seasonal and peak between May and August seasonal and peak between May and August during the summer travel period in the northern during the summer travel period in the northern hemisphere. hemisphere. While the Group operates in one segment and While the Group operates in one segment and is managed as such, business performance is is managed as such, business performance is reviewed on a bookings volume and average reviewed on a bookings volume and average booking value basis for both the Hostelworld booking value basis for both the Hostelworld brand as well as all supporting brands (including brand as well as all supporting brands (including Hostelbookers, Hostels.com, booking engines Hostelbookers, Hostels.com, booking engines and affiliates). and affiliates). Revenue decreased by 5% during the year to Revenue decreased by 5% during the year to €82.1m (2017: €86.7m), a 3% decrease on a €82.1m (2017: €86.7m), a 3% decrease on a constant currency basis, partially as a result of constant currency basis, partially as a result of the impact of €2.9m deferred revenue (2017: €nil). the impact of €2.9m deferred revenue (2017: €nil). Excluding the impact of deferred revenue, Group Excluding the impact of deferred revenue, Group revenue would have declined by €1.7m (2%) and revenue would have declined by €1.7m (2%) and increased by 1% on a constant currency basis increased by 1% on a constant currency basis 26 26 during the year. during the year. The Group uses Earnings before Interest, Tax, The Group uses Earnings before Interest, Tax, Depreciation and Amortisation, excluding Depreciation and Amortisation, excluding exceptional and non-cash items (“Adjusted EBITDA”) exceptional and non-cash items (“Adjusted EBITDA”) as a key performance indicator when measuring as a key performance indicator when measuring the outcome in the business. Exceptional items by the outcome in the business. Exceptional items by their nature and size can make interpretation of the their nature and size can make interpretation of the underlying trends in the business more difficult. underlying trends in the business more difficult. We believe this alternative performance measure We believe this alternative performance measure reflects the key drivers of profitability for the Group reflects the key drivers of profitability for the Group and removes those items which do not impact and removes those items which do not impact underlying trading performance. underlying trading performance. Adjusted EBITDA of €21.4m (2017: €26.4m) has Adjusted EBITDA of €21.4m (2017: €26.4m) has decreased by €5.0m (19%) in the year and by 17% decreased by €5.0m (19%) in the year and by 17% on a constant currency basis. Adjusted EBITDA as on a constant currency basis. Adjusted EBITDA as a percentage of revenue declined to 26% (2017: a percentage of revenue declined to 26% (2017: 30%) due in part to the impact of €2.9m revenue 30%) due in part to the impact of €2.9m revenue relating to free cancellation bookings that was relating to free cancellation bookings that was received but deferred in the year. Excluding the received but deferred in the year. Excluding the impact of the deferral of this revenue, Adjusted impact of the deferral of this revenue, Adjusted EBITDA would have declined by €2.1m (8%), by EBITDA would have declined by €2.1m (8%), by 5% on a constant currency basis, and Adjusted 5% on a constant currency basis, and Adjusted EBITDA margin would have been 29%. Any future EBITDA margin would have been 29%. Any future cancellations (made within a specified period) will cancellations (made within a specified period) will reduce the amount reduce the amount Reconciliation between Operating Profit and Adjusted EBITDA: Reconciliation between Operating Profit and Adjusted EBITDA: €'m €'m Operating profit Operating profit Depreciation Depreciation Amortisation of development costs Amortisation of development costs Amortisation of acquired intangible assets Amortisation of acquired intangible assets Exceptional items Exceptional items Share based payment (credit) / expense Share based payment (credit) / expense Adjusted EBITDA Adjusted EBITDA 2018 2018 6.7 6.7 1.2 1.2 1.9 1.9 10.3 10.3 1.6 1.6 (0.3) (0.3) 21.4 21.4 2017 2017 11.9 11.9 1.1 1.1 2.9 2.9 10.4 10.4 (0.5) (0.5) 0.6 0.6 26.4 26.4 The exceptional costs for the year of €1.6m were The exceptional costs for the year of €1.6m were charge arising on the issuance of options in charge arising on the issuance of options in primarily restructuring related costs. In 2017 primarily restructuring related costs. In 2017 accordance with the Group’s Long Term Incentive accordance with the Group’s Long Term Incentive exceptional gains for the year of €0.5m were due exceptional gains for the year of €0.5m were due Plan (“LTIP”) and Save as you Earn (“SAYE”) plan Plan (“LTIP”) and Save as you Earn (“SAYE”) plan to the release of an accrual relating to previously to the release of an accrual relating to previously offset by the release of previously recognised offset by the release of previously recognised recognised merger and acquisition costs. recognised merger and acquisition costs. expenses relating to options which have been expenses relating to options which have been forfeited during the year. forfeited during the year. The share based payment credit of €0.3m (2017: The share based payment credit of €0.3m (2017: €0.6m expense) reflects the share based payment €0.6m expense) reflects the share based payment Adjusted Profit after Taxation Adjusted Profit after Taxation Reconciliation between Adjusted EBITDA and Profit for the Year: Reconciliation between Adjusted EBITDA and Profit for the Year: Adjusted EBITDA Adjusted EBITDA Depreciation Depreciation Amortisation of development costs Amortisation of development costs Corporation tax Corporation tax Adjusted Profit after Taxation Adjusted Profit after Taxation Exceptional items Exceptional items Amortisation of acquired intangibles Amortisation of acquired intangibles Net finance costs Net finance costs Share based payment credit / (expense) Share based payment credit / (expense) Deferred taxation Deferred taxation Profit for the year Profit for the year €'m €'m 2018 2018 21.4 21.4 (1.2) (1.2) (1.9) (1.9) (0.8) (0.8) 17.5 17.5 (1.5) (1.5) (10.3) (10.3) 0.0 0.0 0.3 0.3 (0.2) (0.2) 5.7 5.7 2017 2017 26.4 26.4 (1.1) (1.1) (2.9) (2.9) (0.7) (0.7) 21.7 21.7 0.5 0.5 (10.4) (10.4) (0.1) (0.1) (0.6) (0.6) 0.1 0.1 11.2 11.2 27 27 Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Foreign Exchange Risk Foreign Exchange Risk The Group’s primary operating currency is euro. The Group’s primary operating currency is euro. The Group also has significant sterling and US The Group also has significant sterling and US dollar cash flows. In 2018 the average US dollar dollar cash flows. In 2018 the average US dollar to euro exchange rate weakened by 5% and the to euro exchange rate weakened by 5% and the average sterling to euro exchange rate weakened average sterling to euro exchange rate weakened by 1% in comparison to 2017. Restated on a by 1% in comparison to 2017. Restated on a constant currency basis, ABV has increased by constant currency basis, ABV has increased by 6%, revenue has decreased by 3% (€2.4m) and 6%, revenue has decreased by 3% (€2.4m) and Adjusted EBITDA has decreased by 17% (€4.3m) in Adjusted EBITDA has decreased by 17% (€4.3m) in 2018. Constant currency is calculated by applying 2018. Constant currency is calculated by applying the average exchange rates for the year ended the average exchange rates for the year ended 31 December 2018 to the financial results for the 31 December 2018 to the financial results for the year ended 31 December 2017 on a month by year ended 31 December 2017 on a month by month basis. The Group’s principal policy is to month basis. The Group’s principal policy is to match cash flows of like currencies, with excess match cash flows of like currencies, with excess sterling and US dollar revenues being settled into sterling and US dollar revenues being settled into euros on a timely basis. euros on a timely basis. euro cent per share) reflects a distribution of euro cent per share) reflects a distribution of 75% of the Adjusted PAT for the year ended 31 75% of the Adjusted PAT for the year ended 31 December 2018 and is in line with our stated December 2018 and is in line with our stated dividend policy. dividend policy. The final dividend of 9.0 euro cent per share is to The final dividend of 9.0 euro cent per share is to be approved by shareholders at the 2019 AGM be approved by shareholders at the 2019 AGM on 31 May 2019. If approved, the dividend will be on 31 May 2019. If approved, the dividend will be paid on 5 June 2019 to members appearing on the paid on 5 June 2019 to members appearing on the register at close of business on 10 May 2019. register at close of business on 10 May 2019. The Board continually reviews its approach to The Board continually reviews its approach to returning capital to shareholders in order to returning capital to shareholders in order to ensure that the Group maintains an efficient ensure that the Group maintains an efficient and prudent capital structure, which looks to and prudent capital structure, which looks to provide increased returns to shareholders, whilst provide increased returns to shareholders, whilst at the same time retaining flexibility for capital at the same time retaining flexibility for capital and other investment growth opportunities. and other investment growth opportunities. After payment of the proposed final dividend After payment of the proposed final dividend for 2018 the Group will have returned €56.7m to for 2018 the Group will have returned €56.7m to shareholders in dividends since IPO in November shareholders in dividends since IPO in November 2015. 2015. The directors are pleased to recommend a full The directors are pleased to recommend a full year final dividend payout of €8.6m equating year final dividend payout of €8.6m equating to 9.0 euro cent per share. This is in addition to to 9.0 euro cent per share. This is in addition to the interim dividend of €4.6m or 4.8 euro cent the interim dividend of €4.6m or 4.8 euro cent per share paid in September 2018. This payout per share paid in September 2018. This payout of €13.2m or 13.8 euro cent per share (2017: 17.1 of €13.2m or 13.8 euro cent per share (2017: 17.1 TJ Kelly TJ Kelly Chief Financial Officer Chief Financial Officer 1 April 2019 1 April 2019 Adjusted Free Cash Flow Conversion Adjusted Free Cash Flow Conversion Dividend Dividend Adjusted Profit after Taxation (“Adjusted PAT”) is an Adjusted Profit after Taxation (“Adjusted PAT”) is an Given that the capital nature of the Group post Given that the capital nature of the Group post alternative performance measure that the Group alternative performance measure that the Group IPO is fully equity funded, there is minimal net IPO is fully equity funded, there is minimal net uses to calculate the dividend payout for the year, uses to calculate the dividend payout for the year, finance costs in 2018 of €0.0m (2017: €0.1m). finance costs in 2018 of €0.0m (2017: €0.1m). subject to Company Law requirements regarding subject to Company Law requirements regarding distributable profits. It excludes exceptional costs, distributable profits. It excludes exceptional costs, Taxation Taxation amortisation of acquired domain and technology amortisation of acquired domain and technology intangibles, impairment charges, net finance costs, intangibles, impairment charges, net finance costs, share based payment expenses and deferred share based payment expenses and deferred taxation which can have large impacts on the taxation which can have large impacts on the reported result for the year, and which can make reported result for the year, and which can make underlying trends difficult to interpret. underlying trends difficult to interpret. Adjusted PAT decreased by 19% from €21.7m to Adjusted PAT decreased by 19% from €21.7m to €17.5m (2017: 12% increase) and 16% on a constant €17.5m (2017: 12% increase) and 16% on a constant currency basis due in part to the impact of €2.9m currency basis due in part to the impact of €2.9m revenue related to free cancellation bookings that revenue related to free cancellation bookings that was received but deferred in the year. was received but deferred in the year. Based on the weighted average number of Based on the weighted average number of shares in issue during 2018, reported Earnings shares in issue during 2018, reported Earnings per Share (“EPS”), as set out in note 10 to the per Share (“EPS”), as set out in note 10 to the financial statements, is 5.95 euro cent per share financial statements, is 5.95 euro cent per share for the financial year (2017: earnings per share for the financial year (2017: earnings per share 11.77 euro cent). Using Adjusted PAT as the 11.77 euro cent). Using Adjusted PAT as the measure of earnings would result in an adjusted measure of earnings would result in an adjusted EPS of 18.33 euro cent per share for the year. The EPS of 18.33 euro cent per share for the year. The corresponding EPS for 2017 calculated on the corresponding EPS for 2017 calculated on the same basis, using the weighted average number same basis, using the weighted average number of shares in issue as at 31 December 2017 is of shares in issue as at 31 December 2017 is 22.73 euro cent per share. Adjusted EPS is an 22.73 euro cent per share. Adjusted EPS is an alternative performance measure that excludes alternative performance measure that excludes exceptional items, amortisation of acquired exceptional items, amortisation of acquired domain and technology intangibles, net finance domain and technology intangibles, net finance costs, share based payment expenses and costs, share based payment expenses and deferred taxation which can have large impacts deferred taxation which can have large impacts on the reported result for the year, and which can on the reported result for the year, and which can make underlying trends difficult to interpret. make underlying trends difficult to interpret. €'m €'m Adjusted EBITDA Adjusted EBITDA Acquisition of intangible assets Acquisition of intangible assets Capital expenditure Capital expenditure Interest and tax paid Interest and tax paid Net movement in working capital (1) Net movement in working capital (1) Adjusted Free Cash Flow Adjusted Free Cash Flow Adjusted Free Cash Flow conversion Adjusted Free Cash Flow conversion (1) changes in working capital excludes the effects of exceptional costs (1) changes in working capital excludes the effects of exceptional costs The Group corporation tax charge of €0.8m (2017: The Group corporation tax charge of €0.8m (2017: €0.7m) results in an effective tax rate (corporation €0.7m) results in an effective tax rate (corporation tax as a percentage of profit before taxation) of tax as a percentage of profit before taxation) of 11.6% (2017: 6.0%). The low effective tax rate in 11.6% (2017: 6.0%). The low effective tax rate in 2017 was primarily as a result of carried forward 2017 was primarily as a result of carried forward tax losses arising from the previous capital tax losses arising from the previous capital structure of the Group. structure of the Group. The Group’s deferred tax charge for the year The Group’s deferred tax charge for the year ended 31 December 2018 was €0.2m (2017: €0.1m ended 31 December 2018 was €0.2m (2017: €0.1m credit) and relates to the movement in deferred credit) and relates to the movement in deferred tax assets offset by the movement in deferred tax tax assets offset by the movement in deferred tax liabilities. liabilities. The Group has a business model which produces The Group has a business model which produces strong free cash flow conversion, with a negative strong free cash flow conversion, with a negative working capital cycle on operational cash flows. working capital cycle on operational cash flows. The movement in working capital in 2018 was at a The movement in working capital in 2018 was at a higher level than 2017, due to the impact of €2.9m higher level than 2017, due to the impact of €2.9m of revenue related to free cancellation bookings of revenue related to free cancellation bookings which was collected but deferred. This resulted which was collected but deferred. This resulted in a higher adjusted free cash flow conversion in a higher adjusted free cash flow conversion of 97% (2017: 81%). Excluding the impact of the of 97% (2017: 81%). Excluding the impact of the deferral of this revenue, adjusted free cash flow deferral of this revenue, adjusted free cash flow conversion would have been 85% (2017: 81%). conversion would have been 85% (2017: 81%). Total cash at 31 December 2018 was €26.0m Total cash at 31 December 2018 was €26.0m (2017: €21.3m) and there were no borrowings at (2017: €21.3m) and there were no borrowings at 31 December 2018 (2017: €nil). 31 December 2018 (2017: €nil). 2018 2018 21.4 21.4 (1.8) (1.8) (0.7) (0.7) (0.8) (0.8) 2.6 2.6 20.7 20.7 97% 97% 2017 2017 26.4 26.4 (1.8) (1.8) (1.8) (1.8) (0.6) (0.6) (0.7) (0.7) 21.5 21.5 81% 81% 28 28 BABY LEMONADE HOSTEL BABY LEMONADE HOSTEL ST PETERSBURG ST PETERSBURG Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report PRINCIPAL RISKS PRINCIPAL RISKS AND UNCERTAINTIES AND UNCERTAINTIES The Board takes overall responsibility The Board takes overall responsibility for identifying the nature and extent of for identifying the nature and extent of the risks to be managed by the Group the risks to be managed by the Group to ensure the successful delivery of its to ensure the successful delivery of its strategic and business priorities. The strategic and business priorities. The Audit Committee monitors certain risk Audit Committee monitors certain risk areas and the internal control system, areas and the internal control system, as set out in the report on governance. as set out in the report on governance. are set out in the table below, together with are set out in the table below, together with comments on how they are managed to minimise comments on how they are managed to minimise their potential impact. While the table below is their potential impact. While the table below is not prioritised nor an exhaustive list of all risks not prioritised nor an exhaustive list of all risks that may impact the Group, it is the Board’s that may impact the Group, it is the Board’s view of the principal risks at this point in time. view of the principal risks at this point in time. Individually or together, these risks could affect Individually or together, these risks could affect our ability to operate as planned, and could have our ability to operate as planned, and could have a significant impact on revenue and shareholder a significant impact on revenue and shareholder The nature of the principal risks and uncertainties The nature of the principal risks and uncertainties returns. Additional risks and uncertainties, returns. Additional risks and uncertainties, faced by the Group is on the whole unchanged, faced by the Group is on the whole unchanged, including those that have not been identified to including those that have not been identified to although, external geopolitical factors, including although, external geopolitical factors, including date or are currently deemed immaterial, may date or are currently deemed immaterial, may a hard Brexit continue to impact the Group’s risk a hard Brexit continue to impact the Group’s risk also, individually or together, have a negative also, individually or together, have a negative profile in certain areas. The most significant of profile in certain areas. The most significant of impact on our revenue, returns, or financial impact on our revenue, returns, or financial these factors is the volatility in exchange rates to these factors is the volatility in exchange rates to condition. condition. the euro, in particular that of the US dollar and the euro, in particular that of the US dollar and sterling and the continued incidence of terrorism. sterling and the continued incidence of terrorism. The Board also considered its obligations in The Board also considered its obligations in relation to providing both the annual viability relation to providing both the annual viability The Group’s risk register identifies key risks and The Group’s risk register identifies key risks and and going concern statements and its conclusions and going concern statements and its conclusions monitors progress in managing and mitigating monitors progress in managing and mitigating can be found on page 35 and in note 1 to the can be found on page 35 and in note 1 to the them and is reviewed at least annually by the them and is reviewed at least annually by the Consolidated Financial Statements respectively. Consolidated Financial Statements respectively. Board. The most material risks facing the Group Board. The most material risks facing the Group Risk Risk Description and Impact Description and Impact Management and Mitigation Management and Mitigation Direction Direction of Change of Change 1. 1. Macroeconomic Macroeconomic Revenue is derived from the wider leisure travel Revenue is derived from the wider leisure travel Our business is a global one, with a dispersed Our business is a global one, with a dispersed Conditions Conditions sector. A decline in macroeconomic conditions sector. A decline in macroeconomic conditions population of users, and a geographically population of users, and a geographically could result in a reduction in leisure travel, and could result in a reduction in leisure travel, and dispersed set of destinations. Whilst market dispersed set of destinations. Whilst market declining revenues. declining revenues. conditions may decline in certain regions, the conditions may decline in certain regions, the globally diversified nature of the business globally diversified nature of the business Significant movements in FX rates can have a Significant movements in FX rates can have a significantly mitigates this, with c.50% of significantly mitigates this, with c.50% of dramatic impact on travel volumes, revenues dramatic impact on travel volumes, revenues destination markets in Europe and c.50% in the destination markets in Europe and c.50% in the and travel patterns. Increased volatility in and travel patterns. Increased volatility in rest of world. rest of world. currency markets have heightened this risk. currency markets have heightened this risk. FX movements may impact travel decisions FX movements may impact travel decisions and travel patterns by customers, but and travel patterns by customers, but typically there is a degree of counterbalancing typically there is a degree of counterbalancing movement e.g. the weakening of the US dollar movement e.g. the weakening of the US dollar against the euro means fewer US travellers against the euro means fewer US travellers visiting the Eurozone, but decreased marketing visiting the Eurozone, but decreased marketing costs from US denominated suppliers such as costs from US denominated suppliers such as Google. Google. FX translation risk is mitigated through FX translation risk is mitigated through matching foreign currency cash outflows matching foreign currency cash outflows and foreign currency cash inflows and by and foreign currency cash inflows and by minimising holdings of excess non-euro minimising holdings of excess non-euro currency above anticipated outflow currency above anticipated outflow requirements. requirements. 2. 2. Impact of Impact of The threat of terrorist attacks in key cities and The threat of terrorist attacks in key cities and Our target 18-34 year old population tend to Our target 18-34 year old population tend to Terrorism Threat Terrorism Threat on aircraft in flight may reduce the appetite on aircraft in flight may reduce the appetite be both flexible as to destination, and less be both flexible as to destination, and less on Leisure Travel on Leisure Travel of the leisure traveller to undertake trips of the leisure traveller to undertake trips concerned about risk-taking than other sectors concerned about risk-taking than other sectors particularly to certain geographies, resulting particularly to certain geographies, resulting in the leisure travel industry. in the leisure travel industry. in declining revenues. in declining revenues. Increased incidence of terrorism impacts Increased incidence of terrorism impacts acts as a mitigant, with c.50% of destination acts as a mitigant, with c.50% of destination consumer confidence and can shift demand consumer confidence and can shift demand markets in Europe and c.50% markets in Europe and c.50% away from certain destinations. away from certain destinations. in the rest of world. in the rest of world. The dispersed nature of our business also The dispersed nature of our business also 3. Competition 3. Competition The business operates in an increasingly The business operates in an increasingly We continue to build on our strong market We continue to build on our strong market competitive marketplace and our relative competitive marketplace and our relative position, and our app bookings have grown position, and our app bookings have grown scale and size could impact our ability to keep scale and size could impact our ability to keep by 22% in 2018. by 22% in 2018. pace with changes in customer behaviour pace with changes in customer behaviour and technology change. Failure to continue and technology change. Failure to continue The Group continues to invest in leveraging The Group continues to invest in leveraging to innovate on our product offering and to to innovate on our product offering and to its unique data assets allowing it to target and its unique data assets allowing it to target and compete effectively in our marketplace could compete effectively in our marketplace could grow the most profitable customer segments grow the most profitable customer segments have an adverse effect on our market share have an adverse effect on our market share by optimising its overall marketing investment. by optimising its overall marketing investment. and the future growth of the business. and the future growth of the business. The Group continues to strengthen its core The Group continues to strengthen its core Increased competition from other online Increased competition from other online platform in order to improve its flexibility platform in order to improve its flexibility travel agents (“OTAs”) or from the alternative travel agents (“OTAs”) or from the alternative and the experience of our customers while and the experience of our customers while accommodation sector or a disruptive new accommodation sector or a disruptive new also upgrading our third-party platform also upgrading our third-party platform entrant such as large hotel chains into the entrant such as large hotel chains into the connectivity in order to defend our competitive connectivity in order to defend our competitive hostel segment or loss of key accommodation hostel segment or loss of key accommodation position. position. suppliers could impact revenue due to suppliers could impact revenue due to potential loss of traffic or could increase traffic potential loss of traffic or could increase traffic The market we operate in remains highly The market we operate in remains highly acquisition costs. Demand for our services acquisition costs. Demand for our services fragmented with a high proportion of fragmented with a high proportion of could suffer, reducing revenue and margins. could suffer, reducing revenue and margins. independent and small chains. We continue independent and small chains. We continue to focus on expanding our global footprint, to focus on expanding our global footprint, meeting emerging demand and also meeting emerging demand and also strengthening our overall market position. strengthening our overall market position. We undertake regular research to track We undertake regular research to track performance in key markets and seek feedback performance in key markets and seek feedback from customers as to the relevancy and from customers as to the relevancy and competitiveness of our proposition as well as competitiveness of our proposition as well as propensity to recommend to others. propensity to recommend to others. YES! LISBON YES! LISBON LISBON LISBON 31 31 Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Risk Risk Description and Impact Description and Impact Management and Mitigation Management and Mitigation Direction Direction of Change of Change Risk Risk Description and Impact Description and Impact Management and Mitigation Management and Mitigation Direction Direction of Change of Change 4. 4. Search Engine Search Engine A large proportion of traffic to our websites is A large proportion of traffic to our websites is The Group invests heavily in recruiting and The Group invests heavily in recruiting and 7. Regulation 7. Regulation The global nature of our business means we The global nature of our business means we We monitor regulatory matters in locations We monitor regulatory matters in locations Algorithms Algorithms generated through internet search engines generated through internet search engines retaining key personnel with the requisite skills retaining key personnel with the requisite skills such as Google, from non-paid (organic) such as Google, from non-paid (organic) and capabilities in paid & non-paid search. and capabilities in paid & non-paid search. searches and through the purchase of travel- searches and through the purchase of travel- This in-house expertise is supplemented by the This in-house expertise is supplemented by the related keywords (paid search). We therefore related keywords (paid search). We therefore deployment of leading technology tools and deployment of leading technology tools and rely significantly on practices such as Search rely significantly on practices such as Search where required the engagement of specific where required the engagement of specific Engine Optimisation (“SEO”) and Search Engine Engine Optimisation (“SEO”) and Search Engine deep functional third party expertise. deep functional third party expertise. Marketing (“SEM”) to improve our visibility Marketing (“SEM”) to improve our visibility in relevant search results. Search engines, in relevant search results. Search engines, The search marketing team works closely The search marketing team works closely including Google, frequently update and including Google, frequently update and with Google to understand any changes in with Google to understand any changes in change the logic that determines the placement change the logic that determines the placement functionality to the adwords platform so that functionality to the adwords platform so that and display of results of a user’s search, which and display of results of a user’s search, which we can avail of any efficiencies in our search we can avail of any efficiencies in our search can negatively impact placement of our paid can negatively impact placement of our paid traffic. The Group participates in alpha and traffic. The Group participates in alpha and and organic results in search results. This and organic results in search results. This beta feature tests that give Hostelworld first beta feature tests that give Hostelworld first could result in a decrease in bookings and could result in a decrease in bookings and mover advantage with new functionality that mover advantage with new functionality that thus revenue. It could also result in having to thus revenue. It could also result in having to can help drive efficiency. can help drive efficiency. replace free traffic with paid traffic, which would replace free traffic with paid traffic, which would negatively impact margins. negatively impact margins. 5. Brand 5. Brand Consumer trust in our brand is essential Consumer trust in our brand is essential We are focussed on investing in our core We are focussed on investing in our core to ongoing revenue growth. Negative to ongoing revenue growth. Negative products, platform and technological products, platform and technological publicity around our products or services publicity around our products or services capabilities to support our brand proposition capabilities to support our brand proposition could negatively impact on traveller and could negatively impact on traveller and as well as actively managing our brand as well as actively managing our brand accommodation provider confidence and accommodation provider confidence and portfolio through social media channels. portfolio through social media channels. result in loss of revenue. result in loss of revenue. Our customer service team strive to ensure Our customer service team strive to ensure that customers have a positive experience at that customers have a positive experience at all stages of interacting with us. all stages of interacting with us. The Group has a Crisis Communications The Group has a Crisis Communications Document in place which sets out in detail Document in place which sets out in detail how various incidents are managed including how various incidents are managed including appropriate escalation processes. appropriate escalation processes. 6. Data Security 6. Data Security We capture personal data from our customers, We capture personal data from our customers, Hostelworld works closely with internal Hostelworld works closely with internal including credit card details and retain this including credit card details and retain this and external audit functions to ensure that and external audit functions to ensure that on our systems. There is always a risk of a on our systems. There is always a risk of a our system architectures, work processes our system architectures, work processes cyber security related attack or disruption, cyber security related attack or disruption, and policies are in place to provide as much and policies are in place to provide as much including by criminals, hacktivists or foreign including by criminals, hacktivists or foreign protection as possible. protection as possible. governments on our systems or those of third governments on our systems or those of third party suppliers. party suppliers. Hostelworld continues to be fully compliant Hostelworld continues to be fully compliant with the guidelines of the payment card with the guidelines of the payment card Cybercrime including unauthorised access to Cybercrime including unauthorised access to industry (i.e. is “Level 1 PCI compliant”) and is industry (i.e. is “Level 1 PCI compliant”) and is confidential information and systems would confidential information and systems would in the process of implementing its compliance in the process of implementing its compliance have significant reputational impact and could have significant reputational impact and could obligations in connection with certain aspects obligations in connection with certain aspects result in financial or other penalties. result in financial or other penalties. of Payment Services Directive 2 (“PSD2”) as it of Payment Services Directive 2 (“PSD2”) as it relates to customer payment authorisation relates to customer payment authorisation requirements. Specifically, the Group will requirements. Specifically, the Group will be required to facilitate the implementation be required to facilitate the implementation of certain customer authentication security of certain customer authentication security measures by its payment processor, issuing measures by its payment processor, issuing banks and card schemes. banks and card schemes. We have adopted all the requirements of GDPR We have adopted all the requirements of GDPR and will continue to monitor compliance. We and will continue to monitor compliance. We regularly review our employee information regularly review our employee information security policy and we continue to invest security policy and we continue to invest in security training for all staff so that they in security training for all staff so that they remain vigilant and alert to the possibility of remain vigilant and alert to the possibility of cybercrime. cybercrime. We conduct regular independent penetration We conduct regular independent penetration testing of our software. We proactively testing of our software. We proactively address vulnerabilities with a continual address vulnerabilities with a continual vulnerability assessment program. We have vulnerability assessment program. We have also implemented Web Application Protector also implemented Web Application Protector from Akamai to migrate threats in real-time. from Akamai to migrate threats in real-time. 32 32 are exposed to regulatory issues regarding are exposed to regulatory issues regarding in which we provide services with a particular in which we provide services with a particular competition, licensing of local accommodation, competition, licensing of local accommodation, focus on those areas where we have local focus on those areas where we have local language usage, web-based trading, consumer language usage, web-based trading, consumer operations. Suitable expertise has been operations. Suitable expertise has been compliance, tax, intellectual property, compliance, tax, intellectual property, engaged to ensure compliance with the engaged to ensure compliance with the trademarks, data security and commercial trademarks, data security and commercial Group’s regulatory obligations. In addition the Group’s regulatory obligations. In addition the disputes in multiple jurisdictions. disputes in multiple jurisdictions. Group has engaged appropriately qualified Group has engaged appropriately qualified support to ensure compliance with the Listing support to ensure compliance with the Listing Compliance with new regulations can Compliance with new regulations can Rules, the FRC Corporate Governance Code Rules, the FRC Corporate Governance Code mean incurring unforeseen costs, and non- mean incurring unforeseen costs, and non- and the Market Abuse Regulations. and the Market Abuse Regulations. compliance could result in penalties and compliance could result in penalties and reputational damage. reputational damage. Developments to international laws and Developments to international laws and In addition, as a listed company on the In addition, as a listed company on the as Brexit proceeds. The Group’s multinational as Brexit proceeds. The Group’s multinational London and Euronext Dublin Stock Exchanges, London and Euronext Dublin Stock Exchanges, structure with Head Office in Dublin provides structure with Head Office in Dublin provides adherence to the Listing Rules is required. adherence to the Listing Rules is required. some natural mitigation to the potential some natural mitigation to the potential regulations continue to be closely monitored regulations continue to be closely monitored impact. impact. Uncertainty remains as to the impact of Brexit Uncertainty remains as to the impact of Brexit on UK and international laws and regulations on UK and international laws and regulations including matters such as travel visas or work including matters such as travel visas or work visas for our UK staff. visas for our UK staff. 8. Tax 8. Tax The taxation of e-commerce businesses is The taxation of e-commerce businesses is In collaboration with our tax advisers, a large In collaboration with our tax advisers, a large constantly being evaluated and developed constantly being evaluated and developed professional services firm, we assess possible professional services firm, we assess possible by tax authorities around the world. The by tax authorities around the world. The tax impacts in the jurisdictions in which we tax impacts in the jurisdictions in which we taxation of online transactions in the travel taxation of online transactions in the travel operate to ensure our tax obligations are operate to ensure our tax obligations are space remains unsettled in the United States space remains unsettled in the United States aligned to the operational nature of our aligned to the operational nature of our in particular. in particular. business. business. The taxation of e-commerce is also under The taxation of e-commerce is also under active review by both the OECD and European active review by both the OECD and European Commission. Commission. Due to the global nature of our business, tax Due to the global nature of our business, tax authorities in other jurisdictions may consider authorities in other jurisdictions may consider that taxes are due in their jurisdiction, for that taxes are due in their jurisdiction, for example because the customer is resident in example because the customer is resident in that jurisdiction or the travel service is deemed that jurisdiction or the travel service is deemed to be supplied in such jurisdiction. If those to be supplied in such jurisdiction. If those tax authorities take a different view than the tax authorities take a different view than the Group as to the basis on which the Group is Group as to the basis on which the Group is subject to tax, it could result in the Group subject to tax, it could result in the Group having to account for tax that it currently does having to account for tax that it currently does not collect or pay, which could have a material not collect or pay, which could have a material adverse effect on the Group’s financial adverse effect on the Group’s financial condition and results of operation if it could condition and results of operation if it could not reclaim taxes already accounted for in the not reclaim taxes already accounted for in the jurisdictions the Group considers relevant. jurisdictions the Group considers relevant. The Group has historically had a low effective The Group has historically had a low effective tax rate due to the Group’s capital and tax rate due to the Group’s capital and corporate structure and the effect of carried corporate structure and the effect of carried forward tax losses. forward tax losses. Changes to tax legislation or the interpretation Changes to tax legislation or the interpretation of tax legislation or changes to tax laws based of tax legislation or changes to tax laws based on recommendations made by the OECD in on recommendations made by the OECD in relation to its Action Plan on Base Erosion relation to its Action Plan on Base Erosion and Profits Shifting (“BEPS”) or national and Profits Shifting (“BEPS”) or national governments may result in additional material governments may result in additional material tax being suffered by the Group or additional tax being suffered by the Group or additional reporting and disclosure obligations. reporting and disclosure obligations. 33 33 Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Risk Risk Description and Impact Description and Impact Management and Mitigation Management and Mitigation Direction Direction of Change of Change 9. 9. Business Business Failure in our IT systems or those on which we Failure in our IT systems or those on which we As an e-commerce organisation, the Group’s As an e-commerce organisation, the Group’s Continuity Continuity rely such as third party hosted services could rely such as third party hosted services could business continuity plan focusses on the business continuity plan focusses on the disrupt availability of our booking engines disrupt availability of our booking engines continued operation of consumer facing continued operation of consumer facing and payments platforms, or availability of and payments platforms, or availability of products and related services to ensure our products and related services to ensure our administrative services at our office locations, administrative services at our office locations, e-commerce trading systems can continue e-commerce trading systems can continue with a knock-on reduction in financial with a knock-on reduction in financial to process bookings. Our fully distributed to process bookings. Our fully distributed performance. performance. and redundant architecture across two data and redundant architecture across two data centres based in two different countries centres based in two different countries supports this approach. The Group has worked supports this approach. The Group has worked with external advisers to produce robust with external advisers to produce robust documented business continuity and disaster documented business continuity and disaster recovery capabilities. We have also extended recovery capabilities. We have also extended our e-commerce business continuity plans to our e-commerce business continuity plans to include our corporate office. include our corporate office. 10. 10. People People The Group is dependent on ability to attract, The Group is dependent on ability to attract, The Group has developed strong recruitment The Group has developed strong recruitment retain and develop creative, committed and retain and develop creative, committed and processes supported by effective HR policies processes supported by effective HR policies skilled employees so as to achieve its strategic skilled employees so as to achieve its strategic and procedures. The Group has an increased and procedures. The Group has an increased objectives. objectives. focus on understanding the drivers of focus on understanding the drivers of employee engagement, this has informed the employee engagement, this has informed the development of its Employee Value Proposition development of its Employee Value Proposition aimed at driving levels of motivation, aimed at driving levels of motivation, alignment and commitment to the Group’s alignment and commitment to the Group’s strategic goals. The Group also operates from strategic goals. The Group also operates from five global offices, which provides flexibility for five global offices, which provides flexibility for location of recruitment of key talent, thereby location of recruitment of key talent, thereby opening up a larger pool of talent for selection. opening up a larger pool of talent for selection. 11. 11. Brexit Brexit The Group is exposed to Brexit-related risks and The Group is exposed to Brexit-related risks and The Group is a global business and continues The Group is a global business and continues uncertainties in relation to its continued impact uncertainties in relation to its continued impact to grow its international footprint and to grow its international footprint and on global markets and currency exchange on global markets and currency exchange presence across its key markets. Through presence across its key markets. Through rate fluctuations. The uncertainties in relation rate fluctuations. The uncertainties in relation continued international expansion and continued international expansion and to the movement of people may result in the to the movement of people may result in the diversification the Group will seek to naturally diversification the Group will seek to naturally reduction of bookings particularly into and reduction of bookings particularly into and mitigate the impacts of Brexit. However, mitigate the impacts of Brexit. However, from the UK travel market which could impact from the UK travel market which could impact the Group will continue to assess Brexit and the Group will continue to assess Brexit and on Group revenue. In the twelve months ended on Group revenue. In the twelve months ended implement any necessary remediation steps to implement any necessary remediation steps to 31 December 2018, the UK as a destination 31 December 2018, the UK as a destination mitigate its impact on the Group. mitigate its impact on the Group. represented 6% of total Group bookings (2017: represented 6% of total Group bookings (2017: 7%) and 14% of Group bookings were from 7%) and 14% of Group bookings were from UK nationals (2017: 14%). Overall a decline in UK nationals (2017: 14%). Overall a decline in macroeconomic conditions and the warning macroeconomic conditions and the warning from the Bank of England of a Brexit related from the Bank of England of a Brexit related recession in the UK could negatively impact recession in the UK could negatively impact consumer confidence and reduce spending consumer confidence and reduce spending in all areas including the wider leisure travel in all areas including the wider leisure travel sector. sector. 34 34 principal risks as outlined on pages 30 to 34 principal risks as outlined on pages 30 to 34 represent severe but plausible circumstances represent severe but plausible circumstances that the Group could experience. that the Group could experience. The scenarios tested on principal risks included: The scenarios tested on principal risks included: ► Macroeconomic/Terrorism/Brand damage: ► Macroeconomic/Terrorism/Brand damage: Shortfall in the number of bookings forecast Shortfall in the number of bookings forecast ► Macroeconomic Shock/FX/ Brand Damage to ► Macroeconomic Shock/FX/ Brand Damage to Hostels as Accommodation Category: Hostels as Accommodation Category: A continual decline in the average booking A continual decline in the average booking value (“ABV”) value (“ABV”) ► Increased Competition or Change in Search ► Increased Competition or Change in Search Engine Algorithms: An increase in the cost per Engine Algorithms: An increase in the cost per paid booking paid booking The mitigating actions that were modelled The mitigating actions that were modelled included a reduction in variable overheads and a included a reduction in variable overheads and a reduced reliance on certain channels to market. reduced reliance on certain channels to market. The results of this stress testing showed that, The results of this stress testing showed that, due to the stability of the core business, the due to the stability of the core business, the responsive business model and the strong cash responsive business model and the strong cash balance on the balance sheet, the Group would be balance on the balance sheet, the Group would be able to withstand the impact of these scenarios able to withstand the impact of these scenarios occurring over the period of the financial occurring over the period of the financial forecasts by making adjustments to its operating forecasts by making adjustments to its operating plans within the normal course of business. plans within the normal course of business. Based on their assessment of prospects and Based on their assessment of prospects and viability above, the Directors confirm that they viability above, the Directors confirm that they have a reasonable expectation that the Group have a reasonable expectation that the Group will be able to continue in operation and meet will be able to continue in operation and meet its liabilities as they fall due over the three year its liabilities as they fall due over the three year period ended 31 December 2021. period ended 31 December 2021. The Directors also consider it appropriate to The Directors also consider it appropriate to prepare the financial statements on the going prepare the financial statements on the going concern basis, as explained in the Basis of concern basis, as explained in the Basis of Preparation paragraph in note 1 to the financial Preparation paragraph in note 1 to the financial statements. statements. Viability Statement Viability Statement In accordance with provision C.2.2 of the UK In accordance with provision C.2.2 of the UK Corporate Governance Code 2016, the Directors Corporate Governance Code 2016, the Directors have assessed the viability of the Group over a have assessed the viability of the Group over a three year period, taking into account the Group’s three year period, taking into account the Group’s current position and the potential impact of current position and the potential impact of the principal risks and uncertainties outlined the principal risks and uncertainties outlined above. The financial position of the Group, its above. The financial position of the Group, its cash flows, liquidity position and borrowing cash flows, liquidity position and borrowing facilities are outlined in the Financial Review on facilities are outlined in the Financial Review on pages 25 to 29. The Directors consider that a pages 25 to 29. The Directors consider that a three year period is appropriate as it reflects the three year period is appropriate as it reflects the Group’s strategic planning horizon. Based on Group’s strategic planning horizon. Based on this assessment, the Directors confirm that they this assessment, the Directors confirm that they have a reasonable expectation that the Group have a reasonable expectation that the Group will be able to continue in operation and meet will be able to continue in operation and meet its liabilities as they fall due over the period to 31 its liabilities as they fall due over the period to 31 December 2021. December 2021. The Directors have determined that a three year The Directors have determined that a three year period to 31 December 2021 is an appropriate period to 31 December 2021 is an appropriate period over which to provide its viability period over which to provide its viability statement. This is the period reviewed by the statement. This is the period reviewed by the Board in our budgeting and forecasting process. Board in our budgeting and forecasting process. In making this statement, the Board carried In making this statement, the Board carried out a robust assessment of the principal risks out a robust assessment of the principal risks facing the Group, including those that would facing the Group, including those that would threaten its business model, future performance, threaten its business model, future performance, solvency or liquidity. The assessment process solvency or liquidity. The assessment process included detailed engagement with the Executive included detailed engagement with the Executive Leadership Team, including the Chief Financial Leadership Team, including the Chief Financial Officer, to determine the principal risks facing the Officer, to determine the principal risks facing the Group. Group. The Board considers annually a three year, The Board considers annually a three year, bottom up forecast. The output of this forecast bottom up forecast. The output of this forecast is used to perform KPI analysis, which includes is used to perform KPI analysis, which includes a review of sensitivity to ‘business as usual’ a review of sensitivity to ‘business as usual’ risks, such as profit growth and severe but risks, such as profit growth and severe but plausible events. It also considers the ability of plausible events. It also considers the ability of the Group to convert earnings into cash. The the Group to convert earnings into cash. The results take into account the availability and results take into account the availability and likely effectiveness of the mitigating actions that likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact or could be taken to avoid or reduce the impact or occurrence of the identified underlying risks. occurrence of the identified underlying risks. Although the forecast reflects the Directors’ best Although the forecast reflects the Directors’ best estimate of the future prospects of the business, estimate of the future prospects of the business, they have also tested the potential impact on they have also tested the potential impact on the Group of a number of scenarios over and the Group of a number of scenarios over and above those included in the plan, by quantifying above those included in the plan, by quantifying their financial impact and overlaying this on the their financial impact and overlaying this on the detailed financial forecasts in the plan. These detailed financial forecasts in the plan. These scenarios, which are based on aspects of the scenarios, which are based on aspects of the 35 35 Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report CORPORATE SOCIAL CORPORATE SOCIAL RESPONSIBILITY RESPONSIBILITY At Hostelworld Group, we are always At Hostelworld Group, we are always committed to operating in a responsible committed to operating in a responsible and ethical manner in the wider world. and ethical manner in the wider world. We demonstrate this in the way we We demonstrate this in the way we engage with our people, suppliers, engage with our people, suppliers, customers, shareholders and the customers, shareholders and the communities in which we operate communities in which we operate worldwide. worldwide. Our People Our People Our people are our most important asset. Our people are our most important asset. Located across five offices globally in Dublin, Located across five offices globally in Dublin, London, Porto, Shanghai and Sydney, our people London, Porto, Shanghai and Sydney, our people create a diverse and inclusive workforce. As a create a diverse and inclusive workforce. As a company that has ’Meet the World’ as its slogan company that has ’Meet the World’ as its slogan and core belief, we believe that diversity is and core belief, we believe that diversity is essential in our role as a facilitator of global essential in our role as a facilitator of global travel. We believe that recruitment, selection travel. We believe that recruitment, selection and promotion should be based on merit, and and promotion should be based on merit, and should not be impacted by age, gender, sexual should not be impacted by age, gender, sexual orientation, civil status, family status, disability, orientation, civil status, family status, disability, membership of the travelling community, race, membership of the travelling community, race, religious beliefs or political opinions. Our success religious beliefs or political opinions. Our success in this area is demonstrated by the fact that in this area is demonstrated by the fact that our staff of 291 people come from a variety of our staff of 291 people come from a variety of backgrounds, cultures and age groups, and backgrounds, cultures and age groups, and represent 27 nationalities. We are committed to represent 27 nationalities. We are committed to ensuring and maintaining an environment that is ensuring and maintaining an environment that is free from bullying and/or harassment and where free from bullying and/or harassment and where the dignity of each and every person at work is the dignity of each and every person at work is respected and upheld. respected and upheld. Our people are expected to abide by our Our people are expected to abide by our general Code of Conduct, which outlines specific general Code of Conduct, which outlines specific principles of behaviour all colleagues are principles of behaviour all colleagues are expected to follow, at all times, in the key areas expected to follow, at all times, in the key areas of integrity, confidentiality, lawful behaviour and of integrity, confidentiality, lawful behaviour and disclosure of interests. disclosure of interests. We have a Whistleblowing Policy in place that We have a Whistleblowing Policy in place that sets out how a colleague can raise a concern, the sets out how a colleague can raise a concern, the way the Group will respond, and how the rights way the Group will respond, and how the rights of colleagues who raise a concern, and those who of colleagues who raise a concern, and those who are the subject of reports, are to be protected. are the subject of reports, are to be protected. We have an independent whistleblowing hotline We have an independent whistleblowing hotline that all staff can access confidentially should they that all staff can access confidentially should they not feel safe reporting a concern internally. not feel safe reporting a concern internally. Our culture centres on an inclusive and Our culture centres on an inclusive and transparent working environment for all and we transparent working environment for all and we believe open communication with our people believe open communication with our people is key to aligning our goals, and achieving key is key to aligning our goals, and achieving key results. We recognise that in order to achieve results. We recognise that in order to achieve our goals it is important that our people are kept our goals it is important that our people are kept informed of business decisions and are provided informed of business decisions and are provided with opportunities to share their valuable with opportunities to share their valuable inputs. Promoting our culture of transparency inputs. Promoting our culture of transparency and involvement, over 70% of our employees and involvement, over 70% of our employees participated in ‘Stop, Start, Continue’ sessions led participated in ‘Stop, Start, Continue’ sessions led by our new Chief Executive Officer Gary Morrison by our new Chief Executive Officer Gary Morrison following his appointment in 2018. These sessions following his appointment in 2018. These sessions were vital in gaining insights into the business were vital in gaining insights into the business activities that employees at all levels felt we activities that employees at all levels felt we should start doing, stop doing or continue doing. should start doing, stop doing or continue doing. These provided an opportunity for our people to These provided an opportunity for our people to express their opinions openly and honestly with express their opinions openly and honestly with our Chief Executive Officer, which allowed us to our Chief Executive Officer, which allowed us to make improvements and commitments based make improvements and commitments based on the collective feedback received. on the collective feedback received. This year we also gained invaluable feedback This year we also gained invaluable feedback from our people following the launch of our from our people following the launch of our employee engagement survey in July. This employee engagement survey in July. This was facilitated by an online tool which allowed was facilitated by an online tool which allowed us to gather employee feedback to measure us to gather employee feedback to measure engagement. Our people were asked to respond engagement. Our people were asked to respond to questions regarding topics such as work- to questions regarding topics such as work- life-balance, collaboration and communication, life-balance, collaboration and communication, innovation, learning and development and innovation, learning and development and alignment and involvement. Much like the ‘Stop, alignment and involvement. Much like the ‘Stop, Start, Continue’ sessions, the results from this Start, Continue’ sessions, the results from this survey enabled us to improve not only as a survey enabled us to improve not only as a Group, but within departments and individual Group, but within departments and individual teams. Overall, 88% of our people participated teams. Overall, 88% of our people participated in the survey, highlighting how passionate our in the survey, highlighting how passionate our people are when it comes to engaging with new people are when it comes to engaging with new initiatives. initiatives. 2019 marks our 20 year anniversary as a 2019 marks our 20 year anniversary as a business, and we could not have reached this business, and we could not have reached this milestone without the contributions of each of milestone without the contributions of each of our people both past and present. our people both past and present. 37 37 MOJO NOMAD CENTRAL MOJO NOMAD CENTRAL HONG KONG HONG KONG Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Gender Gender Free Booking Cancellation option. This allows Free Booking Cancellation option. This allows Our Communities Our Communities A breakdown of our Board, Executive Leadership Team and all employees by gender as at 31 December A breakdown of our Board, Executive Leadership Team and all employees by gender as at 31 December 2018 is set out below: 2018 is set out below: Directors (1) Directors (1) Executive Leadership Team (1) Executive Leadership Team (1) Other staff Other staff Number Number % % Male Male Female Female 5 5 6 6 141 141 1 1 3 3 137 137 Male Male 83.3% 83.3% 66.7% 66.7% 50.7% 50.7% Female Female 16.7% 16.7% 33.3% 33.3% 49.3% 49.3% (1) Executive Directors are included in each of Directors and Executive Leadership Team (1) Executive Directors are included in each of Directors and Executive Leadership Team Age Age Age Age Employees Employees 9% 9% 13% 13% 25 or Less 25 or Less 26-34 26-34 35-44 35-44 45+ 45+ 37 37 129 129 100 100 25 25 34% 34% 44% 44% 25 or less 25 or less 26-34 26-34 35-44 35-44 45+ 45+ In 2018 we launched the second SAYE (“Save In 2018 we launched the second SAYE (“Save A large proportion of accommodation suppliers A large proportion of accommodation suppliers As You Earn”) scheme for employees in Dublin As You Earn”) scheme for employees in Dublin we deal with tend not to have resources to build we deal with tend not to have resources to build and London. Our SAYE plan provides employees and London. Our SAYE plan provides employees the tools we can offer at little or no cost. We build the tools we can offer at little or no cost. We build with the chance to share in the future success of with the chance to share in the future success of and nurture mutually beneficial relationships that and nurture mutually beneficial relationships that our business and align to shareholder interest. our business and align to shareholder interest. allow both our hostel partners and us to enhance allow both our hostel partners and us to enhance Participation in the scheme is voluntary with Participation in the scheme is voluntary with yields. yields. employees saving between €12 and €500 per employees saving between €12 and €500 per month on a three-year savings contract with a month on a three-year savings contract with a The safety of our customers is of paramount The safety of our customers is of paramount pre-approved bank. pre-approved bank. importance to us and we have a strict sign-up importance to us and we have a strict sign-up process when on boarding new hostel partners process when on boarding new hostel partners Once the savings period is complete, employees Once the savings period is complete, employees including thorough verification checks in order including thorough verification checks in order can decide if they want to exercise their option can decide if they want to exercise their option to deliver the best quality accommodation and to deliver the best quality accommodation and to buy the shares. The amount they save must to buy the shares. The amount they save must experience to our customers. experience to our customers. be enough to buy the shares at the option price be enough to buy the shares at the option price set with the Group, before savings start. If set with the Group, before savings start. If Our Customers Our Customers employees decide not to exercise their option, employees decide not to exercise their option, their savings will be returned to them. their savings will be returned to them. Our Hostel Partners Our Hostel Partners We continually anticipate the needs of our We continually anticipate the needs of our customers by providing a 24/7 global customer customers by providing a 24/7 global customer service desk. We also offer a booking guarantee, service desk. We also offer a booking guarantee, whereby if a customer’s booking details cannot whereby if a customer’s booking details cannot In 2018 we focussed on delivering product In 2018 we focussed on delivering product be found at check-in, we refund their full booking be found at check-in, we refund their full booking enhancements to our hostel partners. These enhancements to our hostel partners. These deposit and credit their account with $50, which deposit and credit their account with $50, which enhancements included creating an easier enhancements included creating an easier can be used on future booking deposits. We offer can be used on future booking deposits. We offer password reset function and an improved price password reset function and an improved price 24/7 Customer Service in 19 languages – helping 24/7 Customer Service in 19 languages – helping tracking tool. Our Hostel Notice Board feature tracking tool. Our Hostel Notice Board feature our customers to Meet the World with ease. our customers to Meet the World with ease. allows hostels to post messages and information allows hostels to post messages and information about events happening in their hostel directly to about events happening in their hostel directly to We understand that there may be times our We understand that there may be times our a notice board featured on our app, which guests a notice board featured on our app, which guests customers have to cancel their bookings customers have to cancel their bookings can see. can see. with little notice, so in 2018 we launched our with little notice, so in 2018 we launched our 38 38 customers to cancel their booking online through customers to cancel their booking online through their Hostelworld account within the cancellation their Hostelworld account within the cancellation window and have their deposit refunded. window and have their deposit refunded. To make travelling more interactive and To make travelling more interactive and engaging we also offer Hostel Speak, an engaging we also offer Hostel Speak, an innovative translation feature which enables innovative translation feature which enables customers to communicate in 43 languages. customers to communicate in 43 languages. In addition, customers can also use our Hostel In addition, customers can also use our Hostel Chat feature when staying in any of our 50 most Chat feature when staying in any of our 50 most popular hostels. Hostel Chat is an in-app instant popular hostels. Hostel Chat is an in-app instant messaging feature that lets customers chat with messaging feature that lets customers chat with fellow Hostelworld travellers who are staying at fellow Hostelworld travellers who are staying at the same hostel, at the same time as them. It’s the same hostel, at the same time as them. It’s an easy way to start a conversation and swap an easy way to start a conversation and swap tips for their trip, or to meet other solo travellers tips for their trip, or to meet other solo travellers for outings. Other features include the Wishlist, for outings. Other features include the Wishlist, where customers can save their favourite hostels where customers can save their favourite hostels to revisit and book another day, and our Notice to revisit and book another day, and our Notice Board feature. Board feature. Our Shareholders Our Shareholders As a global company with locations across three As a global company with locations across three continents, we encourage and support our continents, we encourage and support our people in engaging with the communities we people in engaging with the communities we both work in, and travel to. In 2018, Hostelworld both work in, and travel to. In 2018, Hostelworld again participated in the Techies4TempleStreet again participated in the Techies4TempleStreet Irish charity event which brings together the Irish charity event which brings together the technology community based in Ireland to technology community based in Ireland to fundraise over €240,000 for Temple Street fundraise over €240,000 for Temple Street Children’s Hospital, Dublin. Children’s Hospital, Dublin. Other charitable initiatives during 2018 included Other charitable initiatives during 2018 included a European colleague charity pool tournament a European colleague charity pool tournament with the proceeds going to various local charities, with the proceeds going to various local charities, the Christmas Shoebox Appeal with Team Hope, the Christmas Shoebox Appeal with Team Hope, donating to the St. Vincent de Paul Christmas donating to the St. Vincent de Paul Christmas Food Appeal, and a charity coffee morning in aid Food Appeal, and a charity coffee morning in aid of Harold’s Cross Hospice, Dublin. A Christmas of Harold’s Cross Hospice, Dublin. A Christmas Jumper Day in aid of Cystic Fibrosis Ireland and Jumper Day in aid of Cystic Fibrosis Ireland and Save the Children UK took place in our Dublin Save the Children UK took place in our Dublin and London offices, and we also encouraged and London offices, and we also encouraged employees to become regular blood donors by employees to become regular blood donors by arranging local donation clinics. arranging local donation clinics. We are committed to building long-term We are committed to building long-term relationships with our shareholders through open relationships with our shareholders through open In the last year, we eliminated the use of bottled In the last year, we eliminated the use of bottled and transparent communication. Our Company and transparent communication. Our Company water across all of our offices with our “Ban the water across all of our offices with our “Ban the Secretary is available to shareholders, and the Secretary is available to shareholders, and the Bottle” initiative. All colleagues were given a new, Bottle” initiative. All colleagues were given a new, Senior Independent Director and Chairman are Senior Independent Director and Chairman are reusable, BPA free water bottle, to reduce plastic reusable, BPA free water bottle, to reduce plastic available to shareholders through the Company available to shareholders through the Company waste and encourage the use of filtered water waste and encourage the use of filtered water Secretary, if required. Secretary, if required. within the office environment. within the office environment. THE HOUSE OF SANDEMAN - HOSTEL & SUITES THE HOUSE OF SANDEMAN - HOSTEL & SUITES PORTO PORTO Hostelworld Annual Report 2018 | Strategic Report Hostelworld Annual Report 2018 | Strategic Report Modern Slavery Act 2015 Modern Slavery Act 2015 The Modern Slavery Act 2015 (the “Act”) requires large organisations operating in the United Kingdom The Modern Slavery Act 2015 (the “Act”) requires large organisations operating in the United Kingdom to make a public statement outlining how they keep their supply chains free from slavery and human to make a public statement outlining how they keep their supply chains free from slavery and human trafficking. We published a statement on our website on 27 June 2017 outlining the steps taken by the trafficking. We published a statement on our website on 27 June 2017 outlining the steps taken by the Group to ensure that slavery and human trafficking is not taking place within the business or any supply 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. chain and we will continue to monitor our obligations under the Act. Greenhouse Gas Emission Statement Greenhouse Gas Emission Statement Greenhouse Gas (“GHG”) emissions for the financial year ended 31 December 2018 have been measured Greenhouse Gas (“GHG”) emissions for the financial year ended 31 December 2018 have been measured as required under the Large and Medium-sized Companies and Groups (Account and Reports) as required under the Large and Medium-sized Companies and Groups (Account and Reports) Regulations 2008 as amended in 2013. Regulations 2008 as amended in 2013. We have used the GHG Protocol Corporate Accounting and Reporting standards (revised edition), data We have used the GHG Protocol Corporate Accounting and Reporting standards (revised edition), data gathered to fulfil the requirements under the CRC Energy Efficiency scheme, and emission factors from gathered to fulfil the requirements under the CRC Energy Efficiency scheme, and emission factors from Defra, UK Government conversion factors for Company Reporting (2018) to calculate the disclosures, Defra, UK Government conversion factors for Company Reporting (2018) to calculate the disclosures, where they are not separately disclosed by a supplier. where they are not separately disclosed by a supplier. We believe our emissions are impacted by the size of the business, which is driven by our global We believe our emissions are impacted by the size of the business, which is driven by our global headcount and office footprint. We have therefore chosen to use an intensity ratio measured on headcount and office footprint. We have therefore chosen to use an intensity ratio measured on emissions per €m of net revenue in order to put the GHG in context for the size of the business. emissions per €m of net revenue in order to put the GHG in context for the size of the business. Scope 1 – Emissions from operations Scope 1 – Emissions from operations Scope 2 – Emissions from energy usage Scope 2 – Emissions from energy usage Scope 3 – Emissions from employee travel Scope 3 – Emissions from employee travel Total Total Intensity Ratio (tCO2e/€m) Intensity Ratio (tCO2e/€m) 2018 2018 tCO2e tCO2e Nil Nil 161.0 161.0 163.3 163.3 324.3 324.3 4.0 4.0 2017 2017 tCO2e tCO2e Nil Nil 190.9 190.9 258.1 258.1 449.0 449.0 5.2 5.2 Scope 1 - All direct GHG emissions Scope 1 - All direct GHG emissions Scope 2 - All indirect emissions due to consumption of purchased electricity 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 Scope 3 - Voluntary disclosure of other indirect emissions where Hostelworld Group has the ability to influence them Hostelworld Group is an internet-based business which leases its premises and does not have a retail Hostelworld Group is an internet-based business which leases its premises and does not have a retail footprint. The main GHG releasing activities over which the Group has influence are use of purchased footprint. The main GHG releasing activities over which the Group has influence are use of purchased electricity and business travel. The Group has no owned vehicles. electricity and business travel. The Group has no owned vehicles. The energy consumption in the Group’s Sydney and Shanghai offices has been estimated on a The energy consumption in the Group’s Sydney and Shanghai offices has been estimated on a per person basis, based on the actual energy consumption in the Group’s Dublin office, and is not per person basis, based on the actual energy consumption in the Group’s Dublin office, and is not considered material to the above disclosures. considered material to the above disclosures. The Group is committed to monitoring and reviewing its carbon emissions, and in particular its The Group is committed to monitoring and reviewing its carbon emissions, and in particular its employee business travel, which accounts for 51% of its total carbon emissions in 2018 (2017: 57%). employee business travel, which accounts for 51% of its total carbon emissions in 2018 (2017: 57%). 40 40 GENERATOR STOCKHOLM GENERATOR STOCKHOLM STOCKHOLM STOCKHOLM 03 LUB D PHUKET PATONG PHUKET GOVERNANCE 45 Chairman’s Introduction to Governance 46 48 59 66 71 76 86 98 Directors’ Biographies Corporate Governance Statement Report of the Audit Committee Report of the Nomination Committee Chairman of the Remuneration Committee’s Annual Statement Directors’ Remuneration Policy Annual Report on Remuneration Directors’ Report 106 Independent Auditor’s Report Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance CHAIRMAN’S CHAIRMAN’S INTRODUCTION INTRODUCTION TO GOVERNANCE TO GOVERNANCE I am pleased to introduce the Corporate I am pleased to introduce the Corporate Governance Report for the year ended Governance Report for the year ended 31 December 2018 which sets out how 31 December 2018 which sets out how Hostelworld Group plc has applied the Hostelworld Group plc has applied the main principles of good governance main principles of good governance contained in the UK Corporate contained in the UK Corporate Governance Code. Governance Code. The Board is committed to promoting high The Board is committed to promoting high standards of corporate governance in standards of corporate governance in Hostelworld Group plc (the “Company”) and Hostelworld Group plc (the “Company”) and its subsidiaries (together the “Group”). The its subsidiaries (together the “Group”). The Board continues to ensure that the governance Board continues to ensure that the governance structures evolve as necessary and remain structures evolve as necessary and remain appropriate for a Group of our size and appropriate for a Group of our size and complexity. The Directors are fully aware of complexity. The Directors are fully aware of their duties and responsibilities under the UK their duties and responsibilities under the UK Corporate Governance Code, the Disclosure and Corporate Governance Code, the Disclosure and Transparency Rules and the Listing Rules. Transparency Rules and the Listing Rules. Compliance with UK Corporate Compliance with UK Corporate Governance Code 2016 Governance Code 2016 The Corporate Governance Report for 2018 The Corporate Governance Report for 2018 sets out how the Company has applied the sets out how the Company has applied the main principles of good governance and I am main principles of good governance and I am pleased to report that the Company is in full pleased to report that the Company is in full compliance with the UK Corporate Governance compliance with the UK Corporate Governance Code 2016 (the “2016 Code”). In addition, the Code 2016 (the “2016 Code”). In addition, the and succession continue to be reviewed by the and succession continue to be reviewed by the Nomination Committee and remain an area Nomination Committee and remain an area of ongoing focus for the Board and management. of ongoing focus for the Board and management. We currently have six board members, We currently have six board members, comprising two Executive Directors, myself and comprising two Executive Directors, myself and three other Non-Executive Directors. Of the six three other Non-Executive Directors. Of the six board members, one is female, five are resident board members, one is female, five are resident in Europe and one is resident in the United in Europe and one is resident in the United States of America. Four have travel/leisure sector States of America. Four have travel/leisure sector executive experience and two members come executive experience and two members come from other industry sectors. In my opinion, from other industry sectors. In my opinion, we have an excellent mix of skills and styles we have an excellent mix of skills and styles which ensures challenging and robust debate at which ensures challenging and robust debate at boardroom level and well considered decisions. boardroom level and well considered decisions. Board Evaluation Board Evaluation In 2018, a formal evaluation of the Board, In 2018, a formal evaluation of the Board, its Committees and individual Directors was its Committees and individual Directors was undertaken. This review was facilitated by the undertaken. This review was facilitated by the Company Secretary. The evaluation established Company Secretary. The evaluation established that the Board is operating effectively and that the Board is operating effectively and cohesively with a good balance of support and cohesively with a good balance of support and challenge. A summary of the process undertaken challenge. A summary of the process undertaken is included on page 54 and 55. is included on page 54 and 55. Shareholder Engagement Shareholder Engagement Financial Reporting Council published an updated Financial Reporting Council published an updated We are committed to engaging regularly with We are committed to engaging regularly with Corporate Governance Code in July 2018 and Corporate Governance Code in July 2018 and our shareholders to address any queries and our shareholders to address any queries and while the updated 2018 code does not apply to while the updated 2018 code does not apply to concerns. concerns. Hostelworld until 2019, in the interest of adhering Hostelworld until 2019, in the interest of adhering to high standards of corporate governance, the to high standards of corporate governance, the We will keep under constant review We will keep under constant review Company has already taken account of certain Company has already taken account of certain developments in corporate governance best developments in corporate governance best changes on a voluntary basis and will report changes on a voluntary basis and will report formally in accordance with the updated 2018 formally in accordance with the updated 2018 code in its 2019 Annual Report. code in its 2019 Annual Report. Board Composition, Diversity and Board Composition, Diversity and Succession Succession There have been significant changes to the Board There have been significant changes to the Board during 2018 with the appointment of a new Chief during 2018 with the appointment of a new Chief Executive Officer and Chief Financial Officer. Executive Officer and Chief Financial Officer. Diversity and succession have been particularly Diversity and succession have been particularly important considerations for the Board in a year important considerations for the Board in a year of such change. Board composition, diversity of such change. Board composition, diversity practice to ensure that our processes continue practice to ensure that our processes continue to be aligned to the needs of the business, help to be aligned to the needs of the business, help us manage risk and provide assurance and us manage risk and provide assurance and accountability in a transparent way for the benefit accountability in a transparent way for the benefit of all our shareholders and stakeholders. of all our shareholders and stakeholders. I look forward to reporting to you next year as to I look forward to reporting to you next year as to how our governance arrangements continue to how our governance arrangements continue to develop. develop. Michael Cawley Michael Cawley Chairman Chairman 1 April 2019 1 April 2019 45 45 VALENCIA LOUNGE HOSTEL VALENCIA LOUNGE HOSTEL VALENCIA VALENCIA Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance DIRECTORS’ BIOGRAPHIES DIRECTORS’ BIOGRAPHIES Michael Cawley Michael Cawley Gary Morrison Gary Morrison TJ Kelly TJ Kelly Andy McCue Andy McCue Éimear Moloney Éimear Moloney Carl Shepherd Carl Shepherd Role: Chair of the Board; Chair of the Role: Chair of the Board; Chair of the Role: Chief Executive Officer; Chair of Role: Chief Executive Officer; Chair of Role: Chief Financial Officer; member of Role: Chief Financial Officer; member of Role: Senior Independent Non- Role: Senior Independent Non- Role: Non-Executive Director; Chair of Role: Non-Executive Director; Chair of Role: Non-Executive Director; member Role: Non-Executive Director; member Nomination Committee; member of the Nomination Committee; member of the Disclosure Committee Disclosure Committee the Disclosure Committee the Disclosure Committee Executive Director; Chair of the Executive Director; Chair of the the Audit Committee; member of the the Audit Committee; member of the of the Audit Committee; member of the of the Audit Committee; member of the Remuneration Committee Remuneration Committee Age: 64 Age: 64 Nationality: Irish Nationality: Irish Age: 51 Age: 51 Age: 44 Age: 44 the Audit Committee; member of the the Audit Committee; member of the the Nomination Committee the Nomination Committee the Nomination Committee the Nomination Committee Remuneration Committee; member of Remuneration Committee; member of Remuneration Committee; member of Remuneration Committee; member of Remuneration Committee; member of Remuneration Committee; member of Nationality: British Nationality: British Nationality: Irish Nationality: Irish Nomination Committee Nomination Committee Age: 44 Age: 44 Age: 48 Age: 48 Age: 66 Age: 66 Qualifications: Gary has a Masters in Qualifications: Gary has a Masters in Qualifications: TJ is a fellow of the Qualifications: TJ is a fellow of the Nationality: Irish Nationality: Irish Nationality: American Nationality: American Qualifications: Michael holds a Qualifications: Michael holds a Engineering from Leeds University UK Engineering from Leeds University UK Institute of Chartered Accountants in Institute of Chartered Accountants in Nationality: British Nationality: British Bachelor of Commerce degree from Bachelor of Commerce degree from and holds an MBA from INSEAD. and holds an MBA from INSEAD. Ireland. Ireland. University College Cork and is a University College Cork and is a Qualifications: Andy has a M.A. in Qualifications: Andy has a M.A. in Finance and MSc. Investment and Finance and MSc. Investment and Business Administration from the Business Administration from the Qualifications: B.A. Accounting and Qualifications: B.A. Accounting and Qualifications: Carl has a M.A. in Qualifications: Carl has a M.A. in fellow of the Institute of Chartered fellow of the Institute of Chartered Joined Group: June 2018 Joined Group: June 2018 Joined Group: November 2018 Joined Group: November 2018 Economics and Management from the Economics and Management from the Treasury from Dublin City University. Treasury from Dublin City University. University of Texas. University of Texas. Independent: N/A Independent: N/A Independent: N/A Independent: N/A in Finance from the London Business in Finance from the London Business of Chartered Accountants in Ireland. of Chartered Accountants in Ireland. Joined Group: October 2017 Joined Group: October 2017 University of Cambridge and a Masters University of Cambridge and a Masters Éimear is also a fellow of the Institute Éimear is also a fellow of the Institute Accountants in Ireland. Accountants in Ireland. Joined Group: October 2015 Joined Group: October 2015 Independent: N/A* Independent: N/A* travel industry; technology; travel industry; technology; technology; financial services; technology; financial services; Sector Experience: Online Sector Experience: Online Sector Experience: Nutrition; Sector Experience: Nutrition; telecommunications. telecommunications. telecommunications. telecommunications. Sector Experience: Airlines; motor; Sector Experience: Airlines; motor; betting and gaming; construction. betting and gaming; construction. Other Board and Management Other Board and Management Other Board and Management Other Board and Management School. School. Joined Group: October 2015 Joined Group: October 2015 Independent: Yes Independent: Yes Joined Group: November 2017 Joined Group: November 2017 Independent: Yes Independent: Yes Independent: Yes Independent: Yes Sector Experience: Online travel Sector Experience: Online travel Sector Experience: Financial services. Sector Experience: Financial services. industry. industry. Experience: Prior to joining the Group, Experience: Prior to joining the Group, Experience: Prior to joining the Group, Experience: Prior to joining the Group, Sector Experience: E-Commerce; Sector Experience: E-Commerce; Other Board and Management Other Board and Management Other Board and Management Other Board and Management Gary was Senior Vice President and Gary was Senior Vice President and TJ was Chief Financial Officer of Glanbia TJ was Chief Financial Officer of Glanbia Experience: Michael is also a non- Experience: Michael is also a non- Head of Retail for Expedia brand Head of Retail for Expedia brand plc’s Performance Nutrition division plc’s Performance Nutrition division executive director of Ryanair Holdings executive director of Ryanair Holdings worldwide. He also was a director of worldwide. He also was a director of primarily based in Chicago. During this primarily based in Chicago. During this plc, having joined the Board in August plc, having joined the Board in August 2014. Michael had previously served 2014. Michael had previously served as Deputy Chief Executive Officer and as Deputy Chief Executive Officer and Chief Operating Officer of Ryanair from Chief Operating Officer of Ryanair from 2003 to March 2014 and before that as 2003 to March 2014 and before that as Ryanair’s Chief Financial Officer and Ryanair’s Chief Financial Officer and Commercial Director from 1997. Michael Commercial Director from 1997. Michael also holds directorships in Paddy also holds directorships in Paddy Despegar (NYSE DESP), AirAsiaExpedia Despegar (NYSE DESP), AirAsiaExpedia time TJ also had oversight responsibility time TJ also had oversight responsibility and Voyages SNCF. Previously, and Voyages SNCF. Previously, for Glanbia plc’s Group Procurement for Glanbia plc’s Group Procurement Gary held senior management Gary held senior management function. Prior to this TJ was Group function. Prior to this TJ was Group positions at Google as Head of Global positions at Google as Head of Global Financial Controller at Glanbia plc with Financial Controller at Glanbia plc with Sales Operations for Google’s Online Sales Operations for Google’s Online responsibility for investor relations. responsibility for investor relations. Sales Channel and Motorola as VP Sales Channel and Motorola as VP Previously TJ held senior financial Previously TJ held senior financial and Head of Product management for and Head of Product management for roles at Microsoft, GE Capital and Eir. roles at Microsoft, GE Capital and Eir. Motorola’s Smartphone division. Gary Motorola’s Smartphone division. Gary TJ trained and qualified as a chartered TJ trained and qualified as a chartered also worked in corporate development/ also worked in corporate development/ accountant with PwC. accountant with PwC. Power Betfair plc, Kingspan Group plc, Power Betfair plc, Kingspan Group plc, M&A, consulting and engineering M&A, consulting and engineering Mazine Limited, Prepaypower Holdings Mazine Limited, Prepaypower Holdings roles at General Electric, Booz Allen & roles at General Electric, Booz Allen & Limited, GMS Professional Imaging Limited, GMS Professional Imaging Hamilton and Schlumberger France Hamilton and Schlumberger France Limited, Gowan Limited, Gowan respectively. respectively. Group Limited, Flybondi Limited, Linked Group Limited, Flybondi Limited, Linked P2P Limited and Meadowbrook Heights P2P Limited and Meadowbrook Heights Unlimited. Prior to joining Ryanair, Unlimited. Prior to joining Ryanair, Michael was Group Finance Director of Michael was Group Finance Director of Gowan Group Limited. Michael is also Gowan Group Limited. Michael is also Chairman of Fáilte Ireland Authority. Chairman of Fáilte Ireland Authority. *Independent on appointment *Independent on appointment 46 46 betting and gaming; management and betting and gaming; management and Other Board and Management Other Board and Management Experience: Carl was co-founder of Experience: Carl was co-founder of strategy consulting. strategy consulting. Experience: Éimear has held senior Experience: Éimear has held senior HomeAway Inc. where he served on HomeAway Inc. where he served on Other Board and Management Other Board and Management Experience: Andy is currently the Chief Experience: Andy is currently the Chief Executive Officer of The Restaurant Executive Officer of The Restaurant Group plc*. Andy previously held the Group plc*. Andy previously held the positions of Chief Executive Officer, positions of Chief Executive Officer, Chief Operating Officer and Head of Chief Operating Officer and Head of Retail UK and Ireland at Paddy Power Retail UK and Ireland at Paddy Power Betfair plc. Prior to this, Andy was a Betfair plc. Prior to this, Andy was a investment manager roles in Zurich Life investment manager roles in Zurich Life the board of directors and was the the board of directors and was the Assurance (Ireland) plc, for 17 years up Assurance (Ireland) plc, for 17 years up company’s founding Chief Operating company’s founding Chief Operating to December 2017, with responsibility to December 2017, with responsibility Officer and Chief Strategic and Officer and Chief Strategic and for all major markets including the for all major markets including the Development Officer until its sale to Development Officer until its sale to Irish, US and UK equity portfolios, Irish, US and UK equity portfolios, Expedia in 2015. Carl is currently on Expedia in 2015. Carl is currently on sector, stock analysis and selection. sector, stock analysis and selection. the board of @Leisure Group, Turnkey the board of @Leisure Group, Turnkey Éimear previously worked with Éimear previously worked with Vacation Rentals, Inc., OnceThere, Inc. Vacation Rentals, Inc., OnceThere, Inc. Bankers Trust Funds Management Bankers Trust Funds Management and RVshare, LLC. Carl’s previous roles and RVshare, LLC. Carl’s previous roles Ltd in Australia and also with Crowe Ltd in Australia and also with Crowe include Chief Operating Officer and include Chief Operating Officer and Horwath, Chartered Accountants in Horwath, Chartered Accountants in Chief Development Officer of Hoover’s Chief Development Officer of Hoover’s principal at OC&C Strategy Consultants principal at OC&C Strategy Consultants Ireland. Eimear also holds directorships Ireland. Eimear also holds directorships Online. Online. and also worked at Arthur Andersen and also worked at Arthur Andersen with Yew Grove REIT plc and Chanelle with Yew Grove REIT plc and Chanelle Business Consulting. Andy also holds Business Consulting. Andy also holds Pharmaceutical Group. Pharmaceutical Group. directorships in The Restaurant Group directorships in The Restaurant Group plc and subsidiary companies. plc and subsidiary companies. *On 14 February 2019, The Restaurant Group *On 14 February 2019, The Restaurant Group plc announced that Andy had informed the plc announced that Andy had informed the board of his decision to leave the company board of his decision to leave the company but that it anticipated that Andy would but that it anticipated that Andy would remain in his position while a successor is remain in his position while a successor is being recruited. being recruited. 47 47 WOMBATS CITY HOSTEL LONDON CORPORATE GOVERNANCE STATEMENT The Board recognises the importance of high standards of corporate governance and is committed to ensuring that appropriate corporate governance procedures are in place within the Group. The Board provides leadership and oversight designed to achieve sustained business growth, enhanced shareholder value and the protection of the interests of employees and other stakeholders whilst promoting a culture of the highest standards of integrity, transparency and accountability. A key objective of the governance framework at Hostelworld is to ensure compliance with applicable legal requirements and with best practice in governance. resigned as Chief Executive Officer and Director of the Company and was replaced with immediate effect by Gary Morrison. Feargal will remain as an employee of the Company until 11 June 2019. On 21 August 2018, the Company announced the appointment of TJ Kelly as Chief Financial Officer and Director of the Company, with effect from 21 November 2018. In light of the changes to audit committee composition set out in the updated UK Corporate Governance Code (July 2018) and to ensure the Company continues to comply with best corporate governance, Michael Cawley (Chairman) resigned as a member of the Company’s Audit Committee on 5 December 2018. As part of its role, the Board provides entrepreneurial leadership and strategic guidance to management in the constructive challenge of proposals, the monitoring of The Board is currently comprised of six members, as follows: ► Michael Cawley, (Non-Executive Chairman of performance, and the setting of both short term the Board and Chairman of the Nomination and long term objectives. The Board works to Committee), who was independent on ensure that the Group has sufficient human and appointment; financial capital to meet its objectives, and that appropriate controls are in place and operational ► Andy McCue (Senior Independent Director and to safeguard the assets of the Group. Further to the Company’s announcement on 19 December 2017 of Mari Hurley’s intention to resign her position as Chief Financial Officer, Chairman of the Remuneration Committee), Éimear Moloney (Chairperson of the Audit Committee) and Carl Shepherd (all three being independent Non-Executive Directors); and the Company announced Mari’s resignation as a ► Gary Morrison (Chief Executive Officer) and TJ Director of the Company on 10 April 2018. Mari Kelly (Chief Financial Officer), both Executive remained as an employee of the Company until Directors. The Board operates in accordance with the Moloney and Carl Shepherd are ‘independent Company’s Articles of Association, and its non-executive directors’ within the meaning of operation is governed by the Board Charter and the term as defined in the 2016 Code. Accordingly, the Schedule of Matters Reserved for the Board. all Directors will seek re-election at the In addition, the Board has established a number Company’s forthcoming AGM on 31 May 2019. of Committees, as indicated below, each of which has its own terms of reference, which are Board Composition reviewed at least annually. Biographies of the Directors are provided on pages 46 to 47. Length of Appointments The Board is comprised of six Directors, four Non- Executive Directors and two Executive Directors. Collectively, the Non-Executive Directors possess a wide range of financial, commercial and general management experience, online travel expertise and e-commerce expertise, and each Non-Executive Director appointments to the Non-Executive Director brings independent Board are for an initial term of three years, judgement to bear on a number of key issues subject to election at the Company’s AGM. Non- for the Group, including strategy, performance Executive Directors are usually expected to serve and risk management. Their collective range of two three year terms, unless otherwise agreed knowledge and viewpoints ensures a high quality with the Board upon appointment (although of robust debate and input into key decisions the Board may invite a Director to serve for an and ensures the Board operates effectively. additional period). Having regard to the level of experience required Election of Directors The Board may appoint any person to be a Director, either to fill a vacancy or as an addition to the existing Board, subject to the limits of Board size and composition as set out in the Articles of Association. Any Director so appointed by the Board shall hold office until the AGM following their appointment and must put themselves forward for election by the shareholders. for the Board to operate effectively, it is felt that collectively the Board is well positioned to address the risks and uncertainties faced by the Group as outlined on pages 30 to 34 through the combined business skills and online travel expertise of its Non-Executive and Executive Directors. It is also felt that the current number of Executive Directors and Non-Executive Directors is sufficient for the Board to properly fulfil its duties. Audit Committee Composition In accordance with the provisions of the 2016 The 2016 Code requires that the Board is satisfied Code, an evaluation of the skills, knowledge, that at least one member of the Audit Committee independence and experience of each Director has recent and relevant financial experience. The took place in 2018. Following the completion of Disclosure Guidance and Transparency Rules the evaluation exercise, the Board considers that (DTRs) require that at least one member of the all Directors continue to be effective, committed Audit Committee has competence in accounting to their roles and are able to devote sufficient and/or auditing. The Board is satisfied that the 48 17 June 2018. On 11 June 2018, Feargal Mooney time to their duties and that Andy McCue, Éimear Chairperson of the Audit Committee meets these 49 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance requirements, being a qualified accountant who requirements, being a qualified accountant who Diversity is embraced at Hostelworld and the Diversity is embraced at Hostelworld and the has responsibility for maintaining procedures, has responsibility for maintaining procedures, ► Determining the remuneration policy for the ► Determining the remuneration policy for the has previously held senior investment manager has previously held senior investment manager Group operates and implements a dignity at Group operates and implements a dignity at systems and controls required for the purposes systems and controls required for the purposes Directors and other senior executives following Directors and other senior executives following roles in Zurich Life Assurance (Ireland) plc. In roles in Zurich Life Assurance (Ireland) plc. In work policy that seeks to ensure that the working work policy that seeks to ensure that the working of complying with the obligations falling on the of complying with the obligations falling on the recommendations of the Remuneration recommendations of the Remuneration addition, the Board considers that the Audit addition, the Board considers that the Audit environment is free from any type of bullying environment is free from any type of bullying Company and its Directors and employees under Company and its Directors and employees under Committee, including use of share incentive Committee, including use of share incentive Committee has the necessary competence and Committee has the necessary competence and and/or harassment. Further, the Group strives and/or harassment. Further, the Group strives MAR and the Listing Rules of the London Stock MAR and the Listing Rules of the London Stock plans; plans; broad experience relevant to the sector in which broad experience relevant to the sector in which to ensure that a culture is maintained and to ensure that a culture is maintained and Exchange and of Euronext Dublin. Membership Exchange and of Euronext Dublin. Membership the Group operates, as required by the 2016 the Group operates, as required by the 2016 fostered that values and respects diversity and fostered that values and respects diversity and of the Disclosure Committee is comprised of the of the Disclosure Committee is comprised of the ► Determining the division of responsibilities ► Determining the division of responsibilities Code. Carl Shepherd is a former Chief Operating Code. Carl Shepherd is a former Chief Operating inclusion, not only gender and age diversity but inclusion, not only gender and age diversity but Chief Executive Officer and the Chief Financial Chief Executive Officer and the Chief Financial between the Chairman, Chief Executive between the Chairman, Chief Executive Officer and Chief Strategic and Development Officer and Chief Strategic and Development also diversity of educational and professional also diversity of educational and professional Officer. Officer. Officer with HomeAway, Inc., Andy McCue has Officer with HomeAway, Inc., Andy McCue has background. The Group’s success in this area is background. The Group’s success in this area is Officer and other Executive Directors, and Officer and other Executive Directors, and approving how authority may be delegated approving how authority may be delegated held senior executive positions with Paddy Power held senior executive positions with Paddy Power demonstrated by the fact that our staff come demonstrated by the fact that our staff come As required by the 2016 Code, specific areas of As required by the 2016 Code, specific areas of to subcommittees of the Board, the Chief to subcommittees of the Board, the Chief Betfair plc and Michael Cawley has previously Betfair plc and Michael Cawley has previously from a variety of different cultures, age groups from a variety of different cultures, age groups delegation are set out in the Terms of Reference delegation are set out in the Terms of Reference Executive Officer and other staff; Executive Officer and other staff; served as Deputy Chief Executive Officer and served as Deputy Chief Executive Officer and and educational and professional backgrounds and educational and professional backgrounds for each of the Audit Committee, Remuneration for each of the Audit Committee, Remuneration Chief Operating Officer of Ryanair Holdings Chief Operating Officer of Ryanair Holdings and represent 30 different nationalities. The and represent 30 different nationalities. The Committee and Nomination Committee. The Committee and Nomination Committee. The ► Considering the balance of interests between ► Considering the balance of interests between plc. This means that they each have a deep plc. This means that they each have a deep Group believes that recruitment, selection Group believes that recruitment, selection Terms of Reference of the Audit, Remuneration Terms of Reference of the Audit, Remuneration shareholders, employees, customers and the shareholders, employees, customers and the understanding of the challenges presented by understanding of the challenges presented by and promotion should be based on merit and and promotion should be based on merit and and Nomination Committees, as updated in and Nomination Committees, as updated in community; community; the Group’s customer-focussed strategy which the Group’s customer-focussed strategy which should not be impacted by age, gender, sexual should not be impacted by age, gender, sexual December 2018 to align with the requirements of December 2018 to align with the requirements of enabled them to make robust contributions to the enabled them to make robust contributions to the orientation, civil status, family status, disability, orientation, civil status, family status, disability, the updated UK Corporate Governance Code (July the updated UK Corporate Governance Code (July ► Review of the Group’s overall corporate ► Review of the Group’s overall corporate Audit Committee’s activities during the reporting Audit Committee’s activities during the reporting membership of the travelling community, race, membership of the travelling community, race, 2018), are available on the Company’s website, 2018), are available on the Company’s website, governance framework including any matters governance framework including any matters period. Further details of the background, period. Further details of the background, religious beliefs or political opinions. The Group’s religious beliefs or political opinions. The Group’s and reports of each of these Committees are and reports of each of these Committees are relating to compliance with the UK Corporate relating to compliance with the UK Corporate knowledge and experience of the Chairperson knowledge and experience of the Chairperson success in this area is demonstrated by the fact success in this area is demonstrated by the fact set out below. Certain matters, however, are set out below. Certain matters, however, are Governance Code; and Governance Code; and of the Audit Committee and each of the Audit of the Audit Committee and each of the Audit that no equality or discrimination based claim that no equality or discrimination based claim reserved for the Board’s decision, and are not reserved for the Board’s decision, and are not Committee members can be found on pages 46 Committee members can be found on pages 46 has been issued against the Group during the has been issued against the Group during the delegated to the Company’s Executive Directors. delegated to the Company’s Executive Directors. ► Any decision relating to the prosecution, ► Any decision relating to the prosecution, to 47 of this report. to 47 of this report. Board and Group Diversity Board and Group Diversity The Board is fully aware of the need to have a The Board is fully aware of the need to have a Board that is well balanced and which has the Board that is well balanced and which has the appropriate skills, knowledge, experience and appropriate skills, knowledge, experience and diversity for the needs of the business. Diversity diversity for the needs of the business. Diversity reporting period. The Group’s success in the area reporting period. The Group’s success in the area of ensuring gender equality is demonstrated by of ensuring gender equality is demonstrated by the fact that the male/female ratio of employees’ the fact that the male/female ratio of employees’ as of 31 December 2018 was 51.5% male and as of 31 December 2018 was 51.5% male and 48.5% female. 48.5% female. Board Role Board Role is considered in its broadest sense and includes is considered in its broadest sense and includes The Board has delegated authority for day- The Board has delegated authority for day- age, gender, cultural background, geographical age, gender, cultural background, geographical to-day operations within defined governance to-day operations within defined governance diversity and business background. During 2018 diversity and business background. During 2018 parameters to the Executive Leadership Team, parameters to the Executive Leadership Team, we adopted a formal Board policy on diversity we adopted a formal Board policy on diversity consisting of the Executive Directors and other consisting of the Executive Directors and other to ensure that the Group continues to derive the to ensure that the Group continues to derive the senior executives. senior executives. benefits of a diverse Board. The policy provides benefits of a diverse Board. The policy provides that an effective Board will include and make that an effective Board will include and make The Board may appoint Committees as it thinks The Board may appoint Committees as it thinks good use of differences in the skills, regional and good use of differences in the skills, regional and fit to exercise certain of its powers and has fit to exercise certain of its powers and has industry experience, background, race, gender industry experience, background, race, gender delegated certain responsibilities to Board delegated certain responsibilities to Board and other distinctions between Directors. and other distinctions between Directors. Committees, namely: Committees, namely: The application of diversity principles to The application of diversity principles to ► Audit Committee ► Audit Committee the appointment of Éimear Moloney as a the appointment of Éimear Moloney as a ► Remuneration Committee ► Remuneration Committee member of the Nomination Committee and member of the Nomination Committee and ► Nomination Committee ► Nomination Committee Remuneration Committee in February 2018 Remuneration Committee in February 2018 ► Disclosure Committee ► Disclosure Committee and the appointment of Gary Morrison as Chief and the appointment of Gary Morrison as Chief Executive Officer and TJ Kelly as Chief Financial Executive Officer and TJ Kelly as Chief Financial Following the introduction of the Market Abuse Following the introduction of the Market Abuse Officer during the reporting period are described Officer during the reporting period are described Regulation in July 2016 (“MAR”), the Company Regulation in July 2016 (“MAR”), the Company in detail in the Report of the Nomination in detail in the Report of the Nomination established a Disclosure Committee. This established a Disclosure Committee. This Committee. Committee. Committee has responsibility for considering Committee has responsibility for considering and advising on the disclosure requirements and advising on the disclosure requirements The Group will continue to monitor diversity The Group will continue to monitor diversity and treatment of material information and treatment of material information both on the Board, its Committees and across both on the Board, its Committees and across disclosed in public filings and determining disclosed in public filings and determining the business to ensure diversity and equal the business to ensure diversity and equal the disclosure requirements and treatment the disclosure requirements and treatment 50 50 opportunities. opportunities. of material information. This Committee also of material information. This Committee also The schedule of these matters includes, but is not The schedule of these matters includes, but is not defence or settlement of material litigation. defence or settlement of material litigation. limited to: limited to: ► Responsibility for the overall leadership of the ► Responsibility for the overall leadership of the is reviewed annually and updated as appropriate. is reviewed annually and updated as appropriate. Company and setting the Company’s values, Company and setting the Company’s values, standards and objectives as well as approval standards and objectives as well as approval Board and Committee Meetings Board and Committee Meetings The Schedule of Matters Reserved for the Board The Schedule of Matters Reserved for the Board of annual budgets; of annual budgets; ► Approving the strategic aims and objectives ► Approving the strategic aims and objectives of the Group; of the Group; ► Oversight of the Group’s day-to-day operations ► Oversight of the Group’s day-to-day operations including maintenance of sound internal including maintenance of sound internal control and risk management systems and control and risk management systems and compliance with statutory and regulatory compliance with statutory and regulatory obligations; obligations; ► Controlling the Company’s capital structure; ► Controlling the Company’s capital structure; ► Approval of the annual report and accounts, ► Approval of the annual report and accounts, dividend policy, changes in accounting policies, dividend policy, changes in accounting policies, or matters that may impact the Company’s tax or matters that may impact the Company’s tax residency; residency; ► Ensuring a satisfactory dialogue with ► Ensuring a satisfactory dialogue with shareholders; shareholders; ► Approving the structure, size, composition ► Approving the structure, size, composition and membership of the Board, and ensuring and membership of the Board, and ensuring adequate succession planning for the Board adequate succession planning for the Board and senior management; and senior management; The Board has scheduled regular meetings The Board has scheduled regular meetings throughout the year and holds other meetings throughout the year and holds other meetings as required. At scheduled meetings, the Board as required. At scheduled meetings, the Board addresses: addresses: ► Progress against previously agreed actions; ► Progress against previously agreed actions; ► Business performance; ► Business performance; ► Financial performance; ► Financial performance; ► Operational matters of particular note for the ► Operational matters of particular note for the Board; Board; ► Strategic considerations; and ► Strategic considerations; and ► Reports of Board Committees. ► Reports of Board Committees. Other meetings are held on an ad hoc basis Other meetings are held on an ad hoc basis as required, and matters addressed will vary as required, and matters addressed will vary according to the demands of the business at that according to the demands of the business at that time. time. Members of the Executive Leadership Team, Members of the Executive Leadership Team, other executives and external advisors are other executives and external advisors are regularly invited to Board meetings to present regularly invited to Board meetings to present on their particular areas of expertise. on their particular areas of expertise. The Board periodically reviews the strategic The Board periodically reviews the strategic development of the business and collaborates development of the business and collaborates 51 51 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance with the Executive Leadership Team in the with the Executive Leadership Team in the Attendance at Meetings Attendance at Meetings development of the Group’s strategy to ensure development of the Group’s strategy to ensure that the construct and direction of the Group’s that the construct and direction of the Group’s strategic plan is appropriate and in the long strategic plan is appropriate and in the long term interests of the Group. A comprehensive term interests of the Group. A comprehensive programme of engagement with the Group’s programme of engagement with the Group’s Chief Executive Officer and Executive Leadership Chief Executive Officer and Executive Leadership Team was conducted by the Board during the Team was conducted by the Board during the reporting period in connection with the strategic reporting period in connection with the strategic review of the Group’s business and the need review of the Group’s business and the need to formally establish key strategic areas for the to formally establish key strategic areas for the Group to focus on. Detailed strategy proposals Group to focus on. Detailed strategy proposals on the below areas were provided to the Board on the below areas were provided to the Board and were discussed at Board meetings and in and were discussed at Board meetings and in meetings between Board members and the meetings between Board members and the Group’s Chief Executive Officer and senior Group’s Chief Executive Officer and senior executives. executives. Areas of Strategic Focus: Areas of Strategic Focus: ► Investing in the Group’s core technology ► Investing in the Group’s core technology platform platform ► Focus on best-in-class technology ► Focus on best-in-class technology ► Leveraging the Group’s data assets ► Leveraging the Group’s data assets ► Driving customer acquisition ► Driving customer acquisition The Board meets sufficiently regularly to ensure The Board meets sufficiently regularly to ensure that all its duties are discharged effectively. All that all its duties are discharged effectively. All Directors are expected to prepare for and attend Directors are expected to prepare for and attend meetings of the Board and the AGM. There were meetings of the Board and the AGM. There were nine Board meetings held in 2018, seven of nine Board meetings held in 2018, seven of which were scheduled Board meetings and all which were scheduled Board meetings and all scheduled meetings had full attendance. There scheduled meetings had full attendance. There were two unscheduled Board meetings held were two unscheduled Board meetings held in 2018 dealing with specific items of business in 2018 dealing with specific items of business and convened at short notice (one unscheduled and convened at short notice (one unscheduled meeting held by teleconference and the other meeting held by teleconference and the other conducted in person). During 2018 there was also conducted in person). During 2018 there was also two unanimous written decisions of the Board, two unanimous written decisions of the Board, to deal with (1) the appointment of the Group’s to deal with (1) the appointment of the Group’s new Chief Financial Officer; and (2) the approval new Chief Financial Officer; and (2) the approval of a material contract involving a financial spend of a material contract involving a financial spend requiring Board approval in accordance with the requiring Board approval in accordance with the Schedule of Matters Reserved for the Board. Schedule of Matters Reserved for the Board. There was also one unanimous written There was also one unanimous written decision of the Nomination Committee and the decision of the Nomination Committee and the Remuneration Committee, respectively, to deal Remuneration Committee, respectively, to deal with the appointment of the Group’s new Chief with the appointment of the Group’s new Chief Where a Director is unable to attend a meeting, Where a Director is unable to attend a meeting, Andy McCue is the Board’s Senior Independent Andy McCue is the Board’s Senior Independent all papers for the meeting are issued to them, all papers for the meeting are issued to them, Director (“SID”). The SID’s primary role is to Director (“SID”). The SID’s primary role is to their views are solicited in advance of the their views are solicited in advance of the provide a sounding board for the Chairman and provide a sounding board for the Chairman and meeting, and updates are provided to them after meeting, and updates are provided to them after to act as an intermediary for other Directors to act as an intermediary for other Directors the meetings where appropriate. the meetings where appropriate. as required. The SID meets with the other as required. The SID meets with the other Non-Executive Directors without the Executive Non-Executive Directors without the Executive Directors may request that any relevant concern Directors may request that any relevant concern Directors present and also leads the annual Directors present and also leads the annual they have be reflected in the minutes of any they have be reflected in the minutes of any evaluation of the Chairman’s performance. The evaluation of the Chairman’s performance. The Board or Committee meeting, and minutes are Board or Committee meeting, and minutes are SID is available to shareholders if they have SID is available to shareholders if they have circulated for review in advance of approval and circulated for review in advance of approval and concerns that cannot be addressed through concerns that cannot be addressed through signing at the next meeting, or as appropriate. signing at the next meeting, or as appropriate. the Chairman, Chief Executive Officer or Chief the Chairman, Chief Executive Officer or Chief Division of Responsibilities Division of Responsibilities The Board takes collective responsibility for the The Board takes collective responsibility for the Financial Officer. Financial Officer. Support to Directors Support to Directors management of the Group. Within the Board, the management of the Group. Within the Board, the To assist the Directors in performing their duties, To assist the Directors in performing their duties, roles and responsibilities of the Chairman and roles and responsibilities of the Chairman and they have full and timely access to all relevant they have full and timely access to all relevant Chief Executive Officer are clearly separated and Chief Executive Officer are clearly separated and information. For Board meetings, this consists information. For Board meetings, this consists are held by different individuals, and there is also are held by different individuals, and there is also of a formal agenda, minutes of previous meetings of a formal agenda, minutes of previous meetings a Senior Independent Director. a Senior Independent Director. and a comprehensive set of Board papers and a comprehensive set of Board papers including regular updates and reports of special including regular updates and reports of special Michael Cawley, as Chairman, is the link between Michael Cawley, as Chairman, is the link between matters of interest. The Directors are entitled matters of interest. The Directors are entitled the Board and the Company and is responsible the Board and the Company and is responsible to take independent professional advice at the to take independent professional advice at the for leadership and governance of the Board, for leadership and governance of the Board, Company’s expense in the furtherance of their Company’s expense in the furtherance of their including setting the Board’s agenda. He including setting the Board’s agenda. He duties, where considered necessary. duties, where considered necessary. ► Improving the Group’s business model ► Improving the Group’s business model Financial Officer. Financial Officer. oversees the operation and overall effectiveness oversees the operation and overall effectiveness ► Investing in the Group’s people ► Investing in the Group’s people ► Optimising capital allocation ► Optimising capital allocation The specific results of the detailed strategic review The specific results of the detailed strategic review and the future strategy focus for the Group were and the future strategy focus for the Group were approved by the Board and are outlined in more approved by the Board and are outlined in more detail in the Chief Executive’s Statement. detail in the Chief Executive’s Statement. Details of the Directors attendance at Board and Details of the Directors attendance at Board and Committee meetings are set out below. Committee meetings are set out below. Board/Committee Board/Committee (No. of Meetings held during the year when the Director was a member) (No. of Meetings held during the year when the Director was a member) Board Board Audit Audit Remuneration Remuneration Nomination Nomination Scheduled Scheduled Unscheduled Unscheduled Scheduled Scheduled Scheduled Scheduled Unscheduled Unscheduled Scheduled Scheduled Unscheduled Unscheduled Michael Cawley(i) Michael Cawley(i) Andy McCue Andy McCue Carl Shepherd Carl Shepherd Éimear Moloney(ii) Éimear Moloney(ii) Gary Morrison(iii) Gary Morrison(iii) TJ Kelly(iv) TJ Kelly(iv) Feargal Mooney(v) Feargal Mooney(v) Mari Hurley(vi) Mari Hurley(vi) 7 / 7 7 / 7 7 / 7 7 / 7 7 / 7 7 / 7 7 / 7 7 / 7 4 / 4 4 / 4 1 / 1 1 / 1 3 / 3 3 / 3 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 1 / 2 1 / 2 2 / 2 2 / 2 1 / 1 1 / 1 - - - - - - 3 / 3 3 / 3 3 / 3 3 / 3 3 / 3 3 / 3 3 / 3 3 / 3 - - - - - - - - 4 / 4 4 / 4 4 / 4 4 / 4 4 / 4 4 / 4 4 / 4 4 / 4 - - - - - - - - 1 / 1 1 / 1 1 / 1 1 / 1 0 / 1 0 / 1 1 / 1 1 / 1 - - - - - - - - 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 2 / 2 - - - - - - - - 2 / 2 2 / 2 2 / 2 2 / 2 1 / 2 1 / 2 2 / 2 2 / 2 - - - - - - - - i. In advance of the application of the provisions of the updated UK Corporate Governance Code (July 2018), Michael Cawley resigned as a member of the i. In advance of the application of the provisions of the updated UK Corporate Governance Code (July 2018), Michael Cawley resigned as a member of the Audit Committee on 5 December 2018 Audit Committee on 5 December 2018 ii. Éimear Moloney was appointed a member of both the Remuneration Committee and the Nomination Committee on 9 February 2018. ii. Éimear Moloney was appointed a member of both the Remuneration Committee and the Nomination Committee on 9 February 2018. 52 52 iii. Appointed 11 June 2018 iii. Appointed 11 June 2018 iv. Appointed 21 November 2018 iv. Appointed 21 November 2018 v. Resigned 11 June 2018 v. Resigned 11 June 2018 vi. Resigned 10 April 2018 vi. Resigned 10 April 2018 of the Board, ensuring that it has a common of the Board, ensuring that it has a common All newly appointed Directors receive a All newly appointed Directors receive a purpose, is effective as a group by creating and purpose, is effective as a group by creating and comprehensive induction briefing on their duties comprehensive induction briefing on their duties managing constructive relationships between managing constructive relationships between and responsibilities as directors of a publicly and responsibilities as directors of a publicly the Executive and Non-Executive Directors and the Executive and Non-Executive Directors and quoted company. This induction also includes quoted company. This induction also includes at individual Director level and that it upholds at individual Director level and that it upholds meetings with members of the Executive meetings with members of the Executive and promotes high standards of integrity and promotes high standards of integrity Leadership Team together with briefings on the Leadership Team together with briefings on the and corporate governance. The Chairman and corporate governance. The Chairman Group’s business, key risks and its competitive Group’s business, key risks and its competitive ensures the Directors receive accurate and ensures the Directors receive accurate and opportunities and challenges. The programme opportunities and challenges. The programme timely information, enabling them to play a timely information, enabling them to play a of induction is tailored to take account of prior of induction is tailored to take account of prior full and constructive role in the development full and constructive role in the development experience and business perspectives and on experience and business perspectives and on and determination of the Group’s strategy. He and determination of the Group’s strategy. He the Committees on which he or she will serve. the Committees on which he or she will serve. ensures that there is effective communication ensures that there is effective communication with the shareholders and that the Board is aware with the shareholders and that the Board is aware All Directors have access to ongoing training All Directors have access to ongoing training of the views of its major shareholders. of the views of its major shareholders. as required and, as part of the annual Board as required and, as part of the annual Board evaluation and Director appraisal process evaluation and Director appraisal process Gary Morrison, as Chief Executive Officer, reports Gary Morrison, as Chief Executive Officer, reports in 2018, the Chairman considered and discussed in 2018, the Chairman considered and discussed to the Chairman and the Board, and is entrusted to the Chairman and the Board, and is entrusted the training and development needs of each the training and development needs of each with the ongoing management of the Group’s with the ongoing management of the Group’s Director. The Directors are also encouraged to Director. The Directors are also encouraged to business. He and his Executive Leadership business. He and his Executive Leadership identify any additional training requirements identify any additional training requirements Team bring forward to the Board proposals for Team bring forward to the Board proposals for that would assist them in carrying out their that would assist them in carrying out their the development and strategy of the business. the development and strategy of the business. role. During the year, training included detailed role. During the year, training included detailed The Chief Executive Officer is responsible The Chief Executive Officer is responsible briefings and updates on (1) compliance and briefings and updates on (1) compliance and for execution of the agreed strategy and for execution of the agreed strategy and governance requirements arising from the governance requirements arising from the implementation of the decisions of the Board. implementation of the decisions of the Board. application of the updated UK Corporate application of the updated UK Corporate Governance Code (July 2018); (2) Market Abuse Governance Code (July 2018); (2) Market Abuse It is expected that all Non-Executive Directors It is expected that all Non-Executive Directors Regulation compliance requirements; (3) Regulation compliance requirements; (3) constructively challenge management proposals constructively challenge management proposals company law developments specific to the company law developments specific to the where appropriate and contribute their expertise where appropriate and contribute their expertise Company’s listed status; and (4) General Data Company’s listed status; and (4) General Data and knowledge towards the development of the and knowledge towards the development of the Protection Regulation compliance requirements. Protection Regulation compliance requirements. Group. Group. Product, strategy and business presentations Product, strategy and business presentations 53 53 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance were provided to the Board during 2018 by the were provided to the Board during 2018 by the planning, risk management and relations with planning, risk management and relations with to the Board were currently necessary (with the to the Board were currently necessary (with the €15,750 respectively in 2018 (2017: €60,000 and €15,750 respectively in 2018 (2017: €60,000 and Chief Product Officer, Chief Technology Officer, Chief Product Officer, Chief Technology Officer, shareholders. The results were analysed by shareholders. The results were analysed by matter being kept under on-going review and matter being kept under on-going review and €15,750). €15,750). Chief Customer Officer and the Director of Chief Customer Officer and the Director of the Company Secretary who prepared a report the Company Secretary who prepared a report to be reassessed in 2019). Accordingly, each to be reassessed in 2019). Accordingly, each Analytics and Insights and, on the particular Analytics and Insights and, on the particular for the Chairman. The report and completed for the Chairman. The report and completed Non-Executive Director is considered to be fit for Non-Executive Director is considered to be fit for The Chairman and each of the other Non- The Chairman and each of the other Non- request of the Board, a presentation on the request of the Board, a presentation on the questionnaires were reviewed by the Chairman questionnaires were reviewed by the Chairman re-election. re-election. Group’s culture and employee engagement Group’s culture and employee engagement and the principal findings were fed back to and the principal findings were fed back to Executive Directors hold other directorships, Executive Directors hold other directorships, and the Board is satisfied that they still have and the Board is satisfied that they still have roadmap was also provided to the Board by the roadmap was also provided to the Board by the and discussed with the Board. The evaluation and discussed with the Board. The evaluation In addition, an assessment of the Chairman’s In addition, an assessment of the Chairman’s sufficient capacity to devote adequate time to sufficient capacity to devote adequate time to Group’s Chief HR Officer. Group’s Chief HR Officer. established that the Board and its Committees established that the Board and its Committees were operating effectively and efficiently with were operating effectively and efficiently with performance was carried out in 2018 by the Non- performance was carried out in 2018 by the Non- Company matters. The Board considers that Company matters. The Board considers that Executive Directors, led by the SID, who provided Executive Directors, led by the SID, who provided these other directorships considerably enhance these other directorships considerably enhance At each scheduled Board meeting, the At each scheduled Board meeting, the good leadership and accountability and that the good leadership and accountability and that the feedback to him individually that concluded that feedback to him individually that concluded that the contribution of the Directors to the Board of the contribution of the Directors to the Board of Executive Directors provide operational and Executive Directors provide operational and Board has the appropriate depth and breadth of Board has the appropriate depth and breadth of he performed effectively. he performed effectively. Hostelworld Group plc. Hostelworld Group plc. financial updates. Depending on the nature financial updates. Depending on the nature skills and experience to be effective. As part of skills and experience to be effective. As part of of the proposal to be considered, other senior of the proposal to be considered, other senior both the evaluation exercise and a general review both the evaluation exercise and a general review executives are invited to make presentations or executives are invited to make presentations or of the Board’s effectiveness the following items of the Board’s effectiveness the following items participate in Board discussions to ensure that participate in Board discussions to ensure that were recommended and will be on the Board’s were recommended and will be on the Board’s Board decisions are supported by a full analysis Board decisions are supported by a full analysis agenda for 2019: agenda for 2019: of each proposal. The Chairman will continue to of each proposal. The Chairman will continue to review individual training needs of Directors on review individual training needs of Directors on ► Non-Executive Directors to be provided ► Non-Executive Directors to be provided an ongoing basis and as part of the formal annual an ongoing basis and as part of the formal annual with tailored training on developments and with tailored training on developments and appraisal process. appraisal process. competitive challenges in the online travel competitive challenges in the online travel industry; industry; All Directors also have access to the advice and All Directors also have access to the advice and services of the Company Secretary. The Company services of the Company Secretary. The Company ► The Chief Executive Officer and the Chairman ► The Chief Executive Officer and the Chairman Secretary acts as Secretary to each of the Board Secretary acts as Secretary to each of the Board to arrange more frequent engagement to arrange more frequent engagement Committees reporting in these roles directly to Committees reporting in these roles directly to between Non-Executive Directors and the between Non-Executive Directors and the their Chairperson. John Duggan, appointed as their Chairperson. John Duggan, appointed as Group’s senior executives; Group’s senior executives; Company Secretary on 11 June 2018 to replace Company Secretary on 11 June 2018 to replace Paula Phelan, assists the Chairman in ensuring Paula Phelan, assists the Chairman in ensuring ► KPI based strategy implementation updates ► KPI based strategy implementation updates the effective operation of the Board and has the the effective operation of the Board and has the to be provided to the Board on an on-going to be provided to the Board on an on-going following responsibilities: following responsibilities: basis by members of the Group’s Executive basis by members of the Group’s Executive ► To ensure good information flows between the ► To ensure good information flows between the Leadership Team; Leadership Team; ► To ensure Board and Committee procedures ► To ensure Board and Committee procedures are followed; are followed; ► Succession planning for the Board and for the ► Succession planning for the Board and for the Group’s senior executives; and Group’s senior executives; and ► To facilitate Director induction and assist with ► To facilitate Director induction and assist with professional development; and professional development; and ► Increased focus on the emerging risks faced by ► Increased focus on the emerging risks faced by ► To advise the Board on corporate governance ► To advise the Board on corporate governance obligations. obligations. the Group. the Group. The Chairman also conducted an appraisal of The Chairman also conducted an appraisal of the performance of each Director, having taken the performance of each Director, having taken Board Effectiveness and Evaluation Board Effectiveness and Evaluation into account the views of the other Directors. He into account the views of the other Directors. He In accordance with the provisions of the 2016 In accordance with the provisions of the 2016 Code, a formal internal evaluation of the Code, a formal internal evaluation of the Board, Committees and individual Directors Board, Committees and individual Directors was undertaken during the year. This included was undertaken during the year. This included completion of a detailed questionnaire by each completion of a detailed questionnaire by each of the Directors, covering the Board’s role, of the Directors, covering the Board’s role, knowledge and skills, effectiveness of Board knowledge and skills, effectiveness of Board and Committee meetings and information and Committee meetings and information flows, Board composition, succession flows, Board composition, succession reported that each Director continues to perform reported that each Director continues to perform effectively and demonstrates strong commitment effectively and demonstrates strong commitment to the role. As part of the appraisal exercise the to the role. As part of the appraisal exercise the Chairman assessed the individual and collective Chairman assessed the individual and collective depth and breadth of skills, experience and depth and breadth of skills, experience and knowledge of the Non-Executive Directors and knowledge of the Non-Executive Directors and concluded that (1) these were adequate to enable concluded that (1) these were adequate to enable the Board and its Committees to discharge their the Board and its Committees to discharge their respective duties and responsibilities effectively; respective duties and responsibilities effectively; and (2) no additional non-executive appointments and (2) no additional non-executive appointments 54 54 Aside from the Chairman, Michael Cawley, who Aside from the Chairman, Michael Cawley, who Shareholder Relations Shareholder Relations was independent at appointment, the Board was independent at appointment, the Board regards all of the other Non-Executive Directors regards all of the other Non-Executive Directors as ‘‘independent non-executive directors’’ within as ‘‘independent non-executive directors’’ within the meaning of the 2016 Code and free from any the meaning of the 2016 Code and free from any relationship that could materially interfere with relationship that could materially interfere with the exercise of their independent judgement. The the exercise of their independent judgement. The Board reached this conclusion (1) after assessing Board reached this conclusion (1) after assessing the responses to specific questions each the responses to specific questions each Director was asked as part of the formal internal Director was asked as part of the formal internal evaluation of the Board during the reporting evaluation of the Board during the reporting period; and (2) on the basis of the affirmative period; and (2) on the basis of the affirmative responses provided by each Director when the responses provided by each Director when the Company Secretary, as part of a governance Company Secretary, as part of a governance agenda item at a related Board meeting, provided agenda item at a related Board meeting, provided the Board with an overview of the independence the Board with an overview of the independence requirements prescribed by the 2016 Code and requirements prescribed by the 2016 Code and asked each Director if they considered Andy asked each Director if they considered Andy McCue, Éimear Moloney and Carl Shepherd to McCue, Éimear Moloney and Carl Shepherd to be independent within the meaning of the 2016 be independent within the meaning of the 2016 The Group places considerable importance on The Group places considerable importance on communicating with its shareholders to ensure communicating with its shareholders to ensure that its strategy, performance, management and that its strategy, performance, management and governance are understood and that it remains governance are understood and that it remains accountable to shareholders. The Chairman accountable to shareholders. The Chairman makes himself available to meet with major makes himself available to meet with major shareholders to discuss governance and strategy shareholders to discuss governance and strategy and can be contacted through the Company and can be contacted through the Company Secretary. Secretary. The Company formally updates the market on The Company formally updates the market on its financial performance at least twice a year, its financial performance at least twice a year, at the half year and full year results. These are at the half year and full year results. These are accompanied by formal investor roadshows accompanied by formal investor roadshows in Ireland, the UK and other investment in Ireland, the UK and other investment centres. There is also an ongoing programme centres. There is also an ongoing programme of meetings with institutional investors, fund of meetings with institutional investors, fund managers and analysts and attendance by the managers and analysts and attendance by the Executive Directors and other senior executives Executive Directors and other senior executives at conferences, covering a wide range of issues at conferences, covering a wide range of issues (within the constraints of legal requirements (within the constraints of legal requirements in respect of publicly available information), in respect of publicly available information), Any external directorships or other significant Any external directorships or other significant including strategy, performance and governance. including strategy, performance and governance. commitments of the Executive Directors require commitments of the Executive Directors require On 29 November 2018, the Group held a Capital On 29 November 2018, the Group held a Capital prior approval of the Board. Each Non-Executive prior approval of the Board. Each Non-Executive Markets Day in London and provided a strategy Markets Day in London and provided a strategy Director holds external directorships and these Director holds external directorships and these and trading update to shareholders, analysts and and trading update to shareholders, analysts and are disclosed within their profiles on pages 46 are disclosed within their profiles on pages 46 fund managers. fund managers. to 47. to 47. The Board is also kept informed of the views The Board is also kept informed of the views Executive Directors are permitted to retain Executive Directors are permitted to retain of shareholders through the Executive Directors of shareholders through the Executive Directors any fees paid in respect of approved external any fees paid in respect of approved external attendance at investor presentations and results attendance at investor presentations and results appointments. At the date of this report, as noted appointments. At the date of this report, as noted presentations. Furthermore, relevant feedback presentations. Furthermore, relevant feedback above, neither of the current Executive Directors above, neither of the current Executive Directors from such meetings, investor relations reports from such meetings, investor relations reports holds external directorships. Feargal Mooney, holds external directorships. Feargal Mooney, and broker notes are provided to the Board on a and broker notes are provided to the Board on a the previous Chief Executive Officer, is a non- the previous Chief Executive Officer, is a non- regular basis. regular basis. executive director of Meetingsbooker Limited for executive director of Meetingsbooker Limited for which he earned nil remuneration in 2018 (2017: which he earned nil remuneration in 2018 (2017: The Board ensures that any price sensitive The Board ensures that any price sensitive €nil). Mari Hurley, the previous Chief Financial €nil). Mari Hurley, the previous Chief Financial information is released to all shareholders, information is released to all shareholders, Officer, is a non-executive director of the National Officer, is a non-executive director of the National institutional and private, at the same time. institutional and private, at the same time. Asset Management Agency and of Ervia, for Asset Management Agency and of Ervia, for Questions from individual shareholders are Questions from individual shareholders are which she received remuneration of €60,000 and which she received remuneration of €60,000 and generally dealt with by the Executive Directors. generally dealt with by the Executive Directors. 55 55 Board and its Committees, senior management Board and its Committees, senior management ► Increased focus on the Group’s values and ► Increased focus on the Group’s values and Code. Code. and Non-Executive Directors; and Non-Executive Directors; assessing and monitoring the Group’s culture; assessing and monitoring the Group’s culture; and and External Directorships External Directorships Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance The Chairman, in line with governance The Chairman, in line with governance Annual General Meeting Annual General Meeting The AGM of the Company will take place at 12 The AGM of the Company will take place at 12 noon on 31 May 2019 at Hostelworld Group plc, noon on 31 May 2019 at Hostelworld Group plc, Floor 2, One Central Park, Leopardstown, Dublin Floor 2, One Central Park, Leopardstown, Dublin 18, Ireland. The Annual Report and Financial 18, Ireland. The Annual Report and Financial Statements and Notice of the AGM are sent to Statements and Notice of the AGM are sent to shareholders at least 20 working days prior to the shareholders at least 20 working days prior to the date of the meeting to provide the shareholders date of the meeting to provide the shareholders with adequate time to consider the proposed with adequate time to consider the proposed resolutions. The Notice of the AGM sets out the resolutions. The Notice of the AGM sets out the business of the meeting and an explanatory business of the meeting and an explanatory note on all resolutions to be considered at the note on all resolutions to be considered at the meeting. Separate resolutions will be proposed meeting. Separate resolutions will be proposed on each substantive issue. All shareholders will on each substantive issue. All shareholders will have the opportunity to attend and vote, in have the opportunity to attend and vote, in person or by proxy, at the AGM. person or by proxy, at the AGM. The Chairman and all Directors will be available at The Chairman and all Directors will be available at the AGM to answer shareholders’ questions. the AGM to answer shareholders’ questions. Results of resolutions proposed at the AGM will Results of resolutions proposed at the AGM will be published on the Company’s website be published on the Company’s website www.hostelworldgroup.com following the AGM. www.hostelworldgroup.com following the AGM. Approved by the Board and signed on its behalf: Approved by the Board and signed on its behalf: John Duggan John Duggan Company Secretary Company Secretary 1 April 2019 1 April 2019 requirements, will, as required, ensure that the requirements, will, as required, ensure that the views, issues and concerns of major shareholders views, issues and concerns of major shareholders are communicated to the Directors so that are communicated to the Directors so that appropriate action can be taken. appropriate action can be taken. The Group’s website www.hostelworldgroup. The Group’s website www.hostelworldgroup. com provides the full text of the Annual Report, com provides the full text of the Annual Report, interim management statements, investor interim management statements, investor presentations, trading updates and any stock presentations, trading updates and any stock exchange announcements. exchange announcements. Andy McCue, in his capacity as the SID, is an Andy McCue, in his capacity as the SID, is an additional point of contact for shareholders additional point of contact for shareholders should they feel their concerns are not being should they feel their concerns are not being properly addressed through the normal channels. properly addressed through the normal channels. The SID and other Non-Executive Directors The SID and other Non-Executive Directors are available to meet with shareholders. are available to meet with shareholders. Arrangements can be made to meet with them Arrangements can be made to meet with them through the Company Secretary. through the Company Secretary. Andy McCue, in his capacity as the Chairman Andy McCue, in his capacity as the Chairman of the Remuneration Committee, engaged of the Remuneration Committee, engaged with shareholders representing a majority of with shareholders representing a majority of the share register during the later part of 2018 the share register during the later part of 2018 on the proposed revisions to the Directors on the proposed revisions to the Directors Remuneration Policy which will be put to a Remuneration Policy which will be put to a binding shareholder vote at the AGM on 31 May binding shareholder vote at the AGM on 31 May 2019. 2019. The AGM is another opportunity for shareholder The AGM is another opportunity for shareholder engagement, with all Directors present and engagement, with all Directors present and available to answer any questions or concerns available to answer any questions or concerns that shareholders may have. Shareholders are that shareholders may have. Shareholders are given the opportunity to lodge their votes by way given the opportunity to lodge their votes by way of proxy and/or attend the meeting in person of proxy and/or attend the meeting in person where they have an opportunity to ask questions where they have an opportunity to ask questions of the Board, including the Chairs of the Board of the Board, including the Chairs of the Board Committees, vote in person or by proxy and meet Committees, vote in person or by proxy and meet informally with the Directors to discuss any issues informally with the Directors to discuss any issues they may wish to raise. they may wish to raise. Shareholders can also contact the Company Shareholders can also contact the Company through the Company Secretary. through the Company Secretary. 56 56 KING KONG HOSTEL KING KONG HOSTEL ROTTERDAM ROTTERDAM Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance REPORT OF THE REPORT OF THE AUDIT COMMITTEE AUDIT COMMITTEE Dear Shareholders Dear Shareholders On behalf of the Audit Committee I am On behalf of the Audit Committee I am pleased to introduce the Report of the pleased to introduce the Report of the Audit Committee for 2018. Audit Committee for 2018. During the year the Audit Committee During the year the Audit Committee dedicated significant time supporting dedicated significant time supporting the Board in executing its duties in the Board in executing its duties in relation to reviewing and monitoring relation to reviewing and monitoring the Group’s risk management and the Group’s risk management and internal controls systems. This internal controls systems. This was in addition to monitoring the was in addition to monitoring the Group’s financial reporting process Group’s financial reporting process and assessing the independence and and assessing the independence and effectiveness of the Group’s external effectiveness of the Group’s external auditor. auditor. Membership Membership is brought to bear in respect of the work of the is brought to bear in respect of the work of the Audit Committee is set out in the Corporate Audit Committee is set out in the Corporate Governance Statement under ‘Audit Committee Governance Statement under ‘Audit Committee Composition’. Composition’. The Company Secretary acts as Secretary to the The Company Secretary acts as Secretary to the Audit Committee. Audit Committee. Role of the Audit Committee Role of the Audit Committee The roles and primary responsibilities of the The roles and primary responsibilities of the Audit Committee are summarised below. The Audit Committee are summarised below. The full schedule of roles and responsibilities are full schedule of roles and responsibilities are contained in the Audit Committee’s Terms of contained in the Audit Committee’s Terms of Reference, which were updated in December 2018 Reference, which were updated in December 2018 to align with the requirements of the updated UK to align with the requirements of the updated UK Corporate Governance Code (July 2018), which are Corporate Governance Code (July 2018), which are available on the Company’s website available on the Company’s website www.hostelworldgroup.com. www.hostelworldgroup.com. ► Éimear Moloney (Chairperson) ► Éimear Moloney (Chairperson) ► Monitor the integrity of the financial ► Monitor the integrity of the financial ► Michael Cawley (resigned on 5 December 2018) ► Michael Cawley (resigned on 5 December 2018) statements of the Company and any formal statements of the Company and any formal ► Andy McCue ► Andy McCue ► Carl Shepherd ► Carl Shepherd announcement relating to its financial announcement relating to its financial performance, including reviewing significant performance, including reviewing significant financial reporting issues and estimates and financial reporting issues and estimates and Members of the Audit Committee are appointed Members of the Audit Committee are appointed judgements they contain; judgements they contain; by the Board on the recommendation of the by the Board on the recommendation of the Nomination Committee. Appointments to the Nomination Committee. Appointments to the Audit Committee are for an initial period of three Audit Committee are for an initial period of three years, subject to review of the Audit Committee’s years, subject to review of the Audit Committee’s composition by the Board. Provided the members composition by the Board. Provided the members continue to be independent, this may be continue to be independent, this may be ► Review and challenge where necessary the ► Review and challenge where necessary the use of or changes to accounting policies, use of or changes to accounting policies, the methods used to account for significant the methods used to account for significant or unusual transactions where different or unusual transactions where different approaches are possible, the clarity and approaches are possible, the clarity and extended by no more than two further three-year extended by no more than two further three-year completeness of disclosure in the Company completeness of disclosure in the Company periods. As the Company is recognised as a ‘small’ periods. As the Company is recognised as a ‘small’ company under the 2016 Code, the Company company under the 2016 Code, the Company Chairman was permitted to be a member of Chairman was permitted to be a member of the Audit Committee for the duration of 2018. the Audit Committee for the duration of 2018. Pursuant to the changes to audit committee Pursuant to the changes to audit committee composition set out in the updated UK Corporate composition set out in the updated UK Corporate and Group’s financial reports and the context and Group’s financial reports and the context in which statements are made, and all material in which statements are made, and all material information presented with the financial information presented with the financial statements, such as the operating and statements, such as the operating and financial review and the corporate governance financial review and the corporate governance statement insofar as it relates to the audit and statement insofar as it relates to the audit and Governance Code (July 2018), Michael Cawley Governance Code (July 2018), Michael Cawley risk management; risk management; (Chairman) resigned from the Audit Committee (Chairman) resigned from the Audit Committee on 5 December 2018. on 5 December 2018. ► Ensure that there are appropriate procedures ► Ensure that there are appropriate procedures As outlined in the Directors biographical details, As outlined in the Directors biographical details, set out on page 46 and 47, members of the set out on page 46 and 47, members of the Audit Committee bring considerable financial Audit Committee bring considerable financial and accounting experience to the work of and accounting experience to the work of the Audit Committee. The extent of the Audit the Audit Committee. The extent of the Audit Committee members expertise and how this Committee members expertise and how this in place to monitor and evaluate the general in place to monitor and evaluate the general business risks facing the Group (the Board business risks facing the Group (the Board has delegated the management of certain risk has delegated the management of certain risk areas to the Audit Committee with the Board areas to the Audit Committee with the Board retaining overall responsibility); retaining overall responsibility); ► Review the adequacy and effectiveness of the ► Review the adequacy and effectiveness of the 59 59 GENERATOR VENICE GENERATOR VENICE VENICE VENICE Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Company’s internal financial controls and the Company’s internal financial controls and the requirements, and the arrangements for review requirements, and the arrangements for review shareholders to assess the Company’s position shareholders to assess the Company’s position Financial Officer, senior members of the Group’s Financial Officer, senior members of the Group’s Company’s statements on these matters; Company’s statements on these matters; and verification of the information contained in and verification of the information contained in and performance, business model and strategy. and performance, business model and strategy. Finance department who attend by invitation Finance department who attend by invitation ► Perform an annual assessment of the ► Perform an annual assessment of the the Annual Report. the Annual Report. The ultimate decision to recommend the Annual The ultimate decision to recommend the Annual and the Company Secretary. Other members and the Company Secretary. Other members Report and accounts to the shareholders is Report and accounts to the shareholders is of the Group’s Executive Leadership Team and of the Group’s Executive Leadership Team and Company’s compliance with the requirements Company’s compliance with the requirements The Audit Committee reviewed a draft of the The Audit Committee reviewed a draft of the taken by the Board, as set out in the Directors’ taken by the Board, as set out in the Directors’ other senior executives are invited to attend as other senior executives are invited to attend as of the UK Corporate Governance Code (and of the UK Corporate Governance Code (and whole Annual Report at a meeting in advance whole Annual Report at a meeting in advance Responsibility Statement on page 104 and 105. Responsibility Statement on page 104 and 105. necessary to provide a deeper level of insight necessary to provide a deeper level of insight in this regard the Audit Committee notes in this regard the Audit Committee notes of giving their final opinion and ahead of final of giving their final opinion and ahead of final the substantial changes to the 2016 Code the substantial changes to the 2016 Code approval by the Board. The Audit Committee approval by the Board. The Audit Committee incorporated in the updated UK Corporate incorporated in the updated UK Corporate was provided with all relevant information was provided with all relevant information Governance Code (July 2018)); Governance Code (July 2018)); and, in particular, with detailed briefings from and, in particular, with detailed briefings from management on how specific issues are managed management on how specific issues are managed ► Review the Company’s procedures for ► Review the Company’s procedures for and challenged management as required. The and challenged management as required. The detecting fraud; detecting fraud; review by the Audit Committee in considering review by the Audit Committee in considering whether the Annual Report and accounts, taken whether the Annual Report and accounts, taken ► Review the Company’s systems and controls ► Review the Company’s systems and controls as a whole, is fair, balanced and understandable as a whole, is fair, balanced and understandable for the prevention of bribery and receive and for the prevention of bribery and receive and and provides the information necessary for and provides the information necessary for review reports on non-compliance; review reports on non-compliance; shareholders to assess the Company’s position shareholders to assess the Company’s position and performance, business model and strategy and performance, business model and strategy ► Consider annually whether there is a need for ► Consider annually whether there is a need for included: included: an internal audit function; and an internal audit function; and ► considering whether the content of sections ► considering whether the content of sections ► Oversee the relationship with the external ► Oversee the relationship with the external 1 to 3 (inclusive) of the Annual Report, 1 to 3 (inclusive) of the Annual Report, auditor, including selection, appointment, auditor, including selection, appointment, in particular the Strategic Report and business in particular the Strategic Report and business removal, terms of engagement, approval of removal, terms of engagement, approval of review, provides both positive and negative review, provides both positive and negative remuneration, assessing independence and remuneration, assessing independence and aspects of performance and developments aspects of performance and developments objectivity, assessing effectiveness of the audit objectivity, assessing effectiveness of the audit in a clear and meaningful way; in a clear and meaningful way; process, and setting policy on the use of non- process, and setting policy on the use of non- audit services. audit services. ► ensuring that the links between discussions of ► ensuring that the links between discussions of performance, financial position and cash flows, performance, financial position and cash flows, The Chairperson of the Audit Committee reports The Chairperson of the Audit Committee reports including the use of appropriate performance including the use of appropriate performance to the Board as necessary on the activities of the to the Board as necessary on the activities of the measures and the financial statements are measures and the financial statements are Audit Committee and attends the AGM to answer Audit Committee and attends the AGM to answer clear; clear; questions on the report of the Audit Committee’s questions on the report of the Audit Committee’s activities and matters within the scope of the activities and matters within the scope of the ► considering that the information provided ► considering that the information provided Audit Committee’s responsibilities. Audit Committee’s responsibilities. on the Company, the environment in which it on the Company, the environment in which it Fair, Balanced and Understandable Fair, Balanced and Understandable the Group and not explained in general terms; the Group and not explained in general terms; operates and the risks it faces are specific to operates and the risks it faces are specific to One of the key governance requirements is One of the key governance requirements is to consider whether the Annual Report and to consider whether the Annual Report and accounts, taken as a whole, is fair, balanced and accounts, taken as a whole, is fair, balanced and understandable and provides the information understandable and provides the information necessary for shareholders to assess the necessary for shareholders to assess the Company’s position and performance, business Company’s position and performance, business model and strategy. model and strategy. At the request of the Board, the Audit Committee At the request of the Board, the Audit Committee has undertaken the detailed work in making has undertaken the detailed work in making this assessment, including consideration of this assessment, including consideration of the scope of work carried out by the auditors, the scope of work carried out by the auditors, the materiality levels considered by them, the the materiality levels considered by them, the focus of their work, the work undertaken by focus of their work, the work undertaken by management in the preparation of the accounts management in the preparation of the accounts and the Annual Report, the analysis performed and the Annual Report, the analysis performed of changes to applicable standards and reporting of changes to applicable standards and reporting ► removing immaterial items; and ► removing immaterial items; and ► explaining the links between information in the ► explaining the links between information in the Annual Report, such as objectives, KPIs Annual Report, such as objectives, KPIs and risks. and risks. Having conducted its review, the Audit Having conducted its review, the Audit Committee is satisfied that the Annual Report and Committee is satisfied that the Annual Report and accounts, taken as a whole, is fair, balanced and accounts, taken as a whole, is fair, balanced and understandable and provides the information understandable and provides the information necessary for shareholders to assess the necessary for shareholders to assess the Company’s position and performance, business Company’s position and performance, business model and strategy. Following recommendation model and strategy. Following recommendation by the Audit Committee, the Board confirmed by the Audit Committee, the Board confirmed that the Annual Report and accounts, taken as that the Annual Report and accounts, taken as a whole, is fair, balanced and understandable a whole, is fair, balanced and understandable and provides the information necessary for and provides the information necessary for 60 60 Meetings Meetings Under its Terms of Reference, the Audit Under its Terms of Reference, the Audit Committee is required to meet at least twice Committee is required to meet at least twice a year. The Audit Committee met on three a year. The Audit Committee met on three occasions during 2018. Individual attendance at occasions during 2018. Individual attendance at these meetings is set out on page 52. The Audit these meetings is set out on page 52. The Audit Committee’s meetings and agenda are linked to Committee’s meetings and agenda are linked to events in the Group’s financial calendar. events in the Group’s financial calendar. or expertise in certain areas related to the or expertise in certain areas related to the Group’s principal risks. The Deloitte Ireland LLP Group’s principal risks. The Deloitte Ireland LLP audit partner and senior representatives from audit partner and senior representatives from PricewaterhouseCoopers (“PwC”), as outsourced PricewaterhouseCoopers (“PwC”), as outsourced internal audit provider, are invited to attend internal audit provider, are invited to attend certain meetings. The Audit Committee also certain meetings. The Audit Committee also met privately with the Deloitte Ireland LLP audit met privately with the Deloitte Ireland LLP audit partner and with senior representatives from partner and with senior representatives from PwC, without executive management present, in PwC, without executive management present, in 2018. 2018. Meetings are attended by the Audit Committee Meetings are attended by the Audit Committee members and others, being principally the Chief members and others, being principally the Chief The Audit Committee activities during 2018 are The Audit Committee activities during 2018 are set out overleaf. set out overleaf. BOOK AND BED TOKYO IKEBUKURO BOOK AND BED TOKYO IKEBUKURO TOKYO TOKYO Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Significant Issues Significant Issues Significant Issue Significant Issue Description and Resolution Description and Resolution In reviewing the financial statements with management and the auditors, the Audit Committee has In reviewing the financial statements with management and the auditors, the Audit Committee has discussed and debated the critical accounting judgements. The significant issues considered by the discussed and debated the critical accounting judgements. The significant issues considered by the Audit Committee in respect of the 2018 Annual Report are as follows: Audit Committee in respect of the 2018 Annual Report are as follows: Significant Issue Significant Issue Description and Resolution Description and Resolution Carrying Value Carrying Value of Goodwill and of Goodwill and The largest asset on the Group statement of financial position relates The largest asset on the Group statement of financial position relates to the goodwill and intangible assets reflecting the underlying value to the goodwill and intangible assets reflecting the underlying value Intangible Assets Intangible Assets of the brands and technology acquired, with a carrying value at 31 of the brands and technology acquired, with a carrying value at 31 December 2018 of €117.7m. This represented 78.5% of the Group’s total December 2018 of €117.7m. This represented 78.5% of the Group’s total assets. Under IFRS goodwill is not amortised but is subject to an annual assets. Under IFRS goodwill is not amortised but is subject to an annual impairment review. An impairment review is required to be performed impairment review. An impairment review is required to be performed for other intangible assets where there is an indicator of impairment. for other intangible assets where there is an indicator of impairment. Goodwill is allocated to Cash Generating Units (“CGUs”) and a model has 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 been developed to calculate the value in use of the assets and to review the carrying value of goodwill and other intangibles for impairment. the carrying value of goodwill and other intangibles for impairment. Management have performed impairment reviews at year end on the Management have performed impairment reviews at year end on the Group’s carrying value of goodwill, all of which relates to the Hostelworld 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 brand. The cash flow forecasts were based on the budgets approved by the Board. The Audit Committee has reviewed the assumptions around the Board. The Audit Committee has reviewed the assumptions around growth rates and discount rates. The Audit Committee discussed with growth rates and discount rates. The Audit Committee discussed with the external auditor its review of the assumptions used. The Audit the external auditor its review of the assumptions used. The Audit Committee also reviewed the carrying value of other intangibles and Committee also reviewed the carrying value of other intangibles and is satisfied that there was no indication of impairment at 31 December is satisfied that there was no indication of impairment at 31 December 2018. Following these discussions, the Audit Committee is satisfied that 2018. Following these discussions, the Audit Committee is satisfied that there was no impairment of goodwill and other intangibles as at 31 there was no impairment of goodwill and other intangibles as at 31 December 2018, and that the controls over management’s impairment December 2018, and that the controls over management’s impairment review process are adequate. review process are adequate. Capitalisation of Capitalisation of The Group incurs significant internal costs in respect of the ongoing The Group incurs significant internal costs in respect of the ongoing Development Costs Development Costs development of its IT systems and core technology and product development of its IT systems and core technology and product platforms. The accounting for these costs as either development costs platforms. The accounting for these costs as either development costs (which are capitalised as intangibles) or expensed as incurred involves (which are capitalised as intangibles) or expensed as incurred involves judgement. In the year ended 31 December 2018 €1.7m (2017: €1.7m) of judgement. In the year ended 31 December 2018 €1.7m (2017: €1.7m) of development costs were capitalised in accordance with the criteria as set development costs were capitalised in accordance with the criteria as set out in IAS 38. Capitalised development costs carried in the balance sheet out in IAS 38. Capitalised development costs carried in the balance sheet amounted to €1.7m at 31 December 2018 (2017: €1.9m). amounted to €1.7m at 31 December 2018 (2017: €1.9m). The Audit Committee has reviewed management’s application of the The Audit Committee has reviewed management’s application of the accounting policy adopted and the assessment as to whether current accounting policy adopted and the assessment as to whether current projects meet the criteria required for costs to be capitalised (including projects meet the criteria required for costs to be capitalised (including feasibility of completion, intention to complete, probable economic feasibility of completion, intention to complete, probable economic benefits, availability of resources to complete, and ability to measure benefits, availability of resources to complete, and ability to measure expenditure). The Audit Committee also held discussions with the expenditure). The Audit Committee also held discussions with the external auditor on their review of this area. external auditor on their review of this area. The Audit Committee considers the approach taken and the application The Audit Committee considers the approach taken and the application of the policy to be appropriate. of the policy to be appropriate. 62 62 Transfer Pricing and Transfer Pricing and The Group as a global business operates in an increasingly complex The Group as a global business operates in an increasingly complex International Taxation International Taxation international corporate tax environment. It is subject to taxation in a international corporate tax environment. It is subject to taxation in a Environment Environment number of jurisdictions and cross–border transactions can be challenged number of jurisdictions and cross–border transactions can be challenged by tax authorities. The Group has a number of intercompany agreements by tax authorities. The Group has a number of intercompany agreements within its Group structure including management services, marketing within its Group structure including management services, marketing services, research and development and intellectual property licence services, research and development and intellectual property licence agreements. agreements. The Group seeks regular updates from its tax advisors, EY, on any new The Group seeks regular updates from its tax advisors, EY, on any new developments in the international tax environment, particularly the developments in the international tax environment, particularly the policy efforts being led by the OECD around the Base Erosion and Profit policy efforts being led by the OECD around the Base Erosion and Profit Shifting initiative (“BEPS”). Shifting initiative (“BEPS”). The Audit Committee also discussed this matter with the external The Audit Committee also discussed this matter with the external auditors and their transfer pricing specialist team. The Audit Committee auditors and their transfer pricing specialist team. The Audit Committee considers that the tax provisions and related disclosures which have considers that the tax provisions and related disclosures which have been made are reasonable. been made are reasonable. The Group is required to comply with the provisions of the UK Corporate The Group is required to comply with the provisions of the UK Corporate Governance Code or explain reasons for non-compliance. The more Governance Code or explain reasons for non-compliance. The more significant of the disclosure requirements include those in relation to significant of the disclosure requirements include those in relation to principal risks and uncertainties, the fair, balanced and understandable principal risks and uncertainties, the fair, balanced and understandable statement and the viability statement. statement and the viability statement. The Audit Committee has reviewed the disclosures in the Annual Report, The Audit Committee has reviewed the disclosures in the Annual Report, and, having discussed them with management and the Group’s auditors, and, having discussed them with management and the Group’s auditors, is satisfied that the additional reporting and disclosure requirements is satisfied that the additional reporting and disclosure requirements have been met. have been met. Corporate Corporate Governance Governance Other Matters Other Matters The Audit Committee has also considered a number of other judgements The Audit Committee has also considered a number of other judgements which have been made by management including those relating to which have been made by management including those relating to revenue recognition, accruals and estimates and deferred tax and revenue recognition, accruals and estimates and deferred tax and considers that the judgements which have been made are reasonable. considers that the judgements which have been made are reasonable. External Auditors External Auditors On behalf of the Board the Audit Committee On behalf of the Board the Audit Committee has primary responsibility for overseeing the has primary responsibility for overseeing the relationship with, and performance of, the relationship with, and performance of, the external auditor. external auditor. require Hostelworld to put its audit out to tender require Hostelworld to put its audit out to tender by 17 June 2023. This is on the basis of Deloitte by 17 June 2023. This is on the basis of Deloitte Ireland LLP, the existing auditor, being in place for Ireland LLP, the existing auditor, being in place for a period of between 11 and 20 years. Accordingly, a period of between 11 and 20 years. Accordingly, the Group will need to run a tender process by 17 the Group will need to run a tender process by 17 June 2023. June 2023. Deloitte Ireland LLP were first appointed auditor Deloitte Ireland LLP were first appointed auditor to the Hostelworld Group in 2004. However, the to the Hostelworld Group in 2004. However, the first year that they were appointed as external first year that they were appointed as external auditor to Hostelworld Group plc as a listed auditor to Hostelworld Group plc as a listed plc entity was in relation to the audit for the plc entity was in relation to the audit for the financial year ended 31 December 2015. In the financial year ended 31 December 2015. In the UK, mandatory audit tendering is required every UK, mandatory audit tendering is required every ten years with mandatory rotation of auditors of ten years with mandatory rotation of auditors of Public Interest Entities (“PIEs”) required at least Public Interest Entities (“PIEs”) required at least every twenty years. Transitional arrangements every twenty years. Transitional arrangements The Audit Committee will, however, continue to The Audit Committee will, however, continue to review the relationship with the external auditor review the relationship with the external auditor and may re-tender its audit contract prior to this and may re-tender its audit contract prior to this date if it considers this necessary. date if it considers this necessary. The external auditor is required to rotate the The external auditor is required to rotate the audit partner responsible for the Group audit audit partner responsible for the Group audit every five years. In this regard, Daniel Murray every five years. In this regard, Daniel Murray acted as audit partner for the year ended 31 acted as audit partner for the year ended 31 December 2018, his second year as audit partner. December 2018, his second year as audit partner. 63 63 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance To ensure there can be no reason for audit To ensure there can be no reason for audit Internal Controls and Risk Management Internal Controls and Risk Management In the Board’s view, the ongoing information it In the Board’s view, the ongoing information it Whistleblowing Whistleblowing independence to be impacted, the Company has independence to be impacted, the Company has in place a policy on the provision of non-audit in place a policy on the provision of non-audit services. Under the policy, except in exceptional services. Under the policy, except in exceptional circumstances, non-audit fees to the audit firm circumstances, non-audit fees to the audit firm should not exceed 70% of the amount of the audit should not exceed 70% of the amount of the audit fee for the current financial year. fee for the current financial year. All requirements to engage the external auditors All requirements to engage the external auditors for material non-audit services must be notified for material non-audit services must be notified to the Chairperson of the Audit Committee in to the Chairperson of the Audit Committee in advance, and non-audit work with an expected advance, and non-audit work with an expected cost in excess of €30,000 must be subject to cost in excess of €30,000 must be subject to competitive tender and approved by the Audit competitive tender and approved by the Audit Committee. During 2018, Deloitte Ireland LLP Committee. During 2018, Deloitte Ireland LLP were engaged to provide non-audit services to were engaged to provide non-audit services to the Group totalling €1.5k (2017: €4k). The Audit the Group totalling €1.5k (2017: €4k). The Audit Committee will continue to monitor the type Committee will continue to monitor the type and level of non-audit services provided by the and level of non-audit services provided by the external auditors to prevent any perceived or external auditors to prevent any perceived or actual impact on the auditors’ independence. actual impact on the auditors’ independence. The Audit Committee assesses the independence The Audit Committee assesses the independence of the external auditor and the effectiveness of the external auditor and the effectiveness of the external audit process before making of the external audit process before making The Directors recognise that the monitoring and The Directors recognise that the monitoring and assessment of the internal controls environment assessment of the internal controls environment is a necessary step to ensure the Board can place is a necessary step to ensure the Board can place reliance on the reported financial position and reliance on the reported financial position and prospects of the Group. prospects of the Group. Responsibility for the ongoing monitoring of the Responsibility for the ongoing monitoring of the effectiveness of the Group’s risk management effectiveness of the Group’s risk management and internal control systems is delegated by the and internal control systems is delegated by the Board to the Audit Committee. Board to the Audit Committee. Management note that risks cannot necessarily Management note that risks cannot necessarily be eliminated, hence the Group’s internal control be eliminated, hence the Group’s internal control environment is designed to identify, evaluate, environment is designed to identify, evaluate, mitigate and monitor the risks faced by the mitigate and monitor the risks faced by the business, and report to the Board in a timely business, and report to the Board in a timely manner. To assist in managing risk, the Group manner. To assist in managing risk, the Group has: has: ► a clear organisational structure with ► a clear organisational structure with appropriate lines of responsibility; appropriate lines of responsibility; ► a comprehensive annual planning and ► a comprehensive annual planning and recommendations to the Board in respect of their recommendations to the Board in respect of their budgeting process; budgeting process; appointment or re-appointment. In assessing appointment or re-appointment. In assessing the effectiveness of the external auditor, the the effectiveness of the external auditor, the Audit Committee assesses the expertise and Audit Committee assesses the expertise and industry knowledge of the audit partner and industry knowledge of the audit partner and team and their response to dealing with areas of team and their response to dealing with areas of risk, as well as receiving feedback from executive risk, as well as receiving feedback from executive management on the audit process. management on the audit process. In assessing independence and objectivity, the In assessing independence and objectivity, the Audit Committee considers the level and nature Audit Committee considers the level and nature of services provided by the external auditor of services provided by the external auditor as well as the confirmation from the external as well as the confirmation from the external auditor that it has remained independent within auditor that it has remained independent within the meaning of the APB Ethical Standards for the meaning of the APB Ethical Standards for Auditors. The Audit Committee’s assessment of Auditors. The Audit Committee’s assessment of the external auditor’s independence took into the external auditor’s independence took into account the non-audit services provided during account the non-audit services provided during the year. The Audit Committee concluded that the the year. The Audit Committee concluded that the nature and extent of the non-audit fees did not nature and extent of the non-audit fees did not compromise the independence of the auditor. compromise the independence of the auditor. ► clear delegations of authority for the Board ► clear delegations of authority for the Board for relevant matters, and a comprehensive for relevant matters, and a comprehensive schedule of matters reserved for the Board; schedule of matters reserved for the Board; ► internal control systems and procedures ► internal control systems and procedures to implement and monitor the use of these to implement and monitor the use of these delegated authorities; delegated authorities; ► financial control, budgeting and forecasting ► financial control, budgeting and forecasting systems, with regular reporting, variance systems, with regular reporting, variance analysis and reviews of key performance analysis and reviews of key performance indicators; indicators; ► robust systems by which the Group’s financial ► robust systems by which the Group’s financial statements are prepared, which included statements are prepared, which included assessment of key financial reporting risks assessment of key financial reporting risks arising through complexity of transactions, arising through complexity of transactions, changes to the business, and changes in changes to the business, and changes in accounting standards; accounting standards; The external auditors have unrestricted access to The external auditors have unrestricted access to the Chairperson of the Audit Committee. the Chairperson of the Audit Committee. ► an experienced and suitably qualified finance ► an experienced and suitably qualified finance function that is fully conversant with the function that is fully conversant with the operations of the business; operations of the business; Having reviewed the auditor’s independence and Having reviewed the auditor’s independence and performance, the Audit Committee recommends performance, the Audit Committee recommends that Deloitte Ireland LLP be re-appointed as the that Deloitte Ireland LLP be re-appointed as the Company’s auditor at the next Annual General Company’s auditor at the next Annual General 64 64 Meeting. Meeting. ► a code of conduct setting out behavioural ► a code of conduct setting out behavioural and ethical standards, supported by clear and ethical standards, supported by clear anti-bribery and corruption guidelines, and anti-bribery and corruption guidelines, and a whistleblowing policy with an external a whistleblowing policy with an external independent hotline. independent hotline. For the annual term commencing on 1 January For the annual term commencing on 1 January 2018, the Audit Committee was responsible 2018, the Audit Committee was responsible for ensuring that the Group maintains suitable for ensuring that the Group maintains suitable whistleblowing arrangements for the Group’s whistleblowing arrangements for the Group’s employees. The Group’s whistleblowing policy employees. The Group’s whistleblowing policy contains arrangements for an independent contains arrangements for an independent external service provider to receive complaints external service provider to receive complaints in confidence should staff not feel comfortable in confidence should staff not feel comfortable raising them through existing internal channels. raising them through existing internal channels. The Audit Committee reviewed the Group’s The Audit Committee reviewed the Group’s whistleblowing procedures during the year to whistleblowing procedures during the year to ensure that it continues to meet the needs of the ensure that it continues to meet the needs of the Group and was satisfied with the procedures in Group and was satisfied with the procedures in place. Confidential reports from the independent place. Confidential reports from the independent external service provider are provided to the external service provider are provided to the Company Secretary and the Audit Committee Company Secretary and the Audit Committee Chairperson for investigation. No concerns Chairperson for investigation. No concerns were raised during 2018. The Audit Committee were raised during 2018. The Audit Committee noted the provisions of the updated UK noted the provisions of the updated UK Corporate Governance Code (July 2018) on ‘Board Corporate Governance Code (July 2018) on ‘Board Leadership and Company Purpose’ to the effect Leadership and Company Purpose’ to the effect that it is a matter for the Board to ensure that the that it is a matter for the Board to ensure that the workforce should be able to raise any matters workforce should be able to raise any matters of concern. The Audit Committee approved an of concern. The Audit Committee approved an amendment to the Audit Committee’s Terms of amendment to the Audit Committee’s Terms of Reference in December 2018 to align with the Reference in December 2018 to align with the requirements of the updated code in this regard. requirements of the updated code in this regard. Annual Evaluation of Performance Annual Evaluation of Performance The Audit Committee’s effectiveness was The Audit Committee’s effectiveness was reviewed as part of an internal formal annual reviewed as part of an internal formal annual evaluation process in the final quarter of 2018. evaluation process in the final quarter of 2018. The Audit Committee and the Board considered The Audit Committee and the Board considered the outcome of the evaluation and is satisfied the outcome of the evaluation and is satisfied that it is performing effectively. that it is performing effectively. I will be available at the AGM to answer any I will be available at the AGM to answer any questions on the work of the Audit Committee. questions on the work of the Audit Committee. Éimear Moloney Éimear Moloney Chairperson, Audit Committee Chairperson, Audit Committee 1 April 2019 1 April 2019 receives is sufficient to enable it to review the receives is sufficient to enable it to review the effectiveness of the Group’s system of internal effectiveness of the Group’s system of internal control. The Directors confirm that they have control. The Directors confirm that they have reviewed the effectiveness of internal control reviewed the effectiveness of internal control and considered the significant risks affecting the and considered the significant risks affecting the business and the way in which these risks are business and the way in which these risks are managed as part of its responsibility to monitor managed as part of its responsibility to monitor the Company’s risk management and internal the Company’s risk management and internal control systems. The risks identified on pages 30 control systems. The risks identified on pages 30 to 34 are those that could have a material adverse to 34 are those that could have a material adverse impact on the Group’s prospects, its financial impact on the Group’s prospects, its financial condition and the results of its operations. The condition and the results of its operations. The actions taken to mitigate the risks described actions taken to mitigate the risks described in the Principal Risks and Uncertainties cannot in the Principal Risks and Uncertainties cannot provide assurance that other risks will not provide assurance that other risks will not materialise and/or adversely affect the operating materialise and/or adversely affect the operating results and financial position of the Group. results and financial position of the Group. Internal Audit Internal Audit The Audit Committee is responsible for The Audit Committee is responsible for monitoring and reviewing the operation and monitoring and reviewing the operation and effectiveness of the internal audit function effectiveness of the internal audit function including its plans, activities and resources. At including its plans, activities and resources. At each scheduled meeting the Audit Committee each scheduled meeting the Audit Committee assesses the findings arising from the internal assesses the findings arising from the internal auditor’s reviews. In particular, the Audit auditor’s reviews. In particular, the Audit Committee considers any control weaknesses Committee considers any control weaknesses identified and the remedial action to be taken. identified and the remedial action to be taken. The 2018 internal audit plan, setting out areas The 2018 internal audit plan, setting out areas of internal audit focus, was agreed by the Audit of internal audit focus, was agreed by the Audit Committee with PwC, the internal auditors. Committee with PwC, the internal auditors. In 2018, the Audit Committee received four In 2018, the Audit Committee received four reports from PwC covering a data protection reports from PwC covering a data protection compliance follow up review, a new booking compliance follow up review, a new booking model review, IT change management and model review, IT change management and information security. The Audit Committee information security. The Audit Committee subsequently follows up to ensure internal subsequently follows up to ensure internal audit findings or recommendations are acted audit findings or recommendations are acted upon by management. There were four overdue upon by management. There were four overdue internal audit findings from 2018 at year end, internal audit findings from 2018 at year end, two of which have been successfully closed out two of which have been successfully closed out and the remaining two being addressed to our and the remaining two being addressed to our satisfaction. satisfaction. The internal audit plan for 2019 was agreed The internal audit plan for 2019 was agreed with PwC following consultation with the Audit with PwC following consultation with the Audit Committee. The 2019 internal audit plan focusses Committee. The 2019 internal audit plan focusses on a review of product development governance, on a review of product development governance, cloud computing risk assessment processes, new cloud computing risk assessment processes, new payments key controls and a follow up review on payments key controls and a follow up review on the effectiveness of management actions taken the effectiveness of management actions taken in response to previous findings raised in internal in response to previous findings raised in internal audit reports between 2016 and 2018. audit reports between 2016 and 2018. 65 65 YIM HUAI KHWANG HOSTEL BANGKOK REPORT OF THE NOMINATION COMMITTEE Dear Shareholders I am pleased to present the Report of the Nomination Committee outlining the work of the Nomination Committee during 2018. Membership of the Nomination Committee is comprised of the following Non-Executive years, provided the majority of the Nomination Committee members remain independent and subject to review of the Nomination Committee’s composition by the Board. There is no age limit for Directors. The Company Secretary acts as Secretary to the Nomination Committee, and other executives may be invited to attend when deemed Directors: appropriate. ► Michael Cawley (Chairman) Role of the Nomination Committee ► Andy McCue ► Carl Shepherd ► Éimear Moloney (appointed 9 February 2018) The Nomination Committee is responsible for all aspects of the appointment of Directors of the Company. This includes, but is not limited to: Under its Terms of Reference, the Nomination Committee must have a minimum of three members appointed by the Board, of whom a majority should be independent non-executive directors. The Terms of Reference of the Nomination Committee, as updated in December 2018 to align with the requirements of the UK Corporate Governance Code (July 2018), are available on the Company’s website at www.hostelworldgroup.com. Appointments to the Nomination Committee are for a period of up to three years, which may be extended for two further periods of up to three 66 ► Regularly reviewing the structure, size and composition of the Board, including the balance of skills, experience, independence, knowledge and diversity to ensure optimum size and composition, taking into account the Company’s current requirements, the results of the Board performance evaluation, its status as a UK and Irish listed plc, the future development of the Company, and making recommendations to the Board with regard to any changes; ► Reviewing succession plans for the Directors, ► Chief Executive Officer and Chief Financial including the Chairman, Chief Executive Officer Officer succession and senior management; There is a formal, rigorous and transparent ► Making recommendations to the Board procedure determining the nomination for regarding the Board’s policy on boardroom appointment of new Executive and Non-Executive diversity and reviewing its implementation; Directors to the Board. Candidates are identified ► Identifying and nominating candidates for and with due regard to the benefits of diversity approval by the Board to fill Board vacancies, on the Board. The Nomination Committee taking into account the need for diversity and engages specialist recruitment consultants a balance of skills, experience, independence to assist in the identification and selection and selected on merit against objective criteria and knowledge; process. The Nomination Committee makes recommendations to the Board concerning ► Reviewing annually the time needed to fulfil appointments of Executive or Non-Executive the roles of Chairman, Senior Independent Directors, having considered the blend of skills, Director and each Non-Executive Director experience, independence and diversity deemed (taking into account Committee memberships) appropriate and reflecting the international and ensuring that each individual has sufficient nature of the Group. time available to devote to their role; and ► Making recommendations to the Board on thorough succession planning process for the the appointment and re-appointment of both new Chief Executive Officer. The Up Group, an Executive and Non-Executive Directors. independent external search agency, assisted During 2018 the Nomination Committee led a Key Activities of the Nomination Committee in 2018 The Nomination Committee met on four occasions during 2018 and separately dealt with the appointment of the Group’s new Chief Financial Officer through a unanimous written resolution. Individual attendance at these meetings is set out on page 52. The principal activities of the Nomination Committee throughout the year are detailed below: with this process. A Chief Executive Officer role profile was created with the requirements and skill-set that a potential successor would be required to have. A list of suitable candidates was identified and subsequently reduced to a shortlist who were interviewed by members of the Nomination Committee. Following recommendation by the Nomination Committee, Gary Morrison was unanimously appointed by the Board. The Board’s selection of Gary reflects his experience as a proven online travel executive with a unique combination of travel and digital 67 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance consumer expertise. The Up Group had no other consumer expertise. The Up Group had no other align with the requirements of the updated UK align with the requirements of the updated UK a Board policy on diversity (the “Diversity Policy”) a Board policy on diversity (the “Diversity Policy”) Diversity is embraced at Hostelworld and the Diversity is embraced at Hostelworld and the connection with the Group in 2018. connection with the Group in 2018. Corporate Governance Code (July 2018). Corporate Governance Code (July 2018). to ensure that the Group continues to derive the to ensure that the Group continues to derive the Group strives to create a culture that values and Group strives to create a culture that values and During 2018 the Nomination Committee also During 2018 the Nomination Committee also Board Composition and Succession Board Composition and Succession led a thorough succession planning process for led a thorough succession planning process for the new Chief Financial Officer. Pinnacle HR, an the new Chief Financial Officer. Pinnacle HR, an independent external search agency, assisted independent external search agency, assisted with this process. A Chief Financial Officer role with this process. A Chief Financial Officer role profile was created with the requirements and profile was created with the requirements and the skill-set that a potential successor would be the skill-set that a potential successor would be required to have. A list of suitable candidates required to have. A list of suitable candidates was identified and subsequently reduced to a was identified and subsequently reduced to a shortlist who were interviewed by members shortlist who were interviewed by members of the Nomination Committee. Following of the Nomination Committee. Following recommendation by the Nomination Committee, recommendation by the Nomination Committee, TJ Kelly was unanimously appointed by the TJ Kelly was unanimously appointed by the Board. The Board’s selection of TJ reflects his Board. The Board’s selection of TJ reflects his prior experience with another listed company prior experience with another listed company and his track record working in an international and his track record working in an international consumer-focussed business. Pinnacle HR had no consumer-focussed business. Pinnacle HR had no other connection with the Group in 2018. other connection with the Group in 2018. ► During 2018 the Nomination Committee ► During 2018 the Nomination Committee considered Board composition and succession considered Board composition and succession and senior management succession plans to and senior management succession plans to ensure that the Company has the appropriate ensure that the Company has the appropriate level of skills and diversity. level of skills and diversity. ► During the reporting period the Nomination ► During the reporting period the Nomination Committee met and recommended to the Committee met and recommended to the Board the appointment of Éimear Moloney as Board the appointment of Éimear Moloney as a member of both the Nomination Committee a member of both the Nomination Committee and the Remuneration Committee so that and the Remuneration Committee so that there would be a balance of skills, knowledge, there would be a balance of skills, knowledge, experience and diversity of membership on experience and diversity of membership on each of those Committees. Éimear’s strong each of those Committees. Éimear’s strong investment management experience will be of investment management experience will be of significant benefit to the Group as we execute significant benefit to the Group as we execute on our strategic objectives and continue to on our strategic objectives and continue to grow the business. grow the business. ► An internal evaluation of the Board, Board ► An internal evaluation of the Board, Board Committees and individual Directors took Committees and individual Directors took place in 2018. The Nomination Committee place in 2018. The Nomination Committee considered the outcome of this evaluation and considered the outcome of this evaluation and any area identified relevant to the Nomination any area identified relevant to the Nomination Committee will form part of the agenda of the Committee will form part of the agenda of the Nomination Committee for the coming year; Nomination Committee for the coming year; and and Board composition and succession has been an Board composition and succession has been an important consideration for the Group during important consideration for the Group during 2018. On an ongoing basis, the Nomination 2018. On an ongoing basis, the Nomination Committee reviews and assesses the structure, Committee reviews and assesses the structure, size, composition and overall balance of the size, composition and overall balance of the Board and makes recommendations to the Board and makes recommendations to the Board with regard to succession planning. As Board with regard to succession planning. As part of the Nomination Committee’s succession part of the Nomination Committee’s succession planning work during 2018, the individual and planning work during 2018, the individual and collective skills, experience and knowledge of the collective skills, experience and knowledge of the Non-Executive Directors was assessed in detail Non-Executive Directors was assessed in detail and the Nomination Committee recommended and the Nomination Committee recommended to the Board that no additional non-executive to the Board that no additional non-executive appointments to the Board were currently appointments to the Board were currently necessary (with the matter to be kept under necessary (with the matter to be kept under on-going review and reassessed in 2019). The on-going review and reassessed in 2019). The Nomination Committee also assessed the internal Nomination Committee also assessed the internal talent pipeline in the Group to ensure appropriate talent pipeline in the Group to ensure appropriate management development and comprehensive management development and comprehensive succession planning for the Executive Leadership succession planning for the Executive Leadership Team and other key executives was in place. Team and other key executives was in place. Board Evaluation and Re-Election Board Evaluation and Re-Election of Directors of Directors The Nomination Committee carried out an The Nomination Committee carried out an evaluation of its own performance for the year evaluation of its own performance for the year ended 31 December 2018 and concluded it was ended 31 December 2018 and concluded it was satisfactory. The results of the Board evaluation satisfactory. The results of the Board evaluation and Director appraisal process as described on and Director appraisal process as described on page 54 and 55 were also noted. The process page 54 and 55 were also noted. The process established that the Board is operating effectively established that the Board is operating effectively and cohesively with a good balance of support and cohesively with a good balance of support and challenge and that there was sufficient and challenge and that there was sufficient diversity on the Board. It recommended to the diversity on the Board. It recommended to the Board, after evaluating the balance of skills, Board, after evaluating the balance of skills, knowledge, independence and experience of knowledge, independence and experience of each Director, that all Directors will seek re- each Director, that all Directors will seek re- election/election at the Company’s forthcoming election/election at the Company’s forthcoming AGM. AGM. Board Diversity Board Diversity The Nomination Committee aims to have a Board The Nomination Committee aims to have a Board that is well-balanced and has the appropriate that is well-balanced and has the appropriate skills, knowledge, experience and diversity for skills, knowledge, experience and diversity for ► The Nomination Committee reviewed its Terms ► The Nomination Committee reviewed its Terms the needs of the business. Diversity is considered the needs of the business. Diversity is considered of Reference during the year to ensure the of Reference during the year to ensure the contents remained relevant and updated the contents remained relevant and updated the Terms of Reference in December 2018 to Terms of Reference in December 2018 to in its broadest sense and includes age, gender, in its broadest sense and includes age, gender, cultural background, geographical diversity and cultural background, geographical diversity and business background. During 2018, we reviewed business background. During 2018, we reviewed and recommended the adoption by the Board of and recommended the adoption by the Board of 68 68 benefits of a diverse Board. benefits of a diverse Board. respects diversity and inclusion, not only gender respects diversity and inclusion, not only gender diversity but also cultural and age diversity. diversity but also cultural and age diversity. The stated aim of the Diversity Policy is for the The stated aim of the Diversity Policy is for the Company to have a balanced Board that has Company to have a balanced Board that has The Group will continue to monitor diversity The Group will continue to monitor diversity the appropriate skills, knowledge, experience the appropriate skills, knowledge, experience both on the Board, its Committees and across both on the Board, its Committees and across and diversity for the needs of the business. The and diversity for the needs of the business. The the business to ensure diversity and equal the business to ensure diversity and equal stated objectives of the Diversity Policy are (1) to stated objectives of the Diversity Policy are (1) to opportunities. opportunities. Availability of Terms and Conditions Availability of Terms and Conditions of Appointment of Non-Executive of Appointment of Non-Executive Directors Directors The terms and conditions of appointment of the The terms and conditions of appointment of the Company’s Non-Executive Directors are available Company’s Non-Executive Directors are available for inspection at the Company’s registered office. for inspection at the Company’s registered office. I will be available at the AGM to answer any I will be available at the AGM to answer any questions that shareholders may have on the questions that shareholders may have on the work of the Nomination Committee. work of the Nomination Committee. Michael Cawley Michael Cawley Chairman, Nomination Committee Chairman, Nomination Committee 1 April 2019 1 April 2019 ensure that the possibilities for maximising the ensure that the possibilities for maximising the Company’s success and achieving its strategic Company’s success and achieving its strategic goals are optimised by having a broad range of goals are optimised by having a broad range of perspectives on the Board; and (2) that diversity perspectives on the Board; and (2) that diversity provides the basis for improving the quality of provides the basis for improving the quality of decision making on the Board by reducing the risk decision making on the Board by reducing the risk of ‘group think’. The provisions of the Diversity of ‘group think’. The provisions of the Diversity Policy require that its effectiveness is subject to Policy require that its effectiveness is subject to annual review by the Nomination Committee. annual review by the Nomination Committee. In addition, as part of the annual performance In addition, as part of the annual performance evaluation of the effectiveness of the Board, evaluation of the effectiveness of the Board, Board Committees and individual Directors, Board Committees and individual Directors, the Diversity Policy requires the Nomination the Diversity Policy requires the Nomination Committee to specifically consider and assess Committee to specifically consider and assess the adequacy of the diversity representation on the adequacy of the diversity representation on the Board. The policy statement included in the the Board. The policy statement included in the Diversity Policy provides that an effective Board Diversity Policy provides that an effective Board will include and make good use of differences will include and make good use of differences in the skills, regional and industry experience, in the skills, regional and industry experience, background, race, gender and other distinctions background, race, gender and other distinctions between Directors and emphasises that in between Directors and emphasises that in identifying suitable candidates for appointment identifying suitable candidates for appointment to the Board, the Nomination Committee are to the Board, the Nomination Committee are required to consider candidates on merit against required to consider candidates on merit against objective criteria, with due regard for the benefits objective criteria, with due regard for the benefits of diversity on the Board. of diversity on the Board. Although the appointment of Éimear Moloney to Although the appointment of Éimear Moloney to the Nomination Committee and Remuneration the Nomination Committee and Remuneration Committee in February 2018 occurred prior to Committee in February 2018 occurred prior to the formal adoption of the Diversity Policy, the the formal adoption of the Diversity Policy, the recommendation to the Board that Eimear be recommendation to the Board that Eimear be appointed to the respective Committees was appointed to the respective Committees was on the basis that there would be a balance of on the basis that there would be a balance of skills, knowledge, experience and diversity of skills, knowledge, experience and diversity of membership of those Committees. Although the membership of those Committees. Although the appointments of Gary Morrison and TJ Kelly as appointments of Gary Morrison and TJ Kelly as Directors of the Company likewise occurred prior Directors of the Company likewise occurred prior to the formal adoption of the Diversity Policy, the to the formal adoption of the Diversity Policy, the Nomination Committee had specific regard to Nomination Committee had specific regard to the benefits of diversity on the Board (including the benefits of diversity on the Board (including gender) when conducting the searches and gender) when conducting the searches and proposing the appointments of the Company’s proposing the appointments of the Company’s new Chief Executive Officer and Chief Financial new Chief Executive Officer and Chief Financial Officer, respectively, during 2018. Officer, respectively, during 2018. 69 69 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance CHAIRMAN OF THE CHAIRMAN OF THE REMUNERATION COMMITTEE’S REMUNERATION COMMITTEE’S ANNUAL STATEMENT ANNUAL STATEMENT Dear Shareholder Dear Shareholder As Chairman of the Remuneration As Chairman of the Remuneration Committee, I am pleased to present the Committee, I am pleased to present the Company’s Remuneration Report for the Company’s Remuneration Report for the year to 31 December 2018. year to 31 December 2018. 2018 was a busy year for the Remuneration 2018 was a busy year for the Remuneration Committee. In addition to the usual Committee. In addition to the usual Remuneration Committee activities, we Remuneration Committee activities, we undertook a detailed review of the Directors’ undertook a detailed review of the Directors’ ► Agreed the structure of the 2018 annual bonus ► Agreed the structure of the 2018 annual bonus scheme for the Executive Directors, including scheme for the Executive Directors, including bonus opportunity, metrics and specific bonus opportunity, metrics and specific targets to be employed; targets to be employed; ► Agreed the approach to the award made ► Agreed the approach to the award made under the Company’s Long Term Incentive under the Company’s Long Term Incentive Plan (“LTIP”) in 2018, including the quantum, Plan (“LTIP”) in 2018, including the quantum, metrics, targets and award population. As metrics, targets and award population. As noted on page 90, the 2018 awards were noted on page 90, the 2018 awards were structured in a similar manner to the awards structured in a similar manner to the awards Remuneration Policy ahead of the requirement to Remuneration Policy ahead of the requirement to made in 2016 and 2017; made in 2016 and 2017; seek shareholder approval for a new policy at the seek shareholder approval for a new policy at the AGM in 2019. We also determined the recruitment AGM in 2019. We also determined the recruitment ► Determined the appropriate termination ► Determined the appropriate termination packages for the new Chief Executive Officer and packages for the new Chief Executive Officer and arrangements for Feargal Mooney, the arrangements for Feargal Mooney, the Chief Financial Officer and agreed the termination Chief Financial Officer and agreed the termination outgoing Chief Executive Officer; outgoing Chief Executive Officer; arrangements for their predecessors. Full details arrangements for their predecessors. Full details are set out below and in the Annual Report on are set out below and in the Annual Report on ► Agreed the recruitment packages for Gary ► Agreed the recruitment packages for Gary Remuneration. Remuneration. Members of the Remuneration Members of the Remuneration Committee Committee Remuneration Committee membership is as Remuneration Committee membership is as follows: follows: ► Andy McCue (Chairman) ► Andy McCue (Chairman) ► Michael Cawley ► Michael Cawley ► Carl Shepherd ► Carl Shepherd ► Éimear Moloney ► Éimear Moloney Key Activities of the Remuneration Key Activities of the Remuneration Committee in 2018 Committee in 2018 The Remuneration Committee met five times The Remuneration Committee met five times during 2018 and, among other things, undertook during 2018 and, among other things, undertook the following activities: the following activities: ► Finalised the 2017 Remuneration Report; ► Finalised the 2017 Remuneration Report; ► Determined the salary increases for the ► Determined the salary increases for the Executive Directors that applied for 2018, Executive Directors that applied for 2018, as reported last year; as reported last year; Morrison and TJ Kelly, the incoming Chief Morrison and TJ Kelly, the incoming Chief Executive Officer and Chief Financial Officer; Executive Officer and Chief Financial Officer; ► Reviewed the Directors’ remuneration policy ► Reviewed the Directors’ remuneration policy and consulted with major shareholders and consulted with major shareholders and proxy voting agencies on the proposed and proxy voting agencies on the proposed changes to the policy; and changes to the policy; and ► Started to consider the implications for our ► Started to consider the implications for our remuneration reporting and practices of the remuneration reporting and practices of the new UK legislation and the updated 2018 UK new UK legislation and the updated 2018 UK Corporate Governance Code. Corporate Governance Code. Subsequent to the financial year end, the Subsequent to the financial year end, the Remuneration Committee met to review salaries Remuneration Committee met to review salaries for 2019, the final outturn of the 2018 annual for 2019, the final outturn of the 2018 annual bonus scheme and the structure and targets of bonus scheme and the structure and targets of the annual bonus scheme and LTIP for 2019. The the annual bonus scheme and LTIP for 2019. The Remuneration Committee also made the final Remuneration Committee also made the final decisions in relation to the new remuneration decisions in relation to the new remuneration policy. policy. The New Remuneration Policy The New Remuneration Policy The Directors’ Remuneration Policy is designed The Directors’ Remuneration Policy is designed ► Agreed the final outturn of the 2017 annual ► Agreed the final outturn of the 2017 annual to support the Company’s culture and to support the Company’s culture and bonus scheme for the Executive Directors, as bonus scheme for the Executive Directors, as strategic objectives while offering competitive strategic objectives while offering competitive reported last year; reported last year; remuneration to enable the business to attract, remuneration to enable the business to attract, retain and motivate the high-calibre talent retain and motivate the high-calibre talent 71 71 USA HOSTELS OCEAN BEACH USA HOSTELS OCEAN BEACH SAN DIEGO SAN DIEGO Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance needed to help ensure we are successful, aligning needed to help ensure we are successful, aligning performance against other KPIs and progress performance against other KPIs and progress these routes at this stage although we will keep these routes at this stage although we will keep a 6% pension contribution and a standard a 6% pension contribution and a standard all stakeholders’ interests. This is achieved all stakeholders’ interests. This is achieved against the achievement of strategic goals. In against the achievement of strategic goals. In these matters under review during the lifetime these matters under review during the lifetime benefits package. TJ’s salary was set at a slight benefits package. TJ’s salary was set at a slight by the strong focus on performance-related by the strong focus on performance-related addition, the Remuneration Committee will addition, the Remuneration Committee will of the policy. In particular, the Committee will of the policy. In particular, the Committee will premium to that of Mari Hurley, his predecessor, premium to that of Mari Hurley, his predecessor, compensation and the use of appropriate compensation and the use of appropriate continue to reserve the right to adjust the continue to reserve the right to adjust the continue to give active consideration as to continue to give active consideration as to reflecting his experience and wider market reflecting his experience and wider market performance conditions. performance conditions. provisional bonus outturn if it is not deemed provisional bonus outturn if it is not deemed to be a fair and accurate reflection of business to be a fair and accurate reflection of business As noted above, the Remuneration Committee As noted above, the Remuneration Committee performance. performance. undertook a major review of the remuneration undertook a major review of the remuneration how best to approach the issue of ensuring how best to approach the issue of ensuring comparatives. He was not entitled to participate comparatives. He was not entitled to participate that incumbent executive directors’ interests that incumbent executive directors’ interests in the annual bonus scheme for 2018. He was in the annual bonus scheme for 2018. He was remain aligned to shareholders after cessation remain aligned to shareholders after cessation granted an LTIP award at a level of 75% of basic granted an LTIP award at a level of 75% of basic of employment, and will update investors on the of employment, and will update investors on the salary following his appointment (subject to the salary following his appointment (subject to the policy during the year ahead of the requirement policy during the year ahead of the requirement ► We reviewed the Chief Financial Officer’s ► We reviewed the Chief Financial Officer’s results of its deliberations at the appropriate results of its deliberations at the appropriate same performance targets as applied to all 2018 same performance targets as applied to all 2018 to seek shareholder approval for a revised to seek shareholder approval for a revised package in the context of the change of package in the context of the change of time. As it stands, the new policy incorporates a time. As it stands, the new policy incorporates a awards), which was lower than the award level awards), which was lower than the award level policy at the 2019 AGM. We concluded that the policy at the 2019 AGM. We concluded that the individual in the role during the year. Under the individual in the role during the year. Under the significant enhancement to long term alignment significant enhancement to long term alignment for the Chief Financial Officer in prior years given for the Chief Financial Officer in prior years given policy remained broadly fit for purpose but that policy remained broadly fit for purpose but that revised policy, the annual bonus opportunity revised policy, the annual bonus opportunity between management and shareholders given between management and shareholders given the fact TJ joined Hostelworld relatively late in the the fact TJ joined Hostelworld relatively late in the a number of changes were required. The key a number of changes were required. The key for the Chief Financial Officer has been for the Chief Financial Officer has been the introduction of the post-vesting holding the introduction of the post-vesting holding financial year. financial year. changes are set out below: changes are set out below: increased from 72% to 100% of basic salary, increased from 72% to 100% of basic salary, with his normal award level under the LTIP with his normal award level under the LTIP period in the LTIP and the increase to the period in the LTIP and the increase to the shareholding requirement. shareholding requirement. ► With effect from the LTIP awards to be granted ► With effect from the LTIP awards to be granted increased to 100% (from the past practice of increased to 100% (from the past practice of in 2019, the shares which vest after the end in 2019, the shares which vest after the end 90%). This new bonus opportunity aligns the 90%). This new bonus opportunity aligns the of the three-year performance period (net of the three-year performance period (net Chief Financial Officer’s bonus potential with Chief Financial Officer’s bonus potential with of those required to be sold to pay tax) will of those required to be sold to pay tax) will that of the Chief Executive Officer (which is that of the Chief Executive Officer (which is be subject to an additional two-year holding be subject to an additional two-year holding being reduced from 102.6% of salary). It is being reduced from 102.6% of salary). It is period. This brings the structure of the plan period. This brings the structure of the plan also consistent with the market median bonus also consistent with the market median bonus We consulted with major shareholders and We consulted with major shareholders and proxy voting agencies on the proposed changes proxy voting agencies on the proposed changes towards the end of 2018, and received a number towards the end of 2018, and received a number of supportive comments in response. The of supportive comments in response. The revised policy will now be subject to a binding revised policy will now be subject to a binding into line with the expectations of many into line with the expectations of many level for other companies in the FTSE SmallCap level for other companies in the FTSE SmallCap shareholder vote at the AGM. shareholder vote at the AGM. institutional investors and the provisions institutional investors and the provisions index, as is the revised LTIP award level. While index, as is the revised LTIP award level. While of the 2018 UK Corporate Governance Code. of the 2018 UK Corporate Governance Code. the Remuneration Committee is very cognisant the Remuneration Committee is very cognisant of investor concerns surrounding increases to of investor concerns surrounding increases to ► The shareholding requirement which applies ► The shareholding requirement which applies pay quantum, it is important that we are able pay quantum, it is important that we are able to Executive Directors will be increased from to Executive Directors will be increased from to offer a package which reflects the market, to offer a package which reflects the market, 150% to 200% of basic salary. 150% to 200% of basic salary. recognising that pay levels for the Chief recognising that pay levels for the Chief Financial Officer role have historically been Financial Officer role have historically been ► For new Executive Directors appointed after ► For new Executive Directors appointed after conservative. Performance conditions for the conservative. Performance conditions for the shareholder approval of the remuneration shareholder approval of the remuneration bonus plan and LTIP will be set each year and bonus plan and LTIP will be set each year and policy, we now specify that the maximum policy, we now specify that the maximum will remain suitably challenging. will remain suitably challenging. pension contribution will be in line with the pension contribution will be in line with the contribution level provided to the majority contribution level provided to the majority ► To correct an anomaly, we have included a ► To correct an anomaly, we have included a of the workforce. of the workforce. policy provision which permits Executive policy provision which permits Executive Directors to participate in the Company’s Save Directors to participate in the Company’s Save ► The financial underpin in the annual bonus ► The financial underpin in the annual bonus As You Earn (“SAYE”) plan on the same basis as As You Earn (“SAYE”) plan on the same basis as scheme has been amended so that payment scheme has been amended so that payment other employees. other employees. of any bonus will require a Remuneration of any bonus will require a Remuneration Committee assessment of overall performance Committee assessment of overall performance ► The flexibility for the Remuneration Committee ► The flexibility for the Remuneration Committee during the year. This replaces the inflexible during the year. This replaces the inflexible to provide additional sign-on compensation to provide additional sign-on compensation provision in the current policy which requires provision in the current policy which requires for new recruits has been removed. We for new recruits has been removed. We a threshold level of adjusted profit before tax a threshold level of adjusted profit before tax appreciate that this level of flexibility goes appreciate that this level of flexibility goes (“Adjusted PBT”) to be achieved before any (“Adjusted PBT”) to be achieved before any beyond standard market practice and beyond standard market practice and bonus is paid. In making this change, we wish bonus is paid. In making this change, we wish that some investors have concerns with that some investors have concerns with to enshrine an approach that reflects our belief to enshrine an approach that reflects our belief remuneration policies which allow for too remuneration policies which allow for too that other factors over and above an Adjusted that other factors over and above an Adjusted much Remuneration Committee discretion. much Remuneration Committee discretion. PBT hurdle should be taken into account to PBT hurdle should be taken into account to determine whether or not it is appropriate determine whether or not it is appropriate The Remuneration Committee did consider The Remuneration Committee did consider to pay a bonus. That said, when considering to pay a bonus. That said, when considering whether now was the right time to introduce a whether now was the right time to introduce a whether a minimum level of performance whether a minimum level of performance number of additional changes, such as requiring number of additional changes, such as requiring has been achieved to justify the payment of has been achieved to justify the payment of a portion of the annual bonus to be deferred into a portion of the annual bonus to be deferred into the bonus, the Remuneration Committee will the bonus, the Remuneration Committee will shares or making the shareholding requirement shares or making the shareholding requirement review factors such as underlying financial review factors such as underlying financial apply for a period beyond the cessation of apply for a period beyond the cessation of performance (including Adjusted PBT), performance (including Adjusted PBT), employment. We have decided not to go down employment. We have decided not to go down 72 72 Departure of Former Executive Departure of Former Executive Directors Directors Feargal Mooney stepped down as Chief Executive Feargal Mooney stepped down as Chief Executive Officer and as a Director on 11 June 2018. He Officer and as a Director on 11 June 2018. He remains employed during his 12 month notice remains employed during his 12 month notice period, which ends on 11 June 2019. During this period, which ends on 11 June 2019. During this period he will continue to receive salary, pension period he will continue to receive salary, pension and benefits, including any period of garden and benefits, including any period of garden leave. He was eligible to participate in the 2018 leave. He was eligible to participate in the 2018 bonus plan on a pro-rata basis. As set out below, bonus plan on a pro-rata basis. As set out below, Recruitment of new Executive Directors Recruitment of new Executive Directors The remuneration packages for the new The remuneration packages for the new no bonus was ultimately payable to Feargal for no bonus was ultimately payable to Feargal for management team were set in line with the management team were set in line with the 2018 performance. 2018 performance. existing remuneration policy. existing remuneration policy. Feargal was treated as a good leaver for the Feargal was treated as a good leaver for the Gary Morrison joined Hostelworld as Chief Gary Morrison joined Hostelworld as Chief purposes of the LTIP in light of the circumstances purposes of the LTIP in light of the circumstances Executive Officer and as a Director on 11 June Executive Officer and as a Director on 11 June of his departure and his willingness and desire of his departure and his willingness and desire 2018. His remuneration package on appointment 2018. His remuneration package on appointment to ensure a smooth transition to his successor. to ensure a smooth transition to his successor. was consistent with that of Feargal Mooney, was consistent with that of Feargal Mooney, Therefore, in line with the remuneration policy Therefore, in line with the remuneration policy his predecessor, and included a basic salary his predecessor, and included a basic salary and the rules of the LTIP, the Remuneration and the rules of the LTIP, the Remuneration of €418,200, a 10% pension contribution and a of €418,200, a 10% pension contribution and a Committee determined that his subsisting LTIP Committee determined that his subsisting LTIP standard benefits package. His annual bonus standard benefits package. His annual bonus awards will continue until the normal time of awards will continue until the normal time of opportunity was set at 100% of basic salary, opportunity was set at 100% of basic salary, vesting, at which point they will vest subject to vesting, at which point they will vest subject to slightly below the level of 102.6% available to slightly below the level of 102.6% available to performance against the relevant targets. No pro performance against the relevant targets. No pro his predecessor. The Remuneration Committee his predecessor. The Remuneration Committee rata reduction was applied to his 2016 LTIP award rata reduction was applied to his 2016 LTIP award exercised its discretion to grant Gary an LTIP exercised its discretion to grant Gary an LTIP as the date of cessation of employment (11 June as the date of cessation of employment (11 June award at a level of 150% of basic salary following award at a level of 150% of basic salary following 2019) occurs after the vesting date for the award 2019) occurs after the vesting date for the award his appointment, in line with the limit as set his appointment, in line with the limit as set (although, as noted later, this award has zero (although, as noted later, this award has zero out in the remuneration policy. We made an out in the remuneration policy. We made an vesting due to the performance targets not being vesting due to the performance targets not being award at this level in order to help attract award at this level in order to help attract achieved). His 2017 award will be pro-rated to the achieved). His 2017 award will be pro-rated to the Gary to Hostelworld, to aid in his motivation Gary to Hostelworld, to aid in his motivation date of cessation. The Remuneration Committee date of cessation. The Remuneration Committee and retention over the next few years and to and retention over the next few years and to has exercised its discretion to take a different has exercised its discretion to take a different provide an immediate long term alignment with provide an immediate long term alignment with approach for the 2018 award, with the date on approach for the 2018 award, with the date on Hostelworld shareholders. The award will vest Hostelworld shareholders. The award will vest which Feargal stepped down from the Board which Feargal stepped down from the Board subject to the performance conditions applied to subject to the performance conditions applied to (11 June 2018) being used as the basis for the (11 June 2018) being used as the basis for the other LTIP awards in 2018, which we believe are other LTIP awards in 2018, which we believe are calculation of the pro rata reduction as opposed calculation of the pro rata reduction as opposed suitably challenging. suitably challenging. to his actual cessation of employment. This to his actual cessation of employment. This means that the potential value of the 2018 award means that the potential value of the 2018 award TJ Kelly’s appointment was announced on 21 TJ Kelly’s appointment was announced on 21 at vesting will be significantly lower than had we at vesting will be significantly lower than had we August 2018. His remuneration package on August 2018. His remuneration package on used the default position of cessation used the default position of cessation appointment included a basic salary of €295,000, appointment included a basic salary of €295,000, of employment to calculate the reduction. of employment to calculate the reduction. 73 73 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance We believe that this was a fair approach in the We believe that this was a fair approach in the The three-year performance period for the The three-year performance period for the context of internal and external expectations context of internal and external expectations shareholder vote at the AGM. shareholder vote at the AGM. context of Feargal’s departure and appropriately context of Feargal’s departure and appropriately 2016 LTIP award ended in 2018. Following an 2016 LTIP award ended in 2018. Following an of our performance over the coming years. On of our performance over the coming years. On recognised the relatively short period between recognised the relatively short period between assessment of the Adjusted Earnings per Share assessment of the Adjusted Earnings per Share TSR, we are aware that some investors have a TSR, we are aware that some investors have a I hope that you find the information in this Report I hope that you find the information in this Report the grant of the 2018 award and the date on the grant of the 2018 award and the date on (“Adjusted EPS”) and absolute Total Shareholder (“Adjusted EPS”) and absolute Total Shareholder preference for this to be measured on a relative preference for this to be measured on a relative helpful and informative and I look forward to helpful and informative and I look forward to which Feargal’s departure was announced. which Feargal’s departure was announced. Return (“TSR”) performance conditions attached Return (“TSR”) performance conditions attached basis. This was considered by the Remuneration basis. This was considered by the Remuneration your continued support at the AGM. your continued support at the AGM. Mari Hurley’s resignation as Chief Financial Mari Hurley’s resignation as Chief Financial vesting conditions were met and as a result none vesting conditions were met and as a result none sufficiently large group of relevant listed peers to sufficiently large group of relevant listed peers to I am always happy to hear from the Company’s I am always happy to hear from the Company’s Officer was announced on 19 December 2017. Officer was announced on 19 December 2017. of these awards will vest in April 2019. of these awards will vest in April 2019. form the basis for a useful comparison. There is form the basis for a useful comparison. There is shareholders and you can contact me via the shareholders and you can contact me via the to this award, it was determined that none of the to this award, it was determined that none of the Committee, but we have been unable to identify a Committee, but we have been unable to identify a She left the Board and the Company during She left the Board and the Company during 2018 and her termination arrangements were 2018 and her termination arrangements were How we will apply the policy in 2019 How we will apply the policy in 2019 disclosed in last year’s report. disclosed in last year’s report. Remuneration Outcomes for 2018 Remuneration Outcomes for 2018 The Remuneration Committee reviewed Gary The Remuneration Committee reviewed Gary Morrison’s salary and determined that an Morrison’s salary and determined that an increase of 3% with effect from 1 January 2019 increase of 3% with effect from 1 January 2019 As described earlier in this Annual Report, As described earlier in this Annual Report, was warranted (which is in line with the typical was warranted (which is in line with the typical 2018 was a year of significant activity and 2018 was a year of significant activity and salary increase across the wider workforce). No salary increase across the wider workforce). No change for Hostelworld Group. In addition we change for Hostelworld Group. In addition we review of TJ Kelly’s salary was undertaken given review of TJ Kelly’s salary was undertaken given experienced challenging industry conditions experienced challenging industry conditions his recent appointment to the Group. his recent appointment to the Group. during the summer months. Despite this our during the summer months. Despite this our core Hostelworld brand grew by 4% although core Hostelworld brand grew by 4% although The maximum annual bonus opportunity for The maximum annual bonus opportunity for the expected decline in our supporting brands the expected decline in our supporting brands Gary Morrison will remain at 100% of basic Gary Morrison will remain at 100% of basic resulted in overall Group bookings being flat. resulted in overall Group bookings being flat. salary. Subject to shareholder approval of salary. Subject to shareholder approval of The introduction of a free cancellation booking The introduction of a free cancellation booking the new remuneration policy, the maximum the new remuneration policy, the maximum option led to a deferral of revenue recognition, option led to a deferral of revenue recognition, potential bonus payable to TJ Kelly will also be potential bonus payable to TJ Kelly will also be which has impacted reported earnings in 2018, which has impacted reported earnings in 2018, 100% of salary. The bonus will be subject to 100% of salary. The bonus will be subject to although this has not had an impact on cash although this has not had an impact on cash the achievement of challenging performance the achievement of challenging performance receipts. receipts. targets in the following areas (which, for 2019, the targets in the following areas (which, for 2019, the Committee has agreed should be based solely on Committee has agreed should be based solely on In light of the Company’s performance over In light of the Company’s performance over financial/operational metrics i.e. with no personal financial/operational metrics i.e. with no personal the financial year, there were no payments to the financial year, there were no payments to bonus element): bonus element): Executive Directors or senior management under Executive Directors or senior management under the annual bonus scheme set up at the start of the annual bonus scheme set up at the start of ► Adjusted PBT (70% weighting); and ► Adjusted PBT (70% weighting); and 2018. The requirement for a threshold level of 2018. The requirement for a threshold level of ► Total bednights (30% weighting). ► Total bednights (30% weighting). Adjusted PBT to be met before any bonuses were Adjusted PBT to be met before any bonuses were paid was not met, with this threshold set at the paid was not met, with this threshold set at the As noted above, the payment of any bonus will As noted above, the payment of any bonus will start of the year. As a result, Feargal Mooney did start of the year. As a result, Feargal Mooney did be subject to the Remuneration Committee be subject to the Remuneration Committee not receive any bonus for the year. not receive any bonus for the year. being satisfied that the Company has delivered being satisfied that the Company has delivered an acceptable level of performance, taking an acceptable level of performance, taking For Gary Morrison, the Remuneration Committee For Gary Morrison, the Remuneration Committee into account underlying financial performance into account underlying financial performance used its discretion under the remuneration policy used its discretion under the remuneration policy (including Adjusted PBT), performance against (including Adjusted PBT), performance against to set different bonus performance conditions to set different bonus performance conditions other KPIs and progress against the achievement other KPIs and progress against the achievement that reflected circumstances existing at the time that reflected circumstances existing at the time of strategic goals. of strategic goals. of his appointment. Metrics relating to Adjusted of his appointment. Metrics relating to Adjusted EBITDA, total bednights (booked by customers) EBITDA, total bednights (booked by customers) Gary Morrison will receive an LTIP award at a Gary Morrison will receive an LTIP award at a and personal performance were agreed, with the and personal performance were agreed, with the level of 125% of basic salary. TJ Kelly will receive level of 125% of basic salary. TJ Kelly will receive specific financial targets set reflecting trading specific financial targets set reflecting trading an LTIP award at a level of 100% of basic salary. an LTIP award at a level of 100% of basic salary. conditions that existed at the time. As disclosed in conditions that existed at the time. As disclosed in The award to Gary is lower than the 150% of The award to Gary is lower than the 150% of the Annual Report on Remuneration, in line with the Annual Report on Remuneration, in line with salary award he received in 2018. The award to salary award he received in 2018. The award to achievement of certain of these targets, a payout achievement of certain of these targets, a payout TJ is consistent with his revised remuneration TJ is consistent with his revised remuneration of 19.3% of salary was made to Gary Morrison of 19.3% of salary was made to Gary Morrison package, as explained above. The performance package, as explained above. The performance (19.3% of his maximum bonus opportunity). (19.3% of his maximum bonus opportunity). conditions will be based 70% on Adjusted EPS conditions will be based 70% on Adjusted EPS TJ Kelly was not eligible to participate in the TJ Kelly was not eligible to participate in the over a three-year period, as set out later in over a three-year period, as set out later in performance and 30% on absolute TSR measured performance and 30% on absolute TSR measured bonus plan for 2018. bonus plan for 2018. 74 74 this report. We have set EPS targets which are this report. We have set EPS targets which are challenging yet potentially achievable in the challenging yet potentially achievable in the also relatively little historical correlation between also relatively little historical correlation between Company Secretary if you have any questions on Company Secretary if you have any questions on Hostelworld’s share price performance and that Hostelworld’s share price performance and that this report or more generally in relation to the this report or more generally in relation to the of the broader Travel & Leisure sector, or that of a of the broader Travel & Leisure sector, or that of a Company’s remuneration. Company’s remuneration. Andy McCue Andy McCue Chairman, Remuneration Committee Chairman, Remuneration Committee 1 April 2019 1 April 2019 broader index, suggesting that such comparators broader index, suggesting that such comparators would be of limited use. would be of limited use. In line with the new remuneration policy, a In line with the new remuneration policy, a two-year post-vesting holding period will apply two-year post-vesting holding period will apply to the 2019 LTIP awards. to the 2019 LTIP awards. Legislative and Regulatory Legislative and Regulatory Developments Developments The Remuneration Committee has started The Remuneration Committee has started to consider the impact of the legislative and to consider the impact of the legislative and regulatory changes which formally apply regulatory changes which formally apply to Hostelworld from the 2019 financial year to Hostelworld from the 2019 financial year onwards. In our report next year, we envisage onwards. In our report next year, we envisage complying in full with the new remuneration complying in full with the new remuneration reporting requirements mandated by law. We reporting requirements mandated by law. We also intend to comply with the provisions of the also intend to comply with the provisions of the 2018 UK Corporate Governance Code, but we 2018 UK Corporate Governance Code, but we reserve the right to explain any area of non- reserve the right to explain any area of non- compliance if it is decided that compliance would compliance if it is decided that compliance would not be in the best interests of Hostelworld or its not be in the best interests of Hostelworld or its shareholders. shareholders. Structure of this Report Structure of this Report This report has been prepared in accordance with This report has been prepared in accordance with The Large and Medium-sized Companies and The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Groups (Accounts and Reports) (Amendment) Regulations 2013, the UKLA Listing Rules and the Regulations 2013, the UKLA Listing Rules and the UK Corporate Governance Code. The report is UK Corporate Governance Code. The report is split into three parts: split into three parts: ► This Annual Statement. ► This Annual Statement. ► The new Directors’ Remuneration Policy. The ► The new Directors’ Remuneration Policy. The policy will be subject to a binding shareholder policy will be subject to a binding shareholder vote at the AGM on 31 May 2019. vote at the AGM on 31 May 2019. ► The Annual Report on Remuneration, which ► The Annual Report on Remuneration, which sets out payments made to the Directors and sets out payments made to the Directors and details the link between Company performance details the link between Company performance and remuneration for the 2018 financial year. and remuneration for the 2018 financial year. The Annual Report on Remuneration together The Annual Report on Remuneration together with this statement is subject to an advisory with this statement is subject to an advisory 75 75 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance DIRECTORS’ DIRECTORS’ REMUNERATION POLICY REMUNERATION POLICY Introduction Introduction The Directors’ Remuneration Policy as The Directors’ Remuneration Policy as set out below will be put to a binding set out below will be put to a binding shareholder vote at the Annual General shareholder vote at the Annual General Meeting on 31 May 2019 and will apply Meeting on 31 May 2019 and will apply for the period of three years from the for the period of three years from the date of approval. The policy will replace date of approval. The policy will replace the policy approved at the AGM on 26 the policy approved at the AGM on 26 May 2016. May 2016. Policy Summary Policy Summary The Remuneration Committee has designed the The Remuneration Committee has designed the ► Changing practice in the markets where the ► Changing practice in the markets where the Company competes for talent; Company competes for talent; ► Pay structure and levels in the Company as a ► Pay structure and levels in the Company as a whole; and whole; and ► Changing views of institutional shareholders ► Changing views of institutional shareholders and their representative bodies. and their representative bodies. Changes to the Policy Changes to the Policy The policy as set out below incorporates a The policy as set out below incorporates a number of changes to the policy approved number of changes to the policy approved by shareholders in 2016. These changes are by shareholders in 2016. These changes are listed below and are explained further in the listed below and are explained further in the Annual Statement from the Chairman of the Annual Statement from the Chairman of the policy around the following key principles: policy around the following key principles: Remuneration Committee: Remuneration Committee: ► Shareholder alignment – Ensure alignment of ► Shareholder alignment – Ensure alignment of ► With effect from the LTIP awards to be granted ► With effect from the LTIP awards to be granted the interests of the Executive Directors, senior the interests of the Executive Directors, senior management and employees to the long term management and employees to the long term interests of shareholders; interests of shareholders; in 2019, shares which vest after the end of the in 2019, shares which vest after the end of the three-year performance period (net of those three-year performance period (net of those required to be sold to pay tax) will be subject to required to be sold to pay tax) will be subject to an additional two-year holding period; an additional two-year holding period; ► Competitive remuneration – Maintain a ► Competitive remuneration – Maintain a competitive package against businesses of a competitive package against businesses of a ► The shareholding requirement which applies ► The shareholding requirement which applies comparable size and nature in order to attract, comparable size and nature in order to attract, to Executive Directors will be increased from to Executive Directors will be increased from retain and motivate high-calibre talent to help retain and motivate high-calibre talent to help 150% to 200% of basic salary; 150% to 200% of basic salary; ensure the Company performs successfully; ensure the Company performs successfully; ► Strategic and cultural alignment – Provide a ► Strategic and cultural alignment – Provide a package with an appropriate balance between package with an appropriate balance between short and longer term performance targets short and longer term performance targets linked to the delivery of the Company’s linked to the delivery of the Company’s ► For new Executive Directors appointed after ► For new Executive Directors appointed after shareholder approval of the remuneration shareholder approval of the remuneration policy, we now specify that the maximum policy, we now specify that the maximum pension contribution will be in line with the pension contribution will be in line with the contribution level provided to the majority of contribution level provided to the majority of business plan and is aligned to and reflective business plan and is aligned to and reflective the workforce; the workforce; of the Company’s culture; of the Company’s culture; ► Performance-focussed compensation – ► Performance-focussed compensation – Encourage and support a high-performance Encourage and support a high-performance culture; and culture; and ► Set appropriate performance conditions in line ► Set appropriate performance conditions in line ► The financial underpin in the annual bonus ► The financial underpin in the annual bonus scheme has been amended so that payment scheme has been amended so that payment of any bonus will require a Remuneration of any bonus will require a Remuneration Committee assessment of overall performance Committee assessment of overall performance during the year (rather than merely the during the year (rather than merely the achievement of a specific threshold profit achievement of a specific threshold profit with the agreed risk profile of the business. with the agreed risk profile of the business. target); target); The Remuneration Committee reviews annually The Remuneration Committee reviews annually ► The annual bonus opportunity for the Chief ► The annual bonus opportunity for the Chief the remuneration arrangements for the Executive the remuneration arrangements for the Executive Financial Officer has been increased from 72% Financial Officer has been increased from 72% Directors and key senior management, taking Directors and key senior management, taking to 100% of basic salary; to 100% of basic salary; into consideration: into consideration: ► Business strategy over the period; ► Business strategy over the period; ► Overall corporate performance; ► Overall corporate performance; ► To correct an anomaly, we have included a ► To correct an anomaly, we have included a policy provision which permits Executive policy provision which permits Executive Directors to participate in the Company’s SAYE Directors to participate in the Company’s SAYE ► The flexibility for the Remuneration Committee ► The flexibility for the Remuneration Committee to provide additional sign-on compensation for to provide additional sign-on compensation for new recruits has been removed. new recruits has been removed. The following table sets out each element of remuneration and how it supports the Company’s short and long term The following table sets out each element of remuneration and how it supports the Company’s short and long term strategic objectives. strategic objectives. Element and link to our Element and link to our strategic objectives strategic objectives Base Salary Base Salary Operation Operation Opportunity Opportunity Performance Performance metrics, weighting metrics, weighting and assessment and assessment Provides a base level of Provides a base level of Salaries are reviewed annually and any Salaries are reviewed annually and any Base salaries will be set at an Base salaries will be set at an None None remuneration to support remuneration to support changes are effective from 1 January changes are effective from 1 January appropriate level within a comparator appropriate level within a comparator recruitment and retention recruitment and retention in the financial year. in the financial year. group of comparably sized listed group of comparably sized listed of Executive Directors with of Executive Directors with companies and will normally increase companies and will normally increase the necessary experience the necessary experience When determining an appropriate When determining an appropriate in line with increases made to the in line with increases made to the and expertise to deliver the and expertise to deliver the level of salary, the Remuneration level of salary, the Remuneration wider employee workforce. wider employee workforce. Company’s strategy. Company’s strategy. Committee considers: Committee considers: Individuals who are recruited or Individuals who are recruited or ► remuneration practices within the ► remuneration practices within the promoted to the Board may, on promoted to the Board may, on Company; Company; occasion, have their salaries set below occasion, have their salaries set below ► the performance of the individual ► the performance of the individual the targeted policy level until they the targeted policy level until they Executive Director; Executive Director; become established in their role. In become established in their role. In ► the individual Executive Director’s ► the individual Executive Director’s such cases subsequent increases such cases subsequent increases experience and responsibilities; experience and responsibilities; in salary may be higher than the in salary may be higher than the ► the general performance of the ► the general performance of the average until the target positioning is average until the target positioning is Company; Company; achieved. achieved. ► salaries within the ranges paid by ► salaries within the ranges paid by the companies in the comparator the companies in the comparator group used for remuneration group used for remuneration benchmarking; and benchmarking; and ► the economic environment. ► the economic environment. Benefits Benefits Provides a market competitive Provides a market competitive The Executive Directors receive The Executive Directors receive The maximum will be set at the cost The maximum will be set at the cost None None level of benefits to support level of benefits to support benefits which include, but are not benefits which include, but are not of providing the benefits described. of providing the benefits described. recruitment and retention recruitment and retention limited to, family private health cover limited to, family private health cover of Executive Directors with of Executive Directors with and life assurance cover (including tax and life assurance cover (including tax the necessary experience the necessary experience if any). if any). and expertise to deliver the and expertise to deliver the Company’s strategy. Company’s strategy. The Remuneration Committee The Remuneration Committee recognises the need to maintain recognises the need to maintain suitable flexibility in the determination suitable flexibility in the determination of benefits that ensure it is able to of benefits that ensure it is able to support the objective of attracting support the objective of attracting and retaining personnel. Accordingly, and retaining personnel. Accordingly, the Remuneration Committee would the Remuneration Committee would expect to be able to adopt other expect to be able to adopt other benefits including (but not limited to) benefits including (but not limited to) relocation expenses, tax equalisation relocation expenses, tax equalisation and support in meeting specific costs and support in meeting specific costs incurred by Directors. incurred by Directors. Pensions Pensions Provide market competitive Provide market competitive The Remuneration Committee The Remuneration Committee For existing Executive Directors, the For existing Executive Directors, the None None retirement benefits to support retirement benefits to support maintains the ability to provide maintains the ability to provide maximum pension contribution as a maximum pension contribution as a recruitment and retention recruitment and retention pension funding in the form of a pension funding in the form of a percentage of basic salary is 10%. percentage of basic salary is 10%. of Executive Directors with of Executive Directors with salary supplement, which would salary supplement, which would For new Executive Directors appointed For new Executive Directors appointed the necessary experience the necessary experience not form part of the salary for the not form part of the salary for the after approval of this policy, the after approval of this policy, the and expertise to deliver the and expertise to deliver the purposes of determining the extent purposes of determining the extent maximum pension contribution maximum pension contribution Company’s strategy. Company’s strategy. of participation in the Company’s of participation in the Company’s will be in line with the contribution will be in line with the contribution incentive arrangements. incentive arrangements. level provided to the majority of the level provided to the majority of the workforce. workforce. 76 76 ► Market conditions affecting the Company; ► Market conditions affecting the Company; plan; and plan; and 77 77 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Element and link to our Element and link to our strategic objectives strategic objectives Save As You Earn (“SAYE”) plan Save As You Earn (“SAYE”) plan To encourage share ownership To encourage share ownership among Hostelworld employees among Hostelworld employees and increase the alignment with and increase the alignment with shareholders. shareholders. Shareholding Requirement Shareholding Requirement To support long term To support long term commitment to the Company commitment to the Company and the alignment of Executive and the alignment of Executive Director interests with those of Director interests with those of shareholders. shareholders. Operation Operation Opportunity Opportunity Performance metrics, Performance metrics, weighting and assessment weighting and assessment The maximum participation The maximum participation limit is as set out in the relevant limit is as set out in the relevant legislation. legislation. None (as is the norm for None (as is the norm for approved all-employee plans). approved all-employee plans). 200% of salary 200% of salary None None The plan permits employees to The plan permits employees to purchase shares at the end of a purchase shares at the end of a three-year period at a discount of three-year period at a discount of up to 20% of the market value of up to 20% of the market value of the shares at grant. the shares at grant. The Remuneration Committee The Remuneration Committee has adopted formal shareholding has adopted formal shareholding guidelines that will encourage guidelines that will encourage the Executive Directors to build the Executive Directors to build up and then subsequently hold a up and then subsequently hold a shareholding equivalent to 200% shareholding equivalent to 200% of their base salary. Adherence of their base salary. Adherence to these guidelines is a condition to these guidelines is a condition of continued participation in the of continued participation in the equity incentive arrangements. equity incentive arrangements. Non-Executive Director Fees Non-Executive Director Fees The Company provides a level The Company provides a level of fees to support recruitment of fees to support recruitment and retention of Non-Executive and retention of Non-Executive Directors with the necessary Directors with the necessary experience to advise and assist experience to advise and assist with establishing and monitoring with establishing and monitoring the Company’s strategic the Company’s strategic objectives. objectives. The Board as a whole is The Board as a whole is responsible for setting the responsible for setting the remuneration of the remuneration of the Non-Executive Directors, other Non-Executive Directors, other than the Chairman whose than the Chairman whose remuneration is considered by remuneration is considered by the Remuneration Committee the Remuneration Committee and recommended to the Board. and recommended to the Board. Non-Executive Directors are paid Non-Executive Directors are paid a base fee and additional fees a base fee and additional fees for acting as Senior Independent for acting as Senior Independent Director and as Chairperson of Director and as Chairperson of Board committees (or to reflect Board committees (or to reflect other additional responsibilities other additional responsibilities and/or additional/unforeseen and/or additional/unforeseen time commitments). time commitments). Non-Executive Directors Non-Executive Directors do not participate in any of do not participate in any of the Company’s incentive the Company’s incentive arrangements. arrangements. The base fees for Non- The base fees for Non- Executive Directors are set at an Executive Directors are set at an appropriate rate. appropriate rate. None None In general, the level of fee In general, the level of fee increase for the Non-Executive increase for the Non-Executive Directors will be set taking Directors will be set taking account of any change in account of any change in responsibility and will take responsibility and will take into account the general rise in into account the general rise in salaries across the workforce. salaries across the workforce. The Company will pay reasonable The Company will pay reasonable vouched expenses incurred by vouched expenses incurred by the Chairman and Non-Executive the Chairman and Non-Executive Directors, together with other Directors, together with other benefits where considered benefits where considered necessary (and any related tax necessary (and any related tax that may be payable). that may be payable). Element and link to our Element and link to our strategic objectives strategic objectives Operation Operation Opportunity Opportunity Performance metrics, Performance metrics, weighting and assessment weighting and assessment Annual Bonus Plan Annual Bonus Plan The Annual Bonus Plan provides an The Annual Bonus Plan provides an incentive to the Executive Directors incentive to the Executive Directors linked to achievement in delivering linked to achievement in delivering goals that are closely aligned with goals that are closely aligned with the Company’s strategy and the the Company’s strategy and the creation of value for shareholders. creation of value for shareholders. In particular, the Plan supports the In particular, the Plan supports the Company’s objectives allowing the Company’s objectives allowing the setting of annual targets based on setting of annual targets based on the business’ strategic objectives the business’ strategic objectives at that time, meaning that a wide at that time, meaning that a wide range of performance metrics can range of performance metrics can be used. be used. Long Term Incentive Plan (“LTIP”) Long Term Incentive Plan (“LTIP”) Awards are designed to incentivise Awards are designed to incentivise the Executive Directors to the Executive Directors to maximise returns to shareholders maximise returns to shareholders by successfully delivering the by successfully delivering the Company’s objectives over the long Company’s objectives over the long term. term. The Remuneration Committee The Remuneration Committee will determine the bonus payable will determine the bonus payable after the year end based on after the year end based on performance against targets. performance against targets. The maximum bonus The maximum bonus opportunity as a % of base opportunity as a % of base salary is 100%. salary is 100%. Annual bonuses are paid in cash Annual bonuses are paid in cash after the end of the financial year after the end of the financial year to which they relate. to which they relate. On change of control, the On change of control, the Remuneration Committee may Remuneration Committee may pay bonuses on a pro rata basis pay bonuses on a pro rata basis measured on performance up to measured on performance up to the date of change of control. the date of change of control. Malus will apply up to the date Malus will apply up to the date of the bonus determination of the bonus determination and clawback will apply for two and clawback will apply for two years from the date of bonus years from the date of bonus determination. determination. Awards are granted annually to Awards are granted annually to Executive Directors under the Executive Directors under the LTIP. These vest at the end of LTIP. These vest at the end of a three-year period, normally a three-year period, normally subject to: subject to: ► the Executive Director’s ► the Executive Director’s continued employment at the continued employment at the date of vesting; and date of vesting; and ► satisfaction of the ► satisfaction of the performance conditions. performance conditions. The Remuneration Committee The Remuneration Committee may award dividend equivalents may award dividend equivalents on awards to the extent that they on awards to the extent that they vest. vest. Awards granted from 2019 Awards granted from 2019 onwards which vest after the end onwards which vest after the end of the three-year performance of the three-year performance period will be subject to an period will be subject to an additional two-year holding additional two-year holding period. During this period the period. During this period the shares cannot be sold (other than shares cannot be sold (other than as required for tax purposes). as required for tax purposes). The LTIP rules contain standard The LTIP rules contain standard provisions to satisfy awards/ provisions to satisfy awards/ dividend equivalents in shares. dividend equivalents in shares. Malus will apply for the three- Malus will apply for the three- year period from grant to vesting year period from grant to vesting with clawback applying for the with clawback applying for the two-year period post vesting. two-year period post vesting. Awards may be made up to Awards may be made up to 150% of base salary. 150% of base salary. If exceptional circumstances If exceptional circumstances arise, including (but not arise, including (but not limited to) the recruitment limited to) the recruitment of an individual, the of an individual, the Remuneration Committee Remuneration Committee may grant awards outside may grant awards outside this limit up to a maximum this limit up to a maximum of 200% of a participant’s of 200% of a participant’s annual basic salary. annual basic salary. No more than 25% of the No more than 25% of the award will vest for threshold award will vest for threshold performance. 100% of the performance. 100% of the award will vest for maximum award will vest for maximum performance. performance. Bonus payouts are determined Bonus payouts are determined on the satisfaction of a range of on the satisfaction of a range of key financial and non-financial key financial and non-financial objectives set annually by the objectives set annually by the Remuneration Committee. Remuneration Committee. In addition, the payment of In addition, the payment of any bonus will require the any bonus will require the Remuneration Committee Remuneration Committee determining that the Company has determining that the Company has delivered an acceptable level of delivered an acceptable level of performance during the year. performance during the year. The Remuneration Committee The Remuneration Committee retains discretion in exceptional retains discretion in exceptional circumstances to change circumstances to change performance measures and targets performance measures and targets and the weightings attached to and the weightings attached to performance measures part-way performance measures part-way through a performance year if there through a performance year if there is a significant and material event is a significant and material event which causes the Remuneration which causes the Remuneration Committee to believe the original Committee to believe the original measures, weightings and targets measures, weightings and targets are no longer appropriate. are no longer appropriate. Discretion may also be exercised Discretion may also be exercised in cases where the Remuneration in cases where the Remuneration Committee believes that the bonus Committee believes that the bonus outcome is not a fair and accurate outcome is not a fair and accurate reflection of business performance. reflection of business performance. LTIP awards vest subject to the LTIP awards vest subject to the achievement of challenging achievement of challenging performance conditions set by the performance conditions set by the Remuneration Committee prior Remuneration Committee prior to each grant. Awards granted in to each grant. Awards granted in 2019 will be subject to performance 2019 will be subject to performance measures based on Adjusted EPS measures based on Adjusted EPS and absolute TSR performance. and absolute TSR performance. The Remuneration Committee The Remuneration Committee may change the balance of may change the balance of the measures, or use different the measures, or use different measures for subsequent awards measures for subsequent awards during the policy period, as during the policy period, as appropriate. No material change appropriate. No material change will be made to the type of will be made to the type of performance conditions without performance conditions without prior shareholder consultation. prior shareholder consultation. The Remuneration Committee The Remuneration Committee retains discretion in exceptional retains discretion in exceptional circumstances to change circumstances to change performance measures and targets performance measures and targets and the weightings attached and the weightings attached to performance measures part to performance measures part way through a performance way through a performance period if there is a significant period if there is a significant and material event which causes and material event which causes the Remuneration Committee to the Remuneration Committee to believe the original measures, believe the original measures, weightings and targets are no weightings and targets are no longer appropriate. longer appropriate. Discretion may also be exercised Discretion may also be exercised in cases where the Remuneration in cases where the Remuneration Committee believes that the vesting Committee believes that the vesting outcome is not a fair and accurate outcome is not a fair and accurate reflection of business performance. reflection of business performance. 78 78 79 79 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Choice of Performance Measures Choice of Performance Measures Each year, the Remuneration Committee will Each year, the Remuneration Committee will choose the appropriate performance measures choose the appropriate performance measures and targets to apply to the annual bonus scheme and targets to apply to the annual bonus scheme and LTIP. The measures will be closely aligned and LTIP. The measures will be closely aligned with Hostelworld’s strategy and business with Hostelworld’s strategy and business priorities at the time. priorities at the time. cases, incentive structures and performance cases, incentive structures and performance conditions apply which are different to those conditions apply which are different to those used for Executive Directors. The Remuneration used for Executive Directors. The Remuneration Committee takes into account workforce Committee takes into account workforce remuneration and related policies when setting remuneration and related policies when setting the policy for Executive Directors’ remuneration. the policy for Executive Directors’ remuneration. Recruitment Policy Recruitment Policy For the 2019 LTIP grant, the performance For the 2019 LTIP grant, the performance conditions for awards will be split between conditions for awards will be split between Adjusted EPS growth (70%) and absolute TSR Adjusted EPS growth (70%) and absolute TSR The approach when setting the remuneration The approach when setting the remuneration of any newly recruited Executive Director will of any newly recruited Executive Director will be assessed in line with the same principles be assessed in line with the same principles (30%). The use of Adjusted EPS ensures Executive (30%). The use of Adjusted EPS ensures Executive for the Executive Directors, as set out above. for the Executive Directors, as set out above. Directors are focussed on achieving earnings Directors are focussed on achieving earnings The Remuneration Committee’s approach to The Remuneration Committee’s approach to growth over the longer term. The use of absolute growth over the longer term. The use of absolute recruitment remuneration is to pay no more recruitment remuneration is to pay no more TSR reflects Hostelworld’s dividend policy and TSR reflects Hostelworld’s dividend policy and measures the extent to which there is market measures the extent to which there is market confidence in the business strategy. confidence in the business strategy. Malus and Clawback Malus and Clawback Malus and clawback provisions within the annual Malus and clawback provisions within the annual bonus scheme and the LTIP apply in the following bonus scheme and the LTIP apply in the following circumstances: circumstances: ► Material misstatement of results; ► Material misstatement of results; ► Gross misconduct; ► Gross misconduct; ► Error in calculating the number of shares subject ► Error in calculating the number of shares subject to an award or the amount of cash paid; to an award or the amount of cash paid; ► Corporate failure; or ► Corporate failure; or ► Serious reputational damage. ► Serious reputational damage. Discretion Discretion The Remuneration Committee has discretion in The Remuneration Committee has discretion in several areas of policy as set out in this report. several areas of policy as set out in this report. The Remuneration Committee may also exercise The Remuneration Committee may also exercise operational and administrative discretions under operational and administrative discretions under relevant plan rules approved by shareholders relevant plan rules approved by shareholders as set out in those rules. In addition, the as set out in those rules. In addition, the Remuneration Committee has the discretion Remuneration Committee has the discretion to amend the policy with regard to minor or to amend the policy with regard to minor or administrative matters where it would be, in administrative matters where it would be, in the opinion of the Remuneration Committee, the opinion of the Remuneration Committee, disproportionate to seek or await shareholder disproportionate to seek or await shareholder approval. approval. Differences in Policy from the Wider Differences in Policy from the Wider Employee Population Employee Population than is necessary to attract candidates of the than is necessary to attract candidates of the appropriate calibre and experience needed for appropriate calibre and experience needed for the role from the market in which the Company the role from the market in which the Company competes. The Remuneration Committee is competes. The Remuneration Committee is mindful that it wishes to avoid paying more than mindful that it wishes to avoid paying more than it considers necessary to secure the preferred it considers necessary to secure the preferred candidate and will have regard to guidelines and candidate and will have regard to guidelines and shareholder sentiment regarding enhanced short shareholder sentiment regarding enhanced short term or long term incentive payments made term or long term incentive payments made on recruitment and the appropriateness of any on recruitment and the appropriateness of any performance measures associated with an award. performance measures associated with an award. Subject to the paragraph below, the incentive Subject to the paragraph below, the incentive awards that can be received in any one year will awards that can be received in any one year will not exceed the maximum individual limits as set not exceed the maximum individual limits as set out in the Remuneration Policy Table. out in the Remuneration Policy Table. The Remuneration Committee’s policy is not The Remuneration Committee’s policy is not to provide sign-on compensation. In addition, to provide sign-on compensation. In addition, the Remuneration Committee’s policy is not to the Remuneration Committee’s policy is not to provide buyouts as a matter of course. However, provide buyouts as a matter of course. However, should the Remuneration Committee determine should the Remuneration Committee determine that the individual circumstances of recruitment that the individual circumstances of recruitment justified the provision of a buyout, the equivalent justified the provision of a buyout, the equivalent value of any incentives that will be forfeited on value of any incentives that will be forfeited on cessation of a director’s previous employment cessation of a director’s previous employment will be calculated. This will take into account, will be calculated. This will take into account, among other things, the performance conditions among other things, the performance conditions attached to the vesting of these incentives, the attached to the vesting of these incentives, the likelihood of vesting and the nature of the awards likelihood of vesting and the nature of the awards (cash or equity). The Remuneration Committee (cash or equity). The Remuneration Committee may then grant a buyout up to the same value may then grant a buyout up to the same value as the lapsed value, where possible, under the as the lapsed value, where possible, under the Company’s incentive plans. To the extent that it Company’s incentive plans. To the extent that it is not possible or practical to provide the buyout is not possible or practical to provide the buyout The Group aims to provide a remuneration The Group aims to provide a remuneration within the terms of the Company’s existing within the terms of the Company’s existing package for all employees that is market package for all employees that is market incentive plans the Remuneration Committee incentive plans the Remuneration Committee competitive and operates the same reward competitive and operates the same reward may, in exceptional circumstances consider it may, in exceptional circumstances consider it and performance philosophy throughout the and performance philosophy throughout the appropriate to grant an award under a different appropriate to grant an award under a different business. As with many companies, the Group business. As with many companies, the Group structure to facilitate a buyout of outstanding structure to facilitate a buyout of outstanding operates variable pay plans primarily focussed operates variable pay plans primarily focussed awards held by an individual on recruitment. awards held by an individual on recruitment. 80 80 on mid to senior management level. In some on mid to senior management level. In some Where an existing employee is promoted to Where an existing employee is promoted to to shareholders in the Annual Report on to shareholders in the Annual Report on the Board, the policy set out above would apply the Board, the policy set out above would apply Remuneration for the relevant financial year. Remuneration for the relevant financial year. from the date of promotion but there would from the date of promotion but there would be no retrospective application of the policy be no retrospective application of the policy The Company’s policy when setting fees for the The Company’s policy when setting fees for the in relation to subsisting incentive awards or in relation to subsisting incentive awards or appointment of new Non-Executive Directors is appointment of new Non-Executive Directors is remuneration arrangements. Accordingly, remuneration arrangements. Accordingly, to apply the policy which applies to current Non- to apply the policy which applies to current Non- prevailing elements of the remuneration package prevailing elements of the remuneration package Executive Directors. Executive Directors. for an existing employee would be honoured for an existing employee would be honoured and form part of the ongoing remuneration of and form part of the ongoing remuneration of the person concerned. These would be disclosed the person concerned. These would be disclosed Service Agreements and Letters of Appointment Service Agreements and Letters of Appointment Executive Directors Executive Directors Each of the Executive Directors has entered into a service contract with the Company. Each of the Executive Directors has entered into a service contract with the Company. Name Name Position Position Date of service Date of service agreement agreement Notice period by Notice period by Company (months) Company (months) Notice period by Notice period by Director (months) Director (months) Gary Morrison Gary Morrison TJ Kelly TJ Kelly CEO CEO CFO CFO 11 June 2018 11 June 2018 21 November 2018 21 November 2018 12 12 6 6 12 12 6 6 Non-Executive Directors Non-Executive Directors The Non-Executive Directors have each entered into letters of appointment with the Company. The Non-Executive Directors have each entered into letters of appointment with the Company. Each independent Non-Executive Director’s term of office runs for an initial period of three years unless Each independent Non-Executive Director’s term of office runs for an initial period of three years unless terminated earlier upon written notice or upon their resignations. Non-Executive Directors are also terminated earlier upon written notice or upon their resignations. Non-Executive Directors are also subject to re-election at each AGM. subject to re-election at each AGM. The dates of appointment of each Non-Executive Director is set out below: The dates of appointment of each Non-Executive Director is set out below: Name Name Effective Date Effective Date of appointment of appointment Notice periods by Notice periods by Company (months) Company (months) Notice periods by Notice periods by Director (months) Director (months) Michael Cawley Michael Cawley 14 October 2015 14 October 2015 Andy McCue Andy McCue 14 October 2015 14 October 2015 Carl Shepherd Carl Shepherd 1 October 2017 1 October 2017 Éimear Moloney Éimear Moloney 27 November 2017 27 November 2017 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 81 81 LUB D KOH SAMUI CHAWENG BEACH KOH SAMUI Payment for Loss of Office A good leaver reason may include cessation in the following circumstances: The Remuneration Committee will honour Executive Directors’ contractual entitlements. Service contracts do not contain liquidated damages clauses. If a contract is to be terminated, the Remuneration Committee will determine such mitigation as it considers fair and reasonable in each case. There are no contractual arrangements that would guarantee a pension with limited or no abatement on severance or early retirement. There is no agreement between the Company and its Executive Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid. The Remuneration Committee reserves the right to make additional payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation); or by way of settlement or compromise of any claim arising in connection with the termination of an Executive Director’s office or employment; or in relation to the provision of outplacement or similar services. When determining any loss of office payment for a departing individual the Remuneration Committee will always seek to minimise cost to the Company whilst seeking to address the circumstances at the time. ► Death; ► Ill-health; ► Injury or disability; ► Redundancy; ► Retirement with agreement of employer; ► Employing company ceasing to be a Group company; ► Employing company transferred to a person who is not a Group Member; or ► At the discretion of the Remuneration Committee (as described above). Cessation of employment in circumstances other than those set out above is cessation for other reasons. Change of Control The Remuneration Committee’s policy on the vesting of incentives on a change of control is summarised below: Remuneration element Treatment on exit Name of Incentive Plan Change of Control Discretion Salary, benefits and pension Annual Bonus Plan LTIP Salary, benefits and pension will be paid over the notice period. The Company has discretion to make a lump sum payment on termination equal to the salary, value of benefits and value of company pension contributions payable during the notice period. In all cases the Company will seek to mitigate any payments due. Good leaver reason – pro-rated to time and performance for year of cessation. Other reason – no bonus payable for year of cessation. Good leaver reason – Pro-rated to time and performance in respect of each subsisting LTIP award. Other reason – Lapse of any unvested LTIP awards. The Remuneration Committee has the following elements of discretion: ► to determine that an executive is a good leaver. It is the Remuneration Committee’s intention to only use this discretion in circumstances where there is an appropriate business case which will be explained in full to shareholders; ► to measure performance over the original performance period or at the date of cessation. The Remuneration Committee will make this determination depending on the type of good leaver reason resulting in the cessation; ► The Remuneration Committee’s policy is generally to pro-rate to time from the date of grant to the date of cessation. It is the Remuneration Committee’s intention to only use its discretion to adopt a different approach to pro-rating in circumstances where there is an appropriate business case which will be explained in full to shareholders. 82 Annual Bonus Plan Pro-rated to time and performance to the date of the change of control. The Remuneration Committee has discretion to continue the operation of the Plan to the end of the bonus year. LTIP The number of shares subject to subsisting LTIP awards vesting on a change of control will be pro-rated to time and performance. The Remuneration Committee retains absolute discretion regarding the proportion vesting, taking into account time and performance. Options to the extent vested may be exercised at any time during the period of six months following the change of control and if not so vested will lapse at the end of such period unless the Remuneration Committee determines that a longer period shall apply. There is a presumption that the Remuneration Committee will pro-rate to time. The Remuneration Committee will only waive pro-rating in exceptional circumstances where it views the change of control as an event which has provided a material enhanced value to shareholders which will be fully explained to shareholders. In all cases the performance conditions must be satisfied. 83 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Illustrations of the Application of the Remuneration Policy Illustrations of the Application of the Remuneration Policy Statement of Conditions elsewhere in the Company Statement of Conditions elsewhere in the Company The charts below illustrate the remuneration that would be paid to each of the Executive Directors, The charts below illustrate the remuneration that would be paid to each of the Executive Directors, The Remuneration Committee considers pay and employment conditions across the Company when The Remuneration Committee considers pay and employment conditions across the Company when based on salaries with effect from 1 January 2019, under three different performance scenarios: (i) based on salaries with effect from 1 January 2019, under three different performance scenarios: (i) reviewing the remuneration of the Executive Directors and other senior employees. In particular, the reviewing the remuneration of the Executive Directors and other senior employees. In particular, the Minimum; (ii) On-target; and (iii) Maximum. The elements of remuneration have been categorised into Minimum; (ii) On-target; and (iii) Maximum. The elements of remuneration have been categorised into Remuneration Committee considers the range of base pay increases across the Group as well as wider Remuneration Committee considers the range of base pay increases across the Group as well as wider three components: (i) Fixed; (ii) Annual Bonus; and (iii) LTIP, with the assumptions set out below: three components: (i) Fixed; (ii) Annual Bonus; and (iii) LTIP, with the assumptions set out below: workforce remuneration and related policies. While the Company has not to date directly consulted workforce remuneration and related policies. While the Company has not to date directly consulted Element Element Minimum Minimum On-Target On-Target Maximum Maximum Salary, benefits and Salary, benefits and pension pension Included Included Included Included Included Included with employees as part of the process of reviewing executive pay and formulating the remuneration with employees as part of the process of reviewing executive pay and formulating the remuneration policy set out in this report, the Company does receive updates from the Executive Directors on their policy set out in this report, the Company does receive updates from the Executive Directors on their discussions and reviews with senior management and employees. In addition, the Remuneration discussions and reviews with senior management and employees. In addition, the Remuneration Committee will be reviewing its approach in light of the publication of the 2018 UK Corporate Committee will be reviewing its approach in light of the publication of the 2018 UK Corporate Governance Code, which recommends that engagement with the workforce takes place to explain Governance Code, which recommends that engagement with the workforce takes place to explain how executive remuneration aligns with wider Company pay policy. how executive remuneration aligns with wider Company pay policy. Annual bonus Annual bonus No variable payable No variable payable CEO: 56% of salary CEO: 56% of salary CFO: 56% of salary CFO: 56% of salary CEO: 100% of salary CEO: 100% of salary CFO: 100% of salary CFO: 100% of salary Consideration of Shareholder Views Consideration of Shareholder Views The Remuneration Committee takes the views of shareholders seriously and these views are taken The Remuneration Committee takes the views of shareholders seriously and these views are taken into account in shaping remuneration policy and practice. Shareholder views are considered when into account in shaping remuneration policy and practice. Shareholder views are considered when evaluating and setting remuneration strategy and the Remuneration Committee commits to consulting evaluating and setting remuneration strategy and the Remuneration Committee commits to consulting with key shareholders prior to any significant changes to its remuneration policy. The Remuneration with key shareholders prior to any significant changes to its remuneration policy. The Remuneration Committee consulted with major shareholders during the formulation of this revised remuneration Committee consulted with major shareholders during the formulation of this revised remuneration policy. policy. LTIP LTIP No LTIP vesting No LTIP vesting CEO: 62.5% of maximum CEO: 62.5% of maximum opportunity opportunity CFO: 62.5% of maximum CFO: 62.5% of maximum opportunity opportunity CEO: 125% of salary CEO: 125% of salary CFO: 100% of salary CFO: 100% of salary The level of annual bonus payment for on-target performance reflects (i) the stretching nature of The level of annual bonus payment for on-target performance reflects (i) the stretching nature of the performance targets (i.e. on-target performance should not be viewed as the level of reward for the performance targets (i.e. on-target performance should not be viewed as the level of reward for “average” performance), (ii) the relatively modest annual bonus opportunity of 100% of salary and (iii) “average” performance), (ii) the relatively modest annual bonus opportunity of 100% of salary and (iii) the fact that total target remuneration of the Executive Directors is around median at this level the fact that total target remuneration of the Executive Directors is around median at this level of potential bonus outturn for on-target performance. of potential bonus outturn for on-target performance. Dividend equivalents have not been added to LTIP share awards. In line with the new UK reporting Dividend equivalents have not been added to LTIP share awards. In line with the new UK reporting regulations, the maximum column has been extended to reflect the potential impact of 50% share price regulations, the maximum column has been extended to reflect the potential impact of 50% share price appreciation on the shares which vest. appreciation on the shares which vest. CEO(€000’s) CEO(€000’s) €1,453k €1,453k €1,722k €1,722k Maximum Maximum 33% 33% 30% 30% 37% 37% On-Target On-Target 46% 46% 23% 23% 32% 32% €1,062k €1,062k Fixed Fixed 100% 100% €484k €484k €- €- €200 €200 €400 €400 €600 €600 €800 €800 €1,000 €1,000 €1,200 €1,200 €1,400 €1,400 €1,600 €1,600 €1,800 €1,800 €2,000 €2,000 CFO(€000’s) CFO(€000’s) €906k €906k €1,054k €1,054k Maximum Maximum 35% 35% 33% 33% 33% 33% On-Target On-Target 47% 47% 25% 25% 29% 29% €666k €666k Fixed Fixed 100% 100% €316k €316k Fixed Fixed Annual Bonus Annual Bonus LTIP LTIP LTIP value with 50% LTIP value with 50% share price growth share price growth €- €- €200 €200 €400 €400 €600 €600 €800 €800 €1,000 €1,000 €1,200 €1,200 84 84 AKTION ERICEIRA SURF HOSTEL AKTION ERICEIRA SURF HOSTEL ERICEIRA ERICEIRA Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | 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 2018 financial year. Comparative figures for the 2017 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). Name Salary (€’000) Benefits (1) (€’000) Bonus (2) (€’000) LTIP (€’000) Pension (€’000) Total (€’000) 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Gary Morrison(3) 233.2 TJ Kelly(4) 33.6 - - 5.7 0.4 - - Feargal Mooney(5) Mari Hurley(6) 187.0 410.0 3.8 8.9 87.3 282.0 1.4 4.8 45.0 - - - - - 308.9 - - - - - - - - - 23.3 2.0 - - 307.2 36.0 - - 18.7 41.0 209.5 768.8 4.7 16.9 93.4 303.7 (1) Benefits represent payments for health insurance and life assurance policies. (2) An explanation of the bonuses paid for 2018 is set out later in this report. (3) Gary Morrison was appointed to the Board on 11 June 2018. (4) TJ Kelly was appointed to the Board on 21 November 2018. (5) Feargal Mooney stepped down from the Board on 11 June 2018. As explained in the section on payments to past Directors below, he remains employed by (and continues to be available to) the Company until 11 June 2019. (6) Mari Hurley stepped down from the Board on 10 April 2018. She remained in employment until the expiry of her notice period on 17 June 2018. Non-Executive Directors The table below sets out the single total figure of remuneration and breakdown for each Non-Executive Director. Name Michael Cawley(1) Andy McCue(2) Carl Shepherd(3) Éimear Moloney(4) Fees 145.0 74.0 60.0 67.0 Former Directors Richard Segal(5) - 2018 (€’000) 2017 (€’000) Taxable Benefits Other payments Total Fees Taxable Benefits Other payments Total - - - - - - - - - - 145.0 74.0 74.0 67.0 60.0 15.0 67.0 5.9 - 145.0 - - - - - - - - - - 74.0 67.0 15.0 5.9 145.0 (1) Chairman of the Board and Chair of the Nominations Committee since 1 December 2017. Previously Senior Independent Director and Chair of Audit Committee. (2) Chair of Remuneration Committee and, from 1 December 2017, Senior Independent Director. (3) Appointed to the Board on 1 October 2017. (4) Appointed to the Board on 27 November 2017 and Chair of the Audit Committee from 1 December 2017. (5) Company Chairman and Chair of Nominations Committee until 1 December 2017. Stepped down from the Board on 31 December 2017. LAVENDER CIRCUS HOSTEL BUDAPEST Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Additional Information Regarding Single Figure Table Additional Information Regarding Single Figure Table Annual Bonus – Feargal Mooney Annual Bonus – Feargal Mooney Performance Performance metric metric Weighting Weighting Threshold Threshold performance performance level level % of max % of max payout payout of relevant of relevant element at element at threshold threshold Maximum Maximum performance performance level level % of max % of max payout of payout of relevant relevant element at element at max max Actual Actual performance performance Resulting Resulting payout payout (% of award)(2) (% of award)(2) Feargal Mooney was entitled to consideration for a bonus for 2018, pro-rated to reflect his service as Feargal Mooney was entitled to consideration for a bonus for 2018, pro-rated to reflect his service as a Director until 11 June 2018. The bonus was subject to the achievement of performance conditions a Director until 11 June 2018. The bonus was subject to the achievement of performance conditions based on Adjusted PBT (50% weighting), bookings (30% weighting) and personal performance (20% based on Adjusted PBT (50% weighting), bookings (30% weighting) and personal performance (20% Adjusted Adjusted EBITDA(1) EBITDA(1) 40% 40% €21.4m €21.4m weighting). The table below sets out the details of the performance targets that were used to determine weighting). The table below sets out the details of the performance targets that were used to determine Total Bednights Total Bednights 30% 30% 27.1m 27.1m the annual bonus outcome. the annual bonus outcome. Performance Performance metric metric Weighting Weighting Threshold Threshold performance performance level level % of max % of max payout payout of relevant of relevant element at element at threshold threshold Maximum Maximum performance performance level level % of max % of max payout payout of relevant of relevant element element at max at max Actual Actual performance performance Resulting Resulting payout payout (% of award) (% of award) Adjusted Profit Adjusted Profit Before Tax Before Tax 50% 50% €24.2m €24.2m 6.8% 6.8% €28.3m €28.3m 100% 100% €21.7m €21.7m Bookings Bookings 30% 30% 7.5m 7.5m 6.8% 6.8% 8.3m 8.3m 100% 100% 7.6m 7.6m Personal Personal Performance Performance 20% 20% €24.2m €24.2m Adjusted PBT Adjusted PBT and personal and personal performance performance targets targets 25.0% 25.0% 100% 100% achievement achievement of personal of personal performance performance targets targets 100% 100% €21.7m €21.7m Adjusted PBT Adjusted PBT 0% 0% 0% 0% 0% 0% For the 2018 financial year, Adjusted PBT (before bonus payments and adjusting for the deferred For the 2018 financial year, Adjusted PBT (before bonus payments and adjusting for the deferred revenue balance at 31 December 2018 that resulted from the introduction of free cancellation booking revenue balance at 31 December 2018 that resulted from the introduction of free cancellation booking option) was used as an underpin on which any payout under the annual bonus is contingent. For option) was used as an underpin on which any payout under the annual bonus is contingent. For personal performance, the bonus was based on the achievement of individual objectives and the personal performance, the bonus was based on the achievement of individual objectives and the resulting performance rating. As the threshold level of Adjusted PBT was not achieved, no bonus was resulting performance rating. As the threshold level of Adjusted PBT was not achieved, no bonus was payable to Feargal Mooney under any of the performance metrics. payable to Feargal Mooney under any of the performance metrics. Mari Hurley was not eligible to participate in the bonus plan for 2018. Mari Hurley was not eligible to participate in the bonus plan for 2018. Annual Bonus – Gary Morrison Annual Bonus – Gary Morrison Gary Morrison was appointed to the Board on 11 June 2018 and was entitled to consideration for a Gary Morrison was appointed to the Board on 11 June 2018 and was entitled to consideration for a bonus for the year, pro-rated to reflect his period of service during the year. The maximum potential bonus for the year, pro-rated to reflect his period of service during the year. The maximum potential bonus Gary was eligible to receive was 100% of his pro-rated salary. The Remuneration Committee bonus Gary was eligible to receive was 100% of his pro-rated salary. The Remuneration Committee used its discretion under the remuneration policy to set different performance conditions than those used its discretion under the remuneration policy to set different performance conditions than those which were set for Feargal Mooney at the start of 2018 that reflected circumstances existing at the time which were set for Feargal Mooney at the start of 2018 that reflected circumstances existing at the time of his appointment. Gary’s bonus was subject to the achievement of performance conditions based on of his appointment. Gary’s bonus was subject to the achievement of performance conditions based on Adjusted EBITDA (40% weighting), total bednights (30% weighting) and personal performance (30% Adjusted EBITDA (40% weighting), total bednights (30% weighting) and personal performance (30% weighting). weighting). The table below sets out the details of the performance targets that were used to determine the annual The table below sets out the details of the performance targets that were used to determine the annual bonus outcome. bonus outcome. TJ Kelly was not eligible to participate in the bonus plan for 2018. TJ Kelly was not eligible to participate in the bonus plan for 2018. Personal Personal Performance(3) Performance(3) 30% 30% €17.3m €17.3m Adjusted PBT Adjusted PBT and personal and personal performance performance 0% 0% 0% 0% 0% 0% €23.5m €23.5m 100% 100% €21.9m €21.9m 23.7% 23.7% 29.8m 29.8m 100% 100% 27.3m 27.3m 7.5% 7.5% 100% 100% achievement achievement of personal of personal performance performance targets targets 100% 100% 25% 25% achievement achievement of personal of personal performance performance targets targets 25.0% 25.0% 1. Adjusted EBITDA is calculated before any bonus payments for the 2018 financial year. 1. Adjusted EBITDA is calculated before any bonus payments for the 2018 financial year. 2. 2. For the 2018 financial year, any annual bonus payout was contingent on an Adjusted PBT underpin being met. The Adjusted PBT underpin set for Gary For the 2018 financial year, any annual bonus payout was contingent on an Adjusted PBT underpin being met. The Adjusted PBT underpin set for Gary Morrison required the achievement of Adjusted PBT of €17.3m after any bonus payments. This reflected circumstances that existed at the time of his Morrison required the achievement of Adjusted PBT of €17.3m after any bonus payments. This reflected circumstances that existed at the time of his appointment and so was different to the underpin applied to Feargal Mooney’s bonus, which was set earlier in the year. The Remuneration Committee is appointment and so was different to the underpin applied to Feargal Mooney’s bonus, which was set earlier in the year. The Remuneration Committee is satisfied that the underpin was appropriate in the specific context. satisfied that the underpin was appropriate in the specific context. 3. 3. Further detail of the personal element of Gary’s bonus is set out below (with the Remuneration Committee considering that disclosing any further Further detail of the personal element of Gary’s bonus is set out below (with the Remuneration Committee considering that disclosing any further information would raise issues of commercial sensitivity and so would not be in shareholders’ interests): information would raise issues of commercial sensitivity and so would not be in shareholders’ interests): Objective/Metrics Objective/Metrics Performance achieved Performance achieved Strategic objectives - Growth in Hostelworld app bookings Strategic objectives - Growth in Hostelworld app bookings See note below See note below Culture objectives Culture objectives Fully achieved: enhanced career development framework Fully achieved: enhanced career development framework of the Employee Value Proposition of the Employee Value Proposition Finance objectives e.g. Realignment of finance resources Finance objectives e.g. Realignment of finance resources Supply objectives e.g. Trial new ancillary revenue services Supply objectives e.g. Trial new ancillary revenue services Not achieved Not achieved See note below See note below Strategy and supply objectives were not achieved in the period, although it is worth noting that the Strategy and supply objectives were not achieved in the period, although it is worth noting that the business was determining focus areas throughout the period as the new Chief Executive Officer business was determining focus areas throughout the period as the new Chief Executive Officer undertook a strategic review. The Remuneration Committee determined that no bonus was payable for undertook a strategic review. The Remuneration Committee determined that no bonus was payable for these objectives. these objectives. Based on overall performance, the table below summarises the annual bonus awarded to Gary Based on overall performance, the table below summarises the annual bonus awarded to Gary Morrison in respect of 2018: Morrison in respect of 2018: Director Director Maximum bonus Maximum bonus opportunity opportunity (% of salary) (% of salary) Bonus awarded Bonus awarded (% of maximum) (% of maximum) Bonus awarded Bonus awarded (% of salary) (% of salary) Bonus awarded Bonus awarded (€) (€) Gary Morrison Gary Morrison 100% (1) 100% (1) 19.3% 19.3% 19.3% 19.3% 45,000 45,000 1. Pro-rated for the period from 11 June 2018 to 31 December 2018. 1. Pro-rated for the period from 11 June 2018 to 31 December 2018. Long Term Incentives Vesting Subject to Performance Period ending in 2018 Long Term Incentives Vesting Subject to Performance Period ending in 2018 Feargal Mooney holds the following LTIP award granted on 5 April 2016, with vesting subject to the Feargal Mooney holds the following LTIP award granted on 5 April 2016, with vesting subject to the satisfaction of performance conditions to the end of 31 December 2018. Mari Hurley was also granted satisfaction of performance conditions to the end of 31 December 2018. Mari Hurley was also granted an LTIP award in April 2016, which lapsed on her cessation of employment. an LTIP award in April 2016, which lapsed on her cessation of employment. Director Director LTIP LTIP Value Value of award of award Face value of Face value of award at grant award at grant (€’000) (€’000) Number Number of shares of shares awarded (1) awarded (1) Exercise Price Exercise Price (€) (€) Percentage of Percentage of award vesting award vesting at threshold at threshold performance performance Performance Performance period end period end date date Weighting Weighting Feargal Feargal Mooney Mooney LTIP – nil LTIP – nil cost option cost option 125% of salary 125% of salary 500.0 500.0 215,918 215,918 Nil Nil 25% 25% 31 December 31 December 2018 2018 Adjusted EPS Adjusted EPS (70%) (70%) Absolute TSR Absolute TSR (30%) (30%) 88 88 1. The number of shares awarded was calculated using the closing share price on Admission, which was 185.00p, as disclosed in the Admission document. 1. The number of shares awarded was calculated using the closing share price on Admission, which was 185.00p, as disclosed in the Admission document. 89 89 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Vesting of this award was subject to achievement of an Adjusted EPS performance condition (applying Vesting of this award was subject to achievement of an Adjusted EPS performance condition (applying to 70% of the awards) and an absolute TSR performance condition (applying to 30% of the awards). to 70% of the awards) and an absolute TSR performance condition (applying to 30% of the awards). Subsequent to the year end, the performance conditions for the award were tested, leading to a nil Subsequent to the year end, the performance conditions for the award were tested, leading to a nil vesting level, as set out below. vesting level, as set out below. Adjusted EPS condition (70%) Adjusted EPS condition (70%) Annual average Adjusted EPS growth Annual average Adjusted EPS growth Vesting Vesting Less than 6.6% p.a. Less than 6.6% p.a. 6.6% p.a. 6.6% p.a. 14.0% p.a. or above 14.0% p.a. or above 0% 0% 25% 25% 100% 100% Long Term Incentives Awarded in 2017 Long Term Incentives Awarded in 2017 The table below sets out the details of the LTIP award granted to Feargal Mooney on 29 March 2017. The table below sets out the details of the LTIP award granted to Feargal Mooney on 29 March 2017. (Mari Hurley was also granted an LTIP award in March 2017, which lapsed upon her cessation of (Mari Hurley was also granted an LTIP award in March 2017, which lapsed upon her cessation of employment.) employment.) Director Director LTIP LTIP Value of Value of Face value of Face value of award award award (€’000) award (€’000) Number Number of shares of shares awarded (1) awarded (1) Percentage of Percentage of Exercise Exercise award vesting award vesting Performance Performance Price (€) Price (€) at threshold at threshold period end date period end date Weighting (2) Weighting (2) performance performance Feargal Feargal LTIP – nil cost LTIP – nil cost 125% of 125% of Mooney Mooney option option salary salary 512.5 512.5 194,121 194,121 Nil Nil 25% 25% 31 December 31 December Adjusted EPS (70%) Adjusted EPS (70%) 2019 2019 Absolute TSR (30%) Absolute TSR (30%) Between 6.6% p.a. and 14.0% p.a. Between 6.6% p.a. and 14.0% p.a. Straight line vesting between 25% and 100% Straight line vesting between 25% and 100% Outcome: Outcome: (5.9%) (5.9%) 0% 0% 1. 1. 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, 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. a dividend equivalent award will be made at the end of the vesting period. 2. 2. The performance targets for this award are the same as those applying to the award granted in 2016, as set out in the tables above. The performance targets for this award are the same as those applying to the award granted in 2016, as set out in the tables above. Absolute TSR condition (30%) Absolute TSR condition (30%) Annualised TSR of the Company over the Annualised TSR of the Company over the three- year period to 31 December 2018 three- year period to 31 December 2018 Less than 10.0% p.a. Less than 10.0% p.a. 10.0% p.a. 10.0% p.a. 15.0% p.a. or above 15.0% p.a. or above Vesting Vesting 0% 0% 25% 25% 100% 100% Between 10.0% and 15.0% p.a. Between 10.0% and 15.0% p.a. Straight line vesting between 25% and 100% Straight line vesting between 25% and 100% Outcome: Outcome: 2.14% 2.14% 0% 0% Based on the above performance outcome, the awards have vested as follows: Based on the above performance outcome, the awards have vested as follows: Director Director Number of Number of shares awarded shares awarded Number of Number of shares vesting shares vesting Number of Number of shares lapsing shares lapsing Dividend Dividend equivalent award (1) equivalent award (1) Total estimated Total estimated value (€) value (€) Feargal Mooney Feargal Mooney 215,918 215,918 - - 215,918 215,918 Nil Nil Nil Nil 1. Dividend equivalents are paid on vested shares to reflect the value of dividends which would have been paid during the performance period. 1. Dividend equivalents are paid on vested shares to reflect the value of dividends which would have been paid during the performance period. Long Term Incentives Awarded in 2018 Long Term Incentives Awarded in 2018 The table below sets out the details of the LTIP awards granted in the 2018 financial year. The table below sets out the details of the LTIP awards granted in the 2018 financial year. Director Director LTIP LTIP Value of Value of Face value of Face value of award award award (€’000) award (€’000) Number Number of shares of shares awarded awarded Percentage of Percentage of Exercise Exercise award vesting award vesting Performance Performance Price (€) Price (€) at threshold at threshold period end date period end date Weighting (1) Weighting (1) performance performance Feargal Feargal Mooney Mooney LTIP – nil LTIP – nil 125% of 125% of cost option cost option salary salary 522.8 522.8 117,612 (2) 117,612 (2) Nil Nil 25% 25% 31 December 31 December Adjusted EPS (70%) Adjusted EPS (70%) 2020 2020 Absolute TSR (30%) Absolute TSR (30%) Gary Gary LTIP – nil LTIP – nil 150% of 150% of Morrison Morrison cost option cost option salary salary 627.3 627.3 175,723 (3) 175,723 (3) Nil Nil 25% 25% 31 December 31 December Adjusted EPS (70%) Adjusted EPS (70%) 2020 2020 Absolute TSR (30%) Absolute TSR (30%) TJ Kelly TJ Kelly LTIP – nil LTIP – nil cost option cost option 75% of 75% of salary salary 221.25 221.25 98,520 (4) 98,520 (4) Nil Nil 25% 25% 31 December 31 December Adjusted EPS (70%) Adjusted EPS (70%) 2020 2020 Absolute TSR (30%) Absolute TSR (30%) 1. The performance targets for these awards are the same as those applying to the award granted in 2016, as set out in the tables above. 1. The performance targets for these awards are the same as those applying to the award granted in 2016, as set out in the tables above. 2. This award was granted on 11 April 2018. The number of shares awarded was calculated using the closing share price on 10 April 2018, which was 387.50p. 2. This award was granted on 11 April 2018. The number of shares awarded was calculated using the closing share price on 10 April 2018, which was 387.50p. 3. This award was granted on 29 June 2018. The number of shares awarded was calculated using the closing share price on 28 June 2018, which was 316.00p. 3. This award was granted on 29 June 2018. The number of shares awarded was calculated using the closing share price on 28 June 2018, which was 316.00p. 4. 4. This award was granted on 5 December 2018. The number of shares awarded was calculated using the closing share price on 4 December 2018, which was This award was granted on 5 December 2018. The number of shares awarded was calculated using the closing share price on 4 December 2018, which was 90 90 200.00p. 200.00p. 5. To the extent any of the above awards vest, a dividend equivalent award will be made at the end of the vesting period. 5. To the extent any of the above awards vest, a dividend equivalent award will be made at the end of the vesting period. Recruitment Arrangements for New Directors Recruitment Arrangements for New Directors Gary Morrison Gary Morrison Gary Morrison joined as Chief Executive Officer and as a Director on 11 June 2018. His remuneration on Gary Morrison joined as Chief Executive Officer and as a Director on 11 June 2018. His remuneration on appointment included a basic salary of €418,200, a 10% pension contribution and a standard benefits appointment included a basic salary of €418,200, a 10% pension contribution and a standard benefits package in line with the remuneration policy. He has an annual bonus opportunity of 100% of basic package in line with the remuneration policy. He has an annual bonus opportunity of 100% of basic salary, which for 2018 was pro-rated to reflect his period of service on the Board during the year. As salary, which for 2018 was pro-rated to reflect his period of service on the Board during the year. As explained in the Annual Statement from the Chairman of the Remuneration Committee, he was granted explained in the Annual Statement from the Chairman of the Remuneration Committee, he was granted an LTIP award in June 2018 at a level of 150% of basic salary. an LTIP award in June 2018 at a level of 150% of basic salary. TJ Kelly TJ Kelly TJ Kelly joined as Chief Financial Officer and as a Director on 21 November 2018. His remuneration on TJ Kelly joined as Chief Financial Officer and as a Director on 21 November 2018. His remuneration on appointment included a basic salary of €295,000, a 6% pension contribution and a standard benefits appointment included a basic salary of €295,000, a 6% pension contribution and a standard benefits package in line with the remuneration policy. He was not entitled to participate in the annual bonus package in line with the remuneration policy. He was not entitled to participate in the annual bonus scheme for 2018. From 2019, and subject to shareholder approval of the new remuneration policy at the scheme for 2018. From 2019, and subject to shareholder approval of the new remuneration policy at the AGM, he will be entitled to an annual bonus opportunity of 100% of basic salary. He was granted an LTIP AGM, he will be entitled to an annual bonus opportunity of 100% of basic salary. He was granted an LTIP award in December 2018 at a level of 75% of basic salary. award in December 2018 at a level of 75% of basic salary. Payments to Past Directors / Payments for Loss of Office Payments to Past Directors / Payments for Loss of Office Feargal Mooney Feargal Mooney On 14 May 2018, it was announced that Feargal Mooney would step down as Chief Executive Officer On 14 May 2018, it was announced that Feargal Mooney would step down as Chief Executive Officer and as a Director with effect from 11 June 2018. He will remain employed by (and continue to be and as a Director with effect from 11 June 2018. He will remain employed by (and continue to be available to) the Company until the expiry of his 12-month notice period on 11 June 2019. The following available to) the Company until the expiry of his 12-month notice period on 11 June 2019. The following arrangements have been agreed in connection with his departure: arrangements have been agreed in connection with his departure: ► Salary, benefits and pension – pursuant to his contract of employment and the remuneration ► Salary, benefits and pension – pursuant to his contract of employment and the remuneration policy, he will continue to receive salary, benefits and pension until 11 June 2019 (including any policy, he will continue to receive salary, benefits and pension until 11 June 2019 (including any period of garden leave). For the period from 12 June 2018 until 31 December 2018, this amounted to period of garden leave). For the period from 12 June 2018 until 31 December 2018, this amounted to salary of €231,172, benefits with a value of €4,694 and pension of €23,117. The remaining payments salary of €231,172, benefits with a value of €4,694 and pension of €23,117. The remaining payments until 11 June 2019 are anticipated to be salary of €185,510, benefits with a value of €3,663 and until 11 June 2019 are anticipated to be salary of €185,510, benefits with a value of €3,663 and pension of €18,551. pension of €18,551. ► Annual bonus – the Remuneration Committee determined that he was eligible to receive an annual ► Annual bonus – the Remuneration Committee determined that he was eligible to receive an annual bonus for the 2018 financial year, subject to the achievement of the applicable performance targets bonus for the 2018 financial year, subject to the achievement of the applicable performance targets 91 91 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance and with his bonus opportunity reduced on a pro-rata basis to cover the period from 1 January 2018 and with his bonus opportunity reduced on a pro-rata basis to cover the period from 1 January 2018 The number of shares held by the former Executive Directors as at the date of their departure from the The number of shares held by the former Executive Directors as at the date of their departure from the to 11 June 2018. As disclosed above, no bonus was payable to Feargal for 2018 as the threshold level to 11 June 2018. As disclosed above, no bonus was payable to Feargal for 2018 as the threshold level Board is set out below. Board is set out below. of Adjusted PBT was not achieved. He will not participate in the 2019 bonus plan. of Adjusted PBT was not achieved. He will not participate in the 2019 bonus plan. ► LTIP – pursuant to the remuneration policy and the rules of the LTIP, the Remuneration Committee ► LTIP – pursuant to the remuneration policy and the rules of the LTIP, the Remuneration Committee determined that Feargal’s subsisting LTIP awards will continue until the normal time of vesting, at determined that Feargal’s subsisting LTIP awards will continue until the normal time of vesting, at which point they will vest subject to performance against the relevant targets. The rules of the plan which point they will vest subject to performance against the relevant targets. The rules of the plan state that, unless the Remuneration Committee determines otherwise, awards will be pro-rated up state that, unless the Remuneration Committee determines otherwise, awards will be pro-rated up to the date of cessation of employment (i.e. 11 June 2019 in Feargal’s case). For Feargal’s 2016 LTIP to the date of cessation of employment (i.e. 11 June 2019 in Feargal’s case). For Feargal’s 2016 LTIP award, his date of cessation is after the vesting date in April 2019 and so no pro rating is applicable award, his date of cessation is after the vesting date in April 2019 and so no pro rating is applicable (although, as noted above, this award will lapse in full due to the performance conditions not being (although, as noted above, this award will lapse in full due to the performance conditions not being met). Feargal’s 2017 award will be pro-rated using his date of cessation to calculate the reduction in met). Feargal’s 2017 award will be pro-rated using his date of cessation to calculate the reduction in shares as per the LTIP rules and policy. The Remuneration Committee determined to use a different shares as per the LTIP rules and policy. The Remuneration Committee determined to use a different approach for the pro-rating of Feargal’s 2018 LTIP award, with the date on which Feargal stepped approach for the pro-rating of Feargal’s 2018 LTIP award, with the date on which Feargal stepped down from the Board (11 June 2018) being used to calculate the pro rata reduction, rather than the down from the Board (11 June 2018) being used to calculate the pro rata reduction, rather than the later date of cessation, resulting in a lower potential vesting value. Details of the vesting of the 2017 later date of cessation, resulting in a lower potential vesting value. Details of the vesting of the 2017 Director Director Beneficially owned shares Beneficially owned shares Unvested LTIP interests subject Unvested LTIP interests subject to performance conditions to performance conditions Feargal Mooney Feargal Mooney Mari Hurley Mari Hurley 240,033 240,033 19,504 19,504 527,651(1) 527,651(1) 203,011(2) 203,011(2) 1. 1. Feargal Mooney stepped down from the Board on 11 June 2018. The treatment of his unvested LTIP awards is set out above in the section on payments Feargal Mooney stepped down from the Board on 11 June 2018. The treatment of his unvested LTIP awards is set out above in the section on payments to past Directors. to past Directors. 2. Mari Hurley stepped down from the Board on 10 April 2018. Her unvested LTIPs awards lapsed upon the cessation of her employment on 17 June 2018. 2. Mari Hurley stepped down from the Board on 10 April 2018. Her unvested LTIPs awards lapsed upon the cessation of her employment on 17 June 2018. Details of the interests held in shares by Non-Executive Directors as at 31 December 2018 are set out Details of the interests held in shares by Non-Executive Directors as at 31 December 2018 are set out below. Non-Executive Directors are not subject to a shareholding requirement. below. Non-Executive Directors are not subject to a shareholding requirement. and 2018 LTIP awards will be disclosed in future years following the end of the relevant performance and 2018 LTIP awards will be disclosed in future years following the end of the relevant performance Director Director Beneficially owned shares Beneficially owned shares periods. periods. Mari Hurley Mari Hurley On 19 December 2017, it was announced that Mari Hurley intended to resign from the Board. She On 19 December 2017, it was announced that Mari Hurley intended to resign from the Board. She stepped down from the Board on 10 April 2018 and remained in employment with Hostelworld until the stepped down from the Board on 10 April 2018 and remained in employment with Hostelworld until the expiry of her six-month notice period on 17 June 2018. As disclosed in last year’s remuneration report, expiry of her six-month notice period on 17 June 2018. As disclosed in last year’s remuneration report, her termination arrangements were as follows: her termination arrangements were as follows: Michael Cawley Michael Cawley Andy McCue Andy McCue Carl Shepherd Carl Shepherd Éimear Moloney Éimear Moloney 81,000 81,000 25,000 25,000 - - - - ► Salary, benefits and pension – pursuant to her contract of employment and the remuneration policy, ► Salary, benefits and pension – pursuant to her contract of employment and the remuneration policy, she continued to receive salary, benefits and pension during her notice period to 17 June 2018. she continued to receive salary, benefits and pension during her notice period to 17 June 2018. of this report. of this report. No changes in the above Directors’ interests have taken place between 31 December 2018 and the date No changes in the above Directors’ interests have taken place between 31 December 2018 and the date ► Annual bonus – the Remuneration Committee determined that Mari would not receive a bonus for ► Annual bonus – the Remuneration Committee determined that Mari would not receive a bonus for 2017 and would not be eligible to participate in the 2018 bonus plan. 2017 and would not be eligible to participate in the 2018 bonus plan. ► LTIP – the Remuneration Committee determined that Mari’s subsisting awards would lapse upon her ► LTIP – the Remuneration Committee determined that Mari’s subsisting awards would lapse upon her cessation of employment. She did not receive an LTIP award in 2018. cessation of employment. She did not receive an LTIP award in 2018. Statement of Directors’ Shareholdings and Share Interests Statement of Directors’ Shareholdings and Share Interests The number of shares of the Company in which the current Executive Directors had a beneficial interest The number of shares of the Company in which the current Executive Directors had a beneficial interest and details of long term incentive interests as at 31 December 2018 are set out in the table below. As set and details of long term incentive interests as at 31 December 2018 are set out in the table below. As set out in the revised remuneration policy, the Remuneration Committee has adopted formal shareholding out in the revised remuneration policy, the Remuneration Committee has adopted formal shareholding guidelines that encourage the Executive Directors to build up and hold a shareholding equivalent to guidelines that encourage the Executive Directors to build up and hold a shareholding equivalent to 200% of basic salary. This has been increased from the previous guideline level of 150% of basic salary. 200% of basic salary. This has been increased from the previous guideline level of 150% of basic salary. Director Director Beneficially owned Beneficially owned shares shares Shareholding Shareholding requirement requirement (% of salary) (% of salary) Current Current shareholding shareholding (% of salary)(1) (% of salary)(1) Shareholding Shareholding requirement requirement Unvested LTIP Unvested LTIP interests subject interests subject to performance to performance conditions conditions Gary Morrison Gary Morrison TJ Kelly TJ Kelly - - - - 200% 200% 200% 200% 0% 0% 0% 0% No No No No 175,723 175,723 98,520 98,520 1. 1. Unvested LTIP awards do not count towards satisfaction of the shareholding guidelines. Unvested LTIP awards do not count towards satisfaction of the shareholding guidelines. Comparison of Overall Performance and Pay (TSR graph) Comparison of Overall Performance and Pay (TSR graph) The graph below shows the value of £100 invested in the Company’s shares since listing compared The graph below shows the value of £100 invested in the Company’s shares since listing compared to the FTSE SmallCap index. The graph shows the Total Shareholder Return generated by both to the 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 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 Remuneration Committee considers that the FTSE SmallCap index is the appropriate index given the current magnitude and nature of operations and market capitalisation. This graph has been calculated current magnitude and nature of operations and market capitalisation. This graph has been calculated in accordance with the Regulations. It should be noted that the Company listed on 28 October 2015 in accordance with the Regulations. It should be noted that the Company listed on 28 October 2015 (with grey market trading until 2 November 2015) and therefore only has a listed share price for the (with grey market trading until 2 November 2015) and therefore only has a listed share price for the period from 28 October 2015 to 31 December 2018. period from 28 October 2015 to 31 December 2018. Total Shareholder Return (£) Total Shareholder Return (£) 240 240 220 220 200 200 180 180 160 160 140 140 120 120 100 100 80 80 92 92 93 93 Dec 2015 Dec 2015 Dec 2016 Dec 2016 Dec 2017 Dec 2017 Dec 2018 Dec 2018 Hostelworld Group Hostelworld Group FTSE Small Cap FTSE Small Cap Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Chief Executive Officer Historical Remuneration Chief Executive Officer Historical Remuneration Relative Importance of the Spend on Pay Relative Importance of the Spend on Pay The table below sets out the total remuneration delivered to the Chief Executive Officer over the The table below sets out the total remuneration delivered to the Chief Executive Officer over the The table below sets out the relative importance of spend on pay in the 2017 and 2018 financial years The table below sets out the relative importance of spend on pay in the 2017 and 2018 financial years last four years valued using the methodology applied to the single total figure of remuneration. The last four years valued using the methodology applied to the single total figure of remuneration. The compared with other disbursements. All figures provided are taken from the relevant Company compared with other disbursements. All figures provided are taken from the relevant Company Remuneration Committee does not believe that the remuneration payable in its more formative years Remuneration Committee does not believe that the remuneration payable in its more formative years Accounts. Accounts. as a private company bears any comparative value to that paid in its later years and therefore the 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 five most recent financial Remuneration Committee has chosen to disclose remuneration only for the five most recent financial years (reflecting the disclosures made in previous reports): years (reflecting the disclosures made in previous reports): 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 Chief Executive Officer Chief Executive Officer Feargal Feargal Mooney Mooney Feargal Feargal Mooney Mooney Feargal Feargal Mooney Mooney Feargal Feargal Mooney Mooney Feargal Feargal Mooney Mooney Gary Gary Morrison Morrison Total Single Figure (€’000) Total Single Figure (€’000) 413.1 413.1 395.0 395.0 1,298.7 1,298.7 768.8 768.8 209.5 209.5 307.2 307.2 Annual bonus payment level Annual bonus payment level achieved achieved (% of maximum opportunity) (% of maximum opportunity) LTIP vesting level achieved LTIP vesting level achieved (% of maximum opportunity) (% of maximum opportunity) 14.9% 14.9% 0% 0% 0% 0% 73.4% 73.4% 0% 0% 19.3% 19.3% n/a n/a n/a n/a n/a n/a n/a n/a 0% 0% n/a n/a It should be noted that the Company only introduced the LTIP on Admission. It should be noted that the Company only introduced the LTIP on Admission. Change in Chief Executive Officer’s Remuneration Compared with Employees Change in Chief Executive Officer’s Remuneration Compared with Employees The following table sets out the change in the remuneration paid to the Chief Executive Officer from The following table sets out the change in the remuneration paid to the Chief Executive Officer from 2017 to 2018 compared with the average percentage change for all employees. 2017 to 2018 compared with the average percentage change for all employees. Disbursements from profit in 2018 Disbursements from profit in 2018 financial year (€m) financial year (€m) Disbursements from profit in 2017 Disbursements from profit in 2017 financial year (€m) financial year (€m) % change % change Profit distributed by Profit distributed by way of dividend/share way of dividend/share buybacks buybacks Overall spend on pay Overall spend on pay including Executive including Executive Directors Directors 16.1 16.1 18.3 18.3 Shareholder Voting at General Meeting Shareholder Voting at General Meeting 24.8 24.8 19.0 19.0 (35.1%) (35.1%) (3.7%) (3.7%) The table below sets out the results of voting on the Annual Report on Remuneration at the AGM held The table below sets out the results of voting on the Annual Report on Remuneration at the AGM held on 11 June 2018, the results of which were as follows: on 11 June 2018, the results of which were as follows: Resolution Resolution For For Against Against Withheld Withheld Ordinary Resolution to approve Ordinary Resolution to approve the Directors’ remuneration report for the Directors’ remuneration report for the year ended 31 December 2017 the year ended 31 December 2017 82,397,515 82,397,515 (96.74%) (96.74%) 2,777,512 2,777,512 (3.26%) (3.26%) 1,325,878 1,325,878 The results of the voting on the Directors’ Remuneration Policy at the AGM held on 26 May 2016 are set The results of the voting on the Directors’ Remuneration Policy at the AGM held on 26 May 2016 are set out below: out below: Salary Salary Taxable Benefits Taxable Benefits Bonus Bonus Resolution Resolution For For Against Against Withheld Withheld 2018 2018 (€’000) (€’000) 2017 2017 (€’000) (€’000) % % change change 2018 2018 (€’000) (€’000) 2017 2017 (€’000) (€’000) % % change change 2018 2018 (€’000) (€’000) 2017 2017 (€’000) (€’000) % % change change Ordinary Resolution to approve Ordinary Resolution to approve the Directors’ Remuneration Policy the Directors’ Remuneration Policy 69,030,425 69,030,425 (89.63%) (89.63%) 7,987,337 7,987,337 (10.37%) (10.37%) 330 330 Chief Executive Chief Executive Officer Officer 418.2 418.2 410.0 410.0 2.0% 2.0% 10.2 10.2 8.9 8.9 14.6% 14.6% 80.4 80.4 308.9 308.9 (74.0%) (74.0%) Implementation of Remuneration Policy in Financial Year 2019 Implementation of Remuneration Policy in Financial Year 2019 Total pay Total pay 15,373 15,373 14,385 14,385 6.9% 6.9% 362.9 362.9 307.6 307.6 18.0% 18.0% 311.3 311.3 1,367.3 1,367.3 (77.2%) (77.2%) Subject to shareholder approval of the new remuneration policy at the AGM, the Remuneration Subject to shareholder approval of the new remuneration policy at the AGM, the Remuneration Average Average number of number of employees employees Average per Average per employee employee 294 294 254 254 15.7% 15.7% 294 294 254 254 15.7% 15.7% 294 294 254 254 15.7% 15.7% 52.3 52.3 56.6 56.6 (7.6%) (7.6%) 1.2 1.2 1.2 1.2 0% 0% 1.1 1.1 5.4 5.4 (79.6%) (79.6%) The Chief Executive Officer’s remuneration disclosed in the table above has been calculated to take 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. We have provided annualised data for into account base salary, taxable benefits and annual bonus. We have provided annualised data for the Chief Executive Officer for 2018 so as to ensure comparability with 2017. To reflect the relevant the Chief Executive Officer for 2018 so as to ensure comparability with 2017. To reflect the relevant regulations, the employee pay figures (on which the average percentage change is based) is calculated 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 using the increase in the earnings of all Group employees (i.e. those based in Ireland, the UK and other jurisdictions) from calendar years 2017 and 2018 which, for base salary, gives a reduction of 7.6%. jurisdictions) from calendar years 2017 and 2018 which, for base salary, gives a reduction of 7.6%. Committee proposes to implement the policy for 2019 as set out below: Committee proposes to implement the policy for 2019 as set out below: Salary Salary Executive Directors’ salaries have been reviewed and the following increases agreed, with effect from Executive Directors’ salaries have been reviewed and the following increases agreed, with effect from 1 January 2019: 1 January 2019: Name Name Salary (€) Salary (€) 2019 2019 2018 2018 Gary Morrison Gary Morrison 430,700 430,700 418,200 418,200 TJ Kelly TJ Kelly 295,000 295,000 295,000 295,000 Percentage Change Percentage Change 3% 3% 0% 0% The salary increase for Gary Morrison is in line with the typical salary increase across the wider The salary increase for Gary Morrison is in line with the typical salary increase across the wider workforce. workforce. Pension Pension Pension contributions for the Executive Directors will continue at the rate of 10% of basic salary for Gary Pension contributions for the Executive Directors will continue at the rate of 10% of basic salary for Gary Morrison and 6% of basic salary for TJ Kelly. Morrison and 6% of basic salary for TJ Kelly. 94 94 95 95 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Changes to Non-Executive Directors’ Fees Changes to Non-Executive Directors’ Fees No changes are proposed to the current fee components in place. The breakdown of fee components No changes are proposed to the current fee components in place. The breakdown of fee components Annualised TSR of the Company over the three Annualised TSR of the Company over the three year period to 31 December 2021 year period to 31 December 2021 will remain as follows: will remain as follows: Role Role Chairman Fee Chairman Fee Base Non-Executive Director Fee Base Non-Executive Director Fee Senior Independent Director Fee Senior Independent Director Fee Chair of Audit Committee Fee Chair of Audit Committee Fee Chair of Remuneration Committee Fee Chair of Remuneration Committee Fee Annual Bonus Plan Annual Bonus Plan Fees (€) Fees (€) 145,000 145,000 60,000 60,000 7,000 7,000 7,000 7,000 7,000 7,000 The maximum bonus opportunity for Gary Morrison will remain at 100% of basic salary, the level which The maximum bonus opportunity for Gary Morrison will remain at 100% of basic salary, the level which applied to him following his appointment to the Board during 2018. The maximum bonus opportunity applied to him following his appointment to the Board during 2018. The maximum bonus opportunity for TJ Kelly will also be 100% of basic salary. The annual bonus for the 2019 financial year will be subject for TJ Kelly will also be 100% of basic salary. The annual bonus for the 2019 financial year will be subject to the achievement of challenging performance targets in the following areas: to the achievement of challenging performance targets in the following areas: ► Adjusted PBT (70% weighting); and ► Adjusted PBT (70% weighting); and ► Total bednights (30% weighting). ► Total bednights (30% weighting). Therefore, the Committee has agreed that performance against solely financial/operational metrics will Therefore, the Committee has agreed that performance against solely financial/operational metrics will be used to determine the 2019 bonus outturn (i.e. there will be no personal bonus element) to reflect be used to determine the 2019 bonus outturn (i.e. there will be no personal bonus element) to reflect key strategic priorities for the year. key strategic priorities for the year. The payment of any bonus will be subject to the Remuneration Committee being satisfied that the The payment of any bonus will be subject to the Remuneration Committee being satisfied that the Company has delivered an acceptable level of performance, taking into account underlying financial Company has delivered an acceptable level of performance, taking into account underlying financial performance (including Adjusted PBT), performance against other KPIs and progress against the performance (including Adjusted PBT), performance against other KPIs and progress against the achievement of strategic goals. achievement of strategic goals. The Remuneration Committee is of the opinion that given the commercial sensitivity arising in relation The Remuneration Committee is of the opinion that given the commercial sensitivity arising in relation to the detailed targets used for the annual bonus, disclosing precise targets for the bonus plan in to the detailed targets used for the annual bonus, disclosing precise targets for the bonus plan in advance would not be in shareholders’ interests. The targets will be disclosed on a retrospective basis advance would not be in shareholders’ interests. The targets will be disclosed on a retrospective basis in next year’s remuneration report alongside an explanation of performance achieved and bonus in next year’s remuneration report alongside an explanation of performance achieved and bonus payments made. payments made. LTIP award LTIP award Grants under the LTIP will be made during 2019. Gary Morrison will receive an LTIP award at a level Grants under the LTIP will be made during 2019. Gary Morrison will receive an LTIP award at a level of 125% of basic salary (which is lower than the 150% of salary award he received in 2018). TJ Kelly will of 125% of basic salary (which is lower than the 150% of salary award he received in 2018). TJ Kelly will receive an LTIP award at a level of 100% of basic salary. receive an LTIP award at a level of 100% of basic salary. The performance conditions will be based 70% on Adjusted EPS performance and 30% on absolute TSR The performance conditions will be based 70% on Adjusted EPS performance and 30% on absolute TSR measured over a three-year period as follows: measured over a three-year period as follows: Annual average Adjusted EPS growth Annual average Adjusted EPS growth Vesting Vesting Less than 5.0% p.a. Less than 5.0% p.a. 5.0% p.a. 5.0% p.a. 11.0% p.a. or above 11.0% p.a. or above 0% 0% 25% 25% 100% 100% Between 5.0% p.a. and 11.0% p.a. Between 5.0% p.a. and 11.0% p.a. Straight line vesting between 25% and 100% Straight line vesting between 25% and 100% 96 96 Less than 10.0% p.a. Less than 10.0% p.a. 10.0% p.a. 10.0% p.a. 15.0% or above 15.0% or above Vesting Vesting 0% 0% 25% 25% 100% 100% Between 10.0% and 15.0% Between 10.0% and 15.0% Straight line vesting between 25% and 100% Straight line vesting between 25% and 100% The Remuneration Committee recognises that the target range of 5-11% annual Adjusted EPS growth The Remuneration Committee recognises that the target range of 5-11% annual Adjusted EPS growth is lower than the range of 6.6-14% applied to LTIP awards in previous years. We set the range taking is lower than the range of 6.6-14% applied to LTIP awards in previous years. We set the range taking into account a number of factors. These included internal expectations of likely performance over into account a number of factors. These included internal expectations of likely performance over the medium term, including the impact of our investment plan, and changes to external market the medium term, including the impact of our investment plan, and changes to external market forecasts. These inputs suggested that maintaining an Adjusted EPS range of 6.6-14% would not be forecasts. These inputs suggested that maintaining an Adjusted EPS range of 6.6-14% would not be appropriate given Hostelworld’s current position. In the interests of ensuring that the target range appropriate given Hostelworld’s current position. In the interests of ensuring that the target range remains challenging but potentially achievable – and thus fulfils its goal as an incentive – we opted for remains challenging but potentially achievable – and thus fulfils its goal as an incentive – we opted for an adjusted range for the 2019 grant. As normal, ahead of making LTIP awards in future years we will an adjusted range for the 2019 grant. As normal, ahead of making LTIP awards in future years we will review the range in the context of the situation prevailing at the time. review the range in the context of the situation prevailing at the time. The 2019 awards will be granted with a requirement that any shares which vest after the end of the The 2019 awards will be granted with a requirement that any shares which vest after the end of the three-year performance period are required to be held for a further two years before they can be sold three-year performance period are required to be held for a further two years before they can be sold (subject to any sales required for tax purposes). (subject to any sales required for tax purposes). Composition and Terms of Reference of the Remuneration Committee Composition and Terms of Reference of the Remuneration Committee The Board has delegated to the Remuneration Committee, under agreed terms of reference, The Board has delegated to the Remuneration Committee, under agreed terms of reference, responsibility for the remuneration policy and for determining specific packages for the Chairman, responsibility for the remuneration policy and for determining specific packages for the Chairman, Executive Directors and such other senior employees of the Group as the Board may determine from Executive Directors and such other senior employees of the Group as the Board may determine from time to time. The terms of reference for the Remuneration Committee are available on the Company’s time to time. The terms of reference for the Remuneration Committee are available on the Company’s website, www.hostelworldgroup.com, and from the Company Secretary at the registered office. website, www.hostelworldgroup.com, and from the Company Secretary at the registered office. The Remuneration Committee is comprised of Andy McCue (Chairman of the Remuneration Committee), The Remuneration Committee is comprised of Andy McCue (Chairman of the Remuneration Committee), Carl Shepherd and Éimear Moloney (all of whom are independent Non-Executive Directors) and Michael Carl Shepherd and Éimear Moloney (all of whom are independent Non-Executive Directors) and Michael Cawley (who was independent upon his appointment as Chairman of the Board). The Remuneration Cawley (who was independent upon his appointment as Chairman of the Board). The Remuneration Committee receives assistance from the Chief Executive Officer, Chief Financial Officer, Chief HR Officer Committee receives assistance from the Chief Executive Officer, Chief Financial Officer, Chief HR Officer and Company Secretary, who attend meetings by invitation, except when issues relating to their own and Company Secretary, who attend meetings by invitation, except when issues relating to their own remuneration are being discussed. The Remuneration Committee met five times during 2018. Meeting remuneration are being discussed. The Remuneration Committee met five times during 2018. Meeting attendance is shown on page 52 of the Annual Report. attendance is shown on page 52 of the Annual Report. Advisors to the Remuneration Committee Advisors to the Remuneration Committee The Remuneration Committee’s independent advisors are Korn Ferry, who were appointed in October The Remuneration Committee’s independent advisors are Korn Ferry, who were appointed in October 2017. Korn Ferry has advised the Remuneration Committee on all aspects of remuneration policy 2017. Korn Ferry has advised the Remuneration Committee on all aspects of remuneration policy for Executive Directors and members of the Executive team, and has assisted in the review of the for Executive Directors and members of the Executive team, and has assisted in the review of the remuneration policy undertaken during the year. The Remuneration Committee is satisfied that remuneration policy undertaken during the year. The Remuneration Committee is satisfied that the advice received was objective and independent. Korn Ferry is a member of the Remuneration the advice received was objective and independent. Korn Ferry is a member of the Remuneration Consultants Group and the voluntary code of conduct of that body is designed to ensure objective and Consultants Group and the voluntary code of conduct of that body is designed to ensure objective and independent advice is given to remuneration committees. Korn Ferry received fees of £71,590 for their independent advice is given to remuneration committees. Korn Ferry received fees of £71,590 for their advice during the year. Fees were charged on a cost incurred basis. A separate practice within Korn advice during the year. Fees were charged on a cost incurred basis. A separate practice within Korn Ferry provided candidate assessment and testing services to the Company during the year. Ferry provided candidate assessment and testing services to the Company during the year. On behalf of the Board On behalf of the Board Andy McCue Andy McCue Chairman, Remuneration Committee Chairman, Remuneration Committee 1 April 2019 1 April 2019 97 97 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance DIRECTORS’ REPORT DIRECTORS’ REPORT The Directors have pleasure in The Directors have pleasure in submitting their Annual Report submitting their Annual Report and the audited Financial Statements and the audited Financial Statements of Hostelworld Group plc and its of Hostelworld Group plc and its subsidiaries for the financial year subsidiaries for the financial year to 31 December 2018. to 31 December 2018. Statutory Information Statutory Information This section of the Annual Report includes This section of the Annual Report includes additional information required to be disclosed additional information required to be disclosed under the Companies Act 2006 (the “Companies under the Companies Act 2006 (the “Companies Act”), the UK Corporate Governance Code, the Act”), the UK Corporate Governance Code, the Disclosure and Transparency Rules (“DTRs”) and Disclosure and Transparency Rules (“DTRs”) and the Listing Rules (“Listing Rules”) of the Financial the Listing Rules (“Listing Rules”) of the Financial Conduct Authority. Conduct Authority. Certain information required to be included in the Certain information required to be included in the Directors’ Report can be found elsewhere in this Directors’ Report can be found elsewhere in this Annual Report, as highlighted throughout this Annual Report, as highlighted throughout this report and also including: report and also including: ► The Strategic Report, which can be found on ► The Strategic Report, which can be found on pages 17 to 40, which sets out the development pages 17 to 40, which sets out the development and performance of the Group’s business and performance of the Group’s business during the financial year, the position of the during the financial year, the position of the Group at the end of the year and a description Group at the end of the year and a description of the principal risks and uncertainties of the principal risks and uncertainties (including the financial risk management (including the financial risk management position); position); ► The Corporate Governance Statement on ► The Corporate Governance Statement on pages 48 to 56, which sets out the Company’s pages 48 to 56, which sets out the Company’s statement with regard to its adoption of the UK statement with regard to its adoption of the UK Corporate Governance Code. The Corporate Corporate Governance Code. The Corporate Governance Statement forms part of this Governance Statement forms part of this Directors’ Report and is incorporated into it Directors’ Report and is incorporated into it by reference; by reference; ► The Audit Committee Report on pages 59 to 65; ► The Audit Committee Report on pages 59 to 65; and and ► The Directors’ Remuneration Report on pages ► The Directors’ Remuneration Report on pages 71 to 97. 71 to 97. ► This Directors’ Report, on pages 98 to 105, ► This Directors’ Report, on pages 98 to 105, together with the Strategic Report on pages together with the Strategic Report on pages 17 to 40, form the Management Report for the 17 to 40, form the Management Report for the purposes of DTR 4.1.5R. purposes of DTR 4.1.5R. Disclosures under Listing Rule 9.8.4R Disclosures under Listing Rule 9.8.4R The table below is included to comply with the disclosure requirements under LR 9.8.4R. The 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 information required by the Listing Rules can be found in the Annual Report at the location stated below: below: Requirement Requirement Referenced Referenced Details of any long-term incentive schemes as required by LR Details of any long-term incentive schemes as required by LR Directors’ Remuneration Report Directors’ Remuneration Report 9.4.3R 9.4.3R on pages 71 to 97 on pages 71 to 97 Details of any post balance sheet events Details of any post balance sheet events Directors’ Report on pages 98 to 105, Directors’ Report on pages 98 to 105, note 23 to the Consolidated Financial note 23 to the Consolidated Financial Statements on page 155 Statements on page 155 Details of any allotment for cash of equity securities made Details of any allotment for cash of equity securities made No such share allotments made No such share allotments made during the period otherwise than to holders of the Company’s during the period otherwise than to holders of the Company’s equity shares in proportion to their holdings, which has not equity shares in proportion to their holdings, which has not been specifically authorised by the Company’s shareholders been specifically authorised by the Company’s shareholders Details of any allotment for cash of equity securities made Details of any allotment for cash of equity securities made No such allotments made No such allotments made during the period otherwise than to holders of a major during the period otherwise than to holders of a major subsidiary undertaking’s equity shares in proportion to their subsidiary undertaking’s equity shares in proportion to their holdings, which has not been specifically authorised by the holdings, which has not been specifically authorised by the major subsidiary undertaking’s shareholders major subsidiary undertaking’s shareholders Details of any contract of significance subsisting during the Details of any contract of significance subsisting during the Annual Report on Remuneration on Annual Report on Remuneration on year, between the Company or one of its subsidiaries and year, between the Company or one of its subsidiaries and pages 86 to 97, Directors’ Report on pages 86 to 97, Directors’ Report on any party of which a director has an interest; and between any party of which a director has an interest; and between pages 98 to 105 pages 98 to 105 the Company or one of its subsidiaries, and a controlling the Company or one of its subsidiaries, and a controlling shareholder shareholder Details of contracts for the provision of services to the Details of contracts for the provision of services to the No such services provided No such services provided Company or any of its subsidiary undertakings by a controlling Company or any of its subsidiary undertakings by a controlling shareholder shareholder Board of Directors Board of Directors The appointment and replacement of Directors The appointment and replacement of Directors of the Company is governed by the Articles of of the Company is governed by the Articles of Association. Association. The Directors who served on the Board The Directors who served on the Board throughout the year, except as noted, were as throughout the year, except as noted, were as follows: follows: ► Michael Cawley (Non-Executive Chairman) ► Michael Cawley (Non-Executive Chairman) ► Gary Morrison (Chief Executive Officer ► Gary Morrison (Chief Executive Officer appointed on 11 June 2018) appointed on 11 June 2018) ► Andy McCue (Non-Executive Senior ► Andy McCue (Non-Executive Senior Independent Director (“SID”)) Independent Director (“SID”)) ► Éimear Moloney (Non-Executive Director) ► Éimear Moloney (Non-Executive Director) ► Carl Shepherd (Non- Executive Director) ► Carl Shepherd (Non- Executive Director) ► Feargal Mooney (former Chief Executive ► Feargal Mooney (former Chief Executive Officer, resigned as Chief Executive Officer and Officer, resigned as Chief Executive Officer and as a Director of the Company on 11 June 2018). as a Director of the Company on 11 June 2018). ► Mari Hurley (former Chief Financial Officer, ► Mari Hurley (former Chief Financial Officer, resigned as a Director of the Company on resigned as a Director of the Company on 10 April 2018). 10 April 2018). DIE WOHNGEMEINSCHAFT DIE WOHNGEMEINSCHAFT COLOGNE COLOGNE ► TJ Kelly (Chief Financial Officer appointed on 21 ► TJ Kelly (Chief Financial Officer appointed on 21 November 2018) November 2018) Biographical details of the current Directors Biographical details of the current Directors together with membership of the various together with membership of the various Committees are set out on pages 46 to 47. Committees are set out on pages 46 to 47. 99 99 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Amendment of Articles of Association Amendment of Articles of Association The Directors are also seeking authority from The Directors are also seeking authority from The Company’s Articles of Association may The Company’s Articles of Association may only be amended by way of a special resolution only be amended by way of a special resolution at a general meeting of the shareholders. No at a general meeting of the shareholders. No amendments are proposed to be made at the amendments are proposed to be made at the forthcoming Annual General Meeting. forthcoming Annual General Meeting. Incorporation, Share Capital and Incorporation, Share Capital and Structure Structure The Company was incorporated and registered The Company was incorporated and registered in England and Wales as a public limited in England and Wales as a public limited company with registration number 9818705. company with registration number 9818705. The Company’s issued share capital comprises The Company’s issued share capital comprises ordinary shares of €0.01 each which are traded ordinary shares of €0.01 each which are traded on the London Stock Exchange’s main market for on the London Stock Exchange’s main market for listed securities and on Euronext Dublin’s main listed securities and on Euronext Dublin’s main securities market. securities market. The liability of the members of the Company is The liability of the members of the Company is limited. limited. The Company is tax resident in Ireland and its The Company is tax resident in Ireland and its principal place of business is at 2nd Floor, One principal place of business is at 2nd Floor, One Central Park, Leopardstown, Dublin 18, Ireland. Central Park, Leopardstown, Dublin 18, Ireland. The Company’s registered office is at High The Company’s registered office is at High Holborn House, 52-54 High Holborn, London Holborn House, 52-54 High Holborn, London WC1V 6RL. WC1V 6RL. As at 31 December 2018 and as at the date of As at 31 December 2018 and as at the date of this Directors’ Report, the Company’s issued this Directors’ Report, the Company’s issued share capital comprises 95,570,778 ordinary share capital comprises 95,570,778 ordinary shares of €0.01 (“shares”). The ISIN of the shares shares of €0.01 (“shares”). The ISIN of the shares is GB00BYYN4225. Further information on the is GB00BYYN4225. Further information on the Company’s share capital are provided in note 15 Company’s share capital are provided in note 15 to the Group’s Financial Statements contained to the Group’s Financial Statements contained on page 146. All the information detailed in note on page 146. All the information detailed in note 15 on page 146 forms part of this Directors’ 15 on page 146 forms part of this Directors’ Report and is incorporated into it by reference. Report and is incorporated into it by reference. shareholders to allot ordinary shares for shareholders to allot ordinary shares for cash without first offering them to existing cash without first offering them to existing shareholders in proportion to their existing shareholders in proportion to their existing shareholdings. The resolution seeks authority shareholdings. The resolution seeks authority to disapply pre-emption rights over 5% of the to disapply pre-emption rights over 5% of the Company’s issued ordinary share capital. The Company’s issued ordinary share capital. The power will expire at the earlier of 31 August power will expire at the earlier of 31 August 2020 and the conclusion of the Annual General 2020 and the conclusion of the Annual General Meeting of the Company held in 2020. Meeting of the Company held in 2020. The Directors intend to follow the Pre-Emption The Directors intend to follow the Pre-Emption Group’s Statement of Principles regarding Group’s Statement of Principles regarding cumulative usage of authority within a rolling cumulative usage of authority within a rolling 3-year period. The principles provide that usage 3-year period. The principles provide that usage in excess of 7.5% of issued ordinary share capital in excess of 7.5% of issued ordinary share capital of the Company (excluding treasury shares) of the Company (excluding treasury shares) should not take place without prior consultation should not take place without prior consultation with shareholders. The power will expire at the with shareholders. The power will expire at the earlier of 31 August 2020 and the conclusion of earlier of 31 August 2020 and the conclusion of the Annual General Meeting of the Company held the Annual General Meeting of the Company held in 2020. in 2020. Authority to Purchase Own Shares Authority to Purchase Own Shares The Directors will seek authority from The Directors will seek authority from shareholders at the forthcoming Annual General shareholders at the forthcoming Annual General Meeting for the Company to purchase, in the Meeting for the Company to purchase, in the market, up to a maximum of 10% of its own market, up to a maximum of 10% of its own ordinary shares either to be cancelled or retained ordinary shares either to be cancelled or retained as treasury shares. The Directors will only use as treasury shares. The Directors will only use this power after careful consideration, taking into this power after careful consideration, taking into account the financial resources of the Company, account the financial resources of the Company, the Company’s share price and future funding the Company’s share price and future funding opportunities. The Directors will also take into opportunities. The Directors will also take into account the effects on earnings per share and the account the effects on earnings per share and the interests of shareholders generally. interests of shareholders generally. Rights Attaching to Shares Rights Attaching to Shares All shares have the same rights (including voting All shares have the same rights (including voting At the Annual General Meeting of the Company At the Annual General Meeting of the Company and dividend rights and rights on a return of and dividend rights and rights on a return of to be held on 31 May 2019, the Directors will seek to be held on 31 May 2019, the Directors will seek capital) and restrictions as set out in the Articles, capital) and restrictions as set out in the Articles, authority from shareholders to allot shares in authority from shareholders to allot shares in described below. Except in relation to dividends described below. Except in relation to dividends the capital of the Company (i) up to a maximum the capital of the Company (i) up to a maximum which have been declared and rights on a which have been declared and rights on a nominal amount of €318,569.26 (31,856,926 nominal amount of €318,569.26 (31,856,926 shares of €0.01 each) being one-third of the shares of €0.01 each) being one-third of the liquidation of the Company, the shareholders liquidation of the Company, the shareholders have no rights to share in the profits of the have no rights to share in the profits of the Company’s issued share capital and (ii) up to a Company’s issued share capital and (ii) up to a Company. Company. further €318,569.26 (31,856,926 shares of €0.01 further €318,569.26 (31,856,926 shares of €0.01 each) where the allotment is in connection with each) where the allotment is in connection with The Company’s shares are not redeemable. The Company’s shares are not redeemable. a rights issue, being one-third of the Company’s a rights issue, being one-third of the Company’s However, following any grant of authority from However, following any grant of authority from issued share capital. The power will expire at the issued share capital. The power will expire at the shareholders, the Company may purchase or shareholders, the Company may purchase or earlier of 31 August 2020 and the conclusion of earlier of 31 August 2020 and the conclusion of contract to purchase any of the shares on or off contract to purchase any of the shares on or off the Annual General Meeting of the Company held the Annual General Meeting of the Company held market, subject to the Companies Act and the market, subject to the Companies Act and the in 2020. in 2020. 100 100 requirements of the Listing Rules. requirements of the Listing Rules. No shareholder holds shares in the Company No shareholder holds shares in the Company relating to close periods) and requirements of relating to close periods) and requirements of which carry special rights with regard to control which carry special rights with regard to control the Market Abuse Regulation and the Company’s the Market Abuse Regulation and the Company’s of the Company. of the Company. Voting Rights Voting Rights Securities Dealing Code whereby Directors and Securities Dealing Code whereby Directors and all employees of the Company require advance all employees of the Company require advance clearance to deal in the Company’s securities. clearance to deal in the Company’s securities. Each ordinary share entitles the holder to vote at Each ordinary share entitles the holder to vote at general meetings of the Company. A resolution general meetings of the Company. A resolution Change of Control Change of Control put to the vote of the meeting shall be decided on put to the vote of the meeting shall be decided on Save in respect of a provision of the Company’s Save in respect of a provision of the Company’s a show of hands unless a poll is demanded. On a a show of hands unless a poll is demanded. On a share schemes which may cause options share schemes which may cause options show of hands, every member who is present in show of hands, every member who is present in and awards granted to employees under and awards granted to employees under person or by proxy at a general meeting of the person or by proxy at a general meeting of the such schemes to vest on takeover, there are such schemes to vest on takeover, there are Company shall have one vote. On a poll, every Company shall have one vote. On a poll, every no agreements between the Company and no agreements between the Company and member who is present in person or by proxy member who is present in person or by proxy its Directors or employees providing for its Directors or employees providing for shall have one vote for every share of which they shall have one vote for every share of which they compensation for loss of office or employment compensation for loss of office or employment are a holder. The Articles provide a deadline for are a holder. The Articles provide a deadline for (whether through resignation, purported (whether through resignation, purported submission of proxy forms of not less than 48 submission of proxy forms of not less than 48 redundancy or otherwise) because of a takeover redundancy or otherwise) because of a takeover hours before the time appointed for the holding hours before the time appointed for the holding bid. bid. of the meeting or adjourned meeting. of the meeting or adjourned meeting. No member shall be entitled to vote at any No member shall be entitled to vote at any 2019 Annual General Meeting 2019 Annual General Meeting general meeting either in person or by proxy, general meeting either in person or by proxy, in respect of any share held, unless all amounts in respect of any share held, unless all amounts presently payable in respect of that share presently payable in respect of that share have been paid. Save as noted, there are no have been paid. Save as noted, there are no restrictions on voting rights nor any agreement restrictions on voting rights nor any agreement that may result in such restrictions. that may result in such restrictions. Restrictions on Transfer of Securities Restrictions on Transfer of Securities The Annual General Meeting (“AGM”) will be held The Annual General Meeting (“AGM”) will be held at 12 noon on 31 May 2019 at Hostelworld Group at 12 noon on 31 May 2019 at Hostelworld Group plc, 2nd Floor, One Central Park, Leopardstown, plc, 2nd Floor, One Central Park, Leopardstown, Dublin 18, Ireland. Dublin 18, Ireland. The Notice of Meeting which sets out the The Notice of Meeting which sets out the resolutions to be proposed at the forthcoming resolutions to be proposed at the forthcoming AGM specifies deadlines for exercising voting AGM specifies deadlines for exercising voting The Articles do not contain any restrictions on the The Articles do not contain any restrictions on the rights and appointing a proxy or proxies to vote rights and appointing a proxy or proxies to vote transfer of ordinary shares in the Company other transfer of ordinary shares in the Company other in relation to resolutions to be passed at the AGM. in relation to resolutions to be passed at the AGM. than the usual restrictions applicable where any than the usual restrictions applicable where any All proxy votes will be counted and the numbers All proxy votes will be counted and the numbers amount is unpaid on a share. Certain restrictions amount is unpaid on a share. Certain restrictions for, against or withheld in relation to each for, against or withheld in relation to each are also imposed by laws and regulations (such are also imposed by laws and regulations (such resolution will be announced at the AGM and resolution will be announced at the AGM and as insider trading and market requirements as insider trading and market requirements published on the Company’s website. published on the Company’s website. HAKA LODGE HAKA LODGE AUCKLAND AUCKLAND Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Substantial Shareholders Substantial Shareholders Transactions with Related Parties Transactions with Related Parties Research and Development Research and Development At 31 December 2018, the Company had been notified, in accordance with chapter 5 of the Financial At 31 December 2018, the Company had been notified, in accordance with chapter 5 of the Financial Please refer to note 19 to the Consolidated Please refer to note 19 to the Consolidated Innovation, specifically in the proposition on the Innovation, specifically in the proposition on the Conduct Authority’s Disclosure and Transparency Rules (“DTR5 Notification”), of the following significant Conduct Authority’s Disclosure and Transparency Rules (“DTR5 Notification”), of the following significant Financial Statements on pages 151 to 152. Financial Statements on pages 151 to 152. websites and mobile apps for both customers websites and mobile apps for both customers interests: interests: Shareholder Shareholder Number of ordinary shares / Number of ordinary shares / voting rights notified voting rights notified Percentage of voting rights Percentage of voting rights over ordinary shares over ordinary shares of €0.01 each and nature of of €0.01 each and nature of holding holding Standard Life Aberdeen plc Standard Life Aberdeen plc 12,111,887 12,111,887 The Capital Group Companies, The Capital Group Companies, Inc. Inc. Unicorn Asset Management Unicorn Asset Management Limited Limited Burgundy Asset Management Burgundy Asset Management Limited Limited 9,511,068 9,511,068 5,410,000 5,410,000 5,252,294 5,252,294 Bailie Gifford & Co Bailie Gifford & Co 5,163,599 5,163,599 Miton Group plc Miton Group plc 4,813,812 4,813,812 Majedie Asset Management Majedie Asset Management Limited Limited 4,722,404 4,722,404 Allianz Global Investors GmbH Allianz Global Investors GmbH 4,046,400 4,046,400 Lizard Investors LLC Lizard Investors LLC 3,829,689 3,829,689 Legal & General Group plc Legal & General Group plc 3,069,505 3,069,505 As at the date of this report one further DTR5 Notification had been received from the following: As at the date of this report one further DTR5 Notification had been received from the following: 12.67% 12.67% (indirect) (indirect) 9.95% 9.95% (indirect) (indirect) 5.66% 5.66% (indirect) (indirect) 5.50% 5.50% (indirect) (indirect) 5.40% 5.40% (indirect) (indirect) 5.03% 5.03% (indirect) (indirect) 4.94% 4.94% (indirect) (indirect) 4.23% 4.23% (direct – 0.03%; (direct – 0.03%; indirect – 4.20%) indirect – 4.20%) 4.0% 4.0% (indirect) (indirect) 3.21% 3.21% (direct) (direct) Lizard Investors LLC notified the Company on 9 January 2019 of an increase in their holding to 5,121,406 ordinary shares representing 5.36% of the issued share Lizard Investors LLC notified the Company on 9 January 2019 of an increase in their holding to 5,121,406 ordinary shares representing 5.36% of the issued share capital of the Company (5.36% -indirect holding). capital of the Company (5.36% -indirect holding). 102 102 Events Post Year End Events Post Year End As part of a Group reorganisation, certain assets As part of a Group reorganisation, certain assets were acquired by Hostelworld.com Limited were acquired by Hostelworld.com Limited from WRI Nominees DAC on 12 March 2019. from WRI Nominees DAC on 12 March 2019. WRI Nominees DAC was subsequently placed WRI Nominees DAC was subsequently placed in liquidation by way of members’ voluntary in liquidation by way of members’ voluntary and hostel partners, is a critical element of the and hostel partners, is a critical element of the strategy and therefore of the future success strategy and therefore of the future success of the Group. Accordingly the majority of the of the Group. Accordingly the majority of the Group’s research and development expenditure Group’s research and development expenditure is predominantly related to this area. is predominantly related to this area. Suppliers Suppliers winding up (see note 23 to the Consolidated winding up (see note 23 to the Consolidated The Group’s policy is to pay suppliers and The Group’s policy is to pay suppliers and Financial Statements). Financial Statements). Future Developments Future Developments The Group will continue to pursue new The Group will continue to pursue new developments to enhance shareholder value, developments to enhance shareholder value, through a combination of organic growth, through a combination of organic growth, product delivery, expansion of our technology product delivery, expansion of our technology team in Porto and other development and team in Porto and other development and investment opportunities. investment opportunities. Going Concern Going Concern The Directors have prepared cash flow forecasts The Directors have prepared cash flow forecasts that include key assumptions in respect of the that include key assumptions in respect of the trading subsidiary’s booking numbers, booking trading subsidiary’s booking numbers, booking profiles, commission rates and marketing costs. profiles, commission rates and marketing costs. In making their assessment, management have In making their assessment, management have performed sensitivity analysis on the forecasts. performed sensitivity analysis on the forecasts. After making appropriate enquiries, the Directors After making appropriate enquiries, the Directors have a reasonable expectation that the Company have a reasonable expectation that the Company and the Group as a whole have adequate and the Group as a whole have adequate resources to continue in operational existence for resources to continue in operational existence for creditors sums due in accordance with the creditors sums due in accordance with the payment terms agreed in the relevant contract payment terms agreed in the relevant contract with each such supplier/creditor, provided the with each such supplier/creditor, provided the supplier has complied with its obligations. supplier has complied with its obligations. Environmental Environmental Information on the Group’s greenhouse gas Information on the Group’s greenhouse gas emissions is set out in the Corporate Social emissions is set out in the Corporate Social Responsibility section on page 40 and forms Responsibility section on page 40 and forms part of this report by reference. part of this report by reference. Financial Instruments Financial Instruments Details of the financial risk management Details of the financial risk management objectives and policies of the Group, including objectives and policies of the Group, including exposure of the entity to price risk, credit risk, exposure of the entity to price risk, credit risk, liquidity risk and cash flow risk are given on liquidity risk and cash flow risk are given on pages 153 to 154 in note 20 to the Consolidated pages 153 to 154 in note 20 to the Consolidated Financial Statements. Financial Statements. Political Contributions Political Contributions the foreseeable future (at least one year from the the foreseeable future (at least one year from the During the year, no political donations were During the year, no political donations were date when Financial Statements are signed) on date when Financial Statements are signed) on made. made. both base case and sensitised forecasts. both base case and sensitised forecasts. Accordingly, the Financial Statements have been Accordingly, the Financial Statements have been prepared on a going concern basis. prepared on a going concern basis. Indemnities and Insurance Indemnities and Insurance External Branches External Branches Hostelworld Group plc is registered as a branch in Hostelworld Group plc is registered as a branch in Ireland with branch registration number 908295. Ireland with branch registration number 908295. Hostelworld Services Limited, a UK subsidiary Hostelworld Services Limited, a UK subsidiary The Company maintains appropriate insurance to The Company maintains appropriate insurance to of the Company, is registered as a branch in of the Company, is registered as a branch in cover Directors’ and Officers’ liability for itself and cover Directors’ and Officers’ liability for itself and Australia with Australian registered body number Australia with Australian registered body number its subsidiaries. The Company also indemnifies its subsidiaries. The Company also indemnifies 613076556. 613076556. the Directors under a qualifying indemnity for the Directors under a qualifying indemnity for the purposes of section 236 of the Companies the purposes of section 236 of the Companies Results and Dividends Results and Dividends Act 2006 and the Articles of Association. Act 2006 and the Articles of Association. Such indemnities contain provisions that are Such indemnities contain provisions that are permitted by the director liability provisions of permitted by the director liability provisions of the Companies Act and the Company’s Articles of the Companies Act and the Company’s Articles of Association. Association. The Group’s and Company’s audited Financial The Group’s and Company’s audited Financial Statements for the year are set out on pages 120 Statements for the year are set out on pages 120 to 161. In accordance with the Group’s dividend to 161. In accordance with the Group’s dividend policy, the Directors recommend the payment of policy, the Directors recommend the payment of a final dividend for the year ended 31 December a final dividend for the year ended 31 December 2018 of 9.0 euro cent per share amounting to 2018 of 9.0 euro cent per share amounting to 103 103 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance €8.6m, to members appearing on the register at €8.6m, to members appearing on the register at approve the Financial Statements unless they are approve the Financial Statements unless they are The Directors are responsible for the The Directors are responsible for the ► The Strategic Report includes a fair review ► The Strategic Report includes a fair review close of business on 10 May 2019. This is to be close of business on 10 May 2019. This is to be satisfied that they give a true and fair view of the satisfied that they give a true and fair view of the maintenance and integrity of the corporate and maintenance and integrity of the corporate and of the development and performance of the of the development and performance of the approved by the shareholders at the 2019 AGM. approved by the shareholders at the 2019 AGM. state of affairs of the Group and Company and of state of affairs of the Group and Company and of financial information included on the Company’s financial information included on the Company’s business and the position of the Company and business and the position of the Company and The recommended full year dividend of 9.0 euro The recommended full year dividend of 9.0 euro the profit or loss of the Group for that period. the profit or loss of the Group for that period. website. Legislation in the United Kingdom website. Legislation in the United Kingdom the undertakings included in the consolidation the undertakings included in the consolidation cent per share together with the interim dividend cent per share together with the interim dividend In preparing the parent Company Financial In preparing the parent Company Financial governing the preparation and dissemination of governing the preparation and dissemination of taken as a whole, together with a description of taken as a whole, together with a description of of 4.8 euro cent per share paid in September 2018 of 4.8 euro cent per share paid in September 2018 Statements, the Directors are required to: Statements, the Directors are required to: Financial Statements may differ from legislation Financial Statements may differ from legislation the principal risks and uncertainties that they the principal risks and uncertainties that they brings the total dividend for the year ended 31 brings the total dividend for the year ended 31 in other jurisdictions. in other jurisdictions. face; and face; and December 2018 to 13.8 euro cent per share. December 2018 to 13.8 euro cent per share. ► Select suitable accounting policies and then ► Select suitable accounting policies and then apply them consistently; apply them consistently; Responsibility Statement Responsibility Statement We confirm that to the best of our knowledge: We confirm that to the best of our knowledge: ► The Financial Statements, prepared in ► The Financial Statements, prepared in accordance with the Relevant Financial accordance with the Relevant Financial Reporting Framework, give a true and fair Reporting Framework, give a true and fair view of the assets, liabilities, financial position view of the assets, liabilities, financial position and profit or loss of the Company and the and profit or loss of the Company and the undertakings included in the consolidation undertakings included in the consolidation taken as a whole; taken as a whole; Independent Auditor Independent Auditor Deloitte Ireland LLP has confirmed its willingness Deloitte Ireland LLP has confirmed its willingness to continue in office as Auditor of the Group. In to continue in office as Auditor of the Group. In accordance with section 489 of the Companies accordance with section 489 of the Companies Act 2006, separate resolutions for the re- Act 2006, separate resolutions for the re- appointment of Deloitte Ireland LLP as Auditors appointment of Deloitte Ireland LLP as Auditors of the Group and for the Audit Committee to of the Group and for the Audit Committee to determine the remuneration will be proposed at determine the remuneration will be proposed at the forthcoming AGM of the Company. the forthcoming AGM of the Company. Disclosure of Information to Auditor Disclosure of Information to Auditor Each of the Directors has confirmed that: Each of the Directors has confirmed that: i. So far as the Director is aware, there is no i. So far as the Director is aware, there is no relevant audit information of which the relevant audit information of which the Company’s Auditor is unaware; and Company’s Auditor is unaware; and ii. The Director has taken all the steps that he/she ii. The Director has taken all the steps that he/she ought to have taken as a Director to make him/ ought to have taken as a Director to make him/ her aware of any relevant audit information her aware of any relevant audit information and to establish that the Company’s auditor is and to establish that the Company’s auditor is aware of that information. aware of that information. This confirmation is given and should be This confirmation is given and should be interpreted in accordance with the provisions interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. of Section 418 of the Companies Act 2006. Directors’ Responsibilities Statement Directors’ Responsibilities Statement ► Make judgments and accounting estimates ► Make judgments and accounting estimates that are reasonable and prudent; that are reasonable and prudent; ► State whether financial reporting standard ► State whether financial reporting standard 101 reduced disclosures framework has been 101 reduced disclosures framework has been followed, subject to any material departures followed, subject to any material departures disclosed and explained in the financial disclosed and explained in the financial statements; and statements; and ► Prepare the Financial Statements on the going ► Prepare the Financial Statements on the going concern basis unless it is inappropriate to concern basis unless it is inappropriate to presume that the Company will continue in presume that the Company will continue in business. business. In preparing the Group Financial Statements, In preparing the Group Financial Statements, International Accounting Standard 1 requires that International Accounting Standard 1 requires that Directors: Directors: ► Properly select and apply accounting policies; ► Properly select and apply accounting policies; ► Present information, including accounting ► Present information, including accounting policies, in a manner that provides relevant, policies, in a manner that provides relevant, reliable, comparable and understandable reliable, comparable and understandable information; information; ► Provide additional disclosures when ► Provide additional disclosures when compliance with the specific requirements compliance with the specific requirements in IFRSs are insufficient to enable users in IFRSs are insufficient to enable users The Directors are responsible for preparing the The Directors are responsible for preparing the to understand the impact of particular to understand the impact of particular Annual Report and the Financial Statements in Annual Report and the Financial Statements in transactions, other events and conditions on transactions, other events and conditions on accordance with applicable law and regulations. accordance with applicable law and regulations. the Group’s financial position and financial the Group’s financial position and financial performance; and performance; and Company law requires the Directors to prepare Company law requires the Directors to prepare Financial Statements for each financial year. Financial Statements for each financial year. ► Make an assessment of the Company’s ability ► Make an assessment of the Company’s ability Under that law the Directors are required to Under that law the Directors are required to to continue as a going concern. to continue as a going concern. prepare the Group Financial Statements in prepare the Group Financial Statements in accordance with International Financial Reporting accordance with International Financial Reporting The Directors are responsible for keeping adequate The Directors are responsible for keeping adequate Standards (IFRSs) as adopted by the European Standards (IFRSs) as adopted by the European accounting records that are sufficient to show and accounting records that are sufficient to show and Union and Article 4 of the IAS Regulation and Union and Article 4 of the IAS Regulation and explain the Company’s transactions and disclose explain the Company’s transactions and disclose have elected to prepare the parent Company have elected to prepare the parent Company with reasonable accuracy at any time the financial with reasonable accuracy at any time the financial Financial Statements in accordance with FRS Financial Statements in accordance with FRS position of the Company and enable them to ensure position of the Company and enable them to ensure 101 Reduced Disclosure Framework (“Relevant 101 Reduced Disclosure Framework (“Relevant that the Financial Statements comply with the that the Financial Statements comply with the Financial Reporting Framework”) and applicable Financial Reporting Framework”) and applicable Companies Act 2006. They are also responsible for Companies Act 2006. They are also responsible for law. Under company law the Directors must not law. Under company law the Directors must not safeguarding the assets of the Company and hence safeguarding the assets of the Company and hence 104 104 for taking reasonable steps for the prevention and for taking reasonable steps for the prevention and detection of fraud and other irregularities. detection of fraud and other irregularities. ► The Annual Report and Financial Statements, ► The Annual Report and Financial Statements, taken as a whole, are fair, balanced and taken as a whole, are fair, balanced and understandable and provide the information understandable and provide the information necessary for shareholders to assess the necessary for shareholders to assess the Company’s position and performance, Company’s position and performance, business model and strategy. business model and strategy. This responsibility statement was approved by This responsibility statement was approved by the Board of Directors on 1 April 2019 and is the Board of Directors on 1 April 2019 and is signed on its behalf by: signed on its behalf by: John Duggan John Duggan Company Secretary Company Secretary 1 April 2019 1 April 2019 URBAN HOUSE COPENHAGEN BY MEININGER URBAN HOUSE COPENHAGEN BY MEININGER COPENHAGEN COPENHAGEN Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Summary of our audit approach Summary of our audit approach Key audit matters Key audit matters The key audit matters that we identified in the current year were: The key audit matters that we identified in the current year were: ► Carrying value of intangible assets ► Carrying value of intangible assets ► Capitalisation of development costs ► Capitalisation of development costs ► Taxation provisions ► Taxation provisions There have been no significant changes to the key audit matters since the There have been no significant changes to the key audit matters since the prior financial year report. prior financial year report. Materiality Materiality The materiality that we used for the Group financial statements was €975,000, The materiality that we used for the Group financial statements was €975,000, which was determined on the basis of approximately 5% of Adjusted profit which was determined on the basis of approximately 5% of Adjusted profit before tax (“Adjusted PBT”). before tax (“Adjusted PBT”). Scoping Scoping The structure of the Group’s finance function is such that the central Group 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 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 of the majority of transactions and balances. The audit work covering all of the Group’s revenues and 99% its net assets is undertaken and performed by an Group’s revenues and 99% its net assets is undertaken and performed by an audit team based in Dublin. audit team based in Dublin. Significant changes Significant changes in our approach in our approach There are no significant changes to our approach. This is consistent with the There are no significant changes to our approach. This is consistent with the fact that the operations of the Group are largely unchanged from the previous fact that the operations of the Group are largely unchanged from the previous year. year. INDEPENDENT INDEPENDENT AUDITOR’S REPORT AUDITOR’S REPORT TO THE MEMBERS OF HOSTELWORLD GROUP PLC TO THE MEMBERS OF HOSTELWORLD GROUP PLC REPORT ON THE AUDIT OF THE REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS Opinion Opinion In our opinion, the financial statements of In our opinion, the financial statements of Hostelworld Group plc (the ‘Parent Company’) Hostelworld Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’): and its subsidiaries (the ‘Group’): ► give a true and fair view of the assets, liabilities ► give a true and fair view of the assets, liabilities and financial position of the Group and Parent and financial position of the Group and Parent Company as at 31 December 2018 and of the Company as at 31 December 2018 and of the profit of the Group for the financial year then profit of the Group for the financial year then ended; and ended; and ► have been properly prepared in accordance ► have been properly prepared in accordance with the relevant financial reporting with the relevant financial reporting frameworks and, in particular, with the frameworks and, in particular, with the requirements of the Companies Act 2006 and, requirements of the Companies Act 2006 and, as regards the Group financial statements, as regards the Group financial statements, The relevant financial reporting framework that The relevant financial reporting framework that has been applied in the preparation of the Group has been applied in the preparation of the Group financial statements is the Companies Act 2006, financial statements is the Companies Act 2006, International Financial Reporting Standards International Financial Reporting Standards (IFRS) as adopted by the European Union and (IFRS) as adopted by the European Union and IFRS as issued by the International Accounting IFRS as issued by the International Accounting Standards Board (“the relevant financial reporting Standards Board (“the relevant financial reporting framework”). framework”). The financial reporting framework that has The financial reporting framework that has been applied in the preparation of the Parent been applied in the preparation of the Parent Company financial statements is the Companies Company financial statements is the Companies Act 2006 and United Kingdom Accounting Act 2006 and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Standards, including FRS 101 “Reduced Disclosure Framework” (“the relevant financial reporting Framework” (“the relevant financial reporting framework”). framework”). Basis for opinion Basis for opinion Article 4 of the IAS Regulation. Article 4 of the IAS Regulation. We conducted our audit in accordance with We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs International Standards on Auditing (UK) (ISAs The financial statements we have audited The financial statements we have audited (UK) and applicable law. Our responsibilities (UK) and applicable law. Our responsibilities comprise: comprise: The Group financial statements: The Group financial statements: under those standards are described in the under those standards are described in the “Auditor’s responsibilities for the audit of the “Auditor’s responsibilities for the audit of the financial statements” section of our report. financial statements” section of our report. ► the Consolidated Income Statement; ► the Consolidated Income Statement; We are independent of the Group and Parent We are independent of the Group and Parent ► the Consolidated Statement of Comprehensive ► the Consolidated Statement of Comprehensive Company in accordance with the ethical Company in accordance with the ethical Income; Income; requirements that are relevant to our audit of requirements that are relevant to our audit of ► the Consolidated Statement of Financial ► the Consolidated Statement of Financial the financial statements in the UK, including the financial statements in the UK, including Position; Position; the Financial Reporting Council’s (the ‘FRC’s’) the Financial Reporting Council’s (the ‘FRC’s’) ► the Consolidated Statement of Changes in ► the Consolidated Statement of Changes in Ethical Standard, as applied to listed public Ethical Standard, as applied to listed public Equity; Equity; interest entities, and we have fulfilled our other interest entities, and we have fulfilled our other ► the Consolidated Statement of Cash Flows; ► the Consolidated Statement of Cash Flows; ethical responsibilities in accordance with these ethical responsibilities in accordance with these requirements. We confirm that the non-audit requirements. We confirm that the non-audit The Parent Company financial statements: The Parent Company financial statements: services prohibited by the FRC’s Ethical Standard services prohibited by the FRC’s Ethical Standard were not provided to the Group or Parent were not provided to the Group or Parent ► the Company Statement of Financial Position; ► the Company Statement of Financial Position; Company. Company. ► the Company Statement of Changes in Equity; ► the Company Statement of Changes in Equity; and; the related notes 1 to 30, including a and; the related notes 1 to 30, including a obtained is sufficient and appropriate to provide obtained is sufficient and appropriate to provide summary of significant accounting policies as set summary of significant accounting policies as set a basis for our opinion. a basis for our opinion. We believe that the audit evidence we have We believe that the audit evidence we have out in note 2 to the financial statements. out in note 2 to the financial statements. 106 106 M MONTREAL M MONTREAL MONTREAL MONTREAL Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Conclusions relating to principal risks, Conclusions relating to principal risks, going concern and viability statement going concern and viability statement We have nothing to report in respect of the We have nothing to report in respect of the following information in the annual report, in following information in the annual report, in relation to which ISAs (UK) or the Listing Rules relation to which ISAs (UK) or the Listing Rules require us to report to you whether we have require us to report to you whether we have anything material to add or draw attention to: anything material to add or draw attention to: Company will be able to continue in operation Company will be able to continue in operation and meet its liabilities as they fall due over and meet its liabilities as they fall due over the period of their assessment, including any the period of their assessment, including any related disclosures drawing attention to any related disclosures drawing attention to any necessary qualifications or assumptions. necessary qualifications or assumptions. Key audit matters Key audit matters Key audit matters are those matters that, in Key audit matters are those matters that, in ► the disclosures on pages 30 to 34 that describe ► the disclosures on pages 30 to 34 that describe our professional judgement, were of most our professional judgement, were of most the principal risks and explain how they are the principal risks and explain how they are significance in our audit of the financial significance in our audit of the financial being managed or mitigated; being managed or mitigated; ► the directors’ confirmation on page 35 that ► the directors’ confirmation on page 35 that statements of the current financial year and statements of the current financial year and include the most significant assessed risks of include the most significant assessed risks of material misstatement (whether or not due to material misstatement (whether or not due to they have carried out a robust assessment of they have carried out a robust assessment of fraud) that we identified, including those which fraud) that we identified, including those which the principal risks facing the Group and Parent the principal risks facing the Group and Parent had the greatest effect on: the overall audit had the greatest effect on: the overall audit Company, including those that would threaten Company, including those that would threaten strategy, the allocation of resources in the audit; strategy, the allocation of resources in the audit; its business model, future performance, its business model, future performance, and directing the efforts of the engagement and directing the efforts of the engagement solvency or liquidity; solvency or liquidity; team. team. ► the directors’ statement in note 1 to the ► the directors’ statement in note 1 to the financial statements about whether the financial statements about whether the These matters were addressed in the context of These matters were addressed in the context of our audit of the financial statements as a whole, our audit of the financial statements as a whole, directors considered it appropriate to adopt directors considered it appropriate to adopt and in forming our opinion thereon, and we do and in forming our opinion thereon, and we do not provide a separate opinion on these matters. not provide a separate opinion on these matters. the going concern basis of accounting in the going concern basis of accounting in preparing the financial statements and preparing the financial statements and directors’ identification of any material directors’ identification of any material uncertainties to the Group and Parent uncertainties to the Group and Parent Company’s ability to continue to do so over Company’s ability to continue to do so over a period of at least twelve months from the a period of at least twelve months from the date of approval of the financial statements. date of approval of the financial statements. This included considering the nature of the This included considering the nature of the Group, its business model and related risks Group, its business model and related risks including where relevant the impact of Brexit, including where relevant the impact of Brexit, the requirements of the applicable financial the requirements of the applicable financial reporting framework and the system of reporting framework and the system of internal control. We evaluated the directors’ internal control. We evaluated the directors’ assessment of the Group’s ability to continue assessment of the Group’s ability to continue as a going concern, including challenging the as a going concern, including challenging the underlying data and key assumptions used underlying data and key assumptions used to make the assessment, and evaluated the to make the assessment, and evaluated the directors’ plans for future actions in relation to directors’ plans for future actions in relation to their going concern assessment; their going concern assessment; ► whether the directors’ statement relating to ► whether the directors’ statement relating to the prospects of the Group required by Listing the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or our knowledge obtained in the audit; or ► the directors’ explanation on page 35 as to ► the directors’ explanation on page 35 as to how they have assessed the prospects of the how they have assessed the prospects of the Group and Parent Company, over what period Group and Parent Company, over what period they have done so and why they consider that they have done so and why they consider that period to be appropriate, and their statement period to be appropriate, and their statement as to whether they have a reasonable as to whether they have a reasonable expectation that the Group and Parent expectation that the Group and Parent 108 108 Carrying value of Intangible Assets Carrying value of Intangible Assets Key audit matter Key audit matter At 31 December 2018, intangible assets (including goodwill) had a At 31 December 2018, intangible assets (including goodwill) had a description description carrying value of €117.7m representing 79% of the Group’s total assets. carrying value of €117.7m representing 79% of the Group’s total assets. Group management have allocated goodwill to Cash Generating Units Group management have allocated goodwill to Cash Generating Units (CGUs) and have developed a model to calculate the value in use of the (CGUs) and have developed a model to calculate the value in use of the assets and to review the carrying value of goodwill and other intangibles assets and to review the carrying value of goodwill and other intangibles for impairment. for impairment. There is a risk that certain incorrect inputs or inappropriate assumptions, There is a risk that certain incorrect inputs or inappropriate assumptions, in particular projected cash flows, growth rate and discount rate in particular projected cash flows, growth rate and discount rate could be included in the impairment assessment model calculated could be included in the impairment assessment model calculated by management leading to an impairment charge that has not been by management leading to an impairment charge that has not been included in the Group’s financial statements. included in the Group’s financial statements. Small variances in key assumptions have the potential to reduce the value Small variances in key assumptions have the potential to reduce the value in use calculation and accordingly the headroom significantly. in use calculation and accordingly the headroom significantly. Intangible assets other than goodwill are amortised over their expected Intangible assets other than goodwill are amortised over their expected useful life. The expected useful life of an intangible asset is an area of 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 estimation and can have an impact on the amortisation charge for the year. year. Refer to notes 3 and 11 to the financial statements. Refer to notes 3 and 11 to the financial statements. The Audit Committee has included their assessment of this risk on page 62. The Audit Committee has included their assessment of this risk on page 62. How the scope of our audit How the scope of our audit We evaluated the design and determined the implementation of the We evaluated the design and determined the implementation of the responded to the key audit responded to the key audit controls in place for determining when an impairment review is required controls in place for determining when an impairment review is required matter matter for intangible assets. As part of a Group reorganisation, valuations on for intangible assets. As part of a Group reorganisation, valuations on such assets were undertaken which were considered in our assessment such assets were undertaken which were considered in our assessment of whether or not an impairment was required for the current year. of whether or not an impairment was required for the current year. Where an impairment review was required, we challenged the underlying Where an impairment review was required, we challenged the underlying assumptions and obtained audit evidence to test those assumptions assumptions and obtained audit evidence to test those assumptions within the Group’s impairment model, including cashflow projections and within the Group’s impairment model, including cashflow projections and growth rates, which we compared to relevant industry data. We used our growth rates, which we compared to relevant industry data. We used our internal valuation experts to determine an acceptable range of discount internal valuation experts to determine an acceptable range of discount rates and compared our range to that determined by management. We rates and compared our range to that determined by management. We performed a sensitivity analysis on the underlying assumptions noted performed a sensitivity analysis on the underlying assumptions noted above to determine if there were any scenarios whereby a reasonably above to determine if there were any scenarios whereby a reasonably possible expectation of impairment could be present. possible expectation of impairment could be present. For intangible assets other than goodwill, we assessed the basis used by For intangible assets other than goodwill, we assessed the basis used by management in determining the expected useful lives and the resulting management in determining the expected useful lives and the resulting amortisation charge and performed an independent assessment of the amortisation charge and performed an independent assessment of the appropriateness of the expected useful lives used. appropriateness of the expected useful lives used. We assessed whether the disclosures in relation to goodwill and We assessed whether the disclosures in relation to goodwill and intangibles were appropriate and met the requirement of accounting intangibles were appropriate and met the requirement of accounting standards. standards. Key observations Key observations We have no observations that impact on our audit in respect of the We have no observations that impact on our audit in respect of the valuation of intangible assets. valuation of intangible assets. 109 109 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Capitalisation of Development Costs Capitalisation of Development Costs Taxation Provisions Taxation Provisions Key audit matter Key audit matter At 31 December 2018, capitalised development costs amounted to €1.7m. At 31 December 2018, capitalised development costs amounted to €1.7m. Key audit matter Key audit matter The global nature of the Group’s business means it is subject to taxation The global nature of the Group’s business means it is subject to taxation description description Development expenditure in relation to internally generated intangible Development expenditure in relation to internally generated intangible assets is capitalised when all of the criteria as set out in IAS 38 assets is capitalised when all of the criteria as set out in IAS 38 “Intangible Assets” are met. “Intangible Assets” are met. There is a risk that additions are made to capitalised development costs There is a risk that additions are made to capitalised development costs before all the required capitalisation criteria are met. before all the required capitalisation criteria are met. Expenditure is capitalised from the date when the intangible asset Expenditure is capitalised from the date when the intangible asset first meets the recognition criteria and is amortised over its expected first meets the recognition criteria and is amortised over its expected economic useful life. economic useful life. In determining the amount to be capitalised management make In determining the amount to be capitalised management make judgements regarding expected future cash generation of the asset and judgements regarding expected future cash generation of the asset and expected period of benefit. expected period of benefit. Refer to notes 3 and 11 to the financial statements. Refer to notes 3 and 11 to the financial statements. The Audit Committee has included their assessment of this risk on page 62. The Audit Committee has included their assessment of this risk on page 62. How the scope of our audit How the scope of our audit In response to this key audit matter, we obtained an understanding of In response to this key audit matter, we obtained an understanding of responded to the key audit responded to the key audit the process and related controls for ensuring appropriate capitalisation the process and related controls for ensuring appropriate capitalisation matter matter of development costs. We evaluated the design and determined the of development costs. We evaluated the design and determined the description description in numerous jurisdictions and cross-border transactions can be in numerous jurisdictions and cross-border transactions can be challenged by taxation authorities resulting in tax exposures. challenged by taxation authorities resulting in tax exposures. As a result of the interaction of tax laws in different jurisdictions, there As a result of the interaction of tax laws in different jurisdictions, there is significant complexity in determining the most appropriate transfer is significant complexity in determining the most appropriate transfer pricing rates and thus the appropriate tax liabilities in each jurisdiction. pricing rates and thus the appropriate tax liabilities in each jurisdiction. There is a risk that tax authorities could have different interpretations There is a risk that tax authorities could have different interpretations to those of the Directors resulting in potential misstatement of taxation to those of the Directors resulting in potential misstatement of taxation provisions. provisions. Refer to notes 3 and 9 to the financial statements. Refer to notes 3 and 9 to the financial statements. The Audit Committee has included their assessment of this risk on page 63. The Audit Committee has included their assessment of this risk on page 63. How the scope of our audit How the scope of our audit We obtained an understanding of the Group’s tax strategy and We obtained an understanding of the Group’s tax strategy and responded to the key audit responded to the key audit management’s process for determining the appropriate transfer pricing management’s process for determining the appropriate transfer pricing matter matter rates applicable to cross-border transactions. rates applicable to cross-border transactions. Assisted by our transfer pricing tax specialists, who are part of the audit Assisted by our transfer pricing tax specialists, who are part of the audit team, we reviewed material cross-border intergroup agreements and team, we reviewed material cross-border intergroup agreements and transactions and the underlying data used in determining applicable transactions and the underlying data used in determining applicable royalty and mark-up rates and assessed the appropriateness of the royalty and mark-up rates and assessed the appropriateness of the implementation of the controls in place to separately identify the time on implementation of the controls in place to separately identify the time on royalties and mark-up rates being used. royalties and mark-up rates being used. development activities. development activities. We reviewed the capitalised project register and completed procedures We reviewed the capitalised project register and completed procedures to determine whether the expenditure was recorded accurately and to determine whether the expenditure was recorded accurately and whether it met the required capitalisation criteria in accordance with whether it met the required capitalisation criteria in accordance with IAS 38. IAS 38. We agreed the amount of development costs capitalised to underlying We agreed the amount of development costs capitalised to underlying documentation detailing cost per project, including timesheet data. documentation detailing cost per project, including timesheet data. Key observations Key observations No significant matters that impact on our audit arose from our work. No significant matters that impact on our audit arose from our work. We challenged and evaluated management’s assumptions and critical We challenged and evaluated management’s assumptions and critical estimates and judgements in respect of tax exposures, based on the estimates and judgements in respect of tax exposures, based on the royalty and mark-up rates utilised and their interpretation of the relevant royalty and mark-up rates utilised and their interpretation of the relevant tax laws in jurisdictions where the Group has significant operations. tax laws in jurisdictions where the Group has significant operations. Key observations Key observations We have no observations that impact on our audit in respect of the We have no observations that impact on our audit in respect of the amounts and disclosures related to the taxation provisions. 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 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 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 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. not express an opinion on these individual matters. 110 110 111 111 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Our application of materiality Our application of materiality An overview of the scope of our audit An overview of the scope of our audit We have nothing to report in this regard. We have nothing to report in this regard. We define materiality as the magnitude of misstatement in the financial statements that makes it We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. of our work. Based on our professional judgement, we determined materiality for the Group to be €975,000, which Based on our professional judgement, we determined materiality for the Group to be €975,000, which is approximately 5% of Adjusted PBT. The items adjusted in the Adjusted PBT are explained further is approximately 5% of Adjusted PBT. The items adjusted in the Adjusted PBT are explained further in the Financial Review. We have considered the Adjusted PBT to be the appropriate benchmark in the Financial Review. We have considered the Adjusted PBT to be the appropriate benchmark for determining materiality because it is the most important measure for users of the Group’s for determining materiality because it is the most important measure for users of the Group’s financial statements. It is also a key measure used by the Group in reporting results to allow a better financial statements. It is also a key measure used by the Group in reporting results to allow a better understanding of the adjusted trading of the Group. We have considered quantitative and qualitative understanding of the adjusted trading of the Group. We have considered quantitative and qualitative factors such as understanding the entity and its environment, history of misstatements, complexity of factors such as understanding the entity and its environment, history of misstatements, complexity of the Group and reliability of the control environment. We determined materiality for the parent to be the Group and reliability of the control environment. We determined materiality for the parent to be €195,000. €195,000. The structure of the Group’s finance function The structure of the Group’s finance function is such that the central Group finance team in is such that the central Group finance team in Dublin provides support to Group entities for the Dublin provides support to Group entities for the accounting of the majority of transactions and accounting of the majority of transactions and balances. The audit work was undertaken and balances. The audit work was undertaken and performed by an audit team based in Dublin. performed by an audit team based in Dublin. Our Group audit was scoped on an entity level Our Group audit was scoped on an entity level basis, assessing components against the risk of basis, assessing components against the risk of material misstatement at the Group level. Based material misstatement at the Group level. Based on this assessment, we focused our work on four on this assessment, we focused our work on four legal entities covering 100% of revenue and 99% legal entities covering 100% of revenue and 99% of net assets. These legal entities, which were of net assets. These legal entities, which were subject to a full scope audit, were Hostelworld subject to a full scope audit, were Hostelworld Group plc, Hostelworld.com Limited, Hostelworld Group plc, Hostelworld.com Limited, Hostelworld Services Limited and WRI Nominees DAC. We Services Limited and WRI Nominees DAC. We also carried out specified audit procedures on also carried out specified audit procedures on Group materiality €975k Group materiality €975k Hostelworld Services Portugal. Hostelworld Services Portugal. Adjusted PBT Adjusted PBT €18,297k €18,297k Adjusted PBT Adjusted PBT Group materiality Group materiality Component materiality Component materiality range €195k to €926k range €195k to €926k Audit Committee reporting Audit Committee reporting threshold €48.7k threshold €48.7k We agreed with the Audit Committee that we would report to the Committee all audit differences in We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of €48,750 (2017: €50,000) for the Group, as well as differences below that threshold that, in our excess of €48,750 (2017: €50,000) for the Group, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. matters that we identified when assessing the overall presentation of the financial statements. 112 112 At the parent entity level, we also tested the At the parent entity level, we also tested the consolidation process and carried out review consolidation process and carried out review procedures to confirm our conclusion that there procedures to confirm our conclusion that there were no significant risks of material misstatement were no significant risks of material misstatement of the aggregated financial information of the of the aggregated financial information of the remaining components not subject to a full scope remaining components not subject to a full scope audit or specified audit procedures. audit or specified audit procedures. Other information Other information The directors are responsible for the other The directors are responsible for the other information. The other information comprises the information. The other information comprises the information included in the annual report, other information included in the annual report, other than the financial statements and our auditor’s than the financial statements and our auditor’s report thereon. Our opinion on the financial report thereon. Our opinion on the financial statements does not cover the other information statements does not cover the other information and, except to the extent otherwise explicitly and, except to the extent otherwise explicitly stated in our report, we do not express any form stated in our report, we do not express any form of assurance conclusion thereon. of assurance conclusion thereon. In connection with our audit of the financial In connection with our audit of the financial statements, our responsibility is to read the other statements, our responsibility is to read the other information and, in doing so, consider whether information and, in doing so, consider whether the other information is materially inconsistent the other information is materially inconsistent with the financial statements or our knowledge with the financial statements or our knowledge obtained in the audit or otherwise appears to obtained in the audit or otherwise appears to be materially misstated. If we identify such be materially misstated. If we identify such material inconsistencies or apparent material material inconsistencies or apparent material misstatements, we are required to determine misstatements, we are required to determine whether there is a material misstatement in the whether there is a material misstatement in the financial statements or a material misstatement financial statements or a material misstatement of the other information. If, based on the work of the other information. If, based on the work we have performed, we conclude that there is a we have performed, we conclude that there is a material misstatement of this other information, material misstatement of this other information, we are required to report that fact. we are required to report that fact. In this context, we also have nothing to report In this context, we also have nothing to report with regard to our responsibility to specifically with regard to our responsibility to specifically address the following items in the other address the following items in the other information and to report as uncorrected information and to report as uncorrected material misstatements of the other information material misstatements of the other information where we conclude that those items meet the where we conclude that those items meet the following conditions: following conditions: ► Fair, balanced and understandable – the ► Fair, balanced and understandable – the statement given by the directors that they statement given by the directors that they consider the annual report and financial consider the annual report and financial statements taken as a whole is fair, balanced statements taken as a whole is fair, balanced and understandable and provides the and understandable and provides the information necessary for shareholders to information necessary for shareholders to assess the Group and Parent Company’s assess the Group and Parent Company’s position and performance, business model and position and performance, business model and strategy, is materially inconsistent with our strategy, is materially inconsistent with our knowledge obtained in the audit; or knowledge obtained in the audit; or ► Audit committee reporting – the section ► Audit committee reporting – the section describing the work of the audit committee describing the work of the audit committee does not appropriately address matters does not appropriately address matters communicated by us to the audit committee; or communicated by us to the audit committee; or ► Directors’ statement of compliance with the ► Directors’ statement of compliance with the UK Corporate Governance Code – the parts UK Corporate Governance Code – the parts of the directors’ statement required under of the directors’ statement required under the Listing Rules relating to the Company’s the Listing Rules relating to the Company’s compliance with the UK Corporate Governance compliance with the UK Corporate Governance Code containing provisions specified for review Code containing provisions specified for review by the auditor in accordance with Listing Rule by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate from a relevant provision of the UK Corporate Governance Code. Governance Code. Responsibilities of directors Responsibilities of directors As explained more fully in the Directors’ As explained more fully in the Directors’ Responsibilities Statement, the directors are Responsibilities Statement, the directors are responsible for the preparation of the financial responsible for the preparation of the financial statements and for being satisfied that they give statements and for being satisfied that they give a true and fair view, and for such internal control a true and fair view, and for such internal control as the directors determine is necessary to enable as the directors determine is necessary to enable the preparation of financial statements that are the preparation of financial statements that are free from material misstatement, whether due to free from material misstatement, whether due to fraud or error. fraud or error. In preparing the financial statements, the In preparing the financial statements, the directors are responsible for assessing the Group directors are responsible for assessing the Group and Parent Company’s ability to continue as a and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters going concern, disclosing, as applicable, matters related to going concern and using the going related to going concern and using the going concern basis of accounting unless the directors concern basis of accounting unless the directors 113 113 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance either intend to liquidate the Group and Parent either intend to liquidate the Group and Parent accounting estimates and related disclosures accounting estimates and related disclosures Where the auditor is required to report on key Where the auditor is required to report on key tax and valuations specialists regarding how tax and valuations specialists regarding how Company or to cease operations, or have no Company or to cease operations, or have no made by the directors. made by the directors. realistic alternative but to do so. realistic alternative but to do so. audit matters, from the matters communicated audit matters, from the matters communicated and where fraud might occur in the financial and where fraud might occur in the financial with those charged with governance, the with those charged with governance, the statements and any potential indicators of statements and any potential indicators of Auditor’s responsibilities for the audit Auditor’s responsibilities for the audit of the financial statements of the financial statements directors’ use of the going concern basis of directors’ use of the going concern basis of accounting and, based on the audit evidence accounting and, based on the audit evidence most significance in the audit of the financial most significance in the audit of the financial potential for fraud in the following areas: potential for fraud in the following areas: statements of the current period and are statements of the current period and are management override of controls and revenue management override of controls and revenue ► Conclude on the appropriateness of the ► Conclude on the appropriateness of the auditor determines those matters that were of auditor determines those matters that were of fraud. As part of this discussion, we identified fraud. As part of this discussion, we identified Our objectives are to obtain reasonable Our objectives are to obtain reasonable assurance about whether the financial assurance about whether the financial statements as a whole are free from material statements as a whole are free from material misstatement, whether due to fraud or error, misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will conducted in accordance with ISAs (UK) will always detect a material misstatement when it always detect a material misstatement when it exists. Misstatements can arise from fraud or exists. Misstatements can arise from fraud or error and are considered material if, individually error and are considered material if, individually or in the aggregate, they could reasonably be or in the aggregate, they could reasonably be expected to influence the economic decisions expected to influence the economic decisions of users taken on the basis of these financial of users taken on the basis of these financial statements. statements. Details of the extent to which the audit was Details of the extent to which the audit was considered capable of detecting irregularities, considered capable of detecting irregularities, including fraud are set out below. including fraud are set out below. As part of an audit in accordance with ISAs (UK), As part of an audit in accordance with ISAs (UK), we exercise professional judgment and maintain we exercise professional judgment and maintain professional scepticism throughout the audit. professional scepticism throughout the audit. We also: We also: ► Identify and assess the risks of material ► Identify and assess the risks of material misstatement of the consolidated financial misstatement of the consolidated financial statements, whether due to fraud or error, statements, whether due to fraud or error, design and perform audit procedures design and perform audit procedures responsive to those risks, and obtain audit responsive to those risks, and obtain audit evidence that is sufficient and appropriate evidence that is sufficient and appropriate to provide a basis for our opinion. The risk to provide a basis for our opinion. The risk of not detecting a material misstatement of not detecting a material misstatement resulting from fraud is higher than for one resulting from fraud is higher than for one resulting from error, as fraud may involve resulting from error, as fraud may involve collusion, forgery, intentional omissions, collusion, forgery, intentional omissions, misrepresentations, or the override of internal misrepresentations, or the override of internal control. control. ► Obtain an understanding of internal control ► Obtain an understanding of internal control relevant to the audit in order to design relevant to the audit in order to design audit procedures that are appropriate in the audit procedures that are appropriate in the circumstances, but not for the purpose of circumstances, but not for the purpose of expressing an opinion on the effectiveness of expressing an opinion on the effectiveness of the Group’s and Company’s internal control. the Group’s and Company’s internal control. ► Evaluate the appropriateness of accounting ► Evaluate the appropriateness of accounting policies used and the reasonableness of policies used and the reasonableness of 114 114 obtained, whether a material uncertainty obtained, whether a material uncertainty exists related to events or conditions that exists related to events or conditions that may cast significant doubt on the Group’s may cast significant doubt on the Group’s and Company’s ability to continue as a going and Company’s ability to continue as a going concern. If we conclude that a material concern. If we conclude that a material uncertainty exists, we are required to draw uncertainty exists, we are required to draw attention in the auditor’s report to the related attention in the auditor’s report to the related disclosures in the financial statements or, if disclosures in the financial statements or, if such disclosures are inadequate, to modify such disclosures are inadequate, to modify our opinion. Our conclusions are based on the our opinion. Our conclusions are based on the audit evidence obtained up to the date of the audit evidence obtained up to the date of the auditor’s report. However, future events or auditor’s report. However, future events or conditions may cause the Group to cease to conditions may cause the Group to cease to continue as a going concern. continue as a going concern. ► Evaluate the overall presentation, structure ► Evaluate the overall presentation, structure and content of the financial statements, and content of the financial statements, including the disclosures, and whether the including the disclosures, and whether the financial statements represent the underlying financial statements represent the underlying transactions and events in a manner that transactions and events in a manner that achieves fair presentation. achieves fair presentation. ► Obtain sufficient appropriate audit evidence ► Obtain sufficient appropriate audit evidence regarding the financial information of the regarding the financial information of the business activities within the Group to express business activities within the Group to express an opinion on the consolidated financial an opinion on the consolidated financial statements. The Group auditor is responsible statements. The Group auditor is responsible for the direction, supervision and performance for the direction, supervision and performance of the Group audit. The Group auditor remains of the Group audit. The Group auditor remains solely responsible for the audit opinion. solely responsible for the audit opinion. We communicate with those charged with We communicate with those charged with governance regarding, among other matters, governance regarding, among other matters, the planned scope and timing of the audit the planned scope and timing of the audit and significant audit findings, including any and significant audit findings, including any significant deficiencies in internal control that significant deficiencies in internal control that the auditor identifies during the audit. the auditor identifies during the audit. For listed entities and public interest entities, For listed entities and public interest entities, the auditor also provides those charged with the auditor also provides those charged with governance with a statement that the auditor governance with a statement that the auditor has complied with relevant ethical requirements has complied with relevant ethical requirements regarding independence, including the FRC’s regarding independence, including the FRC’s Ethical Standard, and communicates with them Ethical Standard, and communicates with them all relationships and other matters that may all relationships and other matters that may reasonably be thought to bear on the auditor’s reasonably be thought to bear on the auditor’s independence, and where applicable, related independence, and where applicable, related safeguards. safeguards. therefore the key audit matters. The auditor therefore the key audit matters. The auditor recognition; and recognition; and describes these matters in the auditor’s describes these matters in the auditor’s report unless law or regulation precludes report unless law or regulation precludes ► obtaining an understanding of the legal and ► obtaining an understanding of the legal and public disclosure about the matter or when, public disclosure about the matter or when, regulatory framework that the Group operates regulatory framework that the Group operates in extremely rare circumstances, the auditor in extremely rare circumstances, the auditor in, focusing on those laws and regulations in, focusing on those laws and regulations determines that a matter should not be determines that a matter should not be that had a direct effect on the financial that had a direct effect on the financial communicated in the auditor’s report because communicated in the auditor’s report because statements or that had a fundamental effect statements or that had a fundamental effect the adverse consequences of doing so would the adverse consequences of doing so would on the operations of the Group. The key laws on the operations of the Group. The key laws reasonably be expected to outweigh the public reasonably be expected to outweigh the public and regulations we considered in this context and regulations we considered in this context interest benefits of such communication. interest benefits of such communication. included the UK Companies Act, Listing Rules, included the UK Companies Act, Listing Rules, Extent to which the audit was Extent to which the audit was considered capable of detecting considered capable of detecting irregularities, including fraud irregularities, including fraud and tax legislation. and tax legislation. Audit response to risks identified Audit response to risks identified As a result of performing the above, we did not As a result of performing the above, we did not We identify and assess the risks of material We identify and assess the risks of material identify any key audit matters related to the identify any key audit matters related to the misstatement of the financial statements, misstatement of the financial statements, potential risk of fraud or non-compliance with potential risk of fraud or non-compliance with whether due to fraud or error, and then design whether due to fraud or error, and then design laws and regulations. laws and regulations. and perform audit procedures responsive to and perform audit procedures responsive to those risks, including obtaining audit evidence those risks, including obtaining audit evidence Our procedures to respond to risks identified Our procedures to respond to risks identified that is sufficient and appropriate to provide a that is sufficient and appropriate to provide a included the following: included the following: basis for our opinion. basis for our opinion. Identifying and assessing potential risks Identifying and assessing potential risks and testing to supporting documentation and testing to supporting documentation related to irregularities related to irregularities to assess compliance with relevant laws and to assess compliance with relevant laws and ► reviewing the financial statement disclosures ► reviewing the financial statement disclosures In identifying and assessing risks of material In identifying and assessing risks of material misstatement in respect of irregularities, misstatement in respect of irregularities, including fraud and non-compliance with laws including fraud and non-compliance with laws and regulations, our procedures included the and regulations, our procedures included the following: following: ► enquiring of management and the audit ► enquiring of management and the audit committee, including obtaining and reviewing committee, including obtaining and reviewing supporting documentation, concerning the supporting documentation, concerning the Group’s policies and procedures relating to: Group’s policies and procedures relating to: > identifying, evaluating and complying with > identifying, evaluating and complying with laws and regulations and whether they laws and regulations and whether they were aware of any instances of were aware of any instances of non-compliance; non-compliance; regulations discussed above; regulations discussed above; ► enquiring of management concerning actual ► enquiring of management concerning actual and potential litigation and claims; and potential litigation and claims; ► reading minutes of meetings of those charged ► reading minutes of meetings of those charged with governance and reviewing internal audit with governance and reviewing internal audit reports; and reports; and ► in addressing the risk of fraud through ► in addressing the risk of fraud through management override of controls, testing management override of controls, testing the appropriateness of journal entries and the appropriateness of journal entries and other adjustments; assessing whether the other adjustments; assessing whether the judgements made in making accounting judgements made in making accounting estimates are indicative of a potential bias; estimates are indicative of a potential bias; > detecting and responding to the risks of > detecting and responding to the risks of and evaluating the business rationale of any and evaluating the business rationale of any fraud and whether they have knowledge of fraud and whether they have knowledge of significant transactions that are unusual or significant transactions that are unusual or any actual, suspected or alleged fraud; any actual, suspected or alleged fraud; outside the normal course of business outside the normal course of business > the internal controls established to mitigate > the internal controls established to mitigate risks related to fraud or non-compliance risks related to fraud or non-compliance with laws and regulations; with laws and regulations; ► discussing among the engagement team and ► discussing among the engagement team and involving relevant internal specialists, including involving relevant internal specialists, including We also communicated relevant identified laws We also communicated relevant identified laws and regulations and potential fraud risks to all and regulations and potential fraud risks to all engagement team members including internal engagement team members including internal specialists, and remained alert to any indications specialists, and remained alert to any indications of fraud or non-compliance with laws and of fraud or non-compliance with laws and regulations throughout the audit. regulations throughout the audit. 115 115 Hostelworld Annual Report 2018 | Governance Hostelworld Annual Report 2018 | Governance REPORT ON OTHER LEGAL REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS AND REGULATORY REQUIREMENTS remuneration report to be audited is not in remuneration report to be audited is not in agreement with the accounting records and agreement with the accounting records and returns. returns. Opinions on other matters prescribed Opinions on other matters prescribed by the Companies Act 2006 by the Companies Act 2006 In our opinion the part of the directors’ In our opinion the part of the directors’ remuneration report to be audited has been remuneration report to be audited has been properly prepared in accordance with the properly prepared in accordance with the Companies Act 2006. Companies Act 2006. In our opinion, based on the work undertaken in In our opinion, based on the work undertaken in the course of the audit: the course of the audit: ► the information given in the strategic report ► the information given in the strategic report and the directors’ report for the financial and the directors’ report for the financial year for which the financial statements are year for which the financial statements are prepared is consistent with the financial prepared is consistent with the financial statements; and statements; and ► the strategic report and the directors’ report ► the strategic report and the directors’ report have been prepared in accordance with have been prepared in accordance with applicable legal requirements. applicable legal requirements. In the light of the knowledge and understanding In the light of the knowledge and understanding of the Group and Parent Company and their of the Group and Parent Company and their environment obtained in the course of the environment obtained in the course of the audit, we have not identified any material audit, we have not identified any material misstatements in the strategic report or the misstatements in the strategic report or the directors’ report. directors’ report. Matters on which we are required Matters on which we are required to report by exception to report by exception We have nothing to report in respect of the We have nothing to report in respect of the provisions in the Companies Act 2006 which provisions in the Companies Act 2006 which require us to report to you if, in our opinion: require us to report to you if, in our opinion: ► we have not received all the information and ► we have not received all the information and explanations we require for our audit; or explanations we require for our audit; or ► adequate accounting records have not been ► adequate accounting records have not been kept by the Parent Company, or returns kept by the Parent Company, or returns adequate for our audit have not been received adequate for our audit have not been received from branches not visited by us; or from branches not visited by us; or Other matters which we are required to Other matters which we are required to address address Following the recommendation of the audit Following the recommendation of the audit committee, we were appointed by the Board committee, we were appointed by the Board at its annual general meeting in 2015 to audit at its annual general meeting in 2015 to audit the financial statements for the year ending 31 the financial statements for the year ending 31 December 2015 and subsequent financial periods. December 2015 and subsequent financial periods. The period of total uninterrupted engagement The period of total uninterrupted engagement including previous renewals and reappointments including previous renewals and reappointments of the firm is 4 years, covering the years ending of the firm is 4 years, covering the years ending 31 December 2015 to 31 December 2018. 31 December 2015 to 31 December 2018. Our audit opinion is consistent with the additional Our audit opinion is consistent with the additional report to the audit committee we are required to report to the audit committee we are required to provide in accordance with ISAs (UK). provide in accordance with ISAs (UK). Use of our report Use of our report This report is made solely to the company’s This report is made solely to the company’s members, as a body, in accordance with Chapter members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state work has been undertaken so that we might state to the company’s members those matters we are to the company’s members those matters we are required to state to them in an auditor’s report required to state to them in an auditor’s report and for no other purpose. To the fullest extent and for no other purpose. To the fullest extent permitted by law, we do not accept or assume permitted by law, we do not accept or assume responsibility to anyone other than the company responsibility to anyone other than the company and the company’s members as a body, for our and the company’s members as a body, for our audit work, for this report, or for the opinions we audit work, for this report, or for the opinions we have formed. have formed. Daniel Murray Daniel Murray (Senior Statutory Auditor) (Senior Statutory Auditor) For and on behalf of Deloitte Ireland LLP For and on behalf of Deloitte Ireland LLP Chartered Accountant and Statutory Chartered Accountant and Statutory Audit Firm Audit Firm ► the Parent Company financial statements are ► the Parent Company financial statements are not in agreement with the accounting records not in agreement with the accounting records Dublin, Ireland Dublin, Ireland 01 April 2019 01 April 2019 and returns. and returns. We have nothing to report in respect of the We have nothing to report in respect of the provisions in the Companies Act 2006 which provisions in the Companies Act 2006 which require us to report to you if, in our opinion, require us to report to you if, in our opinion, certain disclosures of directors’ remuneration certain disclosures of directors’ remuneration have not been made or the part of the directors’ have not been made or the part of the directors’ 116 116 MEDELLÍN VIBES HOSTEL MEDELLÍN VIBES HOSTEL MEDELLÍN MEDELLÍN 04 ONE80° HOSTEL - ALEXANDERPLATZ Berlin FINANCIAL STATEMENTS 120 Consolidated Income Statement 121 122 123 124 125 156 157 158 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 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2018 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 Revenue Administrative expenses Depreciation and amortisation Operating profit Financial income Financial costs Profit before taxation Taxation Profit for the year attributable to the equity owners of the parent company Notes 4 5 5 8 9 2018 €’000 82,087 (61,939) (13,453) 2017 €’000 86,672 (60,380) (14,395) Profit for the year 5,691 11,249 2018 €’000 2017 €’000 6,695 11,897 Exchange differences on translation of foreign operations (2) 3 Items that may be reclassified subsequently to profit or loss: Total comprehensive income for the year attributable to equity owners of the parent company 5,689 11,252 20 (63) 9 (75) 6,652 11,831 (961) (582) 5,691 11,249 Basic earnings per share (euro cent) 10 5.95 11.77 CLINK 78 LONDON Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 AS AT 31 DECEMBER 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 FOR THE YEAR ENDED 31 DECEMBER 2018 Share Share Capital Capital €’000 €’000 Retained Retained Earnings Earnings €’000 €’000 Other Other Reserves Reserves €’000 €’000 Notes Notes Foreign Foreign Currency Currency Translation Translation Reserve Reserve €’000 €’000 Share Share Based Based Payment Payment Reserve Reserve €’000 €’000 Total Total €’000 €’000 As at 1 January 2017 As at 1 January 2017 956 956 154,986 154,986 3,628 3,628 15 15 351 351 159,936 159,936 Total comprehensive Total comprehensive income for the year income for the year Dividends Dividends 21 21 Release of merger reserve Release of merger reserve Credit to equity for Credit to equity for equity-settled share based equity-settled share based payments payments - - - - - - - - 11,249 11,249 (24,848) (24,848) - - - - 3,628 3,628 (3,628) (3,628) - - As at 31 December 2017 As at 31 December 2017 956 956 145,015 145,015 Total comprehensive Total comprehensive income for the year income for the year Dividends Dividends 21 21 Debit to equity for Debit to equity for equity-settled share based equity-settled share based payments payments - - - - - - 5,691 5,691 (16,056) (16,056) - - As at 31 December 2018 As at 31 December 2018 956 956 134,650 134,650 3 3 - - - - - - - - - - - - 11,252 11,252 (24,848) (24,848) - - 609 609 609 609 18 18 960 960 146,949 146,949 (2) (2) - - - - - - - - 5,689 5,689 (16,056) (16,056) (330) (330) (330) (330) 16 16 630 630 136,252 136,252 - - - - - - - - - - - - Notes Notes 2018 2018 €’000 €’000 2017 2017 €’000 €’000 Non-current assets Non-current assets Intangible assets Intangible assets Property, plant and equipment Property, plant and equipment Deferred tax assets Deferred tax assets Current assets Current assets Trade and other receivables Trade and other receivables Cash and cash equivalents Cash and cash equivalents Total assets Total assets Issued capital and reserves attributable to equity Issued capital and reserves attributable to equity owners of the parent owners of the parent Share capital Share capital Foreign currency translation reserve Foreign currency translation reserve Share based payment reserve Share based payment reserve Retained earnings Retained earnings Total equity attributable to equity holders of the Total equity attributable to equity holders of the parent company parent company Non-current liabilities Non-current liabilities Deferred tax liabilities Deferred tax liabilities Current liabilities Current liabilities Trade and other payables Trade and other payables Corporation tax Corporation tax Total liabilities Total liabilities Total equity and liabilities Total equity and liabilities 11 11 12 12 13 13 14 14 15 15 13 13 16 16 117,726 117,726 128,108 128,108 3,256 3,256 99 99 3,774 3,774 480 480 121,081 121,081 132,362 132,362 2,814 2,814 25,974 25,974 28,788 28,788 3,966 3,966 21,294 21,294 25,260 25,260 149,869 149,869 157,622 157,622 956 956 16 16 630 630 956 956 18 18 960 960 134,650 134,650 145,015 145,015 136,252 136,252 146,949 146,949 262 262 262 262 12,946 12,946 409 409 13,355 13,355 13,617 13,617 457 457 457 457 9,832 9,832 384 384 10,216 10,216 10,673 10,673 149,869 149,869 157,622 157,622 The financial statements were approved by the Board of Directors and authorised for issue on 1 April The financial statements were approved by the Board of Directors and authorised for issue on 1 April 2019 and signed on its behalf by: 2019 and signed on its behalf by: Gary Morrison Gary Morrison Chief Executive Officer Chief Executive Officer TJ Kelly TJ Kelly Chief Financial Officer Chief Financial Officer Hostelworld Group plc registration number 9818705 (England and Wales) Hostelworld Group plc registration number 9818705 (England and Wales) 122 122 ROOM007 VENTURA HOSTEL ROOM007 VENTURA HOSTEL MADRID MADRID Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 FOR THE YEAR ENDED 31 DECEMBER 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 FOR THE YEAR ENDED 31 DECEMBER 2018 Notes Notes 2018 2018 €’000 €’000 2017 2017 €’000 €’000 5 5 5 5 8 8 18 18 Cash flows from operating activities Cash flows from operating activities Profit before tax Profit before tax Depreciation of property, plant and equipment Depreciation of property, plant and equipment Amortisation of intangible assets Amortisation of intangible assets Financial income Financial income Financial expense Financial expense Employee equity settled share based payment Employee equity settled share based payment (credit)/ expense (credit)/ expense Changes in working capital items: Changes in working capital items: Increase in trade and other payables Increase in trade and other payables Decrease/ (increase) in trade and other receivables Decrease/ (increase) in trade and other receivables Cash generated from operations Cash generated from operations Interest paid Interest paid Interest received Interest received Income tax paid Income tax paid Net cash from operating activities Net cash from operating activities Cash flows from investing activities Cash flows from investing activities Acquisition/ capitalisation of intangible assets Acquisition/ capitalisation of intangible assets Purchases of property, plant and equipment Purchases of property, plant and equipment Net cash used in investing activities Net cash used in investing activities Cash flows from financing activities Cash flows from financing activities 6,652 6,652 1,232 1,232 12,221 12,221 (20) (20) 63 63 (346) (346) 3,129 3,129 1,152 1,152 24,083 24,083 (63) (63) 20 20 (749) (749) 23,291 23,291 (1,839) (1,839) (714) (714) (2,553) (2,553) 11,831 11,831 1,064 1,064 13,331 13,331 (9) (9) 75 75 623 623 149 149 (1,340) (1,340) 25,724 25,724 (75) (75) 9 9 (551) (551) 25,107 25,107 (1,820) (1,820) (1,780) (1,780) (3,600) (3,600) Dividends paid Dividends paid 21 21 (16,056) (16,056) (24,848) (24,848) Net cash used in financing activities Net cash used in financing activities (16,056) (16,056) (24,848) (24,848) Net increase/ (decrease) in cash and cash equivalents Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes Effect of foreign exchange rate changes Cash and cash equivalents at end of year Cash and cash equivalents at end of year 4,682 4,682 21,294 21,294 (2) (2) (3,341) (3,341) 24,632 24,632 3 3 25,974 25,974 21,294 21,294 1. GENERAL INFORMATION AND BASIS OF PREPARATION 1. GENERAL INFORMATION AND BASIS OF PREPARATION Hostelworld Group plc, hereinafter “the Company”, is a public limited company incorporated in the 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, 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. 52 - 54 High Holborn, London, WC1V 6RL, United Kingdom. The Company and its subsidiaries (together “the Group”) provide software and data processing 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. services that facilitate hostel, B&B, hotel and other accommodation bookings worldwide. Basis of Preparation Basis of Preparation The consolidated financial statements incorporate the financial statements of the Company 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 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 to 31 December. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), International Financial Reporting Interpretations International Financial Reporting Standards (“IFRS”), International Financial Reporting Interpretations Committee (“IFRIC”) interpretations and those parts of the Companies Act 2006, applicable to 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 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 with IFRSs adopted by the European Union (“the EU”) which comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”). approved by the International Accounting Standards Board (“IASB”). The consolidated financial statements have been prepared on the historical cost basis. The principal The consolidated financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below. accounting policies adopted are set out below. The directors have assessed the ability of the Company and Group to continue as a going concern 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 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 of accounting. In doing so, the directors have assessed that there are no material uncertainties to the Company’s and Group’s ability to continue as a going concern for the foreseeable future, being a the Company’s and Group’s ability to continue as a going concern for the foreseeable future, being a period of at least 12 months from the date of approval of the financial statements. period of at least 12 months from the date of approval of the financial statements. 2. SIGNIFICANT ACCOUNTING POLICIES 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of the consolidated financial statements The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. otherwise stated. The preparation of financial statements in conformity with IFRS requires the use of certain critical 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 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 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 complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3. statements are disclosed in Note 3. 124 124 125 125 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New standards, amendments and interpretations issued, but not yet effective New standards, amendments and interpretations issued, but not yet effective At the date of authorisation of these financial statements, the following standards and interpretations 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: which have not been applied in these financial statements were in issue but not yet effective: IFRS 3 (Amendment) Definition of a Business IFRS 3 (Amendment) Definition of a Business IFRS 9 (Amendment) Prepayment Features with Negative Compensation IFRS 9 (Amendment) Prepayment Features with Negative Compensation IFRS 16 Leases IFRS 16 Leases IFRS 17 Insurance Contracts IFRS 17 Insurance Contracts IAS 1 (Amendment) Definition of Material IAS 1 (Amendment) Definition of Material IAS 8 (Amendment) Definition of Material IAS 8 (Amendment) Definition of Material IAS 19 (Amendment) Plan Amendment, Curtailment or Settlement IAS 19 (Amendment) Plan Amendment, Curtailment or Settlement IAS 28 (Amendment) Long-term Interests in Associates and Joint Arrangements IAS 28 (Amendment) Long-term Interests in Associates and Joint Arrangements Annual Improvements to IFRS Standards 2015-2017 Cycle (Amendment) Annual Improvements to IFRS Standards 2015-2017 Cycle (Amendment) IFRIC 23 Uncertainty over Income Tax Treatments IFRIC 23 Uncertainty over Income Tax Treatments Amendments to References to Conceptual Framework in IFRS Standards Amendments to References to Conceptual Framework in IFRS Standards Changes in accounting policies – IFRS 16 Changes in accounting policies – IFRS 16 1 January 2020 1 January 2020 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2021 1 January 2021 1 January 2020 1 January 2020 1 January 2020 1 January 2020 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2020 1 January 2020 IFRS 16 Leases is effective for annual periods beginning on or after 1 January 2019 and replaces IAS IFRS 16 Leases is effective for annual periods beginning on or after 1 January 2019 and replaces IAS 17 Leases and related interpretations. IFRS 16 provides guidance on the classification, recognition and 17 Leases and related interpretations. IFRS 16 provides guidance on the classification, recognition and measurement of leases. The standard will primarily affect the accounting for the Group’s operating measurement of leases. The standard will primarily affect the accounting for the Group’s operating leases relating to office premises. The Group will apply IFRS 16 from its effective date. leases relating to office premises. The Group will apply IFRS 16 from its effective date. Under the new standard, the distinction between operating and finance leases is removed for lessees Under the new standard, the distinction between operating and finance leases is removed for lessees and almost all leases are reflected in the statement of financial position. As a result, an asset (the and almost all leases are reflected in the statement of financial position. As a result, an asset (the right-of-use of the leased item) and a financial liability to pay rental expenses are recognised. Fixed right-of-use of the leased item) and a financial liability to pay rental expenses are recognised. Fixed rental expenses are removed from the consolidated income statement and are replaced with finance rental expenses are removed from the consolidated income statement and are replaced with finance costs on the lease liability and depreciation on the right-of-use asset. The only exemptions are short- costs on the lease liability and depreciation on the right-of-use asset. The only exemptions are short- term and low-value leases. The standard introduces new estimates and judgemental thresholds term and low-value leases. The standard introduces new estimates and judgemental thresholds that affect the identification, classification and measurement of lease transactions. More extensive that affect the identification, classification and measurement of lease transactions. More extensive disclosures, both qualitative and quantitative, are also required. disclosures, both qualitative and quantitative, are also required. The Group will adopt the new standard by applying the modified retrospective approach and will avail The Group will adopt the new standard by applying the modified retrospective approach and will avail of the recognition exemption for short-term and low-value leases. Upon transition, the lease liability of the recognition exemption for short-term and low-value leases. Upon transition, the lease liability is based on the present value of remaining lease payments and the right-of-use asset is an amount is based on the present value of remaining lease payments and the right-of-use asset is an amount equal to the lease liability adjusted for prepaid/accrued payments. equal to the lease liability adjusted for prepaid/accrued payments. The adoption of the new standard will have the following impact on the Group’s consolidated income The adoption of the new standard will have the following impact on the Group’s consolidated income statement and consolidated statement of financial position in 2019: statement and consolidated statement of financial position in 2019: Consolidated Income Statement - Administrative expenses are expected to decrease by €1.1m as the Consolidated Income Statement - Administrative expenses are expected to decrease by €1.1m as the Group currently recognises rental expenses therein. Depreciation and finance costs will increase, Group currently recognises rental expenses therein. Depreciation and finance costs will increase, as a result of the requirement to capitalise a right-of-use asset and depreciate over the term of the as a result of the requirement to capitalise a right-of-use asset and depreciate over the term of the lease, and the resulting finance cost which will be applied annually to the lease liability. As a result, lease, and the resulting finance cost which will be applied annually to the lease liability. As a result, Operating Profit will be impacted by the implementation of IFRS 16. Total lease expenses will increase Operating Profit will be impacted by the implementation of IFRS 16. Total lease expenses will increase in the early years of implementation of IFRS 16 due to the front-loading effect of finance charges in the early years of implementation of IFRS 16 due to the front-loading effect of finance charges versus the existing straight-line rent expense under the current standard. versus the existing straight-line rent expense under the current standard. Changes in accounting policies – IFRS 16 (Continued) Changes in accounting policies – IFRS 16 (Continued) Consolidated Statement of Financial Position - At 1 January 2019, the Group has calculated the lease Consolidated Statement of Financial Position - At 1 January 2019, the Group has calculated the lease commitments outstanding and applied the appropriate discount rate to calculate the present value of commitments outstanding and applied the appropriate discount rate to calculate the present value of the lease commitment which will be recognised as a liability and a right-of-use asset on the Group’s the lease commitment which will be recognised as a liability and a right-of-use asset on the Group’s statement of financial position. As at the transition date, IFRS 16 will result in an increase in right-of- statement of financial position. As at the transition date, IFRS 16 will result in an increase in right-of- use assets of €4.3m and a corresponding increase in financial liabilities of €5.4m. use assets of €4.3m and a corresponding increase in financial liabilities of €5.4m. The Group is currently assessing the impact of other standards and interpretations that are effective The Group is currently assessing the impact of other standards and interpretations that are effective for the first time for the financial year beginning on 1 January 2019. for the first time for the financial year beginning on 1 January 2019. Aside from the adoption of IFRS 9 and 15, which are described below, since the last Annual Report Aside from the adoption of IFRS 9 and 15, which are described below, since the last Annual Report there are a number of amendments to existing accounting standards that have been adopted. These there are a number of amendments to existing accounting standards that have been adopted. These had no material impact on the financial statements. had no material impact on the financial statements. IFRIC 22 Foreign Currency Transactions and Advance Consideration is effective for the financial year IFRIC 22 Foreign Currency Transactions and Advance Consideration is effective for the financial year beginning on 1 January 2018. The adoption of IFRIC 22 did not have a material impact on the Group on beginning on 1 January 2018. The adoption of IFRIC 22 did not have a material impact on the Group on adoption and no other new IFRIC interpretations that are effective for the first time for the financial adoption and no other new IFRIC interpretations that are effective for the first time for the financial year beginning on 1 January 2018 have had a material impact on the Group. year beginning on 1 January 2018 have had a material impact on the Group. Changes in accounting policies – IFRS 9 Changes in accounting policies – IFRS 9 From 1 January 2018, the Group has applied IFRS 9 Financial Instruments and the related From 1 January 2018, the Group has applied IFRS 9 Financial Instruments and the related consequential amendments to other IFRSs. IFRS 9 Financial Instruments replaced the existing consequential amendments to other IFRSs. IFRS 9 Financial Instruments replaced the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements for the classification and measurement of financial instruments, including a new requirements for the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets and new general hedge expected credit loss model for calculating impairment on financial assets and new general hedge accounting requirements. There is no material impact on the Group in relation to the adoption of this accounting requirements. There is no material impact on the Group in relation to the adoption of this standard, as detailed below. standard, as detailed below. The Group’s accounting policy under IFRS 9 is as follows: The financial assets held are trade The Group’s accounting policy under IFRS 9 is as follows: The financial assets held are trade receivables and cash, which will continue to be carried at amortised cost. Trade and other receivables receivables and cash, which will continue to be carried at amortised cost. Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current assets. the end of the reporting period, which are classified as non-current assets. In relation to the impairment of financial assets, as at 1 January 2018, the directors reviewed and In relation to the impairment of financial assets, as at 1 January 2018, the directors reviewed and assessed the Group’s existing trade receivables for impairment using reasonable and supportable assessed the Group’s existing trade receivables for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of IFRS information that is available without undue cost or effort in accordance with the requirements of IFRS 9 to determine the credit risk of the respective items at the date they were initially recognised. There 9 to determine the credit risk of the respective items at the date they were initially recognised. There is no additional credit loss recognised against retained earnings at 1 January 2018. In line with the is no additional credit loss recognised against retained earnings at 1 January 2018. In line with the transition guidance in IFRS 9 the Group has not restated the 2017 prior period on adoption. transition guidance in IFRS 9 the Group has not restated the 2017 prior period on adoption. The Group recognises lifetime expected credit losses for trade receivables. The expected credit losses The Group recognises lifetime expected credit losses for trade receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and loss experience, adjusted for factors that are specific to the debtors, general economic conditions and assessment of the current as well as the forecast direction of conditions at the reporting date. The assessment of the current as well as the forecast direction of conditions at the reporting date. The change from an incurred loss model under IAS 39 to an expected loss model has not had a material change from an incurred loss model under IAS 39 to an expected loss model has not had a material impact. impact. The directors determine the classification of the Group’s financial liabilities at initial recognition. 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 and are carried at amortised The Group’s financial liabilities are classified as trade and other payables and are carried at amortised cost. cost. 126 126 127 127 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Changes in accounting policies – IFRS 15 Changes in accounting policies – IFRS 15 Basis of consolidation Basis of consolidation From 1 January 2018, the Group has adopted IFRS 15 Revenue from Contracts with Customers. The From 1 January 2018, the Group has adopted IFRS 15 Revenue from Contracts with Customers. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised services to customers in an amount that reflects the consideration to which the entity expects to services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those services. The Group has adopted the five-step approach to the be entitled in exchange for those services. The Group has adopted the five-step approach to the timing of revenue recognition based on performance obligations in customer contracts. This involves timing of revenue recognition based on performance obligations in customer contracts. This involves identifying the contract with customers, identifying the performance obligations, determining identifying the contract with customers, identifying the performance obligations, determining the transaction price, allocating the price to the performance obligations within the contract and the transaction price, allocating the price to the performance obligations within the contract and recognising revenue when the performance obligations are satisfied. recognising revenue when the performance obligations are satisfied. The Group generates substantially all of its revenues from the technology and data processing fees The Group generates substantially all of its revenues from the technology and data processing fees and service fees that it charges to accommodation providers and the transaction service fees it and service fees that it charges to accommodation providers and the transaction service fees it charges to consumers. charges to consumers. The Group’s accounting policy under IFRS 15 is that revenue is recognised at the time the reservation The Group’s accounting policy under IFRS 15 is that 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 is made in respect of non-refundable commission on the basis that the Group has met its performance obligations at the time the booking is made. In respect of the free cancellation product, performance obligations at the time the booking is made. In respect of the free cancellation product, which offers the traveller the opportunity to make a booking on a free cancellation basis and to which offers the traveller the opportunity to make a booking on a free cancellation basis and to receive a refund of their deposit in certain circumstances, such related revenue is not recognised until receive a refund of their deposit in certain circumstances, such related revenue is not recognised until the last cancellation date has passed as one party can withdraw from the contract until such a date the last cancellation date has passed as one party can withdraw from the contract until such a date has passed. has passed. The Group also generates revenues from technology and data processing fees that it charges The Group also generates revenues from technology and data processing fees that it charges to providers of other travel products and associated transaction service fees, from cancellation to providers of other travel products and associated transaction service fees, from cancellation protection fees, payment protection fees and from advertising services. protection fees, payment protection fees and from advertising services. Where the Group provides an ancillary service to allow a flexible booking option which allows a Where the Group provides an ancillary service to allow a flexible booking option which allows a booking to be cancelled for no charge or a new booking to be made, such revenue is deferred, until booking to be cancelled for no charge or a new booking to be made, such revenue is deferred, until such time as the related cancellation date has passed or for a six month period from the date of such time as the related cancellation date has passed or for a six month period from the date of cancellation, at which time the credit expires. cancellation, at which time the credit expires. Ancillary advertising revenues are recognised over the period when the service is provided and Ancillary advertising revenues are recognised over the period when the service is provided and performance obligations are met. Revenue is measured at the fair value of the consideration received performance obligations are met. Revenue is measured at the fair value of the consideration received or receivable. or receivable. Revenue is stated net of discounts, sales taxes and value added taxes. Revenue is stated net of discounts, sales taxes and value added taxes. There is no material impact on the Group in relation to the adoption of this standard, due to the There is no material impact on the Group in relation to the adoption of this standard, due to the nature of the contracts in place with customers. In line with the transition guidance in IFRS 15 the nature of the contracts in place with customers. In line with the transition guidance in IFRS 15 the Group has not restated the 2017 prior period on adoption. Group has not restated the 2017 prior period on adoption. In 2018, the Group introduced a new free cancellation booking option to further broaden the Group’s In 2018, the Group introduced a new free cancellation booking option to further broaden the Group’s product offering. If the traveller cancels their free cancellation booking, within a specified period, product offering. If the traveller cancels their free cancellation booking, within a specified period, their deposit is refunded. The introduction of this booking option has led to a deferral of revenue their deposit is refunded. The introduction of this booking option has led to a deferral of revenue recognition. €2.9m of revenue generated during the year from free cancellation bookings has been recognition. €2.9m of revenue generated during the year from free cancellation bookings has been deferred (2017: €nil) and will be recognised in future years, net of any cancellations, when the last deferred (2017: €nil) and will be recognised in future years, net of any cancellations, when the last cancellation date has passed. All of the costs in relation to these bookings have been recognised in cancellation date has passed. All of the costs in relation to these bookings have been recognised in the current year. the current year. The consolidated financial statements incorporate the financial statements of the Company and The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company: entities controlled by the Company. Control is achieved where the Company: ► has power to govern the financial and operating policies of the investee; ► 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 ► 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. ► 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. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Business combinations Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for 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. 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 At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: their fair value at the acquisition date, except that: ► deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements ► 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 are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; Benefits respectively; ► liabilities or equity instruments related to share-based payment arrangements of the acquiree or ► 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 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 arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and the acquisition date; and ► assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non- ► 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 current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard. standard. Revenue recognition Revenue recognition The Group generates substantially all of its revenues from the technology and data processing fees The Group generates substantially all of its revenues from the technology and data processing fees and service fees that it charges to accommodation providers and the transaction service fees it and service fees that it charges to accommodation providers and the transaction service fees it charges to consumers. The Group also generates revenues from technology and data processing fees charges to consumers. The Group also generates revenues from technology and data processing fees that it charges to providers of other travel products and associated transaction service fees, from that it charges to providers of other travel products and associated transaction service fees, from cancellation protection fees, payment protection fees and from advertising services. cancellation protection fees, payment protection fees and from advertising services. Revenue is recognised at the time the reservation is made in respect of non-refundable commission Revenue is recognised at the time the reservation is made in respect of non-refundable commission on the basis that the Group has met its performance obligations at the time the booking is made. on the basis that the Group has met its performance obligations at the time the booking is made. In respect of the free cancellation product, which offers the traveller the opportunity to make a In respect of the free cancellation product, which offers the traveller the opportunity to make a booking on a free cancellation basis and to receive a refund of their deposit in certain circumstances, booking on a free cancellation basis and to receive a refund of their deposit in certain circumstances, such related revenue is not recognised until the last cancellation date has passed as one party can such related revenue is not recognised until the last cancellation date has passed as one party can withdraw from the contract until such a date has passed. withdraw from the contract until such a date has passed. 128 128 129 129 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue recognition (Continued) Revenue recognition (Continued) Taxation (Continued) Taxation (Continued) Where the Group provides an ancillary service to allow a flexible booking option which allows a Where the Group provides an ancillary service to allow a flexible booking option which allows a Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is booking to be cancelled for no charge or a new booking to be made, a portion of such revenue is booking to be cancelled for no charge or a new booking to be made, a portion of such revenue is settled or the asset is realised based on tax laws and rates that have been enacted or substantively settled or the asset is realised based on tax laws and rates that have been enacted or substantively deferred, until such time as the related cancellation date has passed or for a six month period from deferred, until such time as the related cancellation date has passed or for a six month period from enacted at the reporting date. Deferred tax is charged or credited in the consolidated income enacted at the reporting date. Deferred tax is charged or credited in the consolidated income the date of cancellation, at which time the credit expires. Advertising revenue and revenue from other the date of cancellation, at which time the credit expires. Advertising revenue and revenue from other statement, except when it relates to items charged or credited directly to equity, in which case the statement, except when it relates to items charged or credited directly to equity, in which case the services are recognised over the period when the service is performed. Revenue is measured at the services are recognised over the period when the service is performed. Revenue is measured at the deferred tax is also dealt with in equity. deferred tax is also dealt with in equity. fair value of the consideration received or receivable. fair value of the consideration received or receivable. Revenue is stated net of discounts, sales taxes and value added taxes. Revenue is stated net of discounts, sales taxes and value added taxes. Exceptional items Exceptional items Exceptional items by their nature and size can make interpretation of the underlying trends in the Exceptional items by their nature and size can make interpretation of the underlying trends in the business more difficult. Such items may include restructuring, material merger and acquisition costs, business more difficult. Such items may include restructuring, material merger and acquisition costs, profit or loss on disposal or termination of operations, litigation settlements, legislative changes and profit or loss on disposal or termination of operations, litigation settlements, legislative changes and profit or loss on disposal of investments. Judgment is used by the Group in assessing the particular 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. items which by virtue of their scale and nature should be disclosed as exceptional items. Operating leases Operating leases Leases where a significant proportion of the risks and rewards of ownership is retained by the lessor 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 the are classified as operating leases. Payments made under operating leases are recognised in the consolidated income statement on a straight-line basis over the term of the lease. Lease incentives consolidated income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the consolidated income statement as an integral part of the total lease received are recognised in the consolidated income statement as an integral part of the total lease expense and are spread over the life of the lease. expense and are spread over the life of the lease. Taxation Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date, and any adjustment to tax payable in respect of previous years. enacted by the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable future taxable profits will be available against which the temporary the extent that it is probable future taxable profits will be available against which the temporary difference can be utilised. difference can be utilised. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in 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 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. is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of 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. Such reductions are reversed when the probability of future taxable profits the asset to be recovered. Such reductions are reversed when the probability of future taxable profits improves. improves. Foreign currencies Foreign currencies The individual financial statements of each Group company are presented in the currency of the The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are the consolidated financial statements, the results and financial position of each Group company are expressed in euro, which is the functional currency of the parent company and the presentation expressed in euro, which is the functional currency of the parent company and the presentation currency for the consolidated financial statements. currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other 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 than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary items (including deferred revenue) at fair value that are denominated in foreign Non-monetary items (including deferred revenue) at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined in currencies are translated at the rates prevailing at the date when the fair value was determined in accordance with IFRIC 22. Non-monetary items that are measured in terms of historical cost in a accordance with IFRIC 22. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the consolidated income statement for the period. For the purpose monetary items, are included in the consolidated income statement for the period. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s operations of 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 are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the appropriate exchange rates for the period. Exchange differences arising, if any, translated 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 are recognised in other comprehensive income and accumulated in a separate component of equity (foreign currency translation reserve). Goodwill and fair value adjustments arising on the acquisition (foreign currency 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 of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. closing rate. Retirement benefits costs Retirement benefits costs Contributions made in respect of employees’ pension schemes are charged through the consolidated Contributions made in respect of employees’ pension schemes are charged through the consolidated income statement in the period they become payable. The Group pays contributions to privately income statement in the period they become payable. The Group pays contributions to privately administered pension insurance plans. The Group has no further payment obligations once the administered pension insurance plans. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. reduction in the future payments is available. Property, plant and equipment Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. impairment losses. 130 130 131 131 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Intangible assets (Continued) Intangible assets (Continued) (b) Other intangible assets (b) Other intangible assets The Group has four classes of intangible asset: domain names, technology assets, affiliate contracts The Group has four classes of intangible asset: domain names, technology assets, affiliate contracts and development costs. and development costs. Other intangible assets including domain names and computer software are capitalised at their cost Other intangible assets including domain names and computer software are capitalised at their cost and amortised to the consolidated income statement, generally on a straight line basis over their 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 estimated useful lives except for the Hostelbookers domain name which is amortised on a reducing balance basis (see note 11): balance basis (see note 11): - Domain names - Domain names - Technology assets - Technology assets - Affiliate contracts - Affiliate contracts - Capitalised development costs - Capitalised development costs 8-20 years 8-20 years 4 years 4 years 5 years 5 years 2-3 years 2-3 years The residual value associated with all intangible assets is deemed to be €nil. 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. 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 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 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 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; 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 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 to use the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. intangible asset during its development. The amount initially capitalised for internally-generated intangible assets is the sum of the 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 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 listed above. Where no internally-generated intangible asset can be recognised, development expenditure is charged through the consolidated income statement in the period in which it is expenditure is charged through the consolidated income statement in the period in which it is incurred. incurred. Property, plant and equipment (Continued) Property, plant and equipment (Continued) Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using 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 are the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. basis. Depreciation is provided on the following basis: Depreciation is provided on the following basis: Leasehold property improvements Leasehold property improvements Computer equipment Computer equipment Fixtures and equipment Fixtures and equipment : : : : : : 5-10 years straight line 5-10 years straight line 4-5 years straight line 4-5 years straight line 6-7 years straight line 6-7 years straight line Leasehold improvements are improvements made to buildings leased by the Group when it has the 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 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. to the lessor at the expiration of the lease. The cost of a leasehold improvement is depreciated over the shorter of: The cost of a leasehold improvement is depreciated over the shorter of: 1. the remaining lease term, or 1. the remaining lease term, or 2. the estimated useful life of the improvement. 2. the estimated useful life of the improvement. Intangible assets Intangible assets (a) Goodwill (a) Goodwill Goodwill is initially measured as the excess of the cost of the business combination over the Group’s 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 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 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 separately from goodwill. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. accumulated impairment losses. Where the fair value of the interest acquired in an entity’s assets, liabilities and contingent liabilities 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 exceeds the consideration paid, the excess is recognised immediately as a gain in the consolidated income statement. income statement. Goodwill is reviewed for impairment annually or more frequently if events or changes in Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicated that the carrying value may be impaired. circumstances indicated that the carrying value may be impaired. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (“CGU”) that is expected to benefit from the synergies of the combination. units (“CGU”) that is expected to benefit from the synergies of the combination. If the recoverable amount of the cash-generating unit is less than its carrying amount, the If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis based on the carrying amount of each and then to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss recognised for goodwill is not reversed in subsequent periods. statement. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in 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. the determination of the profit or loss on disposal. 132 132 133 133 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of tangible and intangible assets other than goodwill Impairment of tangible and intangible assets other than goodwill At the end of each reporting period, the directors review the carrying amounts of the Group’s At the end of each reporting period, the directors review the carrying amounts of the Group’s tangible and intangible assets to determine whether there is any indication that those assets have 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 suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the directors estimate the recoverable to estimate the recoverable amount of an individual asset, the directors estimate the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. 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 Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the rate that reflects current market assessments of the time value of money and the risks specific to the asset. asset. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its 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 recoverable amount. An impairment loss is recognised immediately in the consolidated income statement, unless the relevant asset is carried at a revalued amount, in which case the impairment statement, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash- 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 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 carrying amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or the cash-generating unit) in prior years. A reversal impairment loss been recognised for the asset (or the cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the consolidated income statement, unless the of an impairment loss is recognised immediately in the consolidated income statement, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. treated as a revaluation increase. Financial instruments Financial instruments (a) Financial assets (a) Financial assets The directors determine the classification of the Group’s financial assets at initial recognition based The directors determine the classification of the Group’s financial assets at initial recognition based on IFRS 9 categories and classification criteria. The Group has one financial asset held within ‘Trade on IFRS 9 categories and classification criteria. The Group has one financial asset held within ‘Trade and other receivables’. and other receivables’. After initial measurement at fair value plus transaction costs, financial assets are subsequently After initial measurement at fair value plus transaction costs, financial assets are subsequently carried at amortised cost using the effective interest method. carried at amortised cost using the effective interest method. Trade and other receivables are non-derivative financial assets with fixed or determinable payments Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current greater than 12 months after the end of the reporting period, which are classified as non-current assets. assets. Financial instruments (Continued) Financial instruments (Continued) (b) Expected credit loss of financial assets (b) Expected credit loss of financial assets In accordance with IFRS 9, the directors assess the credit risk of financial assets on the date they are In accordance with IFRS 9, the directors assess the credit risk of financial assets on the date they are initially recognised. If objective evidence of a credit risk is identified, the Group recognises the lifetime initially recognised. If objective evidence of a credit risk is identified, the Group recognises the lifetime expected credit losses for those assets. Expected credit losses are reported in the consolidated expected credit losses for those assets. Expected credit losses are reported in the consolidated income statement. income statement. (c) Financial liabilities (c) Financial liabilities The directors determine the classification of the Group’s financial liabilities at initial recognition. 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 and are carried at amortised The Group’s financial liabilities are classified as trade and other payables and are carried at amortised cost. cost. (d) Cash and cash equivalents (d) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short- 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. term highly liquid investments with original maturities of three months or less. Share-based payments Share-based payments Equity-settled share-based payments to employees are measured at the fair value of the equity 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 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 conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 18. transactions are set out in note 18. The fair value determined at the grant date of the equity-settled share-based payments is expensed The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments 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 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. 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 consolidated income 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 statement such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share based payment reserve. adjustment to the share based payment reserve. Dividends Dividends Final dividends are recorded in the Group’s accounts in the period in which they are approved by the Final dividends are recorded in the Group’s accounts in the period in which they are approved by the Company’s shareholders. Interim dividends are recorded in the period in which they are paid. 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 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, the directors are required to make judgements, In the application of the Group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily 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 apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors considered relevant. Actual results may differ from these estimates. 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 (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: recognised in the consolidated financial statements are set out below: 134 134 135 135 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY 4. REVENUE & SEGMENTAL ANALYSIS 4. REVENUE & SEGMENTAL ANALYSIS (CONTINUED) (CONTINUED) Capitalisation of development costs Capitalisation of development costs Development costs are capitalised in accordance with accounting policies in Note 2. Determining the 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 amount to be capitalised requires the directors to make assumptions regarding expected future cash generation of the asset and expected period of benefit. generation of the asset and expected period of benefit. Tax provisioning Tax provisioning The Group, as a global business, is subject to both international and local transfer pricing legislation. 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 The directors review the transfer pricing position to ensure any potential exposure is adequately assessed. assessed. (b) Key sources of estimation that have been made that have the most significant effect on the amounts (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: recognised in the consolidated financial statements are set out below: Useful lives for amortisation of intangible assets Useful lives for amortisation of intangible assets Intangible assets are disclosed in note 11. The amortisation charge is dependent on the estimated Intangible assets are disclosed in note 11. The amortisation charge is dependent on the estimated useful lives of the assets. The directors regularly review estimated useful lives of each type of useful lives of the assets. The directors regularly review estimated useful lives of each type of intangible asset and change them as necessary to reflect its current assessment of remaining lives intangible asset and change them as necessary to reflect its current assessment of remaining lives and the expected pattern of future economic benefit embodied in the asset. Changes in asset lives and the expected pattern of future economic benefit embodied in the asset. Changes in asset lives can have a significant impact on the amortisation charges for that year. can have a significant impact on the amortisation charges for that year. Impairment of goodwill and intangible assets Impairment of goodwill and intangible assets The Group is managed as a single business unit which provides software and data processing The Group is managed as a single business unit which provides software and data processing services that facilitate hostel, hotel and other accommodation worldwide, including ancillary online services that facilitate hostel, hotel and other accommodation worldwide, including ancillary online advertising revenue. advertising revenue. The directors determine and present operating segments based on the information that is provided The directors determine and present operating segments based on the information that is provided internally to the Chief Executive Officer, who is the Company’s Chief Operating Decision Maker internally to the Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”). When making resource allocation decisions, the CODM evaluates booking numbers (“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 and average booking value. The objective in making resource allocation decisions is to maximise consolidated financial results. consolidated financial results. The CODM assesses the performance of the business based on the consolidated adjusted profit/ (loss) 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 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 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. core operations, such as the impairment of intangible assets and one-off items of expenditure. All revenue is derived wholly from external customers and is generated from a large number of All revenue is derived wholly from external customers and is generated from a large number of customers, none of whom is individually significant. customers, none of whom is individually significant. The Group’s major revenue-generating asset class comprises its software and data processing 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 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 managed as a single business unit, all other assets and liabilities have been allocated to the Group’s single reportable segment. single reportable segment. There have been no changes to the basis of segmentation or the measurement basis for the segment There have been no changes to the basis of segmentation or the measurement basis for the segment The directors assess annually whether goodwill has suffered any impairment, in accordance with The directors assess annually whether goodwill has suffered any impairment, in accordance with profit or loss. profit or loss. the relevant accounting policy and intangible assets are assessed for possible impairment where the relevant accounting policy and intangible assets are assessed for possible impairment where indicators of impairment exist. The recoverable amounts of cash-generating units (“CGUs”) are indicators of impairment exist. The recoverable amounts of cash-generating units (“CGUs”) are Reportable segment information is presented as follows: Reportable segment information is presented as follows: determined based on value-in-use calculations that require the use of estimates. determined based on value-in-use calculations that require the use of estimates. The value-in-use calculations are prepared using cash flow projections based on three year budgets The value-in-use calculations are prepared using cash flow projections based on three year budgets approved by the directors and extended out for a further 2 years. The cash flow projections take into approved by the directors and extended out for a further 2 years. The cash flow projections take into account key assumptions including historical trading performance, anticipated changes in future account key assumptions including historical trading performance, anticipated changes in future market conditions, industry and economic factors and business strategies. market conditions, industry and economic factors and business strategies. Further details on the assumptions used are set out in note 11. Further details on the assumptions used are set out in note 11. Deferred Tax Deferred Tax Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that 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 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 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. likely timing and level of future taxable profits. Europe Europe Americas Americas Asia, Africa and Oceania Asia, Africa and Oceania Total revenue Total revenue 2018 2018 €’000 €’000 49,060 49,060 15,149 15,149 17,878 17,878 82,087 82,087 2017 2017 €’000 €’000 52,114 52,114 16,196 16,196 18,362 18,362 86,672 86,672 As at 31 December 2018, €2,892k of revenue relating to free cancellation bookings has been deferred As at 31 December 2018, €2,892k of revenue relating to free cancellation bookings has been deferred (2017: €nil). (2017: €nil). Disaggregation of revenue is presented as follows: Disaggregation of revenue is presented as follows: Technology and data processing fees Technology and data processing fees Advertising revenue and ancillary services Advertising revenue and ancillary services Total revenue Total revenue 2018 2018 €’000 €’000 79,696 79,696 2,391 2,391 82,087 82,087 2017 2017 €’000 €’000 84,517 84,517 2,155 2,155 86,672 86,672 136 136 137 137 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 4. REVENUE & SEGMENTAL ANALYSIS (CONTINUED) 4. REVENUE & SEGMENTAL ANALYSIS (CONTINUED) 5. OPERATING EXPENSES (CONTINUED) 5. OPERATING EXPENSES (CONTINUED) In the year ended 31 December 2018, the Group generated 97% (2017: 98%) of its revenues from the In the year ended 31 December 2018, the Group generated 97% (2017: 98%) of its revenues from the Auditors’ remuneration Auditors’ remuneration technology and data processing fees that it charged to accommodation providers. technology and data processing fees that it charged to accommodation providers. Revenue is recognised at the time the reservation is made in respect of non-refundable commission Revenue is recognised at the time the reservation is made in respect of non-refundable commission on the basis that the Group has met its performance obligations at the time the booking is made. on the basis that the Group has met its performance obligations at the time the booking is made. In respect of the free cancellation product, which offers the traveller the opportunity to make a In respect of the free cancellation product, which offers the traveller the opportunity to make a booking on a free cancellation basis and to receive a refund of their deposit in certain circumstances, booking on a free cancellation basis and to receive a refund of their deposit in certain circumstances, such related revenue is not recognised until the last cancellation date has passed as one party such related revenue is not recognised until the last cancellation date has passed as one party can withdraw from the contract until such a date has passed. Deferred revenue is expected to be can withdraw from the contract until such a date has passed. Deferred revenue is expected to be recognised within twelve months of initial recognition. recognised within twelve months of initial recognition. Advertising revenue and revenue generated from other services are recognised over the period when Advertising revenue and revenue generated from other services are recognised over the period when the service is performed. the service is performed. The Group’s non-current assets are located in Ireland, Luxembourg, Portugal and the UK. Out of the The Group’s non-current assets are located in Ireland, Luxembourg, Portugal and the UK. Out of the total non-current assets in the Group of €121,081k (2017: €132,362k), the non-current assets of the total non-current assets in the Group of €121,081k (2017: €132,362k), the non-current assets of the Group located in the UK are €1,654k (2017: €2,659k) and in Portugal are €623k (2017: €617k). Group located in the UK are €1,654k (2017: €2,659k) and in Portugal are €623k (2017: €617k). 5. OPERATING EXPENSES 5. OPERATING EXPENSES Profit for the year has been arrived at after charging/ (crediting) the following operating costs: Profit for the year has been arrived at after charging/ (crediting) the following operating costs: Marketing expenses Marketing expenses Staff costs Staff costs Credit card processing fees Credit card processing fees Exceptional items Exceptional items FX loss/ (gain) FX loss/ (gain) Other administrative costs Other administrative costs Total administrative expenses Total administrative expenses Depreciation of tangible fixed assets Depreciation of tangible fixed assets Amortisation of intangible fixed assets Amortisation of intangible fixed assets Total operating expenses Total operating expenses Notes Notes 7 7 6 6 12 12 11 11 2018 2018 €’000 €’000 31,203 31,203 17,179 17,179 2,379 2,379 1,590 1,590 64 64 9,524 9,524 61,939 61,939 1,232 1,232 12,221 12,221 75,392 75,392 2017 2017 €’000 €’000 33,068 33,068 17,543 17,543 2,048 2,048 (494) (494) (102) (102) 8,317 8,317 60,380 60,380 1,064 1,064 13,331 13,331 74,775 74,775 During the year, the Group obtained the following services from its Auditors: During the year, the Group obtained the following services from its Auditors: Fees payable for the statutory audit of the Company Fees payable for the statutory audit of the Company Fees payable for other services: Fees payable for other services: - statutory audit of subsidiary undertakings - statutory audit of subsidiary undertakings - tax advisory services - tax advisory services - other assurance services - other assurance services - corporate finance services - corporate finance services - other services - other services Total Total 6. EXCEPTIONAL ITEMS 6. EXCEPTIONAL ITEMS Restructuring costs Restructuring costs Merger and acquisition credit Merger and acquisition credit Total Total 2018 2018 €’000 €’000 41 41 96 96 - - - - - - 2 2 2017 2017 €’000 €’000 35 35 115 115 - - - - - - 4 4 139 139 154 154 2018 2018 €’000 €’000 1,590 1,590 - - 1,590 1,590 2017 2017 €’000 €’000 - - (494) (494) (494) (494) Restructuring costs of €1,590k include costs relating to the restructure of the senior management Restructuring costs of €1,590k include costs relating to the restructure of the senior management team and an internal reorganisation of the Group’s non-current assets (see note 23). The credit team and an internal reorganisation of the Group’s non-current assets (see note 23). The credit of €494k in 2017 relates to the release of an accrual relating to previously recognised merger and of €494k in 2017 relates to the release of an accrual relating to previously recognised merger and acquisition costs within the Group. acquisition costs within the Group. 7. STAFF COSTS 7. STAFF COSTS The average monthly number of people employed (including executive directors) was as follows: The average monthly number of people employed (including executive directors) was as follows: Average number of persons employed Average number of persons employed Administration and sales Administration and sales Development and information technology Development and information technology Total Total 2018 2018 2017 2017 188 188 106 106 294 294 165 165 89 89 254 254 138 138 139 139 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 7. STAFF COSTS (CONTINUED) 7. STAFF COSTS (CONTINUED) 9. TAXATION (CONTINUED) 9. TAXATION (CONTINUED) The aggregate remuneration costs of these employees is analysed as follows: The aggregate remuneration costs of these employees is analysed as follows: Notes Notes 2018 2018 €’000 €’000 2017 2017 €’000 €’000 Staff costs comprise: Staff costs comprise: Wages and salaries Wages and salaries Social security costs Social security costs Pensions costs Pensions costs Other benefits Other benefits Long-term employee incentive (credit)/costs Long-term employee incentive (credit)/costs 18 18 Capitalised development labour Capitalised development labour Total Total 8. FINANCIAL COSTS 8. FINANCIAL COSTS Bank charges Bank charges Total Total 9. TAXATION 9. TAXATION 16,194 16,194 1,889 1,889 389 389 711 711 (346) (346) (1,658) (1,658) 17,179 17,179 2018 2018 €’000 €’000 63 63 63 63 16,073 16,073 1,800 1,800 356 356 438 438 623 623 (1,747) (1,747) 17,543 17,543 2017 2017 €’000 €’000 75 75 75 75 Notes Notes 2018 2018 €’000 €’000 2017 2017 €’000 €’000 Corporation tax: Corporation tax: Current year Current year Adjustments in respect of prior years Adjustments in respect of prior years Total Total Deferred tax charge/ (credit) Deferred tax charge/ (credit) 13 13 Total Total 776 776 (1) (1) 775 775 186 186 961 961 686 686 24 24 710 710 (128) (128) 582 582 Corporation tax is calculated at 12.5% (2017: 12.5%) of the estimated taxable profit for the year. Corporation tax is calculated at 12.5% (2017: 12.5%) of the estimated taxable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The 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: charge for the year can be reconciled to the consolidated income statement as follows: Profit before tax on continuing operations Profit before tax on continuing operations Tax at the Irish corporation tax rate of 12.5% (2017: 12.5%) Tax at the Irish corporation tax rate of 12.5% (2017: 12.5%) Effects of : Effects of : Tax effect of expenses that are not deductible in determining taxable profit Tax effect of expenses that are not deductible in determining taxable profit Tax effect of utilisation of tax losses not previously recognised Tax effect of utilisation of tax losses not previously recognised Capital allowances in excess of depreciation Capital allowances in excess of depreciation Effect of different tax rates of subsidiaries operating in other jurisdictions Effect of different tax rates of subsidiaries operating in other jurisdictions Reversal of deferred tax asset on tax losses Reversal of deferred tax asset on tax losses Adjustments in respect of prior years Adjustments in respect of prior years Total Total The tax losses arise primarily from the previous capital structure of the Group. The tax losses arise primarily from the previous capital structure of the Group. 2018 2018 €’000 €’000 2017 2017 €’000 €’000 6,652 6,652 11,831 11,831 832 832 1,479 1,479 622 622 (827) (827) (283) (283) 201 201 417 417 (1) (1) 961 961 515 515 (1,662) (1,662) (293) (293) 299 299 220 220 24 24 582 582 The Group has an unrecognised deferred tax asset as at 31 December 2018 of €3,476k (31 December The Group has an unrecognised deferred tax asset as at 31 December 2018 of €3,476k (31 December 2017: €3,125k) which has not been recognised in the consolidated financial statements as there is 2017: €3,125k) which has not been recognised in the consolidated financial statements as there is insufficient evidence that the asset will be recovered in the foreseeable future. insufficient evidence that the asset will be recovered in the foreseeable future. 10. EARNINGS PER SHARE 10. EARNINGS PER SHARE Basic earnings per share is computed by dividing the net profit for the year available to ordinary 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. shareholders by the weighted average number of ordinary shares outstanding during the year. Weighted average number of shares in issue (‘000s) Weighted average number of shares in issue (‘000s) Profit for the year (€’000s) Profit for the year (€’000s) Basic earnings euro cent per share Basic earnings euro cent per share 2018 2018 95,571 95,571 5,691 5,691 5.95 5.95 2017 2017 95,571 95,571 11,249 11,249 11.77 11.77 Diluted earnings per share is computed by dividing the net profit for the year by the weighted average 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 number of ordinary shares outstanding and, when dilutive, adjusted for the effect of all potentially ordinary shares. ordinary shares. Weighted average number of ordinary shares in issue (‘000s) Weighted average number of ordinary shares in issue (‘000s) Effect of dilutive potential ordinary shares: Effect of dilutive potential ordinary shares: Share options (‘000s) Share options (‘000s) Weighted average number of ordinary shares for the purpose of Weighted average number of ordinary shares for the purpose of diluted earnings per share (‘000s) diluted earnings per share (‘000s) Diluted earnings euro cent per share Diluted earnings euro cent per share 2018 2018 95,571 95,571 2017 2017 95,571 95,571 11 11 473 473 95,582 95,582 5.95 5.95 96,044 96,044 11.71 11.71 Actual earnings per share, calculated by dividing the net profit attributable to ordinary shareholders Actual earnings per share, calculated by dividing the net profit attributable to ordinary shareholders by the actual number of ordinary shares in issue at 31 December 2018, is 5.95 euro cent (2017: by the actual number of ordinary shares in issue at 31 December 2018, is 5.95 euro cent (2017: earnings per share of 11.77 euro cent). earnings per share of 11.77 euro cent). 140 140 141 141 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 11. INTANGIBLE ASSETS 11. INTANGIBLE ASSETS 11. INTANGIBLE ASSETS (CONTINUED) 11. INTANGIBLE ASSETS (CONTINUED) The table below shows the movements in intangible assets for the year: The table below shows the movements in intangible assets for the year: Goodwill Goodwill Goodwill Goodwill €’000 €’000 Domain Domain Names Names €’000 €’000 Technology Technology €’000 €’000 Affiliates Affiliates Contracts Contracts €’000 €’000 Capitalised Capitalised Development Development Costs Costs €’000 €’000 Total Total €’000 €’000 Cost Cost Balance at 1 January 2017 Balance at 1 January 2017 47,274 47,274 214,640 214,640 13,814 13,814 5,500 5,500 8,120 8,120 289,348 289,348 Additions Additions - - - - 73 73 - - 1,747 1,747 1,820 1,820 Balance at 31 December 2017 Balance at 31 December 2017 47,274 47,274 214,640 214,640 13,887 13,887 5,500 5,500 9,867 9,867 291,168 291,168 Balance at 1 January 2018 Balance at 1 January 2018 47,274 47,274 214,640 214,640 13,887 13,887 5,500 5,500 9,867 9,867 291,168 291,168 Additions Additions - - - - 181 181 - - 1,658 1,658 1,839 1,839 Balance at 31 December 2018 Balance at 31 December 2018 47,274 47,274 214,640 214,640 14,068 14,068 5,500 5,500 11,525 11,525 293,007 293,007 Accumulated amortisation Accumulated amortisation and impairment and impairment Balance at 1 January 2017 Balance at 1 January 2017 (29,426) (29,426) (96,304) (96,304) (13,445) (13,445) (5,500) (5,500) (5,054) (5,054) (149,729) (149,729) The goodwill balance at 31 December 2018 relates to an investment in Hostelworld.com Limited in The goodwill balance at 31 December 2018 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 2009 which resulted in a goodwill amount of €17,848k. The carrying value of this balance as at 31 December 2018 is €17,848k (2017: €17,848k). December 2018 is €17,848k (2017: €17,848k). Goodwill, which has an indefinite useful life, is subject to annual impairment testing, or more frequent Goodwill, which has an indefinite useful life, is subject to annual impairment testing, or more frequent testing if there are indicators of impairment. The recoverable amounts of the cash generating units testing if there are indicators of impairment. The recoverable amounts of the cash generating units (“CGUs”) are determined from value in use calculations. The cash flow projections are initially based (“CGUs”) are determined from value in use calculations. The cash flow projections are initially based on the three year budgets approved by the directors and extended out for a further 2 years. The on the three year budgets approved by the directors and extended out for a further 2 years. The cash flow projections take into account key assumptions including historical trading performance, cash flow projections take into account key assumptions including historical trading performance, anticipated changes in future market conditions, industry and economic factors and business anticipated changes in future market conditions, industry and economic factors and business strategies. strategies. The pre-tax discount rate which has been applied in determining value in use is 10.8% (2017: 10.7%). The pre-tax discount rate which has been applied in determining value in use is 10.8% (2017: 10.7%). The discount rate is based on the Group estimated weighted average cost of capital adjusted for the The discount rate is based on the Group estimated weighted average cost of capital adjusted for the business specific risk of the CGU. The revised discount rate in 2018 was calculated from first principles business specific risk of the CGU. The revised discount rate in 2018 was calculated from first principles by a third party professional advisor. Growth rates are assessed based on the approved three year by a third party professional advisor. Growth rates are assessed based on the approved three year 2019 budget and over the two year forecast period after 2021, they range from 5% to 6%. Cash flows 2019 budget and over the two year forecast period after 2021, they range from 5% to 6%. Cash flows beyond the 5 year period are extrapolated using the estimated long- term growth rate of 2.8% (2017: beyond the 5 year period are extrapolated using the estimated long- term growth rate of 2.8% (2017: 2.5%). This long term growth rate was calculated using global rates by a third party professional 2.5%). This long term growth rate was calculated using global rates by a third party professional Charge for year Charge for year - - (10,149) (10,149) (257) (257) - - (2,925) (2,925) (13,331) (13,331) advisor. advisor. Balance at 31 December 2017 Balance at 31 December 2017 (29,426) (29,426) (106,453) (106,453) (13,702) (13,702) (5,500) (5,500) (7,979) (7,979) (163,060) (163,060) Balance at 1 January 2018 Balance at 1 January 2018 (29,426) (106,453) (29,426) (106,453) (13,702) (13,702) (5,500) (5,500) (7,979) (7,979) (163,060) (163,060) statements. statements. There are no reasonably possible or material changes to the assumptions presented above that There are no reasonably possible or material changes to the assumptions presented above that would result in any further impairment recorded in each of the years presented in these financial would result in any further impairment recorded in each of the years presented in these financial Charge for year Charge for year - - (10,247) (10,247) (106) (106) - - (1,868) (1,868) (12,221) (12,221) Balance at 31 December 2018 Balance at 31 December 2018 (29,426) (116,700) (29,426) (116,700) (13,808) (13,808) (5,500) (5,500) (9,847) (9,847) (175,281) (175,281) Carrying amount Carrying amount At 31 December 2017 At 31 December 2017 17,848 17,848 108,187 108,187 At 31 December 2018 At 31 December 2018 17,848 17,848 97,940 97,940 185 185 260 260 - - - - 1,888 1,888 128,108 128,108 1,678 1,678 117,726 117,726 Following impairment testing, no impairment was recognised for goodwill in 2018. Following impairment testing, no impairment was recognised for goodwill in 2018. Other Intangible Assets Other Intangible Assets Additions during the year comprised of internally generated additions of €1,658k (2017: €1,747k) and Additions during the year comprised of internally generated additions of €1,658k (2017: €1,747k) and other separately acquired additions of €181k (2017: €73k). other separately acquired additions of €181k (2017: €73k). There were no indicators to require an impairment test of intangible assets in the current year. There were no indicators to require an impairment test of intangible assets in the current year. In 2018, as a result of a strategic review of the business by the directors, the estimated useful life In 2018, as a result of a strategic review of the business by the directors, the estimated useful life of the Hostels.com domain name was reduced to a period of 12 months from 1 July 2018, to be of the Hostels.com domain name was reduced to a period of 12 months from 1 July 2018, to be amortised on a straight line basis. This had a result of increasing the amortisation charge relating to amortised on a straight line basis. This had a result of increasing the amortisation charge relating to Hostels.com by €305k in 2018 and similarly increasing this amortisation charge by the same amount Hostels.com by €305k in 2018 and similarly increasing this amortisation charge by the same amount in 2019. Management considers that this change in relation to Hostels.com domain name does not in 2019. Management considers that this change in relation to Hostels.com domain name does not have implications on goodwill. have implications on goodwill. 142 142 143 143 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 12. PROPERTY, PLANT AND EQUIPMENT 12. PROPERTY, PLANT AND EQUIPMENT 13. DEFERRED TAXATION 13. DEFERRED TAXATION The table below shows the movements in property, plant and equipment for the year: The table below shows the movements in property, plant and equipment for the year: The following are the major deferred taxation liabilities and assets recognised by the Group and The following are the major deferred taxation liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period: movements thereon during the current and prior reporting period: Leasehold Leasehold Property Property Improvements Improvements €’000 €’000 Fixtures & Fixtures & Equipment Equipment €’000 €’000 Computer Computer Equipment Equipment €’000 €’000 Cost Cost Balance at 1 January 2017 Balance at 1 January 2017 Additions Additions Disposals Disposals Balance at 31 December 2017 Balance at 31 December 2017 Balance at 1 January 2018 Balance at 1 January 2018 Additions Additions Disposals Disposals Balance at 31 December 2018 Balance at 31 December 2018 Accumulated depreciation Accumulated depreciation Balance at 1 January 2017 Balance at 1 January 2017 Charge for year Charge for year Disposals Disposals Balance at 31 December 2017 Balance at 31 December 2017 Balance at 1 January 2018 Balance at 1 January 2018 Charge for year Charge for year Disposals Disposals Balance at 31 December 2018 Balance at 31 December 2018 Carrying amount Carrying amount At 31 December 2017 At 31 December 2017 At 31 December 2018 At 31 December 2018 1,279 1,279 474 474 - - 1,753 1,753 1,753 1,753 102 102 - - 1,855 1,855 (213) (213) (167) (167) - - (380) (380) (380) (380) (272) (272) - - (652) (652) 1,373 1,373 1,203 1,203 689 689 98 98 - - 787 787 787 787 36 36 - - 823 823 (189) (189) (126) (126) - - (315) (315) (315) (315) (120) (120) - - (435) (435) 472 472 388 388 1,929 1,929 1,665 1,665 3,774 3,774 3,256 3,256 Total Total €’000 €’000 4,591 4,591 1,780 1,780 (85) (85) 6,286 6,286 6,286 6,286 714 714 (83) (83) 6,917 6,917 (1,533) (1,533) (1,064) (1,064) 85 85 (2,512) (2,512) (2,512) (2,512) (1,232) (1,232) 83 83 (3,661) (3,661) As at 1 January 2017 As at 1 January 2017 Credited/ (charged) to the income statement Credited/ (charged) to the income statement As at 1 January 2018 As at 1 January 2018 (Charged)/ credited to the income statement (Charged)/ credited to the income statement As at 31 December 2018 As at 31 December 2018 Accelerated Accelerated Taxation Taxation Depreciation Depreciation €’000 €’000 Taxation Taxation Losses Losses €’000 €’000 (742) (742) 348 348 (394) (394) 231 231 (163) (163) 637 637 (220) (220) 417 417 (417) (417) - - The following is the analysis of the deferred taxation balances for financial reporting purposes: The following is the analysis of the deferred taxation balances for financial reporting purposes: Deferred taxation assets Deferred taxation assets Deferred taxation liabilities Deferred taxation liabilities Net deferred taxation (liabilities)/ assets Net deferred taxation (liabilities)/ assets 2018 2018 €’000 €’000 99 99 (262) (262) (163) (163) Total Total €’000 €’000 (105) (105) 128 128 23 23 (186) (186) (163) (163) 2017 2017 €’000 €’000 480 480 (457) (457) 23 23 Deferred taxation assets and liabilities are measured at the tax rates that are expected to apply in the 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 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. substantially enacted at the reporting date. The Irish standard rate of corporation tax continued to be 12.5% through the period and comparative 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 2018 was 26.01% (2017: 27.08%). The tax rate ruling in periods. The tax rate ruling in Luxembourg for 2018 was 26.01% (2017: 27.08%). 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. the UK was 20% up to 1 April 2017 when it reduced to 19%, and will reduce to 17% on 1 April 2020. 2,623 2,623 1,208 1,208 (85) (85) 3,746 3,746 3,746 3,746 576 576 (83) (83) 4,239 4,239 (1,131) (1,131) (771) (771) 85 85 (1,817) (1,817) (1,817) (1,817) (840) (840) 83 83 (2,574) (2,574) 144 144 145 145 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 14. TRADE AND OTHER RECEIVABLES 14. TRADE AND OTHER RECEIVABLES 17. COMMITMENTS AND CONTINGENCIES 17. COMMITMENTS AND CONTINGENCIES Amounts falling due within one year Amounts falling due within one year Trade receivables Trade receivables Prepayments Prepayments Value Added Tax Value Added Tax Total Total 2018 2018 €’000 €’000 2017 2017 €’000 €’000 1,067 1,067 804 804 943 943 2,814 2,814 1,017 1,017 932 932 2,017 2,017 3,966 3,966 The carrying value of trade and other receivables also represents their fair value. Trade receivables The carrying value of trade and other receivables also represents their fair value. Trade receivables are non-interest bearing and trade receivable days are 5 days (2017: 4 days). Given the nature of the are non-interest bearing and trade receivable days are 5 days (2017: 4 days). Given the nature of the business, allowance for impairment of receivables is not material. business, allowance for impairment of receivables is not material. 15. SHARE CAPITAL 15. SHARE CAPITAL Allotted, Called-up and fully paid Allotted, Called-up and fully paid 95,570,778 ordinary shares of €0.01 each 95,570,778 ordinary shares of €0.01 each (2017: 95,570,778 ordinary shares of €0.01 each) (2017: 95,570,778 ordinary shares of €0.01 each) Total Total 2018 2018 €’000 €’000 2017 2017 €’000 €’000 956 956 956 956 956 956 956 956 The Group has one class of ordinary shares which carry no right to fixed income. The share capital 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 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 company was incorporated on 9 October 2015 to act as the holding company of the Group, and as a management services company. management services company. 16. TRADE AND OTHER PAYABLES 16. TRADE AND OTHER PAYABLES Amounts falling due within one year Amounts falling due within one year Trade payables Trade payables Accruals and other payables Accruals and other payables Deferred revenue Deferred revenue Payroll taxes Payroll taxes Total Total 2018 2018 €’000 €’000 2017 2017 €’000 €’000 2,361 2,361 5,937 5,937 4,095 4,095 553 553 12,946 12,946 2,265 2,265 5,273 5,273 1,734 1,734 560 560 9,832 9,832 At 31 December 2018, €2,892k deferred revenue related to free cancellation bookings is included in At 31 December 2018, €2,892k deferred revenue related to free cancellation bookings is included in Deferred revenue (2017: €nil). Deferred revenue (2017: €nil). The average credit period for the Group in respect of trade payables is 21 days (2017: 20 days). The average credit period for the Group in respect of trade payables is 21 days (2017: 20 days). The directors consider that the carrying amount of trade payables approximates to their fair value. The directors consider that the carrying amount of trade payables approximates to their fair value. (i) Operating Leases (i) Operating Leases At the reporting date, the Group had commitments under non-cancellable operating leases which fall At the reporting date, the Group had commitments under non-cancellable operating leases which fall due as follows: due as follows: Operating leases Operating leases Within one year Within one year Within two to five years Within two to five years More than five years More than five years Total Total 2018 2018 €’000 €’000 2017 2017 €’000 €’000 1,124 1,124 2,653 2,653 725 725 4,502 4,502 1,017 1,017 3,077 3,077 1,294 1,294 5,388 5,388 All operating lease commitments relate to buildings. These relate to four leases of office space All operating lease commitments relate to buildings. These relate to four leases of office space in Ireland, UK, Portugal and China. These leases are due to expire in 2035, 2025, 2022 and 2020 in Ireland, UK, Portugal and China. These leases are due to expire in 2035, 2025, 2022 and 2020 respectively. If the Group was to exercise available break options, the leases in Ireland and the UK respectively. If the Group was to exercise available break options, the leases in Ireland and the UK would expire in 2025 and 2020 respectively. would expire in 2025 and 2020 respectively. The operating lease charge included in the consolidated income statement was €1,144k in 2018 (2017: The operating lease charge included in the consolidated income statement was €1,144k in 2018 (2017: €1,040k). €1,040k). IFRS 16 Impact IFRS 16 Impact Note 2 contains details of the impact of IFRS 16 Leases on the Group, which is effective from 1 January Note 2 contains details of the impact of IFRS 16 Leases on the Group, which is effective from 1 January 2019. 2019. (ii) Contingencies (ii) Contingencies In the normal course of business the Group may be subject to indirect taxes on its services in certain 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 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 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 provision has been made in relation to these taxes as the directors believe that it is not probable that a material liability will arise. a material liability will arise. 146 146 147 147 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 18. SHARE-BASED PAYMENTS 18. SHARE-BASED PAYMENTS Long Term Incentive Plan (“LTIP”) scheme Long Term Incentive Plan (“LTIP”) scheme 18. SHARE-BASED PAYMENTS (CONTINUED) 18. SHARE-BASED PAYMENTS (CONTINUED) Fair value of options granted during the year: Fair value of options granted during the year: In April 2016, the Group introduced a Long Term Incentive Plan for executive directors and selected In April 2016, the Group introduced a Long Term Incentive Plan for executive directors and selected At the grant date, the fair value per conditional award and the assumptions used in the calculations At the grant date, the fair value per conditional award and the assumptions used in the calculations management. The proportion of each award which vests, will depend on the Adjusted Earnings per management. The proportion of each award which vests, will depend on the Adjusted Earnings per are as follows: are as follows: Share (“EPS”) performance and Total Shareholder Return (“TSR”) of the Group over a three year period Share (“EPS”) performance and Total Shareholder Return (“TSR”) of the Group over a three year period (“the performance period”). (“the performance period”). Up to 70% of the shares/options subject to an award will vest according to the Group’s adjusted Up to 70% of the shares/options subject to an award will vest according to the Group’s adjusted EPS growth compared with target during the performance period. Up to 30% of the shares/options 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 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. period measured against the TSR performance indicators approved by the Remuneration Committee. An award will lapse if a participant ceases to be an employee or an officer within the Group before the An award will lapse if a participant ceases to be an employee or an officer within the Group before the vesting date and is not subject to good leaver provisions. vesting date and is not subject to good leaver provisions. During the year ended 31 December 2018, the Remuneration Committee approved the grant of During the year ended 31 December 2018, the Remuneration Committee approved the grant of 773,797 share options pursuant to the terms and conditions of the Group’s LTIP Rules. These were 773,797 share options pursuant to the terms and conditions of the Group’s LTIP Rules. These were granted in three separate offerings. In 2018, €141k was expensed in the consolidated income granted in three separate offerings. In 2018, €141k was expensed in the consolidated income statement in relation to these awards. €608k was credited to the consolidated income statement for statement in relation to these awards. €608k was credited to the consolidated income statement for the year ended 31 December 2018 for the awards made in 2016 and 2017. This credit is mainly due to the year ended 31 December 2018 for the awards made in 2016 and 2017. This credit is mainly due to the forfeiture of the 2016 awards which will not vest in April 2019 due to vesting conditions not being the forfeiture of the 2016 awards which will not vest in April 2019 due to vesting conditions not being satisfied and a change in the estimate of shares that will vest under the EPS component of the 2017 satisfied and a change in the estimate of shares that will vest under the EPS component of the 2017 awards. awards. Details of the share options outstanding during the year are as follows: Details of the share options outstanding during the year are as follows: Outstanding at beginning of year Outstanding at beginning of year Granted during the year Granted during the year Forfeited during the year Forfeited during the year Exercised during the year Exercised during the year Expired during the year Expired during the year 2018 2018 No. of share No. of share options options 2017 2017 No. of share No. of share options options 1,324,039 1,324,039 773,797 773,797 928,464 928,464 847,663 847,663 (1,221,879) (1,221,879) (452,088) (452,088) - - - - - - - - Outstanding at the end of the year Outstanding at the end of the year 875,957 875,957 1,324,039 1,324,039 Exercisable at the end of the year Exercisable at the end of the year - - - - Included in the number of options forfeited in 2018, are 562,626 options of the 2016 awards which Included in the number of options forfeited in 2018, are 562,626 options of the 2016 awards which did not meet the vesting conditions based on performance conditions from 1 January 2016 to 31 did not meet the vesting conditions based on performance conditions from 1 January 2016 to 31 December 2018. December 2018. The remaining awards will vest on the later of the 3rd anniversary of the grant and the determination The remaining awards will vest on the later of the 3rd anniversary of the grant and the determination of the performance condition, and will then remain exercisable until the 7th anniversary of the date of the performance condition, and will then remain exercisable until the 7th anniversary of the date of grant, provided the individual remains an employee or officer of the Group or is subject to good of grant, provided the individual remains an employee or officer of the Group or is subject to good December December 2018 2018 June June 2018 2018 April April 2018 2018 March March 2017 2017 Year of potential vesting Year of potential vesting 2021 2021 2021 2021 2021 2021 2020 2020 Number of share options granted Number of share options granted 98,520 98,520 175,723 175,723 499,554 499,554 847,663 847,663 Share price at grant date Share price at grant date Exercise price per share option Exercise price per share option £1.99 £1.99 £nil £nil £3.15 £3.15 £nil £nil £3.86 £3.86 £nil £nil £2.33 £2.33 £nil £nil Expected volatility of Company share price Expected volatility of Company share price 41.5% 41.5% 47.0% 47.0% 46.0% 46.0% 46.0% 46.0% Expected life Expected life Expected dividend yield Expected dividend yield Risk free interest rate Risk free interest rate Weighted average fair value at grant date Weighted average fair value at grant date Remaining weighted average life of options (years) Remaining weighted average life of options (years) 3 years 3 years 3 years 3 years 3 years 3 years 3 years 3 years 7.6% 7.6% 0.75% 0.75% £1.48 £1.48 2.93 2.93 4.8% 4.8% 0.76% 0.76% £2.64 £2.64 2.50 2.50 3.8% 3.8% 0.88% 0.88% £3.35 £3.35 2.28 2.28 5.7% 5.7% 0.21% 0.21% £1.92 £1.92 1.24 1.24 Expected volatility was determined in line with market performance of the Company and comparator 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 companies as there was insufficient historic data available for the Company at the grant date of the awards up to and including the June 2018 awards. The expected volatility for the December the awards up to and including the June 2018 awards. The expected volatility for the December 2018 awards was determined based on the market performance of the Company over 2.07 years, 2018 awards was determined based on the market performance of the Company over 2.07 years, corresponding to the remaining time left of the measurement period. Market based vesting corresponding to the remaining time left of the measurement period. Market based vesting conditions, such as the TSR condition, have been taken into account in establishing the fair value of 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, 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 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 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. amount recognised is based on the number of equity instruments that eventually vest. Save As You Earn (“SAYE”) scheme Save As You Earn (“SAYE”) scheme During the year ended 31 December 2018, the Remuneration Committee approved the granting During the year ended 31 December 2018, the Remuneration Committee approved the granting of share options under a SAYE scheme for all eligible employees across the Group. 24 employees in of share options under a SAYE scheme for all eligible employees across the Group. 24 employees in Ireland availed of the scheme in 2018 (2017: 73 employees availed of the 2017 scheme). The scheme Ireland availed of the scheme in 2018 (2017: 73 employees availed of the 2017 scheme). The scheme will last three years and employees may choose to purchase shares at the end of the three year period will last three years and employees may choose to purchase shares at the end of the three year period at the fixed discounted price set at the start. The share price for the scheme has been set at a 20% at the fixed discounted price set at the start. The share price for the scheme has been set at a 20% discount for Irish and UK based employees in line with amounts permitted under tax legislation in discount for Irish and UK based employees in line with amounts permitted under tax legislation in both jurisdictions. both jurisdictions. The total expected cost of the 2018 SAYE scheme was estimated at €41k of which €7k has been The total expected cost of the 2018 SAYE scheme was estimated at €41k of which €7k has been recognised in the consolidated income statement for the year ended 31 December 2018. The recognised in the consolidated income statement for the year ended 31 December 2018. The remaining €34k will be charged against profit or loss in equal instalments over the remainder of the remaining €34k will be charged against profit or loss in equal instalments over the remainder of the three year vesting period. The total expected cost of the 2017 SAYE scheme was estimated at €200k of three year vesting period. The total expected cost of the 2017 SAYE scheme was estimated at €200k of which €115k (2017: €37k) has been recognised in the consolidated income statement for the current which €115k (2017: €37k) has been recognised in the consolidated income statement for the current leaver provisions. The measurement period for the 2017 and 2018 awards for performance conditions leaver provisions. The measurement period for the 2017 and 2018 awards for performance conditions year. year. is over 3 years from 1 January 2017 to 31 December 2019 and from 1 January 2018 to 31 December is over 3 years from 1 January 2017 to 31 December 2019 and from 1 January 2018 to 31 December 2020 respectively. 2020 respectively. Share options under the LTIP scheme have an exercise price of £nil. The fair value, at the grant date, of Share options under the LTIP scheme have an exercise price of £nil. The fair value, at the grant date, of the TSR-based conditional awards was measured using a Monte Carlo simulation model. the TSR-based conditional awards was measured using a Monte Carlo simulation model. 148 148 149 149 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 18. SHARE-BASED PAYMENTS (CONTINUED) 18. SHARE-BASED PAYMENTS (CONTINUED) Outstanding at beginning of year Outstanding at beginning of year Granted during the year Granted during the year Forfeited during the year Forfeited during the year Outstanding share options granted at end of year Outstanding share options granted at end of year Fair value of options granted during the year: Fair value of options granted during the year: Number of SAYE share options granted Number of SAYE share options granted 2018 2018 171,333 171,333 90,819 90,819 (96,990) (96,990) 165,162 165,162 2017 2017 - - 181,208 181,208 (9,875) (9,875) 171,333 171,333 19. RELATED PARTY TRANSACTIONS 19. RELATED PARTY TRANSACTIONS SUBSIDIARIES SUBSIDIARIES The following is a list of the Company’s current investments in subsidiaries, including the name, The following is a list of the Company’s current investments in subsidiaries, including the name, country of incorporation, and proportion of ownership interest: country of incorporation, and proportion of ownership interest: Company Company Holding Nature of Business Holding Nature of Business Registered Office Registered Office WRI Nominees DAC WRI Nominees DAC 100%* 100%* Holding of IP Holding of IP Floor 2, One Central Park, Floor 2, One Central Park, Leopardstown, Dublin 18, Ireland Leopardstown, Dublin 18, Ireland 15, Boulevard Friedrich Wilhelm 15, Boulevard Friedrich Wilhelm Raiffeisen, L-2411 Luxembourg ** Raiffeisen, L-2411 Luxembourg ** At the grant date, the fair value per conditional award and the assumptions used in the calculations At the grant date, the fair value per conditional award and the assumptions used in the calculations Hostelworld.com Limited Hostelworld.com Limited 100% 100% are as follows: are as follows: Scheme Scheme Grant date Grant date Year of potential vesting Year of potential vesting Share price at grant date Share price at grant date Exercise price per share option Exercise price per share option Expected volatility of company share price Expected volatility of company share price Expected life Expected life Expected dividend yield Expected dividend yield Risk free interest rate Risk free interest rate Weighted average fair value at grant date Weighted average fair value at grant date Irish office Irish office UK office UK office Irish office Irish office September 2018 September 2018 July 2017 July 2017 July 2017 July 2017 2021 2021 €2.40 €2.40 €2.56 €2.56 47.5% 47.5% 3 years 3 years 6.9% 6.9% (0.40%) (0.40%) €0.45 €0.45 2020 2020 £3.37 £3.37 £2.78 £2.78 45.0% 45.0% 2020 2020 €4.00 €4.00 €3.24 €3.24 44.6% 44.6% 3 years 3 years 3 years 3 years 4.0% 4.0% 0.38% 0.38% £0.99 £0.99 4.0% 4.0% 0.38% 0.38% €1.10 €1.10 Valuation model Valuation model Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Expected volatility was determined in line with market performance of the Company and comparator 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 companies as there was insufficient historic data available for the Company at the grant date of the awards. awards. The charge of €121k (2017: €37k) in relation to the SAYE schemes, together with the credit in respect of The charge of €121k (2017: €37k) in relation to the SAYE schemes, together with the credit in respect of the long-term incentive plan for the year of €467k (2017: €586k expense) is the total charge in respect the long-term incentive plan for the year of €467k (2017: €586k expense) is the total charge in respect of share-based payments, which has been recognised directly in equity. The LTIP and SAYE schemes of share-based payments, which has been recognised directly in equity. The LTIP and SAYE schemes are accounted for as equity-settled in the financial statements. are accounted for as equity-settled in the financial statements. The Group recognised a credit of €346k (2017: €623k expense) relating to equity-settled share-based The Group recognised a credit of €346k (2017: €623k expense) relating to equity-settled share-based payment transactions in the consolidated income statement during the year. payment transactions in the consolidated income statement during the year. Cash settled share-based payments Cash settled share-based payments During 2018, the Group issued to certain individuals share appreciation rights (“SARs”), in the form During 2018, the Group issued to certain individuals share appreciation rights (“SARs”), in the form of Phantom Shares that require the Group to pay the intrinsic value of the SAR at the date of exercise. of Phantom Shares that require the Group to pay the intrinsic value of the SAR at the date of exercise. The Group has recorded liabilities of €3k and a corresponding expense of €3k in relation to these The Group has recorded liabilities of €3k and a corresponding expense of €3k in relation to these SARs as at 31 December 2018 (2017: €nil). The fair value of these SARs was determined by using a SARs as at 31 December 2018 (2017: €nil). The fair value of these SARs was determined by using a Black Scholes model. Black Scholes model. Technology trading Technology trading company company Floor 2, One Central Park, Floor 2, One Central Park, Leopardstown, Dublin 18, Ireland Leopardstown, Dublin 18, Ireland Hostelworld Services Hostelworld Services Portugal LDA Portugal LDA 100% 100% Marketing and research Marketing and research and development services and development services company company Aviz Trade Center, Rua Engenheiro Aviz Trade Center, Rua Engenheiro Ferreira Dias, 924, 2nd Andar, Sala E27, Ferreira Dias, 924, 2nd Andar, Sala E27, 4100-246 Porto, Portugal 4100-246 Porto, Portugal Hostelworld Services Limited 100%* Hostelworld Services Limited 100%* Marketing services and Marketing services and technology trading company technology trading company High Holborn House, 52 - 54 High High Holborn House, 52 - 54 High Holborn, London, WC1V 6RL, United Holborn, London, WC1V 6RL, United Kingdom Kingdom * held directly by the 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. ** WRI Nominees DAC is dually incorporated in Luxembourg and Ireland with registered offices in both locations. Its place of business is in Luxembourg. On 12 March 2019, WRI Nominees DAC was placed in liquidation by way of members’ voluntary winding up. On 12 March 2019, WRI Nominees DAC was placed in liquidation by way of members’ voluntary winding up. All subsidiaries have the same reporting date as the Company being 31 December. All subsidiaries have the same reporting date as the Company being 31 December. On 30 November 2018, Hostelworld Korea Limited was placed into voluntary liquidation. On 30 November 2018, Hostelworld Korea Limited was placed into voluntary liquidation. On 24 March 2017, Hostelworld Services LDA was incorporated in Portugal. On 13 November 2017, On 24 March 2017, Hostelworld Services LDA was incorporated in Portugal. On 13 November 2017, Wings Lux 3 S.à r.l. and Cornetto Bidco Limited transferred their shares in Hostelworld Services Wings Lux 3 S.à r.l. and Cornetto Bidco Limited transferred their shares in Hostelworld Services Limited to the Company. On 21 December 2017, WRI Nominees DAC purchased 96 ordinary shares 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 in Hostelworld.com Limited which represents a 49% ownership. Hostelworld Group plc owns the remaining 51% directly. remaining 51% directly. During 2017, as part of a group reorganisation, Wings Lux 2 S.à r.l., Wings Lux 3 S.à r.l., Wings Holdco 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. Limited and Cornetto Bidco Limited were liquidated/ wound up. 150 150 151 151 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 19. RELATED PARTY TRANSACTIONS (CONTINUED) 19. RELATED PARTY TRANSACTIONS (CONTINUED) Directors’ remuneration Directors’ remuneration 20. FINANCIAL RISK MANAGEMENT 20. FINANCIAL RISK MANAGEMENT 20.1 Financial risk factors 20.1 Financial risk factors Salaries, fees, bonuses and benefits in kind Salaries, fees, bonuses and benefits in kind Amounts receivable under long-term incentive schemes Amounts receivable under long-term incentive schemes Termination benefits Termination benefits Pension contributions Pension contributions Total Total 2018 2018 €’000 €’000 1,004 1,004 44 44 467 467 52 52 2017 2017 €’000 €’000 1,321 1,321 207 207 - - 58 58 The directors manage the Group’s capital, consisting of both debt and equity, to ensure that the The directors manage the Group’s capital, consisting of both debt and equity, to ensure that the Group will be able to continue as a going concern while also maximising the return to stakeholders. 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 As part of this process, the directors review financial risks such as liquidity risk, credit risk, foreign exchange risk and interest rate risk regularly. exchange risk and interest rate risk regularly. Liquidity risk Liquidity risk 1,567 1,567 1,586 1,586 Cash flow forecasting is monitored by rolling forecasts of the Group’s liquidity requirements to Cash flow forecasting is monitored by rolling forecasts of the Group’s liquidity requirements to Retirement benefit charges of €52k (2017: €58k) arise from pension payments relating to 4 executive Retirement benefit charges of €52k (2017: €58k) arise from pension payments relating to 4 executive directors (2017: 2). directors (2017: 2). Key management personnel Key management personnel The Group’s key management comprise the Board of Directors and senior management having 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. authority and responsibility for planning, directing and controlling the activities of the Group. Short term benefits Short term benefits Share based payments (credit)/ charge Share based payments (credit)/ charge Termination benefits Termination benefits Post employment benefits Post employment benefits Total Total 2018 2018 €’000 €’000 2,892 2,892 (253) (253) 1,121 1,121 123 123 2017 2017 €’000 €’000 2,882 2,882 420 420 - - 112 112 3,883 3,883 3,414 3,414 In 2018, it was determined that the non-market vesting condition of the 2016 LTIPs was not satisfied In 2018, it was determined that the non-market vesting condition of the 2016 LTIPs was not satisfied and there was a change in vesting estimate for the non-market vesting condition of the 2017 LTIPs, as and there was a change in vesting estimate for the non-market vesting condition of the 2017 LTIPs, as disclosed in note 18. This led to a reversal of the cumulative expense recognised in 2016 and 2017 in disclosed in note 18. This led to a reversal of the cumulative expense recognised in 2016 and 2017 in relation to this element of these awards in accordance with the requirements of IFRS 2 and as a result, relation to this element of these awards in accordance with the requirements of IFRS 2 and as a result, there is a negative expense included for share based payments in the Key Management Personnel there is a negative expense included for share based payments in the Key Management Personnel disclosure. disclosure. ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans. consideration the Group’s debt financing plans. The table below analyses the Group’s financial liabilities into relevant maturity groupings based The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The Group had no on the remaining period at the reporting date to the contractual maturity date. The Group had no derivative financial liabilities in the current or prior year. The amounts disclosed in the table are the derivative financial liabilities in the current or prior year. The amounts disclosed in the table are the contractual undiscounted cash flows. contractual undiscounted cash flows. Up to 1 year Up to 1 year Trade and other payables Trade and other payables Total up to 1 year Total up to 1 year Over 5 years Over 5 years Trade and other payables Trade and other payables Total over 5 years Total over 5 years Total Total Notes Notes 16 16 Notes 2018 2018 €’000 €’000 11,190 11,190 11,190 11,190 2018 2018 €’000 €’000 - - - - 2017 2017 €’000 €’000 9,832 9,832 9,832 9,832 2017 2017 €’000 €’000 - - - - 11,190 11,190 9,832 9,832 152 152 153 153 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 20. FINANCIAL RISK MANAGEMENT (CONTINUED) 20. FINANCIAL RISK MANAGEMENT (CONTINUED) 21. DIVIDENDS 21. DIVIDENDS 20.1 Financial risk factors (Continued) 20.1 Financial risk factors (Continued) Interest rate risk Interest rate risk The Group is not materially exposed to interest rate risk. The Group is not materially exposed to interest rate risk. Credit risk and foreign exchange risk Credit risk and foreign exchange risk The directors monitor the credit rate risks associated with loans, trade receivables and cash and cash The directors monitor the credit rate risks associated with loans, trade receivables and cash and cash equivalent balances on an on-going basis. The majority of the Group’s trade receivable balances equivalent balances on an on-going basis. The majority of the Group’s trade receivable balances are due for maturity within 5 days and largely comprise amounts due from the Group’s payment are due for maturity within 5 days and largely comprise amounts due from the Group’s payment processing agents. Accordingly, the associated credit risk is determined to be low. These trade processing agents. Accordingly, the associated credit risk is determined to be low. These trade receivable balances, which consist of euro, US dollar and Sterling amounts, are settled within a receivable balances, which consist of euro, US dollar and Sterling amounts, are settled within a relatively short period of time, which reduces any potential foreign exchange exposure risk. At 31 relatively short period of time, which reduces any potential foreign exchange exposure risk. At 31 December 2018, all material cash balances are held with banks with a minimal credit rating of BBB-, as December 2018, all material cash balances are held with banks with a minimal credit rating of BBB-, as assigned by international credit rating agencies. As a result, the credit risk on cash balances is limited. assigned by international credit rating agencies. As a result, the credit risk on cash balances is limited. The carrying value of trade receivables, trade payables and cash and cash equivalents is a reasonable The carrying value of trade receivables, trade payables and cash and cash equivalents is a reasonable approximation of their fair value. The Group does not enter into or trade financial instruments, approximation of their fair value. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. including derivative financial instruments, for speculative purposes. Amounts recognised as distributions to equity holders in the financial year: Amounts recognised as distributions to equity holders in the financial year: Final 2017 dividend of €0.12 per share (paid 14 June 2018) Final 2017 dividend of €0.12 per share (paid 14 June 2018) Interim 2018 dividend of €0.048 per share (paid 21 September 2018) Interim 2018 dividend of €0.048 per share (paid 21 September 2018) Final 2016 dividend of €0.104 per share (paid 6 June 2017) Final 2016 dividend of €0.104 per share (paid 6 June 2017) Supplementary 2016 dividend of €0.105 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) Interim 2017 dividend of €0.051 per share (paid 22 September 2017) Proposed final dividend for the year ended 31 December 2018 Proposed final dividend for the year ended 31 December 2018 of €0.09 per share (2017: €0.12 per share) of €0.09 per share (2017: €0.12 per share) 2018 2018 €’000 €’000 11,468 11,468 4,588 4,588 2017 2017 €’000 €’000 9,939 9,939 10,035 10,035 4,874 4,874 16,056 16,056 24,848 24,848 8,601 8,601 11,468 11,468 In accordance with the Group’s dividend policy, the directors recommend the payment of a final In accordance with the Group’s dividend policy, the directors recommend the payment of a final dividend for 2018 of €0.09 per share amounting to €8.6m (2017: €0.12 per share amounting to €11.5m). dividend for 2018 of €0.09 per share amounting to €8.6m (2017: €0.12 per share amounting to €11.5m). 20.2 Capital management 20.2 Capital management The proposed dividends are to be approved by the shareholders at the 2019 AGM on 31 May 2019. The proposed dividends are to be approved by the shareholders at the 2019 AGM on 31 May 2019. The directors’ objectives when managing capital are to safeguard the Group’s ability to continue as a 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 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. to maintain an optimal capital structure to reduce the cost of capital. 22. PARENT COMPANY EXEMPTION 22. PARENT COMPANY EXEMPTION The Company has taken advantage of the exemption provided under section 408 of the Companies 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. Act 2006 not to publish its individual income statement and related notes. In order to maintain or adjust the capital structure, the directors may adjust the amount of dividends 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. paid to shareholders, return capital to shareholders, issue new shares or sell assets. 23. EVENTS AFTER THE BALANCE SHEET DATE 23. EVENTS AFTER THE BALANCE SHEET DATE The directors believe the Group’s capital requirement will be met from retained earnings. 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 Group is not subject to any externally imposed capital requirements. The Group will ensure it retains sufficient reserves to manage its day to day cash requirements, The Group 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 including capital expenditure requirements, whilst ensuring appropriate dividends are distributed to shareholders. shareholders. As part of a group reorganisation, Hostelworld.com Limited acquired certain assets from WRI As part of a group reorganisation, Hostelworld.com Limited acquired certain assets from WRI Nominees DAC for a consideration of €151m on 12 March 2019. On 12 March 2019, WRI Nominees DAC Nominees DAC for a consideration of €151m on 12 March 2019. On 12 March 2019, WRI Nominees DAC was subsequently placed in liquidation by way of members’ voluntary winding up. was subsequently placed in liquidation by way of members’ voluntary winding up. There were no other significant events after the balance sheet date. There were no other significant events after the balance sheet date. 154 154 155 155 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements COMPANY STATEMENT OF FINANCIAL POSITION COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 AS AT 31 DECEMBER 2018 COMPANY STATEMENT OF CHANGES IN EQUITY COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 FOR THE YEAR ENDED 31 DECEMBER 2018 Share Capital Share Capital €’000 €’000 Retained Retained Earnings Earnings €’000 €’000 Share Based Share Based Payment Payment Reserve Reserve €’000 €’000 Total Total €’000 €’000 As at 1 January 2017 As at 1 January 2017 956 956 207,179 207,179 362 362 208,497 208,497 Total comprehensive income Total comprehensive income for the year for the year Dividends Dividends Credit to equity for equity-settled Credit to equity for equity-settled share based payments share based payments As at 31 December 2017 As at 31 December 2017 Total comprehensive expense Total comprehensive expense for the year for the year Dividends Dividends Debit to equity for equity-settled Debit to equity for equity-settled share based payments share based payments - - - - - - 4,235 4,235 (24,848) (24,848) - - - - 4,235 4,235 (24,848) (24,848) - - 623 623 623 623 956 956 186,566 186,566 985 985 188,507 188,507 - - - - - - (1,847) (1,847) (16,056) (16,056) - - - - (1,847) (1,847) (16,056) (16,056) - - (346) (346) (346) (346) As at 31 December 2018 As at 31 December 2018 956 956 168,663 168,663 639 639 170,258 170,258 Non-current assets Non-current assets Investments Investments Current assets Current assets Trade and other receivables Trade and other receivables Cash and cash equivalents Cash and cash equivalents Total assets Total assets EQUITY EQUITY Share capital Share capital Share based payment reserve Share based payment reserve Retained Earnings Retained Earnings Total equity attributable to equity holders of the parent Total equity attributable to equity holders of the parent Current liabilities Current liabilities Trade and other payables Trade and other payables Total liabilities Total liabilities Total equity and liabilities Total equity and liabilities Notes Notes 2018 2018 €’000 €’000 2017 2017 €’000 €’000 27 27 205,630 205,630 206,306 206,306 205,630 205,630 206,306 206,306 28 28 29 29 30 30 225 225 19 19 244 244 239 239 291 291 530 530 205,874 205,874 206,836 206,836 956 956 639 639 956 956 985 985 168,663 168,663 186,566 186,566 170,258 170,258 188,507 188,507 35,616 35,616 35,616 35,616 35,616 35,616 18,329 18,329 18,329 18,329 18,329 18,329 205,874 205,874 206,836 206,836 The Company reported a loss for the financial year ended 31 December 2018 of €1,847k (2017: €4,235k The Company reported a loss for the financial year ended 31 December 2018 of €1,847k (2017: €4,235k profit). profit). The financial statements of Hostelworld Group plc were approved by the Board of Directors and The financial statements of Hostelworld Group plc were approved by the Board of Directors and authorised for issue on 1 April 2019 and signed on its behalf by: authorised for issue on 1 April 2019 and signed on its behalf by: Gary Morrison Gary Morrison Chief Executive Officer Chief Executive Officer TJ Kelly TJ Kelly Chief Financial Officer Chief Financial Officer Hostelworld Group plc registration number 9818705 (England and Wales) Hostelworld Group plc registration number 9818705 (England and Wales) 156 156 QUEEN HOSTEL QUEEN HOSTEL MILAN MILAN Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements NOTES TO THE COMPANY FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 FOR THE YEAR ENDED 31 DECEMBER 2018 24. ACCOUNTING POLICIES 24. ACCOUNTING POLICIES The significant accounting policies adopted by the Company are as follows: The significant accounting policies adopted by the Company are as follows: Basis of preparation Basis of preparation The separate financial statements are presented as required by the Companies Act 2006. The The separate financial statements are presented as required by the Companies Act 2006. The Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council. The financial statements have therefore been prepared 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 in accordance with FRS 101 (Financial Reporting Standard 101) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council. issued by the Financial Reporting Council. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to financial instruments, fair value measurements, capital available under that standard in relation to financial instruments, fair value measurements, capital management, presentation of comparative information in respect of certain assets, presentation of management, presentation of comparative information in respect of certain assets, presentation of a cash flow statement, standards not yet effective, financial risk management, impairment of assets, 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 related party transactions and where required, equivalent disclosures are given in the consolidated financial statements. Significant accounting policies specifically applicable to these individual financial statements. Significant accounting policies specifically applicable to these individual Company financial statements and which are not reflected within the accounting policies for the Company financial statements and which are not reflected within the accounting policies for the Group consolidated financial statements are detailed below. Group consolidated financial statements are detailed below. The financial statements are prepared on the historical cost basis. The financial statements are prepared on the historical cost basis. Investments in subsidiaries Investments in subsidiaries Investments in subsidiary undertakings are stated at cost less any allowance for impairment. Investments in subsidiary undertakings are stated at cost less any allowance for impairment. Dividends Dividends Final dividends are recorded in the Group’s accounts in the period in which they are approved by the Final dividends are recorded in the Group’s accounts in the period in which they are approved by the Company’s shareholders. Interim dividends are recorded in the period in which they are paid. Company’s shareholders. Interim dividends are recorded in the period in which they are paid. Details of interim and final dividends are disclosed in note 21 to the consolidated financial statements. Details of interim and final dividends are disclosed in note 21 to the consolidated financial statements. Accounting estimates and judgements Accounting estimates and judgements The preparation of financial statements in conformity with FRS 101 (as issued by the FRC) requires The preparation of financial statements in conformity with FRS 101 (as issued by the FRC) requires management to make judgements, estimates and assumptions that affect the application of management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. There were no significant judgements applied in the assumptions are reviewed on an ongoing basis. There were no significant judgements applied in the preparation of the Company financial statements. preparation of the Company financial statements. Key sources of estimation that have been made that have the most significant effect on the amounts Key sources of estimation that have been made that have the most significant effect on the amounts recognised in the financial statements are set out below: recognised in the financial statements are set out below: Carrying value of investments in subsidiaries Carrying value of investments in subsidiaries The directors assess annually whether the carrying value of the investments in subsidiaries has The directors assess annually whether the carrying value of the investments in subsidiaries has suffered any impairment, in accordance with the relevant accounting policy and the recoverable suffered any impairment, in accordance with the relevant accounting policy and the recoverable amounts of cash generating units (“CGUs”) are determined based on value-in-use calculations that amounts of cash generating units (“CGUs”) are determined based on value-in-use calculations that 24. ACCOUNTING POLICIES (CONTINUED) 24. ACCOUNTING POLICIES (CONTINUED) Carrying value of investments in subsidiaries (continued) Carrying value of investments in subsidiaries (continued) The value-in-use calculations are prepared using cash flow projections based on a three year budget The value-in-use calculations are prepared using cash flow projections based on a three year budget approved by the directors and extended out for a further 2 years. The cash flow projections take into approved by the directors and extended out for a further 2 years. The cash flow projections take into account key assumptions including historical trading performance, anticipated changes in future account key assumptions including historical trading performance, anticipated changes in future market conditions, industry and economic factors and business strategies. market conditions, industry and economic factors and business strategies. 25. LOSS/ PROFIT FOR THE YEAR 25. LOSS/ PROFIT FOR THE YEAR As permitted by s408 of the Companies Act 2006 the Company has elected not to present its own 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 loss/ profit attributable to income statement or statement of comprehensive income for the year. The loss/ profit attributable to the Company is disclosed in the footnote to the Company’s statement of financial position. 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 The auditor’s remuneration for the audit and other services is disclosed in note 5 to the consolidated financial statements. financial statements. 26. STAFF COSTS 26. STAFF COSTS The average monthly number of full time people employed by the Company (including executive The average monthly number of full time people employed by the Company (including executive directors) during the year was 3 (2017: 3). directors) during the year was 3 (2017: 3). The aggregate remuneration costs of these employees is analysed as follows: The aggregate remuneration costs of these employees is analysed as follows: Staff costs comprise: Staff costs comprise: Wages and salaries Wages and salaries Social security costs Social security costs Pensions costs Pensions costs Other benefits Other benefits Long-term employee incentive (credit)/costs Long-term employee incentive (credit)/costs Total Total 27. INVESTMENTS 27. INVESTMENTS 2018 2018 €’000 €’000 2017 2017 €’000 €’000 820 820 1,681 1,681 98 98 69 69 21 21 (189) (189) 819 819 114 114 75 75 23 23 273 273 2,166 2,166 The carrying value of the Company’s subsidiaries at 31 December 2018 are as follows: The carrying value of the Company’s subsidiaries at 31 December 2018 are as follows: At 1 January At 1 January Additions Additions Impairment Impairment Disposal Disposal At 31 December At 31 December 2018 2018 €’000 €’000 2017 2017 €’000 €’000 206,306 206,306 211,122 211,122 - - 5,199 5,199 (520) (520) - - (156) (156) (10,015) (10,015) 205,630 205,630 206,306 206,306 158 158 require the use of estimates. require the use of estimates. 159 159 Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements Hostelworld Annual Report 2018 | Financial Statements 27. INVESTMENTS (CONTINUED) 27. INVESTMENTS (CONTINUED) 29. SHARE CAPITAL 29. SHARE CAPITAL The Company’s subsidiaries directly owned by the Company, are disclosed in note 19. Additions The Company’s subsidiaries directly owned by the Company, are disclosed in note 19. Additions Details of the Company’s share capital are disclosed in note 15 to the consolidated financial Details of the Company’s share capital are disclosed in note 15 to the consolidated financial relate to investments in Hostelworld Services Portugal Lda, Hostelworld Services Limited and capital relate to investments in Hostelworld Services Portugal Lda, Hostelworld Services Limited and capital statements. statements. contributions arising from the administration of the Group’s share option schemes. contributions arising from the administration of the Group’s share option schemes. 30. TRADE AND OTHER PAYABLES 30. TRADE AND OTHER PAYABLES Amounts falling due within one year Amounts falling due within one year Trade payables Trade payables Accruals and other payables Accruals and other payables Amount due to related parties Amount due to related parties Total Total 2018 2018 €’000 €’000 2017 2017 €’000 €’000 58 58 423 423 113 113 863 863 35,135 35,135 17,353 17,353 35,616 35,616 18,329 18,329 The amounts due to related parties are unsecured loans from group undertakings that are repayable The amounts due to related parties are unsecured loans from group undertakings that are repayable on demand. on demand. In 2018, following a review of Hostelworld Services Limited’s trading performance and the changes In 2018, following a review of Hostelworld Services Limited’s trading performance and the changes in its senior management, the directors reassessed the estimated cash flows associated with in its senior management, the directors reassessed the estimated cash flows associated with its investment in the company. The recoverable amounts of cash generating units (“CGUs”) are its investment in the company. The recoverable amounts of cash generating units (“CGUs”) are determined based on value-in-use calculations that require the use of estimates. The value-in-use determined based on value-in-use calculations that require the use of estimates. The value-in-use calculations are prepared using cash flow projections based on three year budgets approved by calculations are prepared using cash flow projections based on three year budgets approved by the directors and extended out for a further 2 years. The cash flow projections take into account the directors and extended out for a further 2 years. The cash flow projections take into account key assumptions including historical trading performance, anticipated changes in future market key assumptions including historical trading performance, anticipated changes in future market conditions, industry and economic factors and business strategies. conditions, industry and economic factors and business strategies. The pre-tax discount rate which was applied in determining value in use was 10.8% which was The pre-tax discount rate which was applied in determining value in use was 10.8% which was calculated from first principles by a third party professional advisor. calculated from first principles by a third party professional advisor. Following impairment testing, an impairment charge of €520k was recognised in relation to the Following impairment testing, an impairment charge of €520k was recognised in relation to the Company’s investment in Hostelworld Services Limited (2017: €nil). This impairment charge was Company’s investment in Hostelworld Services Limited (2017: €nil). This impairment charge was recognised in the Company’s income statement as an impairment loss. There were no indicators to recognised in the Company’s income statement as an impairment loss. There were no indicators to require an impairment test of other investments in 2018. require an impairment test of other investments in 2018. The disposal in 2018 relates to the previously recognised capital contribution for the 2016 LTIP awards The disposal in 2018 relates to the previously recognised capital contribution for the 2016 LTIP awards which did not meet the vesting conditions and to the change in vesting estimate in relation to the which did not meet the vesting conditions and to the change in vesting estimate in relation to the 2017 LTIP awards (note 18). The disposal in 2017 relates to a subsidiary, Wings Lux 2 S.à r.l., which was 2017 LTIP awards (note 18). The disposal in 2017 relates to a subsidiary, Wings Lux 2 S.à r.l., which was liquidated during that year. liquidated during that year. 28. TRADE AND OTHER RECEIVABLES 28. TRADE AND OTHER RECEIVABLES Amounts falling due within one year Amounts falling due within one year Prepayments Prepayments Value Added Tax Value Added Tax Amount due from related parties Amount due from related parties Other debtors Other debtors Total Total 2018 2018 €’000 €’000 2017 2017 €’000 €’000 135 135 9 9 81 81 - - 225 225 182 182 23 23 28 28 6 6 239 239 The carrying value of trade and other receivables also represents their fair value. Trade receivables The carrying value of trade and other receivables also represents their fair value. Trade receivables are non-interest bearing and there is no expected credit loss recognised in relation to these balances. are non-interest bearing and there is no expected credit loss recognised in relation to these balances. 160 160 SELINA MANUEL ANTONIO SELINA MANUEL ANTONIO MANUEL ANTONIO MANUEL ANTONIO 05 VALENCIA LOUNGE HOSTEL VALENCIA ADDITIONAL INFORMATION 164 Shareholder Information 165 Advisers Hostelworld Annual Report 2018 | Additional Information Hostelworld Annual Report 2018 | Additional Information Hostelworld Annual Report 2018 | Additional Information Hostelworld Annual Report 2018 | Additional Information SHAREHOLDER SHAREHOLDER INFORMATION INFORMATION Financial Calendar Financial Calendar Shareholder’s Enquiries Shareholder’s Enquiries AGM AGM 31 May 2019 31 May 2019 All administrative enquiries relating to All administrative enquiries relating to shareholdings (for example, notification of shareholdings (for example, notification of change of address, loss of share certificates, change of address, loss of share certificates, dividend payments) should be addressed to the dividend payments) should be addressed to the 5 June 2019 5 June 2019 Company’s registrars: Company’s registrars: 20 August 2019 20 August 2019 Computershare Investor Services plc Computershare Investor Services plc UK Registrar UK Registrar Payment of 2018 Payment of 2018 Final Dividend Final Dividend Announcement of 2019 Announcement of 2019 Interim Results Interim Results Share Price Share Price During the year ended 31 December 2018, the During the year ended 31 December 2018, the range of the market prices of the Company’s range of the market prices of the Company’s ordinary shares on the London Stock Exchange ordinary shares on the London Stock Exchange was: was: Last price as at 31 Last price as at 31 December 2018 December 2018 Lowest price Lowest price during the year during the year Highest price Highest price during the year during the year £2.01 £2.01 £1.69 £1.69 £4.17 £4.17 Daily information on the Company’s share Daily information on the Company’s share price can be obtained on our website: price can be obtained on our website: www.hostelworldgroup.com www.hostelworldgroup.com The Pavilions The Pavilions Bridgwater Road Bridgwater Road Bristol BS99 6ZZ Bristol BS99 6ZZ United Kingdom United Kingdom Irish Registrar Irish Registrar Computershare Investor Services (Ireland) Ltd Computershare Investor Services (Ireland) Ltd 3100 Lake Drive 3100 Lake Drive Citywest Business Campus Citywest Business Campus Dublin 24 Dublin 24 D24 AK82 D24 AK82 Ireland Ireland Company Secretary and Company Secretary and Registered Office Registered Office Mr. John Duggan Mr. John Duggan Hostelworld Group plc Hostelworld Group plc High Holborn House High Holborn House 52-54 High Holborn 52-54 High Holborn London WC1V 6RL London WC1V 6RL United Kingdom United Kingdom Company Registration Number Company Registration Number 9818705 9818705 ADVISERS ADVISERS Solicitors Solicitors McCann FitzGerald McCann FitzGerald Riverside One Riverside One Independent Auditors Independent Auditors Deloitte Deloitte Chartered Accountants and Statutory Audit Firm Chartered Accountants and Statutory Audit Firm Sir John Rogerson’s Quay Sir John Rogerson’s Quay Deloitte & Touche House Deloitte & Touche House Dublin D02 X576 Dublin D02 X576 Ireland Ireland Travers Smith LLP Travers Smith LLP 10 Snow Hill 10 Snow Hill London EC1A 2AL London EC1A 2AL United Kingdom United Kingdom Financial Public Relations Financial Public Relations Powerscourt Powerscourt 25 Lower Leeson Street 25 Lower Leeson Street Dublin D02 XD77 Dublin D02 XD77 Ireland Ireland Banking Banking Allied Irish Banks plc Allied Irish Banks plc 1-4 Lower Baggot Street 1-4 Lower Baggot Street Dublin D02 X342 Dublin D02 X342 Ireland Ireland Earlsfort Terrace Earlsfort Terrace Dublin D02 AY28 Dublin D02 AY28 Ireland Ireland Brokers Brokers Numis Securities Limited Numis Securities Limited 10 Paternoster Square 10 Paternoster Square London EC4M 7LT London EC4M 7LT United Kingdom United Kingdom J&E Davy J&E Davy Davy House Davy House 49 Dawson Street 49 Dawson Street Dublin D02 PY05 Dublin D02 PY05 Ireland Ireland 164 164 165 165 

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