Earnings Release • Apr 5, 2016
Earnings Release
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Hostelworld Group PLC
05 April 2016
Hostelworld Group plc
("Hostelworld" or the "Group")
Preliminary Results for the Year ended 31 December 2015
Hostelworld, the world's leading hostel-focused online booking platform, is pleased to announce its preliminary results for the year ended 31 December 2015.
These represent the Group's first results since its listing on the London and Irish Stock Exchanges in November 2015, raising a net €173.6 million.
Operational Highlights
· Successful re-launch of Hostelworld brand leading to accelerated growth of 17% (2014: 11% growth), with average growth in H2 of 21%, post brand re-launch; overall Group booking growth of 1%
· Continued high level (58%) of Group bookings from not-paid-for channels (2014: 57%)
· 21% of Hostelworld¹ bookings attracted higher commission using Elevate product (2014: 15%)
· Continued development of responsive interfaces for all devices - desktop, tablet and mobile - with 41% of 2015 Hostelworld brand bookings from mobile devices (2014: 31%)
· Good progress in emerging markets - Asia is the fastest growing destination region (+10%). South Korea is now the 7th highest nationality for Hostelworld brand bookings
· Additional one million customer reviews and additional one million Hostelworld app downloads
Financial Highlights
· Group revenue up by 5% to €83.45m (FY 14: €79.27m)
· Average booking value up by 5% to €12.1 per booking
· €8.5m increase in marketing investment for the year to €37.4m, including €3.2m Hostelworld Brand re-launch
· Adjusted EBITDA for the year of €23.6m (2014: €27.0m), reflecting marketing investment
· Adjusted EBITDA in the second half of the year increased to €13.6m compared to €10m in the first half of the year
· Group Adjusted Profit after Tax of €21m (2014: €25.6m)
· Adjusted pro-forma Earnings Per Share of €0.22 (2014: €0.27)
· Continued strong underlying cash conversion
· Maiden dividend of 2.75 euro cents per share, in line with stated dividend policy and representing 70% - 80% of the Adjusted Profit after Tax for the period since IPO
¹ Hostelworld Group bookings excluding Hostelbookers
Feargal Mooney, Chief Executive Officer, commented:
"We offer hostels worldwide the market leading proposition, providing them with a low cost distribution channel, access to a global customer base, access to our online property management system and to our leading booking engine technology.
"Consumers trust strong brands. The Hostelworld brand is characterised by a sense of adventure, community and social interaction, which appeals to our core target millennial demographic. We made significant investments in the brand in 2015 and are well poised to capitalise on these in 2016 and beyond.
"The new financial year has started well and in line with our expectations. The strength of our brand and technology together with healthy booking numbers and continued pricing improvements, underpinned by a growing marketplace, gives the Board confidence in the Group's future prospects."
ends
For further information please contact:
| Hostelworld Group plc Feargal Mooney, Chief Executive Officer |
today: +44 (0) 20 7067 0000 thereafter: +353 (0) 1 498 0700 |
| Weber Shandwick Nick Oborne Tom Jenkins |
+44 (0) 20 7067 0810 |
Chairman's Statement
In our first year reporting as a publicly listed Company, I am pleased to present our financial results for what has been a momentous year for the Group. Hostelworld reached a number of important milestones and is now well placed strategically and operationally to face the future with confidence.
Admission to listing
We were delighted to announce our admission to a premium listing on the main market of the London Stock Exchange and a secondary listing on the Irish Stock Exchange's main securities market on 2 November 2015, valuing the Group at €245 million. Our IPO was a significant landmark in Hostelworld's development. Our public status offers us access to global investors and will facilitate our plans to grow and generate value for our shareholders. I welcome all new shareholders to the Group, we are committed to developing positive long term relationships with each of you through open and transparent communication.
Results and financial position
The Group operates a number of brands. The flagship brand is Hostelworld, which accounts for circa 73% of Group bookings. Over the last year, the Group focused its attention and resources on rejuvenating this brand to make it more relevant to the target millennial consumer and accelerate bookings growth. As part of this strategy, the Group increased its marketing budget which was principally responsible for a reduction in the Group's margin. This strategy was implemented in the first half of the financial year and has been successful in driving bookings growth for the Hostelworld brand with bookings rising by 21% year-on-year in the second half of the financial year.
Whilst bookings of the Hostelworld brand grew, those of the Group's supporting brands (notably Hostelbookers) were, as anticipated, lower year-on-year. We have taken steps, including the transition of Hostelbookers to a new platform earlier in 2016, to reduce this rate of decline. On a Group basis, we experienced positive revenue growth with net revenue increasing by 5% year on year. Adjusted EBITDA is down €3.4m year on year; a key contributory factor being the investment in a new brand identity and advertising campaign for Hostelworld, which we are confident will deliver benefits in 2016 and beyond. Adjusted EBITDA for the six month period from July to December was stable year-on-year, reflecting improved overall Group trading performance.
The business continues to have highly attractive cash flow and a very favourable working capital cycle.
Dividend
Consistent with the guidance given during the IPO process, the Board is recommending a maiden dividend of 2.75 euro cent per share which reflects the distribution of 75% of the Adjusted Profit after Taxation for the period since the IPO date of 2 November 2015, on a pro rata basis. This is our first dividend and we look forward to providing dividend growth in future earnings periods. Subject to shareholder approval the dividend will be paid on 31 May 2016 to those shareholders on the register at the close of business on 29 April 2016.
Board
To facilitate the IPO, a restructuring of companies in the Group was undertaken. The parent company of the Group is Hostelworld Group plc ("the Company"), which was incorporated on 9 October 2015. The directors of this Company include myself as Chairman, CEO Feargal Mooney, and CFO Mari Hurley, all of whom were directors of the previous parent company of the Group.
In addition, we welcomed new non-executive directors Michael Cawley and Andy McCue to the Board of Hostelworld Group plc. Both Michael and Andy bring extensive experience of international businesses with significant web-based revenues and we are already seeing the positive impact of their involvement in the Group. These appointments also ensured that Hostelworld Group plc was fully compliant with the UK Code of Corporate Governance in respect of the composition of its Board in advance of its IPO. The Board regularly monitors risk and control processes to ensure they support the Group's strategy and objectives.
I would also like to take this opportunity to sincerely thank former board colleagues - Stephen Duckett, Kingsley Duffy, Patrick Healy and Zita Saurel for their contribution to the Group in recent years.
People
On behalf of the Board, I would like to thank all of our employees for their continuing commitment to, and hard work on behalf of the business. In particular, I would like to thank the Senior Management Team and the finance team. The IPO process was immensely time-consuming, and not only was it a successful process, but they continued to deliver on their other objectives at the same time, which is a tribute to their professionalism and dedication.
Outlook
In recent years, the business has invested in its people, technology and brand. It has also modified its operating model to proactively anticipate and respond to changes in the market place. This investment and an absolute focus on serving the hostel sector and the millennial consumer in particular means the Group is well-positioned for future growth and development. The new financial year has started well and in line with our expectations. The strength of our brand and technology, together with healthy booking numbers and continued pricing improvements, underpinned by a growing marketplace, gives the Board confidence in the Group's future prospects.
Richard Segal
Chairman
4 April 2016
Chief Executive's Statement
I am delighted to present my first CEO statement since our flotation in November 2015.
Continued strategic progress
2015 has been a year of significant progress for the Group from a financial, strategic and operational perspective, during which we strengthened our commitment to leading the industry and enhancing our customers' experiences across all online and mobile interfaces.
Bookings
Bookings for the Group's primary Hostelworld brand grew by 17% in the year with an average growth rate of 21% for the final six months of the year, post the brand launch. Total Group bookings and revenues grew by 1% (59,675 bookings) and 5% (€4.2 million) respectively, in the year.
We are pleased with the progress made in managing cost-per-click and cost-per-booking which drives a more efficient and profitable booking mix. In 2015, bookings from not-paid-for channels increased to 58% of overall Group bookings. We are confident that our marketing strategy with the goal of diversifying online marketing channels and increasing brand awareness will continue to drive bookings into lower cost or not-paid-for channels.
Brands
Consumers trust strong brands. Our brand is characterised by a sense of adventure, community and social interaction, which appeals to our target millennial demographic. We made significant investments in the brand in 2015 and are well placed to capitalise on these in 2016 and beyond.
In May 2015, we relaunched our global lead brand Hostelworld, using the 'Meet the World' positioning. The new brand design, logo and imagery focus the brand on its mission of enhancing the travel experience through social interaction. Furthermore during the first half of 2015 we began our 'Meet the World' mass media advertising campaign to increase Hostelworld's brand awareness. The campaign comprised a multi-channel UK-focused campaign across television, cinema, national outdoor media and included increased global social channels and online advertising activity. We immediately experienced the positive impact of the increased brand and marketing investment and this was sustained throughout the remainder of 2015.
In early 2016, we also repositioned and relaunched Hostelbookers with the 'Just a Step Away' proposition. This brand serves customers globally who travel for a specific purpose or event and are looking for affordable, central accommodation options.
Technology
The development of responsive interfaces for the Hostelworld and Hostelbookers brands was a key focus in 2015, ensuring both are available for all devices (desktop, tablet and mobile) in every orientation. Hostelworld was also made available on two new app platforms, Apple Watch & Apple TV, becoming the first hostel booking platform on these devices. On Android, the Hostelworld App was redesigned using Google's Material Design, earning Top Developer recognition from Google. Our mobile team continued to focus on improving the customer experience throughout the year offering Touch ID for login & checkout, Spotlight search, wish-lists and offline bookings, which are all time-saving enhancements to help the mobile hostel traveller. This "mobile first" strategy has resulted in mobile (including tablet) representing 41% of Hostelworld brand bookings for the year (2014: 31%).
Pricing and Yield Management
Our Elevate programme gives accommodation providers the opportunity to increase their prominence in search lists dynamically in exchange for a higher commission rate of up to 8% above the relevant base commission rate. We also offer a premium listing feature, which enables accommodation providers to purchase fixed slots at the top of Hostelworld's and our other brands' results on a monthly cycle. In 2015, 21% of the bookings on Hostelworld were delivered to properties participating in "Elevate", an increase from 15% in 2014. In addition, we provide enhanced revenue management services to our properties which continued to evolve through 2015.
Asia
We progressed our strategy to grow our customer base and revenue in emerging markets. In 2015, we increased our supply base in key Asian markets through our dedicated team based in Shanghai, with Asia becoming our fastest growing destination continent. South Korea grew to become our seventh highest customer nationality for Hostelworld brand bookings (2014: 8th).
Business model
We operate the world's leading hostel-focused online booking platform. We offer a simple and comprehensive online mechanism that gives providers of hostels and other budget accommodation a shop window to show their accommodation to millennial travellers. We facilitate bookings between the two, offering a top-class booking experience that provides us with commission-based revenue.
At the time of booking, hostel travellers pay a non-refundable deposit directly to us, and the remainder of the cost of their stay directly to the hostel at the time of their visit. The deposit equates to our revenue from the transaction. This efficient, light-touch business model has favourable working capital requirements and strong cash conversion. Refunds, debt collection and invoicing overheads are all minimised.
The market
Given the limited available market data on the hostel sector, Hostelworld commissioned leading independent research company for the travel sector, Phocuswright, to undertake the first dedicated study of the global hostel market. The study conducted in the second half of 2015 included surveying over 1,000 hostel operators worldwide, 2,700 hostel travellers from six key consumer markets and 800 non-hostel travellers, as well as a series of interviews with key hostel operators and stakeholders. The key findings of the study are:
· Phocuswright projects 7%-8% hostel revenue growth per year through 2018 for the global hostel market, when it estimates that the total hostel market will reach nearly $7 billion in room revenue.
· The report confirms that hostel accommodation is undergoing a revolution. Today, 9 in 10 hostels have private rooms in addition to dorm rooms or traditional shared rooms. Indeed 57% of all hostel rooms are private rooms. Hostels are investing in a range of value-added amenities, room and common area design as well as expanding bed capacity.
· Millennial customers (18-34 years of age) are the key target market in our sector of the travel industry, representing 70% of total guests.
· Compared to other traveller segments, hostel travellers stand out for their passion for travel. Hostel travellers are more likely to have university degrees and place travel at the top of their list for discretionary spend, travelling longer and spending more on travel than other travellers in most markets profiled by Phocuswright.
· Online channels accounted for two-thirds of global hostel revenue in 2014 (compared with less than 40% of hotel gross bookings globally). More than 70% of online hostel bookings are made via an online travel agent.
Our key strategic pillars identified for 2015 and 2016 are set out overleaf.
| Strategic Pillar | Reason | 2015 Progress | 2016 Priorities |
|---|---|---|---|
| 1. Brand and Marketing Investment | We want to ensure our platforms are the preferred choice for the growing number of millennial travellers worldwide to visit when planning their trips. | In May 2015, we globally relaunched our lead brand Hostelworld, using the 'Meet the World' positioning. The new brand design, logo and imagery focus the brand on its mission of enhancing the travel experience through social interaction. In June 2015 we began with 'Meet the World' mass media advertising campaign to increase Hostelworld's brand awareness. The campaign comprised a multi-channel UK focused campaign across television, cinema, national outdoor and increased global social media and online activity. We believe that the Group's business is already experiencing the benefits of the increase in brand and marketing investment, with Hostelworld brand bookings across all nationalities increasing by an average of 21% for July to December 2015, compared to the same months in 2014. In addition, the Group has further optimised its booking mix with not-paid-for channels representing 58% of overall Group bookings. We have also seen improvements in management of cost-per-click and cost-per-booking metrics. Marketing spend as % of Group net revenues increased from 36% in 2014 to 45% in 2015. |
The Group expects to expand its digital marketing campaign to other key markets and to continue to realise efficiencies in its booking mix and management of cost-per-click and cost-per-booking. As a global business, brand and marketing investment will be spread across key markets. In order to reach our target demographic, we will use a mix of channels, online display advertising and social channels such as Facebook, Twitter and Instagram. We intend to continue our brand advertising and foster brand partnerships with an increased focus on PR and unique content dissemination across global media platforms. Furthermore, we will continue to raise the awareness of the quality of the hostel product and improve general perception of hostels so as to increase consideration of hostels by a wider cohort of travellers. We will continue scaling our customer relationship management ("CRM") programme by expanding the reach and frequency of targeted customer communications across all our brands in multiple channels (email, mobile, onsite). In January 2016, we re-branded Hostelbookers with the 'Just a Step Away' proposition, as this brand serves customers globally who travel for a specific purpose or event, hence are looking for affordable, central accommodation options. |
| 2. Investment in Technology | Millennial customers expect to transact seamlessly across multiple devices, with consistency of user experience and functionality. Meeting this expectation is key to continued future customer acquisition and retention. | During 2015 we focused on the consolidation of brands onto a single technology platform by completing the migration of Hostelbookers onto the Hostelworld platform, which launched in early January 2016. We continued our "mobile first" strategy by developing fully responsive interfaces, ensuring that customers have the same user experience and breadth of functionality regardless of device. In parallel, we continued to enhance our iOS and Android applications for tablets and smart-phones. We also launched on Apple Watch and Apple TV. As a result of this focus, Hostelworld continues to see strong growth in its mobile business with 41% of Hostelworld brand bookings transacting on a mobile platform in 2015. |
Our key deliverable for 2016 is to further improve our customer experience by enhancing our iOS and Android apps. We intend to expand the user experience beyond the booking transaction and provide our app customers with relevant and timely content both pre and in-trip. In addition, we will intensify our conversion optimisation programme to ensure the customer funnel within the web and app sites is optimised through analytics-based testing and continual improvement. We will continue to eliminate elements of legacy architecture, which will increase the functionality of our technology platform across all of our brands. This will reduce complexity which we expect will achieve further operational efficiencies. |
| 3. Flexible Pricing Model | Working closely with accommodation providers assisting them with yield management and revenue optimisation. | Our Elevate programme gives accommodation providers the opportunity to increase their prominence in search lists dynamically in exchange for a higher commission rate of up to 8% above the relevant base commission rate. It also includes a premium listing feature, which enables accommodation providers to purchase fixed slots at the top of Hostelworld's and other brands' city search results pages on a monthly cycle. In 2015, 21% of the bookings on Hostelworld were delivered to properties participating in Elevate, an increase from 15% in 2014. Revenue management services provided to properties continued to evolve through 2015 and included the distribution of reports that were focused on assisting them to improve their yield. Improved local market-related information including "price to demand trend", "booking lead time" and "average bed price" were provided. |
We intend to increase the penetration of Elevate bookings among accommodation providers, both on Hostelworld and through the newly-migrated Hostelbookers site which can now use the Elevate technology. We will continue to explore and test other products and services that we could potentially provide to our hostel partners to enable them to better manage and grow their businesses. |
| 4. Geographic Expansion | To expand the reach of our customer base and tap into increased demand from millennials in emerging markets. | In 2015, we increased our supply base in key Asian markets through our dedicated team based in Shanghai. Asia was our fastest growing destination region, as travellers tapped into the growth of hostel product within the region. South Korea was our seventh highest customer nationality for Hostelworld brand bookings for the twelve months ended 31 December 2015. |
We will actively expand in markets where the offline-to-online travel shift is still emerging and where there is a significant penetration opportunity for hostels and budget accommodation product. We will particularly seek to capitalise on consumer growth in South Korea, locating dedicated personnel in-country and enhancing our understanding of the market development opportunity. We will also focus on adapting our product, user experience and marketing and work on the implementation of alternative payment methods for key local markets e.g. Alipay for China. |
People
We are fortunate to have an excellent and diverse pool of talented individuals working in our global team who deliver an exceptional service to our customers.
In December 2015, we launched our first set of Company values, called "SPIRIT", which represents the growth and maturity of our organisation. "SPIRIT" stands for our core values of Service Excellence, Pace, Innovation, Respect, Initiative and Team Together. I am very excited by these "SPIRIT" values and look forward to embedding them further into Hostelworld.
I believe that what makes our people special is their ability to constantly think about the changing needs of our customers and their willingness to take ownership of responsibilities. I am very grateful for the tremendous effort they make each and every day.
Outlook
The beginning of the 2016 year continues to provide evidence of the robust trading characteristics of our business. We have continued to invest in our in-house capability in managing our paid traffic and this has enabled us to further optimise conversion and margin.
During January 2016, the Group successfully launched a newly rebranded and responsive Hostelbookers website and app. The new site includes the Elevate dynamic pricing functionality, benefits from a larger set of properties and is expected to slow the decline of Hostelbookers bookings over time.
Our extensive experience in all aspects of the online hostel market and our position as market leader leaves us well placed to exploit the growth opportunities in the sector and I look forward to the future with confidence.
Feargal Mooney
Chief Executive
4 April 2016
Financial Review
Introduction
· Strong Hostelworld brand bookings growth of 17%
· Total Group bookings grew by 1%
· Gross average booking value of €12.1, increase of 5%
· Marketing expenses represented 45% of Net Revenue (2014: 36%)
· Adjusted EBITDA margin of 28% (2014: 34%)
· Strong underlying cash conversion and dividend of €2.6m in line with dividend policy
Key Performance Indicators
| 2015 | 2014 | % change | |
| Bookings - Hostelworld brand (m) | 5.2 | 4.4 | 17% |
| Bookings - supporting brands and channels (m) | 2.0 | 2.7 | -27% |
| Total Booking Volume (m) | 7.2 | 7.1 | 1% |
| Net Revenue (€m) | 83.5 | 79.3 | 5% |
| Average Booking Value ("ABV") (gross) (€) | 12.1 | 11.5 | 5% |
| Adjusted EBITDA | 23.6 | 27.0 | -12% |
For the year ending December 2015 booking volumes for the business increased by 1%, with the Hostelworld brand growing by 17% during the year. Bookings in not-paid-for channels represented 58% of total bookings. The Group's booking volumes are seasonal and peak between May and August during the summer travel period in the northern hemisphere. The associated Total Transaction Values ("TTV") in 2015 were €634m (2014: €634m).
The bookings growth combined with an increase in Average Booking Value ("ABV") of 5% during the year resulted in an overall increase in net revenue of €4.2m. The Group's ABV increased due to a number of factors, primarily due to favourable exchange rates and by increased penetration of the Elevate pricing product on Hostelworld bookings. In 2015, 21% of these Hostelworld bookings attracted higher commission at average commission rate of 16.2%. Factors which negatively affected ABV in 2015 included the shift towards mobile bookings, as such customers book fewer bednights per booking, a higher proportion of bookings into hostel dorm beds and growth in Asia as a destination region.
There was additional investment in marketing with the rebranding of the Hostelworld brand in June 2015, the results of which are evident in the stronger growth rates in the Hostelworld brand bookings in the second half of the year (H2 15: 21%, H1 15: 14%).
While the Group operates in one segment and is managed as such, we review business performance on a bookings volume and average booking value basis for both the Hostelworld brand as well as all supporting brands (including Hostelbookers, Hostels.com, booking engines and affiliates).
Adjusted EBITDA
The Group uses Earnings before Interest, Tax, Depreciation and Amortisation, excluding the impact of exceptional items (Adjusted EBITDA) as a key performance indicator when measuring the outcome in the business from one period to the next, and against budget. Exceptional items are non-recurring and by their nature and size can make interpretation of the underlying trends in the business more difficult. We believe this Adjusted EBITDA measure more accurately reflects the key drivers of profitability for the Group and removes those items which do not impact underlying trading performance, thereby making comparisons more meaningful.
Administration expenses increased from €57.8m in 2014 to €64.1m in 2015. A key contributory factor was higher marketing expenses, which increased from €28.9m in 2014 (36% of Net Revenue) to €37.4m in 2015 (45% of Net Revenue). This increase includes the additional investment in the Hostelworld brand of €3.2m incurred during the first six months of the year.
Staff costs were €12.7m during the year (2014: €14.1m), the year on year reduction being due to the level of development labour capitalised (2015: €4.2m; 2014: €1.3m). On a like for like basis, gross staff costs increased by €1.5m during the year, a 9% increase.
Reconciliation between Operating Profit and Adjusted EBITDA:
| €m | 2015 | 2014 |
| Operating profit/(loss) | 7.2 | (42.5) |
| Depreciation | 0.8 | 0.7 |
| Amortisation of development costs | 1.4 | 0.4 |
| Amortisation of acquired intangible assets | 9.9 | 12.3 |
| Impairment charges | 0.0 | 50.7 |
| Exceptional items | 4.3 | 5.4 |
| Adjusted EBITDA | 23.6 | 27.0 |
Exceptional items for the year were €4.3m (2014: €5.4m). Total fees incurred in relation to the IPO were €10.2m of which €4.5m has been expensed through the Income Statement as an exceptional item with the balance of €5.7m charged to the share premium account. Other non-recurring items totalling net income of €0.2m have been classified as exceptional within administration expenses. These non-recurring items relate to redundancy costs and the costs of moving office, offset by a reversal of a prior year accrual which is considered exceptional and one-off in nature. In 2014, corporate finance costs of €3.9m, redundancy costs of €1.3m and other non-recurring costs of €0.2m were expensed to the Income Statement as exceptional items.
Adjusted EBITDA decreased from €27.0m to €23.6m, a key contributor being the increased investment of €3.2m in Hostelworld brand re-launch. Adjusted EBITDA margin decreased from 34% of net revenue in 2014 to 28% in 2015.
Adjusted Profit after Taxation
| €m | 2015 | 2014 |
| Adjusted EBITDA | 23.6 | 27.0 |
| Depreciation | (0.8) | (0.7) |
| Amortisation of development costs | (1.4) | (0.4) |
| Corporation tax | (0.4) | (0.3) |
| Adjusted Profit after Taxation | 21.0 | 25.6 |
| Exceptional costs | (4.3) | (5.4) |
| Amortisation of acquired intangibles | (9.9) | (12.3) |
| Net financial costs | (30.9) | (34.5) |
| Other gains | 104.2 | - |
| Impairment charges | 0.0 | (50.7) |
| Deferred taxation | 1.0 | 5.1 |
| Profit/ (loss) for the year | 81.2 | (72.2) |
Adjusted Profit after Taxation is a metric that the Group uses to calculate the dividend payout for the year. It excludes exceptional costs, amortisation of acquired domain and technology intangibles, impairment charges, net finance costs and deferred taxation which can have large impacts on the reported result for the year, and which can make underlying trends difficult to interpret.
Adjusted Profit after Taxation decreased from €25.6m to €21.0m in line with the reduction in Adjusted EBITDA.
Based on the weighted average shares in issue during 2015, reported Earnings per Share ("EPS") as set out in Note 9 is 4.46 cent per share for the financial year (2014: loss per share 24.04 cent). Using Adjusted Profit after Taxation as the measure of earnings, and the actual number of shares in issue as at 31 December 2015, would result in an adjusted EPS of 22 cent per share for the year. The corresponding EPS for 2014 calculated on the same basis, using the number of shares in issue as at 31 December 2015 is 27 cent per share.
Accounting for the IPO and reorganisation
In preparation for the IPO, the Group undertook a capital reorganisation and restructuring, which simplified the Group structure and eliminated all shareholder related debt. Prior to the IPO, a new holding company was created and this acquired control of the Group. As this was a common control transaction, it is outside the scope of IFRS 3 (Business Combinations) and the comparatives presented are the consolidated results for the Hostelworld Group. Further details about the accounting for the IPO are disclosed within Note 1 and Note 13.
The impact on the Income Statement related to the IPO transaction and reorganisation are the fees incurred, as explained above in Exceptional Costs, and the one off gain included in Other Gains and Net Finance Costs, which is detailed below.
Other gains and net finance costs
As part of the IPO, €181.4m was paid to shareholders as consideration for preference shares and the redemption of shareholder loans and accrued interest, and the remaining balance of shareholder loans and interest was waived or exchanged for shares in the newly listed entity. This has resulted in an exceptional gain of €104.2m in 2015. Interest accrued on shareholder loans up to the date of the IPO was €30.9m (2014: €34.5m).
As a result of the IPO, shareholder loans and accrued interest at 31 December 2015 are €nil (2014: €319.9m).
Taxation
The Group corporation tax charge of €0.4m (2014: €0.3m) is an effective tax rate (corporation tax as a percentage of Adjusted EBITDA) of 1.5% (2014: 1.1%). The low effective tax rate is primarily as a result of carried forward tax losses arising from the previous capital structure in the Group. It is expected that the Group will benefit from these tax losses in the coming year and that the effective tax rate will be in the region of 4% for 2016, increasing due to the change in the Group's capital structure post listing. This is dependent on the continuation of the current operating structure and current tax law.
The deferred taxation credit of €1.0m (2014: €5.1m) arises primarily in relation to acquired intangibles and the partial recognition of carried forward tax losses. The primary contributor to the 2014 deferred taxation credit was the impairment of the goodwill arising on the Hostelbookers business.
Adjusted Free Cashflow conversion
| €m | 2015 | 2014 |
| Adjusted EBITDA | 23.6 | 27.0 |
| Capitalised development spend | (4.3) | (1.4) |
| Capital expenditure | (3.2) | (0.7) |
| Interest and tax paid | 0.2 | (0.9) |
| Net movement in working capital (1) | (1.1) | 0.0 |
| Adjusted Free Cashflow | 15.3 | 24.0 |
| Adjusted FCF conversion | 65% | 89% |
| (1) changes in working capital excludes the effects of exceptional costs |
The Group has a business model which produces strong free cash flow conversion, with a negative working capital cycle on operational cash flows. In 2015 there was a higher than normal level of investment in capital expenditure due to spend of €2.0m (2014: €0.03m) on leasehold improvements and fixtures and fittings as the Group entered into new leases in London and Dublin to allow for the expansion of the business. Adjusting for these higher than average levels of investment and a delayed VAT reclaim, the cash conversion would be 75% of Adjusted EBITDA. The lower level of capitalised development expenditure and capital expenditure in 2014, resulted in adjusted free cashflow conversion of 89%.
On 21 October 2015, in connection with the IPO, the Group entered into a working capital facility with AIB Bank plc (the "Revolving Credit Facility") for €2.5m. During the period to 31 December 2015, there have been no drawdowns under this facility.
Total Cash at 31 December 2015 was €13.6m (2014: €19.9m), of which €2.2m is held in a restricted account as part of a guarantee related to the lease of the Dublin office (as disclosed in Note 12). There were no borrowings at 31 December 2015 (2014: €319.9m, all of which was shareholder related).
Foreign exchange risk
The Group's primary operating currency is the euro. The Group also has significant sterling and US dollar cash flows. Restated on a constant currency basis, revenues have declined by 5% (€4.7m) and Adjusted EBITDA has declined by 22% (€6.5m) in 2015.Constant currency is calculated by applying the average exchange rates for the year ended 31 December 2015 to the financial results for the year ended 31 December 2014 on a month by month basis. The Group's principal policy is to match cashflows of like currencies, with excess sterling and US dollar revenues being settled into euros on a timely basis.
Incorporation and capital reduction
On 9 October 2015, Hostelworld Group plc was incorporated and registered in England and Wales under the Companies Act 2006 as a public limited Company. The Company has reduced its share capital by means of a court-sanctioned reduction in capital in order to provide it with the distributable reserves required to support the intended dividend policy. The capital reduction and cancellation of share premium received court approval on 16 December 2015.
Dividend
The Group is committed to an attractive dividend policy, and is pleased to recommend a total dividend payout of €2.6m which reflects a distribution of 75% of the Adjusted Profit after Taxation for the period since the IPO date of 2 November 2015, on a pro rata basis. This represents a distribution of 2.75 cent per share, based on the number of shares in issue at 4 April 2016. Subject to shareholder approval the dividend will be paid on 31 May 2016 to those shareholders on the register at the close of business on 29 April 2016.
Mari Hurley
Chief Financial Officer
4 April 2016
HOSTELWORLD GROUP PLC
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
| 2015 | 2014 | |||
| Notes | €'000 | €'000 | ||
| Revenue | 3 | 83,451 | 79,265 | |
| Administrative expenses | 4 | (64,087) | (57,677) | |
| Depreciation and amortisation expenses | 4 | (12,170) | (13,443) | |
| Impairment losses | 4 | - | (50,692) | |
| Operating profit/(loss) | 7,194 | (42,547) | ||
| Financial income | 8 | 17 | ||
| Financial costs | 7 | (30,866) | (34,479) | |
| Other gains | 7 | 104,158 | - | |
| Profit/(loss) before taxation | 80,494 | (77,009) | ||
| Taxation | 8 | 680 | 4,826 | |
| Profit/(loss) for the year attributable to the equity owners of the parent company | 81,174 | (72,183) | ||
| Basic and diluted earnings per share (cents) | 9 | 4.46 | (24.04) |
A reconciliation to Adjusted EBITDA and Adjusted Profit after Taxation is provided in the Financial Review on page 12.
HOSTELWORLD GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
| 2015 | 2014 | |
| €'000 | €'000 | |
| Profit/(loss) for the year | 81,174 | (72,183) |
| Items that may be reclassified subsequently to profit or loss: | ||
| Exchange differences on translation of foreign operations | 333 | 282 |
| Total comprehensive income/(expense) for the year attributable to equity owners of the parent company |
81,507 | (71,901) |
HOSTELWORLD GROUP PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
| 2015 | 2014 | |||
| Notes | €'000 | €'000 | ||
| Non-current assets | ||||
| Intangible assets | 10 | 158,972 | 166,008 | |
| Property, plant and equipment | 3,523 | 1,419 | ||
| Deferred tax assets | 1,325 | 693 | ||
| 163,820 | 168,120 | |||
| Current assets | ||||
| Trade and other receivables | 11 | 3,249 | 2,326 | |
| Corporation tax | 3 | 728 | ||
| Cash and cash equivalents | 12 | 13,620 | 19,942 | |
| 16,872 | 22,996 | |||
| Total assets | 180,692 | 191,116 | ||
| Issued capital and reserves attributable to equity owners of the parent | ||||
| Share capital | 956 | 30 | ||
| Share premium | - | 13,521 | ||
| Other reserves | 13 | 3,628 | - | |
| Foreign currency translation reserve | 695 | 362 | ||
| Retained earnings/(accumulated losses) | 161,418 | (158,101) | ||
| Total equity attributable to equity holders of the parent company | 166,697 | (144,188) | ||
| Non-current liabilities | ||||
| Borrowings | - | 285,638 | ||
| Deferred tax liabilities | 2,563 | 2,964 | ||
| 2,563 | 288,602 | |||
| Current liabilities Borrowings |
- | 34,278 | ||
| Trade and other payables | 14 | 11,405 | 12,345 | |
| Corporation tax | 27 | 79 | ||
| 11,432 | 46,702 | |||
| Total liabilities | 13,995 | 335,304 | ||
| Total equity and liabilities | 180,692 | 191,116 |
HOSTELWORLD GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
| Share Capital | Share Premium | Retained Earnings/ Accumulated Losses | Other Reserves | Foreign Currency Translation Reserve |
Total | |
| €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | |
| Notes | 13 | |||||
| As at 1 January 2014 | 30 | 13,521 | (85,918) | - | 80 | (72,287) |
| Total comprehensive (expense)/ income for the year | - | - | (72,183) | - | 282 | (71,901) |
| As at 31 December 2014 | 30 | 13,521 | (158,101) | - | 362 | (144,188) |
| Elimination on reorganisation | (30) | (13,521) | - | - | - | (13,551) |
| Issue of capital (net of costs) | 956 | 238,345 | - | - | - | 239,301 |
| Merger reserve | - | - | - | 3,628 | - | 3,628 |
| Capital reduction | - | (238,345) | 238,345 | - | - | - |
| Total comprehensive income for the year | - | - | 81,174 | - | 333 | 81,507 |
| As at 31 December 2015 | 956 | - | 161,418 | 3,628 | 695 | 166,697 |
HOSTELWORLD GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
| 2015 | 2014 | |||
| Notes | €'000 | €'000 | ||
| Cash flows from operating activities | ||||
| Profit/(loss) before tax | 80,494 | (77,009) | ||
| Depreciation of property, plant and equipment | 4 | 813 | 659 | |
| Amortisation of intangible assets | 4 | 11,357 | 12,784 | |
| Impairment of intangible assets | 4 | - | 50,692 | |
| Transaction costs (included within financing activities) | 4,546 | - | ||
| Loss on disposal of property, plant and equipment | 251 | - | ||
| Financial income | (8) | (17) | ||
| Financial expense | 7 | 30,866 | 34,479 | |
| Other gains | 7 | (104,158) | - | |
| Changes in working capital items: | ||||
| (Decrease)/increase in trade and other payables | 14 | (940) | 4,286 | |
| Increase in trade and other receivables | 11 | (1,117) | (174) | |
| Cash generated from operations | 22,104 | 25,700 | ||
| Interest paid | (79) | (203) | ||
| Interest received | 8 | 17 | ||
| Income tax refunded/(paid) | 319 | (667) | ||
| Net cash from operating activities | 22,352 | 24,847 | ||
| Cash flows from investing activities | ||||
| Acquisition/capitalisation of intangible assets | 10 | (4,321) | (1,414) | |
| Purchases of property, plant and equipment | (3,168) | (722) | ||
| Net cash used in investing activities | (7,489) | (2,136) | ||
| Cash flows from financing activities | ||||
| Repayment of shareholders' loans | (195,125) | - | ||
| Proceeds on issue of shares, net of expenses | 173,607 | - | ||
| Repayments of bank loans | - | (7,874) | ||
| Net cash used in financing activities | (21,518) | (7,874) | ||
| Net (decrease)/increase in cash and cash equivalents | (6,655) | 14,837 | ||
| Cash and cash equivalents at the beginning of the year | 19,942 | 4,823 | ||
| Effect of exchange rate changes on cash and cash equivalents | 333 | 282 | ||
| Cash and cash equivalents at the end of the year | 13,620 | 19,942 | ||
| Restricted cash balances | 12 | (2,225) | - | |
| Unrestricted cash balances at the end of the year | 11,395 | 19,942 |
HOSTELWORLD GROUP PLC
NOTES TO THE FINANCIAL INFORMATION
1. GENERAL INFORMATION AND BASIS OF PREPARATION
The financial information, comprising of the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cashflows and related notes, has been taken from the consolidated financial statements of Hostelworld Group plc ("Company") for the year ended 31 December 2015, which were approved by the Board of Directors on 4 April 2016. The financial information does not constitute statutory accounts within the meaning of sections 435(1) and (2) of the Companies Act 2006 or contain sufficient information to comply with the disclosure requirements of International Financial Reporting Standards ("IFRS").
An unqualified report on the consolidated financial statements for the year ended 31 December 2015 has been given by the auditors, Deloitte. It did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006. The consolidated financial statements will be filed with the Registrar of Companies, subject to their approval by the Company's shareholders at the Company's Annual General Meeting on 26 May 2016.
The Company is a public limited company incorporated in the United Kingdom on the 9 October 2015. The registered office of the Company is High Holborn House, 52 - 54 High Holborn, London, WC1V 6RL, United Kingdom.
The Company and its subsidiaries (together "the Group") provide software and data processing services that facilitate hostel, B&B, hotel and other accommodation bookings worldwide.
Basis of Preparation
The consolidated financial statements incorporate the financial statements of the Company and its directly and indirectly owned subsidiaries, all of which prepare financial statements up to 31 December. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee (IFRIC) interpretations and those parts of the Companies Act 2006, applicable to companies reporting under IFRS. The Group financial statements have been prepared in accordance with IFRSs adopted by the European Union ("the EU") which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"). The financial statements are also prepared in line with IFRSs as issued by the IASB.
On 2 November 2015, as part of a reorganisation, the ultimate parent of the group changed from H&F Wings Lux 1 S.à r.l to Hostelworld Group plc.
The Company obtained control of the entire share capital of Wings Lux 2 S.à r.l. Wings Lux 2 S.à r.l. is a Luxembourg holding company incorporated on 19 November 2009 as a société à responsabilité limitée for an unlimited period of time, subject to general company law. The registered office of the company is 5, Rue Guillaume Kroll L - 1882, Luxembourg.
This transaction falls outside the scope of IFRS 3 "Business Combinations". Accordingly, following the guidance regarding the selection of an appropriate accounting policy provided by IAS 8 "Accounting policies, changes in accounting estimates and errors", the transaction has been accounted for in these financial statements using the principles of merger accounting set out in FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland. This policy, which does not conflict with IFRS, reflects the economic substance of the transaction.
The comparatives presented in these financial statements are the consolidated results of Wings Lux 2 S.à r.l. The prior year balance sheet reflects the share capital structure of Wings Lux 2 S.à r.l. The current year balance sheet presents the legal change in ownership of the Group, including the share capital of Hostelworld Group plc and the merger reserve arising as a result of the transaction. The consolidated statement of changes in equity and the additional disclosures in Note 13 explain the impact of the reorganisation in more detail.
The consolidated financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below.
These consolidated financial statements are presented in euro (€) because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the Group's accounting policies. All amounts in the notes are shown in euro unless otherwise stated.
The directors have assessed the ability of the Company and Group to continue as a going concern and are satisfied that it is appropriate to prepare the financial statements on a going concern basis of accounting. In doing so, the directors have assessed that there are no material uncertainties to the Group's and Company's ability to continue as a going concern for the foreseeable future, being a period of at least 12 months from the date of approval of the financial statements.
2. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group's accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors considered relevant. Actual results may differ from these estimates.
(a) The critical judgements that have been made that have the most significant effect on the amounts recognised in the consolidated financial statements are set out below:
Useful lives for amortisation of intangible assets
Intangible assets are disclosed in Note 10. The amortisation charge is dependent on the estimated useful lives of the assets. The directors regularly review estimated useful lives of each type of intangible asset and change them as necessary to reflect its current assessment of remaining lives and the expected pattern of future economic benefit embodied in the asset. Changes in asset lives can have a significant impact on the amortisation charges for that year.
Capitalisation of Development Costs
Development costs are capitalised in accordance with the Group's accounting policies. Determining the amount to be capitalised requires the directors to make assumptions regarding expected future cash generation of the asset and expected period of benefit.
(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:
Impairment of goodwill and intangible assets
The directors assess annually whether goodwill has suffered any impairment, in accordance with the relevant accounting policy, and the recoverable amounts of cash-generating units are determined based on value-in-use calculations that require the use of estimates. Intangible assets are assessed for possible impairment where indicators of impairment exist.
Further details on the assumptions used are set out in Note 10.
Deferred Tax
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profits will be available in future periods which the losses can be utilised. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits.
Accounting for Reorganisation and IPO Costs
The Company incurred significant costs in relation to the Group reorganisation and subsequent initial public offering (IPO) of its shares. As part of these processes, the Group engaged appropriate legal, accounting and tax advisors. The key area of technical consideration was the application of the principles of International Accounting Standard 32: Financial Instruments: Presentation (IAS 32) as to whether the costs incurred in respect of the IPO are directly attributable to the issuing of new shares, in which case it is permissible for them to be deducted from share premium. Non-directly attributable costs are required to be expensed directly to the income statement. Given the related costs arose largely concurrently, judgement was required in assessing the apportionment of costs.
3. REVENUE & SEGMENTAL ANALYSIS
The Group is managed as a single business unit which provides software and data processing services that facilitate hostel, hotel and other accommodation worldwide, including ancillary on-line advertising revenue.
The directors determine and present operating segments based on the information that is provided internally to the CEO, who is the Company's Chief Operating Decision Maker (CODM). When making resource allocation decisions, the CODM evaluates booking numbers and average booking value. The objective in making resource allocation decisions is to maximise consolidated financial results.
The CODM assesses the performance of the business based on the consolidated adjusted profit/(loss) after tax of the Group for the year. This measure excludes the effects of certain income and expense items, which are unusual by virtue of their size and incidence, in the context of the Group's ongoing core operations, such as the impairment of intangible assets and one-off items of expenditure.
All segmental revenue is derived wholly from external customers and, as the Group has a single reportable segment, inter-segment revenue is zero.
The Group's major revenue-generating asset class comprises its software and data processing services and is directly attributable to its reportable segment operations. In addition, as the Group is managed as a single business unit, all other assets and liabilities have been allocated to the Group's single reportable segment.
There have been no changes to the basis of segmentation or the measurement basis for the segment profit or loss.
Reportable segment information is presented as follows:
| 2015 | 2014 | ||
| €'000 | €'000 | ||
| Europe | 53,812 | 52,128 | |
| Americas | 14,951 | 13,969 | |
| Asia, Africa and Oceania | 14,688 | 13,168 | |
| Total revenue | 83,451 | 79,265 |
The Group's non-current assets are located in Ireland, Luxembourg and the UK.
4. OPERATING EXPENSES
Profit/(loss) for the year has been arrived at after charging the following operating costs:
| 2015 | 2014 | |||
| Note | €'000 | €'000 | ||
| Marketing expenses | 37,410 | 28,856 | ||
| Credit card processing fees | 1,958 | 1,844 | ||
| Staff costs | 6 | 12,721 | 14,146 | |
| Loss on disposal of property, plant and equipment | 251 | - | ||
| Exceptional Items | 5 | 4,267 | 5,407 | |
| Other administrative costs | 7,480 | 7,424 | ||
| Total administrative expenses | 64,087 | 57,677 | ||
| Depreciation of tangible fixed assets | 813 | 659 | ||
| Amortisation of intangible fixed assets | 10 | 11,357 | 12,784 | |
| Impairment of intangible assets | 10 | - | 50,692 | |
| Total operating expenses | 76,257 | 121,812 |
Auditors' remuneration
During the year, the Group obtained the following services from its Auditors:
| 2015 | 2014 | |||
| €'000 | €'000 | |||
| Fees payable for the statutory audit of the Company | 35 | - | ||
| Fees payable for other services: | ||||
| - statutory audit of subsidiary undertakings | 115 | 163 | ||
| - tax advisory services | 4 | 4 | ||
| - other assurance services | 191 | 5 | ||
| - corporate finance services | 854 | - | ||
| - other services | 91 | - | ||
| Total | 1,290 | 172 |
The figures in 2015 relating to other assurance services, corporate finance services and other services all relate to the IPO and Group reorganisation which occurred in November 2015.
5. EXCEPTIONAL ITEMS
| 2015 | 2014 | |||
| €'000 | €'000 | |||
| Merger and acquisition costs | 3,994 | 3,879 | ||
| Redundancy costs | 211 | 1,263 | ||
| Integration and relocation costs | 573 | 265 | ||
| Non-recurring gain | (511) | - | ||
| Total exceptional items | 4,267 | 5,407 |
Merger and acquisition costs were incurred in relation to the listing of the Company on the main market of the London Stock Exchange and the main securities market of the Irish Stock Exchange plc (the "IPO"), and the related reorganisation of the Group and prior year corporate finance activities. Redundancy costs relate to the restructuring of the Group following the acquisition of Hostelworld Services Limited (formerly Hostelbookers.com Limited) in 2013. The integration and relocation costs primarily relate to the costs incurred for office moves in both Dublin and London. The non-recurring gain of €511k relates to the release of an accrual related to the potential indirect taxes of the Hostelbookers business where the liability was settled in 2015 and is recorded as exceptional due to its one-off nature.
6. STAFF COSTS
The average number of people employed (including executive directors) during the year was as follows:
| 2015 | 2014 | ||
| Average number of persons employed | |||
| Administration and sales | 155 | 169 | |
| Development and information technology | 101 | 92 | |
| Total number | 256 | 261 |
The aggregate remuneration costs of these employees is analysed as follows:
| 2015 | 2014 | ||
| €'000 | €'000 | ||
| Staff costs comprise: | |||
| Wages and salaries | 14,756 | 13,501 | |
| Social security costs | 1,669 | 1,559 | |
| Pensions costs | 240 | 195 | |
| Other benefits | 233 | 186 | |
| Capitalised development labour | (4,177) | (1,295) | |
| Total | 12,721 | 14,146 |
7. FINANCIAL COSTS AND OTHER GAINS
| 2015 | 2014 | |||
| €'000 | €'000 | |||
| Finance costs: | ||||
| Interest payable on shareholders' loans | 30,786 | 34,285 | ||
| Bank borrowing costs | - | 110 | ||
| Bank charges | 80 | 84 | ||
| Total finance costs | 30,866 | 34,479 |
Other gains
Other gains in the current year relate solely to the write off of shareholder loans of €104,158k as part of the Group reorganisation in November 2015. Given that the Group has tax losses brought forward, the write off of the shareholders' loans did not have any tax impact on the income statement apart from the reduction in unrecognised deferred tax losses carried forward (Note 8).
8. TAXATION
| 2015 | 2014 | |||
| €'000 | €'000 | |||
| Corporation tax: | ||||
| Current year | 297 | 269 | ||
| Adjustments in respect of prior years | 58 | 32 | ||
| Total | 355 | 301 | ||
| Deferred tax | (1,035) | (5,127) | ||
| Total | (680) | (4,826) |
Corporation tax is calculated at 12.5% (2014: 29.22%) of the estimated taxable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the consolidated income statement as follows:
| 2015 | 2014 | |
| €'000 | €'000 | |
| Profit/(loss) before tax on continuing operations | 80,494 | (77,009) |
| Tax at the Irish corporation tax rate of 12.5% (2014: 29.22% (Luxembourg)) | 10,062 | (22,502) |
| Effects of : | ||
| Tax effect of (income)/ expenses that are not taxable/deductible in determining taxable profit | (8,644) | 11,801 |
| Tax effect of utilisation of tax losses not previously recognised | (1,767) | 3,792 |
| Effect of different tax rates of subsidiaries operating in other jurisdictions | 280 | 2,397 |
| Recognition of deferred tax asset on tax losses | (669) | (346) |
| Adjustments in respect of prior years | 58 | 32 |
| Total for the year | (680) | (4,826) |
9. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the net profit/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year.
| 2015 | 2014 | ||
| Weighted average number of shares in issue ('000s) | 18,217 | 3,003 | |
| Profit/(loss) for the year (€'000s) | 81,174 | (72,183) | |
| Basic earnings/(loss) cents per share | 4.46 | (24.04) |
Actual earnings per share, calculated by dividing the net profit/(loss) attributable to ordinary shareholders by the actual number of ordinary shares in issue at 31 December 2015, is €0.85 (2014: loss per share of €0.76).
10. INTANGIBLE ASSETS
The table below shows the movements in intangible assets for the year:
| Goodwill | Domain Names |
Technology | Affiliates Contracts | Capitalised Development Costs |
Total | |
| €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | |
| Cost | ||||||
| Balance at 1 January 2014 | 47,274 | 214,640 | 13,325 | 5,500 | - | 280,739 |
| Additions | - | - | - | - | 1,414 | 1,414 |
| Balance at 31 December 2014 | 47,274 | 214,640 | 13,325 | 5,500 | 1,414 | 282,153 |
| Balance at 1 January 2015 | 47,274 | 214,640 | 13,325 | 5,500 | 1,414 | 282,153 |
| Additions | - | - | - | - | 4,333 | 4,333 |
| Effect of foreign currency exchange difference | (12) | (12) | ||||
| Balance at 31 December 2015 | 47,274 | 214,640 | 13,325 | 5,500 | 5,735 | 286,474 |
| Accumulated amortisation and impairment | ||||||
| Balance at 1 January 2014 | - | (36,985) | (11,192) | (4,492) | - | (52,669) |
| Charge for year | - | (10,777) | (583) | (1,008) | (416) | (12,784) |
| Impairment | (29,426) | (20,340) | (926) | - | - | (50,692) |
| Balance at 31 December 2014 | (29,426) | (68,102) | (12,701) | (5,500) | (416) | (116,145) |
| Balance at 1 January 2015 | (29,426) | (68,102) | (12,701) | (5,500) | (416) | (116,145) |
| Charge for year | - | (9,687) | (235) | - | (1,435) | (11,357) |
| Balance at 31 December 2015 | (29,426) | (77,789) | (12,936) | (5,500) | (1,851) | (127,502) |
| Net book value | ||||||
| At 31 December 2014 | 17,848 | 146,538 | 624 | - | 998 | 166,008 |
| At 31 December 2015 | 17,848 | 136,851 | 389 | - | 3,884 | 158,972 |
10. INTANGIBLE ASSETS (CONTINUED)
The goodwill balance at 31 December 2015 relates to the following investments:
a) An investment in Hostelworld.com Limited in 2009 which resulted in a goodwill amount of €17,848k. The carrying value of this balance as at 31 December 2015 is €17,848k (2014: €17,848k);
b) An investment in Hostelworld Services Limited (formerly Hostelbookers.com Limited), which resulted in a goodwill amount of €29,426k in 2013. The carrying value of this balance at 31 December 2015 is €NIL (2014: €NIL).
Goodwill, which has an indefinite useful life, is subject to annual impairment testing, or more frequent testing if there are indicators of impairment. The cash flow projections are initially based on the three year budgets approved by the directors and extended out for a further 12 years. The cash-flow projections take into account key assumptions including historical trading performance, anticipated changes in future market conditions, industry and economic factors and business strategies.
The pre-tax discount rate which has been applied in determining value in use is 11.4% (2014: 11.0%). The discount rate is based on the Group estimated weighted average cost of capital adjusted for business specific risk of the CGU. Based on the 2016 budget, growth rates are assessed based on approved budgets and forecast and range from 5% to 10% over the forecast period after 2016. Cash flows beyond the 15 year period are extrapolated using the estimated long- term growth rate of 2% (2014: 2%).
There are no reasonable possible changes to the assumptions presented above that would result in any further impairment recorded in each of the years presented in these financial statements.
Following impairment testing, no impairment was recognised for goodwill in 2015. There were no indicators to require an impairment test of intangible assets in the current year. In 2014, following a review of trading performance and revenue being less than originally projected, the directors reassessed estimated future cashflows for the Hostelbookers trade, which led to the full impairment of the goodwill recognised in relation to the acquisition of the Hostelbookers trade of €29,426k and the recognition of an impairment charge of €21,266k in relation to the value of other intangible assets relating to Hostelbookers.
11. TRADE AND OTHER RECEIVABLES
| 2015 | 2014 | ||
| €'000 | €'000 | ||
| Amounts falling due within one year | |||
| Trade receivables | 621 | 880 | |
| Prepayments and accrued income | 822 | 560 | |
| Value Added Tax | 1,806 | 283 | |
| Amount due from related parties | - | 603 | |
| 3,249 | 2,326 |
The carrying value of trade and other receivables also represents their fair value. Trade receivables are non-interest bearing and trade receivable days are 3 days (2014: 4 days). Given the nature of the business, allowance for impairment of receivables is not material.
12. CASH AND CASH EQUIVALENTS
| 2015 | 2014 | ||
| €'000 | €'000 | ||
| Cash and cash equivalents | 13,620 | 19,942 | |
| Restricted cash balances | (2,225) | - | |
| Unrestricted cash balances | 11,395 | 19,942 |
The Group entered into a guarantee with AIB Bank plc related to the lease of office space in Dublin. The guarantee requires that €2,225k remains on deposit with the bank, reducing over the duration of the lease up to its first break period in April 2025.
13. GROUP REORGANISATION AND IMPACT ON RESERVES
As part of the Group reorganisation as described in the basis of preparation in Note 1, the Company became the ultimate parent entity of the Group. By doing so, it also indirectly acquired all of the shareholdings previously held by Wings Lux 2 S.à r.l in each of its 100% owned subsidiaries.
Subsequent to the acquisition of Wings Lux 2 S.à r.l, share capital and share premium to the value of €61,147k was issued in part consideration for shareholders' loans (including accrued interest) held in Wings Lux 2 S.à r.l. Shareholder loans and accrued interest amounting to €181,359k was paid out of the proceeds of the issue of new shares in the Company with a further amount of €13,766k repaid by the Group prior to the reorganisation. The remaining shareholder loans and accrued interest of €104,158k was forgiven (Note 7).
The imposition of Hostelworld Group plc as a new holding company of Wings Lux 2 S.à r.l does not meet the definition of a business combination under IFRS 3 "Business Combinations", and, as a consequence, the acquired assets and liabilities of Wings Lux 2 S.à r.l and its subsidiaries continue to be carried in the consolidated financial statements at their respective carrying values as at the date of the reorganisation. The consolidated financial statements of Hostelworld Group plc are prepared on the basis that the Hostelworld Group is a continuation of the previous group, reflecting the substance of the arrangement. As a result, the difference in fair value between shares issued in acquiring Wings Lux 2 S.à r.l and the carrying value of its assets have been accounted for as a merger reserve of €3,628k.
14. TRADE AND OTHER PAYABLES
| 2015 | 2014 | ||
| Notes | €'000 | €'000 | |
| Amounts falling due within one year | |||
| Trade payables | 5,439 | 4,650 | |
| Accruals and other payables | 5,168 | 6,422 | |
| Payroll taxes | 694 | 582 | |
| Value Added Tax | 104 | 406 | |
| Amount due to related parties | 16 | - | 285 |
| 11,405 | 12,345 |
The average credit period for the Group in respect of trade payables is 26 days (2014: 31 days).
15. COMMITMENTS AND CONTINGENCIES
(i) OPERATING LEASES
At the reporting date, the Group had commitments under non-cancellable operating leases which fall due as follows:
| 2015 | 2014 | |
| €'000 | €'000 | |
| Operating leases | ||
| Within one year | 994 | 964 |
| Within two to five years | 3,682 | 2,232 |
| More than five years | 2,433 | - |
| 7,109 | 3,196 |
All operating lease commitments relate to buildings. These relate to two leases of office space in Ireland and the UK. These leases are due to expire in 2035 and 2025 respectively.
The operating lease charge included in the consolidated income statement was €928k in 2015 (2014: €793k).
(ii) CONTINGENCIES
In the normal course of business the Group may be subject to indirect taxes on its services in certain foreign jurisdictions. The directors perform ongoing reviews of potential indirect taxes in these jurisdictions. Although the outcome of these reviews and any potential liability is uncertain, no provision has been made in relation to these taxes as the directors believe that it is not probable that a material liability will arise.
16. RELATED PARTY TRANSACTIONS
Prior to the reorganisation of the Group on 2 November 2015, Wings Lux 2 S.à r.l was a subsidiary of H&F Wings Lux 1 S.à r.l., a company incorporated in Luxembourg. The prior ultimate parent was Hellman & Friedman Capital Partners VI (Cayman) L.P., an exempt limited partnership incorporated under the laws of Cayman Islands with registered office at Walker House, 87 Mary Street, George Town, Grand Cayman, KY1-9002, Cayman Islands.
Subsidiaries
The following is a list of the Company's current investments in subsidiaries, including the name, country of incorporation, and proportion of ownership interest:
| Company | Country of incorporation |
Holding | Nature of Business |
| Wings Lux 2 S.à r.l | Luxembourg | 100% | Intermediate holding company |
| Wings Lux 3 S.à r.l | Luxembourg | 100% | Intermediate holding company |
| Wings Holdco Ltd | Ireland | 100% | Intermediate holding company |
| Wings Bidco Ltd | Ireland | 100% | Intermediate holding company |
| WRI Nominees Ltd | Ireland | 100% | Holding of IP |
| WRI Holdings | Ireland | 100% | Intermediate holding company |
| Web Reservations International | Ireland | 100% | Intermediate holding company |
| Hostelworld.com Ltd | Ireland | 100% | Technology trading company |
| Boo Travel Ltd | Ireland | 100% | Dormant company |
| Wings Corporate Services Ltd | Ireland | 100% | Management services company |
| Cornetto Bidco Ltd | Jersey | 100% | Intermediate holding company |
| Hostelworld Services Limited | UK | 100% | Technology trading company |
| Anytrip.com Ltd | UK | 100% | Dormant company |
All subsidiaries have the same reporting date as the Company being 31 December.
On 22 February 2016, H&F Wings Bidco Ltd changed its name to Wings Bidco Ltd and H&F Wings Holdco Ltd changed its name to Wings Holdco Ltd.
On 26 February 2016, H&F Wings Lux 2 S.à r.l changed its name to Wings Lux 2 S.à r.l and H&F Wings Lux 3 S.à r.l changed its name to Wings Lux 3 S.à r.l.
17. RELATED PARTY TRANSACTIONS (CONTINUED)
DIRECTORS' REMUNERATION
| 2015 | 2014 | ||
| €'000 | €'000 | ||
| Salaries, fees, bonuses and benefits in kind | 956 | 796 | |
| Gains on exercise of share options | - | - | |
| Amount receivable under long term incentive schemes | - | - | |
| Pension contributions | 23 | 19 | |
| Total | 979 | 815 |
The comparative figures included in this note relate to Mari Hurley, Feargal Mooney and Richard Segal, who were remunerated by a subsidiary undertaking in the period prior to the incorporation of the Company on 9 October 2015.
KEY MANAGEMENT PERSONNEL
The Group's key management comprise the Board of Directors and senior management having authority and responsibility for planning, directing and controlling the activities of the Group.
| 2015 | 2014 | |
| €'000 | €'000 | |
| Short term benefits | 2,342 | 1,648 |
| Post employment benefits | 52 | 25 |
| Other long term benefits | - | - |
| Share based payments | - | - |
| Termination benefits | - | - |
| Total | 2,394 | 1,673 |
Transactions between the Group and the Related Parties and the balances outstanding are disclosed below:
The Group has no borrowings from its previous immediate parent undertaking, H&F Wings Lux 1 S.à r.l. as at 31 December 2015 (2014: €254,019k). In 2015, H&F Wings Lux 1 S.à r.l., the selling shareholders agreed to pay Richard Segal a sum of €5,000k (net sum of €2,500k) and any employer tax liability that accrued to the company in full satisfaction of an agreement with him dated 28 September 2011. For administration purposes the sum was paid by the Group and reimbursed by the shareholders.
Prior to the reorganisation, the Group had borrowings from a shareholder, Wings Mgt Equity Co Limited, comprising A & B PECs and accrued interest thereon. As at 31 December 2015, there was no balance due on these borrowings (2014: €65,897k).
18. DIVIDENDS
In accordance with the Group's dividend policy, the directors recommend the payment of a dividend for 2015 of €0.0275 per share amounting to €2.6m. This is to be approved by the shareholders at the 2016 AGM on 26 May 2016.
19. EVENTS AFTER THE BALANCE SHEET DATE
There were no significant events after the balance sheet date.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR AKQDNOBKDCQK
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