Hostelworld Group PLC Trading and Financing Update (9817Q)

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RNS Number : 9817Q

Hostelworld Group PLC

24 June 2020

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND OR THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THE INFORMATION COMMUNICATED IN THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION 596/2014 (" MAR ").

Hostelworld Group plc

("Hostelworld", the "Company" or the "Group")

Trading and Financing Update

Hostelworld, a leading global OTA focused on the hostel market, today provides the following update on trading and financing in light of the continued disruption generated by the COVID-19 outbreak.

Trading update

On 27 April 2020, the Group confirmed that Q1 2020 EBITDA decreased by c. EUR4.8 million when compared to the same period for 2019.

COVID-19 has driven a sharp reduction in trading volumes in H1 2020. Management has taken swift and decisive action to reduce costs and minimise cash burn. As a result of the Group's programme of cost reductions and cash conservation initiatives, and anticipating minimal booking volumes to the end of Q2 2020, the Group expects an H1 2020 EBITDA loss in the range of EUR8 million to EUR9 million (H1 2019 EBITDA: EUR8.9 million).

Given the continued uncertainty caused by COVID-19 (in particular the difficulty in anticipating the timing of recovery), the Group is unable to provide guidance on its results for the financial year ending 31 December 2020.

Based on the Group's customer survey data and internal data provided by its affiliate hostels showing that the vast majority of hostels expect to be open by the end of July 2020, the directors expect that pent-up demand will lead to a quick recovery as travel restrictions ease. The hostel industry is adapting to operating with COVID-19 measures in the short term (such as a potential reduction in dormitory capacity, a potential reduction in pricing due to increased competition with budget hotels in certain markets and growing demand for online or contactless operations solutions, such as Goki's contactless check in and guest communication system), while the directors expect the industry to deliver long term growth over time.

Financing update

Cash conservation

The Group's net cash position remains strong, with c. EUR15.2 million of immediately available cash on hand as at 31 May 2020 (31 December 2019: EUR19.4 million).

As announced on 26 March 2020, the Group has implemented several cash conservation measures to reduce variable and fixed costs. Given the limited demand experienced since mid-March, marketing costs have been reduced to match near term revenue and all 'brand' marketing spend has been cut. The Group has also taken significant and immediate actions to reduce its operating and staff costs (including via the use of government furlough schemes, redundancies, reduced working hours, and cutting all discretionary spend). These measures are expected to result in a c. EUR21 million annualised reduction in marketing costs (by the end of FY2020, compared to Q1 2020 levels), and have resulted in a EUR9 million annualised reduction in operating expenses [1] compared to a 31 March 2020 baseline level. Compared to the 31 March 2020 baseline level, the reduction in wage and salary costs is equal to c. 23% and the reduction in other operating costs is equal to c. 29%. The Group has also deferred certain payroll taxes in Ireland, a proportion of the Board and Executive Management salaries and is converting a portion of the Group's free cancellation cash liability arising in respect of customer refunds due in FY2020 into credits (amounting to an estimated EUR0.8 million). The impact of these 2020 cash deferrals until H1 2021 is estimated at c. EUR9 million in aggregate.

The combined net effect of these measures is that the Group's estimated monthly cash costs in H2 2020 are expected to reduce to c. EUR1.9 million.

These cost reduction and cash conservation measures have been achieved whilst focusing on the delivery of the Group's "Roadmap for Growth" initiatives, which has been accelerated over the past 3 months. The Group has delivered a number of core platform enhancements in this period relating to improved marketing capabilities, user experience and inventory competitiveness.

As at 31 May 2020, total customer deposits related to bookings made under the free cancellation policy amounted to EUR3.6 million, of which EUR2.9 million relate to bookings already cancelled.

Banking facilities

The Group had no existing debt facilities before the COVID-19 crisis. However, the Group is pleased to announce it has now agreed terms for a three-year revolving credit facility to provide up to EUR7 million of additional liquidity. The availability of the facility is staggered in three tranches (of EUR2.5 million, EUR2 million and EUR2.5 million) and drawdown of each tranche is subject to the achievement by the Group of certain minimum revenue targets in the previous three month period.

The Group is also pleased to announce that it has agreed terms for a short-term EUR3.5m financing facility which it intends to use for the purposes of discharging a limited number of large partner invoices.

Proposed Placing

Hostelworld is separately announcing today its intention to conduct a non-pre-emptive placing of new ordinary shares (the "Placing"). The Company intends to issue new ordinary shares representing up to approximately 19.9% of the Company's existing ordinary share capital.

Together with the proposed new banking facilities, the Placing will materially strengthen the Group's position in an uncertain environment. The Board has concluded that the Placing is in the best interests of shareholders and will promote the long-term success of Hostelworld.

Dividend policy

The Board recognises the importance to shareholders of dividends and whilst it believes that cancelling the final dividend in respect of 2019 was the right course of action in these exceptional circumstances, the Board remains committed to the dividend policy announced on 4 March 2020 with a pay-out ratio of between 20-40% of the Group's adjusted profit after tax. However, given current trading and the Group's current focus on cash conservation, and given the full effects of COVID-19 remain uncertain, the Board does not expect to pay a cash dividend under its current policy in respect of the 2020 financial year. Thereafter payment of cash dividends will be subject to the Group generating adjusted profit after tax, the Group's cash position and any restrictions in the Group's banking facilities. In the interim, the Board is considering a proposal to issue new ordinary shares by way of bonus issues to shareholders in lieu of a cash dividend. If implemented, the bonus issues will be subject to shareholder approvals and the number of new ordinary shares to be issued will be determined by the Board at the time taking into account market conditions.

Summary

Hostelworld's Board and Management believe that the measures taken since March 2020, combined with the net proceeds proposed to be raised from the Placing, together with the proposed new banking facilities, will materially strengthen the Group's position in an uncertain trading environment. The Group expects to have greater flexibility and resilience to operate through an extended period of disruption, whilst potentially having the ability to invest (by increasing spend on customer acquisition and increasing organic investment) and react quickly to commercial opportunities when they arise.

MAR information

This announcement contains inside information for the purposes of Article 7 of MAR. For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by TJ Kelly, Chief Financial Officer.

For further information please contact:

Hostelworld Group plc

Gary Morrison Chief Executive Officer

TJ Kelly Chief Financial Officer

Rudolf O'Kane Head of Commercial Finance

Tel: [phone]

Powerscourt

Lisa Kavanagh

Eavan Gannon

Jack Shelley

Tel: [phone]

Email: [e-mail]

About Hostelworld Group

Hostelworld Group, the global hostel-focussed online booking platform, inspires passionate travellers to Meet The World, and come back with life-changing stories to tell. Our customers are not your average tourists; they crave cultural connection and unique experiences that we make possible by providing an unbeatable selection of hostels in unmissable locations - all in the palm of their hand.

It is the social nature and community feel of hostels and their environment that enable travellers to embrace journeys of discovery, adventure and meaning. We have more than 13 million reviews across more than 17,700 hostels in more than 179 countries, making our brand the leading online hub for social travel. Our website operates in 19 different languages and our mobile app in 13 languages.

Important notices

Neither this Announcement, nor any copy of it, may be taken or transmitted, published or distributed, directly or indirectly, in or into the United States, Australia, Canada, Japan, New Zealand or the Republic of South Africa or to any persons in any of those jurisdictions or any other jurisdiction where to do so would constitute a violation of the relevant securities laws of such jurisdiction. This Announcement is for information purposes only and does not constitute an offer to sell or issue, or the solicitation of an offer to buy, acquire or subscribe for any shares in the capital of the Company in any jurisdiction. Any failure to comply with these restrictions may constitute a violation of securities laws of such jurisdictions.

The ordinary shares to be issued in connection with the Placing have not been, and will not be, registered under the US Securities Act of 1933, as amended (the "US Securities Act"), or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, resold, transferred or delivered, directly or indirectly, in or into the United States except pursuant to an applicable exemption from, or transactions not subject to, the registration requirements of the US Securities Act and in compliance with the securities laws of any state or other jurisdiction of the United States. There will be no public offering of any securities referred to herein in the United States or elsewhere.

Cautionary statements

This Announcement may contain, and the Company may make verbal statements containing, "forward-looking statements" with respect to certain of the Company's plans and its current goals and expectations relating to its future financial condition, performance, strategic initiatives, objectives and results. Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "seek", "may", "could", "outlook" or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the control of the Company. As a result, the actual future financial condition, performance and results of the Company may differ materially from the plans, goals and expectations set forth in any forward-looking statements. Any forward-looking statements made in this Announcement by or on behalf of the Company speak only as of the date they are made.

The information contained in this Announcement is subject to change without notice and except as required by applicable law or regulation (including to meet the requirements of the Listing Rules, the Euronext Dublin Listing Rules, MAR, the Financial Services and Markets Act 2000, Euronext Dublin and/or the Central Bank of Ireland), the Company expressly disclaims any obligation or undertaking to publish any updates or revisions to any forward-looking statements contained in this Announcement to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statements are based. Statements contained in this Announcement regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Announcement.

No statement in this Announcement is intended to be a profit forecast and no statement in this Announcement should be interpreted to mean that earnings per share of the Company for the current or future years would necessarily match or exceed the historical published earnings per share of the Company.

[1] Measured by comparing the annualised figure as at 31(st) March 2020 and the annualised figure as at 31(st) May 2020

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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June 24, 2020 11:35 ET (15:35 GMT)