Hostelworld Regulatory News (HSW)

1.

Macroeconomic conditions

Revenue is derived from the wider leisure travel sector. Perceived or actual economic conditions, including slowing or negative economic growth, rising unemployment rates, weakening currencies, higher taxes or tariffs could impair customer spending and adversely affect travel demand. In addition, events beyond our control such as unusual or extreme weather, travel related health concerns including pandemics and epidemics or travel-related accidents can disrupt travel and result in declines in travel demand.

Because these events or concerns are largely unpredictable, influencing customer demand and behaviour, they can adversely affect our business and results of operations.

Significant movements in FX rates can have a dramatic impact on travel volumes, revenues and travel patterns.

Our business is a global one, with a dispersed population of users, and a geographically dispersed set of destinations. Whilst market conditions may decline in certain regions, the globally diversified nature of the business significantly mitigates this, with c.50% of destination markets in Europe and c.50% in rest of world.

FX movements may impact travel decisions and travel patterns by customers, but typically there is a degree of counterbalancing movement e.g. the weakening of the US dollar against the euro means fewer US travellers visiting the Eurozone, but decreased marketing costs from US denominated suppliers such as Google.

FX translation risk is mitigated through matching foreign currency cash outflows and foreign currency cash inflows and by minimising holdings of excess non-euro currency above anticipated outflow requirements.

2.

Impact of terrorism threat on leisure travel

The continued threat of terrorist attacks in key cities and on aircraft in flight may reduce the appetite of the leisure traveller to undertake trips particularly to certain geographies, resulting in declining revenues.

Increased incidence of terrorism impacts consumer confidence and can shift demand away from certain destinations.

Our target 18-34 year old population tend to be both flexible as to destination, and less concerned about risk-taking than other sectors in the leisure travel industry.

The dispersed nature of our business also acts as a mitigant, with c.50% of destination markets in Europe and c.50% in rest of world.

3.

Competition

The business operates in a highly competitive marketplace and our relative scale and size could impact our ability to keep pace with changes in customer behaviour and technology change. Failure to continue to innovate on our product offering and to compete effectively in our marketplace could have an adverse effect on our market share and the future growth of the business.

Increased competition from other online travel agents ("OTAs") or from the alternative accommodation sector via websites, or a disruptive new entrant such as large hotel chains into the hostel segment or loss of key accommodation suppliers could impact revenue due to potential loss of traffic and/or could increase traffic and therefore customer acquisition costs. Demand for our services could suffer, reducing revenue and margins.

We continue to execute on our roadmap for growth and capitalise on our unique market position, this involves:

· Investing in leveraging the Group's unique data assets allowing it to target and grow the most profitable customer segments by optimising its overall marketing investment.

· Continue to strengthen the Group's core platform in order to improve its flexibility and the experience of our customers while also upgrading our third-party platform connectivity in order to defend our competitive position.

· Continue to focus on expanding our global footprint, meeting emerging demand and also strengthening our overall product offering.

4.

Search Engine Algorithms

A large proportion of traffic to our websites is generated through internet search engines such as Google, from non-paid (organic) searches and through the purchase of travel-related keywords (paid search). We therefore rely significantly on practices such as Search Engine Optimisation ("SEO") and Search Engine Marketing ("SEM") to improve our visibility in relevant search results. Search engines, including Google, frequently update and change the logic that determines the placement and display of results of a user's search, which can negatively impact placement of our paid and organic results in search results. This could result in a decrease in bookings and thus revenue. It could also result in having to replace free traffic with paid traffic, which would negatively impact margins

The Group invests heavily in recruiting and retaining key personnel with the requisite skills and capabilities in paid and non paid search. This in-house expertise is supplemented by the deployment of leading technology tools.

The search marketing team works closely with Google to understand any changes in functionality to the adwords platform so that we can avail of any efficiencies in our search traffic. The Group participates in alpha and beta feature tests that give Hostelworld first mover advantage with new functionality that can help drive efficiency.

5.

Brand

Consumer trust in our brand is essential to ongoing revenue growth. Negative publicity around our products or services could negatively impact on traveller and accommodation provider confidence and result in loss of revenue.

We are focussed on investing in our core products, platform and technological capabilities to support our brand proposition as well as actively managing our brand portfolio through social media channels.

Our customer service team strive to ensure that customers have a positive experience at all stages of interacting with us.

The Group has a Crisis Management Policy in place which includes appropriate escalation.

6.

Data Security

We capture personal data from our customers, including credit card details and retain this on our systems. There is always a risk of a cyber security related attack or disruption, including by criminals, hacktivists or foreign governments on our systems or those of third party suppliers.

Cybercrime including unauthorised access to confidential information and systems would have significant reputational impact and could result in financial and/or other penalties.

Hostelworld works closely with internal and external audit functions to ensure that our system architectures, work processes and policies are in place to provide as much protection as possible.

Hostelworld continues to be fully compliant with the guidelines of the payment card industry (i.e. is "Level 1 PCI compliant"), and is in the process of implementing its compliance obligations in connection with certain aspects of Payment Services Directive 2 ("PSD2") as it relates to customer payment authorisation requirements. Specifically, the Group will be required to facilitate the implementation of certain customer authentication security measures by its payment processor, issuing banks and card schemes.

We have implemented a comprehensive privacy compliance programme to align with our on-going obligations under GPDR and have invested in our own data protection resources to monitor compliance. Our Data Protection Officer is responsible for informing, advising and monitoring compliance on all matters relating to the protection of personal data in the Company. We regularly review our employee information security policy and we continue to invest in security training for all staff so that they remain vigilant and alert to the possibility of cybercrime.

For 2020, Hostelworld plan to migrate parts of the e-commerce platform to the Cloud. Whilst risk is minimal, there still is risk that security gaps may manifest during the migration.

7.

Regulation

The global nature of our business means we are exposed to issues regarding competition, licensing of local accommodation, language usage, web-based trading, consumer compliance, tax, intellectual property, trademarks, data security and commercial disputes in multiple jurisdictions.

The recent investigation by UK Competition and Markets Authority (CMA) into clarity, accuracy and presentation of information on OTA sites could impact revenue.

In addition, as a listed company on the London and Euronext Irish Stock Exchanges, adherence to the Listing Rules is required.

Compliance with new regulations can mean incurring unforeseen costs, and non-compliance could result in penalties and reputational damage.

Uncertainty remains as to the impact of Brexit on UK and international laws and regulations including matters such as travel visas or work visas for our UK staff.

We monitor regulatory matters in locations in which we provide services with a particular focus on those areas where we have local operations.

Suitable experienced resources have been engaged to ensure consumer compliance requirements, compliance with the Listing Rules, the FRC Corporate Governance Code and the Market Abuse Regulations.

Developments to international laws and regulations continue to be closely monitored as Brexit proceeds. The Group's multinational structure with Head Office in Dublin provides some natural mitigation to the potential impact.

A detailed analysis of the Group's practices by a number of senior executives in the Group 's Legal, Marketing and Product departments concluded that a limited number of amendments to the Group's online sales practices was required in order to achieve substantial compliance with the CMA's written guidelines.

8.

Tax

The taxation of e-commerce businesses is constantly being evaluated and developed by tax authorities around the world. The taxation of online transactions in the travel space remains unsettled.

Due to the global nature of our business, tax authorities in other jurisdictions may consider that taxes are due in their jurisdiction, for example because the customer is resident in that jurisdiction or the travel service is deemed to be supplied in such jurisdiction. If those tax authorities take a different view than the Group as to the basis on which the Group is subject to tax, it could result in the Group having to account for tax that it currently does not collect or pay, which could have a material adverse effect on the Group's financial condition and results of operation if it could not reclaim taxes already accounted for in the jurisdictions the Group considers relevant.

Changes to tax legislation or the interpretation of tax legislation or changes to tax laws based on recommendations made by the OECD in relation to its Action Plan on Base Erosion and Profits Shifting ("BEPS") or national governments may result in additional material tax being suffered by the Group or additional reporting and disclosure obligations.

In collaboration with our tax advisers, a large professional services firm, we assess possible tax impacts in the jurisdictions in which we operate to ensure our tax obligations are aligned to the operational nature of our business.

9.

Business Continuity

Failure in our IT systems or those on which we rely such as third party hosted services could disrupt availability of our booking engines and payments platforms, or availability of administrative services at our office locations, with an adverse impact to our customer service.

As an e-commerce organisation, the Group's business continuity plan focusses on the continued operation of consumer facing products and related services to ensure our e-commerce trading systems can continue to process bookings. Our fully distributed and redundant architecture across two data centres based in two different countries supports this approach. The Group has worked with external advisers to produce robust documented business continuity and disaster recovery capabilities. We have also extended our eCommerce Business Continuity Plans ("BCP") to include our corporate offices.

10.

People

The Group is dependent on ability to attract, retain and develop creative, committed and skilled employees so as to achieve its strategic objectives.

The Group has developed stronger recruitment processes supported by effective HR policies and procedures. The Group has an increased focused on understanding the drivers of employee engagement, this has informed the development of its Employee Value Proposition, aimed at attracting the right calibre of talent, driving levels of motivation, retention and alignment and commitment to the Group's strategic goals. The Group also operates from five global offices, which provides flexibility for location of recruitment of key talent, thereby opening up a larger pool of talent for selection.

A non-executive director has been designated to fulfil the workforce engagement role as set out in the 2018 UK Corporate Governance Code.

11.

Brexit

The Group is exposed to Brexit-related risks and uncertainties in relation to its continued impact on global markets and currency exchange rate fluctuations. The uncertainties in relation to the movement of people may result in the reduction of bookings particularly into and from the UK travel market and from UK nationals which could impact on Group revenue. In the year ended 31 December 2019, the UK as a destination represented 6% of total Group bookings (2018: 6%) and 14% of Group bookings were from UK nationals (2018: 14%).

Overall a decline in macroeconomic conditions in the UK could negatively impact consumer confidence and reduce spending in all areas including the wider leisure travel sector.

The Group is a global business and continues to grow its international footprint and presence across its key markets. Through continued international expansion and diversification the Group will seek to naturally mitigate the impacts of Brexit. However, the Group will continue to assess the impacts of Brexit and implement any necessary remediation steps to mitigate its impact on the Group.

Payment

Processor

Reliance on single payments processor (Worldpay) for Hostelworld and exposure to their downtime, service etc.

Payments is a part of the product roadmap. The Group is investing in a payment team to enhance the functionality in this space.

Climate Change

Changing consumer demand as a result of increased awareness of issues related to climate change adversely impacting financial performance.

Climate change issues may impact travel decisions and travel patterns by customers, but is mitigated to the extent that our business is a global one, with a dispersed population of users, and a geographically dispersed set of destinations.

Mergers and Acquisition

Anticipated benefits of mergers and acquisitions may not materialise due to inaccurate evaluation of business targets, over estimation of synergies or poor management and or integration of acquisition target.

Suitable experienced resources have been engaged internally and external professional advisers are engaged to ensure expertise in identifying, evaluating and conducting due diligence and subsequent transaction execution and integration. In addition Board approval is required for all transactions and regular updates are presented to the Board on potential targets, including strategic evaluations of any proposed significant investments.