Hostelworld Group (LSE:HSW) — Capital Markets Day

0:01 Good afternoon, ladies and gentlemen. Welcome to the HOSTELWORLD GROUP PLC Capital Markets Day Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions at any time and press send. The company may not be in a position to answer every question received during the meeting. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll and your participation, I'm sure, will be greatly received by the

0:31 company. I'd now like to hand over to CEO, Gary Morrison. Good afternoon, sir. Good afternoon, and welcome, everyone. This is indeed the second or third time that we've had the opportunity to use the IMC platform to to talk to our existing and potential investors. We've got a pretty exciting afternoon for you, I hope. I'm joined by Johnny Quack, our head of growth, and also Caroline Sherry, our CFO, and David Brady, who heads up our commercial finance and investor relations. We're probably gonna be speaking to you for probably about ninety minutes today. Bixture of presentations. We've also got some great videos to sort of show our product and, you know, hear about what our HOSTELWORLD partners think about our strategy, and then we'll have plenty of time for q and a at the end.

1:23 So I'm gonna start with the usual disclaimers. I'm gonna take these as red, if I may, and moving on to how we would like to use the time today. So I'm gonna start with giving you a bit of an overview of where we are, what our mission is, and, you know, kind of the story of the business to date when we look at this year. I'm then gonna go deeper on the opportunity and really looking at how big the market is, what's driving the market, you know, what our position in the market is. Then we'll flip to Johnny who's gonna talk about our growth strategy and talking about the really exciting social strategy that we launched earlier this year. I'll come back, and I'll talk a little bit about what we're doing with our HOSTELWORLD partners.

2:09 Caroline is then gonna come on and talk a little bit about our outlook. So where we expect to land this year, how we're thinking about next year, and indeed, you know, with the growth strategy and the market opportunity that we're gonna talk to you about today, what that could look like over the next three years to f y twenty five. I'll come back with a couple of pages summarize, and then we'll go straight into q and a. So let's get going. Quick overview of our company. So I'm gonna start with that top line first. If you look at it, that's kind of, you know, three parts of our business model very, very simply. So the total gross market value, the total value of the bookings that go through our platform this year will be about 470,000,000.

3:04 Now we earn revenue from that gross market value with a 15% commission rate. So our net revenue is 70,000,000, which is 15% of that 470. And we earn that revenue every time that we take a booking. And in, we expect to take about 4,800,000 bookings. So what you can also see if you take the 470,000,000 GMV and divide it by the 4,800,000 net bookings, each booking on average is about a €100, and our commission rate would be about €15 on average. So now looking at that middle row. So let's bring customers into the equation.

3:51 So we expect to serve about 1,900,000 unique customers this year. So if you take the 4,800,000 bookings and you divide it by unique customers, on average, it's about two bit over two and a half bookings per unique customer. If you then look at the total packs and you which is about 7,800,000. So this is all of the travelers. If you have the booking person, you might be traveling as a couple, you might be traveling with three people or four people. The total number is about 7,800,000. And if you take the four point seven point eight and divide it by 4.8, then you'll see that the average number of packs per booking is about 1.6.

4:38 And then finally, we'll look at net bed nights. So this is the total number of bed nights that are booked on our platform across all of those orders. So if you take the 17,000,000 and divide it by 4.8, on average, each booking has about three and a half bed nights. So that's kind of the customer lens. And then finally, if you think about our footprint, we have properties, hostel properties in about a 170 countries right now. Across all of those properties, we have 14,100,000 reviews, we have about 250 employees spread around in 11 different countries. So sort of a snapshot of the business. So HOSTELWORLD category. Why are we so excited about this category?

5:29 Now, unfortunately, I can't ask for a show of hands because I can't see you, but I'm sure there's many people who were listening here with us today who've been hostling. And those people who have been hostling, of course, the thing which I think really stands out is, of course, they have dorm accommodation. And that's you know, they have dorm accommodation. They have shared spaces. So that thing in the top right hand corner is usually what people think about when they think about the HOSTELWORLD GROUP category. But there's a few other things that are pretty interesting about this category. The first is, if you look at the the next data point, about two thirds of them have 50 or less beds. So it's actually really, really small. HOSTELWORLD, by definition, are much smaller than what you would expect a small hotel.

6:16 And indeed, 80% of these are independent owner operated businesses. So it's very, very fragmented. And what you may not know is actually, if you look at the sustainability of a hostel night stay in compared to a night at a hotel, actually, hostels are a far more sustainable option. And I'm bringing that into this discussion because sustainability, especially in our cohort, is something that's, you know, obviously, you know, much more front of front of center when you're thinking about Gen z and millennials. And I think the final thing, which may be a bit of a surprise to you, is that, you know, HOSTELWORLD, when you think about a single night stay, is really, really cheap. So if you come back to that number that we talked about earlier, you you know, know, each booking on average in 2022 is about a €100, and then you divide by the number of bed nights, it's about €27 per night.

7:17 And if you then look at the global two star hotel, the average daily rate for a single night stay, it's about a $106,107 dollars. So a single night stay in a hostel globally, just rough and tough in comparison with two star hotels globally, it's about 25%. So it's really the entry level in terms of accommodation on a global basis. And that really leads me through to the demand side of the equation. You know, with an entry level price, what you generally find is the travelers that go hustling, this is probably the first single biggest trip that they would do away from home. So consequently, 80% of our travelers, 18 to 35 years old, and 60% of them are traveling solo. I mean, part of the magic of going hosteling is actually to, you know, find yourself. It's to increase your own personal resiliency. Go out and find cool people to do cool cool things with.

8:24 And as a consequence, when they look at these kind of trips and when they book these kind of trips, most of them are multiple destination. You have London, Amsterdam, Paris, then maybe you go to Asia, go to several countries in Asia, and then three months later, you're back home or maybe even longer.

8:46 And what we do see when we look at our data is some of these customers will take several trips a year, and many of those customers will come back year after year after year. So when you add look at all of that data together, it becomes very, very predictable. And one of the things that Caroline will talk about in the outlook section is how we leverage that predictability in order to be able to make, you know, really strong robust assumptions for what our revenue growth will be in future years. But probably the most important thing when we think about the growth strategy of the company is people don't go hustling because it's cheap. They use hustles as a means to meet other people when they are going on these trips.

9:34 And that's a super important insight, and it's really the foundation principle of how we think about our growth strategy. And as a consequence of that, when we think about our mission, our mission is really to help travelers find people to hang out with. And there's really five reasons why we think about that. And we sort of think about it in terms of what I'd say, the five p's. The first one is, this is a really highly prevalent need in our category in HOSTELWORLD. Virtually, is looking to find people to hang out with, especially given that 60 of people are traveling solo. The second is when you satisfy this lead, it's extraordinarily profitable.

10:24 And Johnny will show you some really great data that these kinds of customers who have this need, when we satisfy it, we recruit them through cheaper channels. They do more bookings. And when they make those bookings, they also make more of those bookings on the app. So it's a super profitable growth segment for our company. The third thing third p, it's a very powerful need. And, what Johnny will be able to show you today is how people are writing about our platform, our features, our company in other networks. How our comp how our company and our products are helping people find other people to hang out with. I went on this gondola trip with these other people, or we went out to this nightclub.

11:13 But they're writing about it in third party networks like Instagram, or Facebook, or Twitter, or Trustpilot, which is all fantastic free word-of-mouth for us to get our message out there. Fourth p, one that we're gonna talk about very quickly, is we are uniquely positioned to go after this strategy and win in our category. When we look at the other competitors that were out there, whether they are social networks or whether they are online travel agents. And the last p, and by no means the least, in fact, it's very, very critical and we'll have a video, you know, from our hostel partners talking about our strategies. It really perfectly aligns with their business model and what they need.

11:59 So over the course of this afternoon, we're gonna cover all of those five fees, and we're gonna start by illustrating how that mission statement drives a business model, which drives our financial statements. So if you think about our business model, how do we drive revenue growth, expansion of margin, and what's our operating model? So as I've talked about, this is a really prevalent need, which we are uniquely positioned to provide and we are providing. And that unique customer need led growth strategy is driving new customer growth and strong retention growth. And as a consequence, that is driving revenue. The second piece of it is we choose to deliver that strategy through our app.

12:51 And as a consequence, that app, because obviously it's free transactions relative to pay, is reducing our customer acquisition cost, which in turn lowers our marketing cost as a percent of net revenue. So with that revenue growth, we also see that marketing as a percent of net revenue is declining. So we're getting big margin expansion. And in terms of our operating model, you know, our business, like any social network, is is very, very scalable, and it's very asset light. We only capitalize a very small amount of our development labor. And even then, that's only over two years. So as a consequence, we get increased operating leverage and also really effective cash flow conversion. So

13:39 the combination of these strategy when you flow it through our financial statements is our shareholders are going to be benefiting from increased EBITDA growth and increased free cash flow growth. So I'm going to come back to, you know, talking about this year and how that strategy has played out. So if I start on the left hand side, and I'm making the comparison between our business results this year versus our business results in 2019. So on the left hand piece there, generated revenue is simply the revenue, the cash that we take in through those bookings, less cancellations in that month. So there's no deferring accounting.

14:25 It's just straightforward revenue that we generated, cash that we take in, less cancellations, And we've indexed that relative to 2019. So if you look at January, we started the year, right, at the really the trough of Omicron at about 30% of 2019. And then as the travel market recovered, we show show very sharp recovery as you can see as it's moving into April and May. In April, we launched our strategy on iOS, the growth strategy that John is going to be talking about. And we launched the same strategy on Android in June. Now what we saw, if you look at July, there's a bit of a dip.

15:11 And you may remember, there was a lot of airport disruption around the summer months. And as a consequence of that airport disruption, we saw a slowdown and a lot of cancellations. But then as soon as that washed through, the revenue growth rates continued, and we can see actually that it's continued through October and through into November where it was about now about a 111. So what's happened when we look at a revenue growth perspective is after that disruption, as the strategy has started to take hold and more people have started to use the features, that that has propelled the revenue growth for the rest of the year. If you look at the second piece of that business model, which is the margin expansion.

15:58 So you may recall in interims, I've sort of said, we were trending for about 60% marketing as a percent of net revenue for the full year. And I talked about next year that, that would come down into the 55% range. As a result of the strategy really taking off after the airport disruption, we've now had probably the last three months at 50%. So the revenue has continued to climb, but marketing as a percent of net revenue has actually fallen as that strategy has taken hold. And the final piece of the business model, which is the asset light and scalable piece, if you look at our operating expenses, 70% of that is wages and salaries. The other 30% is primarily technology costs.

16:49 If you look at first half this year versus first half twenty nineteen, it's only 88%. And indeed, it's actually come down in second half to 86%. So that operational gearing point is coming through. So we could stop the presentation now and simply say, there is the evidence that our strategy is working. We have revenue growth, margin expansion, operate operational gearing.

17:16 So we're this is not a strategy where we're asking people to believe something that we may be executing in the future. It's actually delivering results and really spectacular results right now. So let's talk about one of those p's, which is, you know, how why we are perfectly positioned to really execute on this strategy. So it's interesting when you think about the business model that we're creating here. On the left hand side, you look at the social networks that are out there, whether it's Instagram or TikTok or Facebook. And when you think about what customers are looking for with those companies, they're looking to meet and share experiences online, and they want to be talking to people that they know right now.

18:08 That's what those businesses are about. On the right hand side, when you look at the OTAs, you know, whether it's booking or trip or Expedia, the the kinds of things that they are looking for, excuse me, is really convenience. And in that is, you know, does my room, you know, does it have an ocean room view room? Does it have a swimming pool? How far away are we from the beach? You know, does it have twin beds or single beds? It's all of those sort of functional needs which their customers are looking to be satisfied, and therefore making a choice between do I stay here or here? Our business model is an intersection between those two, and we are going very, very deep on that intersection.

18:55 As we talked about before with our mission statement, you know, our customers are looking for help to find people who hang out with while they're traveling. So they're actually looking to meet in real life, but they're looking to meet relevant people. They want to meet people who are going to be in the same city and the same hostel on the same stay dates. So we use the booking information from our OTA to be able to create these social networks that the social network providers can't do on their own. So it's a very unique fusion of these two business models against a really highly prevalent need in our category. So I'm now gonna go a little bit deeper in just talking about what the market opportunity is. How big is this market? And how big indeed could it be? And what's driving it?

19:49 So I'm gonna start by sort of grounding us in where we are this year, and I'll talk at it regional, then country, and then I'll talk about growth drivers. So some of you would have seen this slide before where the gray bars are bookings as a percent of 2019. And then the individual colored lines are the regions thinking about destination. So we're currently in October. I believe it was about 87%. In November, it's gonna be about 91%. You know? So it's continuing to climb. Right the way if you look at the green line Central America, right the way through COVID, Central America has always been much higher than most of the other markets, purely and simply because they never had any restrictions. If you look at Mexico, for example, you know, it was on everybody else's red list, but it actually had no restrictions in terms of travelers, you know, wanting to visit Mexico.

20:52 And as a, you know, in part as a consequence, it's always been much greater in 2022 than it was in 2019. If you look at the bottom two lines, and I'm looking at Oceania and Asia, the orange and purple line, they actually were the two regions which came out of lockdown and restrictions, you know, the slowest. So as a consequence, they were single digit of 2019 in January, and they've slowly been growing right the way through the year, normalizing to levels. The the levels meaning 2019.

21:29 And the red line in the middle there is actually Europe if you exclude The UK. Now it does look as though it's flatlining. It it's actually not. And the reason is if you look at Europe within Europe, it's actually greater than 2019 levels. It's about, I don't know, 105,110%. The issue is that some people who would have ordinarily come to Europe for one of those long trips would have come from Asia and Oceania. And as a result of Asia and Oceania, Australia, New Zealand being slower to recover, those long haul bookings haven't come in. But if you were to actually look at November, I think Europe ex UK is about 96% now. So, obviously, as Asia and Oceania have come back on stream, you know, that's now topping up Europe, and Europe is getting back up to a 100%.

22:25 So overall, what I would say is that the entire recovery pattern has always been highly correlated to what's going on in terms of travel restrictions. And you can even see that picture, you know, even more clearly when you look at it at a country level because, of course, countries are where they're usually where the restrictions are actually formulated and enforced rather than region. So if you look at The Americas, for example, Mexico is 55%, Costa Rica plus 51%, so one and a half times twenty nineteen levels. Colombia is a bit higher, Guatemala quite a bit higher. By the way, I should have mentioned this is November net bookings 2022 versus 2019.

23:13 So I'm not looking at full year. I'm just looking at November. And I think in November, if you look at Europe, it's basically people are going where the sun is at the very tail end of the sort of the the summer period. So, hence, there's a lot of bookings, you know, almost twice as many bookings in Egypt. There are Turkey plus 67%. Portugal is 19%. So it's generally the Southern European markets, but again, you know, much more elevated than they were in 2019 levels. And then finally, if you, you know, look

23:48 over to Asia, as Asia has really taken off towards the end of the year, Thailand, which would have been our fourth biggest market in 2019, is now 16% greater in November than it would have been. Vietnam, 16%, Laos, plus 33%, and so on. So you can see that actually many countries, you know, when they've had more runway, have far surpassed 2019 levels. And as we go into 2023 and we really have a normalized year, we would be expecting many more countries to be way over 2019 levels, especially through the powering of our growth strategy.

24:31 So we're now gonna talk about what are the longer term growth drivers over the next three years for this category, HOSTELWORLD. And I think there's there's really three things. One is the size of the customer base that's coming down over the next three years. The second one is what are those customers looking for, the needs, and how that really aligns perfectly well with the hustling sector. And then the third one is hustling as an asset class for third party investors is actually really, really attractive. So we'll talk a little bit about each of those in turn. So talk about customers. I bet many of you did not know that the millennial and Gen z cohort is now the biggest cohort in the world.

25:24 It is 53% of every human on the planet, 4,900,000,000. And this is square and center, the cohort that goes hostly. And not only that, many of them, if you just look at US millennials as an example, you know, are expecting to go traveling for thirty five days a year, which is much greater than my holiday allowance. But, of course, these are the people in general who are taking their first trip away from home. You know, they don't have a mortgage.

25:58 They're probably not in full time employment. You know, they generally wouldn't have had a family yet given that 60% are travelling solo. You know? So they definitely have the means, desire, and flexibility to be able to go travelling. And not only that, what we also see in the external sort of trends is this notion of solo travel is still growing and growing very strongly. You know, one in four of The US millennial cohort are planning to travel solo in the next six months. And there's also, you know, a rise in the number of people who are making searches on Google to do research about solo travel. So, you know, really strong relevant customer growth across Gen z and millennials.

26:45 But, of course, the next thing is, you know, what what are Gen z and millennials really looking for?

26:51 And when you think about HOSTELWORLD, it's all about, you know, people decide to go HOSTELWORLD GROUP as a means to meet other people. You know, really, I would argue the definition of what experiential travel is all about. So when we look at the data, you know, 18, 10 millennial, Gen z travelers are looking for a unique experience. They're planning on spending more. And I think in the longer term, in in terms of thinking about their needs, because we really are on a bit of a journey, you know, in terms of, you know, the intersection of sustainability and travel. You know? But what is very, very clear, backed up by research that we commissioned with Bureau Veritas, is that hospitals are a much more sustainable option if you look at scope one, scope two emissions for a hotel night versus a hostel bed night.

27:46 And, of course, you know, when you survey this particular group of people, already 60% of them are saying that they would be more likely to consider more sustainable travel options. So I think with a you're looking for unique experiences or how you want to have those experience in terms of sustainability, HOSTELWORLD GROUP a category is really perfectly aligned to the need you know, to this huge cohort of people.

28:11 And I think if we now look at, you know, how the category is positioned to attract investment, What's interesting for that really massive customer cohort, 53% of the population, if you just look at Europe as an example, only 70% of the total accommodation, if you look at bed nights, whether it's hostels or hotels, only 7% is actually hostels, that entry level category. So there's probably quite a bit of scope to improve and to grow that as a as a as a footprint. But what's also interesting is that the returns for hospital operators are much higher than they are for hotels, interestingly.

28:56 Now one reason you know, two reasons to to to think about that. One is just revenue per square foot. You know, when you have a density of dorms, even though the price per night is much lower, if you have many more beds on a per square meter base, you know, that

29:14 actually pushes revenue higher. And, of course, the other reason is CapEx costs and fit out. You know, hospitals tend to be, you know, fairly bare bones establishments. You know, they wouldn't have the luxury fit out costs that a new hotel would. So for, you know, a couple of good reasons, it it still represents a very attractive asset class. And I think the hospitals themselves are also continuing to invest. And one area of investment, of course, is how they are investing in technology themselves to connect to people like us. So many hospitals would use either a property management system or a channel manager. And what we can see if we just look at our own data is that there's a steady rise from 2019 even through COVID where we look now, there's about 7% more hospitals that are using third party pieces of software to connect to people like us. And I think the the consequence of that is in

30:17 2019, maybe 50% of all bed nights were distributed by OTAs. The other 50%, a third of that would have been people doing direct walk in. In other words, just physically showing up. A third of that would be people who are contacting the HOSTELWORLD GROUP And the other third would be offline groups, like, you know, you have a bunch of school children who are looking for a place to study for a net netball tournament. But the net of it is, we think that the share that is going to be distributed by OTAs will go from maybe 50% to 53% over the next three years. So it'll be a slight tailwind.

31:04 So those are the sort of the three long term growth drivers. There's customer growth, gen z millennials. There's the perfect alignment between what the category offers and that group of people. And then the third, it's a pretty attractive category from

31:20 an investment perspective, and HOSTELWORLD themselves are also investing in that technology. So when you wrap it all up, this is what we think the category is going to do over the next five years. So looking at 2022 this year, all the way up to FY '25. So starting on the the left hand side there, we think that there were probably 200,000,000 hostile bed nights in 2022. Now, obviously, the year started much lower because of Omicron. So there's probably going to be 20% growth from 2023 over 2022 because of that COVID normalization.

32:11 They will be, we hope,

32:13 no more COVID, no more Omicron next year. So purely because of that normalization, you know, we think there'll be a 20% growth into next year. And then after that, if you look at a range of third party forecasts, it's anywhere between five to 10% growth year in, year out after that. So the lower bound is the red bars, and then the the white dotted boxes is sort of the upper range. But if you take that 2020%, 23 to 22, and then five to 10% thereafter, you would get about a compound annual growth rate over the four years, 2022, 2025 of around 10 to 13%. Now if you look at that from a GMV perspective, the shape, as you might imagine, is exactly the same.

33:05 The only difference is in 2023, we have assumed that there will be 5% deflation. And there's two reasons for this. The first one is this year, they were if you look at the mix of bookings, there was more bookings in higher bed price places like The US and Europe, and Asia was slower to recover. And historically, Asia would have lower bed night prices

33:36 than the The US or Europe. So that's one thing that will just on a weighted average basis that will pull it down a little bit. The other thing, which is pure prudence on our behalf, if I go back to the last crash, and I'm thinking 2006, 2007, what we saw in the recession era was there was a slight reduction in bed price, but there was actually strong growth in bed nights. So as a consequence, not because we've read it in any research or because our hospital partners are telling us that there's going to be price deflation, but purely for prudence sake, we're assuming it's going to be a 5% reduction in 2023, and then it'll increase again one to 3%.

34:26 So overall, 10 to 12% as opposed 10 to 13%.

34:32 But in any event, when you look at it as a category growth, it's very clear that we have an extraordinarily strong tailwind, you know, which we now layer our growth strategy on top. So this is the ideal time for me to now pass the baton over to Johnny, who talks to you about our growth strategy. So, Johnny, do you wanna take control?

34:57 Thank you, Gary. Hello, everybody. I'm Johnny Kwok, the chief product officer. That's me on the right hand side at our last executive off-site. I'm happy to report that I've survived that with both legs. So there are mainly three things I wanna talk to you today about. The first thing is I wanna show you how the product actually works and what the experience actually feels like for a customer. The second part is why we're actually super excited about this and the real impact it's had on our business thus far. And finally, I wanna talk to you about what we're actually gonna do about it for the next twelve to eighteen months. Now I could probably spend a good afternoon speaking to you guys about exactly what the experience looks like, but instead, we've prepared a video, and I'd love to show that to you right now. So if we could play the video, that'd be amazing.

38:01 Hope you enjoyed that. And so the product experience actually breaks down into three kinda key steps. The very first part of the experience is when you make a booking on any of our platforms, that could be our website, the iOS app, or the Android app, that is when you decide if you want to become a social member. Once you become a social member of our network, what happens is fourteen days before your check-in date, you're added into a chat group with everybody who booked on HOSTELWORLD's platforms who will be there at the same time as your trip. Everybody in the hostel at the same time will be in one chat speaking to you. Additionally, we also put you into separate chats that are based on your interest, the things you might wanna do in the city with everybody who booked on HOSTELWORLD who's going to be in the city on the same days as you.

38:55 So go into groups where you might be planning to go dancing and drinking, or you might be going to a group where you might be doing sightseeing, or you might be visiting I'd be visiting museum together. Interest chats for different people across every kind of interest that you could do on a trip. Now during that period, when people are interacting and chatting, they get to plan what they're gonna do before they actually get to the city. And once they're in the city, they obviously will go ahead and do those plans and create those memories that really create the experience that makes this whole thing memorable. Now shortly after that, three days after your checkout date, we then let you stay in the chat rooms for three days after you checked out. So that way, you can continue to build those memories and build those bonds with the people and the friends that you've made during that time.

39:45 Now what we find is people who typically go for this experience make additional follow on bookings and mostly in our mobile native app. The way we like to think about this is that there are thousands of cities with thousands of people joining and leaving all these networks over and over and over again, and this happens in all hours of the day. And the way this is important is because you can imagine that every time someone joins a new group, they're going from city to city to city, and they're joining different networks to networks to networks. And here's why it works. It is a prevalent need that we see in our consumer base that is critical for us to solve.

40:31 The second piece is it's a very profitable outcome for us. And third, it is extremely powerful from our cons, from our customers. Now one of the reasons we believe this is a prevalent need is shortly after we launched this in April, over a couple months, right, we can see that almost 48%, close to half of all of our bookings are coming from social network members. And of those members, about 76% of them use and interact with our social features. And the way and the reason why this is so important is because all this is working because of network effects.

41:18 And the idea here is the more members that we add to our network, the more members are using the social features, which create more usage. And as they use those features, they create more value for other users. Because when you yourself meet someone else on a trip via the HOSTELWORLD app, not only are you creating an experience for yourself, you're creating a valuable experience for the person you met. As we do that and as those connections happen across the network, the general value of the network increases, and thus the network grows naturally. And this is the same for any social network business in the world. It grows as the network becomes more valuable and as users make it more valuable by joining it and doing actions that create more value for other users.

42:12 And one of the key reasons we believe the network is growing and all these things are happening is because it has a broad appeal to all customer types. We see the same behavior and the same same value attraction from our old customers, from our new customers, from solo travelers to group travelers to couples. And, really, across any way we slice this in terms of our user base, we see this happening, and we see the same usage, and we see the same share pretty much across the board for all user bases, which just goes to say that when you travel, one of the most important predictors of how good your experience is gonna be is if you met cool people that you can hang out with. And on the second point, which is this is one of my favorite slides, is the fact that it is highly profitable.

43:05 Our network attracts and maintains high value customers, and let me demonstrate kind of why that is. Now one of the key things that Gary mentioned in terms of the three pillars of how we think this business is growing, one which margin growth. And he specifically said it is a app centric approach to customer acquisition. The reason that's important is when we attract and acquire customers in our app. We are creating a faster experience for the customer, of course. The conversion rate is typically higher for app users. And three, they get exposure to our social features, which, of course, make the overall experience much better for themselves and other users.

43:51 So our social members are four times more likely to be acquired via our mobile native apps. Those users typically make double the amount of follow on bookings in the first six weeks versus our nonmembers, three bookings versus one and a half. And when they do those follow on bookings, they typically do them in the app. To summarize, we acquire our social members through our mobile native app. They typically make a lot more, double the amount of follow on bookings, and they make those follow on bookings in the app, thus starting the cycle over.

44:36 And what this ends up at is that we have a very low cost channel for consume customer acquisition, and that is very critical and which is why our app centric approach is critical for this to succeed. Now the other piece is the powerful part of this. We traditionally have had always had fairly positive reviews on very different places. If you look on business sites such as Trustpilot, we normally have very positive reviews from our customers. That is a very normal thing for us. However, what has been very exciting is we're starting to see this positive sentiment specifically about the social features in the social network start to surface in social media networks.

45:24 So that means our users are talking about us and the positive experience they've had on Instagram, on Twitter, on Facebook, on TikTok, and all the top social network sites. And the reason this is powerful is because this amplifies our natural word-of-mouth of this product, which then, once again, creates another channel of low cost acquisition for new customers. And we see this play out in every single, review area and every single social media site that is, of scale. Now today, our network and the experience you get when you join our network and you're a user is that it is really built around your booking.

46:13 So you made a booking to go to a city in two weeks, and what we do with our current features is we make that experience amazing when you get there, but it is based around your booking dates. The way we want to start moving towards is we wanna build a social network around the actual user. So that way, we can actually solve multiple needs in different parts of their life cycle. As an example, maybe instead of going to a trip in two weeks, you're planning to do a weekend trip this weekend. Well, with our ability to already connect people that are like minded and with our ability to surface certain things that are relevant, we could actually offer a local weekend trip where you could take a surf lesson with people who are socially connected to you.

47:02 On a longer tail end, you can imagine that if you wanted to do a longer ninety day trip or a two week trip in Thailand or Indonesia and Bali and do these bigger explorations, well, we can actually create products and connect you with people that are socially connected and that are like minded in bigger products that have longer term, that have a longer lead time. We can do that as well, and these are the things that we're thinking about that we wanna deliver because there's multiple ways to deliver the same mission for different needs for the same customer. Now when I think about the future and what we're gonna really be focused on for the next twelve to eighteen months, one piece is most important, which is the central and core customer experience and what that should feel like for the customer.

47:52 So a few of things we're gonna be focusing on is, one, we want to increase the richness of our user profiles. That's important because self expression in a network for especially our generation is absolutely critical. So we're gonna be making it much more rich to have profiles. We're gonna include multimedia, video, things like that. Second piece is the way that our users communicate today is they typically use messaging through our internal chat app. When they do that, we wanna make that a richer experience. We want them to be able to flow more content types into there, so we're gonna continue to expand that. Finally, we wanna, of course, connect our travelers with other travelers that are like minded. Now as of today, we do not do any, AI personalization at all, but we will.

48:44 And here's how and why this is such a critical step for us. The first piece is we want to, of course, connect you with people that are like minded, that have the same interests, that might come from the same country, speak the same languages, into the same sports team. The second piece is we have things that we you could do. We have places you could go, but we don't connect those two yet. But you can imagine this case where we connect you with like minded people and suggest locations and things that you could do together. And finally, as HOSTELWORLD, we have years and years and years of user data, so we really understand what is the what are the destinations and the follow on destinations that users will go to. As an example, when people typically go to Lisbon, they might make a trip to Porto.

49:33 Or when people go to Barcelona, they might make a trip to Madrid. So we have tons of that data, and we understand that user behavior. It is connecting all that and creating engine that recommends the right people to hang out with, the right things to do, and the right cities to go on after your current trip. Now I've talked a lot about how this benefits our customer and our travelers, but that's not the only person in this equation that this benefits. It also benefits our hostile partners. So I'm gonna pass it back to Gary to talk a little more about that. So Johnny just give you a fantastic rundown of how our strategy drives a lot of value, very profitable value for us in terms of our customers. So I'm gonna switch it and now talk about our HOSTELWORLD partners.

50:28 So typically, over the last twenty years, we've always been known as a company that provides higher value HOSTELWORLD GROUP customers versus our competitors. You know, people who are searching in Google, for example, HOSTELWORLD WORLD, they see our app. We're called HOSTELWORLD. We've been around for twenty years. People who we provide to our HOSTEL partners, they know what the HOSTEL experience is. They're not surprised by bunk beds. They don't think that there's going to be, you know, any sort of room service. And these are also the people most critically who go down to the bar. They consume beverages at the bar. They use the food and beverage offering of the hostel. They go on the trips, and they write the best reviews.

51:14 So this is a long term thing that we've had. Now in June 2020, we actually lowered our commission rate to 15%. It used to be a blended average of 16.6, and we lowered it back to 15. And when we did so, we saw that our inventory competitiveness became much stronger. We have a very simple marketplace. It's a flat 15%, and the only way that hostels can get higher up the sort order is by giving better inventory competitiveness to us. So this is the dynamic that we have in place now. Now the question, of course, is, well, why does the social strategy strengthen it? And this is really subtle, but a very important point.

52:02 The root of the social strategy drives revenue expansion or revenue growth and margin expansion. So as a consequence, when Caroline talk talks about the outlook, we do not need to change our commission rate over the next few years. Even though there could be opportunities to do so, we are choosing to keep it at 15%, which is obviously very favorable to our HOSTELWORLD partners because we prefer the business model where the growth in economics comes from filling that prevalent need around the customer base. And therefore, we keep this stream of being able to get this market leading rate and availability competitiveness.

52:49 And in several circumstances, we actually get exclusive inventory purely because our hostel partners want to make sure that they bring our customers into their hostels. So there's a super important point, and in a few moments, we'll be showing you a video where our hostel partners, some of the CEOs of some of the mid sized chains around the world are talking about this social strategy and the value that it brings for them. But before we do that, I wanted to talk a little bit about our overall hostel supply picture. Now my apologies for a lot of data on this chart, But we're going to start in the left hand corner there, that that little global donut.

53:40 So you may remember earlier that I said that this year, we expected the total hostel industry to account for about 200,000,000 bed nights. So it's actually a 197. Now, the orange bar is the sales that we expect to see from the hostels that are connected on our platform across all distributors. So we're not actually going to be talking about the number of hospitals connected to our platform as a metric anymore. And there's a few reasons for that. The first one is some hospitals are very small. Some hostels are very big. Some hostels are in gateway cities. Some hostels are, you know, smaller and by the beach.

54:30 So consequently, it's not really a very representative number when you're thinking about how much does your hostel portfolio cover the entire market. And indeed, the second reason is we don't usually track the number of hostels on our platform. What we try and track actually is how much of the market does our hostel portfolio cover? And then in a very data driven way, where are the opportunities to add the the the most critical hospitals which is going to increase that coverage? So how do we increase that 77% to 80% to 85%? So if you look at it at different areas of the world, you know, we'll talk about The Americas, and then EMEA, and then APAC.

55:23 So if I look at The Americas first, The Americas account for about 17% of that a 197,000,000. So about 3% of that in terms of destination terms, about 6,000,000 bed nights, is accounted for hostels that are in The USA and Canada. And if we look at our hostel portfolio, it pretty much covers the entire market. It covers 92%. Central America, they cover about 10,000,000. It's about 5% of the total. Again, we've got a very respectable 86%. But then when we go to LatAm, that drops down to 76%. And the area in LatAm where we have an opportunity to grow to add more hospitals to increase that coverage is actually Brazil. That would be the biggest opportunity.

56:16 When we look at EMEA, you have Western Europe, Eastern Europe, and EMEA, Middle East, and Africa. The biggest market from a destination perspective for hostling is Western Europe. It's about 40% of the total. You know, we have reasonable coverage there at 78%. In Eastern Europe, it's about 10% of the total. And the biggest opportunity area that we have there is actually Poland. You know, there are other places like Lithuania, Estonia, you know, a little bit more off the beaten track. But the biggest opportunity, as I say, in terms of adding very surgically more hostels to increase our coverage would be Poland. And then when you look at North Asia, South Asia, Australia, New Zealand, sort of APAC, You know, Australia, New Zealand, as you might imagine, you know, it's a very strong, well known backpacking destination.

57:13 Even though it's only 6% of total bed nights, we have excellent coverage. The opportunity here for us is really North Asia, and within North Asia, it's Japan. So the three sort of areas that we will be focusing on in the next year or two is building up our hostel supply to increase coverage in Brazil, Poland, and Japan. So moving on to sustainability. So I talked at the very beginning about how hostels were the most sustainable choice, and indeed, you know, external research, you know, saying that sustainability, at least within Gen z and millennials, was a growing importance. And I think, you know, we're at an interesting point with sustainability right now.

58:02 And I think this landscape is going to change very, very rapidly. So you should look at this as a snapshot of what we think today, and we'll talk a little bit about what our strategy is going to to be. But equally, I think over the three year period, it will continue to evolve as the context evolves. And the context, as I see it today, is half of our customers when we survey them are saying, it does play a role in where they choose to stay, meaning which hostel they choose to stay in. And we know by talking to our hostel partners, about 50% of our hostel partners are actually working on sustainability initiatives. And if I look at the external context, you know, we all read the press, and you can see that there's a growing recognition of overtourism as a global issue.

58:58 We're also seeing the emergence of, I'm going to going to say, third party bodies usually sponsored by the UN, people like the Global Sustainable Tourism Council, travelist, who are trying to set standards so that when you compare two properties, you're able to see which one has more sustainable practices versus another. But all of this is voluntary. And indeed, as a public company, you know, the landscape is also changing. So there are certain disclosures, some mandatory, some optional. We choose to do them all. You know, for example, TCFD, our scope one and our scope two emissions. So this is really a snapshot in my view, which I think will evolve quite rapidly.

59:47 But at least for the next twelve months, this is how we're thinking about it. So we really think about this in in three pieces. The first is we are going to continue to use every opportunity to both talk about and market the category's credentials as the most sustainable option. We've commissioned research. We add sustainability as a category to our annual awards. You know, we're still working with, you know, other more focused initiatives sponsored by the UN. For example, the global tourism plastics initiative. So we will keep on really, you know, pushing hard the categories credentials as the most sustainable option. In addition to this, we are going to work with those third party bodies, for example, GSTC, Bureau Veritas, to create what I would call a lightweight means for a hostel to be able to enter in what they are working on, and then have that appear on our website for consumers to be able to see. And I think the easiest way of thinking about that is during the COVID years, we had a little COVID badge.

1:01:02 And each hospital could go into our system and they could say that they were either complying with the World Health Organization criteria or whatever the local criteria were. And then we would take that information, and we would create a badge which would appear on their property details page. So we will use that infrastructure, take away the COVID piece, and replace it with a sustainability badge, maybe something that says bronze, silver, gold. So at some point in second half next year, we will go live with with that. And then finally, you know, as you might expect, we are walking the talk ourselves. So we have offset all of our emissions in 2022. We will continue and 2021, we will continue to do this as we go forward. And we've also signed up to reduce our emissions by 40%, you know, over the coming years. So not only offsetting, but also reducing. So this is really the strategy that we have for sustainability for the next twelve months. But as the external context continues to evolve, and I think it's going to evolve quite quickly, you know, our strategy will be updated to reflect that.

1:02:13 And, of course, sustainability is only one part of a broader ESG strategy. So we've we've covered the environmental piece. In terms of social and governance, we're a very young company in terms of the age of of people that we have. Over the COVID years, we put in a lot more policies around flexibility, agile working, you know, thinking about how we can support our people in terms of their well-being, you know, what was, you know, a truly, you know, horrible time for our company and any other travel company. We're also very big, excuse me, in terms of investors and diversity. We were recently accredited with the entry level bronze. You know, we will continue to, you know, work with that external body to go from bronze to silver, silver to gold.

1:03:03 And in terms of governance, we have a cross functional ESG committee that's led by Caroline that reports into the board and reports against our progress on all of those three things. So building this all up as a picture before I hand over to Caroline to think about outlook. You spent a bit good bit of time talking about the market growth and, you know, how that market is going to grow because of, you know, swelling numbers of Gen z millennials, how the needs of those Gen z and millennials are really perfectly aligned to what HOSTELWORLD as a category has to offer, plus the fact it's a very attractive category.

1:03:49 So from that perspective, if I look at the total number of bed nights that we expect to sell on our platform in 2022, as I mentioned earlier, it's about 17,000,000. So if there were no change to our growth strategy and we simply looked at the category growth between now and 2025, we believe that that would add another 6,000,000. Most of that would come because of the normalization 2022 over 2023. 2022, if you remember, the first half of the year was still really impacted by COVID, and the second part of the year has been far more normal. So when you make that normalization, next year should be 20% growth, and then the long range growth after that somewhere between 510%.

1:04:41 So that would get us to somewhere around 23. Now if we layer on our growth strategy that Johnny's talked about, we anticipate if we exclude any change to our hostel portfolio. No change to the hostel portfolio. It's still the same coverage of about, you know, 76, 77%. Market share growth because of our category would be somewhere like 21% today, moving to 24% would take us another 5,000,000, which would be 23 to 28. Now some of that market share could come or some of that 5,000,000 could come because we will grow our coverage.

1:05:30 Now we're not being specific in how much of that 5,000,000 is coming in terms of coverage growth versus market share growth, but we're very comfortable with adding another 5,000,000 bed nights on top, which would get us to a total CAGR in terms of bed nights of 17%. So growing much faster than the category, and it's about 1.6 times what we currently have today. So I'll leave you to absorb that picture, and then we'll pass on to Caroline, and Caroline will talk about how this picture then gets then gets translated into our expectations for 2023 and the long range forecast into 2025. So, Caroline, I will leave it to you to move forward. Thank thank you, Gary. Just before I get going, actually, we might just play a video from our hostel owners.

1:06:24 Oh, thank you. No problem. The guests that we get often from HOSTELWORLD are those sort of kind of travelers. They're the people who are coming over to a country to both explore a country, but also meet new people, create those adventures, create those memories. Because we all know that memories created with other people are greater than just going to a place and visiting it by yourself. I would say the HOSTELWORLD simply gets us the perfect traveler. So the HOSTELWORLD GROUP customer gets us the perfect environment to actually have a lively hostel and brings us value to the bar, to the atmosphere.

1:07:15 Through HOSTELWORLD, we get typically people who love exploring, who want to off road, who want something very different. But probably one of the biggest things we see is they want connections. They want they want to meet people. They want a bit of crack. They want to do something different. They want unscripted, kind of real connections with people. And we feel the guests at HOSTELWORLD sent to us are a perfect match. The special value they they bring is they really want to connect these people. And when they arrive at the hostel, they start socializing between them. They start hanging out or planning activities together or join the activities. So they they create the vibe at the hostel. This all the soul on HOSTEL is because of the the travelers. HOSTELWORLD guests are our favorite guests. Reason being, most of them are fairly young, fairly independent travelers really looking for that social experience. HOSTELWORLD guests HOSTELWORLD PLC, HOSTELWORLD GROUP HOSTELWORLD PLC, HOSTELWORLD HOSTELWORLD HOSTELWORLD HOSTELWORLD GROUP GROUP Yeah. We get a we get a lot

1:08:51 of solo travelers. I would say roughly 75% of all our travelers are solo travelers that come through our doors. And typically, on top of that, 60% of those are female travelers. That's why, you know, we also cater to specifically have female only rooms to make sure that they feel comfortable at all at all times in the hostel. We we have a 60% total of solo travelers, and it is a big difference. We have 40% of our customers are female solo travelers, which is quite impressive. These girls are traveling along South America, Mexico. And if you're traveling alone, once you are in the hostel, you need to make friends. So then the memories you create, the activities you enjoy are more meaningful.

1:09:38 I think the most important thing is they they want to connect and create memories and doing with friends is always better. Roughly 60% of our travelers are solo travelers, and and I think it would give I think give them much more confidence to go out travel solo because it'd be much easier to meet people. I think from the hostels at the other end, for us, it's great because we'd be able to put more events together. So you can create loads of different layers to this. So I think from hostels, it's a great opportunity. The solo travel from HOSTELWORLD, the solar system, is gonna help a lot to get to interact the guests between them. And in this moment where social media is so important and people sometimes lost the skill to get to know each other. I believe that the solar system will give up them a boost in order to get to know each other easily. Young people now do a lot of their communication through social media. They're already used to chatting online. By allowing them to maybe make some of those connections before they arrive, they're more likely to to meet new people. Maybe they find it quite difficult, quite they're quite shy to just go up and speak to somebody in person.

1:10:49 But if they've made that connection before and they've written a couple of messages back and forth, and maybe they share a couple of interests, they might find it a little bit easier to to actually make friends when they're actually staying. So I think virtually connecting people before they arrive is is brilliant. And so people can opt in, opt out. The tool is really good The HOSTELWORLD have, you know, to to go, I think, their cat traces go from solo to social quite quickly. Young people wanna plan things. They still want to go off road, do different things, but they want to have some certainty when they're going to a hospital, it's not gonna be a dope. So, yeah, I I think it's a super tool. I'm sure there's people having lots of conversations ahead of coming into the hospital. That's that's the that's the point. It kind of as we mentioned before, it's breaking down those barriers.

1:11:35 It's making sure that people feel comfortable before they even get here. And that's the of a hostel is that it only takes a small group of people to change the whole atmosphere. Sometimes it can be that one person. It can be one person who uses that, maybe that solo feature and says, hey, guys or girls, let's go and do something. Often, people will go, hey. This is a great idea. Like, I I wanted to do this, but I didn't want to do it by myself. Anything to break down that and get more people to join in is, for us, is a good feature. We got the award of HOSTELWORLD GROUP PLC last year, and that means that we need to create memories, to create social connections. And we design all our properties for that meeting. And with this tool, they can start doing that before arrival. So I wasn't in my phone until suddenly, I get that message from the app, oh, okay. The the chat is before two weeks.

1:12:30 Okay? And I start using it, and it was, like, quite surprising. Like, there's a lot of people chatting there. At the end of the day, we are here to make the people have a better holidays, a better travel, like, enjoy their time. So if this tool helps to that, you're helping, like, all the travelers to have better memories. Great. Thanks very much. I hope you all enjoyed that video from our great hostel partners.

1:13:33 So as Carrie said, I'm Caroline Cherry. I'm the CFO of HOSTELWORLD, and I'm here to talk to you about outlook, our financial outlook, and all of the contents that Johnny and Gary covered off, what that means, and what you can expect from a financial performance. So looking at financial twin year 2022, so the orange cog in focusing on that first. FY 2022 for year for us was very much a year of two halves. The first half of the year was very much a half of recovery, and the second half of the year being more and very much of the return to profitable growth. We saw at the start of the year the impact that Omicron had on booking demand, among cancellations. And we started the year with bookings at about 30% recovered versus 2019, 2019 being the comparator of what a normalized trading year looks like. By June, we were at 60%.

1:14:30 And as Gary has said, in November, we were at 90. And, really, the recovery profile between h one and h two has been quite stark. So h two, our bookings for the second half of the year will be 80% of 2019 levels. And on a full year basis, we expect to be 70% recovered. This despite starting the year at a very low base. So that 70% recovered versus 2019 in net bookings, that gets us to just under 5,000,000 bookings in this year. From a GMV perspective, we expect to close the year with 470,000,000 of revenue having passed through our platform. This compares to 2019 where we had a similar level of GMV.

1:15:18 From a net revenue perspective, we expect to be at at 70% of '20 oh, sorry. 70,000,000 net revenue in the year, and that is just under 90% recovered in 2019 levels. So when we look at net revenue of 70,000,000, that's just under 90% of where we were in 2019. And the delta there between the GMV being a 100% recovered and net revenue being just below 90% recovered is the reduction in commission rates. So we had a commission rate of 16.6% in f y twenty nineteen. And as Gary said, this year in f y twenty twenty two, we've had a flat commission rate of 15%.

1:16:05 Now there's quite a delta between the revenue and the booking recovery profile, and that's been driven by our average booking value. So we've seen quite an inflation in our ABV in '22 versus 2019, and that's really been delivered by an increase in bed prices. And if you follow this company, you'll know that we this is a trend that we talked about throughout this financial year. We've seen a real increase in bed prices throughout the year across all geographies. So when geographies reopened, demand recovered, and bed prices increased. When we look at marketing as a percentage of revenue, we expect that we will close the year somewhere between 5560%. And, again, this is something that we would have talked about at our interim results presentation, where at that point, we flagged that we expected on a full year basis to have marketing at a percentage of about 60% of the revenue that we were going to generate.

1:17:02 This now is actually going to be below it on a full year basis, and we expect that we'll be be between 55 to 60%. And as Gary has said, since September, we've been comfortably at the 50% level. And as Johnny has said, we know what's driving that reduction in marketing revenue marketing as a percentage of revenue. It's really the execution and acceleration of our social strategy where we're seeing very high value customers being attracted to the social features coming onto our platform via the app, making their bookings, and as Johnny has said, typically within the first six weeks, making twice the number of bookings as someone who is a non social network member. And when they do make those additional bookings, they are making them in the app. So all of that accumulating in reducing our marketing percentage, driving marketing efficiencies, and increasing our margin.

1:18:00 As Gary has said from an OpEx perspective, we expect that our h two cost base will be less than our h one cost base. So that feature that you've seen throughout this year of cost containment and reduction has continued despite the recovery in top line performance. From an adjusted EBITDA perspective, we now expect to close the year with a profit position of about 1,000,000. So that is a profit in the second half of the year of just over 6,000,000 versus a loss in the first half of year of the year of just over 5,000,000. So quite the swing factor between h one being loss making and h two being a strong making half year for us. So from an FY 2023 perspective, what can you expect to see?

1:18:50 Net bookings, we're expecting to see growth of about 25% versus 2022. So, again, this is the benefit of markets reopening. On a net GMV perspective, it's not keep keeping quite as pay much pace as the bookings. We're expecting that to be 20% versus the 25% on the bookings. The 27% really being a factor of ABV decline. And as, again, as Gary said, that's us being prudent and cautious on the outlook for next year. We will see the impact of mix on our ABV in 2023, and we have seen quite the elevation in bed prices throughout 2022. So we're just factoring in a little bit of prudence on the revenue and GMV side.

1:19:38 We're assuming some level of contraction, and that's why GMV and revenue in 2023 are expected to grow 20% versus bookings, which we're expecting to grow 25%. And as Gary has talked about earlier in the presentation, we are growing in a growing category. Marketing as a percentage of revenue would be in the 50 to 55% range. Again, this is a a range we're very, very comfortable with. We're already operating at 50% in September, October, November, and onwards. So the 50 to 55 range is something that we are confident that we can execute. And, again, it's the benefit of the social features and social strategy taking off. On a cost perspective basis and from an OpEx perspective, again, assuming only modest increases.

1:20:29 So 70% of our cost base is made up of wages and salaries. And in 2023, we are assuming a modest increase in wages and salary, cost inflation, and that is the key driver of the increase in OpEx year on year. We'll be maintaining our headcount at current levels. We do not require additional headcount to be brought into the business to execute the strategy nor do we expect or knee see the need for any material tech and product investment next year to expand the social strategy. So from an adjusted EBITDA perspective, what you can expect to see is this business recovering to the high to mid teens margin level. Now looking at our customer cohorts and why we have confidence over the net bookings and revenue number that we are sharing with you for FY 2023.

1:21:27 So for those of you that may have followed us at our interims presentation, you will have seen this slide before. But just to give us some context as to what this information is telling us. The bars represent financial years, and the color blocks within each bar represents the year in which a customer was acquired. So anything above the dotted line represents revenue from customers that were acquired in year, and the color blocks below the dotted line represents revenue from customers acquired in earlier years. So if we look at the 2015 column and the revenue that we made in 2015, you can see the pink bar above the dotted line represents revenue acquired from customers that we acquired in 2015.

1:22:17 And the color blocks below the dotted line represents revenue generated from customers acquired in earlier years. And you can see that pink bar or the pink block reappear in the 2016, 2017, 2018, and onwards years. So we have a very loyal customer base. And why is this very important? Well, it's important because whilst we have limited visibility on our revenue and bookings, because 70% of our bookings come within fourteen days or less, we have a very predictable customer cohort that we mine so that we could understand and forecast what our revenues will be. So it's a very predictive element to the customer behaviors.

1:23:05 And one and that is important when we look into 2023 because we can look at this predictability. And whilst we have limited visibility from a booking perspective, we understand the behaviors of the customers and when those customers will reappear and how they will reappear. And when we take that for 2023 and we look at it and cast it forward, 40% of the revenue that I expect to generate in 2023 will come from customers that we have already acquired either in 2022 or in earlier years. So that gives me a level of confidence around next year's revenue and booking profile. The other thing to add to this is that this view is built up on customer behaviors that we have seen in prior years.

1:23:55 So, naturally, the social strategy and all of the customer behaviors that Johnny has talked to in terms of what we have seen around how we are acquiring customers, how often they're coming back, when they're coming back. Since we launched the social features, that all represents upside this to this profile of customer cohorts that we're looking at here. Now if I move on and look into outer years, so looking at FY 2025. So Gary has talked a lot about our expectation for this category. So we are growing in a growing category, and we expect that our growth will be ahead of the category. So I'm expecting that GMV will be grow at a 15% CAGR versus FY 2022.

1:24:45 So we're growing in a growing market, and we're increasing our share. Gary has talked about growing bed nights by as at a CAGR of 17%, so 1.6 x times. Again, from a GMV and a revenue perspective, we're being prudent in our outlook for ABB in into 2023 and assuming some level of contraction. So we're assuming ABB will contract at about 5% and grow at a modest three percent thereafter. So that's why the net GMV and net revenue on this slide of 15% slightly lagging the 17% that Gary talked about when he talked through the bed night slides. Marketing as a percentage of revenue, we're predicting a wide range of 45 to 55.

1:25:32 At the moment, we're at 50%. But we are going to give ourselves the space and the opportunity that if we see the opportunity to grow this business faster through investment and paid channels, we will. From an operating cost perspective, operating costs we're expecting to modestly increase. But as with 2023, similar characteristics, wages and salaries will be our largest cost base. We do not need to make any material investment in our platform, in our tech and product cost lines to deliver the strategy and to deliver this outlook for FY '25. So costs very much assuming modest increases. And certainly, our cost base growing at a rate that is much lower than the rate of which we expect our revenue line and top line to grow.

1:26:23 From an EBITDA margin perspective, what this means is we'll see a return to EBITDA in the 20% range, which we have seen historically within this business. And we're seeing strong cash conversion. This business has a very, very strong fee fee cash conversion, as Gary discussed, asset light, limited CapEx. It's really the capitalization of developed labor. And so this asset light cash generative feature of the business returning and getting us back to a cash conversion in the 75% range. And looking at our balance sheet and what we can expect. Asset life business, very simple business model, very scalable business model, generating substantial cash flows. Our cash, as we have said in our previous to the market, tracking ahead this year, ahead of where we had expected.

1:27:18 So that generation generative factor characteristic coming back. We we remained within a leverage range to debt net debt of about one times. And then the big priorities for FY 2023 from a balance sheet and a cash perspective are the three lines on the right hand side of the slide. We will refinance our debt facility. So we have 30,000,000 of debt that we drew down last year to help provide vital liquidity to the business as we manage through the COVID crisis. So we want to refinance that facility. We have strong cash generative characteristics in the business, looking at the balance between refinancing and using some of our own cash reserves to help with the refi and looking to get an interest rate that is very much akin to the type of situation that we are in at the moment, I e, growth recovery play, as opposed to the interest that is on the debt facility at the moment, which reflects very much the type of debt that it was, I e, situational debt.

1:28:23 We owe 9,000,000 in of warehouse taxes to the Irish revenue, and we will agree a repayment plan with Irish revenue. This is non interest bearing liability. Interest on this liability does not commence until April 2023, and we have some time to agree a repayment plan with revenue. And lastly, we will continue to invest in the business to grow it. Our balance sheet and capital allocation policy remains the same. We have a dividend policy that would allow for the distribution of dividends between 20 to 40% profit after tax. But, again, the balance sheet and the covenants around the debt at the moment restricts us from currently paying a dividend. And now I will hand back over to Gary for closing comments.

1:29:12 As we get to the eighty ninth minute. So completely and utterly on time. So here we go. Just a couple of closing slides. So I hope we have convinced you today that there is a real value creation opportunity ahead of us, not only for our customers, but also our HOSTELWORLD partners and our shareholders. You know, it is a true win win win over the next three years. You know, for customers, we're delivering on the core need of the category, which is help, you know, helping travelers find other people to hang out with. And as Johnny has said, the nature of a social network is it becomes more and more useful as more and more customers use it and join the network. And we're already seeing some evidence of that already.

1:30:00 You know, for our hostel partners, I hope you enjoyed the video. We will continue to deliver those high value customers that they want, the ones that enjoy the hostel experience. They write the best reviews. They consume all of the ancillaries at the hostel that are very, very profitable. They understand the experience. And as I mentioned earlier, the nature of the social strategy is such that our revenue and margin growth is predicated on the social features. It is not predicated on driving up our commission rate over time. So we will keep that market leading commission rate of 15%. And of course, for our shareholders, both current and the future prospective ones, you know, what we can deliver is some compound revenue margin, EBITDA growth, and as Caroline has talked about, we capitalize very, very little. And as a result, more and more of that cash flows through to the bottom line.

1:30:56 And in terms of where we are, I hope, you know, we've convinced you that we're extremely well positioned today. You know, we're not asking you to bet on a growth strategy that might work in the future. You know, the growth strategy is launched. We can already see the results of how that strategy is playing out this year. And we do believe that because of the nature of the business that we are building, the business model and the features, you know, going very, very deep on this need, we're building a fantastic competitive moat around this category with us as the category king compared to the other players that could take a look at it. In terms of financing, you know, we're well financed. We expect the to end the year at a closing cash position of 19,000,000, you know, by getting at least EBITDA positive this year, know, we're setting ourselves up for, you know, a great series of conversations with banks.

1:31:52 Those conversations are already underway. And as a consequence, we will significantly reduce our interest rate cost as we go forward. And finally, we're on track. You know, the trading performance is just getting better and better month over month as we go through the rest of this year, you know. And finally, just to ram home this point one more time, the beauty of a social network is its network effect. The fact that more people use the network, the more valuable our product becomes for all of our customers. So with that, thank you for being with us for the last ninety or so minutes. There's some great questions that I can see that have come up in the q and a. And I think I'll invite David, if he would, to kind of empty those for us.

1:32:43 That's great, Gary. Thank you very much indeed. And just while you guys take a few moments to review those questions submitted already by investors, I'd just like to remind those on the call that a recording and a copy of the slides along with the published Q and A will be available via your dashboard, and we'll notify that when you're ready. David, as Gary said, you've had a number of questions from investors. So thank you very much to all of you for your engagement this afternoon. And maybe if I may, David, hand back to you to host that, that'd be great. I'll pick up from you at the end. Yes. Thank you, Mark, and good afternoon, everybody. We've got a lot of questions in, which is great to see. So we're trying to get through as many of them as we can on the time that we have. First question, I think maybe, Caroline, you might take this. What update can you share on a potential debt refi in next year? There's clearly a high coupon associated with our last fundraise, but the business is in a better place now.

1:33:31 What are your expectations regarding potential improvement on that? And maybe some comment on when you anticipate this could be completed. Okay. Thanks, David. So what we're doing right now is we're talking to the Irish Pillar Banks, early conversations, establishing relationships, looking at early term sheets, indicative terms. So work is starting now, this side of Christmas on us. I would say the best outcome for the business would be that we would look to refinance in the latter part of f y twenty twenty three. Reason being is that we would have twelve months, if not more, of positive EBITDA monthly positive EBITDA performance under our belt, allowing us to negotiate the best terms, most favorable terms.

1:34:16 As I said, we're looking to get the move the debt from situational debt back to commercial vanilla terms with an Irish pillar bank. So timing, I would say, expect latter part of twenty twenty three. Work started on us at the moment. The coupon absolutely will be lower than it is at the moment and reflective of the fact that it would be straightforward for another debt as opposed to the situational debt that we had prior. Thank you, Caroline. Maybe, Gary, you might take the next question. What is the company's growth strategy plan in terms of tangible product, brand, and CapEx investments? Okay. Thank you. So I I note that this was a pre submitted question. So I'm hoping that a lot of this we've actually covered in the last ninety minutes, certainly around the growth strategy.

1:35:06 I think around brand, our product is our brand. You know, the fact that the social network is, you know, generating all of this constant all of this great content in these third party networks like Instagram, Twitter, and so on, really amplifying that word-of-mouth, you know, super effective form of brand advertising. So we will not be reinstating the kind of brand advertising that the company would have had in twenty seven, twenty eighteen. In terms of CapEx investments, there are no CapEx investments that are contemplated other than the normal capitalization of development labor. So a certain proportion of our tech resources, we do capitalize only over a two year basis.

1:35:52 The levels of of capitalization are actually very low, you know, circa a bit less than 2,000,000. That's not anticipated to change over the period. And moreover, all of the growth strategy that we have talked about today in terms of what Johnny's gonna do with the social network, increasing our coverage, all of that is contemplated within the OpEx envelope, which underpins the outlook that Caroline has talked about. So super important point. David? Thank you, Gary. I might stick with you as well for the the next question. You might take this one, please. It's really your views around the market, who you view as our main competitors, how fragmented or structured the market is, and would you consider any m and a to accelerate growth?

1:36:41 Okay. Thanks, David. It is always a very dangerous answer, but the reality of this situation is we cannot see any other business which is fusing a social network onto an online travel agent platform. We've made this decision because we know that there's such a prevalent need amongst our customer base to help them find travelers to hang out with. That need does not exist in other areas of the travel landscape. Nobody cares who's staying at the Marriott. Nobody cares who's staying at the Hilton. But our customers, which is a very sizable population, if you go hostly, really do care about it. So consequently, we're going very deep. We do not see anybody else following, so I can't really point to anybody else in terms of saying that as a competitor, which actually leads me onto the second part of the question is, would you consider m and a?

1:37:40 And the answer is, there isn't anybody obvious or any type of business that is an obvious m and a category that would accelerate what we are already doing. So I would like you to take comfort that the growth strategy that we talked about today is really an organic growth strategy. There isn't any m and a bolt on that's either required or contemplated. And all of the investments that we think that we need to do in terms of making that social network even stronger or increasing our coverage are contemplated within the OpEx, which is all contained within the Outlook. Thank you, Gary. Johnny, I might put the next question to you. It's about product. What does the road map look like for new features and functions for the app, and is there any planned investment needed here to support that?

1:38:34 You, David. So in the presentation, I covered a few slides just about kind of the way we're thinking about the road map. But just to recap, we believe one critical part of this, and it's it's reflected in the history of any companies that are trying to build a network like this. Self expression is key for our users, So it is maintaining a richer, profile capability for our users to be able to add more of their personal content. Second piece was mostly about messaging, which is the way people are communicating our platform. We want to, of course, create more ways that people can message and communicate better, share more multimedia, and things like that. And finally, of the third pillar that wraps it all up is we want to apply and think about machine learning and AI to be able to personalize connecting people with the right people, as well as suggesting things to do and naturally, of course, places to go next. So that's kind of what the road map looks like roughly for the next twelve, eighteen months.

1:39:29 In terms of planned investment needed, as Gary mentioned, there's no additional investment here. All that is very core to our business and already reflected in our plan. Thanks, Johnny. I might stick with you for the next question as well. You might just talk through how we look at and think about users and usage on the app. Sure. I covered kind of two views earlier, which is bookings from social members and as well as feature usage. Now the way we look at this is the social strategy is not a a side project. It is, critically core to our actual business, and it's the way we think about our business going forward. So where we would naturally see this flow up is actually revenue and marketing as a percentage of revenue, and that's where we would see the impact of this social strategy working. And so those are the things we're focused on.

1:40:21 Thanks, Johnny. And maybe a last question in this section just to to round it off. The social strategy has clearly been quite quite successful since since its launch. Do you have any thoughts around, if it's possible to to roll this out any faster given the returns that it's delivering? Thanks for that, David. So this year, to just recap, we actually launched iOS only in April. I mean, a few months ahead of Android. So neither platforms actually had a full year. And keep in mind when we launch a new version on the mobile native apps, typically, there's about something like two to four weeks where all of the users get the most updated version of the app where that starts happening. So, of course, we'd love to speed this up. But the way we're looking at it is this year, we launched it, then we scaled the two users.

1:41:12 And next year, more of our focus will go to this. So we are accelerating as fast as we can with the teams and the people and focus. But, certainly, given that we will have a full year of working on this next year, we do expect this to scale to more users even faster than this year. Absolutely. Thanks, Johnny. I might just ask Gary then to take the next question, and it's around share price performance. And do do you think that it's reflecting the significant opportunity we're outlining here? So I think what I hope we've talked about today is, you know, a really laser focus on very few things to grow the company, Whether it's all the things that Johnny's talked about in growth strategy, what I talked about, what we're going to do in terms of coverage, the continued discipline around OpEx.

1:42:04 We're just gonna say, you know, laser focused on those things. We'll plan on updating a little bit more regularly, you know, as we go through next year. But I believe if we do those things, the share price will take care of itself. Thank you, Gary. And I might just stick with you for the next question as well. It's just around FY 2023 and your confidence levels around meeting market expectations for the year. Very, very confident. Very good. The next question then is around marketing initiatives and costs and OpEx assumptions, and it's really just a question around how realistic and confident we are about those OpEx assumptions that we've laid out today.

1:43:00 Is that me, David? Sorry. Apologies. I I forgot to say Sorry. Sorry. No problem. Gosh. We're we're we're doing great until up until then in terms of smooth transitions. Now we have, as I said, 70% of our cost base is our people, and we've factored in wage inflation for next year. So and we have our road map built out, and we know we have a very good handle on what it is we need to deliver the road map that we are are going to deliver. So we as I said a couple of times, we aren't anticipating any significant investment incremental to what we are know we need to deliver those numbers for 2023.

1:43:48 Very tight cost base, very lean cost structure. All of our costs are variable. The beauty of this business is there is no fixed overheads. So if you're on paid marketing costs, it's flexed to the top line to your booking volume. And then from an operating cost perspective, 70% of us is people. So we're confident in terms of cost base for next year. And then sorry, David. Just remind me the second part of the question. Sorry. It was just about our marketing initiatives and our OpEx assumptions. Sure. And then from a marketing perspective, as we've said, we're gonna be in that 50 to 55% range. What I can say is here and now we're at 50%. So, again, we are very much seeing the positive attributes of the social strategy manifest in marketing efficiencies, growing that margin. So all that additional margin incremental margin flowing through to the bottom line. And we've really seen that in h two, that swing factor in terms of EBITDA going from a five five million loss in h one to a 6,000,000 profit in h two is quite the delta. So, again, we're we're we're confident in terms of the range we're giving for next year, given we're already seeing it in the numbers.

1:45:01 Thanks, Caroline. Gary, I might turn back to you actually with our next question, and it's just around the economics of social members. And do we see a margin uplift associated with the accelerated growth in direct social member bookings? So the answer is yes. And if you think about two pages in the presentation, one forgive me. Johnny looked at the proportion of our bookings that are made by social members from April through to, I think it was October, and it was going up from, say, 1313% to around 50%. Percent. And if you now turn to one of the pages that I had early on in the overview section, you can see marketing as a percent of net revenue has come down to 50.

1:45:50 So that the the the outcome, which is the reduction of marketing as a percent of net revenue, the causal factor is the social strategy, which underneath that, of course, is more bookings, more of those bookings on the app, and more of those social members recruited through low cost channels. So all of those things in the round generate that margin benefit. Thanks, Gary. Might also stick with you for the next one as well, and that's around accommodation types on the platform. And is the plan to generally always stick to hostels, or would we ever offer other accommodation types? Okay. David, if I may ask, can you ask the next question as well? Because I'm gonna ask Yeah. I like to that might compare that as well. Yeah. It is. So the next question also relates to adjacencies.

1:46:41 And as we look beyond the short term, do, you know, do you as we look beyond the short term and functionality and adoption of social evolves, are there other adjacencies that you think about? So we are going to remain laser focused on the HOSTELWORLD category, you know, for at least the next couple of years. We have a unique opportunity to really deepen and broaden that competitive moat. You know, everything that we see in the numbers is going to get us, you know, sustained revenue growth, lower marketing as a percent of net revenue. And that's gonna flow onto an operating model, which is highly scalable, right, and very low capitalization. So the strategy is already delivering.

1:47:28 You know, the the task of management is to really double down and focus on that area. Now that being said, what I also believe is there are solo travelers who have income, which means that they would like to stay in different kinds of accommodation other than hostels. And what we do believe is that the combination of all of the things that we are finding and discovering and refining in our social network, plus our OTA platform with different inventory would allow us to serve a cohort of travelers, let's say, 35 to 55 who are potentially solo by circumstance rather than by design, you know, either through change of job or, you know, lifestyle change or whatever it may be, but are looking and have travel, you know, vacation allowance with their employer.

1:48:32 And they're looking to use that as a means to meet other people. So all of the company intellectual property that we are building up in the HOSTELWORLD category, we feel that we can also deploy that in another adjacent market in the coming years. And I think you should expect maybe, let's say, a year, eighteen months from now, we'll hold another Capital Markets Day where we will be talking about that adjacent market opportunity. That's great, Gary. And to Caroline, Johnny and David, I think you've answered all the questions from investors this afternoon. So thank you once again to everybody for your engagement. Gary and to the rest of the team, know investor feedback is particularly important to you, and I'll shortly redirect those on the call to give you their thoughts and expectations.

1:49:20 But before doing so, Gary, I wondered if I may just come back to you for some final closing words just to wrap up with, and then I'll send investors to give you their feedback. So thank you. On behalf of my team, thank you. We've taken a bit shy of two hours of your time. You know, I think if I were to leave you with a single thought is there is such a magnificent value creation opportunity for our customers delivering on that unmet need, which is so powerful. You know, for our HOSTELWORLD partners, you know, really making the HOSTELWORLD GROUP category stand out versus budget accommodation. And, of course, for our existing and for our future investors, you know, the nature of the business model, you know, using, you know, a very deep unmet need with an organic growth strategy is gonna deliver compound revenue margin and free cash flow. So really, it's a triple win strategy. You know, we're super excited about it. I hope that's really shown through, and we look forward to the opportunity of updating you versus our strategy in the coming months. So thank you very much for your time. That's great, Gary. Thank you once again for your time and to the rest of the team from HOSTELWORLD.

1:50:29 Ladies and gentlemen, could I ask you not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of HOSTELWORLD GROUP PLC, we'd like to thank you for attending this afternoon's presentation. Good afternoon to you all.