Hostelworld Group (LSE:HSW) — Preliminary Results

0:00 Good afternoon, and welcome to the HOSTELWORLD GROUP PLC Preliminary Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Gary Morrison, CEO.

0:31 Good afternoon, sir. Good afternoon, and welcome back, everybody. It's a absolute delight and privilege to be back on the IMC platform to talk about our preliminary results in 2022. We are gonna spend a little bit of time today talking about the actual results in 2022, where I'll hand over more to Caroline. And then I'm gonna spend a little bit of time sort of seeing what sort of trading we've been seeing over the first three months of the year and our growth aspirations for the rest of the year. So really in two halves. And with that, let's get going. So the usual disclaimers, I am going to check these as red, and now we'll go straight to highlights. So 2022 was really a transformational year for HOSTELWORLD.

1:20 It was transformational in terms of the travel recovery, but it was also transformational in terms of that really exciting pivot we made to a social network powered OTA. And I think I would characterize the, you know, the key highlights as as follows. So first off, we made our EBITDA targets that we communicated in the Capital Markets Day in November last year. In fact, we were slightly ahead of market consensus. You know, that was driven throughout the year with a really strong travel recovery. In January, you might might remember, it was about 30 net revenue, 30% net bookings. And then through the first half of the year, about a 100% of revenue in summer, and then it continued thereafter.

2:07 But most importantly, from our perspective, we launched that innovative and differentiated social strategy. And they were those social features were launched on iOS in April, Android in June. That really powered the recovery and the fantastic marketing as a percent of net revenue performance in the latter half of the year. And all the while, we have maintained an incredible cost discipline. You know, our costs are considerably less than they what they were pre pandemic. You know, December 2019, we would have had about 330 people. Now we're operating, you know, the same business, albeit with a new growth strategy at about 200,240 240,245 people. We think we can continue at that sort of level for the balance of this year.

2:59 And we also made a lot of progress on our ESG agenda. You know, if I just focus on the sustainability part, we will talk about that a little bit later on in the presentation, but, you know, clearly, the category is the most sustainable choice for travelers. You know, if you look on a per night stay, if you stay in a hostel, you emit roughly 25% of the carbon emissions compared to a hotel. 50% of our customers say these kinds of things matter when it comes to choosing where they book, and 50% of our hostel partners are already putting sustainability measures in place. So, you know, really, we're thinking how do we make sustainability not just a competitive advantage for the company, but also for the category as a whole.

3:46 Now turning our days, our sights over to what we've seen over the first three months of this year. We've seen a fabulous start to q one. If I look at revenue, it's about a 115% of 2019 over year to date. So that's January, February, most of March. March itself, we expect to be about a 120% of revenue, a 103% of net bookings, maybe a 105,106% of bed nights, all of these figure figures relative to 2019. So we clearly clap lapped, you know, where we were in 2019 pre pandemic. And a lot of that, obviously, is that differentiated growth strategy that we launched last year is just continuing to deliver. And we're incredibly excited about what it's done year to date and the future promise for what we believe it can do for the balance of year and thereafter.

4:44 And I think a really important part of that is how we plan to build even more value into that social network. And today, we'll talk about some of the things that we've launched since our Capital Markets Day. And indeed, we have a very nice little demo, which I think that will help bring that to to life a little bit more.

5:04 Caroline will be able to talk to you a bit about our refinancing progress, you know, what our expectations are for that. And all in all, you know, always, the business model is gonna be incredibly asset light, very highly cash generative, and if anything, the growth strategy will even accentuate those characteristics. So with that said, I'm gonna give you a super fast rundown of the key figures for 2022. So our net GMV, total value of all of the transactions on our platform, less cancellations, was about €500,000,000,470,000,000. Our net revenue was 69.7. We take a commission on those gross sales of about 15%, and we collect that every time somebody makes a booking, of which there were 4,800,000 bookings. So the average booking value is 69.7 divided by 4.8, that gives you 14.9.

6:07 Quite a bit higher actually than what we saw in 2019, mostly driven by bed price inflation, some of it on geographic mix and a little bit on expanding length of stay. Caroline will talk a little bit more about that. And if you look at those bookings, we had a total of 7,700,000 passengers and or packs as we call them. And if you take that number relative to 4,800,000, you'll see that the average number of packs per booking is about 1.6. Feels quite low. 60% of our travelers are traveling solo. Hasn't really changed that much since 2019. When you look at net bed nights, you take net bed nights and you divide that by net bookings, you can see the average number of bed nights per booking is about three and a half. So quite short lengths of stay. Our travelers generally move from one city to another city to another city.

7:07 The growth rate relative to net bookings, a little bit greater. We saw a little bit of an extension of length of stay. And then moving on to the low lowest row there, we delivered that top line performance at 59% of marketing as a percent of net revenue. Now this is really a tale of two halves. Caroline will go in more detail, but marketing as a percent of net revenue was growing in the first half of the year as we were bringing in new customers post COVID into our platform. Over the summer period, it was very elevated because of all of the airport disruptions. So we saw a lot of cancellations. So we paid for the booking, but then consequently, the booking had canceled. So marketing as a percent of net revenue was quite elevated in June, July.

7:58 But then as the social strategy really started to take hold, what we were seeing is that revenue growth in the second half of the year continued quite strongly, but marketing as a percent of net revenue actually started to come down. And I think we finished the year around 53%. So, you know, it's really is a more nuanced story. With that lower OpEx that I spoke about earlier, So more of that margin that we're generating fell through to EBITDA. So we're slightly ahead of consensus at 1.3, and that translates to 19,000,000 in cash. So quick potted summary of the year, and now I'm going to invite Caroline to go in a little bit more detail with the various walks.

8:44 Brilliant. Thanks very much, and great to be here this afternoon with you all.

8:49 Super. So just starting off, the purpose of this slide is really just to illustrate the scale of the recovery when we look at FY 2022 in comparison to FY 2021. And as we said, Gary said at the outset, we've seen significant recovery in our booking volume and in our revenues. GMV is the total value of the transactions that are processed through our platform, and net GMV is that value net cancellations. So net GMV year on year grew four times, and net and generated revenue also grew four times. We've kept our commission rates or market leading commission rates, which is 15%, flat year on year. Net bookings grew 3.3 times. So as Gary mentioned at the outset, we started from incredibly low base, 30% in '29 sorry. 30% of the bookings that we would have received in January 2019, we received in January 2022.

9:47 And in fact, Asia and Oceania in January were at 5%. So low single digit volumes in comparison to what the business would have been like pre COVID, pre pandemic. And we saw a very strong recovery in that booking volume through the year. So I'm gonna just move on to the next slide, which sets out our revenue walk, and we'll dive into a little bit more of the

10:09 revenue growth that we that we've talked about. So in the prior year, we had revenues of just under 17,000,000 and then delivered net revenue in 2022 just under 70,000,000. And booking volume was the key driver of that recovery. We started at 30%. There was still a huge amount of restrictions in place, lockdowns, transport was had ranged to a halt, long haul travel had ranged to a halt. We began to see in the latter part of q one into q two the beginnings of the recovery with the introduction of European passport, travel passports. And indeed, during summer months, some of our key European destinations had actually outgrown where they were versus 2019. So we knew the demand was there. It was just a matter of people being able to travel.

10:57 That recovery then built up and gathered momentum in h two, particularly with reopening of Oceania and Asia. And those two regions, Asia in particular, has had a stellar recovery, which has continued on into q one twenty twenty three and outpaced the demand that we were expecting, more of which Gary will talk to later.

11:18 The other key component is ABB. So as Gary mentioned, we've seen a very, high bed price inflation versus both 2019, actually, and 2021. So bed price inflation is the key component of that ABB tailwind that we had last year. Cancellations net out the adverse impact of deferred revenue. We saw reduced cancellation rates in 2022 versus 2021. Cancellations had spiked at the start of 2022 with the impact of Omicron, etcetera, but definitely down substantially versus year on year, and that cancellation rate has now fully normalized in 2023. Deferred revenue relates to free cancellation bookings whereby a customer can cancel. We don't recognize the revenue until the last day has passed at which the customer could cancel. So that point eight is actually future revenue, future margin that will have been recognized in the 2023 p and l.

12:13 So moving on then, I'm looking at, the margin impact of that revenue. So, again, volume, huge driver of the margin growth year on year. ABV representing a significant tailwind for us. And then the last component in margin uplift is marketing. So marketing as a percentage of revenue reduced year on year. So in 2021, it was elevated at 76. Now this was obviously the year of COVID where there was a huge amount of cancellations, disruption to travel. The impact of that began to ease in 2022. But even within 2022, it was a year of two halves. In h one, marketing as a percentage of revenue was 70%, and then in h two, it was 52%.

13:01 We were investing to build up that new customer funnel that we needed where we had two years of very little activity. Conversion improved, cancellation rates normalized, and then we also have the benefits of the social features really take hold in the second half of the year. With marketing as a percentage of revenue at 52%, that's very much in the lower end of the range that we had guided for marketing for f y twenty twenty three. And then the deferred revenue impact I've talked about in the previous slides. So all in all, a net margin of 26,000,000 we made last year. Now the other important component when we talk about our p and l is our cost base. Our cost base is double digit less than where it was in 2019 pre COVID.

13:49 We have seen year on year an element of growth in our wages and salaries. That's because our headcount has grown marginally versus 2021. As Gary said, we're operating around the $2.40 level, and this is the level we will see the business operate at. We don't see the need to invest in more headcount to deliver the strategy that we're talking about today. We have the people, resources, the skill set that we need. Year on year, 2022 versus 2021, an element of headcount and growth, but also we received less governmental wage subsidy benefit in 2022 than we received in 2021, which is also also part of the delta. Contractor costs grew year on year. That's because we brought in temporary contractors to accelerate the delivery of the social product features.

14:36 The yellow block represents technology costs. So this is our in house software costs, GCP hosting, etcetera. Year on year, that cost has gone down because we have seen efficiencies by moving our platform to cloud hosted technology and also the work we've done on modernizing our tech stack. So that modernized tech stack being hosted in the cloud is yielding cost savings. FX is the blue bar. That was a hit for us this year with the strengthening of the US dollar versus euro. And then the remainder of the cost base is discretionary spend, predictably modest increase year on year as we get our teams back out on the road, meeting with our HOSTELWORLD partners again. But all in all, very tight cost base, down substantially in where it had been pre COVID levels, and this is the level that we see the business operating at going forward.

15:28 So introducing a nice operating leverage benefit to the business. So bringing it all together, we were delighted to return to EBITDA positive in 2022 ahead of where the market had expected us to land, a significant driver of the EBITDA performance being the recovery in volume and ABB, marketing efficiency also driving that margin benefit. So attracting customers to our social channels, acquiring new customers through lower cost acquisition channels, all driving reduced marketing investment spend, driving incremental margin, and then the benefits of a tight cost base driving better operating leverage. The deferred revenue would be margin that we'd receive in 2023, and then our operating costs increased year on year. But, again, we had temporary contractor costs, less of a, wage subsidy benefit, and FX was a hit for the business in the year.

16:28 The majority of the driver of the 4,000,000 cost increase year on year. Then looking at it from a cash perspective, so we started the year with 25,300,000, and we closed the year at 19,000,000, exactly in line with the guidance that we gave at Capital Markets Day. Revenue generated 70,000,000 of cash. That was offset by our direct costs, which is our marketing spend and our operating cost base. We will be more efficient in our direct cost spend this year as we flagged. Page two was 52%. Our guidance for 2023 is that marketing as a percentage of revenue will be between 5055%. Our net debt position at the end of the year was 12,000,000, being 31,000,000 owing on the HPS five term five year debt facility that we drew down during COVID and our 90,000,000 cash position.

17:17 We also owe 9,000,000 of warehouse taxes to Irish revenue. So including that, that increases our net debt position to 21,000,000. In terms of that 9,000,000 debt facility to Irish revenue, which is the Irish tax authority, no interest has been accruing on that. 3% will commence in April of this year, and we will commence repaying that liability to the Irish tax authority in April 2024. In terms of the 30,000,000 debt facility that we drew down with HPS, that was a five year term loan. We are actively refinancing that facility at the moment. We are in a process with a number of Irish banks and expect to have an update that we will be giving the market within the next couple of months. The objective of that obviously will be to refinance a lower quantum at a better interest rate, very much reflecting where the business is at the moment as opposed to the difficulties we were in during COVID, which reflected the coupon we were charged on that facility.

18:18 And now I'll hand back over to Gary. Great. So I'm just gonna talk a couple of minutes about our supply position, as it looks at 2022. Most of the updates when we think strategically are around the demand side of the equation, which we'll come on to in just a second. This is the same slide that we had at the Capital Markets Day, but just as a bit of a refresher. If you start from the left where it says global, we define the total market as the number of bed nights that were sold. And using the data that we have access to and making some assumptions, we think the total number of beds sold in 2022 across all of the hostels, hostels we have, hostels we don't have, is about 200,000,000,197,000,000.

19:08 Furthermore, the hostels that are connected to our platform probably sold about 77% of that 200,000,000. Now just to say, we define we make an assumption that every hostel, they all use OTAs. And I think that's a fairly safe assumption. So we look at what booking.com has on its platform, what we have on our platform. So if you look at what their coverage number would be, our best estimate, I would say it's probably 78, 79%. So marginally better than our own. But what that would tell you is that they have hospitals on their platform that we don't have. We have hospitals on our platform that they don't have, but most of it overlaps.

19:58 So with that said, alright, the total market size is 200,000,000, and our hospitals cover about 77%. So if we look now, and we're going to take it in three slices, The Americas, EMEA, and then APAC. And we're going to look at what the coverage is that we have, the footprints that we have in each of those areas, and I just want to pick out a couple of details. So if you look from a destination perspective, USA, Canada, Central America, and Latin America, if you add the three up together, that's about 17% of that global 200,000,000 sold. So US and Canada, interestingly, is not a big destination, although it is a big source of customers that go to other destinations.

20:46 It's only 3%, so about 6,000,000. And our HOSTELWORLD GROUP we have virtually every single You know, we have a coverage there, I think, of 92%. Central America, it's bigger, 5% of the total. Our coverage is 88. And then if you look at Latin America, which is a little bigger, 9% of the total, so 18,000,000. Our coverage is about 76. And there, we have an opportunity to increase our hostel portfolio in places like Brazil.

21:21 The middle chunk, Europe, Middle East, and Africa, starting with Western Europe. Western Europe is the biggest destination for the hosteling industry worldwide. It's about 40% of the total. Our coverage there is about 78%, so it's not bad. Eastern Europe, 10%. The opportunity there is Poland, so we'll be looking at acquiring more hospitals in Poland as an example.

21:47 Middle East and Africa is about 4% of the total. Now moving to APAC. So you've really got three regions. And if I start in the bottom right there, Australia and New Zealand, clearly one of the biggest backpacker destinations. But interestingly, it's only 6% of the total, and that's probably its geographic size. But we have fabulous coverage of HOSTELWORLD there. South Asia, you know, another huge backpacking nation. If you think of places like Thailand, Bali, Vietnam, and so on, again, nice coverage. The opportunity really is us for us is in North Asia, and that would be acquiring more hospitals in Japan. So, you know, over the next couple of years, we'll be focusing on increasing those coverage numbers where they are a little light, and the priorities really are places like Brazil, Poland, and Japan.

22:43 So with that, I'm gonna ask Caroline just talk a little bit about ESG, and then I'll come back, and we'll start talking about what we've seen start of this year and our strategy going forward. Brilliant. Thanks, Gary. Yeah. We just wanted to take a moment to update the market on where we are with our ESG journey, and this is a topic that is of incredible importance to us and to our hostel partners and to our consumers. We, have a commitment to building a sustainable future for our partners in our ecosystem, and we have talked to them about their interest in this area. And we know that our consumers, more than 50 of them, actively look for a sustainable option when traveling. And we know that more than 50% of our hospital partners are working on sustainable initiatives in in their, properties.

23:33 So we are working with Bureau Veritas on building out a framework, for

23:42 the HOSTELWORLD partners because there is actually nothing that is in existence at the moment that follows the global sustainable tourism council criteria for sustainability. Everything that's out there at the moment is fit for purpose for hotels and hotel chains, and that won't work for the hostel community. And we feel that this is a real competitive advantage for the hostels. It's a unique characteristic given that hostels produce 25% of the carbon that a hostel or, pardon me, that a hotel typically produces. So this is a unique characteristic facet of the category and something that our consumer is incredibly focused on. And given that our consumer of Gen Z and millennials are the fastest growing demographic in the travel ecosystem, this is something that we absolutely have to focus on from a commercial perspective as well.

24:32 So this is very much a competitive advantage

24:35 for the category. And we were very pleased with the publication of bureau Veritas' report outlining how carbon intensive hotels were versus hostels. So more work will be done on this building out this sustainability staircase and working with the sustainable tourism council on this criteria for hostels. We're very excited about the journey, and we'll be seeing more to the market on that. We're also looking at our own carbon footprint, which is very low to begin with, but we are working with South Pole on reducing it even further. We're very proud that for two years rolling, we achieved climate neutral status for both f y twenty one and 2022, which is a very high bar and very difficult place for any business to get to, so we were delighted to be able to repeat that.

25:22 And we're also working with, our own workforce in terms of flexible, hybrid working, enhanced policies, delighted to have been awarded bronze accreditation from the DE and I, association and also working with 30% club in Ireland. So I think more in the space that we'll be announcing in terms of the work we're doing with our hostel partners as we see this really as a competitive advantage for this category. So, Gary, back to you. Great. Thank you very much. So as we start thinking about what's been going on for the first three months of the year, I just wanted to, you know, ground everybody in some of the things that we talked about in Capital Markets Day. So the first is our mission. You know, what is the company? Why is it here? What are we setting out to do?

26:09 And it is to help travelers find people to hang out with. And the important thing to realize that this is very, very specific to the host link category. And I often say to potential investors or investors is the reason why people go hostling is not because it's cheap. It's because they use it as a means to meet other people. That's why 60% of our travelers are traveling solo. Not because they're antisocial, it's because they expect to meet people in hostels as they travel from place to place. And there's three reasons well, there's actually five reasons, but three reasons that we'll talk about that are, you know, really, really important in thinking about why this is the right strategy, the right growth strategy for the company.

26:57 And I think the first one is, we've really just talked about, is it's a very prevalent need. 60% of travelers are traveling solo. We know that 85%, whichever survey that we do, always come back and say, the reason that I choose hostels instead of BNBs or other things is I use that because that's how I meet people. So it's a very, very clever need. Second thing is it's a really powerful need. Some of you would have been hostling in the past, but the one thing I can guarantee is none of you will remember what color the bedsheets were, whether the pillows were comfy, you know, whether the the kitchen area was either packed or whether it had everything you need.

27:43 The thing that people remember is the people they met and the fun that they had. So it's an emotive need, and we are uniquely positioned to be able to satisfy it. So first one, very prevalent. Second one, really deep powerful need when satisfied. And the third one, of course, is you can be very clever in how you implement the strategy to make it very profitable. And that's the thing that I'm going to talk about next. So this social network that powers our OTA, our hostel focused OTA. It has some really elegant features about it in terms of how it drives the p and l. So the first one, we've already talked about. Very powerful need, very prevalent need, very unique to this particular category. We are the only people who are building a social network on top of an OTA.

28:38 So our revenue growth is really driven by responding to this need, and that gets us new customer growth and very strong retention rates.

28:50 In terms of how we deliver this strategy, we put the social features only in our mobile native apps, in iOS and in Android. So as a consequence, two things happen. The first is people who are interested in meeting other people increasingly are going directly to the app store to download the app and then making the first booking on our platform. So it is reducing our customer acquisition costs. The second thing is people who are using those features, they've downloaded the app, on their subsequent bookings are far more likely to use the app than pre pandemic. So as a consequence, we're getting all of the retention bookings at lower cost as well.

29:37 So the combination of putting the social features just on iOS on Android is driving reduction in customer acquisition cost, and it's reducing marketing as a percent of next revenue. So we have increasing revenue growth at lower cost of marketing as percent of net revenue, and then that's being placed on an OpEx base, which is less than it was pre pandemic. So as I mentioned, we used to have 330 people pre pandemic. Now we have 240,245. 70% of that cost base is just wages and salaries. The other 30% is things like hosting, rent, rates, technology costs. So we're driving even more of that margin through using operating leverage through into EBITDA.

30:28 And we only capitalize a very small amount of that wages and salaries cost, which is development labor. So even more of that is now dropping through to cash. So that's how we've created the strategy to be able to create much faster EBITDA growth and free cash flow growth. So now with that said, let's just remind people a little bit about how it works. So if I move from left to right, you as a customer, whether you're a new customer or an existing customer, you can book on any platform. One in the process of making that booking, you're given the option to opt in to the social features. It's not default opt out.

31:13 It's opt in. So if you don't opt in, we consider you an OTA only customer. So you then go through the normal OTA experience, you know, that we've been developing over the years. If, however, you have opted in, then fourteen days before check-in, we put you into a series of groups. So let's imagine Joe's HOSTELWORLD in Barcelona. So you would be put into a group with Joe all the people who are staying in Joe's HOSTEL on overlapping stay dates. So the only people that you see are people that you know are going to be there when you are there fourteen days before you get there. We also put you in groups with overlapping stay dates at the city level, and we break out that city groups into more themed groups. So you have things like drinks and dancing, sightseeing, people looking for dinner, walking tours, and so on.

32:13 But the key part of it is everybody who is in that network, you know, are going to be there when you are there. So they're very, very, very, very relevant. And we do that, of course, by taking the booking data out of the OTA platform and using that to power the social network. So on any given day, you could imagine if you go all the way around the world, there is a network for every single hostel, and there are multiple networks for every seat single city. So there's thousands of networks with people joining and leaving every single day. But for you as a customer, when you're in that group, it looks really static because it's only got the people who are going to be there on your overlapping stay dates. You know, if somebody books after you for the same stay dates, they'll pop up. Or if they're leaving before you're leaving, you know, then they will leave the network.

33:09 But what we are also finding is as people use these social features, they're much more inclined to use the app for all of their follow on bookings. And this drives that, you know, amplification, if you will, in the reduction of marketing as a percent of net revenue. So that's basically how version one of the network works. So we started giving some KPIs in Capital Markets Day to explain how the network was growing and how people were using it. So if I look at the left hand graph first, on the on the axis there, you see percentage. That is the percentage of total bookings who that are being made by people who have opted into the network.

33:55 And when you do that, we call you a social member. If you look along the bottom axis, it starts in April 22. That's when we launched the features on iOS, and we launched the features on Android in June 23. So you can see the proportion of bookings that are being made by people who have opted in has continued to climb over time. And in March 23, it's about 55%. And then the second metric that we look at is for those people who have made a booking, who have opted into the network, what did they do? Did they use the features? And for an engagement metric, did they use the the features? We use some very, very simple things.

34:43 Did you post into the chat? Did you scroll through the chat? Did you view a profile? Just some basic characteristics. But try and have something that consistently tells us whether people are even going into the feature set. And using that relatively low bar, we can see that over the period of time, not only has the proportion of people opted in who using the features, very pleasingly, the people who are engaging the features is continuing to climb as well. And, of course, the reason why we really care about people who are who are looking for people to hang out with is they have wonderful economic characteristics. They are four times more likely to go to the App Store and download the app and make their first booking on the app compared to a non social member. That reduces the customer acquisition cost.

35:38 If we look over the first six weeks of their life, they would make twice the number of bookings. And then when we look at those bookings, they're twice as likely to make them on the app. So they are very, very profitable customers. And the more the left hand metric grows, the greater the marketing leverage that we would expect to see. So with that said, I'm going to give you a couple of pictures now about what's happened, you know, as we go through last year and then in the first three months of this year. One of them will be around net bookings and also looking at which geographies are recovered and where they are relative to 2019. And the second picture will really be how the growth strategy has translated into revenue growth at a reduction of marketing as a percent of net revenue. So turning on the first and thinking about that travel recovery.

36:33 So the gray bars represent total net bookings as a proportion of 2019. And you can see there's a blue dotted line, which is the 100% level. Each of the lines represents a destination region. And on the right hand side, you have the percent, and the last three, January, February, March is this year. So where we are today in March 23 is we are about a 103% of net bookings compared to 2019. I would say bed nights are probably about a 105 and a 106. If you now look at the different regions, Central America is already up to almost twice its size compared to 2019 in March.

37:23 Having said that, that Central America would usually be about 5% of our mix in 2019. If you then now look at the next line down, you can see sort of a a green sort of very bright green line. And if you follow that all the way back to January 22, you can see it was very low. That's Asia. Now Asia would normally be about 26% of our mix in 2019. So it's an important region region for us. But it was hit very, very hard by Omicron. But what is obviously very pleasing is having gone from single digit percent in January 2022, it's now over the equivalent bookings level in March 2023.

38:09 So it's fully recovered and even more so. The next line that you'll see is the red South America line. Now South America was obviously probably around 40% in January 2022. It's now recovered. It's just slightly ahead of 100%. It would have been about 9% of the mix in 2019. Europe, as you remember from the supply graph that we saw earlier, Europe was about 40% in January 2022. It's now fully recovered in March. It is about 40% of the total. So if you take if you take South America, Asia, and also Europe together, that's about three quarters of the 2019 mix, which is over a 100%.

39:02 You have 5% of the mix, which is almost double. And then when you look at the laggards, probably the significant laggard there is US and Canada. Now US and Canada, as you might remember, as a destination is pretty small. It's about 6% for us. Having said that, it's remained stubbornly at around the 70% recovered level. And our hypothesis is just as it did during COVID, we saw lots of people in The US and Canada who did not stay domestically but flew to Central America, notably Mexico. So our hypothesis is this is what's going on now. We're seeing less domestic travel in The US and Canada destination, and more of that travel is actually going into Central America.

39:51 But overall, a 103% net bookings, probably about a 105,106% bed nights. So very pleasing where we are at the moment. Now moving on to kind of the revenue and marketing as a percent of net revenue target. So on the left hand axis, you will see generated revenue in millions. This is basically the cash we take in from the bookings, less cancellations. That axis corresponds to the bars. The gray bars are the equivalent revenue that we recorded in 2019 just as a guide. The light orange bars are the generated revenue that we saw each month in 2022.

40:39 And the three red bars at the end are the generated revenue that we saw in January, February, and March estimate for this year. So if you look at the right hand side and look at those three darker red bars, the average revenue relative to 2019 is about a 115%, and in March, it was a 120%. If you look at the marketing as a percent of net revenue, you may remember Caroline was talking about what was happening through the year, you know, filling up the the pipe or filling up the funnel with new customers as we started the year, airport disruption in the middle, strategy takes hold. And as we exited the year, we were around 53 ish percent, somewhere around there.

41:29 But pleasingly, if you look at January, February, March, we are now have been consistently slightly underneath 50% versus our guidance range of 50 to 55%. So this is an incredible start to the year. We're very, very excited about it. I would mention two or three other things that I think are important. Clearly, if you extrapolate these numbers right away for the full year, you know, this would be different and far more positive relative to the guidance that we've given. That being said, in q one, q one is a small quarter for us. It's about in revenue terms, it's about 20% of the total. So first point. Second point is we have not we have very limited future demand visibility.

42:19 About 65, 70% of our customers book seven days before stay date. And if you look at the weighted average, it's about thirteen days. So we don't have a lot of forward visibility when we're looking at bookings to be able to see what the next month, the following month, and so on is going to be like. And I think the third point is we still have two big trading periods to go. One is Easter, and the second is summer. So it's probably a little bit early. We just need a little bit more time to see that these really fantastic trends that we've seen in January, February, March will persist for the full year. So now turning to what we have been doing since we spoke in the Capital Markets Day, which is in November last year.

43:07 And we really think about the network in terms of the or the social features, the social strategy in two halves. One is the social platform itself, and then the second is providing more opportunities for people to find others to hang out with by putting more events into into that. So if I deal with the messaging part of the platform first, you may remember that we talked about user profiles. And our user profile when we launched was actually quite sparse. You know, it was basically my name, my age, a photo, and then the places where I'd visited based on the booking data. We've now extended that, but in a very relevant way for this use case. So our richer user profiles say about what languages you speak, that whether you're a solo traveler, where you are traveling to, what you undo, what you enjoy doing while you travel.

44:03 We've also extended the messaging capabilities, so you can post photos or videos or URLs or emojis. So very much up to par with what you would see in other instant messaging platforms like Telegram or WhatsApp and and so on. Lastly, we've also started experimenting with new ways to get people to connect and really thinking about that spontaneity. Some of you might be familiar with FlashMob. And if if you're not, if you go on to YouTube and you type in FlashMob, you'll see a picture or a video, maybe, of Liverpool Street Station where a group of people come together who appear very random, and all of a sudden they start dancing.

44:50 That's not what we're doing. But what we are doing is exploiting this notion that in Barcelona, on any given day, there's a whole bunch of people who are looking for things to do. Can we provide an element of spontaneity where you can send a message to everybody saying, who would like to do this now? And again, you know, these are experiments. We'll experiment with other ways of getting people to connect with each other. But it's very exciting. On the recommendation side, and if you think about recommendations, when you go on Amazon and you say, people like this also bought that. There's a rich list or a rich set of things that we want to experiment experiment with in terms of how to connect like minded travelers.

45:39 When we look at the social network, we can see lots of different people who were chatting with each other. We want to be able to see how can we use some of that data to help people find that others that they want to hang out with in a slightly more efficient manner. What is incredibly exciting about this, as you will all know, that there's been a complete sea change in the availability of, you know, publicly available AI platforms, chat GPT, Bard, so on and so forth. This really gives us all kinds of opportunities to be able to leverage our own booking data, reviews data, chat data, everything that's contained in the chat data to create new services that would help people find out you know, help people find others to hang out with, but also help them find things to do that people like them would be interested in doing. So we haven't anything to announce at this stage, but you should expect that we will be talking more about this as we go into as we go into second half. Now I do need to speed up a little bit because I'm conscious of the time here.

46:48 We have launched hostel hosted events. So this allows hostels to be able to publish their catalog events to all hostels who were staying into the city. And I think both of these things, we could probably do a better job just by showing you a quick demo, and then I'll be looking to wrap up and take q and a. So could we play the video now, please? Great. Thank you very much. I hope you

49:21 enjoyed that. We probably did a slightly better way than I to demonstrate all of the beautiful new features we're developing. So, Caroline, do want to just Yeah. The last bit here, and then I'll do a quick wrap up. Perfect. Brilliant. Will do. So we tabled the slide at couple of market shares to see exact same slide, but we wanted to just reinforce what we expect the business will look like in 2023. Column in the middle shows f y 2022 out churn, the results landing exactly what we had flagged to the market in November at the Capital Markets Day for EBITDA, which came in ahead. And looking then year on year, we're expecting significant bookings growth, so circa 25% versus 2022, albeit 2022 was second half of the year was very strong. H one was was challenged.

50:10 And so therefore, that that lower base reflecting then a higher and more, percentage increase year on year. GMV and revenue growth of circa 20%, again, growing from a a modest base in 2022, and then the rate of growth in GMV and revenue lagging that in bookings. This is because we had anticipated that there would be some contraction in ABV. What we're actually seeing from an a v v ABV perspective in 2023 is that that price inflation that we saw all of last year is remaining. So persistently seeing bed prices being materially higher than they were in 2019, so circa plus 20% across all of the regions.

50:56 So that year on year bed price inflation that or deflation that we were cautioning at Capital Markets Day, we have not seen thus far. What we have seen, though, is a mix impact. So the very strong Asian recovery that we've seen latter part of last year and into the first quarter of this year, that will mean that at a total enterprise level, ABV is expected to be down versus 2022 by virtue of Asia just being a larger proportion overall overall booking volume, and bed prices in Asia are lower than North America, Europe, etcetera. So as Gary has outlined, year to date, the performance has been incredibly strong. Bookings fully recovered to 2019 level. ABB, very, very strong. Bed prices staying up. Revenues, year stage, a 115% of 2019, and in the month of March, plus 20%.

51:51 Social is delivering, so we're seeing that reduced marketing as a percentage of revenue. We had guided the market 50 to 55. We've been slightly below 50 thus far this year. Very tight lid on operating cost base. We expect some level of increase 2023 versus 2022, predominantly driven by wage inflation. All other OpEx cost lines being held very at a very low level and modest increases driven mostly by travel. So overall, the business firmly on track to deliver the expectations that we had set out and these FY 2023 targets. And, as we move through the year, we'll be able to refine these numbers a little bit more. Gary, I might hand over to you. Okay. So let me just wrap up.

52:40 So in turn I'll sort of talk to this in two parts. One, how we're positioned and then how we feel we are, you know, versus being on track with the guidance that we've given. So I do feel that we're really, really well positioned. Obviously, we're back to profitable growth. That highly differentiated growth strategy is already working as anticipated, and it's continuing to deliver. We are the only OTA that has really gone after this very powerful, very prevalent need in the sector. And as a consequence, our product is very, very differentiated. So I do think we are uniquely positioned to win. We're still maintaining that differentiation with an incredible cost discipline. So we're seeing that operating leverage. And obviously, you know, we capitalize very little, so most of that converts into free cash.

53:29 And Caroline's talked about how we're trying to think about how sustainability will be a competitive advantage both for ourselves and our category over time. And in terms of being on track, we're absolutely delighted with the the results that we're seeing January, February, March. I think they bode extremely well for the balance of the year. That social network is continuing to expand again, speaking to the fact that this is a very prevalent need in our sector. And I think it's worth pointing out that the network itself, it's a bit like Skype. The more people that use Skype, the better than the more powerful the network is. Our social network is no different. The more people who use the network, opt in, build profiles, the better it is for everybody, and the more likely it is that you will find people that you want to hang out with.

54:18 So it has that one-sided network effect. The refinancing process, much underway, will significantly reduce our financing costs. You should expect to hear more in the next couple of months. And quite clearly, I think we're, you know, incredibly well positioned in terms to deliver our FY 2023 and our medium term targets. So with that, I will thank you for your time at Ascension and we will start answering some of the Q just by using the Q and A tab, which is situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard.

55:05 As you can see, we received a number of questions throughout today's presentation. And David, if I could just hand over to you to share the Q and A and read out the questions where it's appropriate to do so, I'll pick up from you at the end. You. Yes. Hi, everybody. Good afternoon. My name is David Brady. I'm the head of commercial finance here at HOSTELWORLD. We'll do our best to get through as many of the questions as we can at the time that we have. Thank you for submitting them so far and continue to submit them. First question, Caroline, I might start with you, if that's okay. I have a question around ABB trends and bed pricing trends by region. You might just give us some color on that versus where we are now versus 2019. And maybe just a comment on The UK volume specifically. It seems to be one of the more lowly recovered regions and why we think that is. Okay. Great. Thanks, David.

55:52 So we have seen ABVs across all regions grow substantially versus 2019 and also year on year 2022 versus 2021, we saw significant bed price inflation. And, really, all regions growing, the laggards being Asia, as you can imagine, just with, it being slower off the block to recover versus versus other other territories. But that price is everywhere other than Asia had exceeded 2019 levels pretty quickly once the travel restrictions had lifted. Asia now at a total level total ABB level is almost fully, recovered versus, 2019 levels.

56:38 Bare price is one component of of ABB to clarify. And if I look where we are today, all areas are well ahead of 2019 at a total cumulative ABB level. Asia's almost at a 100%, a little bit of a laggard, again, just by virtue of being the last of the blocks to open up. And when I look at the regions, the important regions such as Europe significantly ahead, plus 30% on on on their prices. Asia, Europe are the largest part of our overall booking mix. They are a material component. We expect Asia will get and be go beyond twenty nineteen levels as well similar to the other regions. On The UK specifically, UK, US, Canada as well, I'll I'll back those together because they're all when we look at the booking trajectory graph, they're all the laggards.

57:31 They're below a 100% recovery. Both regions are very small part of our overall booking mix. We look at that graph at a regional recovery level. That's destinations. So that's people traveling to those locations. UK has not had a fantastic year. I think, generally, there's a lot of data points out there in terms of what UK travel, was like. And, certainly, across all categories, there there's data points to suggest that The UK did not have a very strong year last year from a tourism perspective. So that's something hopefully we'll expect to see recover as travel normalizes now with Asia, Oceania opening up more people from those geographies going into The UK. But I would say UK as a destination is 5% of our booking mix, so not a key territory for us. But we would be hopeful that we would have a much stronger summer than it did last year. Thanks, David.

58:26 Thank you, Caroline. Gary, I might turn to you for the next question, and I'll bundle a few of these together. A lot of questions around the area of the economics of our social network members. You might recall at our Capital Markets Day, in November last year, we shared some specific data points around the booking propensity and the booking behavior of our our social network members versus nonmembers. That data was only six weeks old at the time. Are the trends that we saw then, do they still continue to hold? And then maybe to wrap it up and help people put this together, what does that mean for from a CAC perspective, an LTV perspective, and ultimately, to our our marketing as a percentage of revenue spend? Okay. So the first the first part of the question is the data that we provided in the capital market data, we refresh that kind of data all the time because we always want to see as the network grows, is there any dilution effects?

59:24 Or are the customers that we're recruiting now, are they behaving materially differently to the initial sort of early adopters? The answer is it's exactly the same. Right? There is no difference. So the patterns of behavior that we are seeing from customers that we acquire, let's say, in January and observing them for the same six weeks are exactly the same as what they were when we were testing exactly the same metrics earlier on. So no change. The second point to make is we also, of course, have customers who booked with us pre pandemic who are coming back. So they are existing customers, and they also opt in to the social social network. And, of course, what we see there is that when they are making their follow on bookings, they're obviously not newly acquired, but we're also seeing those customers are using the app more frequently.

1:00:19 More generally, I think as the proportion of our total bookings made by social members increases, and obviously checking to see that the the the features are actually being used, they are useful, that will always continue to grow what I call the marketing leverage. In other words, the ability to sustain higher and higher revenue growth rates, but at decreasing marketing as a percent of net revenue. Thanks, Gary. Next question, Caroline, I might turn to you. I'll just put a few together questions on cash and balance sheet. Firstly, are you confident in the cash reserves that we have at the moment? That's sufficient to deliver the strategy as as we've laid out.

1:01:08 And then specifically on the debt refi and the warehouse payroll taxes, can you give more of an update how much more of an update can you give on the status of that process? Oh, okay. So first question on the cash and the strategy. So, yes, our cash currently is ahead of where we were forecasting off the back of the volumes being so ahead of what we had expected. So, we are generating more cash off the back of more volume and also more efficient marketing investments. So with our marketing as a percentage of revenue being below 50%, that's generating more cash for us. So in terms of what do we need to deliver the strategy, it's people, it's resources, it's products and tech, it's analytics and data resources. They're all in house at the moment, and they are factored into our forecast. So when we look at what is our 2023 OpEx base going to be, what are the resources that are going to be required to deliver the strategy, they're accounted for. And I think, absolutely, the cash for that is not anything that we would need to go and raise additional equity to deliver against with the social strategy that we're looking to execute in 2023.

1:02:21 In terms of, the payroll taxes, so as it it it we we we mentioned earlier on in in the cash slide, it's 9,400,000. There's 3% interest that's going to start being charged April of this year. Nothing has been charged on that liability to date, 0% interest. 3% commences next month. And then April 2024, we will commence the repayment of that liability. We have been actively engaging with Irish Revenue, who are the Irish tax authority on this liability and agreed that a stand, thus far agreed a standard plan with them. And they acknowledge our willingness to negotiate and that we are looking to start repaying this liability. They have moved everyone who is in the scheme to a standard repayment plan and instructed that repayments will not commence until April 2024.

1:03:11 Once we get to April 24, we might agree a different repayment plan with them. But for now, the standard plan is an initial down payment of 15 to 20% and then equal installments that monthly then thereafter for a period of, sixty months. In terms of the debt, we'll be announcing something within a couple of next couple of months. It's an active process. When we talked about this at Capital Markets Day, my initial timeline I had expected on this would be that we would meaningfully commence process in the summer. However, the banks are interested. They're are keen to to get a deal away, and therefore, that brought the timeline forward, which meant that we were able to actively engage them in a process and a competitive process in q one. So we would expect in the next couple of months, we'll be out to the market, with further detail on it. We will use some of our existing cash reserves, settle some of the outstanding debt, refinance the remaining balance at a lower interest rate, vanilla commercial terms with the Norrish Bank.

1:04:14 Thanks, Caroline. Next question, Gary. I might turn to you if that's okay. I have a number of questions submitted before the presentation during the presentation around the area of our road map from both a product and a tech perspective. We've probably answered most of the product road map points. We've addressed that. But anything else you can add with respect to product and also maybe a little bit of color on the tech and platform modernization roadmap for '23 and '24. Yeah. So you I would sort of think about the, you know, the overall technology sort of roadmap in three buckets. The first is everything that we do to support So obviously, the clients are iOS and Android, but the back end services which connect, you know, which create the social networks using the booking data, they're all in what would be called the core platform or back end.

1:05:06 So that's sort of resource and investment priority number one. And then we have two other priorities. One is just the core OTA platform, you know, making sure that it's incredibly quick. The pages load incredibly well. You know, we have, you know, great payment systems, so on and so forth. The core OTA is the sort of the second, you know, bucket of of investment. And the third bucket is platform modernization. And if I perhaps talk about that for just a second. So, you know, pre pandemic, we started embarking on a process of taking a monolithic stack that was hosted in our own on premise data centers and moving that to be cloud hosted and ultimately cloud native.

1:05:52 So in moving it from on premise to cloud hosted, you know, essentially, you know, we have no CapEx related to all of the servers and everything in on premise anymore, but we're just renting Google's servers in the cloud. We're now in the process though of making our stack cloud native, and there's lots of wonderful benefits to doing that. You know, one is that when you split it up into pieces, each piece can expand and contract depending on the booking volumes by minute. So we're only actually paying Google. We we use Google Cloud. We're only actually paying Google on sort of by the minute worth of consumption. Secondarily, you know, within our cloud provider, they have a lot of native services, whether they're AI platforms, machine learning platforms, databases, which means we don't need to write or maintain the code. We can simply plug those into our stack.

1:06:46 So looking at each of the chunks of the stack, taking out pieces, replacing them by services that other people own and maintain is another sort of, you know, great efficiency, if you will. So we invest in all three. Obviously, social is the priority one because that's the economic motor for the business. The OTA is the core booking form, you know, core sort of booking platform, which is the monetization part of the business. And the modernization is to make sure that we do all of the above at a higher experimentation velocity and lower cost. Thanks, Gary. I might stick with you for the next question, and it's around a very interesting and topical area of chat, GBT and AI.

1:07:31 Are we capturing any benefits from that right now? And do you see any future benefits that we might be able to leverage and capture? We have teams of people that are looking at the possibilities of what chat GPG could do. It it is clear that we have huge amounts of internal data built up over eighteen years, which helps us understand where solo travelers go, where couples go, where certain nationalities go, what kind of hospitals they like. In the last year, we have now built up an enormous body of data looking at the content of the chat messages, which is what people actually do in destination.

1:08:20 Where when they choose to meet up, what are the places that they are choosing to actually go to? Was it Joe's bar? Was it something else? So we have an enormous treasure trove of data that we could use with ChatGPT to enable ChatGPT to answer quite simple questions. Are solo travelers going in April? Where are German solo travelers going in April? Where are people staying in hostels going in Barcelona tonight? And you can imagine the power of being able to provide these kinds of services. So I have nothing to announce or report or demo at this time, but I certainly feel because the company has been in existence for such a long time in terms of its core booking data and also has an ever expanding, incredibly rich set of content from our chat data that we will be uniquely positioned to provide even more compelling services to help people find others to hang out with.

1:09:26 Thanks, Gary. Again, I might stick with you for this question. I will try and squeeze in, I think, maybe two more questions and this being the first. This one is in the area of moderation, Gary. And, clearly, as we pursue the social strategy, and the network, within the business grows significantly, you might talk to people a little bit about the investments that we make in moderation and how we how we manage that responsibility as a business and steps that we take to protect our social network members and our customers. That is a great question. So as you as all of us will know, there's, you know, there's lots of other social networks that are out there, which obviously precede ourselves, you know, whether that's people meeting online or people meeting in real life.

1:10:15 And what we've done is to look across all of those social networks, look at, you know, how they describe their terms and conditions and, you know, appropriate use policies and really take the best practices from each. So on our social network, when you opt in, you know, we put a series of terms, conditions, appropriate action sorry, appropriate behaviors, and so on, really leveraging what we think is best practice out there. So I think that's point one. The second point, when it comes uniquely to things like investments, we invested quite heavily in a third party content moderate moderation tool, which is actually an automated tool that is continually scanning everything that is happening inside all of these chat groups worldwide.

1:11:05 And that is an automated content moderation tool that automatically flags to ourselves if something is inappropriate. We also, of course, encourage our users to also report if anything is inappropriate. And in either case, we have a team, you know, that is responsible for removing that content and taking it down. So even for a company of our size, I think we've done a great job in terms of getting, you know, all of the t and c's and moderation, you know, capabilities up to snuff. And then I think when it comes to HOSTEL hosted link ups, HOSTELWORLD GROUP HOSTELWORLD PLC, PLC, you know, we provide a booking service. They also have a set of contracted, you know, liabilities and obligations as a result of being a supplier on our platform.

1:11:54 And those contracted T and Cs also cover if they are holding events. So if we are promoting their events on their behalf, then the existing, you know, protections, obligations that are in the contractual terms also cover the provisions of, you know, people going to their events who are not staying at the hospital. So it is evolving area for sure, but it is obviously, you know, one that we're very alive to and, you know, we'll continue to implement best practice wherever we see it. Thanks, Gary, and thanks to everybody for submitting the questions. We'll just try and cover off the last one and then hand back to close out. So last question is really about the positioning of the strategy, Gary, and two parts to it. One is in relation to how our hospital partners view it since since we've launched the social strategy. What kind of feedback have you had? And, actually, have we seen that translate into improved availability or improved terms from hospital partners?

1:12:53 And then the second part of it is in relation to competition. How do we think it positions us against existing competition and any potential new entrants? Okay. So dealing with the first question. For the the the person or people who are interested in that particular topic, my best response is go to the Capital Markets Day presentation and have a look at the short video that has been made by a number about the CEOs of our hospital partners where they are talking about the social strategy and what it means for them. You know, more generally, one of the things that we know is that our hostel partners make far more, you know, profit, EBITDA level profit from the sale of food, from beverage, from events than they actually do through the sales of beds.

1:13:45 You know, what they're always trying to do is to get a high occupancy to create an atmosphere. And that atmosphere translates into great reviews, which also translates into bookings. I think the strategy really helps power that loop even further and also has another consequence. So the first one, of course, is that we are really doubling down on, you know, sucking in more customers into our network who want to meet other people, people who are looking for that lively atmosphere. So where our business is headed perfectly aligns with where our HOSTELWORLD GROUP PLC is heading. And I think that also plays out in a second perspective. So not only are we trying to help them in terms of providing the most profitable customers, our growth strategy in terms of generating EBITDA, we achieve that by growing our revenue at reduced marketing as a percent of net revenue.

1:14:44 So we do not need to, nor will we, increase our commission rates to our hospital partners. If you look at our Capital Markets Day presentation, the figures that we quoted to FY '25, that is with a consistent 15% commission rate, which is very competitive versus our competitors. So I think we have a very nice virtuous circle, which is give us the best rates of availability. We will give you market leading flat commission rate, and we'll provide you the best customers. In terms of competition, you know, the business model that we've designed is very, very unique. It uses the data of an OTA to power a very relevant social network. That social network drives new customers and repeat bookings into our OTA.

1:15:33 We have not seen any other person that has the brand equity, the scale, or has made just such a bold decision to be able to really lock on to this very prevalent and very powerful customer need. Thanks very much for that, Gary, Caroline, David. You've been very generous of your time, and I think you've actually addressed all the questions you can from investors. And, of course, the company will review all all the questions submitted today, and we'll publish those responses on the investor meet company platform. But just before redirecting investors to to provide you with their feedback, which I know is particularly important to the company, Gary, could I just ask you for a few closing comments? Thank you very much for your time. I hope you're as excited about what we're doing as we are. It's certainly, you know, some of the most exciting times in my career to be be able to build something that's never been built before and is clearly providing so much value to our customers who are posting about us in Twitter, Instagram, Trustpilot, and also from our HOSTELWORLD partners who feel that we're doing a super job at really differentiating the category compared to cheap hotel budget accommodation.

1:16:44 So really looking forward to seeing you all again at our interims, hopefully, we'll have more exciting things to say about our social roadmap and the growth that it's delivering. So thank you very much. Look forward to talking to you soon. Thank you. Carrie, Caroline, David, thanks once again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that 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 today's presentation, and good afternoon to you all. Thank you.