THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in doubt as to what action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, solicitor, accountant or other professional adviser authorised under the Financial Services and Markets Act 2000.
If you have sold or transferred all of your registered holdings of ordinary shares in Hostelworld Group plc (the "Company" or "Hostelworld" or the "Group") please forward this document, together with the Form of Proxy, as soon as possible to the purchaser or transferee or to the stockbroker, bank manager or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee.
HOSTELWORLD GROUP PLC
(a public limited company incorporated in England and Wales with registered number 09818705)
Circular to Ordinary Shareholders
Notice of General Meeting
Your attention is drawn to the letter from the Chairman of Hostelworld and the Chairman of the Remuneration Committee which contains the unanimous recommendation of the board of directors of the Company (the "Board") that you vote in favour of the ordinary resolutions (the "Resolutions") to be proposed at the General Meeting referred to below. Please read the whole of this document.
Notice of a General Meeting of Hostelworld Group PLC (the "General Meeting") to be held at Floor 2, One Central Park, Leopardstown, Dublin 18, Ireland at 12.30 p.m. on 26 April 2021 (or any adjournment thereof) is set out at the end of this document.
A Form of Proxy for use in connection with the General Meeting is provided. To be valid, any instrument appointing a proxy must be received by Computershare Investor Services PLC at P.O. Box 13030, Dublin 24, Ireland (if by post) or 3100 Lake Drive, Citywest Business Campus, Dublin 24 D24 AK82, Ireland (if by hand), as soon as possible but in any event so as to arrive no later than 12.30 p.m. on 22 April 2021. Alternatively, a proxy may be appointed electronically at www.eproxyappointment.com or if you hold shares in CREST, by using the CREST electronic proxy appointment service.
In light of the COVID-19 pandemic, and the Irish Health Service Executive's current guidance regarding social distancing and the prohibition of public gatherings, it is anticipated that the General Meeting will be held as a closed meeting, which members will not be permitted to attend. Members are therefore strongly encouraged to ensure that their votes are counted by appointing the Chairman of the General Meeting as their proxy.
A copy of this document is and will be available for inspection on the Company's website at www.hostelworldgroup.com from the time this document is published. For the avoidance of doubt, the content of any website referred to in this document is not incorporated into and does not form part of this document.
This document has not been examined or approved by the FCA or Euronext Dublin. This document is dated 1 April 2021.
LETTER FROM THE CHAIRMAN OF THE COMPANY AND THE
CHAIRMAN OF THE REMUNERATION COMMITTEE
(incorporated in England and Wales with registered number 09818705)
Michael Cawley (Non-Executive Chairman)
Floor 2, 52 Bedford Row,
Gary Morrison (Chief Executive Officer)
London, United Kingdom,
Caroline Sherry (Chief Financial Officer)
Éimear Moloney (Non-Executive Director)
Carl G. Shepherd (Non-Executive Director)
Evan Cohen (Non-Executive Director)
1 April 2021
Notice of General Meeting
We are writing to you to: (i) explain the background to and reasons for a proposed amendment to the Directors' Remuneration Policy and a proposed amendment to the rules of the Company's Long Term Incentive Plan (the "LTIP Rules"); (ii) explain why the Board unanimously considers such proposed amendments to be in the best interests of the Company's shareholders ("Shareholders") as a whole; and (iii) recommend that you vote in favour of the Resolutions to be proposed at the General Meeting.
Details of the actions Shareholders should take, and the recommendation of the Board, are set out in paragraphs 10 and 11, respectively, of this letter.
As explained in detail in the 2020 Annual Report, published on 23 March 2021, 2020 was an exceptionally challenging year for Hostelworld and the global travel industry. As the COVID-19 pandemic spread, the Group refocused its priorities on (i) supporting employees, customers and hostel partners, (ii) increasing its liquidity and (iii) making progress, where possible, with its Roadmap for Growth strategy. Faced with an unprecedented set of circumstances, the management team worked tirelessly during the year to implement a number of mitigating actions to protect the business and conserve cash. Extra capital was raised in 2020 and, as announced on 19 February 2021, a €30 million five-year term loan facility has been signed.
During 2020, the Remuneration Committee (the "Committee") considered how best to incentivise, motivate and retain the Executive Directors and other members of the senior management team during a period of unprecedented disruption. As set out in detail in the 2020 Directors' Remuneration Report (the "2020 DRR"), included within the 2020 Annual Report, a programme of salary deferral was introduced for the Executive Directors and other senior executives during 2020, and the Committee decided to cancel the annual cash bonus scheme for the year. Accordingly, neither Executive Director (nor any other employees) received an annual bonus in respect of 2020. Mindful of the importance of ongoing equity incentivisation, the Committee agreed to grant an LTIP award in May 2020, full details of which are included in the 2020 DRR. Despite this, we have some very real concerns about the remuneration packages at Hostelworld being insufficient to retain key staff.
While the Board remains hopeful of a gradual recovery to more normal trading conditions over time, the ongoing uncertainty caused by the pandemic means that we must continue with cash conservation measures into 2021. We have decided that, for 2021, it would again be prudent to cancel the cash bonus scheme.
Furthermore, at this stage, we do not envisage being in a position to offer a cash bonus opportunity in 2022. In addition, with the exception of the February 2021 increase for the Chief Financial Officer explained in the 2020 DRR, we have implemented a salary freeze for the management team (including the Chief Executive Officer) for 2021. While these measures will have the benefit of conserving cash, they create reasonable concerns around retention for a management team which is working exceptionally hard in difficult circumstances, and a potential widening of the gap between what individuals may expect to earn under our policies and what is available in other segments of the online industry less affected by the pandemic than travel. While we intend to make a further grant under the Long-Term Incentive Plan ("LTIP") in 2021, as explained in more detail in paragraph 6 below, we believe that an additional equity-based award is necessary to help address the absence of an annual incentive.
3. Proposed Restricted Share Award
Taking into account the matters set out above, and having considered in detail how best to incentivise and retain key talent within the organisation, the Committee wishes to grant a Restricted Share Award (the "Award") to selected employees, including the Executive Directors and members of the management team.
Key terms of the proposed Restricted Share Award
- The Award will be granted to approximately 50 employees within the business, including the Executive Directors. It is the Committee's intention to grant the Award shortly after Shareholder approval of the Resolutions at the General Meeting.
- The Award will be granted under the rules of the LTIP as a restricted share award. As a result, there is no requirement for Shareholders to approve a new share scheme specifically to cater for the Award. The rules of the LTIP relating to, for example, malus and clawback provisions and the treatment of awards for leavers and on a change of control will apply to the Award.
- For each participant, the Award will be over a number of ordinary shares equivalent in value to two times their target annual cash bonus. This reflects the cancellation of the cash bonus scheme for 2021 and the likely absence of such a scheme for 2022. The level of target annual cash bonus varies across the Company. For the Executive Directors, it is set at 56 per cent of basic salary, meaning that they will each receive an Award at a level of 112 per cent of basic salary. The number of ordinary shares underlying each Award will be calculated based on Hostelworld's share price at or around the date of grant.
- Each Award will vest in two tranches. The first tranche (representing 50 per cent of the Award) will vest after the end of the 2021 financial year and following completion of the 2021 performance appraisal process. The 2021 performance appraisal process will be completed by 28 February 2022 at the latest. The second tranche (representing the remaining 50 per cent of the Award) will vest after the end of the 2022 financial year and following completion of the 2022 performance appraisal process. The 2022 performance appraisal process will be completed by 28 February 2023 at the latest. This structure has been chosen so as to mirror the payment timeframe of the annual cash bonus scheme which the Award is effectively replacing.
- Vesting will be dependent upon the participant being employed by Hostelworld as of the vesting date and satisfactory personal performance. There will be no requirement for other performance conditions to be met prior to vesting.
- For the Executive Directors, shares vesting from this arrangement will be taken into account when the Committee calculates progress towards meeting the minimum shareholding guidelines of 200 per cent of basic salary. While the Executive Directors will have latitude to sell some shares if they wish at the point of vesting (which gives them the same flexibility as provided to other participants), the Committee has an expectation that they will retain a meaningful proportion (at least one-third) of the vested shares. The Award will not be subject to a two-yearpost-vesting holding period, recognising that it has been designed to replace the annual cash bonus scheme.
Rationale for the proposed Restricted Share Award
The Award is a simple, broad-based retention mechanism which is intended to mitigate the risk of attrition for senior executives and to lock in the Group's key talent for an extended period. This follows an exceptionally challenging year during which employees have seen no value arise from their existing performance-related incentives. The Award structure has been designed to be the same for all recipients of an Award, reflecting the Hostelworld culture of treating all participants consistently and fairly. An equity- based Award aligns the interests of a wide range of Hostelworld employees with those of Shareholders and helps to ensure a continued focus on rebuilding equity value.
We are acutely conscious of the need to manage costs, minimise cash outflow and retain talent following a period when remuneration received has been well below the average for the market and not reflective of the commitment and effort of senior leaders within the business. The Award helps the Group offer a meaningful reward proposition while at the same time conserving cash. As noted above, our current prediction is that no cash bonus opportunity will be available for 2022 as well as 2021, and so the Award is expected to cover two years of no bonuses.
4. Proposed amendment to the Directors' Remuneration Policy
In order for the Award to be made to Executive Directors it is necessary for Shareholders to approve an amendment to the Directors' Remuneration Policy as the proposed terms of the Award are not provided for under the current Policy approved by Shareholders at the Company's AGM in May 2019. This is because the current Policy anticipates that all share awards granted to Executive Directors under the LTIP will be granted with corporate performance conditions attached, a three-year vesting period and a two-yearpost-vesting holding period, without any flexibility to grant share awards on different terms if there is a commercial need to do so. As the Award is outside the Directors' Remuneration Policy, the proposed amendment to the Directors' Remuneration Policy to permit the Award requires approval by Shareholders at a general meeting under section 226B(1)(b) of the Companies Act 2006. Approval for the amendment to the Directors' Remuneration Policy will be sought by way of Resolution 1 at the General Meeting. The Directors' Remuneration Policy, as amended, is included for reference in Appendix A of this document.
There are no other changes to the Directors' Remuneration Policy and, as a result, all other aspects of the existing Policy will continue to operate for the financial year ending 31 December 2021. The Remuneration Committee intends to conduct a full review of the Directors' Remuneration Policy later in 2021 with a view to presenting a new Policy for Shareholder approval at the Company's annual general meeting in 2022. This review will encompass all aspects of Directors' remuneration, including those matters where Hostelworld is not currently fully compliant with the UK Corporate Governance Code.
For the purposes of section 226D of the Companies Act 2006:
- the disclosure above constitutes the memorandum setting out the particulars of the proposed payments pursuant to the Award; and
- this document will be made available at the registered office of the Company, Floor 2, 52 Bedford Row London, England WC1R 4LR as soon as practicable following the date of publication of this document, and in any event for not less than 15 days ending with the date of the General Meeting (and will be available on the Company's website at www.hostelworldgroup.com for not less than the same period until the conclusion of the Company's annual general meeting on 26 April 2021) and at the General Meeting itself.
In light of the ongoing COVID-19 pandemic and the anticipated attendance arrangements for the General Meeting, a Shareholder who would like to inspect this document must submit a request to do so to Corporate@hostelworld.com. Any such inspection will be subject to health and safety requirements, any limits on gatherings, social distancing or other measures imposed or recommended by the UK and Irish Government.
5. Proposed amendment to the LTIP Rules
In addition to the proposed amendment to the Directors' Remuneration Policy, the Company is seeking Shareholder approval for an amendment to the LTIP Rules by way of Resolution 2 at the General Meeting. The LTIP Rules were adopted by the Company prior to its IPO in 2015.
The purpose of the amendment is to remove the dilution limit which limits the issue of ordinary shares to satisfy awards granted under the LTIP and any other discretionary share scheme to 5 per cent of the Company's issued ordinary share capital over a rolling 10-year period. The full terms of the proposed amendment to the LTIP Rules to effect to the removal of this 5 per cent dilution limit (comprising the deletion of LTIP Rule 2.2) is included for reference in Appendix B of this document.
This change is being proposed to provide the Committee with a greater level of flexibility to manage potential dilution. It will ensure that the Company has appropriate headroom to settle the proposed Restricted Share Award and the LTIP grant to be made in 2021 using new issue shares. It is our intention that a relatively wide group of Hostelworld employees will benefit from the Restricted Share Award and the LTIP grant with these structures crucial to the retention and motivation of employees over the next three years.
The Committee is conscious of the importance that Shareholders attach to dilution and remains committed to managing the allocation of employee share awards carefully over the lifetime of the LTIP. For the avoidance of doubt, there is no change to the maximum dilution limit in the LTIP which limits the issue of ordinary shares to satisfy awards granted under the LTIP and any other employee share scheme operated by Hostelworld to 10 per cent of the issued ordinary share capital over a rolling 10-year period.
6. Additional information on Executive Director remuneration for 2021
As disclosed in the 2020 DRR, the Committee has decided not to increase the basic salary of the Chief Executive Officer for 2021. His salary therefore remains at €443,600. As also disclosed in the 2020 DRR, the basic salary of the Chief Financial Officer was increased to €275,000 with effect from 1 February 2021 in recognition of her exceptional performance since being appointed to the role.
The Committee intends to make a new grant under the LTIP shortly after the General Meeting (the "2021 LTIP Grant"). The purpose of the 2021 LTIP Grant will be to incentivise performance over the longer-term and set solid foundations for a return to growth in a post-COVID environment. The Committee has decided to apply performance conditions to the grant which differ from those used for prior year grants. One half of the award will vest subject to the achievement of targets linked to Adjusted EBITDA performance, and the other half will require critical strategic objectives to be met over the three-year performance period. These measures are all central to the success of the business as it emerges from the current depressed trading levels. The use of different performance conditions does not require a change to the Directors' Remuneration Policy.
The specific Adjusted EBITDA targets are based on levels of Adjusted EBITDA being achieved in the financial year ending 31 December 2023. The targets are considered challenging in the context of Hostelworld's business plan for the coming years and internal expectations of performance in a post-COVID trading environment.
Adjusted EBITDA is one of the Group's Key Performance Indictors used by the Board to assess the performance of the business, and is a metric closely followed by the market. The specific Adjusted EBITDA targets are currently considered commercially confidential by the Board given that the Group is not providing forward-looking guidance to the market. However, in recognition of the importance that Shareholders attach to having visibility on targets for long-term incentive schemes, we commit to publishing the targets once normal trading conditions resume and the Group is in a position to provide general guidance to the market. At this stage it is too early to say when this might be, but we expect to publish the details before the performance conditions are tested after the end of the 2023 financial year.
For the half of the award which will vest subject to the achievement of critical strategic objectives, we have set targets based around two key areas of focus. The first area involves assessing the improvement in new customer value compared to customer acquisition cost for paid channels (on a constant currency basis). This is linked to the Group's stated goal of optimising paid spend based on predicted new customer value versus acquisition cost. The second area is based around the successful adoption of Hostelworld's Counter
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Hostelworld Group plc published this content on 01 April 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 April 2021 09:45:06 UTC.