Hudson Group Reports First Quarter 2019 Results

EAST RUTHERFORD, N.J.–(BUSINESS WIRE)–Hudson Ltd. (NYSE: HUD) (“Hudson Group”), a leader in North American
travel retail, announced today its results for the quarter ended March
31, 2019.

Highlights of the Quarter:

  • Turnover of $445.0 million, a year-over-year increase of 4.3%;
  • Organic sales growth of 4.7%;
  • Gross margin increased 100 bps to 63.8% for the quarter;
  • Adjusted EBITDA of $37.7 million, a 2.4% year-over-year increase;
  • Concessions wins / expansions in Philadelphia and Indianapolis

“Performance started out strong in the first quarter of 2019 as
demonstrated by our progress in driving growth in both turnover and
profitability. We are particularly pleased with our solid organic sales
growth, the increase in net new business, and the improvement in gross
margin,” stated Roger Fordyce, CEO of Hudson Group. “We continue to be
successful growing our footprint and partnerships with new brands and
remain excited about the opportunities with our landlord partners. We
have a robust pipeline of projects that we are working on as well as
future opportunities in both retail and food & beverage. Finally, our
strong reputation of offering a best-in-class merchandising product
selection, unique store formats and digital enhancements position us
well to drive long-term growth and profitability.”

Accounting and Financial Presentation Changes

In the first quarter the following accounting and financial presentation
changes have been made:

  • IFRS 16 Leases was adopted as of January 1, 2019 which requires the
    capitalization of certain fixed lease payments. Please see Table 1 for
    results pre IFRS 16 impacts.
  • In conjunction with the new lease standard (IFRS 16) and its impact on
    the statement of consolidated income, the company took the opportunity
    to restructure the chart of accounts which is more representative of
    the company’s operating activities. Please see Table 6 for
    reclassifications.
  • The definitions of Adjusted EBITDA and Adjusted Net Profit
    Attributable to Equity holders of the parent have been revised. Please
    see Tables 4 and 5 for non-IFRS reconciliations.

Management Discussion of First Quarter 2019

Income Statement

  • Turnover increased $18.2 million or 4.3% to $445.0 million for
    the first quarter compared to $426.8 million in the first quarter 2018.

    • First quarter net sales increased $19.6 million to $434.6 million
      or 4.7% from the year-ago period.
    • First quarter organic sales growth was 4.7%, compared to 9.4% in
      the year-ago period.
    • First quarter like-for-like sales growth was 2.2% (3.2% in
      constant currency), compared to 5.5% (4.5% in constant currency)
      in the year-ago period.
  • Gross profit increased $15.8 million or 5.9% to $283.8 million
    in the first quarter compared to $268.0 million in the year-ago
    period. Gross margin increased 100 bps to 63.8% during the quarter due
    to improved vendor terms, as well as continued sales mix shift to
    higher margin categories.
  • Leases expenses (formerly included in Selling expenses)
    decreased $51.5 million or 53.1% to $45.4 million in the first quarter
    as compared to the year-ago period due to the adoption of IFRS 16
    Leases, which requires the capitalization of the fixed portion of rent
    payments. Beginning January 1, 2019, lease expenses are only comprised
    of lease payments that are variable in nature.
  • Personnel expenses increased $17.4 million or 17.8% to $115.0
    million in the first quarter as compared to the year-ago period
    primarily due to $7.6 million of executive separation expenses,
    opening new store locations as well as wage increases and additional
    personnel expense upon becoming a public company. As a percentage of
    turnover, personnel expenses increased from 22.9% to 25.8%.
  • Other expenses (formerly General expenses) decreased $1.9
    million or 4.8% to $37.4 million in the first quarter as compared to
    the year-ago period. As a percentage of turnover, other expenses
    decreased from 9.2% to 8.4%.
  • Adjusted EBITDA increased $0.9 million or 2.4% to $37.7 million
    in the first quarter as compared to the prior year quarter. We have
    revised the calculation of Adjusted EBITDA to add back the charge
    related to capitalized right of use assets which was adopted on
    January 1, 2019 for comparability to the prior year period.
  • Depreciation, amortization and impairment increased $48.7
    million or 169.1% in the first quarter as compared to the year-ago
    quarter due to the adoption of IFRS 16 Leases which requires the
    capitalization and depreciation of right of use assets, which are
    primarily comprised of our leases and concessions.
  • Reported net profit attributable to equity holders of the parent was
    a loss of $6.7 million in the first quarter compared to a loss of $5.7
    million in the year ago quarter, while reported basic and diluted
    earnings per share increased to a loss per share of $0.07 compared to
    a loss per share of $0.06 in the prior year quarter.
  • Adjusted net profit attributable to equity holders of the parent increased
    $4.3 million to $7.8 million in the first quarter ($11.1 million ex
    IFRS 16 impact), while adjusted diluted earnings per share increased
    to $0.08 ($0.12 ex IFRS 16 impact) from $0.04 in the prior year
    quarter. Beginning this quarter, the calculation of this item has been
    revised to include impairment of assets, one-off income tax items, and
    income tax adjustment on amortization related to acquisitions. The
    prior year quarters have been recalculated in the accompanying tables
    for comparability purposes.

Balance Sheet and Cash Flow

  • Cash flows from operating activities for the quarter were $93.5
    million compared to $50.5 million in the prior year quarter. The
    improvement in operating cash flows was due to the adoption of IFRS
    16, which reclassifies capitalized lease payments from operating
    activities to financing activities.
  • At March 31, 2019, the Company’s adjusted net debt (total borrowings
    excluding lease obligations, minus cash) was $304.3 million resulting
    in adjusted net debt to adjusted EBITDA leverage of 1.3 times,
    compared to 1.3 times at December 31, 2018.
  • Capital expenditures in the first quarter totaled $20.1 million
    compared to $15.3 million in the prior year quarter as the result of
    the timing of new projects.

Operational Update

As of March 31, 2019, Hudson Group operated 1,012 stores, across 88
locations, totaling 1.1 million square feet of retail space.

During the first quarter, the Company retained and expanded business
through an RFP win in Philadelphia International Airport, bringing the
total footprint in this airport to approximately 17,000 square feet.

Additionally, the Company successfully won an RFP at Indianapolis
International, a new market for the Company, which includes
approximately 9,000 incremental square feet.

Hudson also successfully extended a lease at San Francisco International
Airport during the quarter.

Earnings Conference Call Information

Hudson Group will host a conference call to review its first quarter
2019 financial performance today, May 14, at 8:30 a.m. ET. Participants
can pre-register for the conference by navigating to http://dpregister.com/10130439.
The conference call also will be available in listen-only mode via our
investor relations website: https://investors.hudsongroup.com/.
To participate in the live call, interested parties may dial
1-833-255-2832 (toll free) or 1-412-902-6725. A web replay will be
available at https://services.choruscall.com/links/hson190514.html
for three months following the call.

Website Information

We routinely post important information for investors on the Investor
Relations section of our website, investors.hudsongroup.com. We intend
to use this website as a means of disclosing material information.
Accordingly, investors should monitor the Investor Relations section of
our website, in addition to following our press releases, SEC filings,
public conference calls, presentations and webcasts. The information
contained on, or that may be accessed through, our website is not
incorporated by reference into, and is not a part of, this document.

Non-IFRS and Other Measures

Adjusted EBITDA is a non-IFRS measure and is not a uniformly or legally
defined financial measure. Adjusted EBITDA is not a substitute for IFRS
measures in assessing our overall financial performance. Because
adjusted EBITDA is not determined in accordance with IFRS, and is
susceptible to varying calculations, adjusted EBITDA may not be
comparable to other similarly titled measures presented by other
companies. We believe that adjusted EBITDA is useful to investors
because it is frequently used by securities analysts, investors and
other interested parties in their evaluation of the operating
performance of companies in industries similar to ours. We also believe
adjusted EBITDA is useful to investors as a measure of comparative
operating performance from period to period as it is reflective of
changes in pricing decisions, cost controls and other factors that
affect operating performance, and it removes the effect of our capital
structure (primarily interest expense), asset base (depreciation and
amortization), charges related to right of use assets, and non-recurring
transactions, impairments of financial assets and changes in provisions
(primarily relating to costs associated with the closing or
restructuring of our operations). Our management also uses adjusted
EBITDA for planning purposes, including financial projections. Adjusted
EBITDA has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for an analysis of our
results as reported under IFRS as issued by IASB. A reconciliation of
adjusted EBITDA to net profit is provided in the attached schedules.

Adjusted net profit attributable to equity holders of parent is a
non-IFRS measure. We define adjusted net profit attributable to equity
holders of parent as net profit attributable to equity holders of parent
adjusted for the items set forth in the table below. Adjusted net profit
attributable to equity holders of parent is a non-IFRS measure and is
not a uniformly or legally defined financial measure. Adjusted net
profit attributable to equity holders of parent is not a substitute for
IFRS measures in assessing our overall operating performance. Because
adjusted net profit attributable to equity holders of parent is not
determined in accordance with IFRS, and is susceptible to varying
calculations, adjusted net profit attributable to equity holders of
parent may not be comparable to other similarly titled measures
presented by other companies. Adjusted net profit attributable to equity
holders of parent is included in this press release because it is a
measure of our operating performance and we believe that adjusted net
profit attributable to equity holders of parent is useful to investors
because it is frequently used by securities analysts, investors and
other interested parties in their evaluation of the operating
performance of companies in industries similar to ours. We also believe
adjusted net profit attributable to equity holders of parent is useful
to investors as a measure of comparative operating performance from
period to period as it removes the effects of purchase accounting for
acquired intangible assets (primarily concessions), non-recurring
transactions, impairments of assets, one-off tax items, changes in
provisions (primarily relating to costs associated with the closing or
restructuring of our operations), and tax adjustments where applicable.
Management does not consider such costs for the purpose of evaluating
the performance of the business and as a result uses adjusted net profit
attributable to equity holders of parent for planning purposes. Adjusted
net profit attributable to equity holders of parent has limitations as
an analytical tool, and you should not consider it in isolation, or as a
substitute for an analysis of our results as reported under IFRS as
issued by IASB. A reconciliation of adjusted net profit attributable to
equity holders of parent to net profit attributable to equity holders of
parent is provided in the attached schedules.

Organic net sales growth represents the combination of growth in
aggregate monthly sales from (i) like-for-like net sales growth and (ii)
net new business and expansions. Like-for-like growth represents the
growth in aggregate monthly net sales in the applicable period at stores
that have been operating for at least 12 months. Like-for-like growth
excludes growth attributable to (i) net new business and expansions
until such stores have been part of our business for at least 12 months
and (ii) acquired stores until such stores have been part of our
business for at least 12 months. Net new business and expansions
consists of growth from (i) changes in the total number of our stores
(other than acquired stores), (ii) changes in the retail space of our
existing stores and (iii) modification of store retail concepts through
rebranding. Net new business and expansions excludes growth attributable
to acquired stores until such stores have been part of our business for
at least 12 months. Like-for-like growth in constant currency is
calculated by keeping exchange rates constant for each month being
compared from period to period. We believe that the presentation of
like-for-like growth in constant currency basis assists investors in
comparing period to period operating results as it removes the effect of
fluctuations in foreign exchange rates.

Adjusted net debt to adjusted EBITDA leverage represents total
borrowings (excluding lease obligations) less cash at March 31, 2019
divided by adjusted EBITDA for the twelve months ended March 31, 2019.

About Hudson Group

Hudson Group (NYSE: HUD), a Dufry Company and one of the largest travel
retailers in North America, is committed to enhancing the travel
experience for over 300,000 travelers every day in the continental
United States and Canada. The Company is anchored by its iconic Hudson,
Hudson News and Hudson Bookseller brands and operates over 1,000
duty-paid and duty-free stores in 88 locations, including airports,
commuter terminals, hotels and some of the most visited landmarks and
tourist destinations in the world. Our wide range of store concepts
include travel essentials and convenience stores, bookstores, duty-free
shops, branded specialty stores, electronics stores, and quick-service
food and beverage outlets. For more information, visit www.hudsongroup.com and www.dufry.com.

Forward-Looking Statements

This press release contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 (Reform
Act). Forward-looking statements are based on our beliefs and
assumptions and on information currently available to us, and include,
without limitation, statements regarding our business, financial
condition, strategy, results of operations, certain of our plans,
objectives, assumptions, expectations, prospects and beliefs and
statements regarding other future events or prospects. Forward-looking
statements include all statements that are not historical facts and can
be identified by the use of forward-looking terminology such as the
words “believe,” “expect,” “plan,” “intend,” “seek,” “anticipate,”
“estimate,” “predict,” “potential,” “assume,” “continue,” “may,” “will,”
“should,” “could,” “shall,” “risk” or the negative of these terms or
similar expressions that are predictions of or indicate future events
and future trends. By their nature, forward-looking statements involve
risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. We caution you
that forward-looking statements are not guarantees of future performance
and that our actual results of operations, financial condition and
liquidity, the development of the industry in which we operate and the
effect of acquisitions on us may differ materially from those made in or
suggested by the forward looking statements contained in this press
release. In addition, even if our results of operations, financial
condition and liquidity, the development of the industry in which we
operate and the effect of acquisitions on us are consistent with the
forward-looking statements contained in this press release, those
results or developments may not be indicative of results or developments
in subsequent periods. Forward-looking statements speak only as of the
date they are made, and we do not undertake any obligation to update
them in light of new information or future developments or to release
publicly any revisions to these statements in order to reflect later
events or circumstances or to reflect the occurrence of unanticipated
events. Factors that may cause our actual results to differ materially
from those expressed or implied by the forward-looking statements in
this press release, or that may impact our business and results more
generally, include, but are not limited to, the risks described under
“Item 3. Key Information—D. Risk factors” of our Annual Report on Form
20-F for the year ended December 31, 2018 which may be accessed through
the SEC’s website at https://www.sec.gov/edgar.
You should read these risk factors before making an investment in our
shares.

         
INTERIM CONSOLIDATED Table 1
INCOME
STATEMENT (1)
 
FOR THE QUARTER ENDED MARCH 31, 2019 (UNAUDITED)
 

<---ILLUSTRATION OF IFRS 16 IMPACT--->

 

QUARTER ENDED
3/31/2019

IFRS 16 
IMPACT

PRE-IFRS 16
QUARTER ENDED
3/31/2019

QUARTER ENDED
3/31/2018(2)

IN MILLIONS OF USD (EXCEPT PER SHARE DATA)          
 
Turnover 445.0 445.0 426.8
Cost of sales (161.2 ) (161.2 ) (158.8 )
Gross profit 283.8           283.8     268.0  
Lease expenses (1) (45.4 ) (56.3 ) (101.7 ) (96.9 )
Personnel expenses (115.0 ) (115.0 ) (97.6 )
Other expenses (1) (37.4 ) (37.4 ) (39.3 )
Depreciation, amortization and impairment (77.5 ) 49.8 (27.7 ) (28.8 )
Operating Profit (EBIT) 8.5     (6.5 )   2.0     5.4  
Finance income 1.1

(0.1

)

1.0

0.5
Finance costs (19.9 )

11.9

(8.0

) (7.9 )
Foreign exchange gain (loss) 0.3

0.3

(0.4 )
Profit (loss) before taxes (EBT) (10.0 )   5.3     (4.7 )   (2.4 )
Income tax benefit (expense) 8.1 (1.2 ) 6.9 2.4
Net profit (loss) (1.9 )   4.1     2.2      
 
NET PROFIT (LOSS) ATTRIBUTABLE TO
Equity holders of the parent (6.7 ) 3.3 (3.4 ) (5.7 )
Non-controlling interests 4.8     0.8     5.6     5.7  
 
 
EARNINGS (LOSS) PER SHARE
Basic (0.07 ) 0.04 (0.04 )

(3)

(0.06 )
Diluted (0.07 ) 0.04 (0.04 )

(3)

(0.06 )
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (000’s)
Basic 92,410

 

92,410 92,511
Diluted 92,818

 

92,818 92,511

(1)

  Please refer to the Table 6 titled “New Consolidated Income
Statement Layout” for reclassifications which are effective
beginning in Q1 2019.

(2)

Q1 2018 has not been restated for IFRS 16.

(3)

Pre-IFRS 16 Earnings (Loss) Per Share does not equal the sum of
the components due to rounding.

 
   
INTERIM CONSOLIDATED Table 2
STATEMENT OF
FINANCIAL POSITION
 
AT MARCH 31, 2019 (UNAUDITED)
 

  MARCH 31,

DECEMBER 31,
IN MILLIONS OF USD 2019   2018
 
ASSETS
Property, plant and equipment 235.3 243.0
Right of use assets 1,048.5
Intangible assets 291.9 301.6
Goodwill 319.2 315.0
Investments in associates 7.6 6.5
Deferred tax assets 92.9 83.9
Other non-current assets 35.2 27.4
Non-current assets 2,030.6   977.4
 
Inventories 193.6 190.7
Trade receivables 1.0 1.3
Other accounts receivable 45.9 46.8
Income tax receivables 0.5 0.8
Cash and cash equivalents 241.9 234.2
Current assets 482.9   473.8
 
Total assets 2,513.5   1,451.2
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Equity attributable to equity holders of the parent 547.9 552.1
Non-controlling interests 81.9 84.8
Total equity 629.8   636.9
 
Borrowings 493.7 492.6
Lease obligations 887.2
Deferred tax liabilities 39.9 40.0
Post-employment benefit obligations 1.2 1.0
Other non-current liabilities 3.5
Non-current liabilities 1,425.5   533.6
 
Trade payables 113.3 105.5
Borrowings 52.5 51.4
Lease obligations 174.3
Income tax payables 0.7 2.3
Other liabilities 117.4 121.5
Current liabilities 458.2   280.7
 
Total liabilities 1,883.7   814.3
Total liabilities and shareholders’ equity 2,513.5   1,451.2
 
   
INTERIM CONSOLIDATED Table 3
STATEMENT OF
CASH FLOWS
 
FOR THE QUARTER ENDED MARCH 31, 2019 (UNAUDITED)
 
QUARTER ENDED QUARTER ENDED
IN MILLIONS OF USD 3/31/2019   3/31/2018
 
CASH FLOWS FROM OPERATING ACTIVITIES
Profit (loss) before taxes (EBT) (10.0 )   (2.4 )
 
ADJUSTMENTS FOR
Depreciation, amortization and impairment 77.5 28.8
Loss (gain) on sale of non-current assets 0.1 0.7
Increase (decrease) in allowances and provisions 2.4 3.9
Loss (gain) on foreign exchange differences (0.3 ) 0.5
Other non-cash items 1.8 2.4
Share of result of associates (0.2 ) (0.1 )
Interest income (0.9 ) (0.5 )
Finance costs 19.9 7.9
Cash flow before working capital changes 90.3     41.2  
 
Decrease (increase) in trade and other accounts receivable (3.5 ) 12.7
Decrease (increase) in inventories (3.9 ) 0.8
Increase (decrease) in trade and other accounts payable 14.4 (3.1 )
Cash generated from operations 97.3     51.6  
Income taxes paid (3.8 ) (1.1 )
Net cash flows from operating activities 93.5     50.5  
 
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (19.2 ) (14.2 )
Purchase of intangible assets (0.9 ) (1.1 )
Purchase of interest in associates (0.8 ) (0.4 )
Proceeds from sale of property, plant and equipment 0.2 0.1
Interest received 1.0 0.8

Proceeds from lease income

0.6

Repayments of (granted) loans receivable from non-controlling
interest holders
0.3 0.4
Net cash flows used in investing activities

(18.8

)   (14.4 )
 
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from restructuring 60.1
Repayment of borrowings (13.1 )
Transaction costs paid for the listing of equity instruments (3.5 )
Dividends paid to non-controlling interest (8.2 ) (5.7 )
Lease payments (56.9 )
Purchase of treasury shares (1.9 )
Contributions from (purchase of) non-controlling interests 0.8
Interest paid (0.5 ) (0.5 )
Net cash flows from (used in) financing activities

(67.5

)   38.1  
Currency translation on cash 0.5 (6.3 )
Increase in cash and cash equivalents 7.7     67.9  
 
CASH AND CASH EQUIVALENTS AT THE
– beginning of the period 234.2 137.4
– end of the period 241.9 205.3
 
   
NON-IFRS RECONCILIATIONS
 
NET PROFIT TO ADJUSTED EBITDA (1) Table 4
FOR THE QUARTER ENDED MARCH 31, 2019
 
QUARTER ENDED QUARTER ENDED
IN MILLIONS OF USD 3/31/2019   3/31/2018
 
Net profit (loss) (1.9 )    
Income tax expense (benefit) (8.1 ) (2.4 )
Profit (loss) before taxes (EBT) (10.0 )   (2.4 )
Finance income (1.1 ) (0.5 )
Finance costs 19.9 7.9
Foreign exchange gain (loss) (0.3 ) 0.4
Operating Profit (EBIT) 8.5     5.4  
Depreciation, amortization and impairment 77.5 28.8
Charge related to capitalized right of use assets (2) (56.3 )
Other operational charges (3) 8.0 2.6
Adjusted EBITDA 37.7     36.8  

(1)

  The company has revised the calculation of Adjusted EBITDA to
exclude charge related to capitalized right of use assets. The
company believes this useful to investors in order to provide better
comparability to prior periods as IFRS 16 was adopted on January 1,
2019.

(2)

Represents lease payments that would have been expensed, but for the
adoption of IFRS 16 related to capitalized right of use assets and
payments received for capitalized sublease receivables.

(3)

For the quarter ended March 31, 2019, other operational charges
consisted of $7.6 million of executive separation expense and $0.4
million of other non-recurring items.

 

For the quarter ended March 31, 2018, other operational charges
consisted of $0.7 million of asset write-offs related to
conversions and store closings, $0.5 million of uncollected
receivables, $0.4 million of restructuring expenses, $0.4 million
of IPO transaction costs and $0.6 million of other non-recurring
items.

 

Contacts

Investor Contact
Deborah Belevan, CPA, IRC
Hudson Group
VP
of Investor Relations
201.559.2111

Media Contact
Kristen
Clonan
Hudson Group
VP of Corporate Communications
201.821.8088

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