| ACCOUNTING POLICIES | 2.1 BASIS OF PREPARATION The consolidated financial statements of Hudson
and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB). The consolidated financial statements have been
prepared on the historical cost basis, except for certain financial assets, liabilities and defined benefit plan assets, that are
measured at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair value of
the consideration given in exchange for assets. The consolidated financial statements are presented in millions of US Dollars (USD).
All values are rounded to the nearest one hundred thousand, except when indicated otherwise. 2.2 BASIS OF CONSOLIDATION The consolidated financial statements of Hudson
comprise all entities directly or indirectly controlled by Hudson (its subsidiaries) as at December 31, 2019 and the respective
comparative information. Subsidiaries are fully consolidated from the
date of acquisition, being the date on which Hudson obtains control, and continue to be consolidated until the date when such control
is lost. The Company controls an entity when Hudson is exposed to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power over the entity. All intragroup balances, transactions,
unrealized gains or losses and dividends, resulting from intragroup transactions, are eliminated in full. Transactions with subsidiaries
of Dufry outside the scope of the consolidation of Hudson have not been eliminated and are reported as related party transactions,
refer to note 37. A change in the ownership interest of a subsidiary,
without a loss of control, is accounted for as an equity transaction. If Hudson loses control over a subsidiary, it:
- derecognizes the assets (including goodwill) and liabilities of the subsidiary, derecognizes the carrying amount of any non-controlling interest as well as derecognizes the cumulative translation differences recorded in equity;
- recognizes the fair value of the consideration received, recognizes the fair value of any investment retained as well as recognizes any surplus or deficit in the consolidated statements of comprehensive income. 2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Business combinations and Goodwill Business combinations are accounted for using
the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition
date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, Hudson selects whether
it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s
identifiable net assets. Acquisition related transaction costs are expensed and presented in other expenses. When Hudson acquires
a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance
with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Any contingent consideration to be transferred
by the acquirer will be recognized at fair value at the acquisition date. Thereafter any change in the fair value of the contingent
consideration not classified as equity will be recognized through the consolidated statements of comprehensive income. Hudson measures goodwill at the acquisition
date as:
- The fair value of the consideration transferred;
- plus the recognized amount of any non-controlling interests in the acquiree;
- plus, if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree;
- less the net recognized amount of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase
gain is recognized immediately in the consolidated statements of comprehensive income. After initial recognition, goodwill is measured
at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination
is, from the acquisition date, allocated to each of Hudson’s group of cash-generating units that are expected to benefit
from the combination. Where goodwill forms part of a cash-generating
unit and an operation within is disposed of, the goodwill associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance
is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained, unless
there are specific allocations. b) Foreign currency translation Each subsidiary in Hudson uses its corresponding
functional currency. Items included in the financial statements of each entity are measured using that functional currency. Transactions
in foreign currencies are recorded at the date of the trans-action in the functional currency using the exchange rate of such date. Monetary assets and liabilities denominated
in foreign currencies are re-measured using the functional currency exchange rate at the reporting date and the difference is recorded
as unrealized foreign exchange gains / losses. Exchange differences arising on the settlement or on the translation of derivative
financial instruments are recognized through the consolidated statements of comprehensive income, except where the hedges on net
investments allow the recognition through other comprehensive income, until the respective investments are disposed of. Deferred
tax related to unrealized FX is accounted accordingly. Non-monetary items are measured at historical cost in the respective functional
currency. At the reporting date, the assets and liabilities
of all subsidiaries reporting in foreign currency are translated into the presentation currency of Hudson (USD) using the exchange
rate at the reporting date. The consolidated statements of comprehensive income of the subsidiaries are translated using the average
exchange rates of the respective month in which the transactions occurred. The net translation differences are recognized in other
comprehensive income. On disposal of a foreign entity or when control is lost, the deferred cumulative translation difference recognized
within equity relating to that particular operation is recognized in the consolidated statements of comprehensive income as gain
or loss on sale of subsidiaries. Goodwill, intangible assets and fair value adjustments
identified during a business combination (purchase price allocation) are treated as assets and liabilities in the functional currency
of such operation. Principal foreign exchange rates applied for
valuation and translation:
AVERAGE RATE CLOSING RATE
IN USD 2019 2018 2017 31.12.2019 31.12.2018 31.12.2017
1 CAD 0.7540 0.7720 0.7714 0.7701 0.7333 0.7951 c) Net sales Turnover is comprised of net sales and advertising income and is
recognized from contracts with customers. Hudson recognizes revenue from retail sales and the related cost of goods sold at a
point in time when it sells and hands over products directly to the customer in our stores. These transactions have to be
settled by cash or credit card on delivery. Revenue from customers is measured at fair value of the consideration received in cash
for the goods sold, excluding discounts and sales taxes. d) Advertising income Hudson’s advertising income is resulting
from several distinctive marketing support activities, not affecting the retail price, performed by Hudson after having been developed
and coordinated together with our suppliers. The income is recognized in the period the advertising is performed. The compensation
will be received on contractual terms. Usually Hudson is not entitled to offset the income with trade payables related with the
same supplier. An allowance on these advertising receivables is recognized to reflect the risks and uncertainties in relation
with the final achievements of incentives based on thresholds, to be confirmed after the end of the respective program. e) Cost of sales Cost of sales are recognized when the company
sells the products and comprise the purchase price and the cost incurred until the products arrive at the warehouse, i. e. import
duties, transport, purchase discounts (price-offs) as well as inventory valuation adjustments and inventory losses. f) Personnel expenses These expenses include all expenses related
to the employees of Hudson. g) Equity instruments An equity instrument is any contract that evidences
a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by Hudson are
recognized at the proceeds received, net of direct transaction costs. Repurchase of Hudson’s own equity instruments is recognized
and deducted directly in equity. No gain or loss is recognized in the consolidated statements of comprehensive income on the purchase,
sale, issue or cancellation of Hudson’s own equity instruments. h) Share capital Ordinary shares are classified as equity. Costs
directly attributable to the issuance of shares or options are shown in the statement of changes in equity as transaction costs
for equity instruments, net of tax. For treasury shares purchased by Hudson Ltd.
or any subsidiary, the consideration paid, including any directly attributable expenses, net of income taxes, is deducted from
equity until the shares are cancelled, assigned or sold. Where such ordinary shares are subsequently sold, any consideration received,
net of any direct transaction expenses and income tax, is included in equity. i) Pension and other post-employment benefit
obligations Hudson provides retirement benefits through
defined contribution pension plans which are funded by regular contributions made by the employer and the employees to a third-party. j) Share-based payments Equity settled share based payments to employees
and other third parties providing services are measured at the fair value of the equity instruments at grant date. The fair value
determined at grant date of the equity-settled share-based payments is expensed on a pro rata basis over the vesting period, based
on the estimated number of equity instruments that will eventually vest. At the end of each reporting period, Hudson revises its
estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is
recognized in the consolidated statements of comprehensive income such that the cumulative expense reflects the revised estimate. Where the terms of an equity settled award are
modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized
for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to
the holder of the option as measured at the date of modification. k) Taxation Income tax expense represents the sum of the
current income tax and deferred tax. Where the functional currency is not the local currency, the position includes the effects
of foreign exchange translation on deferred tax assets or deferred tax liabilities. Income tax positions not relating to items recognized
in the consolidated statements of comprehensive income, are recognized in correlation to the underlying transaction either in other
comprehensive income or equity. Current income tax Income tax receivables or payables are measured
at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantially enacted at the reporting date in the countries or states where Hudson operates and
generates taxable income. Income tax related to items recognized in other
comprehensive income is recognized in the same statement. Deferred tax Deferred tax is provided using the liability
method on temporary differences between the tax basis of assets or liabilities and their carrying amounts for financial reporting
purposes at the reporting date. Deferred tax liabilities are recognized for
all taxable temporary differences, except:
- When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
- In respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future Deferred tax assets are recognized for all deductible
temporary differences, the carry forward of unused tax credits or tax losses. Deferred tax assets are recognized to the extent
that it is probable that taxable profit will be available, against which the deductible temporary differences and the carry forward
of unused tax credits and unused tax losses can be utilized, except:
- When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
- In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. The carrying amount of deferred tax assets is
reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be
available to allow the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date
and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be
recovered. Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantially enacted at the reporting date applicable for each respective company. l) Property, plant and equipment These are stated at cost less accumulated depreciation
and any impairment in fair value. Depreciation is computed on a straight-line basis over the shorter of the estimated useful life
of the asset or the lease term. The useful lives applied are as follows:
- Real estate (buildings) 20 to 40 years
- Leasehold improvements the shorter of the lease term or 10 years
- Furniture and fixtures the shorter of the lease term or 5 years
- Motor vehicles the shorter of the lease term or 5 years
- Computer hardware the shorter of the lease term or 5 years m) Right-of-use assets Hudson recognizes right-of-use assets at the
commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at
cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease obligations. The cost
of right-of-use assets includes the amount of lease obligations recognized, initial direct costs incurred, and lease payments made
at or before the commencement date, less any lease incentives received. Unless Hudson is reasonably certain to obtain ownership
of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over
the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. The contractual term
of right-of-use assets is up to 40 years. To contain a lease, an agreement has to convey
the right to control the use of an identified asset through out the period of use in exchange for consideration, so that the lessee
has the right to obtain substantially all of the economic benefits from the use of the identified asset and direct the use of the
identified asset (i. e. direct how and for what purpose the asset is used). The lease term corresponds to the non-cancellable period
of each contract, except in cases where Hudson is reasonably certain of exercising renewal options contractually foreseen. IFRS 16 affects the accounting of: Stores Hudson enters into concession agreements
with operators of airports, railway stations etc. to operate retail shops which in-substance are considered leases. These
concession lease agreements contain complex features, which include variable payments, based on sales, which cannot be lower
than a minimum threshold (MAG). The MAG can be fixed or variable depending on certain parameters. The MAG amounts may: a) be
fixed by the concession agreement or b) be calculated based on a percentage of fees expensed in the previous year, or c) be
adjusted based on an index. In these cases, the unavoidable portions of the fees are considered as in-substance fixed
payments, despite having a variable component. Such payment features are often determined on the basis of the individual
circumstances of the parties to the contract and are unique to the particular contract. Hudson signs and renews a significant
number of agreements every year with a typical duration of 5 to 10 years. These agreements do not contain a residual value
guarantee. In some cases, the current portion of the lease obligations are secured with bank guarantees in case Hudson would
not fulfill its contractual commitments. Hudson capitalized all elements of the lease
contracts in accordance with IFRS 16 when at the commencement of the agreement such commitments are in-substance fixed. Payment
obligations that do not have a fixed or in-substance fixed commitment, will continue to be presented as variable lease expense.
Hudson has identified a number of agreements in its portfolio which are not fulfilling the principles of recognition defined by
IFRS 16, i.e. they have minimum guaranteed payments based on non-predictable parameters or variables, such as actual number of
passengers, which continue to be presented fully as variable lease expense. Additionally, Hudson has concession subleases
in which Hudson acts as lessor for a portion of leased retail space to third party operators. Generally, the term of the sublease
is the same duration as the main concession agreement. Therefore, Hudson recognizes a lease receivable related to the fixed minimum
payments due from the subtenant as a reduction of the initial right-of-use asset. Other buildings Rental agreements for offices or warehouse buildings
usually qualify for capitalization under IFRS 16. n) Short-term leases and leases of low-value
assets Hudson applies the short-term lease recognition
exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and
do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment
that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense
on a straight-line basis over the lease term. o) Intangible assets These assets mainly comprise of concession
rights and brands. Usually these assets are capitalized at cost, but when identified as part of a business combination, these
assets are capitalized at fair value as of the date of acquisition. The useful lives of these intangible assets are assessed
to be either finite or indefinite. Hudson may consider that brands have indefinite useful lives when the company considers to
use them for the future. Following initial recognition, the cost model is applied to intangible assets. Intangible assets
with finite lives are amortized over the useful economic life. Intangible assets with an indefinite useful life are reviewed
annually to determine whether the indefinite life assessment continues to be supportable. If not, any changes are made on a
prospective basis. Brand assets have indefinite useful life, whereas the concession rights have a useful life based on lease
term, which can be up to 40 years. p) Software Software is valued at amortized historical cost,
or in case of internal developments by the sum of costs incurred less amortization. q) Impairment of non-financial assets Goodwill and intangible assets with indefinite
useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to depreciation and
amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized when the carrying amount of an asset or cash generating unit exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less cost of disposal and its value in use. For the purpose of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash generating
units). r) Associates Associates are all entities over which Hudson
has significant influence but not control, generally accompanying a shareholding interest of more than 20% of the voting rights.
Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially
recognized at cost. The carrying amount is increased or decreased to recognize the changes in Hudson’s share of net assets
of the associate after the date of acquisition and decreased by dividends declared. Hudson’s investment in associates includes
goodwill identified on acquisition. Hudson’s share of post-acquisition net
profit / (loss) and its share of post-acquisition movements in other comprehensive income are recognized in the consolidated statements
of comprehensive income with a corresponding adjustment to the carrying amount of the investment. When Hudson’s share of
losses in an associate equals or exceeds its interest in the associate, Hudson does not recognize further losses, unless it has
incurred legal or constructive obligations or made payments on behalf of the associate. If the ownership interest in an associate
is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive
income is reclassified to net profit / (loss) where appropriate. Hudson determines at each reporting date whether
there is any objective evidence that the investment in the associate is impaired. If this is the case, Hudson calculates the amount
of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount
within the share of result of associates in the consolidated statements of comprehensive income. Profits and losses resulting from upstream and
downstream transactions between Hudson and its associate are recognized in the consolidated financial statements only to the extent
of unrelated investor’s interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency
with the policies adopted by Hudson. Dilution gains and losses arising in investments
in associates are recognized in the consolidated statements of comprehensive income. s) Inventories Inventories are valued at the lower of
historical cost or net realizable value. The historical costs are determined using the weighted average cost method.
Historical cost includes expenses incurred in bringing the inventories to their present location and condition. Beside the
purchase price of the goods less the discounts or rebates obtained, this includes mainly import duties and transport cost. The
net realizable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to
make the sale. Inventory allowances are set up in the case of slow moving and obsolete inventories. Expired items are fully
written off. t) Trade receivables This account includes receivables related to
the sale of merchandise. u) Cash and cash equivalents Cash and cash equivalents consist of cash on
hand or current bank accounts as well as short-term deposits at banks with initial maturity below 91 days. Credit card receivables
with a maturity of up to 4 days are included as cash in transit. Short-term investments are included in this position if they are
highly liquid, readily convertible into known amounts of cash and subject to insignificant risk of changes in value. v) Lease obligations At the commencement date of the lease, Hudson
recognizes lease obligations measured at the present value of lease payments to be made over the lease term. The lease payments
include fixed payments (including in-substance fixed payments), variable lease payments that depend on an index or a rate, and
amounts expected to be paid un residual value guarantees, less any lease incentives receivable. Lease payments also include the
exercise price of a purchase option reasonably certain to be exercised by Hudson and payments of penalties for terminating a lease,
if the lease term reflects Hudson exercising the option to terminate. The variable lease payments that do not depend on an index
or a rate are recognized as expense in the period in which the event or condition that triggers the payment occurs. Most of our lease contracts for
stores require us to pay variable lease expense as a percentage of sales, with a minimum annual guarantee (“MAG”)
that can fluctuate each year based on the variable rent payments of the previous year. The fixed or in-substance fixed
MAG payments are included in the measurement of lease obligations, while the additional lease payments up to the full amount
based on the percentage of sales, are presented as lease expense. In calculating the present value of lease payments,
Hudson uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily
determinable. The implied interest charge is presented as interest expenses on lease obligation. Where a lease agreement does not
specify a discount rate and as the subsidiaries are financed internally, Hudson uses a discount rate which is the aggregation of
the risk free rate for the respective currency and lease duration, increased by individual company risk factors. After the commencement
date, the amount of lease obligations is increased to reflect the accretion of interest and reduced for the lease payments made.
In addition, the carrying amount of lease obligations is re-measured if there is a modification, a change in the lease term, a
change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. w) Provisions Provisions are recognized when Hudson has a
present obligation (legal or constructive) as a result of a past event, it is probable that Hudson will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best
estimate at the end of the reporting period of the consideration required to settle the present obligation, taking into account
the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is
material). When some or all of the economic benefits required
to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually
certain that the reimbursement will be received and the amount of the receivable can be measured reliably. Contingent liabilities acquired in a business
combination Contingent liabilities acquired in a business
combination are initially measured at fair value at the acquisition date. At the end of subsequent reporting periods, such contingent
liabilities are measured at the higher of the amount that would be recognized in accordance with IAS 37 Provisions, contingent
liabilities and contingent assets and the amount initially recognized less cumulative amortization recognized in accordance with
IFRS 15 Revenue from contracts with customers. Lawsuits and duties Lawsuits and duties provision is recognized
to cover uncertainties dependent on the outcome of ongoing lawsuits. x) Investments and other financial assets (i) Classification Hudson classifies its financial assets in the
following measurement categories:
- those to be measured subsequently at fair value (either through the consolidated statements of comprehensive income), and
- those to be measured at amortized cost. The classification depends on the entity’s
business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value,
gains and losses will either be recorded in profit or loss or other comprehensive income (OCI). For investments in equity instruments
that are not held for trading, this will depend on whether Hudson has made an irrevocable election at the time of initial recognition
to account for the equity investment at fair value through other comprehensive income (FVOCI). (ii) Recognition and derecognition Regular purchases and sales of financial assets
are recognized on trade-date, the date on which Hudson commits to purchase or sell the asset. Financial assets are derecognized
when the rights to receive cash flows from the financial assets have expired or have been transferred and Hudson has transferred
substantially all the risks and rewards of ownership. (iii) Measurement At initial recognition, Hudson measures a financial
asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs
that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL
are expensed in profit or loss. Financial assets with embedded derivatives are
considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Debt instruments Subsequent measurement of debt instruments depends
on Hudson’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement
categories into which Hudson classifies its debt instruments:
- Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss. Impairment losses are presented in other expenses.
- FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the asset’s cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss. Interest income from these financial assets is included in finance income using the effective interest rate method. Impairment expenses are presented in other expenses.
- FVPL: Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognized in profit or loss and presented as net in the period in which it arises. Equity instruments Hudson subsequently measures all equity investments
at fair value. Where management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent
reclassification of fair value gains and losses to profit or loss following the derecognition of |
