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Annual Report 2018 HUDSON GROUP Hudson Group (HUD: NYSE) is a leading travel retailer in North America operating over 1,000 stores in 88 locations including airports, commuter terminals, hotels and some of the most visited landmarks and tourist destinations in the world. Our team of over 10,000 employees is committed to enhancing the travel experience for our 300,000+ traveling customers we serve every day in the continental U.S. and Canada. 2 www.hudsongroup.com Contents 08 At a Glance 2018 24 Branded Speciality 10 2018 Highlights 26 Proprietary Speciality 13 Letter from our CEO 28 Food & Beverage 16 Hudson Investment Case 30 Executive Officers 18 Our Core Values 32 Board of Directors 20 Travel Essentials 35 Non-IFRS Measures 22 Duty Free Form 20-F www.hudsongroup.com 3 Together We are Creating New Opportunities in Travel Retail www.hudsongroup.com 5 Together We Deliver a Memorable Shopping Experience for Our Customers www.hudsongroup.com 7 At Glance 2018 Net Sales Net Sales by Country by Channel 3% Railway 2% Downtown & 19% Canada Stations & Others Hotel Shops 81% Continental United States 95% Airports Net Sales Net Sales by by Sector Product Category 24% Duty Free 7% Other 3% Tobacco 38% Food & 5% Wine & Spirits Beverage Retail 5% Electronics 6% Watches, Jewelry & Accessories 9% Literature 12% Fashion 15% Perfume 76% Duty Paid & Cosmetics 8 www.hudsongroup.com Surpassing 1,000 6.8% Turnover Stores Growth Stores* Turnover* (in millions) $1,924 1,028 $1,803 973 996 $1,687 948 $1,403 $1,119 733 63.7% Gross $238M Profit Margin Adj. EBITDA* Gross Profit Adj. EBITDA* (in millions) (in millions) $1,226 $1,122 $238 $1,042 $173 $869 $694 $156 $135 $116 63.7% 62.2% 62.0% 61.9% 61.8% * For reconciliation of the Non-IFRS Measures please refer to page 35 of this report www.hudsongroup.com 9 2018 Highlights Strong Organic World’s Largest Hudson Sales Growth Store Unveiled Achieved 7.0% Opened our flagship store organic sales growth supported in Hartsfield-Jackson Atlanta by strong passenger growth, International Airport in-store productivity initiatives Shop-in-shop format with and footprint expansion over 5,000 square feet Expansion of New Exclusive F&B Category Partnership Achieved 13% year-over-year Signed agreement to be the growth in retail food & exclusive airport retailer for FAO beverage category Schwarz and FAO Schweetz product and shops F&B sales reached 38% of total net sales vs. First FAO Schwarz store opened 36% in 2017 at LaGuardia Airport 10 www.hudsongroup.com Successful Initial Public Offering First year as a publicly listed company on the New York Stock Exchange Expanded Footprint with Key New Market Wins Will add over 50,000 additional square feet to our portfolio through key wins including Boston Logan, Philadelphia International and Salt Lake City International Gross Margin Over 80% Expansion renewal rate on existing contracts Expanded gross margin by 140 basis points to 63.7% Driven by positive sales mix shift and successful vendor negotiations www.hudsongroup.com 11 Together We Are the Traveler’s Best Friend 12 www.hudsongroup.com Roger Fordyce DEAR FELLOW SHAREHOLDERS, In my first letter as Hudson Group’s CEO, I would like to take this opportunity to express my passion and commitment to this company, reflect on the many achievements and milestones of 2018, review our strategic priorities, and share our vision for the future. I must begin by acknowledging my predecessor, Joe DiDomizio, for his tireless passion and valuable contribution to growing Hudson to what it is today. Under Joe’s guidance, we built an exceptionally strong foundation that will benefit our organization long after his departure. We are grateful for Together We his service. I have had the pleasure of being of part of Hudson’s success for the entirety of our 30+ year Are the Traveler’s history, and I am honored to be leading the company into its next phase of growth. We have a substantial opportunity to continue to grow this business through operational excellence and Best Friend financial discipline, which will ultimately generate the greatest return for our shareholders. www.hudsongroup.com 13 OUR 2018 IPO WAS A luxury business. The wonderful thing about our MAJOR MILESTONE business is that we are a multi-faceted, multi- 2018 was a monumental year for Hudson Group concept retailer with a wide diversity of product as we embarked on a new phase of growth as a categories and brands. As customers’ trends and public company. We have continued to execute preferences shift, we will respond by adapting on our core purpose of being the “Traveler’s Best our merchandising mix to suit those demands. Friend” as a leader in travel retail and the largest North American operator in the industry. Aligned In addition to benefiting from an ever increasing with our commitment to our shareholders, we flow of passengers passing by our stores and their maintained the strategic direction laid out during increasing propensity to spend, we have been our IPO and delivered results in 2018 that were successful at driving additional sales through our consistent with our long-term targets. differentiated commercial approach as well as a number of productivity initiatives. Given the nature of our industry and variable timing associated with winning concession One of these key initiatives has been the contracts and opening new stores, our aggressive expansion of our food and beverage business does not manifest in a linear fashion. offering. This year we committed to accelerating Nevertheless, we maintain our conviction for our this growth by installing refrigeration units in long-term framework, that being to deliver high as many travel and convenience stores as single digit organic sales growth, low double-digit possible, which has been a strong driver of EBITDA growth and high-teens net profit growth. F&B sales. We’re very proud of the success of our marketplace offering, including our newly WE DELIVERED SOLID expanded grab and go line, which grew over 50% RESULTS THIS YEAR during 2018. To summarize our 2018 financial results: • We achieved 7.0% organic sales growth; OUR COMMERCIAL APPROACH IS THE BEDROCK OF OUR • We expanded gross profit margin by 140 basis SUCCESS points; and You will hear us say time and time again that • We delivered adjusted EBITDA growth our people are the key to our success. We place of ( assuming the reduced 38.0% 13.9% great emphasis on our locally empowered and franchise fee rates we currently pay centrally supported employee model, a structure Dufry was in effect in 2017) that places decision-making in the hands of our local managers allowing them to act nimbly and Our organic sales were driven by a combination respond quickly to our landlord partners. This of healthy like-for-like sales growth in our entre-preneurial approach has been integral existing stores and positive contributions from to our culture from the very beginning and sets new stores and conversions. Like-for-like us apart from the competition. Our landlord sales growth was softer in the second half partnerships are extremely valuable and we view of the year as we faced some market head- this approach as a foundational part of a sound winds, namely foreign exchange and shifting relationship and long-term mutual success. passenger demographics, the latter of which led to softer sales in our duty free and 14 www.hudsongroup.com ADDING OVER 50,000 SQ. FT. WE HAVE SIGNIFICANT TO OUR FOOTPRINT WHITESPACE OPPORTUNITY On the new business side, we had several wins While we have a solid presence in North and extensions in key markets, including America’s largest airports, we are not in all Boston Logan International Airport, LaGuardia terminals so there is ample whitespace to Airport, Salt Lake City International Airport and capture through new wins. In addition, this JFK International Airport. These successes were whitespace continues to grow as airports are the direct result of our dedication to driving value expected to invest billions in infrastructure to for our landlord partners. We have a strong keep up with growing passenger volumes. As reputation in our industry, and ultimately, airport the market leader in travel retail, we are well directors want to partner with experienced op- positioned to capture a sizeable portion of this erators who have a history of generating year- whitespace and further grow our market share. over-year revenue growth, demonstrate knowl- edge about the airport’s travelers and the local Looking ahead, we are committed to growing our market, and have the ability to deliver the “wow” business both organically and inorganically. We factor for a given terminal. are always monitoring the industry and are open to acquisitions that will expand our footprint and In order to create that “wow” factor, we curate build upon our capabilities. We have low financial a selection of concepts and brands that will leverage which gives us the flexibility to take resonate with passenger demographics and advantage of opportunities that make sense and create a sense of place for that particular are accretive to our business. market. This year we had a number of notable store openings that were custom tailored to meet In closing, I would like to thank all of the team this objective. A few highlights include: members across our organization for their service, dedication and passion, and staying true • We celebrated the grand opening of the to our core purpose of being the Traveler’s Best largest Hudson store ever in the world’s Friend. I’d also like to thank our landlords for busiest airport, Hartsfield Jackson Atlanta their continued partnership and look forward to International Airport.