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Company Registration Number: C 83425
HUDSON MALTA P.L.C.
Annual Financial Report
31 December 2021
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
Pages
Directors’ report 1 - 3
Corporate Governance – Statement of Compliance 4 - 8
Statements of financial position 9 - 10
Statements of comprehensive income 11
Statements of changes in equity 12 - 13
Statements of cash flows 14
Notes to the financial statements 15 - 49
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
1
Directors’ report
The directors present their report and the audited financial statements for the year ended 31 December 2021.
Principal activities
The Company
The principal activity of Hudson Malta p.l.c (the “Company”) is to own the entities operating the retail stores in Malta for the Hudson Holdings Limited group (the “Hudson Group”), of which the Company is a fully owned subsidiary. In 2021 the Hudson Group acquired Trilogy Limited, a Maltese company operating retail stores in Malta. Subsequently the equity stake in Trilogy was transferred to the Company so that Trilogy Limited became a subsidiary along with Hudson Malta Sales Ltd (formerly Time International (Sport) Limited).
Reference is also made to the amalgamation by virtue of a merger by acquisition by Time International (Sport) Limited (hereinafter “TISL”; presently Hudson Malta Sales Ltd) of Hudson International Company Limited (C 48705) (hereinafter “HICL”), which amalgamation of TISL and of the company being acquired HICL became effective on the 14 March 2021. In virtue of the afore-mentioned merger by acquisition having taken effect, TISL (presently Hudson Malta Sales Ltd), as the acquiring company, succeeded to all the assets, rights, liabilities and obligations of HICL, which, in turn, ceased to exist and has been struck off with effect from 14 March 2021.
In 2018 the Company raised €12m from a public Bond issue for the main purpose of financing the retail expansion in Malta and overseas of the Hudson Group. The money raised was loaned to its subsidiary companies, to its parent company Hudson Holdings Limited and a sister company also falling part of the Hudson Group. The Company earns interest from these loans.
The Group
The Hudson Malta p.l.c. Group (the “Group”) is mainly involved in the operation of a number of retail stores in Malta as well as the importation and distribution of branded consumer products in Malta, Italy and Tunisia.
Review of business
The Company
During the financial year of 2021 the Company earned €648k from interest income on loans advanced to Hudson Group companies against €551k of finance costs on the bond. After deducting expenses, the Company reported a profit before tax for the year of €20k. The investment in subsidiaries increased by €6 million to reflect the acquisition of the equity stake of Trilogy Limited which compensation will be settled by way of an issue of shares to Hudson Holdings Limited.
The Group
During 2021 the Group recovered strongly from the downturn reported in 2020, as a result of an increase of over 24% in the sales of Hudson Malta Sales Ltd compared to 2020 and from the inclusion of the results of Trilogy Limited, which have been in incorporated from 1 July 2021. Overall, the Group reports an increase in turnover of 42% or €13 million to €43 million. With gross profit margin improving to 32% from 30% in 2020, the gross profit increased by 56% to €14.1 million resulting in an operating profit of €2.7 million compared to an operating loss of €0.3 million in 2020.
After taking into consideration the impact of financing costs which were slightly greater than in 2020 the Group reported a profit before tax of €1.7 million compared to a loss before tax of €1.3 million in 2020. These results are significantly better than what was projected in August 2021, in part due to the inclusion of the impact of the result of Trilogy Limited as from 1 July 2021. From a balance sheet aspect, the liquidity position of the Group strengthened considerably with net current assets increasing to €7 million from €3.5 million in 2020.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
2
Directors’ report - continued
Results and dividends
The income statement is set out on page 11. The directors do not recommend the payment of a final dividend and, propose that the balance of retained earnings of the Company amounting to €76,435 (2020: €90,360) be carried forward to the next financial year.
Significant risks and uncertainty
The Group’s principal risks include financial risks as disclosed in Note 2 to these financial statements, possible obsolescence of inventories, potential loss of market share as competing retailers enter the market, the continued impact of COVID-19 and the risks associated with this ongoing pandemic as well and the current global environment with risks of disruption to the logistical chain which is expected to have a significant impact on inflation across the board resulting in higher costs going forward.
Directors
The directors of the company who held office during the year were:
Alfred Borg
George Amato
Christopher Muscat
Victor Spiteri
Kevin Valenzia
Brian Zarb Adami
The company's Articles of Association requires all directors to retire from office at least once every three years but shall be eligible for re-election.
Statement of directors’ responsibilities for the financial statements
The directors are required by the Companies Act (Cap. 386 of the laws of Malta) to prepare financial statements which give a true and fair view of the state of affairs of the company as at the end of each reporting period and of the profit or loss for that period.
In preparing the financial statements, the directors are responsible for:
•ensuring that the financial statements have been drawn up in accordance with International Financial Reporting Standards as adopted by the EU;
•selecting and applying appropriate accounting policies;
•making accounting estimates that are reasonable in the circumstances;
•ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the company will continue in business as a going concern.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
3
Directors’ report - continued
The directors are also responsible for designing, implementing and maintaining internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and that comply with the Companies Act (Cap. 386 of the laws of Malta). They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The financial statements of Hudson Malta p.l.c. for the year ended 31 December 2021 are included in the Annual Financial Report 2021, which is published in hard-copy printed form and will also be made available on the company’s website. The directors are responsible for the maintenance and integrity of the Annual Financial Report on the website in view of their responsibility for the controls over, and the security of, the website. Access to information published on the company’s website is available in other countries and jurisdictions, where legislation governing the preparation and dissemination of financial statements may differ from requirements or practice in Malta.
Going concern statement pursuant to Capital Market Rule 5.62
After making enquires and having taken into consideration the future plans of the Group and the Company, the directors have reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in the operation of the consolidated finance statements.
Auditors
PricewaterhouseCoopers have indicated their willingness to continue in office and a resolution for their re-appointment will be proposed at the Annual General Meeting.
Signed on behalf of the Company's Board of Directors on 28 April 2022 by Alfred Borg (Director) and George Amato (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report 2021.
Registered office:
Hudson House,
Burmarrad Road,
Burmarrad,
St. Paul’s Bay, SPB 9060
Malta
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
4
Corporate Governance – Statement of Compliance
Introduction
Hudson Malta p.l.c. (the “Company”) is committed to observing the principles of transparency and responsible corporate governance. The Board considers compliance and corporate governance principles to constitute an important means of maintaining the confidence of present and future shareholders, bondholders, creditors, employees, business partners and the public. Pursuant to the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority, the Company hereby reports on how it has complied with the Code of Principles of Good Corporate Governance (the “Code’’) contained in Appendix 5.1 of the Capital Markets Rules for the financial period ended 31 December 2021, which report details the extent to which the Code has been adopted, as well as the effective measures taken by the Company to ensure compliance with said Code.
The Board recognises that, in virtue of Capital Markets Rule 5.101, the Company is exempt from the requirement to disclose the information prescribed by Capital Markets Rules 5.97.1 to 5.97.3, 5.97.6 and 5.97.8.
Compliance with the Code
Principles 1 and 4 - The Board of Directors and its Responsibilities
The Board is responsible for overseeing the Company’s strategic planning process, as well as reviewing and monitoring management’s execution of the corporate and business plans. The Board delegates certain powers, authorities and discretions to the Audit Committee, as duly constituted in terms of the Capital Markets Rules, the role and competence of which committee are further described hereunder.
The Board of Directors has a composition that ensures that the Company is led by individuals who have the necessary skills and diversity of knowledge. It considers strategic issues, key projects and regularly monitors performance against delivery of the key targets of the business plan.
In fulfilling its mandate, the Board assumes responsibility for:
-reviewing the Company’s strategy on an on-going basis, as well as setting the appropriate business objectives;
-reviewing the effectiveness of the Company’s system of internal controls;
-implementing an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve the Company’s objectives;
-identifying and ensuring that significant risks are managed satisfactorily; and
-ensuring that Company policies are being rigorously observed.
Principle 2 - Chairman and Chief Executive Officer
The roles of Chairman and Chief Executive Officer are filled by separate individuals, whereby the Hudson Group Chief Executive Officer, Mr Christopher Muscat, fulfilled the role of CEO for the purposes of the Hudson Malta p.l.c. Board during the period under review, while Mr Alfred Borg continued to act as Chairman of the Board.
The responsibilities and roles of the Chairman and the Chief Executive Officer are clearly established and agreed to by the Board of Directors.
The Chairman is responsible to lead the Board and set its agenda. The Chairman ensures that the Board is in receipt of precise, timely and objective information and also encourages active engagement by all members of the Board for discussion of complex issues.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
5
Corporate Governance – Statement of Compliance - continued
Principle 3 – Composition of the Board
The Company’s Memorandum and Articles of Association provide that the Board of directors shall consist of not less than four (4) and not more than eight (8) directors. Each director has one (1) vote. All directors are appointed by means of an ordinary resolution of the shareholders of the Company in general meeting. All directors are to retire from office at least once every three (3) years but shall be eligible for re-election. The Company shall give twenty-one (21) days’ notice in writing, at the least, to the shareholders to submit names for the election of directors. Notice to the Company proposing a person for election as a director, as well as the latter's acceptance to be nominated as director, shall be given to the Company not less than fourteen (14) days prior to the date of the meeting scheduled for such election.
As at the date of this statement and during the reporting period under review the members of the Board, are as follows:
Executive directors:
Alfred Borg – Chairman
Christopher Muscat
George Amato
Independent, non-executive directors:
Victor Spiteri
Kevin Valenzia
Brian Zarb Adami
Dr Luca Vella acts as company secretary.
In compliance with the Capital Markets Rules, the Board considers that the independent, non-executive directors are independent of management and free from any business, family or other relationship that could materially interfere with the exercise of their independent judgment. In assessing the independence of the independent directors, due notice has been taken of Rule 5.119 of the Capital Markets Rules. The composition of the Board has a balance of knowledge and experience, as well as a strong non-executive presence, to allow continued scrutiny of performance, strategy and governance.
Principle 5 – Board Meetings
Meetings of the Board are held as frequently as considered necessary, with a minimum of four (4) meetings being held annually – the Board met four (4) times during 2021. The Board members are notified of forthcoming meetings at least seven (7) days before the said meeting. In addition, the notification includes the issue of an agenda and any supporting documentation as necessary, in order to ensure that all meetings are of a highly effective nature and all participants are well informed and able to effectively contribute to Board decisions. Attendance with regards to Board meetings is recorded in the minutes of the meetings. Minutes of all Board and Audit Committee meetings are circulated to all members and kept on file by the Company Secretary.
Board and Audit Committee meetings are attended by the Finance Director of Hudson Holdings Limited, which is the parent company of the Company, in order for the Board to have direct access to the financial operation and results of the Group, which, during the period under review, comprised the Company (as parent company) and Hudson Malta Sales Ltd (C 32438) [formerly ‘Time International (Sport) Limited’]. This is also intended to ensure that the policies and strategies adopted by the Board are effectively implemented.
The Board is headed by the Chairman, Mr Alfred Borg.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
6
Corporate Governance – Statement of Compliance - continued
All executive directors are employed on a full-time basis with Hudson Holdings Limited (C 37866), the ultimate parent company, and have more than 10 years’ work experience at Hudson, whereas all independent, non-executive directors have relevant experience related to the business in which the Group operates. The remuneration of the directors is reviewed periodically by the shareholders of the Company.
The Hudson Group CEO, Mr Christopher Muscat, promotes an open dialogue between himself and the directors at regular intervals, not only at Board meetings.
Furthermore, the composition of the Board (which includes 3 independent, non-executive directors) ensures that no individual has unfettered power of decision.
The Company’s internal control system is structured in such a way as to manage and mitigate risks in the most appropriate manner.
Principle 6 – Information and Professional Development
The Company firmly believes in the professional development of all the members in the Hudson organisation. The CEO is responsible for establishing and implementing schemes which are aimed to maintain and recruit employees and management personnel. Furthermore, regular training exercises are held for the Hudson Group’s employees to keep abreast of current technological and other relevant subject matter trends and practices. Directors are encouraged to talk directly to any member of management regarding any questions or concerns the directors may have. Senior management are invited to attend Board meetings from time to time when and as appropriate.
Principle 8 – Committees
The Board delegates certain powers, authorities and discretions to the Audit Committee.
The Company’s Board has established an Audit Committee for the purpose of assisting the Board in fulfilling its responsibilities for overseeing the financial reporting process, the system of internal controls, the audit process and the process for monitoring compliance with applicable laws and regulations. The Board has formally appointed the following three (3) individuals as the members of the Audit Committee:
Kevin Valenzia – Chairman & Independent, non-executive director
Brian Zarb Adami – Independent, non-executive director
Victor Spiteri – Independent, non-executive director
Audit Committee members are appointed for a one (1) year term of office. Such term is automatically renewed for further periods of one (1) year each unless otherwise determined by the Board of directors of the Company. The Audit Committee meets at least four (4) times a year, with additional meetings to be called at the discretion of the Chairperson of the Audit Committee, presently Mr Kevin Valenzia. The Audit Committee met four (4) times during 2021. The Chairperson will also call a meeting of the Audit Committee if required by any Committee member, by senior management or by the external auditors of the Company. In compliance with the Capital Markets Rules, Mr Kevin Valenzia is considered to be the member competent in accounting and/or auditing matters. The Company considers that the members of the Audit Committee have the necessary experience, independence and standing to hold office as members thereof.
In addition, the Hudson Group has formally appointed and empowered an executive committee (EXCO) to manage the Hudson Group’s operations. The EXCO is composed of the following individuals: Alfred Borg, Christopher Muscat, George Amato, Jonathan Briffa (Hudson Group Finance Director), Kalani Weerasinghe (Hudson Group HR Director), Nicolas Vidal (GM Africa), and Indrek Heinmets (Brand Director). The EXCO is a decision-making entity set up to implement the Board’s strategic business plans and policies consistent with the organisation’s vision, values and behaviours in order to meet the Hudson Group’s business objectives and targets.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
7
Corporate Governance – Statement of Compliance - continued
All directors of the Company, including, therefore, the independent, non-executive directors, have full access to the Hudson Group’s in-house and external legal and financial advisors who keep said directors adequately informed of all statutory and regulatory requirements connected to the business of the Company and the Hudson Group generally on an on-going basis.
Principle 9 - Relations with shareholders and with the Market
The Company is committed to having an open and communicative relationship with its shareholders, bondholders and investors. The market is kept updated with all relevant information concerning the Company via the publication of Company Announcements in terms of the Capital Markets Rules and, furthermore, the Company regularly publishes such information on its website to ensure continuous relations with the market, including but not limited to the Interim and Annual Financial Statements. Even though Hudson Holdings Limited is not bound by the continuing obligations of the Capital Markets Rules, the board of directors of Hudson Holdings Limited has resolved to publish, on an annual basis, Hudson Holdings Limited’s audited consolidated financial statements, by not later than two months after the publication of the Company’s audited financial statements, through a company announcement. Furthermore, condensed financial information relating to Hudson Holdings Limited and the Hudson Group is provided in the annual publication of the Company’s financial analysis summary. This commitment is made so as to provide the Company’s bondholders, investors and the market generally with full access to financial information on the Hudson Group.
Principle 11 - Conflicts of Interest
Directors are expected to always act in the best interests of the Company and its shareholders and investors. In accordance with the provisions of the Articles of Association of the Company, any actual, potential or perceived conflict of interest must be immediately declared by a director to the other members of the Board, who then (also possibly through a referral to the Audit Committee) decide on whether such a conflict exists. In the event that the Board perceives such interest to be conflicting with the relative director’s duties, said director shall not vote at a meeting of directors in respect of any contract, arrangement or proposal in which he has a material interest, whether direct or indirect.
Principle 12 - Corporate Social Responsibility
The Board is mindful of and seeks to adhere to sound principles of corporate social responsibility in its management practices. This helps the Hudson Group develop strong relationships with its stakeholders and create long-term value for society and its business. The Hudson Group is committed to play an effective role in the country’s sustainable development, whilst tangibly proving itself to be a responsible and caring citizen of the community in which it operates. The Hudson Group continues to support a number of different local initiatives aimed at improving the quality of life of the local communities it supports.
Remuneration Statement
In terms of the Company’s Memorandum and Articles of Association, it is the shareholders of the Company in the General Meeting who determine the maximum annual aggregate remuneration of the independent, non-executive directors. The independent, non-executive directors received €25,875 in aggregate for services rendered during 2021.
No part of the remuneration paid to the independent, non-executive directors is performance based. None of the directors, in their capacity as a Director of the Company, is entitled to profit sharing, share options or pension benefits.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
8
Corporate Governance – Statement of Compliance - continued
Non-compliance with the Code
Other than as stated below, the Company has fully implemented the principles set out in the Code.
Principle 7 - Evaluation of the Board’s performance
At present, the Board does not consider it necessary to appoint a committee to carry out a performance evaluation of its role as the Board’s performance is always under the scrutiny of the Company’s shareholders.
Principle 8 - Nomination Committee and Remuneration Committee
The Board believes that the setting up of a nomination committee is currently not suited to the Company as envisaged by the spirit of the Code as decisions on such matters are taken by the shareholders of its parent company Hudson Holdings Limited. A remuneration committee for the executive directors exists at Hudson Holdings level.
Principle 10 – Institutional Shareholders
The Company is ultimately privately held and has no institutional shareholders, therefore, Principle 10 does not, at present, apply to the Company.
Approved by the Board of directors on 28 April 2022.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
9
Statements of financial position
As at 31 December
Group
Company
Notes
2021
2020
2021
2020
€
€
€
€
ASSETS
Non-current assets
Intangible assets
4
4,390,188
1,202,227
-
-
Property, plant and equipment
5
4,674,278
3,485,967
-
-
Right-of-use assets
6
20,826,098
16,422,289
-
-
Investment in subsidiaries
7
-
-
22,400,000
16,400,000
Deferred tax assets
8
953,773
1,034,564
-
-
Financial assets at amortised cost
9
6,213,631
6,914,219
10,460,537
11,640,444
Total non-current assets
37,057,968
29,059,266
32,860,537
28,040,444
Current assets
Inventories
10
5,447,210
3,493,670
-
-
Trade and other receivables
11
8,936,649
6,719,036
172,012
4,130
Cash and cash equivalents
12
7,508,826
4,111,047
1,833,434
770,928
Total current assets
21,892,685
14,323,753
2,005,446
775,058
Total assets
58,950,653
43,383,019
34,865,983
28,815,502
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
10
Statements of financial position – continued
As at 31 December
Group
Company
Notes
2021
2020
2021
2020
€
€
€
€
EQUITY AND LIABILITIES
Capital and reserves
Share capital
13
16,450,000
16,450,000
16,450,000
16,450,000
Other reserve
14
(15,994,856)
(15,994,856)
-
-
Capital contribution reserve
15
6,000,000
-
6,000,000
-
Retained earnings
6,101,998
5,066,615
76,435
90,360
Total equity
12,557,142
5,521,759
22,526,435
16,540,360
Non-current liabilities
Borrowings
18
13,439,875
11,971,108
11,878,488
11,849,889
Lease liabilities
16
18,102,109
15,087,442
-
-
Total non-current liabilities
31,541,984
27,058,550
11,878,488
11,849,889
Current liabilities
Trade and other payables
17
10,995,220
9,238,050
426,067
408,318
Lease liabilities
16
2,555,155
1,477,942
-
-
Borrowings
18
710,902
71,816
-
-
Current tax liabilities
590,250
14,902
34,993
16,935
Total current liabilities
14,851,527
10,802,710
461,060
425,253
Total liabilities
46,393,511
37,861,260
12,339,548
12,275,142
Total equity and liabilities
58,950,653
43,383,019
34,865,983
28,815,502
The notes on pages 15 to 49 are an integral part of these financial statements.
The financial statements on pages 9 to 49 were approved and authorised for issue by the Board of Directors on 28 April 2022. The financial statements were signed on behalf of the Company’s Board of Directors by Alfred Borg (Director) and George Amato (Director) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report 2021.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
11
Statements of comprehensive income
Year ended 31 December
Group
Company
Notes
2021
2020
2021
2020
€
€
€
€
Revenue
19
43,074,617
30,128,888
-
-
Cost of sales
20
(28,976,265)
(21,092,462)
-
-
Gross profit
14,098,352
9,036,426
-
-
Operating and administrative expenses
20
(11,443,960)
(7,909,538)
(77,174)
(68,530)
Net impairment losses on financial
and contract assets
20
15,636
(1,577,022)
-
-
Other income
21
60,535
137,286
-
-
Operating profit/(loss)
2,730,563
(312,848)
(77,174)
(68,530)
Income from investments
-
-
-
-
Finance income
24
399,612
445,574
647,901
647,900
Finance costs
25
(1,442,708)
(1,386,904)
(550,596)
(550,596)
Profit/(loss) before tax
1,687,467
(1,254,178)
20,131
28,774
Income tax credit/(expense)
26
(652,084)
371,227
(34,056)
(31,547)
Profit /(loss) for the year
1,035,383
(882,951)
(13,925)
(2,773)
The notes on pages 15 to 49 are an integral part of these financial statements.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
12
Statements of changes in equity
Group
Share
Capital
Other
Retained
capital
contribution
reserves
earnings
Total
Note
€
€
€
€
€
Balance 1 January 2020
16,450,000
-
(15,994,856)
5,949,566
6,404,710
Comprehensive income
Loss for the year
-
-
-
(882,951)
(882,951)
Balance at
31 December 2020
16,450,000
-
(15,994,856)
5,066,615
5,521,759
Balance
1 January 2021
16,450,000
-
(15,994,856)
5,066,615
5,521,759
Comprehensive income
Profit for the year
-
-
-
1,035,383
1,035,383
Transactions
with owners
Capital contribution
-
6,000,000
-
-
6,000,000
Balance at
31 December 2021
16,450,000
6,000,000
(15,994,856)
6,101,998
12,557,142
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
13
Statements of changes in equity – continued
Company
Share
Capital
Other
Retained
capital
Contribution
reserves
earnings
Total
Note
€
€
€
€
€
Balance as at
1 January 2020
16,450,000
-
-
93,133
16,543,133
Comprehensive income
Loss for the year
-
-
-
(2,773)
(2,773)
Balance at
31 December 2020
16,450,000
-
-
90,360
16,540,360
Balance as at
1 January 2021
16,450,000
-
-
90,360
16,540,360
Comprehensive income
Loss for the year
-
-
-
(13,925)
(13,925)
Transactions with owners
Capital contribution
-
6,000,000
-
-
6,000,000
Balance at
31 December 2021
16,450,000
6,000,000
-
76,435
22,526,435
The notes on pages 15 to 49 are an integral part of these financial statements.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
14
Statements of cash flows
Year ended 31 December
Group
Company
2021
2020
2021
2020
Notes
€
€
€
€
Cash flows from operating activities
Cash generated from/(used in) operations
28
5,797,604
4,534,335
(225,399)
(88,989)
Interest paid on lease liabilities
25
(844,187)
(753,254)
-
-
Interest paid on borrowings
25
(598,521)
(605,054)
(550,596)
(550,596)
Interest received
24
399,612
445,574
647,901
647,900
Income tax paid
(130,834)
4,773
(15,999)
(45,513)
Net cash generated from/(used in)
operating activities
4,623,674
3,626,374
(144,093)
(37,198)
Cash flows from investing activities
Purchases of property, plant
and equipment
5
(1,152,442)
(865,055)
-
-
Receipts from loans and receivables
700,000
-
1,178,000
-
Net cash acquired upon acquisition
32,840
-
-
-
Net cash (used in)/generated from
investing activities
(419,602)
(865,055)
1,178,000
-
Cash flows from financing activities
Proceeds from borrowings
1,878,599
149,540
28,599
28,593
Repayment of borrowings
(69,030)
-
-
-
Principal elements of lease payments
(2,914,146)
(1,562,285)
-
-
Net cash (used in)/generated from
financing activities
(1,104,577)
(1,412,745)
28,599
28,593
Movement in cash and cash equivalents
3,099,495
1,348,574
1,062,506
(8,605)
Cash and cash equivalents at the
beginning of the year
4,067,550
2,718,976
770,928
779,533
Cash and cash equivalents at end of
year
12
7,167,045
4,067,550
1,833,434
770,928
Non-cash investing activities relating to the settlement of a business combination entered into by the Group and Company during the year ended 31 December 2021 is disclosed in note 31 to these financial statements.
The notes on pages 14 to 49 are an integral part of these financial statements.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
15
Notes to the financial statements
1.Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
1.1 Basis of preparation
The consolidated financial statements include the financial statements of Hudson Malta p.l.c. and its subsidiaries and are prepared in accordance with the requirements of International Financial Reporting Standards (IFRSs) as adopted by the EU and with the requirements of the Maltese Companies Act (Cap. 386).
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates. It also requires Directors to exercise their judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 3.
The financial statements have been prepared under the historical cost convention.
Standards, interpretations and amendments to published standards effective in 2021
In 2021, there were no amendments to existing standards that were mandatory for the Group and Company to be adopted for the accounting period beginning on 1 January 2021.
Standards, interpretations and amendments to published standards that are not yet adopted
Certain new standards, amendments and interpretations to existing standards have been published by the date of authorisation for issue of these financial statements but are mandatory for the Group’s accounting periods beginning after 1 January 2021. The Group and Company have not early adopted these revisions to the requirements of IFRSs as adopted by the EU and the Group and Company’s directors are of the opinion that there are no requirements that will have a possible significant impact on the Group and Company’s financial statements in the period of initial application.
1.2 Consolidation
(a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group 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. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
16
1.Summary of significant accounting policies - continued
1.2 Consolidation - continued
(a) Subsidiaries - continued
In the Company’s separate financial statements, investments in subsidiaries are accounted for by the cost method of accounting, i.e. at cost less impairment. Cost includes directly attributable costs of the investment. Provisions are recorded where, in the opinion of the directors, there is an impairment in value. Where there has been an impairment in the value of an investment, it is recognised as an expense in the period in which the diminution is identified. The results of subsidiaries are reflected in the Company’s separate financial statements only to the extent of dividends receivable. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss.
(b) Business combinations
The Group applies the acquisition method of accounting to account for business combinations that fall within the scope of IFRS 3. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed (identifiable net assets) in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets.
Goodwill is initially measured as the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired. If this is less than the fair value of the identifiable net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.
Business combinations between entities under common control, which do not fall within the scope of IFRS 3, are accounted for using the predecessor method of accounting. Under the predecessor method of accounting, assets and liabilities are incorporated at the predecessor carrying values, which are the carrying values of assets and liabilities of the acquired entity from the consolidated financial statements of the highest entity that has common control and for which consolidated financial statements are prepared. When the controlling party does not prepare consolidated financial statements because it is not a parent company, the financial statements amount of the acquired entity are used.
No new goodwill arises in predecessor accounting, and any difference between the consideration given and the aggregate book value of the assets and liabilities (as of the date of transaction) of the acquired entity, is include in equity in a separate reserve. The financial statements incorporate the acquired entity’s results only from the date on which the business combination between entities under common control occurred.
Under both methods of accounting, upon consolidation, inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
17
1.Summary of significant accounting policies - continued
1.2 Consolidation - continued
(b) Business combinations - continued
When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
1.3 Foreign currency translation
(a) Functional and presentation currency
Items included in these financial statements are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in euro, which is the Group’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or cost’. All other foreign exchange gains and losses are presented in the income statement within ‘other income/(expense)’.
1.4 Intangible assets
(a)Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the company's cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
18
1.Summary of significant accounting policies - continued
1.4 Intangible assets
(b)Trademarks
Separately acquired trademarks are shown at historical cost. Trademarks and licences acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and licences have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licences over their estimated useful lives of 15 to 20 years.
(c)Supplier relationships
Supplier relationships acquired in a business combination are recognised at fair value at the acquisition date. Supplier relationships have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of supplier relationships over their estimated useful lives of 15 years.
1.5 Property, plant and equipment
Property, plant and equipment, is stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
Depreciation is calculated on the straight-line method to allocate the cost of the assets to their residual values over the shorter of their estimated useful life, or the property lease term in the case of improvements to premises, as follows:
%
Improvement to premises
10
Motor vehicles
20
Furniture, fixtures and other equipment
10 - 25
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses on disposals are determined by comparing the proceeds with carrying amount and are recognised within ‘Other operating income’ in the statement of comprehensive income.
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount (Note 1.7).
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
19
1.Summary of significant accounting policies - continued
1.6 Leases
The Group is the lessee
At inception of a contract, an entity shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
•fixed payments (including in-substance fixed payments), less any lease incentives receivable;
•variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
•amounts expected to be payable by the Group under residual value guarantees;
•the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
•payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
The Group leases various properties. Rental contracts are typically made of fixed periods but may have extension options to renew the lease after the original period as described below. Lease terms are negotiated on an individual basis and contain a range of different terms and conditions. The lease agreements do not impose any covenants. Leased assets may not be used as security for borrowing purposes.
Extension and termination options are included in the property leases. These terms are used to maximise operational flexibility in respect of managing contracts. The extension and termination options held are exercisable only by the Group and not by the respective lessor. In respect of the property lease arrangements, the extension periods have been included in determining lease term of the respective arrangement.
The table below describes the nature of the Group’s leasing activities by type of right-of-use asset (ROU) recognised on the balance sheet:
ROU asset
No of ROU assets leased
Range of remaining lease term (years)
Average remaining lease term (years)
Average extension option considered (years)
No of leases with extension options
No of leases with option to purchase
No of leases with termination options
Properties
31
1 - 15
7
5 - 7
31
-
31
Some property leases contain variable payment terms that are linked to sales generated from a store. For individual stores, up to 100% of lease payments are on the basis of variable payment terms with percentages ranging from 6.5% to 10% of sales. Variable payment terms are used for a variety of reasons, including minimising the fixed costs base for newly established stores. Variable lease payments that depend on sales are recognised in profit or loss in the period in which the condition that triggers those payments occurs.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
20
1. Summary of significant accounting policies - continued
1.6 Leases - continued
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
•where possible, uses recent third-party financing received by the lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;
•uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, where there is no third party financing; and
•makes adjustments specific to the lease, e.g. term, country, currency and security.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
•the amount of the initial measurement of lease liability;
•any lease payments made at or before the commencement date less any lease incentives received; and
•any initial direct costs.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
For leases of properties, the following factors are normally the most relevant:
•If there are significant penalties to terminate (or not extend), the Group is typically reasonably certain to extend (or not terminate);
•If any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain to extend (or not terminate);
•Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
21
1. Summary of significant accounting policies - continued
1.6 Leases - continued
The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.
1.7 Impairment of non-financial assets
Assets that have an indefinite useful life, for example intangible assets, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets, other than goodwill, that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
1.8 Financial assets
1.8.1 Classification
The Group classifies its financial assets in the following measurement categories;
•those to be measured subsequently at fair value (either through OCI or through profit or loss), and
•those to be measured at amortised cost.
The classification depends on the Group’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 OCI. For investments in equity instruments that are not held-for-trading, this will depend on whether the Group 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).
The Group reclassifies debt instruments when and only when its business model for managing those assets changes.
1.8.2 Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the company has transferred substantially all the risks and rewards of ownership.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
22
1. Summary of significant accounting policies - continued
1.8 Financial Assets - continued
1.8.3 Measurement - continued
At initial recognition, the Group 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 the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:
•Amortised 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 amortised 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 recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss.
•FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ 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 recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses).
•Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as separate line item in the statement of profit or loss.
•FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises.
1.8.4 Impairment
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
23
1. Summary of significant accounting policies - continued
1.9 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method and comprises expenditure incurred in acquiring the inventories and other costs incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs to be incurred in marketing, selling and distribution.
1.10 Trade and other receivables
Trade receivables comprise amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment (Note 1.8.4). The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss. When a receivable is uncollectible, it is written off against the allowance account for trade and other receivables. Subsequent recoveries of amounts previously written off are credited against profit or loss.
1.11 Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at face value. In the statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.
1.12 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
1.13 Financial liabilities
The Group recognises a financial liability in its statement of financial position when it becomes a party to the contractual provisions of the instrument. The Group’s financial liabilities, other than derivative contracts, are classified as financial liabilities measured at amortised cost, i.e. which are not at fair value through profit or loss. Financial liabilities not at fair value through profit or loss are recognised initially at fair value, being the fair value of consideration received, net of transaction costs that are directly attributable to the acquisition or the issue of the financial liability. These financial liabilities are subsequently measured at amortised cost. The Group derecognises a financial liability from its statement of financial position when the obligation specified in the contract or arrangement is discharged, is cancelled or expires.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
24
1. Summary of significant accounting policies - continued
1.14 Trade and other payables
Trade payables comprise obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Redeemable preference shares are classified as liabilities. The dividends on these preference shares are recognised in the income statement as interest expense.
1.15 Borrowings
Borrowings are recognised initially at fair value of proceeds received, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period. Borrowing costs are recognised in profit or loss in the period in which they are incurred.
1.16 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
1.17 Provisions
Provisions for legal claims are recognised when the company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
1.18 Current and deferred tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
25
1. Summary of significant accounting policies - continued
1.18 Current and deferred tax - continued
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
1.19 Deferred government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions. Government grants related to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs they are intended to compensate.
Government grants related to assets, i.e. in respect of the purchase of property, plant and equipment, are included in liabilities as deferred government grants, and are credited to profit or loss on a straight line basis over the expected lives of the related assets, presented within ‘Other operating income’.
Grants related to income are presented as a deduction in reporting the related expense.
1.20 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the company’s activities. Revenue is recognised upon delivery of products or performance of services, and is stated net of sales tax, returns, rebates and discounts.
The Group recognises revenue when the amount of revenue can be reliably measured, when it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the company’s activities as described below.
(a) Sales of goods - wholesale
The Group sells a range of branded consumer products in the wholesale market. Sales of goods are recognised when the Group has delivered products to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the wholesaler’s acceptance of the products. Delivery does not occur until the risks of obsolescence and loss have been transferred to the wholesaler, and the wholesaler has accepted
the products in accordance with the sales contract, the acceptance provisions have lapsed or the company has objective evidence that all criteria for acceptance have been satisfied.
Variability in the transaction price in such arrangements may arise due to a discount given to the distributor based in the event that a certain number of machines are purchased. In such cases, the impact of the variability is taken into account when calculating the transaction price and the revenue recognised per unit delivered reflects such amount.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
26
1.Summary of significant accounting policies - continued
1.20 Revenue recognition - continued
(b) Sales of goods - retail
The Group operates a number of retail outlets for selling branded consumer products. Sales of goods are recognised when a group entity sells a product to the customer. Retail sales are usually in cash or by credit card.
(c) Interest income
Interest income is recognised for all interest-bearing instruments, using the effective interest method, unless collectability is in doubt.
(d) Dividend income
Dividend income is recognised when the right to receive payment is established.
1.21 Dividend distribution
Dividend distribution to the company’s shareholders is recognised as a liability in the Group’s and Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
27
2.Financial risk management
2.1 Financial risk factors
The Group’s activities potentially expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The board of directors provides principles for overall company risk management, as well as policies covering risks referred to above and specific areas such as investment of excess liquidity. The Group did not make use of derivative financial instruments to hedge certain risk exposure ensuring the current and preceding financial years.
(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities which are denominated in a currency that is not the entity’s functional currency. A portion of the company’s purchases and its revenues are denominated in Great Britain Pound (GBP) and United States Dollar (USD).
The Group is not significantly exposed to foreign exchange risk and a sensitivity analysis for foreign exchange risk disclosing how profit or loss and equity would have been affected by changes in foreign exchange rates that were reasonably possible at the end of the reporting period is not deemed necessary.
(ii) Cash flow and fair value interest rate risk
The Group’s interest principally arises from the financial assets at amortised cost (Note 9), the bond listing (Note 18) and intra-group balances (Notes 11 and 17), which have fixed interest rates. In this respect, the Group and Company are potentially exposed to fair value interest rate risk in view of the fixed interest nature of these instruments, which are however measured at amortized cost.
(b) Credit risk
Credit risk arises from cash and cash equivalents, deposits with banks, credit exposures to customers, including outstanding receivables and intra-group balances. The credit quality of the customer is assessed, taking into account its financial position, past experience and other factors. The utilisation of credit limits is regularly monitored.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
28
2.Financial risk management - continued
2.1 Financial risk factors - continued
(b) Credit risk - continued
The maximum exposure to credit risk at the reporting date was:
Maximum exposure
Group
Company
2021
2020
2021
2020
€
€
€
€
As at 31 December
Trade and other receivables (Note 11)
8,661,359
6,488,506
169,487
1,418
Loans receivable (Note 9)
6,213,631
6,914,219
10,460,537
11,640,444
Cash and cash equivalents (Note 12)
7,508,826
4,111,047
1,833,434
770,928
22,383,816
17,513,772
12,463,458
12,412,790
The figures disclosed in the table above in respect of trade and other receivables exclude prepayments and deferred expenditure.
Third party trade and other receivables (including contract assets)
The Group assesses the credit quality of its third party trade customers, the majority of which are unrated, taking into account financial position, past experience and other factors. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. It has policies in place to ensure that sales of services are affected to customers with an appropriate credit history. Standard credit terms are in place for individual clients, however, wherever possible, new corporate customers are analysed individually for creditworthiness before the Group’s standard payment and service delivery terms and conditions are offered. The creditworthiness analysis for new customers includes a review through external creditworthiness databases when available. The Group monitors the performance of its trade and other receivables on a regular basis to identify incurred collection losses, which are inherent in the Group’s debtors, taking into account historical experience in collection of accounts receivable.
The Group is exposed to significant concentration of credit risk with respect to two of its main trading customers amounting to 22.6% (2020: 27.3%) of the total trade receivables. These material exposures are monitored and reported more frequently and rigorously. These customers trade frequently with the respective Group undertaking and are deemed by management to have positive credit standing, usually taking cognisance of the performance history without defaults.
The Group manages credit limits and exposures actively in a practicable manner such that past due amounts receivable from customers are within controlled parameters.
Impairment of third party trade and other receivables (including contract assets)
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
29
2.Financial risk management - continued
2.1 Financial risk factors - continued
(b) Credit risk - continued
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of time before the reporting date and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the tenants to settle the receivables. The Group adjusts the historical loss rates based on expected changes in these factors. The Group’s debtors are principally in respect of transactions with costumers for whom there is no recent history of default. Management does not expect any material losses from non-performance by these customers. On the basis of this analysis and considering that the Group never experienced material defaults from its receivables, no adjustments to impairment provisions on trade receivables were required upon adoption of IFRS 9, as the identified impairment loss is insignificant.
The Group monitors information available on macroeconomic factors, affecting repayment ability, as well as the actual and projected impact of the pandemic on the business model of the customers serviced by the Group. Payment patterns attributable to the Group’s customers post COVID-19 outbreak are thoroughly and regularly assessed to determine whether any deterioration in collection rates is being experienced. The Group determined that the expected credit losses have not materially changed taking cognisance of the projected impact on the repayment ability of the Group’s customers, the repayment pattern actually experienced, and the estimated life of receivables.
Credit loss allowances include specific provisions against credit impaired individual exposures with the amount of the provisions being equivalent to the balances attributable to credit impaired receivables. The individually credit impaired trade receivables mainly relate to independent customers which are in unexpectedly difficult economic situations, and which are accordingly not meeting repayment obligations. In this respect, the group had previously recognised specific impairment provisions in prior years on the basis of objective evidence of such balances being impaired. As a result, the related provision was released in the current year.
As at 31 December 2021, trade receivables for the Group amounting to €149,236 (2020: €185,722) were provided for.
Third party trade and other receivables (including contract assets)
Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group.
Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
30
2.Financial risk management - continued
2.1 Financial risk factors - continued
(b) Credit risk - continued
Cash and cash equivalents
The credit risk for cash and cash equivalents is considered negligible since the counterparties are reputable banks with high quality external credit ratings. While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was insignificant.
Other financial assets at amortised cost
The Group and Company’s other financial assets at amortised cost include loans and other current balances due from group and related undertakings. The Group and Company monitor intra-group credit exposures at individual entity level on a regular basis and ensures timely performance of these assets in the context of its overall liquidity management.
The loss allowances for these financial assets are based on assumptions about risk of default and expected loss rates, taking into consideration the impact of COVID-19 on the financial performance and operations of the respective counterparties. The Group’s management uses judgement in making these assumptions, based on the counterparty’s history, existing market conditions, as well as forward looking estimates at the end of each reporting period.
As at year-end, based on the directors’ assessments of these factors, the equity position of the respective counterparty, and, where the probability of default is high, the recovery strategies contemplated by management and the support of shareholders in place, the resulting expected credit loss allowance required for Group and Company was of €923,825 (2020: €920,818) and €141,463 (2020: €139,556) respectively. Furthermore, during the year, the Group wrote-off balances amounting to €20,851 (2020: €1,117,196), on the basis that these amounts are deemed unrecoverable.
(c) Liquidity risk
The Group is exposed to liquidity risk in relation to meeting future obligations associated with its financial liabilities, which comprise interest-bearing borrowings (Note 18), lease liabilities (Note 16) and trade and other payables (Note 17). Prudent liquidity risk management includes maintaining sufficient cash and committed credit lines to ensure the availability of an adequate amount of funding to meet the Group’s obligations.
The carrying amounts of the Group’s assets and liabilities are analysed into relevant maturity groupings based on the remaining period at the statement of financial position to the contractual maturity date in the respective notes to the financial statements.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
31
2.Financial risk management - continued
2.1 Financial risk factors - continued
(c) Liquidity risk - continued
The following table analyses the Group’s and the Company’s financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances, as the impact of discounting is not significant.
2.
Carrying
Contractual
Within
Two to
More than
Group
amount
cash flows
one year
five years
Five years
€
€
€
€
€
31 December 2021
Lease liabilities
20,657,264
25,852,151
3,426,464
12,690,460
9,735,227
Listed bond
11,878,488
14,610,000
522,000
14,088,000
-
Trade and other payables
10,995,220
10,995,220
10,995,220
-
-
Bank borrowings
2,272,289
2,369,309
748,901
474,612
1,145,796
45,803,261
53,826,680
15,692,585
27,253,072
10,881,023
Carrying
Contractual
Within
Two to
More than
Group
amount
cash flows
one year
five years
Five years
€
€
€
€
€
31 December 2020
Lease liabilities
16,565,384
20,899,153
2,669,746
10,381,513
7,847,894
Listed bond
11,849,889
15,132,000
522,000
2,088,000
12,522,000
Trade and other payables
9,238,050
9,238,050
9,238,050
-
-
Bank borrowings
193,035
211,347
77,479
133,868
-
37,846,358
45,480,550
12,507,275
12,603,381
20,369,894
Carrying
Contractual
Within
Two to
More than
Company
Amount
cash flows
one year
five years
Five years
€
€
€
€
€
31 December 2021
Listed bond
11,878,488
14,610,000
522,000
14,088,000
-
Trade and other payables
426,067
426,067
426,067
-
-
12,304,555
15,03,067
948,067
14,088,000
-
Carrying
Contractual
Within
Two to
More than
Company
Amount
cash flows
one year
five years
Five years
€
€
€
€
€
31 December 2020
Listed bond
11,849,889
15,132,000
522,000
2,088,000
12,522,000
Trade and other payables
408,318
414,320
414,320
-
-
12,258,207
15,546,320
936,320
2,088,000
12,522,000
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
32
Financial risk management - continued
2.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may issue new shares or adjust the amount of dividends paid to shareholders.
The Group monitors the level of capital on the basis of the ratio of aggregated net debt to total capital. Net debt is calculated as total borrowings (as shown in the statement of financial position) less cash and cash equivalents. Total capital is calculated as equity, as shown in the respective statement of financial position, plus net debt.
The figures in respect of the Group’s and Company’s equity and borrowings as at 31 December are reflected below:
Group
Company
2021
2020
2021
2020
Borrowings (Note 18)
14,150,777
12,042,924
11,878,488
11,849,889
Lease liabilities (Note 16)
20,657,264
15,565,384
-
-
Less: cash and cash equivalents (Note 12)
(7,508,826)
(4,111,047)
(1,833,434)
(770,928)
Net debt
27,299,215
23,497,261
10,045,054
11,078,961
Total equity
12,557,142
5,806,182
22,526,435
16,540,360
Total capital
39,856,357
29,303,443
32,571,489
27,619,321
Net debt ratio
68.5%
80.2%
30.8%
40.1%
The Group manages the relationship between equity injections and borrowings, being the constituent elements of capital as reflected above, with a view to managing the cost of capital. The level of capital, as reflected in the consolidated statement of financial position, is maintained by reference to the Group’s respective financial obligations and commitments arising from operational requirements. In view of the nature of the Group’s activities and the extent of debt, the capital level at the end of the reporting period determined by reference to the consolidated financial statements is deemed adequate by the Directors.
3.Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.
In the opinion of the directors, the accounting estimates and judgements made in the course of preparing these financial statements are not difficult, subjective or complex to a degree which would warrant their description as critical in terms of the requirements of IAS 1.
The area which includes significant accounting estimates is the effective date of acquisition of Trilogy Limited and the related purchase price allocation as explained further in Note 31.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
33
4.Intangible assets
Goodwill
Trademarks
Supplier
Relationships
Total
€
€
€
€
At 1 January 2020
1,065,688
138,802
-
1,204,490
Accumulated amortisation
and impairment charges
-
(2,263)
-
(2,263)
At 31 December 2020
1,065,688
136,539
-
1,202,227
At 1 January 2021
1,065,688
136,539
-
1,202,227
Assets taken over on
acquisition (Note 31)
-
-
3,190,224
3,190,224
Accumulated amortisation
and impairment charges
-
(2,263)
-
(2,263)
At 31 December 2021
1,065,688
134,276
3,190,224
4,390,188
Impairment test for goodwill with an indefinite useful life
The Group’s reported goodwill is attributable to business combinations effected in prior years. The Group tests whether goodwill suffered any impairment on an annual basis.
For the purposes of the impairment test, two cash generating units were identified, which comprises the operations of Hudson Malta Sales Ltd (HMS CGU) and Trilogy Limited. The recoverable amount of goodwill has been determined based on value-in-use calculations of the HMS CGU. These calculations use post-tax cash flow projections reflecting the estimates for the years 2021 to 2027 as approved by the Board of Directors.
The key assumptions in the determination of the recoverable amount of the HMS CGU are the levels of forecast EBITDA, capital expenditure, the terminal value growth rates applied to the estimated cash flows beyond the explicit forecast period and the discount rate. Forecast EBITDA levels are based on past experience, adjusted for market developments and industry trends.
The post-tax discount rate applied to in the value-in-use calculation of the HMS CGU was 8.4% (2020: 8.4%) whilst the long-term growth rate applied in the valuation of the residual value was 1.4% (2020: 1.4%). These parameters have been principally based on market observable data.
Group management’s method for determining the values inherent to each significant assumption is based on experience and expectations regarding the performance of the market. It was determined that the recoverable amount is greater than the carrying amount and consequently, no impairment charge was required for 2021.
The carrying amount of the HMS CGU currently exceeds its recoverable amount by €3,641,000. Management has determined that impairment of intangible assets involves critical accounting estimates. The recoverable amount of this CGU would equal its carrying amount if the post-tax discount rate is increased from 8.4% to 14% or projected annual EBITDA is 13% lower.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
34
5.Property, plant and equipment
Group
Furniture,
fittings and
Improvement
Motor
other
to premises
vehicles
equipment
Total
€
€
€
€
Year ended 31 December 2020
Opening balance
374,617
3,530
3,431,954
3,810,101
Additions
650
-
864,405
865,055
Disposals
(100,844)
-
(582,998)
(683,842)
Depreciation charge
(72,320)
(2,353)
(797,211)
(871,884)
Depreciation released on disposals
80,549
-
285,988
366,537
Closing net book amount
282,652
1,177
3,202,138
3,485,967
At 31 December 2020
Cost
340,308
19,346
4,896,862
5,256,516
Accumulated depreciation
(57,656)
(18,169)
(1,694,724)
(1,770,549)
Net book amount
282,652
1,177
3,202,138
3,485,967
Year ended 31 December 2021
Opening balance
282,652
1,177
3,202,138
3,485,967
Additions
125,474
-
1,026,968
1,152,442
Disposals
(231,689)
-
(2,408,858)
(2,640,547)
Assets taken over
on acquisition (Note 31)
577,185
-
791,493
1,368,678
Depreciation charge
(42,431)
(1,176)
(1,047,075)
(1,090,682)
Depreciation released on disposals
54,151
(1)
2,344,270
2,398,420
Closing net book amount
765,342
-
3,908,936
4,674,278
At 31 December 2021
Cost
811,278
19,346
4,306,465
5,137,089
Accumulated depreciation
(45,936)
(19,346)
(397,529)
(462,811)
Net book amount
765,342
-
3,908,936
4,674,278
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
35
6.Right-of-use assets - Group
The statement of financial position reflects the following assets relating to leases:
Property Leases
Total
€
€
Year ended 31 December 2020
Opening net book value
18,590,907
18,590,907
Additions
484,014
484,014
Disposals
(115,277)
(115,277)
Lease modifications
(242,495)
(242,495)
Amortisation charge
(2,410,137)
(2,410,137)
Amortisation released on disposal
115,277
115,277
Closing net book amount
16,422,289
16,422,289
Year ended 31 December 2021
Opening net book value
16,422,289
16,422,289
Assets taken over
on acquisition (Note 31)
5,792,142
5,792,142
Additions
2,027,439
2,027,439
Disposals
(1,093,271)
(1,093,271)
Lease modifications
(32,788)
(32,788)
Amortisation charge
(2,684,227)
(2,684,227)
Amortisation released on disposal
394,514
394,514
Closing net book amount
20,826,098
20,826,098
The statement of profit or loss shows the following amounts relating to leases:
2021
2020
€
€
Depreciation charge of right-of-use assets
2,684,227
2,410,137
Interest expense (Note 16)
844,187
753,254
Expense relating to variable lease payments not included in lease
liabilities (included in administrative expenses)
587,541
481,224
Rent rebates in relation to COVID-19 (Note 16)
(331,068)
(465,033)
3,784,887
3,179,582
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
36
7.Investment in subsidiaries
Company
2021
2020
€
€
At 1 January
16,400,000
16,400,000
Additions (Note 31)
6,000,000
-
At 31 December
22,400,000
16,400,000
The principal subsidiaries at 31 December are shown below:
Subsidiaries
Registered office
Percentage of shares
directly held by company
Group
Company
2021
2020
Hudson House,
100%
100%
Burmarrad Road,
Hudson Malta Sales Ltd (formerly known as Time International (Sport) Limited)
Burmarrad,
St. Paul’s Bay,
Malta
Hudson International Company Limited
Hudson House,
-
100%
(merged into Hudson Malta Sales Limited
Burmarrad Road,
on 14 March 2021)
Burmarrad,
St. Paul’s Bay,
Malta
Trilogy Limited
Hudson House,
100%
-
(Note 31)
Burmarrad Road,
Burmarrad,
St. Paul’s Bay,
Malta
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
37
8.Deferred tax assets
Group
Company
2021
2020
2021
2020
€
€
€
€
At beginning of the year
1,034,564
749,524
-
-
(Charged)/credited to the income statement
(80,791)
285,040
-
-
At end of year
953,773
1,034,564
-
-
Deferred income taxes are calculated on all temporary differences under the liability method using a principal tax rate of 35%.
The balance at 31 December represents temporary differences on:
Group
Company
2021
2020
2021
2020
€
€
€
€
Provision on receivables
350,782
357,445
-
-
Depreciation of property, plant and
equipment
320,514
515,195
-
-
Temporary differences on leases
282,477
161,924
-
-
953,773
1,034,564
-
-
9. Financial assets at amortised cost
Group
Company
2021
2020
2021
2020
€
€
€
€
Loans receivable from subsidiaries
-
-
4,302,000
4,780,000
Loans receivable from group
companies
6,300,000
7,000,000
6,300,000
7,000,000
Less: credit loss allowance in line with
IFRS 9
(86,369)
(85,781)
(141,463)
(139,556)
6,213,631
6,914,219
10,460,537
11,640,444
Group
Company
2021
2020
2021
2020
€
€
€
€
Non-current portion
6,213,631
6,914,219
10,460,537
11,640,444
Loans receivable from subsidiaries and group undertakings bear interest at 5.5% and are repayable by 2026. These balances are guaranteed by group undertakings.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
38
10.Inventories
Group
Company
2021
2020
2021
2020
€
€
€
€
Goods held for resale
5,447,210
3,493,670
-
-
Inventory is stated at net of write-downs of €456,327 (2020: €442,957). Write-downs to net realisable value have been charged to profit and loss and are included within ‘Cost of sales’ in the statement of comprehensive income.
11.Trade and other receivables
Group
Company
2021
2020
2021
2020
€
€
€
€
Trade receivables
2,714,017
2,396,816
-
1,418
Less: credit loss allowance
(149,236)
(185,722)
-
-
-
Trade receivables - net
2,564,781
2,211,094
-
1,418
Amounts owed by parent
3,756,756
2,126,330
63,425
-
Amount owed by subsidiaries (net of
provisions)
-
-
106,062
-
Amount owed by related undertakings
(net of provisions)
2,261,989
1,918,774
-
-
Other receivables
77,833
232,308
-
-
Prepayments and contract assets
275,290
230,530
2,525
2,712
8,936,649
6,719,036
172,012
4,130
Amounts owed by subsidiaries and group undertakings bear interest at 4% per annum (2020: 4.00%).
Amounts owed by parent, subsidiaries and related undertakings at Group and Company level are stated at net of provision as per table below:
Group
Company
2021
2020
2021
2020
€
€
€
€
Provision on amounts owed by parent company
42,053
25,786
1,100
-
Provision on amounts owed by related undertakings
795,403
809,251
808
-
837,456
835,037
1,908
-
The remaining amounts are unsecured, interest-free and repayable on demand.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
39
12.Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following:
Group
Company
2021
2020
2021
2020
€
€
€
€
Cash at bank and in hand
7,508,826
4,111,047
1,833,434
770,928
Bank overdrafts (Note 18)
(341,781)
(43,497)
-
-
7,167,045
4,067,550
1,833,434
770,928
13.Share capital
Group and Company
2021
2020
€
€
Authorised, Issued and fully paid
16,450,000 ordinary 'A' shares of €1.00 each
16,450,000
16,450,000
16,450,000
16,450,000
The holders of the ‘A’ shares rank ‘pari passu’ in all respects. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.
14.Other reserves
Group
2021
2020
€
€
Acquisition reserves
Other reserves at beginning and end of year
15,994,856
15,994,856
15.Capital contribution reserves
Group
Company
2021
2020
2021
2020
€
€
€
€
Capital contributions (Note 31)
6,000,000
-
6,000,000
-
6,000,000
-
6,000,000
-
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
40
16. Lease liabilities
Group
2021
2020
€
€
Non-current
18,102,109
15,087,442
Current
2,555,155
1,447,942
20,657,264
16,565,384
2021
2020
€
€
At beginning of the year
16,535,384
18,339,356
Amounts taken over on acquisition (note 31)
4,820,005
-
Additions
1,893,809
484,014
Lease modifications
(142,535)
(230,668)
COVID-19 lease concessions
(331,068)
(465,033)
Disposals
(48,372)
-
Interest expense (Note 25)
844,187
753,254
Payments effected
(2,914,146)
(2,315,539)
20,657,264
16,565,384
Included in the lease liabilities for properties are amounts of €7,785,848 (2020: €8,747,035) which are attributable arrangements with the ultimate parent, of which €6,747,664 (2020: €7,672,965) are non-current amounts.
Most extension options in property leases have been included in the lease liability.
The contractual undiscounted cash flows attributable to lease liabilities as at 31 December are analysed in Note 2.1(c).
As a result of the COVID-19 pandemic, rent concessions have been granted to lessees. Such concessions might take a variety of forms, including payment holidays and deferral of lease payments. In May 2020 and March 2021, the IASB made an amendment to IFRS 16 - Leases which provides lessees with an option to treat qualifying rent concessions in the same way as they would if they were not lease modifications. The Group has applied this practical expedient for all qualifying lease concessions and, as a result, has accounted for such concessions as variable lease payments in the period in which they are granted.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
41
17. Trade and other payables
Group
Company
2021
2020
2021
2020
€
€
€
€
Trade payables
6,217,930
4,550,326
20,332
-
Amounts owed to parent
-
389,301
-
-
Amounts owed to related undertakings
812,592
757,557
-
-
Indirect taxation
2,427,712
2,552,695
3,000
3,000
Other payables
381,353
99,856
-
-
Accruals and deferred income
1,155,633
888,315
402,735
405,318
10,995,220
9,238,050
426,067
408,318
The amounts owed to the parent, related undertakings and related party are unsecured, repayable on demand and bear interest at 4% per annum (2020: 4.00%).
18.Borrowings
Group
Company
2021
2020
2021
2020
€
€
€
€
Non-current
Bond loan
11,878,488
11,849,889
11,878,488
11,849,889
Bank loan
1,561,387
121,219
-
-
13,439,875
11,971,108
11,878,488
11,849,889
Current
Bank overdrafts
341,781
43,497
-
-
Bank loan
369,121
28,319
-
-
710,902
71,816
-
-
Total borrowings
14,150,777
12,042,924
11,878,488
11,849,889
The Bond of €12,000,000 is repayable by 2026, bears interest at 4.35%, payable annually in arrears on 6 April of each year and is stated at net of unamortised bond issue costs of €121,512 (2020: €150,108).
The Group’s bank borrowings relate to loans carrying an effective interest rate of 4% and repayable within 5 years from initial drawdown. Furthermore, the Group has unutilised overdraft facilities as at 31 December 2021 amounting to €1,972,000. The overdraft facilities carry floating interest rates averaging 4.00%.
The Group also has an invoice financing arrangement with a local financial institution allowing for a prepaid facility for pre-selected receivable balances up to a maximum of €850,000 and a foreign exchange facility amounting to €425,000.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
42
18.Borrowings - continued
During 2020, the Group successfully applied for loans through the COVID-19 Guarantee Scheme supported by the Malta Development Bank (MDB) amounting to €1,850,000 repayable within five years from initial drawdown and carries interest of 2.5% plus 3-month EURIBOR. In line with the Malta Development Bank COVID-19 Guarantee Scheme, this loan will benefit from a subsidy of 2.4% for the first two years. These facilities were drawn down during the financial year ending 31 December 2021.
19.Revenue
Group
Company
2021
2020
2021
2020
€
€
€
€
Retail
32,541,788
21,707,249
-
-
Wholesale
10,532,829
8,421,639
-
-
43,074,617
30,128,888
-
-
Revenue represents the amounts receivable for goods sold during the year, net of any indirect taxes.
20.Expenses by nature
Group
Company
2021
2020
2021
2020
€
€
€
€
Purchases of goods for resale
26,050,449
19,129,743
-
-
Franchise fees (Royalties)
1,290,234
1,122,971
-
-
Other direct expenses
1,635,582
839,748
Employee benefit expense (Note 22)
3,325,634
2,454,268
-
-
Amortisation of intangible assets (Note 4)
2,263
2,263
-
-
Depreciation of property, plant
and equipment (Note 5)
1,090,682
871,884
-
-
Depreciation of right-of-use assets (Note 6)
2,684,227
2,410,137
-
-
Professional fees
147,649
91,349
47,426
36,872
Rent and common charges
587,541
481,224
-
-
COVID-19 rent rebates (Note 16)
(331,068)
(465,033)
-
-
Movement in expected credit loss
allowance (Note 9,11)
(33,479)
73,997
-
-
Bad debts written-off
20,851
1,503,025
-
-
Management fees
1,832,057
730,504
-
-
Advertising
515,361
293,382
-
-
Bank charges
293,179
198,697
1,966
434
Other expenses
1,293,427
840,863
25,875
31,224
Total cost of sales, operating and
administrative expenses
40,404,589
30,579,022
75,267
68,530
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
43
20.Expenses by nature - continued
Auditor’s fees
Group
Company
2021
2020
2021
2020
€
€
€
€
Annual statutory audit
64,000
36,500
17,000
12,500
Other non-assurance services
2,800
2,350
-
-
Tax compliance services
-
3,000
-
750
66,800
41,850
17,000
13,250
During the current year fees in relation to non-assurance services amounting to €5,830 and €710 have been charged by connected undertakings of the Company’s auditor to the Group and the Company respectively, in respect of tax advisory and compliance services.
21.Other income
Group
Company
2021
2020
2021
2020
€
€
€
€
Other income
60,535
137,286
-
-
22.Employee benefit expense
Group
Company
2021
2020
2021
2020
€
€
€
€
Wages and salaries
3,023,252
2,195,644
-
-
Social security costs
302,382
258,624
-
-
3,325,634
2,454,268
-
-
Wages and salaries are presented net of a payroll grant received from the Government of Malta in view of the COVID-19 pandemic, amounting to €1,045,080 (2020: €988,875). Grants related to income are presented as a deduction in reporting the related expense.
The average number of persons employed by the group during the financial reporting period was:
Group
Company
2021
2020
2021
2020
Operations
33
29
-
-
Retail
255
207
-
-
288
236
-
-
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
44
23.Directors’ emoluments
Group
Company
2021
2020
2021
2020
€
€
€
€
Salaries and other emoluments
33,375
42,000
25,875
24,000
33,375
42,000
25,875
24,000
Directors’ emoluments are inclusive of amounts recharge d from the ultimate parent company.
24.Finance income
Group
Company
2021
2020
2021
2020
€
€
€
€
Interest amounts due from subsidiaries
-
-
262,900
247,500
Interest on amounts from ultimate parent
247,500
306,690
247,500
262,900
Interest from group companies
137,829
138,875
137,501
137,500
Interest on bank balances
14,283
9
-
-
399,612
445,574
647,901
647,900
25. Finance costs
Group
Company
2021
2020
2021
2020
€
€
€
€
Interest payable on bond
522,000
522,000
522,000
522,000
Amortisation of bond issue costs
28,596
28,596
28,596
28,596
Bank interest and charges
35,656
67,280
-
-
Interest on amounts due to group companies
12,269
15,774
-
-
Interest charges on lease liabilities
(Note 16)
844,187
753,254
-
-
1,442,708
1,386,904
550,596
550,596
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
45
26.Tax expense / (credit)
Group
Company
2021
2020
2021
2020
€
€
€
€
Current tax expense/(credit)
571,293
(63,143)
34,057
31,547
Losses surrendered to group company
-
(23,044)
-
-
Deferred tax credit (Note 8)
80,791
(285,040)
-
-
652,084
(371,227)
34,057
31,547
The tax on the Group’s and Company’s profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows:
Group
Company
2021
2020
2021
2020
€
€
€
€
Profit/(loss) before tax
1,687,467
(1,254,178)
20,131
28,774
Tax at 35%
590,614
(438,962)
7,046
10,071
Tax effect of:
Unrecognised deferred tax in prior year
(1,829)
131,395
-
-
Over provision of current tax in prior year
-
(94,689)
-
-
Expenses and provision not allowable for
tax purposes
63,299
32,271
27,010
21,476
Other
-
(1,242)
-
-
Tax expense/(credit)
652,084
(371,227)
34,056
31,547
27. Dividends
No dividends were declared and pai d to shareholders in 2021 and 202 0.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
46
28. Cash generated from operations
Reconciliation of operating (loss)/profit to net cash generated from operations:
Group
Company
2021
2020
2021
2020
€
€
€
€
Operating profit/(loss)
2,730,563
(312,848)
(77,174)
(68,530)
Adjustments for:
Amortisation of intangible assets (Note 4)
2,263
2,263
-
-
Depreciation on property, plant and
equipment (Note 5)
1,090,682
871,884
-
-
Depreciation right-of-use assets (Note 6)
2,684,227
2,410,137
-
-
Loss on disposal of property, plant and
equipment
242,127
317,305
-
-
COVID-19 rent rebates (Note 16)
(331,068)
(465,033)
-
-
Lease modifications (Note 6 and 16)
(109,747)
11,827
-
-
Movement in expected credit loss
allowance
(33,479)
73,997
1,908
-
Bad debts written off
20,851
1,503,025
-
-
Changes in working capital:
Inventories
(274,468)
406,564
-
-
Trade and other receivables
(982,508)
1,558,900
(167,882)
(1,965)
Trade and other payables
758,161
(1,843,686)
17,749
(18,494)
Cash generated from/(used in) operations
5,797,604
4,534,335
(225,399)
(88,989)
29.Contingent liabilities
As at 31 December 2021, the Group provided third parties with guarantees amounting to €3,395,148 (2020: €2,907,839).
The Group’s bank facilities disclosed in note 18 are mainly secured by first general hypothecs and guarantees over the Hudson Malta p.l.c Group and Hudson Holdings Group’s assets.
As part of the deal to acquire Trilogy Limited, the Group agreed to pay a contingent consideration to the former shareholders based on target equity value of Hudson Holdings Limited for the five years subsequent to effective acquisition date. The agreed maximum contingent consideration is €1,650,000 and as of 31 December 2021 the management has determined that the value of the contingent consideration is €Nil (note 31).
30. Related party transactions
The Company and its subsidiaries have a related party relationship with Hudson Holdings Limited, the ultimate controlling parent (Note 32) and all related entities ultimately controlled or significantly influenced by Hudson Holdings Limited.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
47
30. Related party transactions - continued
In the ordinary course of its operations, the company sells goods to companies forming part of the group for trading purposes. The following transactions were entered into with related parties during the financial reporting period:
Group
Company
2021
2020
2021
2020
€
€
€
€
Revenue
Sales - related parties
2,945,498
2,113,857
-
-
Interest income - related parties (Note 24)
385,329
306,690
647,901
647,900
Expenses
Cost of sales - related parties
462,528
1,289,356
-
-
Finance costs - related parties (Note 25)
12,269
15,774
-
-
Management fees - parent
1,832,057
730,504
-
-
Year-end balances with related parties are disclosed in Notes 9, 11, 16 and 17 to these financial statements.
Included in the disposals of right-of-use assets (Note 6) are balances amounting to €636,727 which were disposed following a sub-lease agreement entered into by Hudson Malta Sales Ltd (a subsidiary of the Company) and Trilogy Limited, prior to the effective date of acquisition as further detailed in Note 31. Therefore, the lease liabilities with related parties acquired on acquisition amounting to €645,659 (Note 31) represents the corresponding lease liability of Trilogy Limited with Hudson Malta Sales Limited, which liability, is subsequently eliminated at acquisition date.
31. Business combinations
On 30 December 2021, Hudson Holdings Limited legally acquired Trilogy Limited in exchange for 15% of shares in Hudson Holdings Limited and a contingent consideration based on the targeted equity value of Hudson Holdings Limited for the five years subsequent to effective acquisition date. As at the date of acquisition, the value of the 15% equity stake in Hudson Holdings Limited was determined to be fair valued at €6,000,000, whilst management has determined that the fair value of the contingent consideration as at date of acquisition is €Nil. In any case, the maximum contingent consideration payment is €1,650,000 (Note 29).
Subsequent to the legal acquisition on 30 December 2021 mentioned above, Hudson Holdings Limited transferred its equity stake in Trilogy Limited, to Hudson Malta p.l.c. for a consideration of €6,000,000 which will be settled by way of an issue of shares to Hudson Holdings Limited. The legal effective date of the transfer of shares of Trilogy Limited from Hudson Holdings Limited to Hudson Malta p.l.c. was 31 December 2021, with the allotment of shares taking place in April 2022 (Note 33). However, during the financial year ending 31 December 2021, management had already started integrating the operations of Trilogy Limited into the Group, and as a result, management have concluded that effective management and control of Trilogy Limited was taken-over by Hudson Holdings Limited and consequently Hudson Malta p.l.c. on 1 July 2021. In this regard, management considers that the effective acquisition date is 1 July 2021.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
48
31. Business combinations - continued
The following table summarises the consideration paid, the restated fair value of the assets acquired and the liabilities assumed at the effective acquisition date:
Total
€
Fair value of non-cash consideration as at 1 July 2021
6,000,000
Recognised amounts of identifiable assets acquired and liabilities assumed:
Property, plant and equipment
1,368,678
Intangible assets:
- Supplier relationships
3,190,224
Right-of-use assets
5,792,142
Other non-current assets
-
Deferred tax assets
-
Inventories
1,679,071
Trade receivables
536,609
Cash and cash equivalents
60,419
Lease liabilities
(5,465,664)
Borrowings
(27,579)
Trade payables
(999,010)
Current tax liabilities
(134,890)
Total identifiable net assets
6,000,000
Goodwill
-
Total net assets acquired
6,000,000
In view that the no cash consideration was paid as part of the acquisition, the net cash inflows upon acquisition represent cash and cash and equivalents of €60,419 held by the entity as at date of acquisition.
32. Statutory information
Hudson Malta is a public limited liability company and is incorporated in Malta.
The ultimate parent company of Hudson Malta p.l.c., is Hudson Holdings Limited, a company registered in Malta with its registered address at Hudson House, Burmarrad Road, Burmarrad. St. Paul’s Bay SPB 9060 Malta.
The financial statements of Hudson Malta p.l.c. are included in the consolidated financial statements prepared by Hudson Holdings Limited.
HUDSON MALTA PLC
Annual Financial Report - 31 December 2021
49
33. Events subsequent to the end of the reporting period
Allotment of shares in Hudson Malta p.l.c to Hudson Holdings Limited
In April 2022, Hudson Malta p.l.c increased its authorised and issued share capital by 6,000,000 Ordinary Shares of a nominal value of €1 each. These 6,000,000 Ordinary shares were allotted to Hudson Holdings Limited in consideration for the shares held in Trilogy Limited as described in note 31. As a result of this transaction, Hudson Holdings Limited gains an additional €6,000,000 issued share capital in Hudson Malta p.l.c bringing its total to €22,449,999 out of the total paid up share capital of €22,450,000.

Independent auditor’s report

To the Shareholders of Hudson Malta P.L.C.

Report on the audit of the financial statements

Our opinion

In our opinion:

● The Group financial statements and Parent Company financial statements (the “financial statements”) give a true and fair view of the Group and the Parent Company’s financial position of Hudson Malta P.L.C. as at 31 December 2021, and of the Group’s and the Parent Company’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the EU; and

● The financial statements have been prepared in accordance with the requirements of the Maltese Companies Act (Cap. 386).

##### Our opinion is consistent with our additional report to the Audit Committee.

##### What we have audited

Hudson Malta P.L.C.’s financial statements comprise:

● the Consolidated and Parent Company statements of financial position as at 31 December 2021;

● the Consolidated and Parent Company statements of comprehensive income for the year then ended;

● the Consolidated and Parent Company statements of changes in equity for the year then ended;

● the Consolidated and Parent Company statements of cash flows for the year then ended; and

● the notes to the financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

##### Independence

We are independent of the Group and the Parent Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) together with the ethical requirements of the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act (Cap. 281) that are relevant to our audit of the financial statements in Malta. We have fulfilled our other ethical responsibilities in accordance with these Codes.

To the best of our knowledge and belief, we declare that non-audit services that we have provided to the parent company and its subsidiaries are in accordance with the applicable law and regulations in Malta and that we have not provided non-audit services that are prohibited under Article 18A of the Accountancy Profession Act (Cap. 281).

The non-audit services that we have provided to the parent company and its subsidiaries, in the period from 1 January 2021 to 31 December 2021, are disclosed in note 20 to the financial statements.

Our audit approach

#####

##### Overview

| ● Overall group materiality: €430,000, which represents 1% of total consolidated revenue
● The audit carried out by the group engagement team covered the parent and its two subsidiaries.
● Recoverability of group balances for the Group and Parent Company ● Accounting implications of the Trilogy Limited acquisition for the Group

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

#####

##### Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Overall group materiality | €430,000
How we determined it | 1% of total consolidated revenue
Rationale for the materiality benchmark applied | We chose total consolidated revenue as the benchmark because, in our view, it is the appropriate measure for this type of entity. We chose 1% which is within the range of materiality thresholds that we consider appropriate.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €43,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

#### Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter | How our audit addressed the Key audit matter
Recoverability of group balances for the Group and Parent Company As at 31 December 2021, loans and receivables with related party undertakings amounted to €6.2m for the Group and €10.5m at Parent Company level, as disclosed in Note 9. In addition, as disclosed in Note 11, further current receivables with related party undertakings amounted to €6m for the Group. As explained in accounting policy 1.8.4 and note 2.1(b), Hudson Malta P.L.C. assesses its expected credit losses on a forward looking basis in accordance with IFRS 9. The loss allowances for these financial assets are based on assumptions about risk of default and expected loss rates. The Group’s management uses judgement in making these assumptions, based on the counterparty’s history, existing market conditions, as well as forward looking estimates at the end of each reporting period. We have given additional attention to this area because of the nature and magnitude of these balances. | We agreed the terms of the loans to supporting loan agreements. We assessed the financial soundness of the subsidiary guarantor (being the guarantor of the bond) and Hudson Holdings Limited, the ultimate parent. In doing this, we made reference to the latest audited financial statements, management accounts, and other relevant information made available to us. In addition, we understood and evaluated the workings and assumptions underlying the assessment for the loss allowances under IFRS 9. Based on evidence and explanations obtained, we concur with management’s view with respect to the recoverability of these balances.
Accounting implications of the Trilogy Limited acquisition for the Group As disclosed in Note 31, Hudson Holdings Limited acquired Trilogy Limited in exchange for 15% of shares in Hudson Holdings Limited and a contingent consideration based on targeted equity value of Hudson Holdings Limited for the five years subsequent to effective acquisition date. As at the date of acquisition, the value of the 15% equity stake in Hudson Holdings Limited was determined to be fair valued at €6m, whilst management has determined that the fair value of the contingent consideration as at date of acquisition is €Nil. Subsequent to the legal acquisition on 30 December 2021 mentioned above, Hudson Holdings Limited transferred its equity stake in Trilogy Limited, to Hudson Malta p.l.c. for a consideration of €6m which will be settled by way of an issue of shares to Hudson Holdings Limited. The effective date of acquisition was deemed to be 1 July 2021 and consequently the results of Trilogy Limited for the period 1 July 2021 to 31 December 2021 were included in the consolidated statement of comprehensive income. As part of the purchase price allocation, supplier relationships amounting to €3.2m were recognised in the Group’s statement of financial position. Group’s management used judgement in making these assumptions, including the valuation of the consideration, the effective acquisition date and the purchase price allocation. We have given additional attention to this area because of the nature and magnitude of these balances. | We obtained a copy of the signed share purchase agreement entered into by Hudson Holdings Limited and the agreement for the subsequent transfer of shares from Hudson Holdings Limited to Hudson Malta P.L.C. and understood the terms of the acquisition and subsequent transfer. We reviewed workings prepared by management and documentation to support the value allocated to the 15% shareholding in Hudson Holdings Limited. We also performed an independent assessment to obtain comfort on the fair value of the contingent consideration. We also applied an element of stress-testing to the calculations supporting the valuation of the contingent consideration. We held discussions with management to understand the rationale for the determination of the effective acquisition date and reviewed documentation supporting key judgements used in determining the effective acquisition date. We reviewed the purchase price allocation report . For the purposes of the consolidated financial statements we understood and challenged the rationale for the allocation of the intangible assets identified in the exercise as well as the rationale for the useful life allocated to the asset. Based on evidence and explanations obtained, we concur with management’s view with respect to the accounting implications of the Trilogy Limited acquisition.

How we tailored our group audit scope

The Group is composed of 3 components: Hudson Malta P.L.C. (the parent company) and its two wholly owned subsidiaries. We tailored the scope of our audit in order to perform sufficient work on all components to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

The group audit team performed all of this work by applying the overall Group materiality, together with additional procedures performed on the consolidation. This gave us sufficient appropriate audit evidence for our opinion on the Group financial statements as a whole.

Other information

The directors are responsible for the other information. The other information comprises the Directors’ report and Corporate Governance – Statement of Compliance (but does not include the financial statements and our auditor’s report thereon).

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon except as explicitly stated within the Report on other legal and regulatory requirements.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

#### Responsibilities of the directors and those charged with governance for the financial statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs as adopted by the EU and the requirements of the Maltese Companies Act (Cap. 386), and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent Company’s internal control.

● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

● Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s or the Parent company’s ability to continue as a going concern. In particular, it is difficult to evaluate all of the potential implications that COVID-19 will have on the Group’s and the Parent company’s trade, customers and suppliers, and the disruption to their business and the overall economy.

● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6

We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (the “ESEF Directive 6”) on the Annual Financial Report of Hudson Malta P.L.C. for the year ended 31 December 2021, entirely prepared in a single electronic reporting format.

Responsibilities of the directors

The directors are responsible for the preparation of the Annual Financial Report, including the consolidated financial statements and the relevant mark-up requirements therein, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.

Our responsibilities

Our responsibility is to obtain reasonable assurance about whether the Annual Financial Report, including the consolidated financial statements and the relevant electronic tagging therein, complies in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.

Our procedures included:

● Obtaining an understanding of the entity's financial reporting process, including the preparation of the Annual Financial Report, in accordance with the requirements of the ESEF RTS.

● Obtaining the Annual Financial Report and performing validations to determine whether the Annual Financial Report has been prepared in accordance with the requirements of the technical specifications of the ESEF RTS.

● Examining the information in the Annual Financial Report to determine whether all the required taggings therein have been applied and whether, in all material respects, they are in accordance with the requirements of the ESEF RTS.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the Annual Financial Report for the year ended 31 December 2021 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.

Other reporting requirements

The Annual Financial Report 2021 contains other areas required by legislation or regulation on which we are required to report. The Directors are responsible for these other areas.

The table below sets out these areas presented within the Annual Financial Report, our related responsibilities and reporting, in addition to our responsibilities and reporting reflected in the Other information section of our report. Except as outlined in the table, we have not provided an audit opinion or any form of assurance.

Area of the Annual Financial Report 2021 and the related Directors’ responsibilities | Our responsibilities | Our reporting
Directors’ report The Maltese Companies Act (Cap. 386) requires the directors to prepare a Directors’ report, which includes the contents required by Article 177 of the Act and the Sixth Schedule to the Act. | We are required to consider whether the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. We are also required to express an opinion as to whether the Directors’ report has been prepared in accordance with the applicable legal requirements. In addition, we are required to state whether, in the light of the knowledge and understanding of the Company and its environment obtained in the course of our audit, we have identified any material misstatements in the Directors’ report, and if so to give an indication of the nature of any such misstatements. | In our opinion: ● the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and ● the Directors’ report has been prepared in accordance with the Maltese Companies Act (Cap. 386). We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.
Corporate Governance – Statement of Compliance The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare and include in the Annual Financial Report a Statement of Compliance with the Code of Principles of Good Corporate Governance within Appendix 5.1 to Chapter 5 of the Capital Markets Rules. The Statement’s required minimum contents are determined by reference to Capital Markets Rule 5.97. The Statement provides explanations as to how the Company has complied with the provisions of the Code, presenting the extent to which the Company has adopted the Code and the effective measures that the Board has taken to ensure compliance throughout the accounting period with those Principles. | We are required to report on the Statement of Compliance by expressing an opinion as to whether, in light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have identified any material misstatements with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5, giving an indication of the nature of any such misstatements. We are also required to assess whether the Statement of Compliance includes all the other information required to be presented as per Capital Markets Rule 5.97. We are not required to, and we do not, consider whether the Board’s statements on internal control included in the Statement of Compliance cover all risks and controls, or form an opinion on the effectiveness of the Company’s corporate governance procedures or its risk and control procedures. | In our opinion, the Statement of Compliance has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority. We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.
| Other matters on which we are required to report by exception We also have responsibilities under the Maltese Companies Act (Cap. 386) to report to you if, in our opinion: ● adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us. ● the financial statements are not in agreement with the accounting records and returns. ● we have not received all the information and explanations which, to the best of our knowledge and belief, we require for our audit. We also have responsibilities under the Capital Markets Rules to review the statement made by the directors that the business is a going concern together with supporting assumptions or qualifications as necessary. | We have nothing to report to you in respect of these responsibilities.

Other matter – use of this report

Our report, including the opinions, has been prepared for and only for the Parent Company’s shareholders as a body in accordance with Article 179 of the Maltese Companies Act (Cap. 386) and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior written consent.

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Appointment

We were first appointed as auditors of the Company upon incorporation on 10 November 2017 for the financial period ended 31 December 2018. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 4 years. The parent company became listed on a regulated market on 2 May 2018.

PricewaterhouseCoopers

78, Mill Street

Zone 5, Central Business District

Qormi

Malta

Lucienne Pace Ross

Partner

28 April 2022