HUGO BOSS AG

HUGO BOSS AG is the parent company of the HUGO BOSS Group. Its annual financial statements are prepared in accordance with the rules set out in the HGB [“Handelsgesetzbuch”: German Commercial Code]. The results of HUGO BOSS AG are influenced by the operating business and the management of the central functions in particular. Material items in this regard are the allocation of costs for services rendered to Group companies and the investment income resulting from its holding function. Due to its close relationships with the Group companies and its importance within the Group, the expectations for HUGO BOSS AG are for the most part reflected in the Group’s outlook. The business development of HUGO BOSS AG is also subject for the most part to the same risks and opportunities as those applicable to the Group. Therefore, the statements made regarding the Group in the outlook and the report on risks and opportunities also apply to HUGO BOSS AG. Outlook, Report on Risks and Opportunities

Earnings development

Sales of HUGO BOSS AG primarily comprise external sales with wholesale partners, sales of the own retail business in Germany and Austria as well as intercompany sales with foreign subsidiaries.

In the past fiscal year, higher sales with subsidiaries in Europe and Asia/Pacific more than compensated for a decrease in sales with subsidiaries in the Americas. Sales with third parties in Europe declined 2% to EUR 482 million (2018: EUR 492 million).

The decline in sales for the BOSS brand reflects lower sales with subsidiaries in the Americas. In the case of selling to subsidiaries in Europe and Asia/Pacific, however, BOSS recorded sales growth. The increase in sales from other services is due to additional charges related to intercompany expenses for subsidiaries as part of a consolidation of additional functions at HUGO BOSS AG in fiscal year 2019. Earnings Development, Sales and Earnings Development of the Business Segments

Gross profit was below the prior year level. As a consequence, the gross profit margin also decreased slightly. The decline in distribution expenses mainly reflects additional charges related to intercompany expenses for subsidiaries in fiscal year 2019 as well as lower personnel and marketing expenses. The slight increase in general administrative expenses mainly resulted from higher expenses in connection with changes in the management of the Company. The increase in other operating income compared to the prior year was largely due to higher income from charging costs and services to affiliated companies. The decrease in other operating expenses mainly reflects lower aperiodic expenses in connection with intercompany charges to HUGO BOSS AG. The item primarily includes research and development costs as well as bad debt write-offs and currency effects.

The income from investments in affiliated companies was 7% below the prior year level. At EUR 121 million, the income from affiliates (2018: EUR 113 million) primarily reflects the annual profits of HUGO BOSS Trade Mark Management GmbH & Co. KG, which are credited to the loan account of its limited partner HUGO BOSS AG in accordance with company regulations, as well as the dividend payments of HUGO BOSS Textile Industry Ltd. Income from profit transfer agreements with subsidiaries amounted to EUR 81 million (2018: EUR 104 million) and resulted from a profit transfer from HUGO BOSS Internationale Beteiligungs-GmbH, Metzingen. In fiscal year 2019, this company received dividend income from HUGO BOSS Holding Netherlands B.V.

The increase in the tax rate to 30% (2018: 20%) mainly reflects higher expenses from income taxes in connection with the tax field audit for the years 2012 to 2015, including subsequent effects.

Net assets and financial position

Property, plant and equipment and intangible assets increased 14% to EUR 1,014 million (December 31, 2018: EUR 889 million). The increase is mainly due to the addition of tangible fixed assets as part of the full acquisition of a leasing property company that had previously been under the joint control of the Company and another party. Besides this, capital expenditure at the Metzingen site, particularly for the construction of the largest HUGO BOSS outlet globally, contributed to the increase in property, plant and equipment and intangible assets.

At year-end, trade net working capital was 18% below the prior year level. This is primarily attributable to a decrease in inventory, reflecting the Company’s consistent focus on managing inventories. HUGO BOSS AG is a supplier for the Group’s global distribution companies. As a result of the decline in the Group’s wholesale business in fiscal year 2019, the trade receivables of HUGO BOSS AG at the end of the year were also below the prior year level. Trade payables were roughly on the prior year level.

At EUR 39 million, receivables from affiliated companies at the end of fiscal year 2019 were only slightly below the prior year level (2018: EUR 41 million). As in the prior year, liabilities against affiliated companies amounted to EUR 301 million. During the same period, provisions increased to EUR 156 million (December 31, 2018: EUR 116 million). The increase is related to the tax field audit for the years 2012 to 2015, including subsequent effects. Liabilities due to banks amounted to EUR 97 million at the end of 2019 (2018: EUR 19 million). The increase was driven by the addition of tangible fixed assets as part of the full acquisition of a leasing property company that had previously been under the joint control of HUGO BOSS AG and another party.

As of December 31, 2019, cash and cash equivalents, as the total of cash on hand and bank balances, stood unchanged at EUR 3 million (December 31, 2018: EUR 3 million). Cash inflow from operating activities was above the prior year level. This is largely attributable to improvements in trade net working capital. The main cash outflows arose in connection with the Company’s investment activity and from the dividend payment for fiscal year 2018. At EUR 186 million, the latter was slightly above the prior year level (2018 for fiscal year 2017: EUR 183 million).