Material external risks
HUGO BOSS is subject to a wide variety of external risks, mainly in connection with macroeconomic, political and social developments as well as environmental and health aspects.
Industry development dependent on global economy
As a global company, HUGO BOSS is exposed to macroeconomic risks in terms of global economic trends. This means that an economic downturn usually results in a decline in demand for premium and luxury goods, which has a negative effect on the sales and earnings growth of the Group. The effects of macroeconomic developments can occur globally as well as limited to one region, and may influence each other.
Continuous monitoring of early indicators ensures responsiveness
In order to reduce the impact of economic fluctuations, HUGO BOSS aims to achieve a balanced distribution of sales between the most important regions. The Group continuously observes macroeconomic trends as well as the industry environment in order to identify risks at an early stage and be able to react to them accordingly by re-aligning its business activities. Internal early indicators are also analyzed regularly, which makes it possible to forecast the impacts of potential macroeconomic risks. Group Management
In addition to reducing production and sourcing activity, some of the possible reactions to a cyclical decline in demand include strictly managing the trade net working capital, increasing cost controlling, price adjustments and the closing of retail stores.
Growth expected for global economy and the industry
Looking at fiscal year 2018, the Group expects continued growth in the global economy. It’s expected that the upper premium segment of the apparel industry will record growth of between 3.5% and 4.5% adjusted for currency effects. Negative macroeconomic developments can have a significant impact on the Group’s sales and earnings growth despite the measures described. Management judges the likelihood of occurrence as possible. Outlook
Political and social risks
Political and social risks can influence consumer behavior
HUGO BOSS is exposed to political and social risks as a result of the global nature of its business activities. For example, changes in the political and regulatory environment, geopolitical tension, military conflicts, changes of government or terrorist attacks can have a negative impact on consumer behavior.
Continuing uncertainties set to shape events in 2018
The Group does not expect uncertainties regarding worldwide political and social developments to decrease in 2018. For example, the continued geopolitical tension in the Middle East, the North Korea conflict or the ongoing risk of terrorist attacks also represent significant risks for the premium and luxury goods industry and so also for the Group’s business development in the coming year.
Brexit negotiations carry risks
There are also risks as a result of the ongoing uncertainty surrounding the Brexit negotiations. The process of leaving the European Union could undermine the confidence of both companies and consumers in Great Britain’s economic prospects, reduce foreign investment in the country and lead to upheaval on global financial markets. A significant decline in consumer confidence in particular and an accompanying decline in customer demand could also have a negative impact on the business of HUGO BOSS. It is also uncertain what form any future tax and customs regulations will take. The Group is therefore keeping a very close eye on the exit process.
HUGO BOSS addresses the increasing significance of political and social risks
Due to its increased significance, HUGO BOSS assesses the risk resulting from political and social changes as an “emerging risk”. It raises strategic questions, for example regarding the influence of demographic changes on consumer behavior and the supply chain. This reveals the close link between the social risk and the industry risk and the risks associated with the suppliers and sourcing markets. In evaluating and handling the risk, the risk experts and risk owners in the Group work in interdisciplinary teams on the ongoing analysis and monitoring of current political and social developments and their influence on the Group’s own business activity. The central risk management coordinates and supports this process.
Diversifying the sales markets reduces country risk
Global distribution in more than 120 countries at Group level provides a natural hedge against adverse developments in individual countries or regions. Unexpected developments in important sales markets can have a significant financial impact. The Management however considers this risk to be unlikely.
Environmental and health risks
Water scarcity has long-term risk potential
The HUGO BOSS Group’s global value chain is subject to environmental and health risks that may result from environmental and natural disasters or pandemics as well as the consequences of climate change. Risks as a result of climate change, such as increasing water scarcity, are classed as unlikely for fiscal year 2018 with low possible loss. In future however this risk will become more significant for HUGO BOSS, meaning that the impact is forecast to be moderate in the medium term. In the long term there is a risk that an increasing scarcity of water either locally or regionally will have negative consequences on the cultivation of cotton, and so may lead to a reduced availability of cotton fibers and higher material costs as a result.
HUGO BOSS has implemented a central emergency management system
HUGO BOSS has a central emergency management system in order to be able to react promptly and appropriately to an environmental or natural disaster occurring. Its structural organization bundles the cross-functional skills needed to handle emergencies and guarantees efficient coordination with clear decision-making paths. Nevertheless, significant impacts on the net assets, financial position and results of operation cannot be entirely ruled out, although Management considers the occurrence of this to be unlikely.