Key performance indicators

Focus on long-term maximization of free cash flow

The Group focuses on maximizing free cash flow over the long term in order to increase its enterprise value. Consistently positive free cash flow safeguards the HUGO BOSS Group’s independence and solvency at all times.

Increasing sales and operating profit, defined as EBITDA (earnings before interest, taxes, depreciation and amortization) before special items are the main levers for improving free cash flow. In addition, strict management of trade net working capital and value-oriented investment activities support the development of free cash flow.

Sales and EBITDA before special items the main levers for managing the Group

As a company committed to sustainable growth, HUGO BOSS attaches particular importance to profitable sales growth. All activities for increasing sales are gauged by their potential to generate an increase in adjusted EBITDA and the adjusted EBITDA margin (ratio of EBITDA before special items to sales) in the long term.

Focus on increasing productivity and cost discipline

EBITDA before special items is a key driver of the free cash flow and has therefore been defined as the most important performance indicator. Productivity gains in the Group’s own retail business are seen as the main lever for increasing the adjusted EBITDA margin (selling space productivity). In addition, the Group is seeking to achieve efficiency gains and to accelerate business processes by digitizing its business model. Generally speaking, costs are to increase at a slower rate than sales without curtailing future growth potential. Group Strategy

Management of the Group companies is directly responsible for ensuring profitable business growth. The short-term variable compensation of managers of the Group companies and central divisions is tied to the achievement of the goals defined for sales and EBITDA before special items.

For HUGO BOSS, trade net working capital is the most important performance indicator for managing the efficient deployment of capital.

Active management of efficient capital deployment

Management of inventories as well as trade receivables is the responsibility of the Group companies and the responsible operative central divisions. The latter are also responsible for managing trade payables. These three items of the balance sheet are managed by reference to days inventories outstanding, days sales outstanding and days payables outstanding. As well as this, there is a specific approval process for the purchase of inventories for the Group’s own retail business in the interests of inventory optimization. In addition to future sales quotas, this process also takes account of projected discounting levels and expected sales growth.

Alongside sales and EBITDA before special items, the ratio of trade net working capital to sales is the third component in the short-term variable compensation payable to managers at the HUGO BOSS Group. Moreover, the compensation scheme for management at the two levels below the Managing Board includes a long-term incentive program (LTI) that corresponds to that of the Managing Board. Compensation Report

Capex focuses on the Group’s own retail business and digitization

The Group’s capital expenditure focuses on the renovation and modernization of existing retail stores, selective new openings, cross-channel integration of the Group’s own retail activities and the digitization of key activities along the entire value chain. There is a specific authorization process for key investment projects. Apart from qualitative analyses, e.g. with respect to potential store locations, this also includes an analysis of each project’s present value. Financial Position, Capital Expenditure

Free cash flow primarily used to fund the dividend distribution

The free cash flow generated by the Group is primarily used to fund the dividend distribution. Between 60% and 80% of net income is to be distributed to the shareholders on a regular basis. Any liquidity available over and above this is used to further decrease financial liabilities or retained as a cash reserve. The Group analyzes its balance sheet structure at least once a year to determine its efficiency and ability to support future growth and to simultaneously provide sufficient security in the event that business performance falls short of expectations. In addition to net financial position or rather net financial liabilities, this analysis also takes account of future rental obligations.