HUGO BOSS AG

Management of the central functions influences the results of HUGO BOSS AG

HUGO BOSS AG is the parent company of the HUGO BOSS Group. The annual financial statements of HUGO BOSS AG are prepared in accordance with the rules set down in the HGB [“Handelsgesetzbuch”: German Commercial Code]. The results of HUGO BOSS AG are influenced by the management of the central functions in particular. The main line items in this regard are the allocation of costs for services rendered to Group companies and the investment income resulting from the holding function of HUGO BOSS AG. The business development of HUGO BOSS AG is subject for the most part to the same risks and opportunities as those applicable to the HUGO BOSS Group. Due to its integration with the Group’s companies and its importance within the Group, the expectations for HUGO BOSS AG are for the most part reflected in the Group’s forecast. The previous versions therefore apply to both the HUGO BOSS Group and to HUGO BOSS AG.

Earnings development

Sales increase of HUGO BOSS AG

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

Sales with third parties in the Europe region rose by 3% last year to EUR 510 million (2016: EUR 496 million).

Gross profit margin decreases by 100 basis points

In addition to the higher sales with third parties in Europe, it was primarily higher sales with subsidiaries in the Americas that resulted in increased sales in the past fiscal year. Gross profit was unchanged over the prior-year period. In addition to currency effects, the reduction in sales prices in Asia made last year contributed to a decline in the gross profit margin in particular.

Increase in general administrative expenses

The slight increase in distribution expenses mainly reflects higher cost for logistics. The general administration expenses mainly comprise personnel expenses, rent for premises, lease expenses, amortization and depreciation as well as various IT costs. The increase results primarily from higher year-on-year cost allocations and services rendered to HUGO BOSS AG and from greater amortization due to IT investments in prior years.

The other operating income remained stable in comparison to the prior year and mainly resulted from the cost allocations and services rendered to affiliated companies. The other operating expenses essentially include research and development costs, bad debt allowances and exchange rate effects. In the previous year, the settlement claims of affiliated companies in particular resulted in a temporary increase in this item.

Decline in investment result

The income from investments in affiliated companies was 5% below the prior-year level. Income from investments amounting to EUR 92 million (2016: EUR 91 million) mainly concerns the net income of HUGO BOSS Trade Mark Management GmbH & Co. KG, which is transferred to the loan account of HUGO BOSS AG as limited partner in accordance with the partnership agreement. Income from profit and loss transfer agreements with subsidiaries amounted to EUR 122 million (2016: EUR 136 million) and resulted from the transfer of profit from HUGO BOSS Internationale Beteiligungs-GmbH, Metzingen. In the fiscal year 2017, this company received dividend income from HUGO BOSS Holding Netherlands B.V.

Mainly as a result of temporary differences, the tax rate of 14% was below the rate of the prior year (2016: 16%).

Net assets and financial position

Slight increase in property, plant and equipment and intangible assets in the reporting period

The property, plant and equipment and intangible assets increased 1% year-on-year to EUR 860 million (December 31, 2016: EUR 854 million). This was due to investments in the IT infrastructure in connection with the continuous further development of the ERP system and of own online stores. In addition to investments in the Metzingen site, in fiscal year 2017 the company invested in the modernization of the retail network in Germany and Austria.

Significant decrease in trade net working capital

The decrease in inventory essentially results from lower stock levels for finished goods due primarily to delivery cycles that differed from those of the previous year. HUGO BOSS AG is a supplier for the Group’s global distribution companies. This decrease in trade receivables was due to a declining wholesale business. The trade payables recorded a slightly higher volume-driven increase year-on-year. The trade net working capital was consequently significantly down on the prior-year level at year-end.

The receivables from affiliated companies sustained a substantial decrease to EUR 56 million (December 31, 2016: EUR 150 million). The liabilities due to affiliated companies decreased by 27% and came to EUR 337 million at year-end (December 31, 2016: EUR 459 million). The decrease in these two balance sheet items is primarily attributable to intercompany financial balancing.

Provisions decreased by 25% to EUR 96 million (December 31, 2016: EUR 127 million). In the previous year, provisions for claims for compensation to affiliated companies in particular resulted in a temporary increase in this item.

Cash and cash equivalents of HUGO BOSS AG at prior-year level

As of December 31, 2016, cash and cash equivalents, as the sum of cash on hand and bank balances, stood at EUR 2 million. Cash inflow from ongoing operating activities was at the prior-year level. The main cash outflows arose in connection with the company’s investment activity and from the dividend payment for fiscal year 2016. At EUR 179 million, this was below the level of the prior year (2016 for 2015: EUR 250 million).