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. Material 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 links 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. Therefore, the statements made in the Group´s outlook report and its report on risks and opportunities also apply to HUGO BOSS AG. Outlook Report on Risks and Opportunities

Earnings development

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.

Higher sales with subsidiaries in all regions led to an increase in sales in the past fiscal year. Sales with third parties in Europe declined by 3% to EUR 492 million in the past fiscal year (2017: EUR 510 million).

Higher sales of the BOSS brand were more than able to offset a slight decline in HUGO sales. The decline in HUGO sales is due to strategic changes of the distribution network.

Gross profit was below the prior year level. The decline in gross profit margin is attributed largely to investments in product quality.

The increase in distribution expenses is largely due to higher marketing expenses and slightly higher logistics expenses and licensing fees. The increase in general administrative expenses compared to the prior year is mainly related to investments in the digital transformation of the business model. The increase in other operating income was largely due to higher revenues from passing on costs and services to affiliated companies. The increase in other operating expenses is a result of passing on higher intercompany costs to HUGO BOSS AG. The items primarily include research and development costs as well as bad debt write-offs and foreign currency effects.

The income from investments in affiliated companies was slightly above the prior-year level. The income from affiliates at EUR 113 million (2017: EUR 92 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, and the dividend payments of HUGO BOSS Textile Industry Ltd. Income from profit transfer agreements with subsidiaries was EUR 104 million (2017: EUR 122 million) and resulted from a profit transfer from HUGO BOSS Internationale Beteiligungs-GmbH, Metzingen. In fiscal year 2018, this company received dividend income from HUGO BOSS Holding Netherlands B.V.

The tax rate increased to 20% (2017: 14%). This mainly reflects expenses from income taxes relating to other periods of EUR 17 million (2017: EUR 3 million), mainly relating to the recognition of a provision for risks arising from 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 by 3% compared to the prior year, to EUR 889 million (December 31, 2017: EUR 860 million). This was due to investments in the IT infrastructure in connection with the continuous further development of the ERP system and the cross-channel integration and digitalization of the Group’s own retail activities. Also, investments in the Metzingen location, particularly for new construction of the outlet close to the Company’s headquarters, accounted for the increase in investments.

The increase in inventory was largely a result of a higher level of finished goods, which aims at temporarily supporting sales momentum in the Group’s own retail business. HUGO BOSS AG is a supplier for the Group’s global distribution companies. Trade receivables remained stable compared to the prior year. Trade payables recorded a volume-driven increase year-on-year. The latter resulted in trade net working capital at year-end being lower than in the prior year.

Receivables from affiliated companies recorded a 27% decrease in fiscal year 2018, to EUR 41 million (December 31, 2017: EUR 56 million). This was largely due to the transfer of an internal financing loan to HUGO BOSS International B.V. and postponements of intercompany debt conversions. The liabilities due to affiliated companies decreased by 11% respectively and came to EUR 301 million at year-end (December 31, 2017: EUR 337 million). Provisions increased by 20%, to EUR 116 million (December 31, 2017: EUR 96 million). The increase is related to the recognition of a provision for risks arising from the tax field audit for the years 2012 to 2015, including subsequent effects.

Cash and cash equivalents as the sum of cash on hand and bank balances increased slightly to EUR 3 million as at December 31, 2018 (December 31, 2017: EUR 2 million). Cash inflow from operating activities was up on the prior-year level. Material cash outflows arose in connection with the Company’s investment activities and from the dividend payment for fiscal year 2017, which was, at EUR 183 million, slightly higher than in the prior year (2017 for fiscal year 2016: EUR 179 million).