External risks

Macroeconomic risks

Like any company with global activities, the HUGO BOSS Group is exposed to risks arising from the uncertainty of future developments of macroeconomic conditions. A decisive factor in this context is the development of the global economy, which can lead to reduced demand for apparel and accessories in the premium and luxury segments. Its dependence on consumer behavior exposes the consumer goods industry in general to risks that can impact budgeted sales and/or margins. The effects of macroeconomic developments can occur globally or in individual markets, and can have knock-on effects. However, the advance order intake and the development of the Group’s own retail business, provide the HUGO BOSS Group with early warning indicators that permit a timely forecast of the consequences of potential macroeconomic risks. The HUGO BOSS Group has taken several measures to mitigate the impact of turns in the business cycle. This includes a clear brand profile geared towards the expansion of the market share in a highly competitive environment. A business model designed for international growth also taps the potential of new consumer groups and serves to compensate for potential decreases in demand in individual markets. A further objective is to achieve a balanced distribution of sales across different regions to avoid overdependence on individual markets. Looking at fiscal year 2015, the Group generally expects the continued growth of the global economy and the premium and luxury industry. Adverse macroeconomic developments can have a moderate impact on planned business growth, however, regardless of the measures taken. Management considers the occurrence of this risk as possible because of the continuing uncertainties about the euro debt crisis and the further deterioration of China’s economic prospects. Subsequent Events and Outlook, Outlook

Geopolitical developments

A company with international activities, HUGO BOSS is also exposed to risks in connection with the development of individual sales markets. This risk can be triggered by changes in the political or regulatory environment or by socioeconomic developments. As is the case with any company, the Group’s net assets, financial position and results of operations are exposed to the risk of terrorist activities. In the course of 2014, several, sometimes widely differing regional crises and developments have considerably heightened this risk. The continuing tensions between the West and Russia and the resulting trade restrictions as well as the sharp devaluation of the Russian ruble may have not only a direct impact on the business with Russia, but also indirect effects on further European economic developments and therefore on consumer purchasing behavior. In addition, the global increase in activities by terrorist organizations contains the risk of declining demand in individual markets, particularly large cities affected by attacks. However, global distribution in more than 120 countries at Group level provides a natural hedge against adverse developments in particular countries or regions. No significant changes in the regulatory or sociocultural environment are expected in the HUGO BOSS Group’s key markets. The political situation in the United Kingdom and the possibility of a referendum on EU membership there will be constantly observed over the year to be able to counter any possible negative impact effectively. Unexpected changes in country-specific business conditions in key markets may generally lead to minor financial effects. However, from the Managing Board’s point of view this is currently classed as unlikely due to the measures taken.

Product piracy

Businesses offering high-quality branded articles, particularly in the premium and luxury segment, have always been affected by product piracy. A global increase in the distribution of fake goods is being recorded due to online sales. In addition to legal protection and close collaboration with authorities worldwide, HUGO BOSS has taken far-reaching organizational measures to be able to discover instances of product piracy quickly and pursue them vigorously. The risk of direct sales losses due to fake articles being widely offered is currently evaluated as minor and unlikely. However, in view of the latent risk of downstream image losses, HUGO BOSS constantly reviews developments and will take further protective measures as required.

Environmental and health risks

A global value chain is always subject to a number of risks that may arise due to environmental disasters, epidemics and the consequences of climate change. The unforeseeable wide spread of the Ebola virus in West Africa in 2014 illustrates the risk potential of such events. In order to respond rapidly and adequately to the impact of natural disasters, the HUGO BOSS Group has overhauled the emergency management system at its headquarters and added a special organizational structure that bundles the cross-functional skills needed to master emergencies and guarantees single leadership with clear decision-making paths. Nevertheless, minor effects on target realization cannot be entirely ruled out, although management considers this situation to be unlikely.

Competitive environment

The competition with other premium and luxury goods manufacturers for the trust and loyalty of consumers essentially also means a competition for the best retail selling spaces, highly qualified personnel and presence in the right media. Rising competitive pressure can lead to higher costs or lower sales in increasingly saturated markets. However, the HUGO BOSS Group considers itself to be very well positioned in the international competitive arena, so that the financial impact associated with this risk should not rise above a very low level. The Managing Board currently regards it as unlikely that such an impact will materialize.