Annual Report 2022

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HUGO BOSS is subject to a variety of external risks, mainly in connection with macroeconomic, political, and social developments, as well as environmental and health aspects.

Macroeconomic risks

As a global company, HUGO BOSS is exposed to macroeconomic risks in terms of global economic trends. This means that an economic downturn might lead to a decline in demand for premium and luxury goods, which can have a negative impact on the Company’s sales and earnings performance. Economic effects can occur globally as well as regionally, and may influence each other.

In order to reduce the impact of economic volatility, HUGO BOSS aims to further balancing its global footprint as part of its “CLAIM 5” strategy. The Group continuously monitors the macroeconomic environment as well as relevant industry developments in order to identify risks at an early stage and be able to react as quickly as possible. Internal early indicators are analyzed regularly to allow a forecast of the impact of potential macroeconomic risks. Possible responses to a cyclical downturn in demand include, in particular, reducing production and sourcing activity, stricter managing trade net working capital, increasing cost controlling, and implementing price adjustments. Group Management, Group Strategy, “Organize for Growth”

In its publication in January 2023, the IMF anticipates global growth to further slow to 2.9% in fiscal year 2023 (2022: 3.4%; 2021: 6.2%). This forecast reflects ongoing high levels of inflation, tightening financial conditions in most regions, and lasting geopolitical tensions all weighing heavily on the global economic outlook. In particular, the reversal of monetary and fiscal policies aimed at lowering inflation is expected to cool demand in many economies, after having delivered strong stimulus during the pandemic. At the same time, a growing share of economies have been facing a slowdown in growth with the probability of entering a recession mounting up. Consequently, the global economy’s future health rests critically on the successful calibration of monetary policy, the further course of the war in Ukraine, and the further evolution of easing supply chain disruptions. Outlook

Political and social risks

HUGO BOSS is exposed to political and social risks due to the global nature of its business activities. For example, changes in the political and regulatory environment, geopolitical tensions, military conflicts, changes in government, or terrorist attacks can have a negative impact on consumer sentiment. In light of HUGO BOSS’s global business activities, with distribution in more than 130 countries, the Company is naturally hedged against adverse developments in individual markets or regions.

Global uncertainties in the context of political and social developments are expected to remain elevated also in 2023. In this context, the implications of the war in Ukraine, a potential escalation of trade conflicts, or the ongoing threat of terrorist attacks pose a significant risk for the global apparel industry and thus also for the Group’s business development.

In particular, the implications of the war in Ukraine continue to pose a noticeable risk for HUGO BOSS also in 2023. This first and foremost includes potential shortages and further price increases for energy, electricity, and raw materials, which could also result in interruptions of supply chains and energy supplies. In addition, a significant escalation or further expansion of the war beyond Ukraine would increase the risk of a noticeable global economic downturn and consequently have a significant impact on global consumer sentiment, with a potentially negative impact on the sales and earnings development of HUGO BOSS.

Due to its likely increasing importance in the medium term, 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, its global business activities and the future setup of supply chains. This reveals the close link between social risks, industry risks, and the risks associated with suppliers and sourcing markets. In evaluating and managing the risk, the risk owners and risk experts at HUGO BOSS work in interdisciplinary teams on the ongoing analysis and monitoring of current political and social developments and their impact on the Group’s business activity. The central risk management coordinates and supports this process.

Environmental and health risks

The global value chain of HUGO BOSS is subject to environmental and health risks that may result from pandemics or environmental and natural disasters as well as the consequences of climate change.

Besides the potential outbreak of new pandemics, the future course of the COVID-19 pandemic continues to pose a noticeable risk for HUGO BOSS also in 2023. Main uncertainties primarily relate to possible new virus variants and additional waves of infection that might lead to renewed restrictions on public life, including regional lockdown measures. With regard to the latter, there is a risk of renewed temporary store closures in markets important to HUGO BOSS. This is accompanied by the risk that a renewed deterioration in consumer sentiment could have a material impact on business performance, with a negative impact on the Group’s sales, profitability, and cash flow development. In addition, there remain supplier and sourcing market risks connected to the pandemic including renewed shortages in global production and logistics capacity, as well as a related increase in material, production, and freight costs. Amongst others, this could lead to disruptions in the Company’s value chain, thus representing additional sales risks as a result of delayed product availability. As was the case during the peak of the COVID-19 pandemic, we continue to be in close contact with our partners to ensure we are well prepared for any renewed restrictions that may arise. Sourcing and Production, Risk Report, Operational Risks

Risks as a result of climate change, such as increasing water scarcity, are considered as unlikely for fiscal year 2023. In the future, however, these risks could become more significant for the industry and HUGO BOSS alike. In particular, in the long term there is a risk that an increasing scarcity of water could have negative consequences on the cultivation of cotton, leading to a reduced availability of cotton fibers and higher material costs. Cotton is by far the most used material in the products of BOSS and HUGO.

HUGO BOSS has implemented 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 pools cross-functional skills needed to handle emergencies and is intended to ensure efficient coordination with clear decision-making paths.