Annual Report 2023

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Financial risks at HUGO BOSS mainly include tax risks and currency risks.

Tax risks

As a globally operating Company, HUGO BOSS is subject to a variety of tax laws and regulations. Changes in this area could lead to higher tax expenses and tax payments, and also have an impact on recognized current and deferred tax assets and liabilities. All tax-related issues are regularly analyzed and evaluated by the Group Tax department. The expertise of external local experts such as lawyers and tax advisors is also taken into account.

Tax risks exist for all assessment periods still open. Sufficient provisions were recognized for known tax risks. The amount provided for is based on various assumptions, for example the interpretation of respective legal requirements, the latest court rulings, and the opinion of the authorities, which is used as a basis for measuring the loss amount and its likelihood of occurrence.

The Group Tax department regularly assesses the likelihood of the future usefulness of deferred tax assets that have been recognized on unused tax losses. This assessment takes into account various factors, such as future taxable results in the planning periods, past results, and measures already implemented to increase profitability. HUGO BOSS applies a forecast period of four years for this purpose. Actual figures may differ from the estimates in this regard.

As for taxes, risks may occur primarily from modifications of tax legislation in various countries, due to varying assessments of existing topics by tax authorities or tax field audits. There are also risks in transfer pricing in relation to the business model of the Company. Notes to the Consolidated Financial Statements, Note 5

Currency risks

Due to the global nature of its business activities as well as the Group’s internal financing activities, HUGO BOSS is exposed to currency risks that may have an impact on the Group’s profitability, net income, and equity.

Currency risks are managed centrally by the Group Treasury department. Corporate guidelines form the basis for the management of currency risks, implying the strategic selection and scope of hedging and, at the same time, are intended to ensure strict functional separation of trading, settlement, and control of all financial market transactions. The primary objective is to mitigate currency exposure through natural hedges, which are used to minimize the complexity of the exposure, the scope of hedging measures, and associated costs. In this way, foreign currency exposures from business operations across the Group are to be offset as far as possible. Foreign exchange forwards and swaps as well as plain vanilla options can be used to hedge the remaining exposure. Notes to the Consolidated Financial Statements, Note 22

In the Group’s operating business, currency risks primarily arise due to products being sourced and sold in different currencies at unequal amounts (transaction risk). In particular, HUGO BOSS does not hedge the transaction risk in connection with its global sourcing activities as these are mainly denominated in U.S. dollars with the corresponding exposure being largely offset by means of a natural hedge via the Company’s revenues generated in the U.S. market. Currency risks in financing result mainly occur from financial receivables, liabilities, and loans to finance Group companies (transaction risk). As of the reporting date, the main financing loans were hedged via foreign exchange forwards. In addition, currency risks exist in connection with the translation of financial statements of Group companies outside the eurozone into the Group currency, the euro (translation risk). While the translation risk is monitored on an ongoing basis, the Group does not hedge against it, as the impact on the Group’s statement of financial position and the Group’s income statement is not cash-effective. Notes to the Consolidated Financial Statements, Consolidation Principles

Future cash flows from the Company’s production activities in Turkey nominated in Turkish lira may be hedged by using forward transactions. The corresponding future cash flows are thus designated as an effective hedging relationship recognized on the balance sheet (hedge accounting). As of December 31, 2023, there were no hedging transactions for future cash flows from own production activities in Turkey in place.

In accordance with the requirements of IFRS 7, HUGO BOSS has determined the impact of transaction risk on the Group’s net income and equity based on the balance sheet currency exposure as of December 31, 2023. The exposures include cash, receivables, and liabilities, as well as intercompany loans and deposits held in currencies other than the functional currency of the respective Group company.

HUGO BOSS applies the value-at-risk method to quantify and manage currency risk. In this context, it can be assumed that the total financial currency exposure and its hedging ratio as of the reporting date are representative for the entire reporting period. Due to the method’s limitations, the actual impact on the Group’s net income may deviate from the values determined using the value-at-risk method.

Aggregated across all currencies considered, the diversified portfolio risk for the Group’s net income after hedging amounted to EUR 11 million in fiscal year 2023 (2022: EUR 22 million). Hedging costs and returns for concluding forward exchange transactions are not included. The largest foreign currency exposure results from the balance sheet exposure towards the pound sterling, chinese renminbi, Swiss franc, and Japanese yen.