The Managing Board of HUGO BOSS AG has overall responsibility for an effective risk and opportunity management system. On its behalf, the central Risk Management & Internal Controls department coordinates the execution and continuous development of the risk and opportunity management system. In this context, it is responsible for the centrally managed risk and opportunity management process and is in close contact with the respective central departments and Group companies. The relevant risk owners and risk experts are responsible for identifying and evaluating risks, adequately dealing with identified risks, and implementing effective risk mitigation measures. The Supervisory Board of HUGO BOSS is responsible for monitoring the effectiveness of the risk and opportunity management system. This responsibility is exercised by the Audit Committee, with support from the Internal Audit department. In this context, risk and opportunity management at HUGO BOSS is subject to regular internal auditing. As part of the audit of the consolidated financial statements, the external Group auditor assesses the adequacy of the measures for the early identification of risks that could impact the Company’s ability to continue as a going concern.
Group-wide standards for the systematic handling of risks and opportunities form the basis of an efficient risk and opportunity management system. They are set by the Managing Board and documented in the risk and opportunities principles that are applicable throughout the Group and available to all employees on the Company-wide intranet. All employees of HUGO BOSS are obliged to be aware of the risks posed by their behavior, especially regarding those risks that may threaten the going concern of the Group. The use of modern risk and opportunity management software allows for recording and evaluating all identified risks and opportunities, as well as related measures, in a uniform way throughout the Group. As part of the audit of the consolidated financial statements, the external Group auditor assesses the effectiveness of selected internal controls, including IT controls. The risk and opportunity management system of HUGO BOSS is designed in accordance with the international standard ISO 31000.
MAIN FEATURES OF THE RISK AND OPPORTUNITY MANAGEMENT SYSTEM
The risk and opportunity management process at HUGO BOSS consists of four steps: identification, evaluation, handling, and ongoing monitoring and reporting.
To ensure risks and opportunities are identified at the earliest possible stage, the Group continuously monitors the macroeconomic and geopolitical environment, the competitive landscape in the premium and luxury goods industry, and all internal processes. Risk Management & Internal Controls supports all internal risk owners with regular identification and efficient categorization of risks and opportunities using a risk catalog, as well as the risk and opportunity principles that is available in the intranet throughout the Group.
Risk owners delegate the regular evaluation of identified risks and opportunities to the defined risk experts and give their assessment after a thorough evaluation. Risk experts are supported by Risk Management & Internal Controls, which also includes regular training, at least once per year, on risk and opportunities management principles and topic-specific focus areas. Individual risks and opportunities are evaluated by assessing their likelihood of occurrence and systematically analyzing their potential impact on the planned operating result (EBIT). Tax risks and interest rate risks, however, are evaluated based on their potential impact on cash flow. Outlook
Extent of financial impact |
|
Likelihood of occurrence |
||||
|---|---|---|---|---|---|---|
low |
|
≤2.5% |
|
remote |
|
≤10% |
moderate |
|
>2.5–5% |
|
unlikely |
|
>10–25% |
essential |
|
>5–15% |
|
possible |
|
>25–50% |
high |
|
>15–30% |
|
probable |
|
>50–90% |
very high |
|
>30% |
|
certain |
|
>90% |
Individual risks and opportunities are evaluated on the basis of the two dimensions of likelihood of occurrence and potential financial impact. This is intended to create transparency regarding the Company’s current risk and opportunity situation and provide support in prioritizing risks and opportunities. Classification is done by means of summing up all individual risks’ and opportunities’ weighted average of likelihood (likelihood) as well as the weighted averages of the impact scenarios of all individual risks and opportunities (potential financial impact). Net risks and opportunities are defined as the remaining risk or opportunity potential after accounting for the impact of corresponding mitigation measures, whereas gross risks and opportunities represent their initial, unmitigated impact.
Risks and opportunities are treated in accordance with the Company’s risk and opportunity management principles. Preparing and implementing appropriate risk mitigation measures is the responsibility of the respective risk owner. In general, risks are handled in four different ways: risk avoidance, risk reduction, risk transfer to third parties, and risk acceptance. One component of risk management is thus the transfer of risk to insurance companies, which is intended to offset the financial impact of insurable risks as far as possible. The costs of the respective measures in relation to their effectiveness are also taken into consideration when deciding how to implement the respective risk management strategy. In close cooperation with the risk owners, Risk Management & Internal Controls monitors the progress and effectiveness of planned and already implemented measures.
The current status of all identified risks and opportunities is assessed twice a year. However, depending on their extent, some risks or opportunities may be assessed at a higher frequency of up to once a month. As part of the risk monitoring, insights into the latest trends are documented, and risk evaluation as well as risk handling are revised if necessary. The continuous monitoring of early warning indicators is intended to allow possible deviations from the budget to be identified at an early stage. Reporting chains and the adoption of appropriate countermeasures defined in advance aim to ensure a timely response in the event of a risk occurring. Group Management
As part of the regular risk and opportunities reporting, risk owners report all risks and opportunities identified to Risk Management & Internal Controls, including the respective likelihood of occurrence, the potential financial impact, as well as any risk mitigation measures. Risk Management & Internal Controls aggregates the information reported and regularly presents a consolidated report to the Managing Board and the Audit Committee. Substantial individual risks and opportunities are given particular emphasis. When critical or urgent issues arise, the regular reporting process is supplemented by an ad-hoc report.
Assessment of the risk and opportunity situation by the Managing Board
The individual risks are aggregated using two methods to obtain the most accurate possible overview of the total risk position of HUGO BOSS. On the one hand, the expected loss values of all assessed risks are added together. On the other hand, the probability distributions of all identified risks are aggregated to form a single probability distribution for a possible total loss by means of a Monte Carlo simulation and thus determining maximum annual loss values. The simulation encompasses risks of all categories, thus also including non-financial risks. The result of this simulation for fiscal year 2024 shows that, as in the prior year, the Group’s aggregated risk position does not exceed the Company’s risk-capacity threshold with a likelihood of at least 99%.
The implemented risk management system forms the basis for the assessment of the risk and opportunity situation by the Managing Board, which reviews the system on a regular basis. Risks and opportunities with a potential financial impact classified as at least essential are discussed and evaluated by the Managing Board at regular intervals. While the assessment of individual risks and opportunities in fiscal year 2024 has changed, mainly due to the development of external conditions as well as the impact of our own countermeasures, the overall risk situation for HUGO BOSS has not changed significantly as compared to the prior year. In particular, the Managing Board did not identify any individual or aggregate risks that could jeopardize the continuation of the Company as a going concern at the time this report was prepared.