Company Presentation September 2003 1
Brands Page The Brands at a Glance 3 The BOSS Brand 5 The HUGO Brand 11 The BALDESSARINI Brand 15 Vision and Core Competencies 18 Financial Developments 2002 23 First Half Developments 2003 38 The BOSS Shops 44 Forecast 2003 54 Appendix 58 2
The Brands at a Glance Sales 2002 974.8 EUR mill. Average sustainable growth rate 4% p.a. * Market Core brand Business driven, innovative fashion Entry to luxury market High margins 98.2 EUR mill. 20.4 EUR mill. 6-8% p.a. 2-4% p.a. * only BOSS Man Fashion brand Fashion driven, cutting edge and trendy Entry to luxury market Luxury brand Quality and handicraft driven 3
HUGO BOSS 2002 Net sales EUR 1,093 million (-0.1% vs. prev. year, currency adj. +1.3%) Net profit EUR 75 million (-30.6% vs. prev. year) Free Cashflow EUR 61 million (prev. year EUR -47 million) Market presence in 108 countries 581 HUGO BOSS Shops in 70 countries achieve 26% of net sales (prev. year: 520 Shops achieve 25% of net sales) Market presence with own showrooms in 16 countries 4
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BOSS (Man) Net sales EUR 938 million (-0.3% vs. prev. year) Sales split - Business wear 59% (1995: 71%) - Leisure wear 41% (1995: 29%) 13% worldmarket share in high-end Men's Apparel Market 4,300 Points of Sale in 108 countries 442 BOSS Man Shops and 39 BOSS Man & Woman Shops in 70 countries BOSS Shops achieve 26% of BOSS Man sales 6
BOSS (Woman) Net sales EUR 37 million (-23.7% vs. prev. year) 527 Points of Sale in 49 countries 64 BOSS Woman Shops and 39 BOSS Man & Woman Shops in 30 countries BOSS Shops achieve 57% of BOSS Woman sales 7
BOSS (Woman) Integration of the BOSS Woman business in the existing HUGO BOSS organization is completed Redirection of fashion statement, fitting, quality, production and logistical structure on track Achieving break-even in the second half of 2003 8
Brand Extension Fragrances Bodywear Watches 1984 1989 1994 1995 1996 1999 2000 2001 2002 Eyewear Shoes Leather Accessories 9
Brand Extension Product is: Innovative Quality Leading Menswear / Womenswear Price is: Competitive Affordable Value for money Place is: Business-driven Casual-driven Metropolitan Promotion is: Innovative / Proactive Young Sporty / Class 10
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HUGO Net sales EUR 98 million (+15.8% vs. prev. year) Sales growth - HUGO Man 14% - HUGO Woman 21% Sales split - HUGO Man 72% - HUGO Woman 28% 860 HUGO Man Points of Sale and 360 HUGO Woman Points of Sale in 44 countries 34 HUGO Shops in 14 countries HUGO Shops achieve 16% of HUGO sales 12
Brand Extension Fragrances Eyewear 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Shoes Bodywear 13
Brand Extension Product is: Innovative / Trendy Young / Emotional Leading New Menswear / New Womenswear Price is: Competitive Affordable Value for money Place is: Fashion-driven Metropolitan Emotional Promotion is: Innovative / Proactive / Cutting Edge Aggressive / Young Music / Movie / Party 14
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BALDESSARINI Net sales EUR 20 million (0% vs. previous year) 140 Points of Sale in 32 countries 2 BALDESSARINI Shops and presence in 23 BOSS Shops BOSS / BALDESSARINI Shops achieve 44% of BALDESSARINI sales 16
Brand Extension Product is: Handicraft Luxury Leading Top Menswear Price is: Competitive Value for money Place is: Quality-driven Metropolitan Emotional Promotion is: Proactive Young Class 17
Vision and Core Competencies 18
Vision "Consumers and Retailers appreciate HUGO BOSS as the leading international high-end menswear / womenswear company." We outperform constantly in the areas of Product Leadership Market Intimacy Operational Excellence - Distinct, innovative fashion statement - Value for money products - Strong links to customers in all markets - Know-how, superior business systems and processes to understand and manage the markets - Reliable production and logistic performance - Competitive cost structure in production 19
Key Drivers for Future Growth Today Tomorrow Menswear Menswear / Womenswear Wholesale Wholesale / Retail Fashion - 2 Seasons Concept Fashion - 4 Seasons Concept / Replenishment 20
Future Strategy 1. Further increase of market share. 2. Maintain current market and price positioning. 3. Balancing brand between accessibility and exclusivity. 4. Further improvement of delivery performance. 5. Improve the competitive positioning of certain product groups. 6. Further developing our competence in sportswear. 7. Increase the number of BOSS Shops. 8. Continue to address the special needs and requirements of the US market. 21
Strategic targets 2003 BOSS Woman - Achieve break-even in H2 / 2003 - Further improve fitting and collection statement Season Concept Retail - Logistical change - Replenishment - Development of IT-systems supporting multiple seasons concept - Improve merchandising 22
Financial Developments 2002 23
Net Sales Development 1989-2002 1,400 1,200 1,095 1,093 1,000 923 800 684 753 600 452 471 510 486 433 438 461 509 581 400 200 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Development 4% 8% -5% -11% 1% 5% 10% 14% 18% 10% 23% 19% 0% German GAAP (HGB) International Accounting Standards (IAS) 24
Net sales by brand 2002 2001 Change EUR mill. EUR mill. in % BOSS 974.8 989.5 (1) Man 937.8 941.0 0 Woman 37.0 48.5 (24) HUGO 98.2 84.8 16 BALDESSARINI 20.4 20.4 0 Total 1,093.4 1,094.7 0 25
Net sales by region 2002 2001 Change 2002 1995 EUR mill. EUR mill. in % Prop. of sales in % Germany 275.0 296.6 (7) 25 Rest of Europe 445.4 426.4 4 41 Americas 221.0 251.9 (12) 20 Other regions 87.9 68.5 28 8 Royalties 64.1 51.3 25 6 Total 1,093.4 1,094.7 0 100 37 33 18 8 4 100 26
Net sales 2002 * by region: Europe (EUR 720 mill.) Rest of the World EUR 308.9 mill. 30% 27% Germany EUR 275.0 mill. Rest of Europe EUR 187.9 mill. 18% Italy EUR 42.7 mill. 4% 4% 7% 10% Netherlands EUR 41.7 mill. UK EUR 71.9 mill. France EUR 101.2 mill. * without royalties 27
Net sales 2002 * by region: The Americas (EUR 221 mill.) Rest of World EUR 808.3 mill. 78% 15% USA EUR 156.6 mill. 1% 4% Canada EUR 38.6 mill. * without royalties Rest of the Americas EUR 4.4 mill. Brazil EUR 6.6 mill. Mexico EUR 14.8 mill. 28
Licences Royalties EUR mill. +25% 64.1 51.3 26% 20% 45% 57% H U G O B O S S 590.9 13% 71% Sales +29% 761.9 10% 77% Textile Bodywear (integr.05/2003) Knitwear (integr. 01/2004) Socks (integr. 07/2003) Cosmetics 29% 2001 23% 2002 16% 2001 13% 2002 Non-Textile Glasses Shoes Watches 29
Net Profit Development 1989-2002 140 120 100 99 108 80 75 60 40 20 18 14 18 23 25 27 30 33 42 50 56 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Development -22% 29% 28% 9% 8% 11% 10% 27% 19% 12% 77% 9% -31% German GAAP (HGB) International Accounting Standards (IAS) Figures 1993, 1996, 2000 and 2001 adjusted for the tax effect of the special dividend (Consolidated Net Profit for: 1993-39.1 EUR Mill. 1996-38.9 EUR Mill. 2000-109.0 EUR Mill. 2001-117.6 EUR Mill. ) 30
Profit and Loss Statement 2002 2001 Change EUR mill. EUR mill. in % Sales 1,093.4 1,094.7 (0) Gross margin 564.9 577.2 (2) in % of sales 51.7 52.7 Operating income 118.6 167.4 (29) Net financial result (4.3) (3.4) (27) Extraordinary items (17.0) (14.4) (18) Taxes on income and other taxes (22.6) (41.9) 46 Net profit -adjusted- 74.7 107.7 (31) Tax effect of the special dividend -.- 9.9 Net profit 74.7 117.6 (37) 31
Development of result 2002 EUR mill. Consolidated net profit 2001 1 Change in gross margin Increase in royalties 13 Effect of sales volume on gross margin (7) Effect from changes in the gross margin percentage (18) Provision for risks and doubtful accounts Logistics, sales, new products, DOS BOSS Woman Marketing 108 (12) (12) (41) 10 6 Deviation of non-recurring items/net result Deviation of income tax and other taxes (4) 20 Consolidated net profit 2002 1 Adjusted for the tax effect of EUR 9.9 million special dividend 75 32
Analysis of Financial Requirements 2002 2001 Change EUR mill. EUR mill. in % Accounts receivables, other assets, 241.8 263.3 (8) balances with factoring companies Inventories 218,1 228.7 (5) Fixed assets 219.5 199.8 10 Trade payables and other liabilities (54.6) (61.4) 11 Accruals, balance of prepaid expenses (87.1) (100.2) 13 and deferred income Net capital invested 537.7 530.2 1 Balance of cash at banks and due to banks 147.0 154.9 (5) Shareholders' equity 390.7 375.3 4 Coverage of net capital invested 537.7 530.2 1 33
Free Cash Flow 2002 2001 Change EUR mill. EUR mill. in % Consolidated net profit 74.7 117.6 (36) Depreciation 32.2 29.4 10 Change of pension accruals (1.8) 3.6 Cash flow 105.1 150.6 (30) Net additions to fixed assets (51.9) (91.6) Changes in remaining net capital invested 14.0 (105.7) Currency exchange and other equity changes (6.2) (0.1) Free cash flow before dividend 61.0 (46.8) Dividend payment (53.1) (93.5) Free cash flow 7.9 (140.3) 34
Free Cash Flow Development 1989-2002 Free Cash Flow 80 60 40 20 0-20 17 3 44 61 19 47 23 19 (3) 34 18 61-40 (47) -60-80 -100 (82) 1989 1990 1991 1992 1993 1994 1996 1996 1997 1998 1999 2000 2001 2002 German GAAP (HGB) International Accounting Standards (IAS) 35
Ratios IAS 2002 2001 Change Earnings per share EUR 1.06 1.53 (31) Operating margin in % 10.8 15.3 Return on sales in % 6.8 10.7 Return on capital employed in % 22.2 33.7 in % 36
Employees by Function Average Employee Numbers 2002 2001 Change in % Production/ Logistics 2,867 2,639 9 thereof own production facilities 2,057 1,902 8 thereof others 810 737 10 Sales/ Creation/ Marketing 1,407 1,161 21 thereof own retail 687 504 36 thereof others 720 657 10 Administration 480 440 9 Total 4,754 4,240 12 37
First Half Developments 2003 38
Net sales by brand January - June 2003 2002 Change EUR mill. EUR mill. in % BOSS 453.0 477.4 (5) Man 431.3 461.3 (7) Woman 21.7 16.1 35 HUGO 46.1 48.1 (4) BALDESSARINI 8.7 9.1 (4) Total 507.8 534.6 (5) 39
Net sales by region January - June 2003 2002 Change EUR mill. EUR mill. in % Germany Rest of Europe Americas Other regions Royalties 128.6 139.9 (8) 224.8 220.3 2 83.2 102.6 (19) 45.5 42.9 6 25.7 28.9 (11) Total 507.8 534.6 (5) 40
Profit and Loss Statement January - June 2003 2002 Change EUR mill. EUR mill. in % Sales 507.8 534.6 (5) Gross margin 261.7 281.0 (7) in % of sales 51.5 52.6 Operating income 54.3 49.1 11 Net financial result (2.0) (1.4) (43) Extraordinary items (1.9) (9.6) 80 Income before taxes 50.4 38.1 32 Taxes on income and other taxes (13.1) (2.9) Consolidated net income 37.3 35.2 6 41
Analysis of Financial Requirements January - June 2003 2002 Change EUR mill. EUR mill. in % Accounts receivable, other assets, 230.6 240.8 (4) balances with factoring companies Inventories 213.9 232.2 (8) Fixed assets 215.6 212.6 1 Trade payables and other liabilities (35.0) (50.5) 31 Accruals, balance of prepaid expenses (82.2) (70.7) (16) and deferred income Net capital invested 542.9 564.4 (4) Balance of cash at banks and due to banks 176.5 207.4 (15) Shareholders' equity 366.4 357.0 3 Coverage of net capital invested 542.9 564.4 (4) 42
Free Cash Flow January - June 2003 2002 Change EUR mill. EUR mill. in % Consolidated net income 37.3 35.2 6 Depreciation 18.3 14.5 26 Change of pension accruals (0.9) (1.4) 36 Cash flow 54.7 48.3 13 Net additions to fixed assets (14.4) (27.2) Changes in remaining net capital invested (8.2) (20.1) 47 59 Currency exchange and other equity changes (8.5) (0.5) Free cash flow before dividend 23.6 0.5 Dividend payout (53.1) (53.1) Free cash flow (29.5) (52.6) 44 43
The BOSS Shops 44
Hamburg Berlin Friedrichstrasse 45
Number of HUGO BOSS Shops 600 500 51 70 81 400 300 200 100 34 16 30 35 136 150 183 220 36 258 37 350 469 511 531 Directly operated Shops Franchise Shops 0 1995 1996 1997 1998 1999 2000 2001 2002 2003E 46
HUGO BOSS Shops by region 2003 FC 2002 2001 2000 Germany 92 85 77 45 Rest of Europe 257 242 212 152 Americas 86 96 92 76 Other regions 177 158 139 114 Total 612 581 520 387 Proportion of group sales in % 28 26 25 21 Thereof HUGO BOSS Shops 81 70 51 37 Proportion of group sales in % 7 6 3 3 47
HUGO BOSS Shops Concentrating on DOS investment, where it generates on-top-of business Developing DOS into a profitable and relevant new business system Gaining a new level of expertise in Supply Chain Management, Retail Know How and Sales Floor Planning 48
HUGO BOSS Shop Minimum requirements Applies to Freestanding Shops only: Terminology: HUGO BOSS Shop Concept: Brand/label specific Net size: 120 sqm for BOSS Man Black Label shop concept Size for additional concepts (label/gender): 60 sqm Entrance area: Merchandise rotation by brand Flooring and lighting: Generic BOSS/HUGO Costs: approx. EUR 2,300 / sqm - Separate entrance for HUGO and/or dedicated window with HUGO facade concept - Entrance logo in absence of separate HUGO entrance: HUGO BOSS 49
HUGO BOSS Shop Singapore (Ngee Ann City) Brands: BOSS Man BOSS Woman HUGO Opening: March 2003 Total net size: 387 sqm HUGO Entrance BOSS Woman BOSS Man 50
HUGO BOSS Shop Tokyo (Roppongi) Brands: BOSS Man BOSS Man Sportswear BOSS Woman HUGO Opening: April 2003 Total net size: 375 sqm Entrance HUGO BOSS Woman BOSS Man 51
Shop Concept Development BOSS Man Orange Label Traveller Minimum requirements Net sales space (nss): 40 sqm Storage space: 20 % of nss Room height: 2.8 meters Display capacity: > 20 pieces / sqm incl. stock capacity (and more possibilities for accessories presentation) 52
Shop Concept Development BOSS Man Orange Label e.g.: Freestanding Shop, Vilamoura (Portugal) - March 2003 53
Forecast 2003 54
Sales and Result Forecast 2003 Sales at previous year's level if exchange rates remain stable The gross margin is expected to grow Net profit expectation: double digit growth 55
Sales at previous year's level at 2002 exchange rates EUR million H U G O B O S S 1.093 1.093 E Sales 2002 Royalties DOS Wholesale Mainly BOSS Woman Sales 2003 currency adjusted 56
Development of results Consolidated net profit 2001 1 2002 EUR mill. 108 2003 EUR mill. 75 Change in gross margin (12) Increase in royalties 13 Effect of sales volume on gross margin (7) Effect from changes in the gross margin percentage (18) Provision for risks and doubtful accounts Logistics, sales, new products, DOS BOSS Woman Marketing (12) (41) 10 6 Deviation of non-recurring items/net result Deviation of income tax and other taxes (4) 20 Consolidated net profit 1 Adjusted for the tax effect of EUR 9.9 million special dividend 75 +10% 57
Appendix 58
Collection Presentation H U G O B O S S The nature of the HUGO BOSS business Stock Order Business Inhouse Orders Production Delivery Sales Stock Business Delivery Sales Orders 30.06.-15.10. May Jun July Aug Sept Oct Nov Dec Jan Feb Mar Apr Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct 59
Development of the Dividend H U G O B O S S EUR mill. 43.9 24.8 28.4 49.5 53.1 53.1 Special Dividend Dividend EUR 1998 1999 2000 2001 2002 Common stock 0.35 0.40 0.70 0.75 0.75 Preferred stock 0.36 0.41 0.707 0.76 0.76 Special dividend - - 0.624 - - 60
Projections inevitably entail risks Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. Any statement in this report that states our intentions, beliefs, expectations or predictions (and the assumptions underlying them) is a forward-looking statement. These statements are based on plans, estimates and projections as they are currently available to the management of HUGO BOSS. Forward-looking statements therefore speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. By their very nature, forward-looking statements involve risks and uncertainties. A number of important factors could therefore cause actual results to differ materially from those contained in any forward-looking statement. 61
Financial Calendar 2003 July 30, 2003 Publication of the Interim Report 2003 September 2, 2003 DVFA-Analysts' Conference November 5, 2003 Publication of the Third Quarter Report 2003 February 19, 2004 Publication of the provisional results 2003 62
HUGO BOSS Webpage - Financial Data Address Contents Languages www.hugoboss.com Annual Report Interim Report Financial Presentations Investor Relations Calendar Stock Prices Press Releases German English 63