Financial management and financing principles
The core purpose of Group-wide financial management is to secure its strong financial profile, creditworthiness and the related financial stability of the Group. It is systematically geared towards supporting the strategic and operational development of the company. The objective is access at all times to capital and favorable terms of financing.
Central bundling of global financial management
Group-wide financial management comprises cash and liquidity management and the management of market price risks and default risks in addition to corporate finance. At HUGO BOSS, these activities are centrally organized in the corporate treasury department. Global financial management is based on Group-wide principles and guidelines. At the level of the subsidiaries, the finance managers are responsible for compliance with treasury guidelines.
The external financing volume of the HUGO BOSS Group is essentially drawn through HUGO BOSS International B.V. This allows economies of scale to be leveraged and the cost of capital to be optimized. Only in individual cases do Group companies directly agree external financing in consultation with corporate financial management. This is done, for instance, if it is economically advantageous to use local credit and capital markets. If the Group companies enter directly into external loan transactions, HUGO BOSS AG issues guarantees or letters of comfort in exceptional cases.
In its capacity as an “in-house bank”, HUGO BOSS International B.V. provides funds to Group companies with increased financing needs in the form of intercompany loans. These loans are issued in the local currency of the distribution company concerned and generally take the form of an overdraft facility.
The corporate treasury department optimizes and centralizes payment flows and secures Group-wide liquidity by its cash and liquidity management. The cash inflows from the operating activities of the individual Group companies is the Group’s most important source of liquidity.
Using efficient cash management systems, liquidity surpluses of individual Group companies are used to cover other companies’ financial requirements (cash pooling). This intercompany financial balancing system reduces external financial requirements and net interest expenses.
Debt funding and financing structure
Market capacity, cost of financing, investor diversification, flexibility, covenants and terms to maturity are taken into account when selecting financial instruments. Funds are mainly drawn in the Group currency, the euro. Notes to the Consolidated Financial Statements, Note 27 and 30
Syndicated loan secures long-term financial flexibility
The Group signed a new syndicated credit facility for EUR 450 million in October 2015. The revolving credit facility with an international syndicate of six banks has a basic term of five years. It also includes the option to extend twice by a year at a time. The credit facility with a volume of EUR 450 million, originally due in March 2018, has been refinanced earlier than planned in this way. By refinancing the line of credit ahead of time, HUGO BOSS was able to take advantage of the positive market environment and agree attractive terms.
The credit facility is intended to secure the company’s liquidity in the long term, thus also financially securing the growth strategy. As of the reporting date, EUR 75 million of the syndicated loan had been used. The Group has additional liquidity secured in the form of bilateral lines of credit with a total volume of EUR 257 million, of which EUR 89 million had been drawn as of December 31, 2015. Apart from the unutilized lines of credit amounting to EUR 543 million, the Group has access to liquid funds of EUR 81 million as of the reporting date. In contrast to the previous year, no liquid funds are held in time deposits with a term of up to three months (2014: EUR 10 million).
The syndicated loan agreement contains a standard covenant requiring the maintenance of total leverage, defined as the ratio of net financial liabilities to EBITDA before special items. The maximum permissible value is above the agreed maximum for the facility that was replaced. Notes to the Consolidated Financial Statements, Note 27
Total leverage as of December 311
1 Net financial liabilities/EBITDA before special items.
Total leverage at prior-year level
As in prior fiscal years, HUGO BOSS was substantially below the permissible maximum as of December 31, 2015. At 0.1, the total leverage ratio was at the prior year’s level as of the reporting date.
The financial liabilities of the HUGO BOSS Group are mostly subject to variable interest rates and have short fixed-interest periods for the most part. Of the EUR 135 million in financial liabilities that are subject to variable interest rates, a volume of approximately EUR 10 million was hedged by payer swaps against a rise in interest rates as of December 31, 2015. There is no exposure to interest rate risks from other fixed-interest loans. Notes to the Consolidated Financial Statements, Note 27
Land charges in connection with land and buildings amount to EUR 39 million (2014: EUR 42 million).
Off-balance sheet financial instruments
Financing is supplemented by operating leases for the Group’s own retail locations as well as logistics and administration properties which are not reported in the statement of financial position. Notes to the Consolidated Financial Statements, Note 33