INDEPENDENT AUDITOR’S REPORT

To PUMA SE, Herzogenaurach

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OF THE COMBINED MANAGEMENT REPORT

Audit Opinions

We have audited the consolidated financial statements of PUMA SE, Herzogen­aurach, and its subsidiaries (the Group), which comprise the consolidated ­balance sheet as at 31 December 2018, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the financial year from 1 January to 31 December 2018 as well as the notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the combined management report of PUMA SE for the financial year from 1 January to 31 December 2018. In accordance with the German legal requirements, we have not audited the statement on corporate governance and the corporate governance report specified in Chapter “Corporate Governance Report including the Statement on Corporate Governance ­pursuant to § 289f and § 315d HGB” of the combined management report. With the German legal requirements, we have not audited the content of those parts of the notes to the consolidated financial statements and of the combined ­management report as specified in the Chapter “Other information” of our ­independent auditor´s report.

In our opinion, on the basis of the knowledge obtained in the audit

• the accompanying consolidated financial statements comply, in all ­material respects, with the International Financial Reporting Standards (IFRS) as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e (1) German Commercial Code (HGB) and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at 31 December 2018, and of its financial performance for the financial year from 1 January to ­31 ­December 2018, and

• the accompanying combined management report as a whole provides an appropriate view of the Group’s position. In all material respects, this ­combined management report is consistent with the consolidated financial ­statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. 

Our audit opinion on the combined management report does not cover the content of the ­statement on corporate governance and the corporate governance ­report ­specified in Chapter “Corporate Governance Report including the Statement on Corporate Governance pursuant to § 289f and § 315d HGB” of the ­combined management report.

Pursuant to Section 322 (3) Sentence 1 German Commercial Code (HGB), we declare that our audit has not led to any reservations relating to the legal ­compliance of the consolidated financial statements and of the combined ­management report.

Basis for the Audit Opinions

We conducted our audit of the consolidated financial statements and of the ­combined management report in accordance with Section 317 German ­Commercial Code (HGB) and the EU Audit Regulation (No. 537 / 2014; referred to subsequently as “EU Audit Regulation”) and in compliance with German ­Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW). Our responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Combined Management Report” section of our auditor’s report. We are independent of the group entities in ­accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional ­respon­sibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) Point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit ­Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the combined management report.

Key Audit Matters in the Audit of the Consolidated Financial Statements

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the financial year from 1 January to 31 December 2018. These matters were ­addressed in the context of our audit of the consolidated financial statements as a whole and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.

In the following we present the key audit matters we have determined in the course of our audit:

1. Recoverability of goodwill
2. Recoverability of the Cobra brand

Our presentation of these key audit matters has been structured as follows:

1. Description (including reference to corresponding information in the ­consolidated financial statements)
2. Auditor’s response

1. Recoverability of goodwill

1. The consolidated financial statements of PUMA SE show goodwill in the amount of mEUR 245.7 corresponding to approximately 7.7% of the ­consolidated balance sheet total or 14.3% of the group equity.

   Each financial year or in case of respective signs of impairment, goodwill is subject to impairment tests. The impairment tests are performed by PUMA SE by applying the “discounted cash flow method”. The valuation is based on the present values of the future cash flows. The company’s valuation model is based on future cash flows, which are in turn based on the effective ­three-year plan and valid at the date the impairment test. This detailed planning phase is extended with the assumption of long-term growth rates. The discounting is performed using the weighted average cost of capital (WACC). Here, the realizable amount is determined on the basis of the value in use and a possible need for impairment is determined by comparing the value in use with the carrying amount.

   The outcome of this valuation highly depends on the legal representatives’ assessment of future cash flows, the WACC rate applied and the long-term growth rate and therefore involves uncertainties and discretion. Thus, the assessment of the recoverability of the goodwill was classified as a key audit matter within the scope of our audit.

   Information on the goodwill, provided by the legal representatives, is ­disclosed in Chapter 2 “Significant Consolidation, Accounting and Valuation Principles” and in Chapter 10 “Intangible Assets” of the notes to the consolidated financial statements.

2. Within the scope of our risk-oriented audit, we gained an understanding of the systematic approach applied when performing the impairment test. We ­satisfied ourselves, that the valuation model used adequately presents the requirements of the relevant standards, whether the necessary input data are completely and accurately determined and whether the calculations within the model are performed correctly. We satisfied ourselves of the ­appropriateness of the future cash flows used for the computation by ­reconciling these cash flows particularly with the effective three-year plan as well as by interviewing the legal representatives or persons appointed by them with regard to the material assumptions underlying this plan. In ­addition, we performed a critical assessment of the plan under consideration of ­general and industry-specific market expectations.

   Since a material portion of the value in use results from the forecasted cash flows for the period after the three-year plan (phase of perpetuity), we in ­particular critically assessed the sustainable growth rate used within the ­perpetuity phase by means of general and industry-specific market ­expectations. Since relatively low changes of the discounting rate may materially affect the amount of the realizable value, we have also checked the parameters used when determining the WACC rate involving internal valuation experts from the financial advisory sector and reproduced the computation scheme.

   Due to the material significance and taking into account the fact that the ­assess­ment of the goodwill also depends on the economic framework ­conditions that cannot be influenced by the Group, we performed in addition a critical ­assessment of the sensitivity analyses performed by PUMA SE for the cash-generating units (so-called CGUs) with low headroom (present values compared to the carrying amount) in order to be able to assess a possible ­impairment risk in case of change of a material valuation assumption.

2. Recoverability of the Cobra brand

1. The consolidated financial statements of PUMA SE disclose for the Cobra brand a brand value of mEUR 124.2 corresponding to approximately 3.9% of the consolidated balance sheet total or 7.2% of the group equity.

1. The Cobra brand is subject to an impairment test conducted annually or in case of a triggering event. The impairment test is conducted by PUMA SE based on the relief from royalty method. According to this approach, the value of the brand results from future royalty that a company would have to pay for the use of the brand if they had to license it. The approach uses forecasted revenue generated with the Cobra brand based on the effective three-year plan, valid at the time the impairment test is conducted. Subsequently, the projection period is ­extended assuming long-term growth rates. The discounting is performed by means of the weighted average cost of capital (WACC). The recoverable amount and the need for impairment is determined by comparing the value in use with the carrying amount. If there are indications of impairment of the brand used by the Group, the recoverability of the brand is assessed by reference to the recoverable amount of the cash-generating unit to which the brand is allocated.

   The outcome of this valuation highly depends on the legal representatives’ assumption of future revenue to be generated with the Cobra brand, the ­royalty rate and the long-term growth rate as well as the WACC rate applied and therefore involves uncertainties and discretion. Thus, the assessment of the recoverability of the Cobra Brand was classified as key audit matter within the scope of our audit.

   Information on the Cobra brand, provided by the legal representatives, is ­disclosed in Chapter 2 “Significant Consolidation, Accounting and Valuation Principles” and in Chapter 10 “Intangible Assets” of the notes to the ­consolidated financial statements.

2. As part of our risk-oriented audit, we first examined on the basis of the ­information available to us and in discussions with the legal representatives or persons ­appointed by them, that there are no indications of impairment of the brand and that the recoverability of the brand can be assessed by use of the relief-from-­royalty method as part of the impairment test. We have followed the methodological procedure for performing the impairment test using the relief-from-royalty method. In this regard we examined, whether the valuation model adequately reflects the conceptual requirements of the relevant standards, whether the necessary input data are completely and accurately determined and whether the calculations applied to the model are made correctly. We satisfied ourselves of the appropriateness of the assumed future revenue underlying the computation (Cobra branded sales) by reconciling these sales particularly with the effective three-year plan as well as by interviewing the legal representatives or persons appointed by them with regard to the material assumptions underlying this plan. In addition, we performed a critical assessment of the plan taking into account general and industry-specific market expectations.

1. Since a material portion of the value in use results from the forecasted revenue for the period following the three-year plan (phase of perpetuity), we particularly reviewed the sustainable growth rate applied to the perpetuity phase by means of general and industry-specific market expectations. As even relatively small changes of the expected royalty rate and the used discount rate may have a ­material effect on the value in use, we also assessed the parameters involved in the assumed royalty rate and determination of the discount rate involving ­internal valuation experts from the financial advisory sector and recalculated the computation scheme. Additionally, we reviewed the applied royalty rate based on industry-specific average rates.

   Due to the material significance and as the measurement of the brand also ­depends on general economic conditions that are beyond the Group’s control, we ­additionally reviewed the sensitivity analyses concerning the Cobra brand ­originally conducted by PUMA SE in order to be able to determine a potential ­impairment risk in case a material assumption underlying the measurement changes.

Other information

The legal representatives are responsible for the other information. The other information comprises:

• the statement on corporate governance pursuant to Section 289f German Commercial Code (HGB) specified in Chapter “Corporate Governance ­Report including the Statement on Corporate Governance pursuant to § 289f and ­§ 315d HGB” of the combined management report,

• the corporate governance report pursuant to No. 3.10 of the German ­Corporate Governance Code specified in Chapter “Corporate Governance Report including the Statement on Corporate Governance pursuant to ­§ 289f and § 315d HGB” of the combined management report,

• the legal representatives‘ confirmation relating to the consolidated financial statements and to the combined management report pursuant to ­Section 297 (2) Sentence 4 and Section 315 (1) Sentence 5 German Commercial Code (HGB), respectively,

• the combined non-financial report which will be published after the issuance of this auditor´s report and

• the remaining parts of the Annual Report which will be published after the issuance of this auditor´s report, with the exception of the audited ­consolidated financial statements and combined management report and our ­auditor’s report.

Our audit opinions on the consolidated financial statements and on the combined management report do not cover the other information, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information

• is materially inconsistent with the consolidated financial statements, with the combined management report or our knowledge obtained in the audit, or
  

• otherwise appears to be materially misstated.
  

Responsibilities of the Legal representatives and the Supervisory Board for the Consolidated Financial Statements and the ­Combined Management Report

The legal representatives are responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) German Commercial Code (HGB) and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, the legal representatives are responsible for such ­internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the legal representatives are responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.

Furthermore, the legal representatives are responsible for the preparation of the combined management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the ­consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the legal representatives are responsible for such arrangements and measures (systems) as they have considered necessary to enable the ­preparation of a combined management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient ­appropriate evidence for the assertions in the combined management report.

The Supervisory Board is responsible for overseeing the Group’s financial ­reporting process for the preparation of the consolidated financial statements and of the combined management report.

Auditor’s Responsibilities for the Audit of the Consolidated ­Financial Statements and of the Combined Management Report

Our objectives are to obtain reasonable assurance about whether the ­consolidated financial statements as a whole are free from material ­misstatement, whether due to fraud or error, and whether the combined management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated ­financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our audit opinions on the consolidated financial statements and on the combined management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 German Commercial Code (HGB) and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. ­Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated ­financial statements and this combined management report.

We exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements and of the combined management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. The risk of not detecting a material ­misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, ­misrepresentations, or the override of internal control.

• gObtain an understanding of internal control relevant to the audit of the ­consolidated financial statements and of arrangements and measures ­relevant to the audit of the combined management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems.

• Evaluate the appropriateness of accounting policies used by the legal ­representatives and the reasonableness of estimates made by the legal representatives and related disclosures.

• Conclude on the appropriateness of the legal representatives’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going ­concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the combined management report or, if such disclosures are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the ­consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and with the additional requirements of German commercial law pursuant to Section 315e (1) German Commercial Code HGB).

• Obtain sufficient appropriate audit evidence regarding the financial ­information of the entities or business activities within the Group to ­express audit opinions on the consolidated financial statements and on the combined management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely ­responsible for our audit opinions.

• Evaluate the consistency of the combined management report with the ­consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides.

• Perform audit procedures on the prospective information presented by the executive directors in the combined management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the ­significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the ­prospective information from these assumptions. We do not express a ­separate audit opinion on the prospective information and on the ­assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards.

From the matters communicated with those charged with governance, we ­determine those matters that were of most significance in the audit of the ­consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter.

OTHER LEGAL AND REGULATORY REQUIREMENTS

Further information pursuant to Article 10 of the EU Audit Regulation

We were elected as group auditor by the annual general meeting on ­12 April 2018. We were engaged by the Supervisory Board on 24 October 2018. We have been the group auditor of PUMA SE, Herzogenaurach, without interruption since the financial year 2012.

We declare that the audit opinions expressed in this auditor’s report are ­consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long form audit report).