To PUMA SE, Herzogenaurach
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 2019, 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 2019 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 2019. 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
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.
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 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 2019. 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:
Our presentation of these key audit matters has been structured as follows:
a) The consolidated financial statements of PUMA SE show goodwill in the amount of mEUR 249.7 corresponding to approximately 5.7 % of the consolidated balance sheet total or 13.0 % 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 11 “Intangible Assets” of the notes to the consolidated financial statements.
b) 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.
a) The consolidated financial statements of PUMA SE disclose for the Cobra brand a brand value in the amount of mEUR 126.6 with the indefinite useful life corresponding to approximately 2.9% of the consolidated balance sheet total or 6.6 % of the group equity.
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 11 “Intangible Assets” of the notes to the consolidated financial statements.
b) 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 and with 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 and with 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.
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.
a) In the consolidated financial statements of PUMA SE as at 31 December 2019, right-of-use assets of mEUR 719,0 and lease liabilities of mEUR 745,3 are accounted for, corresponding to approximately 16,4% or 17,0% of the consolidated balance sheet total and 37,4% or 38,8% of the group equity. In the financial year 2019, the first-time adoption of the new lease accounting standard (IFRS 16) has significant effects on the opening balance values and their rollover as at the reporting date, since operating leases in particular have become subject to the recognition requirement. The transition to IFRS 16 was performed applying the modified retrospective approach; prior-period comparative figures were not restated. It was not reassessed whether or not a contract is a lease within the meaning of IFRS 16. A central IT system has been implemented for the purpose of lease accounting. The new IFRS 16 standard requires the executive directors to make estimates and judgements. This is particularly the case in view of the estimate as to exercising contractual renewal options, entailing implications on the lease term, as to, where applicable, the value of the interest rate, as to the amount of lease liability and the associated impact on the consolidated balance sheet, the consolidated statement of comprehensive income and the consolidated cash flow statement. In this light and due to the complexity of the new requirements, we classified the accounting of leases in accordance with IFRS 16 as a key audit matter within the scope of our audit.
The information provided by the executive directors on lease accounting and on the impact of the first time adoption of IFRS 16 are included in the notes to the consolidated financial statements in Chapter 1 “General” and in Chapter 10 “Leases” of the notes to the consolidated financial statements.
b) During our audit, we assessed, among other matters, the appropriateness and implementation of the processes and controls established by the Company for the complete and correct identification and recognition of leases. This also applies to the implementation of the central IT system and the required adjustments to the existing IT systems in respect of lease accounting.
Further, our audit comprised assessing the impact of the initial adoption of IFRS 16. For this purpose, we reperformed the implementation steps taken by the Company in response to the initial adoption of IFRS 16, and evaluated the design of the established processes and of the associated IT systems specific to lease accounting in accordance with IFRS 16. In this regard, we inspected selected lease contracts, obtained an understanding of the identification of performance obligations, and assessed whether the latter were completely and correctly recognised and accounted for in the relevant IT systems. In this process, we inspected selected contracts and other adequate evidence, and conducted interviews with employees of the Company to assess, in particular, the appropriateness of the estimates made as to exercising contractual renewal options, entailing implications on the lease term, as to the value of the interest rate, as to the amount of lease liability as well as the associated impact on the consolidated balance sheet, the consolidated statement of comprehensive income and the consolidated cash flow statements. Moreover, we examined whether the IT systems and processes that were established by the Company and adjusted to IFRS 16, including the controls put in place, are appropriate. Furthermore, we reperformed whether the estimates and judgements made by the executive directors are reasonably documented and substantiated.
The information provided by the executive directors in the notes to the consolidated financial statements concerning the impact on the consolidated financial statements of the first time adoption of IFRS 16, and the information concerning exercising options and the related explanations in the notes to the consolidated financial statements constituted further areas of audit focus.
The legal representatives are responsible for the other information. The other information comprises:
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
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.
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:
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.
We were elected as group auditor by the annual general meeting on 18 April 2019. We were engaged by the Supervisory Board on 30 Juli 2019. 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).
The German Public Auditor responsible for the engagement is Dr. Thomas Reitmayr.
Munich, 31 January 2020
Deloitte GmbH
Wirtschaftsprüfungsgesellschaft
Dr Thomas Reitmayr
Wirtschaftsprüfer
[German Public Auditor]
Stefan Otto
Wirtschaftsprüfer
[German Public Auditor]
