Notes to the Income Statement

20. Net sales

The net sales of the Group are broken down by product divisions and distribution channels as follows:

21. Other Operating Income and Expenses

According to the respective functions, other operating income and expenses include personnel, advertising, sales and distribution expenses as well as rental and leasing expenditure, travel costs, legal and consulting expenses and other general expenses. Typical operating income that is associated with operating expenses was offset. Rental and lease expenses associated with the Group’s own retail stores include turnover-based rental components.

Other operating income and expenses are allocated based on functional areas as follows:

Within the sales and distribution expenses, marketing/retail expenses account for a large proportion of the operating expenses. In addition to advertising and promotional expenses, they also include expenses associated with the Group’s own retail activities. Other sales and distribution expenses include logistic expenses and other variable sales and distribution expenses.

In the consolidated financial statements of PUMA SE, fees of € 0.9 million (previous year: € 0.9 million) are recorded as operating expenses for the auditor of the consolidated financial statements. The fees break down into costs for audit services of € 0.8 million (previous year: € 0.8 million), other assurance services amounting to € 0.1 million (previous year: € 0.1 million), in particular for EMIR audits and the review of the combined non-financial report as well as for tax consultancy services of less than € 0.0 million (previous year: € 0.0 million).

Other operating income, which in the previous year mainly included income from the release of provisions in the amount of € 12.1 million, in the current year comprises income from the reduction of liabilities from acquisitions in the amount of € 2.1 million and income from the sale of fixed assets of € 2.0 million (previous year: € 0.3 million).

Overall, other operating expenses include personnel costs, which consist of:

In addition, cost of sales includes personnel costs in the amount of € 6.8 million (previous year: € 8.2 million).

The average number of employees for the year was as follows:

As of the end of the year, a total of 14,332 individuals were employed (previous year: 12,894).

The result from associated companies comprises the result from the shareholding in Wilderness Holdings Ltd. which was deconsolidated in 2018.

The item Others in financial income includes interest components (SWAP points) of € 8.2 million (previous year: € 7.3 million) from financial instruments in connection with currency derivatives, and dividend income of € 0.3 million (previous year: € 0.3 million) from the investment in Borussia Dortmund GmbH & Co. KGaA (BVB).

Due to the first-time application of IFRS 16, a higher interest expense of € 29.7 million is incurred with regard to lease liabilities (previous year: € 0.5 million) which were included in interest expenses in the previous year. The item Others in financial expenses includes interest components (SWAP points) of € 4.1 million (previous year: € 3.9 million) from financial instruments in connection with currency derivatives.

In addition, income from currency translation differences of € 10.2 million (previous year: expenses of € -14.4 million) are included, which are to be assigned to the financing area.

23. Income taxes

In general, PUMA SE and its German subsidiaries are subject to corporate income tax, plus a solidarity surcharge and trade tax. Thus, a weighted mixed tax rate of 27.22% continued to apply for the financial year.

Reconciliation of the theoretical tax expense with the effective tax expense:

The tax effect resulting from items that are directly credited or debited to equity is shown directly in the statement of comprehensive income.

Other effects include withholding tax expenses in the amount of € 11.7 million (previous year: € 7.5 million).

25. Management of the Currency Risk

In the 2019 financial year, PUMA designated “forward purchase USD” currency derivatives as cash flow hedges in order to hedge the amount payable of purchases denominated in USD, which is converted to euros.

The nominal amounts of open exchange rate-hedging transactions, which relate mainly to cash flow hedges, refer to currency forward transactions in a total amount of € 2,842.6 million (previous year: € 2,401.8 million). These underlying transactions are expected to generate cash flows in 2020 and 2021. For further information, please refer to the explanations in chapter 13.

The market values of open exchange rate-hedging transactions on the balance sheet date consist of:

The changes in effective cash flow hedges are shown in the schedule of changes in shareholders’ equity and the statement of comprehensive income.

In order to disclose market risks, IFRS 7 requires sensitivity analyses that show the effects of hypothetical changes in relevant risk variables on earnings and equity. The periodic effects are determined by relating the hypothetical changes caused by the risk variables to the balance of the financial instruments held as of the balance sheet date. The underlying assumption is that the balance as of the balance sheet date is representative for the entire year.

Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is not the functional currency and is monetary in nature. Differences resulting from the conversion of the individual financial statements to the Group currency are not taken into account. All non-functional currencies in which PUMA employs financial instruments are generally considered to be relevant risk variables.

Currency sensitivity analyses are based on the following assumptions:
Material non-derivative monetary financial instruments (cash and cash equivalents, receivables, interest-bearing debt, lease liabilities, non-interest-bearing liabilities) are either denominated directly in the functional currency or transferred into the functional currency through the use of currency forward contracts.

Currency forward contracts used to hedge against payment fluctuations caused by exchange rates are part of an effective cash-flow hedging relationship pursuant to IAS 39. Changes in the exchange rate of the currencies underlying these contracts have an effect on the hedge reserve in equity and the fair value of these hedging contracts.

If, as of December 31, 2019, the USD had appreciated (devalued) against all other currencies by 10%, the hedge reserve in equity and the fair value of the hedging contracts would have been € 150.6 million higher (lower) (December 31, 2018: € 126.2 million higher (lower)).

Currency risks and other risk and opportunity categories are discussed in greater detail in the Combined Management Report in the Risk and Opportunity Management section as well as in chapters 2 and 13 of the Notes to the consolidated financial statements.

26. Segment Reporting

Segment reporting is based on geographical regions in accordance with our internal reporting structure, with the exception of stichd. The geographical region forms the business segment. Sales revenue, the operating result (EBIT) and other segment information are allocated to the corresponding geographical regions according to the registered office of the respective Group company.

The internal management reporting includes the following reporting segments: Europe, EEMEA (Eastern Europe, Middle East and Africa), North America, Latin America, Greater China, Rest of Asia/Pacific (excluding Greater China) and stichd (formerly Dobotex). These are reported as reportable business segments in accordance with the criteria of IFRS 8.

The reconciliation includes information on assets, liabilities, expenses and income in connection with centralized functions that do not meet the definition of business segments in IFRS 8. Central expenses and income include in particular central sourcing, central treasury, central marketing and other global functions of the Company headquarters.

The Company’s main decision-maker is defined as the entire Management Board of PUMA SE.

With the exception of stichd's (formerly Dobotex) sales of products amounting to € 32.7 million (previous year: € 26.9 million), there are no significant internal sales between the business segments, which are therefore not included in the presentation.

The operating result (EBIT) of the business segments is defined as gross profit less the attributable other operating expenses plus royalty and commission income and other operating income, but not taking into account the costs of the central departments and the central marketing expenses.

The external sales, operating result (EBIT), inventories and trade receivables of the business segments are regularly reported to the main decision-maker. Investments, depreciation and non-current assets at the level of the business segments are not reported to the chief operating decision- maker. Intangible assets are allocated to the business segments in the manner described under chapter 11. Segment liabilities, the financial result and income taxes are not allocated to the business segments and are therefore not reported to the chief operating decision-maker at the business segment level.

Non-current assets and depreciation comprise the carrying amounts and depreciation of property, plant and equipment, right-of-use assets and intangible assets during the past financial year. The investments comprise additions to property, plant and equipment and intangible assets. In addition, total impairment expenses in the amount of € 0.0 million (previous year: € 0.6 million, relating to the Europe segment) were recognized.

Since PUMA is active in only one business area, the sports equipment industry, products are additionally allocated according to the footwear, apparel and accessories product segments in accordance with the internal reporting structure.