Notes to the Consolidated Income Statement

19. sales

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

T.52 Breakdown by Distribution Channels (€ million)

	2020	2019
Wholesale	3,809.9	4,106.9
Retail	1,424.5	1,395.3
Total	5,234.4	5,502.2

T.53 Breakdown by Product Divisions (€ million)

	2020	2019
Footwear	2,367.6	2,552.5
Apparel	1,974.1	2,068.7
Accessories	892.7	881.1
Total	5,234.4	5,502.2

20. 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:

T.54 (€ million)

	2020	2019
Sales and distribution expenses	1,794.0	1,821.2
Product management / merchandising	46.0	52.6
Research and development	56.6	61.7
Administrative and general expenses	368.7	340.0
Other operating expenses	2,265.3	2,275.5
Other operating income	0.4	4.2
Total	2,264.9	2,271.3
Of which personnel expenses	578.5	633.7
Of which scheduled depreciation	275.7	246.4
Of which impairment expenses	18.0	0.0

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. The impairment expenses of €18.0 million concern the impairment of goodwill (€1.9 million) and the impairment of right-of-use assets (€16.1 million).

In the consolidated financial statements of PUMA SE, fees of €0.8 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 €0.7 million (previous year: € 0.8 million) and 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: less than €0.0 million).

Other operating income, which in the previous year mainly included income from the reduction of liabilities from acquisitions in the amount of €2.1 million, comprises income from the sale of fixed assets in the amount of €0.4 million (previous year: €2.0 million).

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

T.55 (€ million)

	2020	2019
Wages and salaries	441.9	490.2
Social security contributions	63.2	66.8
Expenses from share-based remuneration with cash compensation	14.1	12.6
Expenses for retirement pension and other personnel expenses	59.3	64.2
Total	578.5	633.7

In the financial year 2020, the personnel costs presented above include government grants amounting to a figure in the low double-digit millions granted in connection with the global COVID-19 pandemic; this amount was deducted from the corresponding expenses.

In addition, cost of sales includes personnel costs in the amount of €5.2 million (previous year: €6.8 million).

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

T.56 Employees

	2020	2019
Marketing/ retail/ sales	9,654	9,883
Research & development/ product management	1,002	986
Administrative and general units	2,361	2,479
Total annual average	13,016	13,348

As of the end of the year, a total of 14,374 individuals were employed (previous year: 14,332).

21. Financial result

The financial result consists of:

T.57 (€ million)

	2020	2019
Interest income	8.4	7.2
Income from currency-conversion differences, net	0.0	10.2
Others	27.0	8.5
Financial income	35.4	25.8
Interest expense	-14.1	-13.9
Interest expense – Leasing liability	-29.3	-29.7
Interest accrued on liabilities from acquisitions	0.0	-0.1
Valuation of pension plans	-0.5	-0.7
Expenses from currency-conversion differences, net	-3.9	0.0
Others	-34.5	-4.1
Financial expenses	-82.3	-48.4
Financial result	-46.8	-22.6

The item Others in financial income includes interest components (SWAP points) of €27.0 million (previous year: €8.2 million) from financial instruments in connection with currency derivatives, and dividend income of €0.0 million (previous year: €0.3 million) from the investment in Borussia Dortmund GmbH & Co. KGaA (BVB).

The item Others in financial expenses includes interest components (SWAP points) of €34.5 million (previous year: €4.1 million) from financial instruments in connection with currency derivatives.

In addition, expenses from currency translation differences of more than €3.9 million (previous year: income of €10.2 million) are included, which are to be assigned to the financing area.

22. Income taxes

T.58 (€ million)

	2020	2019
Current income taxes
Germany	11.0	12.8
Other countries	84.9	124.6
Total current income taxes	95.9	137.5
Deferred taxes	-56.7	-28.8
Total	39.2	108.6

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:

T.59 (€ million)

	2020	2019
Earnings before income tax	162.3	417.6
Theoretical tax expense
Tax rate of the SE = 27.22% (previous year: 27.22%)	44.2	113.7
Tax rate difference with respect to other countries	-7.1	-12.8
Other tax effects:
Income tax for previous years	-4.7	-4.5
Losses and temporary differences for which no tax claims were recognized	6.8	1.0
Changes in tax rates	-0.4	2.0
Non-deductible expenses for tax purposes and non-taxable income and other effects	0.4	9.3
Effective tax expense	39.2	108.6
Effective tax rate	24.2%	26.0%

The tax effect resulting from items that are directly credited or debited to equity is shown in chapter 8.

23. Earnings per share

The earnings per share are determined in accordance with IAS 33 by dividing the consolidated annual surplus (consolidated net earnings) attributable to the shareholders of the parent company by the average number of circulating shares.

The calculation is shown in the table below:

T.60

	2020	2019
Consolidated net earnings € million	78.9	262.4
Average number of circulating shares	149,561,440	149,521,683
Average number of circulating shares, diluted	149,561,440	149,521,683
Earnings per share in €	0.53	1.76
Earnings per share, diluted in €	0.53	1.76

24. Management of the Currency Risk

In the financial year 2020, PUMA designated currency hedges as cash flow hedges in order to hedge the amount payable of purchases denominated in USD, which is converted to euros, as well as for other currency risks resulting from internal resale to PUMA subsidiaries.

Furthermore, currency swaps and currency forward transactions are used to hedge foreign exchange risks when measuring intra-group loans denominated in foreign currencies.

The nominal amounts of open exchange rate-hedging transactions, which relate mainly to cash flow hedges, refer primarily to currency forward transactions in a total amount of €3,026.5 million (previous year: €2,842.6 million). These underlying transactions are expected to generate cash flows in 2021 and 2022. 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:

T.61 (€ million)

	2020	2019
Currency hedging contracts, assets (see chapters 6 and 12)	26.1	46.5
Currency hedging contracts, liabilities (see chapters 13 and 14)	-135.2	-38.2
Net	-109.1	8.3

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 that are denominated in a currency that is not the functional currency and are 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 hedging contracts.

Currency hedging 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, 2020, 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 €151.9 million higher (lower) (December 31, 2019: €150.6 million higher (lower)).