Annual Report • Mar 26, 2013
Annual Report
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annual report 2012
H&M's Annual Accounts and Consolidated Accounts for the financial year 2011/12 comprise pages 43–70.
H&M is guided by strong values based on fundamental respect for the individual and belief in each person's ability to show initiative. Together, over 104,000 employees form a design-driven, creative and responsible global fashion company with a passion for fashion and an ambition to always exceed customer expectations. A drive for constant improvement is also part of the H&M spirit that has existed since the first store opened in 1947.
H&M's business concept is to offer fashion and quality at the best price. H&M should always have the best customer offering in each and every market. The collections are wide-ranging and varied, offering women, men, teenagers and children everything from timeless basics to the latest trends. Another element of this strong offering is that H&M should be the more sustainable choice.
Considerable resources are devoted to increasing sustainability. H&M does not own factories, but instead buys products from independent suppliers and works to bring about long-term improvements for people and the environment – in the supply chain, the garment lifecycle and the communities in which H&M is active.
In addition to sourcing the right product from the right market, other factors contribute to ensuring the best price in store: in-house design, no middlemen, large purchasing volumes, efficient logistics and costconsciousness at every stage. Efficient decision-making and flexible assortment planning ensure that the product range is always adapted to the latest trends and customer expectations.
With a strong offering that appeals to customers around the world, H&M is able to grow successfully in all its existing markets as well as in new ones, with growth among all its brands and through new concepts. This expansion is long-term and self-financed. The goal is to increase the number of stores by 10–15 percent each year while at the same time increasing sales in comparable units.
Over 104,000 employees
2,776 stores
48 markets
Sales including VAT SEK 141 billion
Profit after tax SEK 16.9 billion
The dedication always to exceed customers' expectations is fundamental to H&M – from idea and design, buying, production and logistics, to every store around the world and online.
Everything H&M does begins with the customers; the goal is always to exceed their expectations. Of all ages and from all around the world, customers have different styles, dreams, and expectations, and are increasingly aware in their fashion choices; they are a source of continuous inspiration. H&M strives always to be attentive and to offer the best combination of fashion, quality and price.
In stores and online, fashion enthusiasts around the world communicate and interact with H&M – one of the world's highest-ranked brands and one of the leading fashion companies active in social media.
Over 13 million fans on Facebook.
2.5 million followers of H&M on Twitter.
H&M's design team, pattern makers and buyers work together to create a broad and varied range of inspiring fashion for all – women, men, teenagers and children – complete with shoes, accessories, cosmetics and even home textiles. Quality, sustainability and trend awareness are always in focus. Themes, colours, silhouettes and materials reflect the direction each new season takes. Collections offer items with a high fashion sense as well as classics and personal favourites. The diversity means that garments can be combined in numerous ways and worn during several seasons – thus extending their life cycle and contributing to increased sustainability.
Over 150 designers and pattern makers.
H&M is the world's largest consumer of organic cotton.
H&M does not own any factories; products are sourced from independent suppliers that are close long-term partners of H&M. Customers must feel confident that everything they buy at H&M is designed, produced and distributed with the greatest consideration for people and the environment. H&M invests significant resources to increase sustainability in the supply chain and works actively to contribute to long-term improvement of conditions in sourcing countries. Efficient logistics and decision-making and flexible assortment planning ensure that the latest trends are always available in stores.
Around 800independent suppliers.
H&M helped suppliers save 450 million litres of water in 2012.
Around 90 percent of all transport is by rail or sea.
H&M offers customers inspiring shopping experiences in stores in 48 markets, as well as through a growing shop online. The store that opened in Västerås in 1947 has become a global fashion company. Expansion is long-term while maintaining quality, sustainability and high profitability. H&M stores must always be attractive and trendy, designed with an aim to use energy efficiently and materials that age well. Shopping online with H&M must be just as inviting, easy and inspiring – hm.com is now one of the most frequently visited fashion websites in the world.
During 2012 H&M opened
$$
304
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new stores net.
\n $10-15\%$ new stores net per year.
Fully mobile adapted H&M shop online.
The H&M Group offers fashion from the H&M, COS, Monki, Weekday and Cheap Monday brands – from spring 2013 also from the completely new fashion brand & Other Stories – along with home textiles via H&M Home.
H&M is growing, is in a strong position and is making significant long-term investments in order to ensure sustainable development and build an even stronger company. Our objective is always to exceed our customers' expectations.
H&M is growing with new customers and employees around the world and continues to stand strong in a challenging market. We increased sales by 11 percent in local currencies and by one percent in comparable units in 2012, and we continued to gain market share. In 2012 the consumer climate was even more challenging in many markets than in 2011. H&M's good performance again proves that customers appreciate our offering of fashion and quality at the best price.
H&M offers a wide and varied range of inspiring collections. The breadth of the range means H&M is just as appreciated by customers in the major capitals as in small and midsized cities around the world. This is a strength that allows us to grow deeply in each market while at the same time expanding into new countries. In 2012 our global expansion continued and we opened 304 new stores net. Five new countries were added: Bulgaria, Malaysia, Latvia, Thailand and Mexico. Most new stores were opened in China and the US. Our global presence is strong, with more than 2,800 stores in 48 markets.
The online market is increasingly growing – growth is particularly strong for mobile shopping via smartphones and tablets. To meet this rapid development we launched a fully mobile-adapted H&M shop online in all our eight existing online markets in January 2013.
Customer response has been very positive. In parallel, during autumn 2012 we intensified preparations for the future expansion of shop online to other markets of the Group. This summer we plan to launch H&M shop online in the US and we are looking forward very much to offering this opportunity to our customers in the world's largest online market.
We are currently in a period of significant investment, and have been so for some time. We are investing in online sales and IT, among other areas, at the same time as we are developing an entirely new fashion brand, & Other Stories, and broadening our product range. These long-term investments will generate revenue ahead and further strengthen H&M's position. Although profit for the year was burdened by these investments as well as by negative currency translation effects, profit after tax grew by SEK 1 billion, i.e. 7 percent, to SEK 16.9 billion.
At H&M we take a long-term view and our strong performance over the years has resulted in a strong financial position. In 2012 alone we created around 10,000 new jobs within the Group, and today we are more than 104,000 employees. I would like to thank everyone for their very valuable contributions and amazing teamwork again during the past year. As a workplace, H&M is characterised by strong values such as teamwork, openness, simplicity, entrepreneurial spirit, cost-consciousness and a pursuit for constant improvement. These common values are rooted in a respect for the individual and a belief in people and their own ability to use their initiative. The values sum up the H&M spirit, which has existed ever since the first store opened in 1947 and is still present everywhere in the company after many years of strong expansion.
H&M's good performance again proves that customers appreciate our offering of fashion and quality at the best price.
H&M Conscious Actions Sustainability Report 2012 is available at hm.com/consciousactions2012.
H&M should always have the best customer offering in each and every market and our goal is to always exceed customer expectations. Sustainability is becoming increasingly important and one element of our strong offering is being the more sustainable choice for our increasingly aware customers. Sustainability is therefore high on our daily agenda and has been an integral part of our operations for some time.
We invest substantial resources and work actively in order to promote social development and reduce environmental impact in the communities in which H&M is active, as well as to ensure sustainable development for H&M long term. To learn more about H&M's extensive sustainability work I encourage you to read the H&M Conscious Actions Sustainability Report 2012, which is available at hm.com/ consciousactions2012.
We expand with 10–15 percent new stores per year and plan to open around 325 new stores net in 2013, which means we will effectively be opening one new store per day. We will open stores in five new countries: Chile, Estonia, Lithuania, Serbia and,
H&M opened new stores worldwide, as for example in Miami Beach.
We are currently in a period of significant investment, and have been so for some time. We are investing in online sales and IT, among other areas, at the same time as we are developing an entirely new fashion brand, & Other Stories, and broadening our product range. These long-term investments will generate revenue ahead and further strengthen H&M's position.
via franchise, Indonesia. The store in Santiago de Chile will be H&M's first in South America as well as in the southern hemisphere, where we see great potential for H&M to grow. By the end of the year we will have more than 3,000 stores, and we are expanding all our brands: H&M, COS, Monki, Weekday, Cheap Monday and H&M Home.
We are also pleased to be adding yet another new brand, & Other Stories, to the H&M Group. We are very much looking forward to offering our
& Other Stories is launching in ten countries during spring 2013.
customers this entirely new fashion brand, which is launching this spring with stores in seven major cities in Europe and online shopping in ten European countries at stories.com. The brand & Other Stories offers women a wide range of shoes, bags, jewellery, beauty products, underwear and clothes. Made of carefully selected materials and designed with a great attention to detail, the collections have been very positively reviewed by the fashion press internationally.
We are looking forward to an exciting 2013 full of new opportunities. We have great respect for the macroeconomic climate and how it may affect consumption in many of our markets, but we believe strongly in our offering and are convinced that H&M will continue to maintain its strong position.
Karl-Johan Persson, CEO H & M Hennes & Mauritz AB Stockholm, January 2013
H&M continued to welcome more new customers and employees throughout the world in 2012 – and it was yet another fascinating year filled with exceptional collections, more sustainable fashion and spectacular store openings.
H&M No. in ORGANIC COT TON H&M starts yet another year as the world's largest consumer of organic cotton, according to Textile Exchange data showing H&M as No.1 since 2010.
DAVID BECKHAM Bodywear
David Beckham Bodywear for men was launched at H&M worldwide – a wellreceived collaboration producing new underwear each season.
M ARNI at H&M
MARNI at H&M offered an innovative collection designed by Marni founder Consuelo Castiglioni. Sofia Coppola directed the advertising campaign.
Bulgaria first of five NEW countries H&M opened in five new countries in 2012. The new store in Sofia, Bulgaria was first, and in all countries customer enthusiasm exceeded all expectations.
Justin Timberlake.
on the red car pet H&M Conscious showed sustainability's potential with an exclusive party collection containing organic cotton, organic hemp and recycled polyester.
H&M CONSCIOUS
COS in six NEW countries in 2012
COS opened in six new countries in 2012: Finland and Italy in May, then Poland, Hong Kong and Austria, and Kuwait via franchise.
From July, the H&M Home interior textiles collection expanded to include a range for children and babies full of fun and mainly with organic cotton.
The H&M for Water beach collection raised funds for access to clean water. 25 percent of sales went to WaterAid's water and sanitary projects in Asia.
N etherland s Weekday received a warm welcome from customers in the Netherlands, with its first store in Amsterdam at Rokin 84. Weekday has stores in six countries.
H&M doesn't own factories but is a significant and responsible buyer. We contribute to over a million jobs in the sourcing countries, where we work to promote lasting improvements in working conditions for textile workers.
Karl-Johan Persson, CEO
For HIGHER WAGES in Banglade sh CEO Karl-Johan Persson met with Bangladeshi PM Sheikh Hasina to urge higher
minimum wages and annual wage reviews in the textile industry.
H&M is again listed in the Dow Jones Sustainability World Index and continues to be listed in the FTSE4Good and other sustainability indexes.
H&M is growing fast in China. The 100th mainland store opened in Nanning, and expansion is strong also in cities like Chengdu, Shenzhen and Shenyang.
MALAYSIA, Lat via and THAILAND H&M is expanding all over the world with its strong customer offering. New markets in September included Malaysia and Latvia, and Thailand via franchise.
ALL FO R CH ILDREN collection All for Children, a well-tailored children's collection, supported UNICEF's
MONK I expands in Asia Monki is growing in Asia, beginning in Hong Kong in 2010. Customers in mainland China enthusiastically received new stores in 2012.
I'm awaiting the store opening with huge enthusiasm, the atmosphere here is euphoric. We expect so many happy customers, and we will greet each one with a lot of love!
Doria Zubiaga, sales advisor, H&M Mexico City
On 1 November the first H&M store in Latin America enjoyed an overwhelming reception by customers in Mexico City's Centro Santa Fé.
MAISON MARTI N MARGIELA Revolutionary design for men and women. H&M presented an iconic collection in collaboration with cult fashion house Maison Martin Margiela.
H&M's collections include everything from the hottest trends to the very best in basics – for women, men, children and teenagers. H&M's design team creates sustainable fashion for all, and always at the best price.
The new trends,
the best basics and fashion favourites that always work – H&M's design department creates broad and varied collections for women, men, teenagers, children and babies.
The team behind the garments and accessories is large and diverse, representing many different age groups and nationalities. They draw inspiration from every corner of the globe and from a wide variety of sources. H&M's designers constantly seek new influences. The sources that inspire new fashion are diverse, including the cinema, art exhibitions, magazines, street fashion, trade shows and trend seminars. All these influences result in exciting and continuously updated collections in H&M's stores.
Diversity in the collections allows H&M's customers to mix and match according to their own personal style, taste and needs. H&M's garments offer numerous combinations and can be worn over several seasons. This in turn extends garment life cycles and contributes to increased sustainability, which is important to today's aware consumers. Sustainability is an integrated part of H&M's operations
and the goal is always to remain at the forefront in this regard. H&M is the world's largest consumer of organic cotton since 2010 and works actively to ensure that everything the customer finds in the store is manufactured under good working conditions, with the least possible impact on the environment. Every year H&M also offers collections with extra sustainability value under the "H&M Conscious" label. These collections include garments and accessories produced in more sustainable materials. H&M also creates collections under this label in cooperation with UNICEF to help with education and support for children and young people in developing countries, and in cooperation with WaterAid to promote access to clean water in areas where it is difficult to obtain.
H&M's offering is extended by H&M Home's fashion interior textiles, as well as COS, Monki, Weekday and Cheap Monday – independent brands that express their own sense of fashion. COS sells well-tailored garments in chic, urban designs.
Monki is playful and colourful, with strong graphic designs. Weekday is inspired by street fashion. Cheap Monday offers denim and the season's latest trends with a catwalk vibe. Spring 2013 means exciting news: the H&M Group is launching its new brand & Other Stories. This exciting new fashion brand offers shoes, bags, jewellery, cosmetics and clothing with an emphasis on quality materials and attention to detail.
2,776stores 48markets
H&M's fashion for women is the largest of the collections. It comprises everything from the latest must-haves to updated fashion classics. From casual daywear to amazing party dresses, via relaxed leisure separates, high performance sportswear and contemporary maternity apparel – it's all here. H&M's fashion for women comprises a phenomenal range of fashion for all – always with a focus on quality, sustainability and the best price.
Men looking to create contemporary, flexible wardrobes should always find what they need at H&M. The collection offers smart suits and shirts for work and festive occasions, easy everyday favourites, sports clothing, shoes and accessories. The collection includes the latest trends, tailored classics and comfortable leisurewear.
H&M Kids offers children everything from supercool jeans to pretty dresses, in sizes from baby to 14 years. H&M children's clothing should be fashionable and comfortable and is always carefully tested to ensure it meets strict requirements for quality, function, safety and sustainability. Kids' fashions must be soft on the skin, yet designed to withstand lively play and rigorous washing.
Fashion-conscious young men and women flock to H&M for up-to-the minute, functional clothing and accessories at Divided, covering the spectrum from relaxed basics with sporty influences to eye-catching party outfits that will please fashionistas of every age.
Great outfits begin closest to the skin. H&M always has soft cotton underwear basics on offer, as well as the hottest trends and glamorous lingerie in the season's most soughtafter colours, patterns and fabrics.
Denim is everywhere on the fashion scene and is always part of the H&M fashion picture. Both denim trends and ever-popular classics are available in a variety of colours, designs and washes, along with updated shirts, jackets, dresses, skirts and shorts – all in denim.
Make-up and skincare are often essential in expressing one's personal style, and H&M provides everything required for the season's new looks. H&M's cosmetics are never tested on animals, and all of H&M's products fulfil at least the minimum requirements stipulated by the laws and regulations in H&M's sales markets.
H&M offers diverse fashion to express individual and personal style. Customers can complete their fashion look with perfectly matched accessories – from scarves, belts, hats and jewellery to fashion footwear and bags for women, men, teenagers and children.
H&M Home provides fashion for every room in the house. The collection offers towels, bed linen, curtains and other home textiles in trendy colours and prints, as well as home decor items in glass, metal and wood. H&M Home is sold online and in all eight markets where H&M has distance selling. In addition, customers can shop in H&M Home stores located in Stockholm, Norrköping, Helsinki, Copenhagen, Oslo, London, Amsterdam and Frankfurt.
stores 7markets 9
hm.com
Weekday is a progressive multibrand concept with a strong focus on jeans. Own brands such as MTWTFSS Weekday, Weekday Store made and Weekday Vintage are offered as well as exter nal brands such as Cheap Monday, Rodebjer and Chris tophe Lemaire. Designer collaborations are also being featured, among previous collaborations are Stine Goya and Bruno Pieters. In addi tion to stores in six markets, shopping online is offered in 18 European markets.
Rokin 84, Amsterdam.
weekday.com
cheapmonday.com
Cheap Monday's collections combine influences from street fashion and subculture with a catwalk vibe. The cornerstone of the collection is its denim range, which is always up to date, and clothing and accessories with high fashion content at prices to suit almost any budget. Cheap Monday is available through selected retailers around the world and from its own stores in Copenhagen and London.
Monki is synonymous with personal creativity and expression. The brand features individualistic streetwear collections aimed primarily at young women, but Monki is about style at any age. Here customers can find clothes, accessories and a store concept that is its own world, combined in an inspiring fashion experience characterised by storytelling, playfulness and colourful graphic design. Monki is available in stores in nine markets, and online in 18 European markets.
monki.com
Modern, timeless, tactile and functional. Always exploring the concept of favouring style over fashion, COS appreciates high end design and premium quality that lives beyond the season across women's, men's and kids' wear. Merging traditional methods with new techniques and innovative fabrics, COS works hard to create fashion pieces for the contemporary wardrobe. COS is available in stores in 15 markets, and online in 18 European markets.
cosstores.com
The H&M Group's new fashion brand & Other Stories is launching in spring 2013. The brand is all about fashion, with particular focus on personal expression and styling, so that customers can create their own personal fashion statement. The brand offers an extensive selection of shoes, bags, jewellery and cosmetics, in addition to clothing. & Other Stories collections offer high quality and careful attention to details. & Other Stories will be available initially in stores in seven markets and online in ten markets.
& Other Stories is launching in ten European countries in spring 2013.
stories.com
H&M is working extensively to make the clothing industry more sustainable. Sustainability embraces the environment, ethics, human rights and anti-corruption, among other things. Substantial efforts are made to promote social development and reduce environmental impact. The aim is to create positive change in the communities in which H&M is active and to secure H&M's sustainable development long term.
H&M invests substantial resources in increased sustainability and works actively to develop sustainability throughout the entire product life cycle, from the first stages of design to the care recommendations given to customers when they buy H&M's garments. This focus on sustainability applies to everything: from using more sustainable materials – H&M is the world's largest consumer of organic cotton, for example – to broad initiatives to improve working conditions in the supply chain. The wide range of H&M's sustainability work includes (among many other things) responsible water management, use of renewable energy, increased energy efficiency in stores and offering customers in selected stores globally the possibility to hand in old clothes for reuse or recycling. In addition, H&M supports long-term social development in its
sourcing countries. These extensive efforts for sustainability have received a high ranking. H&M is included in some of the world's most notable sustainability rankings. In 2012 H&M once again qualified for the Dow Jones Sustainability Index World, which lists the companies leading the drive towards more sustainability.
Sustainability is a core element in H&M's business concept and strategy, so creating social improvement and minimising environmental impact are essential. H&M's business concept is to offer fashion and quality at the best price. H&M should always have the best customer offering in each and every market. Customers' interest in sustainability continues to grow. Customers at H&M should feel confident that the ranges have been produced with respect for both people and the environment. To have the best possible customer offering, H&M must work tirelessly to live up to constantly increasing requirements. H&M should be the more sustainable alternative for increasingly aware fashion customers worldwide.
As a global retail company, H&M works as both buyer and seller in numerous markets. International trade plays a crucial role in the development
H&M buys from around 800 independent suppliers.
H&M did 9,815 interviews with workers in the supply chain in 2012 about their working conditions.
of countries, since it provides economic growth and helps to lift individuals and nations out of poverty. H&M contributes to over a million jobs around the world. As a company H&M can use its size and status to influence social development in these countries in a positive way. This work can contribute long-term to better living conditions for many people, for example in Bangladesh, Cambodia, India and China.
H&M does not own any factories; instead, the company buys its products from approximately 800 independent suppliers, primarily in Asia and Europe, in countries where the textile industries offer considerable skill and experience. Cooperation with suppliers is both a close and a long-term relationship. Since the 1990s H&M has worked extensively to improve working conditions in the supply chain. H&M demands that, at the very minimum, all suppliers agree to observe the legal rights of their employees, and that suppliers live up to H&M's Code of Conduct. But H&M goes far beyond those demands. In promoting sustainability at the suppliers for example, H&M trains and educates both suppliers and their employees in many important areas such as workers' rights, health and safety. In addition, all suppliers must adhere to H&M's rigorous restrictions on chemicals – the toughest in the industry.
One of the basic requirements set out in the Code of Conduct is that factory workers must be paid at least the minimum wage guaranteed by law. The Code of Conduct also expresses a clear intent that the salary must enable the workers to support themselves and their families.
The suppliers who deliver to H&M produce goods for other brands as well, and factory workers' wages are the same regardless of the buyer and the final price set in the store. Several factors enable H&M to offer the best prices in its stores. In addition to buying the right product from the right market, H&M achieves the best price through in-house design, large purchasing volumes, no middlemen, cost consciousness at every step and efficient logistics.
International trade plays a crucial role in the development of countries, since it provides economic growth and helps to lift individuals and nations out of poverty. H&M contributes to more than a million jobs.
S
CEO Karl-Johan Persson and Bangladeshi prime minister Sheikh Hasina.
Wages are an industry-wide matter, so H&M works with other brands and unions in this area. For example, H&M worked with other clothing companies to convince the Bangladeshi government to increase minimum wages for the country's textile workers, and a pay rise was granted in 2010. Since then, H&M continues its efforts in this regard. During 2012 CEO Karl-Johan Persson visited Bangladeshi prime minister Sheikh Hasina and urged the government to implement increases and annual reviews of the country's minimum wage levels in the textile industry. In Bangladesh, as in other countries, H&M wants to see lasting improvements achieved through collective bargaining by workers and employers. Collective labour agreements would guarantee the same conditions for all textile workers, irrespective of the fashion company that buys the products. In Cambodia, H&M will start a project together with the Swedish trade union organisation IF Metall. The initiative provides education about the Swedish labour market model and effective negotiation methods, health and safety representatives and works councils.
By improving the dialogue between workers and employers and strengthening local textile workers' influence over their own working conditions, H&M wants to contribute to increased stability in the labour market. The textile industry is the motor that drives development in many countries, so H&M is working extensively to further increase existing skills and expertise in the industry.
H&M's sustainability work has led to significant progress in several areas. However, as with wages – a complex structural matter for the textile industry – many challenges remain. Overcoming these challenges demands the cooperation of many actors.
H&M can stay at the forefront by ensuring that every part of the company takes responsibility. For this reason, sustainability is not dealt with separately; the work to improve sustainability is part of every aspect of H&M's operations. Approximately 120 people work in the Sustainability Department, including 20 specialists who are responsible for developing a clear vision and direction for the entire company's sustainability efforts. The Sustainability Department also evaluates the effects of sustainability initiatives and provides support and expert advice to colleagues in the other departments. Around 100 people work in close cooperation with H&M's suppliers to ensure good working conditions and adherence to environmental requirements throughout the manufacturing process, as well as to support continual improvement in the area of sustainibility.
The integration of sustainability work means that everyone at H&M works together, from a common vision > H&M's complete sustainability report is available at hm.com. The report complies with guidelines on sustainability reporting issued by the Global Reporting Initiative (GRI). Also available at hm.com/conscious are H&M's sustainability, human rights and product policies, as well as the Code of Conduct, Chemical Restrictions and Code of Ethics.
of ensuring that all of H&M's activities are conducted in an economically, socially and environmentally sustainable manner. This approach is essential to continued progress in the long term.
To put the vision into practice, H&M has formulated seven clear, long-term commitments upon which all H&M employees base their work. Each commitment is supported by multiple activities, under the name H&M Conscious Actions that cover the entire life cycle of the garments. The following section briefly describes the seven commitments and some of H&M's sustainability activities. A more detailed account can be found in H&M's Conscious Actions Sustainability Report 2012, available at hm.com/consciousactions2012.
H&M continually increases its development of products made of environmentally smart materials. Since 2010 H&M has been the world's largest consumer of organic cotton. The target is for all of the cotton H&M uses to come from
All for Children, H&M's autumn collection.
more sustainable sources by the year 2020. During 2012 H&M increased its use of these types of cotton from 7.6 percent to 11.4 percent. Cotton from more sustainable sources includes organic cotton, recycled cotton and cotton grown under the Better Cotton Initiative (BCI), a project established to drive social and environmental work in the traditional cotton-growing industry.
H&M seeks to encourage conscious choices. The H&M Conscious label comprises special collections in environmentally smarter materials such as recycled polyester, recycled wool and organic hemp, as well as collections from which a portion of the proceeds goes to social development projects. For example, part of the proceeds from sales of the All for Children clothing collection goes to UNICEF's
efforts to help children in developing countries. Sales of the H&M for Water swimwear collection contribute to WaterAid's work to increase access to clean water in areas where this precious commodity is scarce.
responsible partners H&M applies specific methods to select the best possible suppliers and then helps to support their development on a long-term basis. Suppliers are evaluated based on how well they live up to H&M's social and environmental standards.
H&M has a solemn duty always to act with integrity. The company operates according to strong values centred on a fundamental respect for every individual. To further underline its commitment to respect human rights, H&M has introduced a new human rights policy. This policy builds on the UN guiding principles on business and human rights. H&M strives to be a good employer and must ensure that the rights of its employees are never violated. This same policy applies to employees of H&M's suppliers and other cooperation partners, and also to customers in their contact with H&M. H&M rejects all forms of discrimination.
H&M condemns all forms of corruption and the Code of Ethics describes how employees should act in their dealings with the company, suppliers and other business partners. H&M's partners also promise to adhere to a corresponding policy. H&M is also a Corporate Supporter Member of Transparency International Sweden since January 2013. Transparency International is an independent global organisation combating corruption in all its forms and working for greater transparency in both private and public sectors.
To be climate smart, H&M strives to be as energy efficient as possible, to use as much renewable energy as possible and to inspire ideas for how to reduce environmental impact throughout the product life cycle. Stores account for approximately 90 percent of H&M's energy use, and the goal is to reduce energy consumption in the stores by 20 percent per square metre by the year 2020 compared with 2007. The long-term goal is that all electricity H&M uses shall come from renewable sources. H&M intends to break a trend: the climate effects of the company's own operations shall decrease in absolute terms no later than the year 2015. Nevertheless, as much as a third
H&M's projects helped suppliers
million litres of water in 2012.
save 450
of a garment's environmental impact comes from cleaning and caring for it. H&M gives customers advice and instructions for more environmentally sound laundering and care.
Environmental impact can be limited by using resources wisely and avoiding waste at every step of the product life cycle. H&M is the first fashion company to introduce a global clothing collecting initiative. Beginning in 2013, customers can hand in clothing to selected stores in all 48 H&M countries. All types of clothing – regardless of brand or condition – will be accepted. The collected garments will be handled by H&M's partner I:Collect, which provides the infrastructure to recycle textiles so they can be reused.
To increase sustainability, H&M undertakes to use natural resources in a responsible manner. In 2012 H&M entered into a three-year partnership with WWF with the commitment to contribute to responsible water use in every aspect of the product life cycle. H&M aims to minimize risks in the company's operations, to protect the environment and to secure the availability of water.
H&M has set stringent chemical restrictions, and updates these rules frequently. For example, H&M has prohibited the use of perflourinated compounds (used to make fabrics water repellent) and from 1 January 2013 does not order any products
H&M's alliance with WWF is the first global water partnership of its kind, setting a new standard in the fashion industry.
containing perflourinated compounds. H&M is working closely with other clothing companies to achieve the goal of eliminating harmful chemical waste in manufacturing by the year 2020.
H&M works actively and strategically to create improved living conditions for many people. Health and education are important areas. One of many examples is the All for Children project. Since 2009 this partnership between H&M and UNICEF has provided children in cotton-growing areas in India with opportunities to attend school, as well as improved access to health care. H&M has expanded the UNICEF cooperation to include Bangladesh, with a contribution of approximately USD 8 million. The five-year project's goal is to improve access to education, basic life skills and social services for 40,000 children aged 3–14 in slum areas around Dhaka, the Bangladeshi capital.
H&M's driving force is its belief in people and dedication always to exceed customer expectations. This creates a dynamic workplace where constant improvements and teamwork are the keys to success.
Strong, clear values guide the teamwork at H&M. These values comprise the H&M spirit, which is rooted in a fundamental respect for the individual and a firm belief in each person's ability to show initiative. Other common values that are important in H&M's culture include teamwork, being open-minded, entrepreneurial spirit, cost consciousness, simplicity and constant improvement. The H&M spirit has existed since the beginning when the first store opened in 1947 and creates a workplace that is attractive to employees who want to develop and find encouragement to achieve their full potential.
No career path is staked out in advance. Instead, for everyone at H&M, it's possible to grow and choose new directions depending on each person's individual strengths. Job rotation is used frequently. Of the employees in management positions the vast majority are internal recruits.
At H&M, each employee takes on individual responsibility from day one. What's most important is to have the right attitude and to like fashion. The rest can be learned. Symbolic leadership is a part of teamwork. At H&M, leadership is about being able to inspire, delegate, give feedback and motivate others. In colleagues who challenge themselves, new employees
see the possibilities for their own growth. Employees who are allowed to grow and develop become more committed and enjoy their work more, and contribute to a strong and stable organisation.
To encourage and recognise long-term dedication and further strengthen H&M's position as an attractive, global employer, in 2011 H&M established a reward and recognition programme – the H&M Incentive Program. All H&M employees, regardless of their position or salary level, are included in the programme according to the same basic principle.
The stores are the heart of H&M, and it's in the stores that customers find H&M's business concept: fashion and quality at the best price. Everything H&M does begins with the customer and the customer offering, so in-store experience is highly valued – regardless of the role an employee wants to take on. No matter what career directions H&M employees want to take, everyone must acquire experience by regularly working in-store to meet and interact with customers. There are more than 2,800 stores in the best and most attractive business locations the world over. These stores are dynamic workplaces where many roles interact, such as sales advisors, visual merchandisers and controllers.
At H&M, I can grow as a person. Everything I give is given back to me. The people I work with believe in me and push me; it helps me to stretch my own boundaries.
Giada Scarafile Sales Advisor
The very nature of H&M's work demands many different roles. Many employees work in stores and online shopping, at area, country and production offices around the world. In addition, there are a great number of roles in departments such as design, buying, sustainability, marketing, logistics, interior design, human resources, IT and finance. As an ethical company, H&M strives to increase sustainability in all areas of
H&M's expansion gives me many different career paths to choose from.
Jonathan Stubbs Visual Manager
the business. Open, constructive dialogue with the trade unions and other labour organisations which employees voluntarily choose to represent them is also part of H&M's dedication to being a good employer.
H&M is growing across five continents with new employees and new customers. During 2012 alone employee numbers increased by around 10,000. Today, more than 104,000 dedicated people work for H&M around the world. H&M's strong customer offering is highly appreciated in all markets. This in turn means there is good potential for continued successful expansion for many years to come.
H&M is expanding into new countries in parallel with expansion in its existing markets; all its brands are growing, and new concepts are being created. At the same time, the ambition is always to be at the forefront of fashion and sustainability, on a global level. All these things mean that external recruitment needs are substantial and employees at H&M can choose from a variety of career opportunities.
H&M's successes are built on the common goal to always exceed customer expectations. Teamwork is an essential element in achieving this. Everyone on the team fulfils a specific function – whether it's opening the first new store in a new country, creating exciting collections, ensuring that the right garments get to the right place at the right time, or giving customers the best possible service, every day. Employees can make use of their various experiences, ages and backgrounds, and share ideas and expertise.
H&M grew with 10,000
new employees in 2012
Gladys David Team Leader
Everyone works together and helps one another, no matter what role they have in the company. We are truly a team.
H&M has customers all over the world, and working in an H&M store means representing the H&M brand. With their many styles, dreams and expectations, the employees form a creative, customer-focused and responsible global company that offers fashion for everyone.
H&M is guided by strong values and is expanding all over the world. For the employees, this means unique opportunities for personal growth.
H&M strives to maintain an inclusive workplace environment that encourages diversity and equality – a workplace in which employees act with integrity, and treat one another with respect and dignity.
One of the keys to H&M's success is strong values. These values permeate every aspect of the company and guide employees in their work together throughout the Group. These common values make up the H&M spirit. They are rooted in a fundamental respect for each individual and a firm belief in each person's ability to show initiative. The H&M spirit has existed since the beginning when the first store opened in 1947.
The concepts of being flexible, humble and having a respectful and listening approach are interwoven into H&M's common values. This results in a workplace with effective decision-making, where everyone works together at a fast pace and relies on each individual's knowledge and capabilities.
Together, the values form a culture that makes H&M unique.
We are one team
Keep it simp le
Entrepre neuri al spirit
Constant impro vement Cost -conscious ness > More informa- tion about career paths, work areas and H&M as an employer is avail- able at hm.com
Significant opportunities to grow and advance in one of the world's leading fashion companies.
Internal training and skills development that open the door to new career opportunities.
Feedback and open dialogue – the development of each employee is an integral part of H&M's development as a whole.
Respect for the individual – everyone receives the same opportunities to grow and develop.
H&M Incentive Program – a reward and recognition programme for all employees that encourages long-term commitment.
H&M's ambition is to be at the forefront of both fashion and sustainability – all employees can contribute to more sustainable fashion, today and in the future.
More than 104,000 employees worldwide.
All H&M employees receive a discount whenever they shop at the H&M Group brands – anywhere in the world.
The employees are the key to H&M's success and in order to show its appreciation H&M in 2011 started a long-term reward and recognition programme for all employees, the H&M Incentive Program.
The programme was initiated by Stefan Persson and family through the donation of just above 4 million H&M shares worth around SEK 1 billion to a Swedish foundation, Stiftelsen H&M Incentive Program.
The intention is to recognise and encourage long-term dedication and to further strengthen H&M as an attractive global employer. All employees of the Group, regardless of their position and salary level, are included in the programme according to the same basic principle, based on length of employment, either full-time or parttime. The number of years that the employee has worked for the company is taken into account in the qualification period, which is five years unless local rules require otherwise.
Lincoln Road, Miami Beach.
H&M is growing with quality, sustainability and high profitability. Through a compelling offering to customers everywhere in the world, good opportunities are created for many years of continued and successful expansion.
H&M offers inspiring shopping in stores and online, and attracts fashion enthusiasts the world over. The women's clothing store that opened in Västerås, Sweden in 1947 has grown into a global fashion leader with customers worldwide and with one of the world's highest-ranking brands.
H&M is growing with all its brands and with new concepts, and there is room for further expansion for the Group in all existing markets as well as in new countries. H&M is growing by 10–15 percent each year in terms of new stores, including COS, Monki, Weekday, Cheap Monday and H&M Home. From spring 2013 this expansion will include the new brand & Other Stories.
H&M offers fashion and quality at the best price. The broad range and variety of collections is a strength. Collections include everything from the latest trends to the very best in basics – for women, men, children and teenagers. H&M's fashion meets equal enthusiasm from its customers, whether it is on fashionable metropolitan boulevards, in shopping centres or in the high street in smaller cities.
In 2012 the Group stepped up the rate of expansion and opened 304 new stores net compared to the originally planned 275 stores. By the end of the financial year 2012, H&M had a total of 2,776 stores in 48 countries. New stores opened in markets around the world. Most new stores were opened in China and the US but Russia, Italy,
Poland, France, Spain and the UK were also large expansion markets.
In the past two years alone, H&M has opened in 10 new countries. In 2012 Bulgaria, Latvia, Malaysia, Thailand (via franchise) and Mexico opened their first H&M stores. Customer response has been enormously positive in all new markets, with thousands of expectant visitors queuing for the opportunity to shop on the day of the grand opening in each country. This response shows the intense interest in H&M.
Five new markets are planned also for 2013: Chile, Estonia, Lithuania, Serbia and (via franchise) Indonesia. With the opening in Santiago de Chile H&M takes the first step into the southern hemisphere. The two-floor store is situated in the very best business location, in the Costanera Center shopping mall, and is the first H&M store in South America. Just as in other parts of the world, there is great potential for continued expansion in this fashion-conscious region.
The global retail industry is constantly evolving – and as streetscapes change too, H&M always wants to be in the best location for business. By leasing store premises instead of owning them, H&M always has the flexibility to locate stores in the best shopping centres and at the most attractive street addresses.
All H&M stores are dedicated to being exciting and inviting, and must represent H&M's brand. That's why the stores are continuously updated.
Nevertheless, regardless of whether H&M builds new stores or renovates existing ones, sustainability is key for the company's business. For example, the right lighting creates an inspiring shopping environment and showcases the collections, and H&M continually seeks out the most energy-efficient and sustainable lighting solutions available. H&M's ambition is also to use longer-lasting materials. It should also be easy for the customers to contribute to increased sustainability in the stores. H&M is the first fashion company in the world to introduce a worldwide clothing collecting initiative. Beginning in 2013, customers can bring in used clothing to selected H&M stores in all 48 countries for reuse or recycle.
All the brands in the Group have their own identity, and this identity is echoed in each brand's stores. During 2012 COS opened stores in six new countries. Customer response far exceeded already high expectations. By the end of 2012 COS had 64 stores in 15 countries. In 2013 at least two new markets are planned, Norway and the United Arab Emirates. Monki has 59 stores in nine countries and is growing – for example in China, Japan and France. Weekday, present in six countries with 21 stores, will open in Japan while Cheap Monday will open in France. Other exciting news is that in spring 2013 H&M is launching the new brand & Other Stories in ten European countries. The first stores will open in Barcelona, Berlin, Copenhagen, London, Milano, Paris and Stockholm. In addition shop online is being launched at stories.com in Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Spain, Sweden and the UK.
& Other Stories is all about fine fabrics, striking details and particular focus on personal expression and styling. Customers can create their own personal fashion statement as the brand offers an extensive selection of shoes, bags, jewellery and cosmetics, in addition to clothing.
H&M offers a wide and varied range of inspiring fashion for everyone, and is growing with new stores the world over. There is room for further expansion for the Group in all existing markets as well as in new countries.
H&M's years of success and solid growth have resulted in a strong financial position. Expansion is financed entirely by the company's own resources. This provides the flexibility that allows H&M to make the most of business opportunities, and creates considerable potential for continued expansion in all brands for many years to come – always with a focus on quality, sustainability and continued high profitability.
Trendsetting, appealing and interactive. As one of the world's most popular fashion websites, H&M offers customers inspiring shopping online.
The stores are not the only place customers can enjoy shopping with H&M. Online shopping should be as appealing, easy and fun as visiting a store, regardless of whether customers shop by tablet or smartphone, via apps or directly at hm.com.
H&M's interactive shop online offers easy navigation and is much appreciated by customers in all eight countries where H&M and H&M Home offer online shopping: Sweden, Norway, Denmark, Finland, Germany, the Netherlands, Austria and the UK. Since January 2013 H&M shop online is completely mobile-adapted. In the US, the world's largest retail market, H&M plans to offer online shopping from summer 2013.
Distance selling is a vital and growing complement to stores. COS, Monki and Weekday offer online shopping in 18 European countries. The new H&M brand & Other Stories, which is launching in spring 2013, will be available both in stores and online. & Other Stories will offer shopping online at stories.com in ten European countries.
H&M's communication is global and hm.com is one of the world's most popular fashion websites. Fashion enthusiasts all over the world interact with H&M via social media and apps. H&M is also one of the leading fashion companies on Facebook, Twitter, Instagram, Google+ and YouTube, as well as on China's social networks Youku and Sina Weibo and Russia's VKontakte. Social media spreads the news further about H&M when the brand expands into new, exciting markets.
adapted shop online at hm.com
The latest campaigns for every season featured at hm.com.
Trend reports from the world's hottest fashion destinations.
Styling with H&M accessories for an updated look.
Fully mobile-
Ways to wear it – inspiration by H&M Life.
Fashion for women, men, teenagers and children at hm.com.
H&M in 48 markets
H&M has a strong global presence. In 2012 alone, 304 new stores net were opened and five new markets were added.
Karl-Johan Persson, CEO
Sales including VAT per country and number of stores, financial year 1 December – 30 November.
| Country | Sales 2012 incl. VAT (sek m) |
Sales 2011 incl. VAT (sek m) |
No. of stores 30 Nov 2012 |
New stores during the year |
Closed stores during the year |
Year established |
|---|---|---|---|---|---|---|
| Germany | 30,303 | 29,721 | 406 | 22 | 10 | 1980 |
| USA | 12,550 | 9,691 | 269 | 39 | 3 | 2000 |
| United Kingdom | 10,413 | 9,227 | 226 | 18 | 5 | 1976 |
| France | 9,976 | 9,336 | 182 | 15 | 1 | 1998 |
| Sweden | 8,225 | 8,318 | 177 | 5 | 1 | 1947 |
| Netherlands | 6,688 | 6,995 | 124 | 7 | 1 | 1989 |
| Switzerland | 5,821 | 5,995 | 82 | 3 | 1 | 1978 |
| Spain | 5,807 | 5,828 | 146 | 16 | 2 | 2000 |
| Norway | 5,615 | 5,397 | 111 | 7 | 1964 | |
| China | 5,411 | 3,598 | 134 | 52 | 2007 | |
| Italy | 4,861 | 4,410 | 104 | 17 | 2003 | |
| Austria | 4,782 | 4,793 | 68 | 3 | 1 | 1994 |
| Denmark | 4,297 | 4,195 | 94 | 5 | 1 | 1967 |
| Belgium | 3,308 | 3,157 | 70 | 6 | 2 | 1992 |
| Canada | 3,125 | 2,774 | 61 | 3 | 2004 | |
| Poland | 2,947 | 2,747 | 103 | 14 | 2003 | |
| Japan | 2,504 | 1,549 | 22 | 7 | 2008 | |
| Finland | 2,429 | 2,379 | 53 | 8 | 2 | 1997 |
| Russia | 2,122 | 1,512 | 37 | 18 | 2009 | |
| Portugal | 862 | 899 | 23 | 2003 | ||
| Greece | 841 | 764 | 25 | 3 | 2007 | |
| Czech Republic | 769 | 722 | 31 | 7 | 2003 | |
| Romania | 635 | 331 | 19 | 8 | 2011 | |
| Hungary | 622 | 496 | 26 | 6 | 2005 | |
| Croatia | 608 | 264 | 11 | 5 | 2011 | |
| South Korea | 594 | 410 | 11 | 5 | 2010 | |
| Ireland | 581 | 514 | 16 | 1 | 2005 | |
| Slovenia | 485 | 500 | 12 | 2004 | ||
| Turkey | 443 | 309 | 11 | 3 | 2010 | |
| Singapore | 409 | 111 | 2 | 1 | 2011 | |
| Luxembourg | 374 | 385 | 10 | 1996 | ||
| Slovakia | 339 | 254 | 13 | 3 | 2007 | |
| Bulgaria | 121 | 4 | 4 | 2012 | ||
| Malaysia | 84 | 2 | 2 | 2012 | ||
| Mexico | 47 | 1 | 1 | 2012 | ||
| Latvia | 36 | 2 | 2 | 2012 | ||
| Franchise 1) | 1,9142) | 1,2292) | 88 | 23 | 5 | 2006 |
| Total | 140,948 | 128,810 | 2,776 | 339 | 35 |
1) United Arab Emirates, Kuwait, Qatar, Saudi Arabia, Egypt, Bahrain, Oman, Lebanon, Israel, Morocco, Jordan and Thailand. 2) Excluding VAT.
The Board of Directors and the Managing Director of H & M Hennes & Mauritz AB (publ), 556042-7220, domiciled in Stockholm, Sweden, hereby submit their annual report and consolidated accounts for the financial year 1 December 2011 to 30 November 2012, hereinafter referred to as the 2012 financial year.
The H&M Group's business consists mainly of sales of clothing, accessories, footwear, cosmetics and home textiles to consumers.
The H&M Group offers fashion from the brands H&M, COS, Monki, Weekday and Cheap Monday, as well as home textiles from H&M Home. From spring 2013 a completely new fashion brand, & Other Stories, will also be a part of the H&M Group.
H&M's business concept is to offer fashion and quality at the best price, and its strategy is to always have the best customer offering in each individual market. Sustainability is becoming increasingly important and one element of H&M's strong offering is also that increasingly aware customers see H&M as the more sustainable option.
H&M is a design-driven, creative and responsible fashion company guided by strong values that are based on a fundamental respect for the individual and a belief in people's ability to use their initiative. With a focus on fashion and customers, and a shared aim among employees to always exceed customers' expectations, H&M is growing all over the world while maintaining quality, sustainability and high profitability. H&M's principle for expansion is that every store shall have the best commercial location. The business is operated from leased store premises, through online and catalogue sales and on a franchise basis. At the end of the financial year H&M was present in 48 markets; 12 of these were operated on a franchise basis. The total number of stores at the end of the 2012 financial year was 2,776 including 88 franchise stores, 64 COS stores, 59 Monki stores, 21 Weekday stores and 4 Cheap Monday stores.
Online and catalogue sales are offered in Sweden, Norway, Denmark, Finland, the Netherlands, Germany, Austria and the UK. H&M Home, the home textiles range, is sold via online and catalogue sales and also through stores in seven countries to date. Online sales for COS and Monki began in 18 countries in autumn 2011. In spring 2013 the Group will launch a completely new fashion brand, & Other Stories – for more information see the section Expansion and future development.
H&M's own designers work together with pattern designers and buyers to create a broad range that offers inspiring fashion for everyone. H&M's design and buying department creates the collections centrally.
H&M does not own any factories but instead has its products manufactured by around 800 independent suppliers through H&M's local production offices in Asia and Europe. To guarantee the quality of the products and that manufacturing takes place under good working conditions, H&M works in close cooperation with the suppliers. The production offices are responsible for ensuring that orders are placed with the correct supplier, that the products are manufactured at the right price and are of good quality, and that they are delivered at the right time. The production offices also check that manufacturing takes place under good working conditions.
Tests, such as chemical and laundry tests, are carried out on a continuous basis at the production offices and at external laboratories. The goods are subsequently transported to various distribution centres – primarily by sea and rail, but also by
road and air. From there the goods are distributed directly to the stores and/or to regional replenishment centres.
The best price is achieved by having in-house designers, buying in large purchasing volumes, having no middlemen, buying the right product from the right market, being cost-conscious in every part of the organisation and through efficient logistics.
H&M is one of the world's leading fashion companies, and with that comes responsibilities. Consequently, H&M invests major resources in sustainability throughout its organisation. Efforts to bring about social improvement, to improve working conditions at suppliers' factories and to minimise environmental impact are closely linked to both H&M's business concept and its strategy. H&M's vision is for all its operations to be run in a way that is economically, socially and environmentally sustainable. H&M actively pursues extensive work to bring about improvements throughout the life cycle of the clothing and in the societies where H&M operates.
H&M's sustainability work is based on a social and environmental commitment that puts H&M at the forefront of the global fashion industry. Trade between countries is an important source of economic growth around the world. As a global retailer, H&M acts as a buyer and seller in many markets. H&M contributes to more than a million jobs for people around the world, a large number of these in Asia. H&M uses its size and influence to exert a positive effect on social development in these countries, thereby helping to achieve better conditions for many people. H&M also makes efforts to reduce environmental impact throughout the life cycle of its clothing, from the original design concept through to encouraging customers to care for their clothes better in order to extend the life of the garments. H&M's wide-ranging sustainability work also includes everything from responsible use of water resources, the use of renewable energy, improving energy efficiency in the stores through to working with other large companies in the clothing sector to exert a positive influence on wage levels in the production countries.
H&M is working to achieve long-term improvements for those employed by the suppliers that produce H&M products. H&M demands that each employee at every one of its suppliers is guaranteed at least their statutory rights and that the suppliers comply with H&M's Code of Conduct. That includes important issues such as wages, health and safety, etc. Around 100 expert sustainability specialists are based at H&M's production offices, working to support continual improvement in the area of sustainability and carrying out regular audits to ensure that the suppliers are abiding by H&M's Code of Conduct. This is done primarily via the Code of Conduct, but also through activities such as training, projects, partnerships, etc. that are aimed at improving working conditions among suppliers.
H&M's sustainability strategy is to incorporate sustainability work into day-to-day routines in every area of the company's operations. This means that each of the Group's departments is itself responsible for environmental and social matters, while the central Sustainability Department provides these departments with support on sustainability matters. One area currently in focus is the development of sustainable materials and production methods, such as the use of organic cotton.
H&M's aim is for all cotton used in its product range to come from more sustainable sources by 2020 at latest, and its participation in the Better Cotton Initiative (BCI) is the main means of achieving this aim. H&M is one of the driving forces behind the BCI and is a member of its steering committee. The aim of the BCI is to help improve cotton growing globally and make the growing of cotton more environmentally, socially and economically sustainable. H&M was the world's largest user of organic cotton in 2011.
H&M's full sustainability report is published at hm.com/csr annually and follows the guidelines for sustainability reporting issued by the Global Reporting Initiative (GRI). H&M's sustainability policy and product policy, Code of Conduct, Chemical Restrictions and Code of Ethics can all be found in full at hm.com.
H&M's business shall be characterised by a fundamental respect for the individual. This applies to everything from fair pay, reasonable working hours and freedom of association to the opportunity to grow and develop within the company. The company's values – the spirit of H&M – which have been in place since the days of H&M's founder, Erling Persson, are in part based on the ability of the employees to use their common sense to take responsibility and use their initiative.
H&M has grown significantly since its beginnings in 1947 and at the end of the financial year had more than 104,000 employees. The average number of employees in the Group, converted to full-time positions, was 72,276 (64,874), of which 6,220 (5,855) are employed in Sweden.
Around 78 percent of the employees were women and 22 percent were men. Women held 74 percent of the positions of responsibility within the company, such as store managers and country managers.
Sales including VAT increased by 11 percent, in local currencies, for the financial year. Sales in comparable units increased by 1 percent. Converted into SEK, sales including VAT increased to SEK 140,948 m (128,810). Sales excluding VAT increased to SEK 120,799 m (109,999).
The Group's gross profit for the 2012 financial year amounted to SEK 71,871 m (66,147), an increase of 9 percent. This corresponds to a gross margin of 59.5 percent (60.1).
Operating profit amounted to SEK 21,754 m (20,379). This represents an operating margin of 18.0 percent (18.5).
Operating profit for the 2012 financial year has been charged with depreciation amounting to SEK 3,705 m (3,262).
Consolidated net interest income was SEK 531 m (563). Profit after financial items amounted to SEK 22,285 m (20,942).
The Group's profit for the 2012 financial year after applying a tax rate of 24.3 percent (24.5) was SEK 16,867 m (15,821), which represents earnings per share of SEK 10.19 (9.56), an increase of 7 percent.
The profit for the year represents a return on equity of 38.4 percent (35.8) and a return on capital employed of 50.3 percent (47.1).
H&M is present in 48 markets and the consumer climate in the fashion retail industry has varied a lot between the different countries during 2012. In this environment, H&M continued to gain market share thanks to its strong customer offering – fashion and quality at the best price. Sales increased by 11 percent in local currencies and by 1 percent in comparable units. Sales were strongest in countries such as the US, Canada, China and
Russia. Sales were also very good in the newly added H&M markets of Bulgaria, Latvia, Malaysia, Thailand and Mexico. It is mainly in southern Europe that consumption has been affected by the economic uncertainty, and this has also been reflected in H&M's sales in countries such as Greece, Spain, Portugal and Italy. Nonetheless, H&M continued to perform well compared to the market in these countries, where the Group sees further room for expansion.
The Group's other brands COS, Monki, Weekday and Cheap Monday also continue to expand. COS in particular, which has continued to exceed the company's high expectations, expanded rapidly with 19 new stores and six new countries. At the end of the 2012 financial year there were 64 COS stores in 15 countries and strong expansion is also planned for 2013. During 2012 the Group prepared for the establishment of a new fashion brand, & Other Stories, which will be launched initially in a total of ten European countries. In spring 2013 & Other Stories will open its first stores in Denmark, France, Germany, Italy, Spain, Sweden and the UK. & Other Stories will also be launched online at stories.com in these countries as well as in Belgium, Finland and the Netherlands.
The gross margin for the Group for the full-year amounted to 59.5 percent (60.1). H&M's gross margin is a result of many different factors, internal as well as external, and is also affected by the decisions that H&M makes in line with its strategy to always have the best customer offering in each individual market. External factors such as cotton prices, cost inflation and the US dollar, which is H&M's most significant purchasing currency, have altogether had a negative effect on purchasing costs for the year.
Markdowns in relation to sales were at the same level as in the previous year.
A total of 304 new stores net were opened in 2012, which was more than the originally planned 275 stores. The countries with the greatest net increase in store numbers during the year were China and the US, but Russia, Italy, Poland, France, Spain and the UK were also large expansion markets.
The online market is increasingly growing, with particularly strong growth in mobile shopping via smartphones and tablets. In January 2013 the Group launched a completely mobile-adapted H&M shop online in H&M's existing eight online markets in order to accommodate this rapid development. In parallel with this, in autumn 2012 H&M intensified work on the future rollout of H&M shop online to other markets in the Group. The launch of H&M shop online in the US was rescheduled for summer 2013, mainly because more time was needed to adapt H&M shop online for the US market, but also due to the increased investments in mobile-adapted shopping.
As a result, investments in online sales and IT continued to increase during the year; this also applies to the investments in developing & Other Stories and in broadening the product range. Many of these investments, which have not yet generated any revenue, aim to further strengthen H&M's position and to secure future expansion. Although this has resulted in cost increases for the Group, cost control remains good. Costs in comparable stores as a proportion of sales were at the same level as in the previous year.
Profit after tax for the year, which increased by 7 percent, was affected by the above-mentioned large long-term investments but also by negative currency translation effects of approximately SEK 290 m. The negative currency translation effects on both sales and profits for the year are related to the overall strengthening of the Swedish krona, particularly against the euro, compared to the previous year. Currency translation
effects arise when converting local currencies into SEK, H&M's reporting currency.
For the 2012 financial year the tax rate was 24.3 percent (24.5). The final outcome of the tax rate depends on the results of the Group's various companies and the corporate tax rates in each country. The Swedish corporate tax rate was reduced from 26.3 percent to 22 percent as of 1 January 2013. The H&M Group's tax rate for the 2013 financial year is expected to be 23–24 percent.
The parent company's external sales amounted to SEK 30 m (24) for the 2012 financial year. Profit after financial items amounted to SEK 15,888 m (16,451). Investments in fixed assets amounted to SEK 125 m (119).
Consolidated total assets as of 30 November 2012 amounted to SEK 60,173 m (60,188).
Current operations generated a positive cash flow of SEK 18,900 m (17,420). Among other things, cash flow was affected by dividends of SEK -15,723 m (-15,723), investments in fixed assets of SEK -6,827 m (-5,174) and by changes in short-term investments with a duration of four to twelve months of SEK 3,963 m (1,209). The Group's cash flow for the financial year amounted to SEK 276 m (-2,359). Liquid funds and shortterm investments amounted to SEK 17,143 m (21,277).
The equity/assets ratio was 72.8 percent (73.3) and the share of risk-bearing capital was 76.1 percent (74.9).
Shareholders' equity apportioned on the outstanding 1,655,072,000 (1,655,072,000) shares as of 30 November 2012 was SEK 26.49 (26.65).
In 2012 the longest investment period was 11 months. The Group does not use any derivative instruments in the interestbearing securities market, nor does the Group trade in shares or similar instruments. See also Note 2, Financial risks.
H&M remains positive towards future expansion and the Group's business opportunities.
H&M's growth target remains intact. The growth target is to increase the number of stores by 10–15 percent per year with continued high profitability, while at the same time increasing sales in comparable units.
For the 2013 financial year a net addition of around 325 new stores is planned. Most new stores during 2013 are planned to open in China and the US. There are also still great opportunities for expansion in markets such as Russia, Germany, the UK, Italy, Poland and France.
In 2013 H&M plans to open stores in the following five new countries: Chile, Estonia, Lithuania, Serbia and, via franchise, Indonesia.
H&M will open its first store in South America in Santiago de Chile during the first half of 2013. The store will be a flagship store in the best location in the Costanera Center shopping mall. In autumn 2013 the first H&M stores will open in Lithuania – one store in Vilnius and one in Klaipeda. During the autumn the first three H&M stores will open in Tallinn, Estonia along with the first two H&M stores in Belgrade in Serbia. During autumn 2013 the first H&M store in Jakarta, Indonesia will
open via franchise in cooperation with the franchisee J.S. Gill. In summer 2013 H&M plans to launch its online sales in the US, the world's largest online market.
Expansion continues for the Group's other brands COS, Monki, Weekday and Cheap Monday. COS, for example, will open its first store in Oslo, Norway and also in Dubai, UAE during spring 2013. Monki and Weekday will open their first stores in Japan during the spring, and Monki will also open its first store in Paris, France during the spring. Cheap Monday will open its first store in Paris, France in the autumn. In addition to this, Weekday will launch online shopping in 18 countries in 2013. H&M Home will also continue to expand.
The new fashion brand, & Other Stories, will launch its first collections in ten European countries during spring 2013. The first stores will open in Barcelona, Berlin, Copenhagen, London, Milan, Paris and Stockholm. In addition to this, online shopping at stories.com will be launched in Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Spain, Sweden and the UK.
At the Annual General Meeting on 3 May 2012 a resolution on guidelines for remuneration of senior executives within H&M in accordance with the Swedish Companies Act was approved. The guidelines below are effective until the 2013 Annual General Meeting.
The term "senior executives" covers the Managing Director, other members of executive management, country managers and certain key individuals. The number of individuals covered by the term senior executives is currently around 40.
Compensation for senior executives is based on factors such as work tasks, expertise, position, experience and performance. Senior executives are compensated at what are considered by the company to be competitive market rates. Senior executives are also entitled to the benefits provided under the H&M Incentive Program.
H&M is present in more than 30 countries excluding franchise markets and levels of compensation may therefore vary from country to country. Senior executives receive a fixed salary, pension benefits and other benefits such as car benefits. The largest portion of the remuneration consists of the fixed salary. For information on variable components, see the section below.
In addition to the ITP plan, executive management and certain key individuals are covered by either a defined benefit or defined contribution pension plan. The retirement age for these individuals varies between 60 and 65 years. Members of executive management and country managers who are employed by a subsidiary abroad are covered by local pension arrangements and a defined contribution plan. The retirement age for these is in accordance with local retirement age rules. The cost of these commitments is partly covered by separate insurance policies.
The period of notice for senior executives varies from three to twelve months. No severance pay agreements exist within H&M other than for the Managing Director.
The retirement age for the Managing Director is 65. The Managing Director is covered by the ITP plan and a defined contribution plan. The total pension cost shall amount in total to 30 percent of the Managing Director's fixed salary. The Managing Director is entitled to 12 months' notice. In the event the company cancels the Managing Director's employment contract, the Managing Director will also receive severance pay of an extra year's salary.
The Managing Director, country managers, certain senior executives and certain key individuals are included in a bonus scheme. The size of the bonus per person is based on a certain percentage of the increase in the dividend approved by the Annual General Meeting and the fulfilment of targets in their respective areas of responsibility. For the Managing Director, the bonus is based on 0.3 percent of the dividend increase up to a maximum of SEK 0.9 m net after tax. In the case of the Head of Sales the bonus is based on 0.2 percent of the dividend increase, up to a maximum of SEK 0.6 m net after tax. For other senior executives the figure is 0.1 percent of the dividend increase, with a maximum of SEK 0.3 m net after tax. Net after tax means that income tax and social security costs are not included in the calculation. The bonuses that are paid out must be invested entirely in shares in the company, which must be held for at least five years. Since H&M is present in markets with varying personal income tax rates, the net model has been chosen because it is considered fair that the recipients in the different countries should be able to purchase the same number of H&M shares for the amounts that are paid out.
In individual cases other members of executive management, key individuals and country managers may, at the discretion of the Managing Director and the Chairman of the Board, receive one-off payments up to a maximum of 30 percent of their fixed yearly salary.
The Board of Directors may deviate from these guidelines in individual cases where there is a particular reason for doing so.
The Board's proposed guidelines for adoption at the 2013 AGM differ somewhat from the guidelines above.
The guidelines proposed to the 2013 AGM differ from the 2012 guidelines in respect of the section on variable remuneration. In other respects the proposed guidelines for senior executives are identical, other than that the number of countries included is more than 35.
The proposal is given below. In brief, it is proposed that the link to the increase in dividend is removed, that the target criteria are clearly defined and that the ceiling on the maximum bonus remains exactly the same as in previous years; just as previously, the sum is to be invested in H&M shares that are to be held for at least five years.
The Managing Director, country managers, certain senior executives and certain key individuals are included in a bonus scheme. The size of the bonus per person is based on the fulfilment of targets in their respective areas of responsibility. The result is linked to the measurable profit targets (qualitative, quantitative, general, individual) set in advance within their respective areas of responsibility. These targets also include measurable targets for sustainability. The targets within each area of responsibility are aimed at promoting H&M's development in both the short and the long term.
For the Managing Director the maximum bonus is SEK 0.9 m net after tax. For other senior executives the maximum bonus is SEK 0.3 m net after tax. Net after tax means that income tax and social security costs are not included in the calculation. The bonuses that are paid out must be invested entirely in shares in the company, which must be held for at
least five years. Since H&M is present in markets with varying personal income tax rates, the net model has been chosen because it is considered fair that the recipients in the different countries should be able to purchase the same number of H&M shares for the amounts that are paid out.
In individual cases other members of executive management, key individuals and country managers may, at the discretion of the Managing Director and the Chairman of the Board, receive one-off payments up to a maximum of 30 percent of their fixed yearly salary.
The Board of Directors of H&M will submit a new proposal ahead of the 2013 Annual General Meeting for the basis on which future contributions are made to the H&M Incentive Program (HIP). Similar to the proposal to amend the guidelines for senior executives, the proposed change to HIP involves the following change: that the link between the programme and the increase in dividend shall no longer form a basis for future contributions to the HIP. More information on the proposal to change contributions to the HIP will be presented in the notice convening the 2013 Annual General Meeting and also on hm.com.
According to H&M's articles of association, H&M's Board is to consist of at least three but no more than twelve members elected by the AGM and no more than the same number of deputies. The Annual General Meeting decides the exact number of Board members, and which individuals are to be elected to the Board. Board members are elected for the period until the end of the next Annual General Meeting. The Annual General Meeting also decides on amendments to the articles of association.
The total number of shares in H&M is 1,655,072,000, of which 194,400,000 are class A shares (ten votes per share) and 1,460,672,000 are class B shares (one vote per share). Class A shares are not listed. Class B shares are listed on the Stockholm stock exchange, NASDAQ OMX Stockholm AB. Ramsbury Invest AB holds all 194,400,000 class A shares, which represent 57.1 percent of the votes, as well as 393,049,043 class B shares, which represent 11.5 percent of the votes. This means that as of 30 November 2012, Ramsbury Invest AB represents 68.6 percent of the votes and 35.5 percent of the total number of shares. Ramsbury Invest AB is owned by Stefan Persson and family, and primarily by Stefan Persson. Karl-Johan Persson is also a shareholder in Ramsbury Invest AB. In 2011 the shares that Stefan Persson previously owned privately were transferred to Ramsbury Invest AB as a shareholder contribution, as a result of which Stefan Persson has no private shareholding in H&M as of 30 November 2012.
There are no restrictions on voting rights or authorisations to the Board relating to the issue or acquisition of the company's own shares.
H&M has elected to present its corporate governance report as a separate document to the Annual Report in accordance with Chapter 6 § 8 of the Swedish Annual Accounts Act.
A number of factors may affect the results and business of the H&M Group. Most of these can be dealt with through internal routines, while some are influenced more by external factors.
There are risks and uncertainties related to fashion, weather conditions, macroeconomic changes, climate change, trade interventions, external factors in production countries and foreign currencies, but also in connection with expansion into new markets, the launch of new concepts and how the brand is managed.
Operating in the fashion industry is a risk in itself. Fashion has a limited shelf-life, and there is always a risk that some part of the collections will not be well received by customers.
Within each concept it is important to have the right volumes and achieve the right balance in the mix between fashion basics and the latest trends. In summary, each collection must achieve the right combination of fashion and quality at the best price. To optimise fashion precision, the Group buys items on an ongoing basis throughout the season.
The purchasing patterns are relatively similar in the various markets, although differences do exist. The start of the season and the duration of a season may, for example, vary from country to country. Delivery dates and product volumes for the various countries and stores are therefore adjusted accordingly.
The H&M Group's products are purchased in order to be sold in stores on the basis of normal weather patterns. Deviations from normal weather conditions may affect sales. This is particularly true at the transition between two seasons, such as the transition from summer to autumn.
There is a risk that negative macroeconomic changes in one or more countries will result in an economic downturn, which is likely to change consumer purchasing behaviour and thus affect the Group's sales. It is therefore important to be aware of such changes which may affect the Group's business and to have a flexible buying model that can be adjusted to different market conditions.
Uncertainties also exist concerning how external factors such as raw materials prices, transport costs and suppliers' capacity will affect buying costs for the Group's products. The Group therefore needs to monitor such changes closely and have strategies in place to deal with fluctuations in external factors as advantageously as possible for both the company and its customers.
There is a risk that the H&M Group's business may be affected by future regulation and increased costs, e.g. in the form of emissions trading and carbon taxes in H&M's various sales markets. These can essentially be regarded as competition-neutral. The risks that may arise as a result of climate change and natural disasters primarily in production countries can be considered very limited bearing in mind H&M's flexible business model, which can be adapted quickly to changed circumstances.
Buying costs may be affected by decisions at a national level on export/import subsidies, customs duties, textile quotas, embargoes, etc. The effects primarily impact customers and companies in individual markets. Global companies with operations in many countries are affected to a lesser extent, and among global corporations trade interventions may be regarded as largely competition-neutral.
More than half of the Group's sales are made in euros and the most significant currencies in which the Group's purchasing takes place are the US dollar and the euro. Fluctuation in the US dollar/euro exchange rate is the single largest transaction exposure for the Group. To hedge flows of goods in foreign currencies and thereby reduce the effects of future exchange rate fluctuations, the Group's flows of goods and the corresponding inflows from the sales companies to the central buying company H & M Hennes & Mauritz GBC AB are hedged under forward contracts on an ongoing basis.
In addition to the effects of transaction exposure, translation effects also impact the Group's results due to changes in exchange rates between the local currencies of the various foreign sales companies and the Swedish krona compared to the same period the previous year. The underlying profit/loss in a market may be unchanged in the local currency, but when converted into SEK may increase if the Swedish krona has weakened or decrease if the Swedish krona has strengthened.
Translation effects also arise in respect of the Group's net assets on consolidation of the foreign sales companies' balance sheets. No exchange rate hedging (known as equity hedging) is carried out for this risk.
For more information on currency hedging and financial risks see Note 2, Financial risks.
H&M's financial goal is to enable the company to continue enjoying good growth and to be prepared to exploit future business opportunities. It is essential that the company's expansion is able to proceed as in the past with a continued high degree of financial strength and continued freedom of action.
On this basis the Board of Directors has established a dividend policy stating that the dividend should equal around half of the profit after taxes. In addition, the Board may propose the distribution of any surplus liquidity.
The Board of Directors has decided to propose to the 2013 Annual General Meeting a dividend of SEK 9.50 per share (9.50), which is equivalent to 93 percent (99) of the Group's profit after tax.
| SEK 16,330,917,410 | |
|---|---|
| as retained earnings | SEK 607,733,410 |
| To be carried forward | |
| SEK 9.50 per share | SEK 15,723,184,000 |
| Managing Director propose a dividend of |
|
| The Board of Directors and the | |
| Annual General Meeting: | SEK 16,330,917,410 |
| At the disposal of the |
The Board of Directors is of the opinion that the proposed distribution of earnings is justifiable taking into consideration the financial position and future freedom of action of the Group and the parent company, and observing the requirements that the nature and extent of the business, its risks and future expansion plans impose on the Group's and the parent company's equity and liquidity.
{Sek m}
| 1 DECEMBE R – 30 NOVEMBE R |
2012 | 2011 |
|---|---|---|
| Sales including VAT | 140,948 | 128,810 |
| Sales excluding VAT, Note 3, 4 | 120,799 | 109,999 |
| Cost of goods sold, Note 6, 8 | -48,928 | -43,852 |
| GROSS PROFIT | 71,871 | 66,147 |
| Selling expenses, Note 6, 8 | -46,608 | -42,517 |
| Administrative expenses, Note 6, 8, 9 | -3,509 | -3,251 |
| OPERATING PROFIT | 21,754 | 20,379 |
| Interest income | 536 | 568 |
| Interest expense | -5 | -5 |
| PROFIT AFTER FINANCIAL ITEMS | 22,285 | 20,942 |
| Tax, Note 10 | -5,418 | -5,121 |
| PROFIT FOR THE YEAR | 16,867 | 15,821 |
| All profit for the year is attributable to the shareholders of the parent company H & M Hennes & Mauritz AB. |
||
| Earnings per share, SEK* | 10.19 | 9.56 |
| Number of shares, thousands* | 1,655,072 | 1,655,072 |
* Before and after dilution.
| 1 DECEMBE R – 30 NOVEMBE R |
2012 | 2011 |
|---|---|---|
| PROFIT FOR THE YEAR | 16,867 | 15,821 |
| Other comprehensive income | ||
| Translation differences | -1,212 | -35 |
| Change in hedging reserves | -272 | -113 |
| Tax attributable to change in hedging reserves | 71 | 30 |
| OTHER COMPREHENSIVE INCOME | -1,413 | -118 |
| TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 15,454 | 15,703 |
All comprehensive income for the year is attributable to the shareholders of the parent company H & M Hennes & Mauritz AB.
{Sek m}
| 30 november | 2012 | 2011 | 30 november | 2011 | |
|---|---|---|---|---|---|
| ASSETS | EQUITY AND LIABILITIES | ||||
| FIXED ASSETS | EQUITY | ||||
| Intangible fixed assets | Share capital, Note 17 | 207 | 207 | ||
| Brands, Note 11 | 255 | 302 | Reserves | -1,900 | -487 |
| Customer relations, Note 11 | 71 | 84 | Retained earnings | 28,661 | 28,563 |
| Leasehold rights, Note 11 | 537 | 585 | Profit for the year | 16,867 | 15,821 |
| Capitalised expenditure, Note 11 | 631 | – | TOTAL EQUITY | 43,835 | 44,104 |
| Goodwill, Note 11 | 64 | 64 | |||
| 1,558 | 1,035 | LIABILITIES | |||
| Tangible fixed assets | Long-term liabilities* | ||||
| Buildings and land, Note 12 | 805 | 804 | Provisions for pensions, Note 18 | 377 | 377 |
| Equipment, tools, fixtures | Deferred tax liabilities, Note 10 | 1,951 | 950 | ||
| and fittings, Note 12 | 18,326 | 16,589 | 2,328 | 1,327 | |
| 19,131 | 17,393 | Current liabilities** | |||
| Long-term receivables | 628 | 608 | Accounts payable | 4,234 | 4,307 |
| Tax liabilities | – | 1,851 | |||
| Deferred tax receivables, Note 10 | 1,624 | 1,234 | Other liabilities | 2,765 | 2,428 |
| TOTAL FIXED ASSETS | 22,941 | 20,270 | Accrued expenses and prepaid income, Note 20 |
7,011 | 6,171 |
| 14,010 | 14,757 | ||||
| CURRENT ASSETS | |||||
| Stock-in-trade | 15,213 | 13,819 | TOTAL LIABILITIES | 16,338 | 16,084 |
| Current receivables | TOTAL EQUITY AND LIABILITIES | 60,173 | 60,188 | ||
| Accounts receivable | 2,207 | 2,337 | |||
| Tax receivables | 477 | – | Pledged assets and contingent | ||
| Other receivables | 1,056 | 1,375 | liabilities, Note 22 | – | – |
| Prepaid expenses, Note 13 | 1,136 | 1,110 | * Only provisions for pensions are interest-bearing. | ||
| 4,876 | 4,822 | ** No current liabilities are interest-bearing. | |||
| Short-term investments, Note 14 | 2,995 | 6,958 | |||
| Liquid funds, Note 15 | 14,148 | 14,319 | |||
| TOTAL CURRENT ASSETS | 37,232 | 39,918 | |||
| TOTAL ASSETS | 60,173 | 60,188 |
{Sek m}
Since there are no minority interests, all shareholders' equity is attributable to the shareholders of the parent company H & M Hennes & Mauritz AB.
| TRANSLATI ON | HEDGING | RETAINED | TOTAL SHA REH OLDERS' |
||
|---|---|---|---|---|---|
| SHARE CA PITAL | EFFECT S |
RESERVES | EARNING S |
EQUITY | |
| Shareholders ' equity , 1 December 2011 |
207 | -648 | 161 | 44,384 | 44,104 |
| Profit for the year | – | – | – | 16,867 | 16,867 |
| Other comprehensive income | |||||
| Translation differences | – | -1,212 | – | – | -1,212 |
| Change in hedging reserves | |||||
| Reported in other comprehensive income | – | – | 128 | – | 128 |
| Transfer to income statement | – | – | -400 | – | -400 |
| Tax attributable to hedging reserves | – | – | 71 | – | 71 |
| Other comprehensive income | – | -1,212 | -201 | – | -1,413 |
| Total comprehensive income | – | -1,212 | -201 | 16,867 | 15,454 |
| Dividend | – | – | – | -15,723 | -15,723 |
| Shareholders ' equity , 30 November 2012 |
207 | -1,860 | -40 | 45,528 | 43,835 |
| SHARE CAPITAL | TRANSLATI ON EFFECT S |
HEDGING RESERVES |
RETAINED EARNING S |
TOTAL SHA REH OLDERS' EQUITY |
|
|---|---|---|---|---|---|
| Shareholders ' equity , 1 December 2010 |
207 | -613 | 244 | 44,334 | 44,172 |
| Adjustment of opening balance* | – | – | – | -48 | -48 |
| Adjusted opening balance | 207 | -613 | 244 | 44,286 | 44,124 |
| Profit for the year | – | – | – | 15,821 | 15,821 |
| Other comprehensive income | |||||
| Translation differences | – | -35 | – | – | -35 |
| Change in hedging reserves | |||||
| Reported in other comprehensive income | – | – | -368 | – | -368 |
| Transfer to income statement | – | – | 255 | – | 255 |
| Tax attributable to hedging reserves | – | – | 30 | – | 30 |
| Other comprehensive income | – | -35 | -83 | – | -118 |
| Total comprehensive income | – | -35 | -83 | 15,821 | 15,703 |
| Dividend | – | – | – | -15,723 | -15,723 |
| Shareholders ' equity , 30 November 2011 |
207 | -648 | 161 | 44,384 | 44,104 |
* Adjustment of pension obligations related to prior years – see Note 18.
{Sek m}
| 1 DECEMBE R – 30 NOVEMBE R |
2012 | 2011 |
|---|---|---|
| Current operations | ||
| Profit after financial items* | 22,285 | 20,942 |
| Provisions for pensions | 10 | 120 |
| Depreciation | 3,705 | 3,262 |
| Tax paid | -7,021 | -5,666 |
| Cash flow from current operations before changes in working capital | 18,979 | 18,658 |
| Cash flow from changes in working capital | ||
| Current receivables | -8 | -244 |
| Stock-in-trade | -1,607 | -2,331 |
| Current liabilities | 1,536 | 1,337 |
| CASH FLOW FROM CURRENT OPERATIONS | 18,900 | 17,420 |
| Investment activities | ||
| Investment in leasehold rights | -125 | -71 |
| Investments in other intangible assets | -631 | – |
| Investment in buildings and land | -63 | -157 |
| Investment in equipment | -6,008 | -4,946 |
| Change in short-term investments, 4–12 months | 3,963 | 1,209 |
| Other investments | -37 | -91 |
| CASH FLOW FROM INVESTMENT ACTIVITIES | -2,901 | -4,056 |
| Financing activities | ||
| Dividend | -15,723 | -15,723 |
| CASH FLOW FROM FINANCING ACTIVITIES | -15,723 | -15,723 |
| CASH FLOW FOR THE YEAR | 276 | -2,359 |
| Liquid funds at beginning of the financial year | 14,319 | 16,691 |
| Cash flow for the year | 276 | -2,359 |
| Exchange rate effect | -447 | -13 |
| Liquid funds at end of the financial year** | 14,148 | 14,319 |
* Interest paid for the Group amounts to SEK 5 m (5). Interest received for the Group amounts to SEK 536 m (568).
** Liquid funds and short-term investments at the end of the financial year amounted to SEK 17,143 m (21,277).
{Sek m}
| 1 DECEMBE R – 30 NOVEMBE R |
2012 | 2011 |
|---|---|---|
| External sales excluding VAT | 30 | 24 |
| Internal sales excluding VAT, Note 5 | 7,271 | 6,958 |
| GROSS PROFIT | 7,301 | 6,982 |
| Selling expenses, Note 6, 8 | -2,788 | -2,235 |
| Administrative expenses, Note 6, 8, 9 | -3,281 | -2,671 |
| OPERATING PROFIT | 1,232 | 2,076 |
| Dividend from subsidiaries | 14,518 | 14,224 |
| Interest income | 139 | 151 |
| Interest expense | -1 | 0 |
| PROFIT AFTER FINANCIAL ITEMS | 15,888 | 16,451 |
| Year-end appropriations, Note 23 | -328 | -9 |
| Tax, Note 10 | -255 | -596 |
| PROFIT FOR THE YEAR | 15,305 | 15,846 |
| 1 DECEMBE R – 30 NOVEMBE R |
2012 | 2011 |
|---|---|---|
| PROFIT FOR THE YEAR | 15,305 | 15,846 |
| Other comprehensive income | – | – |
| TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 15,305 | 15,846 |
{Sek m}
| 30 NOVEMBE R |
2012 | 2011 | 30 NOVEMBE R |
2012 | 2011 |
|---|---|---|---|---|---|
| ASSETS | EQUITY AND LIABILITIES | ||||
| FIXED ASSETS | EQUITY | ||||
| Tangible fixed assets | Restricted equity | ||||
| Buildings and land, Note 12 | 47 | 45 | Share capital, Note 17 | 207 | 207 |
| Equipment, tools, fixtures and fittings, | Restricted reserves | 88 | 88 | ||
| Note 12 | 412 | 396 | 295 | 295 | |
| 459 | 441 | Non-restricted equity | |||
| Financial fixed assets | Retained earnings | 1,026 | 903 | ||
| Shares and participation rights, Note 24 | 588 | 590 | Profit for the year | 15,305 | 15,846 |
| Receivables from subsidiaries | 950 | 1,177 | 16,331 | 16,749 | |
| Long-term receivables | 13 | 13 | |||
| Deferred tax receivables, Note 10 | 51 | 63 | TOTAL EQUITY | 16,626 | 17,044 |
| 1,602 | 1,843 | ||||
| 2,061 | 2,284 | UNTAXED RESERVES, NOTE 25 | 456 | 128 | |
| TOTAL FIXED ASSETS | LIABILITIES | ||||
| CURRENT ASSETS | Long-term liabilities | ||||
| Current receivables | Provisions for pensions, Note 18 | 229 | 240 | ||
| Receivables from subsidiaries | 12,412 | 10,628 | |||
| Tax receivable | 300 | – | Current liabilities* | ||
| Other receivables | 43 | 33 | Accounts payable | 224 | 212 |
| Prepaid expenses, Note 13 | 25 | 14 | Tax liabilities | – | 445 |
| 12,780 | 10,675 | Other liabilities | 324 | 348 | |
| Accrued expenses and prepaid | |||||
| Short-term investments, Note 14 | 2,993 | 5,038 | income, Note 20 | 280 | 258 |
| 828 | 1,263 | ||||
| Liquid funds, Note 15 | 305 | 678 | TOTAL LIABILITIES | 1,057 | 1,503 |
| TOTAL CURRENT ASSETS | 16,078 | 16,391 | |||
| TOTAL EQUITY AND LIABILITIES | 18,139 | 18,675 | |||
| TOTAL ASSETS | 18,139 | 18,675 | |||
| Pledged assets | – | – | |||
| Contingent liabilities, Note 26 | 8,376 | 9,321 |
* No current liabilities are interest-bearing.
{Sek m}
| SHARE CA PITAL | RESTRICTED RESERVES |
RETAINED EARNING S |
TOTAL SHA REH OLDERS' EQUITY |
|
|---|---|---|---|---|
| Shareholders ' equity , 1 December 2011 |
207 | 88 | 16,749 | 17,044 |
| Profit for the year | – | – | 15,305 | 15,305 |
| Other comprehensive income | – | – | – | – |
| Total comprehensive income | – | – | 15,305 | 15,305 |
| Dividend | – | – | -15,723 | -15,723 |
| Shareholders ' equity , 30 November 2012 |
207 | 88 | 16,331 | 16,626 |
| SHARE CAPITAL | RESTRICTED RESERVES |
RETAINED EARNING S |
TOTAL SHA REH OLDERS' EQUITY |
|
|---|---|---|---|---|
| Shareholders ' equity , 1 December 2010 |
207 | 88 | 16,626 | 16,921 |
| Profit for the year | – | – | 15,846 | 15,846 |
| Other comprehensive income | – | – | – | – |
| Total comprehensive income | – | – | 15,846 | 15,846 |
| Dividend | – | – | -15,723 | -15,723 |
| Shareholders ' equity , 30 November 2011 |
207 | 88 | 16,749 | 17,044 |
{Sek m}
| 1 DECEMBE R – 30 NOVEMBE R |
2012 | 2011 |
|---|---|---|
| Current operations | ||
| Profit after financial items* | 15,888 | 16,451 |
| Provisions for pensions | -11 | 17 |
| Depreciation | 107 | 95 |
| Tax received/paid | -988 | -523 |
| Cash flow from current operations before changes in working capital | 14,996 | 16,040 |
| Cash flow from changes in working capital | ||
| Current receivables | -1,805 | -2,888 |
| Current liabilities | 10 | -6 |
| CASH FLOW FROM CURRENT OPERATIONS | 13,201 | 13,146 |
| Investment activities | ||
| Investment in buildings and land | -6 | – |
| Net investment in equipment | -119 | -119 |
| Adjustment of consideration/acquisition of subsidiaries | 2 | -10 |
| Change in short-term investments, 4–12 months | 2,045 | 3,129 |
| Other investments | 227 | 32 |
| CASH FLOW FROM INVESTMENT ACTIVITIES | 2,149 | 3,032 |
| Financing activities | ||
| Dividend | -15,723 | -15,723 |
| CASH FLOW FROM FINANCING ACTIVITIES | -15,723 | -15,723 |
| CASH FLOW FOR THE YEAR | -373 | 455 |
| Liquid funds at beginning of the financial year | 678 | 223 |
| Cash flow for the year | -373 | 455 |
| Liquid funds at end of the financial year** | 305 | 678 |
* Interest paid for the parent company amounts to SEK 1 m (0). Interest received for the parent company amounts to SEK 139 m (151).
** Liquid funds and short-term investments at the end of the financial year amounted to SEK 3,298 m (5,716).
The parent company H & M Hennes & Mauritz AB (publ) is a limited company domiciled in Stockholm, Sweden. The parent company's corporate identity number is 556042-7220. The company's shares are listed on the Stockholm stock exchange, NASDAQ OMX Stockholm AB. The Group's business consists mainly of sales of clothing, accessories, footwear, cosmetics and home textiles to consumers. The company's financial year is 1 December – 30 November. The annual report was approved for publication by the Board of Directors on 29 January 2013 and will be submitted to the Annual General Meeting for approval on 23 April 2013.
Ramsbury Invest AB's holding of shares in H & M Hennes & Mauritz AB represents around 35.5 percent of all shares and around 68.6 percent of the total voting power. Ramsbury Invest AB (556423-5769) is thus formally the parent company of H & M Hennes & Mauritz AB.
The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the interpretations provided by the IFRS Interpretations Committee. Since the parent company is a company within the EU, only IFRS approved by the EU are applied. The consolidated accounts also contain disclosures in accordance with the Swedish Financial Reporting Board's recommendation RFR 1, Supplementary Accounting Rules for Groups.
The financial statements are based on historical acquisition costs, apart from certain financial instruments which are reported at fair value.
The parent company's functional currency is Swedish kronor, which is also the reporting currency for the parent company and for the Group. Unless otherwise indicated, all amounts are reported in millions of Swedish kronor (SEK m).
The parent company applies the Swedish Annual Accounts Act and the Swedish Financial Reporting Board's recommendation RFR 2, Accounting for Legal Entities, which essentially means that IFRS is applied. In accordance with RFR 2, the parent company does not apply IAS 39 or IAS 38.57. Due to the link between reporting and taxation, year-end appropriations and untaxed reserves are reported in the parent company's financial statements.
With effect from the 2011/2012 financial year group contributions received by a parent company from subsidiaries are reported as financial income, while group contributions that a parent company provides to subsidiaries are reported either against participations in subsidiaries – in other words, in the same way as shareholder contributions – or as an expense, due to the link between reporting and taxation.
CHANGE S IN ACC OUNTING PRINCI PLES AND DISCLOSURE REQUI REMENT S The accounting principles and disclosure requirements applied for 2011/2012 are the same as those applied in the previous year.
isting standards have been published but have not yet entered into force. Of these, only the standards below are expected to have any effect on the consolidated financial statements.
be recognised separately from those items that are not recognised in profit and loss. The proposal does not change the actual content of other comprehensive income, only the way it is presented.
Until now the Group has recognised actuarial gains and losses in the income statement. Once the amended version of IAS 19 enters into force these will be recognised in other comprehensive income.
The preparation of the Annual Report and consolidated accounts requires estimates and assumptions to be made, as well as judgments in the application of the accounting principles. These affect recorded amounts for assets, liabilities, income, expenses and supplementary information. The estimates and assumptions are based on historical experience, other relevant factors and expectations of the future and are reviewed regularly. The actual outcome may therefore deviate from the estimates and assumptions made. It is judged that, as at 30 November 2012, there are no such estimates or assumptions made in the financial statements that involve a significant risk of any material adjustment to the values of assets and liabilities in the forthcoming financial year.
The consolidated accounts cover the parent company and its subsidiaries. Subsidiaries are included in the consolidated accounts from the date of acquisition, which is the date on which the parent company gains a controlling interest, and are included in the consolidated accounts until such date as the controlling interest ends. The acquisition method is used in the preparation of the consolidated accounts. The net assets of acquired subsidiaries are determined based on an assessment of the fair value of the assets, liabilities and contingent liabilities at the
time of acquisition. If the acquisition cost of the subsidiary's shares exceeds the calculated value of the net identifiable assets of the acquired company at the time of acquisition, the difference is reported as goodwill upon consolidation. If the acquisition cost is less than the finally established value of the net identifiable assets, the difference is reported directly in the income statement. The minority interest in the case of acquisitions of less than 100 percent is determined for each transaction either as a proportionate share of the fair value of net identifiable assets or at fair value. The financial reports for the parent company and the subsidiaries included in the consolidated accounts cover the same period and have been prepared in accordance with the accounting principles that apply to the Group. Intra-group income, expenses, receivables and liabilities, as well as unrealised gains and losses, are eliminated entirely in the preparation of the consolidated accounts.
Assets and liabilities in foreign subsidiaries are translated at the exchange rate on the closing date, while the income statement is translated at the average exchange rate for the financial year. The translation difference arising from this, and also as a result of the fact that the net investment is translated at a different exchange rate at the end of the year than at the beginning of the year, is posted directly to equity as a translation reserve, via the statement of comprehensive income. On disposal of a foreign business the accumulated translation differences in the income statement are posted together with the profit or loss on disposal.
Receivables and liabilities in foreign currencies are converted at the exchange rate on the closing date. Exchange rate differences arising on translation are reported in the income statement with the exception of exchange rate differences in respect of loans, which are to be regarded as net investment in a foreign business. Exchange rate differences of this type are posted to equity as translation differences via the statement of comprehensive income.
The Group's income is generated mainly by the sale of clothing and cosmetics to consumers. Sales revenue is reported less value-added tax, returns and discounts as sales excluding VAT in the income statement. Income is reported in conjunction with sale/delivery to the customer. Franchise sales have two components: sales of goods to franchisees, which are reported on delivery of the goods, and franchise fees, which are reported when the franchisee sells goods to the consumer. The Group's income exhibits seasonal variations. The first quarter of the financial year is normally the weakest and the last quarter the strongest. Interest income is reported as it is earned.
Advertising costs and other marketing activities are expensed on a continuous basis.
Intangible fixed assets with a finite useful life are reported at acquisition cost less accumulated amortisation and any accumulated write-downs. Amortisation is distributed linearly over the assets' expected useful life.
Development costs are capitalised to the extent that it is judged that the company will gain from future financial benefits and if the acquisition cost can be reliably calculated. The reported value includes the direct costs of services and materials acquired, as well as indirect costs attributable to the asset. Other development costs, as well as maintenance and training initiatives, are recognised as expenses in the income statement as they arise.
Goodwill is the amount by which the acquisition cost of the subsidiary's shares exceeds the calculated value of the subsidiary's net identifiable assets upon acquisition. Goodwill on acquisition of subsidiaries is reported as intangible assets. Intangible assets with an indefinite useful life, including goodwill, are tested for impairment annually or more often if there is an indication of a decline in value. If the book value of the asset exceeds the recoverable amount (the higher of the net realisable value and the value in use), the necessary amount is written down. Any write-down is recognised in profit/loss.
Costs relating to tangible fixed assets are reported in the balance sheet if it is likely that the company will gain from future financial benefits associated with the asset and if the asset's acquisition cost can be reliably calculated. Other costs and costs relating to ongoing maintenance and repair are reported as an expense in the period in which they arise. Tangible fixed assets are reported at acquisition cost less accumulated depreciation and any accumulated write-downs. Depreciation is distributed linearly over the assets' expected useful life. No depreciation is applied to land. The book value of tangible fixed assets is tested for impairment. If the asset's book value exceeds the recoverable amount (the higher of the net realisable value and the value in use), the required amount is written down. Any write-down is recognised in profit/loss.
Leasing agreements in which a substantial portion of the risks and benefits of ownership are retained by the lessor are classified as operational leases. Financial leases exist when the financial risks and benefits associated with the ownership of an object are essentially transferred from the lessor to the lessee, regardless of whether the legal ownership lies with the lessor or the lessee. Assets held under financial leases are reported as fixed assets and future payment commitments are reported as liabilities in the balance sheet. As of the closing date the Group had no financial leases. Minimal leasing agreements relating to operational leases are recognised in the income statement as an expense and distributed linearly over the term of the agreement. The Group's main leases are rental agreements for premises. Variable (sales-based) rents are recognised in the same period as the corresponding sales.
Financial instruments recognised in the balance sheet include on the assets side liquid funds, accounts receivable, short-term investments, long-term receivables and derivatives. On the liabilities side are accounts payable and derivatives. Financial instruments are reported in the balance sheet when the Group
becomes a party to the contractual terms of the instrument. Financial assets are removed from the balance sheet when the contractual rights to the cash flows from the asset cease. Financial liabilities are removed from the balance sheet when the obligation is met, cancelled or ends.
This category consists of two sub-groups: financial assets and liabilities held for trading, and other financial assets and liabilities that the company initially chose to place in this category when they were first recognised. Assets and liabilities in this category are assessed continually at fair value, with changes in value recognised in profit/loss. No financial assets or liabilities have been classified in this category.
This category primarily covers cash and bank balances as well as accounts receivable. Cash and bank balances are valued at the accrued acquisition cost. Accounts receivable have a short expected term and are recognised at the original invoiced amount without discount, with deductions for doubtful receivables.
Financial assets held to maturity are assets with payment flows that are fixed or that can be established in advance and with a fixed term which the Group has the express intention and capacity to hold until maturity. Assets in this category are valued at accrued acquisition cost, with the effective interest rate being used to calculate the value. As of the closing date, all of the Group's short-term investments fell into this category.
This category contains financial assets that were either placed in this category at the time of acquisition or have not been classified in any other category. These are valued continually at fair value, with changes in value recognised in equity as a fair value reserve, via the statement of comprehensive income. No financial assets have been classified in this category.
Financial liabilities that are not held for trading are assessed at their accrued acquisition value. Accounts payable fall into this category. These have a short expected term and are recognised at the nominal amount with no discounting.
Reporting of derivatives used for hedging purposes All derivatives are reported initially and continually at fair value in the balance sheet. The result of revaluation of derivatives used for hedging is reported as described in the section Derivatives and Hedge Accounting.
Liquid funds consist of cash and bank balances as well as shortterm investments with a maximum term of three months from the date of acquisition. These investments carry no significant risk of changes in value.
The Group's policy is for derivatives to be held for hedging purposes only. Derivatives comprise forward currency contracts used to hedge the risk of exchange rate fluctuation for internal and external flows of goods.
To meet the requirements of hedge accounting there must be a clear link to the hedged item. In addition, the hedge must effectively protect the hedged item, hedge documentation must have been prepared and the effectiveness must be measurable.
In hedge accounting, derivatives are classified as cash flow hedging or as fair value hedging. In the past financial year and the previous financial year all of the Group's derivatives were in the cash flow hedging category. How these hedging transactions are reported is described below.
Hedging of forecast currency flows – cash flow hedging
Derivatives that hedge the forecast flow are reported in the balance sheet at fair value. Changes in value are reported in equity as a hedging reserve, via the statement of comprehensive income, until such time as the hedged flow is recognised in the operating profit, at which time the hedging instrument's accumulated changes in value are transferred to the income statement where they then correspond to the profit/loss effects of the hedged transaction.
When a hedging instrument is used to hedge fair value, the hedges are reported at fair value in the balance sheet and, correspondingly, the contracted flow is also reported at fair value with regard to the currency risk being hedged. Changes in the value of a derivative are reported in the income statement together with changes in the value of the hedged item. Cash flow hedging may also be used for contracted flows of goods.
Stock-in-trade is valued at the lower of the acquisition cost and the net realisable value. From the moment the goods are transferred from the supplier to the transport service provider appointed by H&M, the goods are owned according to civil law by H&M and become part of H&M's reported stock-in-trade. The net realisable value is the estimated market value less the calculated selling expenses. Goods that have not yet arrived at a store are valued at their actual acquisition cost including the estimated cost of customs duties and freight.
For stock in the stores the acquisition cost is determined by reducing the selling price by the calculated gross margin (retail method).
The costs of the incentive programme are recognised in accordance with the rules on short-term profit-sharing and bonus schemes set out in IAS 19. The expense is recognised when the amount has been established and an obligation exists.
H&M has several different plans for benefits after employment has ended. The plans are either defined benefit or defined contribution plans. Defined contribution plans are reported as an expense in the period when the employee performs the service to which the benefit relates. Defined benefit plans are assessed
separately for the respective plan based on the benefits earned during the previous and current periods. The defined benefit obligations less the fair value of managed assets are reported under the heading 'Provisions for pensions'. Defined benefit plans are primarily found in Sweden. Pension obligations are assessed annually with the help of independent actuaries according to the so-called Projected Unit Credit Method. The assessment is made using actuarial assumptions. These assumptions include such things as the discount rate, anticipated salary and pension increases as well as the expected return on managed assets. Changes in the actuarial assumptions and outcomes that deviate from the assumptions give rise to actuarial gains or losses. Such gains or losses are recognised in profits in the year they arise.
For salaried employees in Sweden, H&M applies the ITP plan through an insurance policy with Alecta. According to the statement issued by the Swedish Financial Reporting Board (UFR 3), this is a defined benefit plan that covers a number of employers. The plan will be reported as a defined contribution plan until the company gains access to the information allowing this plan to be reported according to the rules for defined benefit plans.
Alecta's surplus cannot be allocated to the insured employer and/or the insured employees. As of 30 September 2012, Alecta's consolidation ratio was 123 percent (113). The consolidation ratio is calculated as the fair value of managed assets as a percentage of the obligations calculated in accordance with Alecta's actuarial assumptions. This calculation is not in line with IAS 19.
Provisions are reported in the balance sheet when there is an undertaking as a result of an event occurring and it is likely that an outflow of resources will be required for the undertaking and when the amount can be reliably estimated.
Income taxes in the income statement represent current and deferred corporation tax payable by Swedish and foreign subsidiaries. Current tax is tax that will be paid or received in respect of the current year as well as adjustments to current tax attributable to previous periods. The income tax rate in force in each country is applied.
Deferred tax is calculated according to the balance sheet method based on temporary differences arising between reported and fiscal values of assets and liabilities. Deferred tax is calculated using the tax rates that are expected to apply in the period when the receivables are deducted or the liabilities are settled, based on the tax rates (and the tax legislation) in force on the closing date. Deferred tax receivables are recognised for all temporary differences unless they relate to goodwill or an asset or a liability in a transaction that is not a company acquisition and that, at the time of acquisition, affects neither the reported nor taxable profit or loss for the period. Also, temporary differences relating to investments in subsidiaries and associated companies are taken into account only to the extent it is likely that the temporary difference will be reversed in the foreseeable future. Deferred tax receivables for temporary differences and loss carry-forwards are recognised only to the extent it is likely that these will be able to be utilised.
The recorded values of deferred tax receivables are tested as of each closing date and reduced where it is no longer deemed likely that they will be able to be utilised.
The cash flow statement is prepared according to the indirect method. The reported cash flow covers only transactions involving payments in or out.
The Group's business consists mainly of sales of clothing and cosmetics to consumers. Internal follow-up is carried out by country. In order to clearly present the information for different segments, the operations have until now been divided into three geographical regions: the Nordic region, Euro Zone Countries excluding Finland, and the Rest of the World. In order to better reflect the company's current geographical spread, with effect from 2013 reporting will be divided into the following three segments: Europe, Asia and North & South America. The parent company and other subsidiaries with no external sales are reported in a separate Group-wide segment. The same accounting principles are applied to segment reporting as in the consolidated accounts. Transactions between segments take place on normal commercial terms.
The Group's financing and management of financial risk is carried out centrally within the Group's finance department in accordance with a financial policy established by the Board of Directors. The financial policy is the most important financial control tool for the company's financial activities and establishes the framework within which the company works. The Group's accounting principles for financial instruments, including derivatives, are described in Note 1.
In the course of doing business the Group is exposed to risk associated with financial instruments, such as liquid funds, short-term investments, accounts receivable and accounts payable. The Group also executes transactions involving currency derivatives for the purpose of managing currency risk that arises in the course of the Group's business.
The risks relating to these instruments are primarily the following:
Interest risk is the risk that the value of a financial instrument will vary due to changes in market interest rates and that changes in market interest rates may affect net profit. The Group's exposure to risk from changes in interest rates relates to liquid funds and short-term investments. The original term of the investments is a maximum of twelve months by the closing date. The financial policy permits investments of up to two years. The Group's liquid funds and short-term investments as of the closing date amounted to SEK 17,143 m (21,277). The short term means that the risk of changes in value is limited. An interest rate increase of 0.5 percentage units on this amount would increase interest income by SEK 86 m (106). A corresponding decrease in the interest rate would reduce interest income by the same amount.
Currency risk is, among other things, the risk that the value of financial instruments or future cash flows will vary due to changes in exchange rates.
Currency exposure associated with financial instruments H&M's currency risk associated with financial instruments is mainly related to financial investments, accounts payable and derivatives. Most of the surplus liquidity is located in Sweden and is invested in SEK, which reduces the Group's currency risk. The Group's accounts payable in foreign currencies are mainly handled in Sweden and are to a large extent hedged through forward contracts. Based on this, a change in the value of the Swedish krona of 2 percent in relation to other currencies would result in an insignificant momentary effect on profit related to the financial instrument holdings as of the closing date. A 2 percent strengthening of the Swedish krona would have a positive effect on the hedge reserve in equity of around SEK 75 m (60) before taking into account the tax effect.
The Group's exposure to outstanding derivative instruments is reported in Note 16.
The Group's operating result for the year was affected by exchange rate differences relating to flows of goods in the amount of SEK 161 m (154).
Transaction exposure associated with commercial flows The payment flows in the form of payments in foreign currencies for accounts receivable and payable expose the Group to currency risk. To manage the currency risk relating to changes in exchange rates the Group hedges its currency risk within the framework of the financial policy. The currency risk exposure is dealt with at central level. Most of the Group's sales are made in euros, and the Group's most significant purchase currencies are the US dollar and the euro. Fluctuation in the US dollar/euro exchange rate is the single largest transaction exposure within the Group. To hedge the flows of goods in foreign currencies and thereby reduce the effects of future exchange rate fluctuations, 100 percent of the Group's purchases of goods and corresponding forecast inflows from the sales companies are hedged under forward contracts on an ongoing basis. The average term of outstanding forward contracts is around four months. Since the sole purpose of this currency management is to reduce risk, only exposure in the flow of goods is hedged.
In addition to the effects of transaction exposure, profits are also affected by translation effects as a result of changes in exchange rates for the local currencies of the various foreign subsidiaries against the Swedish krona, compared to the same period the previous year. The underlying profit/loss in a market may be unchanged in the local currency, but when converted into SEK may increase if the Swedish krona has weakened or decrease if the Swedish krona has strengthened. Translation effects affect the Group's net assets on consolidation of the foreign subsidiaries' balance sheets (translation exposure in the balance sheet). No exchange rate hedging (equity hedging) is carried out for this risk.
Investments are only permitted to be made in banks based in countries with a minimum rating of AA- (according to Standard & Poor's long-term rating) and funds are only invested in banks with a minimum rating of A- (Standard & Poor's) and A3 (Moody's). The finance policy stipulates for various ratings the maximum amount that may be invested and the term for which it may be invested. Investments are only allowed in banks defined by Standard & Poor's or Moody's as having systemic importance in the country where they are based. Under Standard & Poor's rating model the bank shall have at least "moderate systemic importance" and under Moody's model the bank shall have at least "one-notch uplift for systemic support". No further investments shall be made in countries or banks which have the minimum allowed long-term rating and a negative outlook. Maximum credit exposure as of 30 November 2012 totalled SEK 20,136 m (24,678) and corresponds to the book value of liquid assets of SEK 14,148 m (14,319), short-term investments of SEK 2,995 m (6,958), accounts receivable of SEK 2,207 m (2,337) and other SEK 786 m (1,064). Accounts receivable are divided between a large number of customers with low amounts per customer. The average debt was around SEK 2,000 (1,900). Bad debts during the year from accounts receivable were insignificant.
In view of the Group's good liquidity and good cash flow, H&M sees no need for any borrowing at the present time. The Group has no external borrowing as at the closing date.
| 2012 | 2011 | |
|---|---|---|
| Nordic Region | ||
| External net sales | 16,555 | 16,343 |
| Operating profit | 619 | 614 |
| Operating margin, % | 3.7 | 3.8 |
| Assets excluding tax receivables | 5,812 | 6,301 |
| Liabilities excluding tax liabilities | 1,778 | 1,496 |
| Investments | 436 | 344 |
| Depreciation | 321 | 303 |
| Eurozone excluding Finland | ||
| External net sales | 58,052 | 56,687 |
| Operating profit | 1,881 | 1,486 |
| Operating margin, % | 3.2 | 2.6 |
| Assets excluding tax receivables | 17,518 | 17,598 |
| Liabilities excluding tax liabilities | 3,837 | 3,556 |
| Investments | 1,951 | 1,796 |
| Depreciation | 1,518 | 1,450 |
| Rest of the World | ||
| External net sales | 46,192 | 36,969 |
| Operating profit | 2,909 | 2,989 |
| Operating margin, % | 6.3 | 8.1 |
| Assets excluding tax receivables | 17,160 | 15,202 |
| Liabilities excluding tax liabilities | 3,822 | 3,110 |
| Investments | 3,576 | 2,543 |
| Depreciation | 1,607 | 1,274 |
| 2012 | 2011 | |
|---|---|---|
| Group Functions | ||
| Net sales to other segments | 69,047 | 59,778 |
| Operating profit | 16,345 | 15,290 |
| Operating margin, % | 23.7 | 25.6 |
| Assets excluding tax receivables | 17,582 | 19,853 |
| Liabilities excluding tax liabilities | 4,950 | 5,121 |
| Investments | 864 | 491 |
| Depreciation | 259 | 235 |
| Eliminations Net sales to other segments |
-69,047 | -59,778 |
| Total | ||
| External net sales | 120,799 | 109,999 |
| Operating profit | 21,754 | 20,379 |
| Operating margin, % | 18.0 | 18.5 |
| Assets excluding tax receivables | 58,072 | 58,954 |
| Liabilities excluding tax liabilities | 14,387 | 13,283 |
| Investments | 6,827 | 5,174 |
| Depreciation | 3,705 | 3,262 |
The parent company and other subsidiaries with no external sales are reported in a separate Group-wide segment.
The Group's tangible fixed assets amounted to SEK 19,131 m (17,393) as of 30 November 2012. The fixed assets are largely distributed between the countries in accordance with each country's level of sales.
| 2012 | No. of stores 30 nov. 2012 |
2011 | No. of stores 30 nov. 2011 |
|
|---|---|---|---|---|
| Sweden | 6,625 | 177 | 6,704 | 173 |
| Norway | 4,495 | 111 | 4,322 | 104 |
| Denmark | 3,444 | 94 | 3,362 | 90 |
| UK | 8,968 | 226 | 7,921 | 213 |
| Switzerland | 5,389 | 82 | 5,553 | 80 |
| Germany | 25,499 | 406 | 24,997 | 394 |
| Netherlands | 5,608 | 124 | 5,885 | 118 |
| Belgium | 2,696 | 70 | 2,609 | 66 |
| Austria | 3,992 | 68 | 4,002 | 66 |
| Luxembourg | 374 | 10 | 345 | 10 |
| Finland | 1,987 | 53 | 1,948 | 47 |
| France | 8,341 | 182 | 7,806 | 168 |
| USA | 11,950 | 269 | 9,209 | 233 |
| Spain | 4,917 | 146 | 4,968 | 132 |
| Poland | 2,401 | 103 | 2,255 | 89 |
| Czech Republic | 642 | 31 | 603 | 24 |
| Portugal | 701 | 23 | 732 | 23 |
| Italy | 4,016 | 104 | 3,667 | 87 |
| Canada | 2,802 | 61 | 2,491 | 58 |
| Slovenia | 405 | 12 | 420 | 12 |
| Ireland | 495 | 16 | 441 | 15 |
| Hungary | 492 | 26 | 397 | 20 |
| Slovakia | 282 | 13 | 212 | 10 |
| Greece | 685 | 25 | 621 | 22 |
| China | 4,884 | 134 | 3,283 | 82 |
| Japan | 2,385 | 22 | 1,476 | 15 |
| Russia | 1,824 | 37 | 1,299 | 19 |
| South Korea | 540 | 11 | 373 | 6 |
| Turkey | 408 | 11 | 283 | 8 |
| Romania | 512 | 19 | 267 | 11 |
| Croatia | 488 | 11 | 215 | 6 |
| Singapore | 383 | 2 | 104 | 1 |
| Bulgaria | 101 | 4 | – | – |
| Latvia | 30 | 2 | – | – |
| Malaysia | 84 | 2 | – | – |
| Mexico | 40 | 1 | – | – |
| Franchise | 1,914 | 88 | 1,229 | 70 |
| Total | 120,799 | 2,776 | 109,999 | 2,472 |
The parent company's internal sales consist of royalties from Group companies of SEK 7,271 m (6,958).
| Subsidiaries | 61 | 14,250 | 3,179 | 141 | 6 |
|---|---|---|---|---|---|
| Sweden, parent company |
79 | 607 | 358 | 127 | 31 |
| 2011 | Board, MD, executive management, salary |
Salary, other employees |
Social sec. costs total |
of which pens. total |
of which pens. Board, MD, executive management |
| Group total | 140 | 15,969 | 3,809 | 278 | 31 |
| company Subsidiaries |
77 63 |
786 15,183 |
391 3,418 |
121 157 |
23 8 |
| Sweden, parent | |||||
| 2012 | Board, MD, executive management, salary |
Salary, other employees |
Social sec. costs total |
of which pens. total |
of which pens. Board, MD, executive management |
Board fees paid for the year as approved by the 2011 AGM amounted to SEK 4,850,000 (4,250,000). Board fees were paid as follows:
| SEK | |
|---|---|
| Stefan Persson, Chairman | 1,450,000 |
| Mia Brunell Livfors | 450,000 |
| Anders Dahlvig | 450,000 |
| Lottie Knutson | 450,000 |
| Sussi Kvart | 550,000 |
| Bo Lundquist | 600,000 |
| Melker Schörling | 450,000 |
| Christian Sievert | 450,000 |
The fees were paid as resolved at the 2011 Annual General Meeting. This means that the fees relate to the period until the next AGM is held; that is, for the period 28 April 2011 to 3 May 2012. The amounts were paid out after the 2012 AGM.
As of the AGM on 3 May 2012 the Board consists of eight ordinary members elected by the AGM. There are also two employee representatives, with two deputies for these positions. Seven members of the Board are women, five are men, and four of the 12 are employed by the company.
Based on the resolution on guidelines adopted by the 2012 AGM. See Administration report pages 45–46.
Remuneration paid to the Managing Director for the 2012 financial year in the form of salary and benefits amounted to SEK 12.0 m (13.9), which included variable remuneration of SEK 0 m (2.1). Pension benefits for the Managing Director are covered by a defined contribution plan and by the ITP plan. The combined pension expenses shall amount in total to 30 percent of the Managing Director's fixed salary. Pension expenses amounted to SEK 3.6 m (3.5). The retirement age for the Managing Director is 65.
The Managing Director is entitled to a 12-month period of notice. In the event the company cancels his employment contract, the Managing Director will also receive severance pay of an extra year's salary. The Managing Director's terms of employment are determined by the Board of Directors.
The former Managing Director retired on 1 September 2009. The total pension commitments entered as liabilities, which are based on the fact that the former Managing Director will receive a pension for the first three years of his retirement equivalent to 65 percent of his fixed salary followed by a lifelong pension equivalent to 50 percent of the same salary, amount to SEK 151.4 m (158.6). The change in the year's pension commitments entered as liabilities include actuarial gains of SEK 3.6 m (actuarial losses of SEK 19.5 m). Pension costs for the former Managing Director are included under "of which pensions to Board, MD, executive management".
In addition to the Managing Director, the executive management team consists of the heads of the following functions: Finance, Buying, Production, Sales, Expansion, IR, Accounts, Marketing, HR, Communications, Sustainability, Security, Business Development, New Business, IT and Logistics. There are rules in place for these individuals with respect to supplements to retirement pension beyond the ITP plan. The retirement age varies between 60 and 65. The cost of this commitment is partially covered by separate insurance policies.
During 2012 variable remuneration of SEK 3.9 m (6.1) was paid to country managers. No severance pay agreements exist within the Group other than for the Managing Director as described above. The terms of employment for other members of the executive management are determined by the Managing Director and the Chairman of the Board.
An extraordinary general meeting held on 20 October 2010 resolved to introduce an incentive programme for all employees of the H&M Group.
The programme was initiated by Stefan Persson and family through the donation of 4,040,404 H&M shares worth around SEK 1 billion to a Swedish foundation, Stiftelsen H&M Incentive Program.
All employees of the H&M Group, regardless of their position and salary level, are included in the programme according to the same basic principle – based on length of employment, either full-time or part-time. The number of years that the employee has worked for the company previously are taken into account in the qualification period, which is five years unless local rules require otherwise. As a general rule, funds will begin to paid out no earlier than the age of 62. However, it will
also be possible for payouts to be made after ten years of employment – but no earlier than 2021.
At present the contribution to the H&M Incentive Program is usually based on 10 percent of the increase in dividend compared with the previous year's dividend, provided this amounts to no more than 2 percent of the total dividend. There is a certain amount of flexibility as regards proposed contributions. One example of an exceptional situation is a year in which there is no increase in dividend. The Board may propose to the AGM that a contribution be made to the foundation nonetheless, in order to reward employees. Another example might be a year in which the dividend increase is disproportionately high; in this case, the previously mentioned cap of 2 percent of the total dividend could be applied. The contribution represents a cost to the H&M Group and does not affect the dividend resolution passed. It does not result in any dilution of existing shares. The contribution to the foundation is to be invested in H&M shares. H&M has no other commitments beyond this. The Board of Directors will propose to the 2013 AGM that the basis for future contributions to the H&M Incentive Program be changed. For information refer to the Administration report.
In the consolidated accounts the costs of the incentive programme are recognised in accordance with the rules on short-term profit-sharing and bonus schemes set out in IAS 19. The expense will be recognised when the amount has been established and an obligation exists.
The first units in the foundation were awarded to employees in 2011 and were based on the 2010 earnings year. The first contribution by H&M to the foundation was also made in 2011. The contribution was based on the increase in dividend compared with the previous year's dividend. The contribution, which was made after the 2011 AGM, was SEK 248 m. The cost of the contribution was expensed in the second quarter of the 2011 financial year.
In 2012 no contribution (248) was made to the H&M Incentive Program because the 2012 dividend was unchanged from 2011, but since the HIP is a shareholder in H&M the foundation benefited from the dividend that was paid in 2012.
| 2012 | 2011 | |||
|---|---|---|---|---|
| Total | Male % | Total | Male % | |
| Sweden | 6,220 | 23 | 5,855 | 22 |
| Norway | 1,742 | 10 | 1,740 | 9 |
| Denmark | 1,433 | 8 | 1,397 | 8 |
| UK | 5,600 | 23 | 5,404 | 23 |
| Switzerland | 1,931 | 14 | 1,985 | 14 |
| Germany | 13,141 | 19 | 12,498 | 19 |
| Netherlands | 2,464 | 14 | 2,403 | 16 |
| Belgium | 1,912 | 25 | 1,836 | 25 |
| Austria | 1,873 | 10 | 1,906 | 9 |
| Luxembourg | 150 | 13 | 158 | 16 |
| Finland | 980 | 7 | 817 | 7 |
| France | 5,503 | 23 | 5,137 | 24 |
| USA | 6,538 | 35 | 5,096 | 34 |
| Spain | 3,306 | 17 | 3,209 | 18 |
| Poland | 4,685 | 18 | 4,099 | 19 |
| Czech Republic | 588 | 9 | 388 | 10 |
| Portugal | 585 | 17 | 582 | 15 |
| Italy | 2,300 | 27 | 2,158 | 27 |
| Canada | 1,189 | 21 | 1,142 | 22 |
| 2012 | 2011 | |||
|---|---|---|---|---|
| Total | Male % | Total | Male % | |
| Slovenia | 137 | 13 | 141 | 13 |
| Ireland | 264 | 16 | 258 | 18 |
| Hungary | 304 | 15 | 260 | 17 |
| Slovakia | 172 | 19 | 198 | 18 |
| Greece | 505 | 17 | 460 | 17 |
| China | 4,325 | 25 | 3,048 | 26 |
| Japan | 638 | 41 | 472 | 43 |
| Russia | 1,036 | 26 | 724 | 26 |
| South Korea | 351 | 30 | 286 | 29 |
| Turkey | 517 | 43 | 320 | 38 |
| Romania | 502 | 32 | 236 | 35 |
| Croatia | 264 | 9 | 124 | 13 |
| Singapore | 200 | 34 | 51 | 37 |
| Bulgaria | 102 | 27 | – | – |
| Latvia | 51 | 18 | – | – |
| Malaysia | 151 | 62 | – | – |
| Mexico | 32 | 53 | – | – |
| Other countries | 585 | 67 | 486 | 67 |
| Group total | 72,276 | 22 | 64,874 | 21 |
Depreciation has been calculated at 12 percent of the acquisition cost of equipment and leasehold rights, and 20 percent for computer equipment, vehicles and capitalised development expenditure, based on estimated useful life. Depreciation on brands and customer relations relating to FaBric Scandinavien AB is assessed at 10 percent of the acquisition cost. Buildings are depreciated at 3 percent of their acquisition cost. As at 30 November 2012 capitalised development expenditure has not yet been taken into use, and consequently no depreciation was reported in 2012.
No depreciation is applied to land values. Depreciation for the year is reported in the income statement as follows:
| GROUP | PARENT COMPANY |
|||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Cost of goods sold | 415 | 366 | – | – |
| Selling expenses | 3,065 | 2,698 | – | – |
| Administrative expenses | 225 | 198 | 107 | 95 |
| Total | 3,705 | 3,262 | 107 | 95 |
| GROUP | PARENT COMPANY |
|||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Ernst & Young | ||||
| Audit assignments | 17.3 | 15.5 | 2.7 | 2.5 |
| Auditing other than audit | ||||
| assignments | 1.8 | 1.3 | 0.3 | 0.1 |
| Tax consultancy | 10.5 | 11.4 | 0.1 | 0.1 |
| Other auditors | ||||
| Audit assignments | 2.8 | 3.3 | – | – |
| Total | 32.4 | 31.5 | 3.1 | 2.7 |
| 10. TAX | GROUP | |||
|---|---|---|---|---|
| 2012 | 2011 | PARENT 2012 |
COMPANY 2011 |
|
| Tax expense (-) / tax receivable (+): | ||||
| Current tax | ||||
| Tax expense for the period | -4,660 | -5,281 | -231 | -600 |
| Adjusted tax expense for | ||||
| previous years | 20 | 98 | -1 | – |
| Total | -4,640 | -5,183 | -232 | -600 |
| Deferred tax receivable (+) | ||||
| / tax expense (-) in respect of | ||||
| Temporary differences in | ||||
| stock-in-trade | 226 | 188 | – | – |
| Loss carry-forward | 36 | -47 | – | – |
| Pension provisions | – | 14 | -13 | 4 |
| Tax allocation reserve | -798 | – | – | – |
| Intangible fixed assets Tangible fixed assets |
-123 -201 |
16 -83 |
– – |
– – |
| Other temporary differences | -37 | -26 | – | – |
| Effect of changed tax rate | ||||
| in Sweden | 119 | – | -10 | – |
| Total | -778 | 62 | -23 | 4 |
| Total | -5,418 | -5,121 | -255 | -596 |
| Reconciliation between current | ||||
| tax rate and effective tax rate: | ||||
| Expected tax expense | ||||
| according to the Swedish | ||||
| tax rate of 26.3% | -5,861 | -5,508 | -4,083 | -4,324 |
| Effect of changed tax rate | ||||
| in Sweden Difference in foreign tax rates |
119 409 |
– 425 |
-10 – |
– – |
| Non-deductible/non-taxable | -97 | -152 | 21 | -13 |
| Other | -8 | 16 | – | – |
| Tax for previous years | 20 | 98 | -1 | – |
| Tax-free dividend subsidiaries | – | – | 3,818 | 3,741 |
| Total | -5,418 | -5,121 | -255 | -596 |
| Reported deferred tax | ||||
| receivable relates to: | ||||
| Pensions | 108 | 108 | 51 | 63 |
| Tangible fixed assets | 61 | 14 | – | – |
| Loss carry-forward in | ||||
| subsidiaries | 36 | – | – | – |
| Temporary differences in stock-in-trade |
1,089 | 851 | – | – |
| Hedging reserves | 17 | 14 | – | – |
| Other temporary differences | 313 | 247 | – | – |
| Total | 1,624 | 1,234 | 51 | 63 |
| Reported deferred tax expense | ||||
| relates to: | ||||
| Intangible fixed assets | 224 | 100 | ||
| Tangible fixed assets | 751 | 503 | ||
| Stock-in-trade | 268 | 256 | ||
| Tax allocation reserve | 668 | – | ||
| Hedging reserves | – | 80 | ||
| Other temporary differences | 40 | 11 |
Total 1,951 950
| GROUP | ||
|---|---|---|
| 2012 | 2011 | |
| Brand* | ||
| Opening acquisition cost | 470 | 470 |
| Acquisitions during the year | – | – |
| Closing acquisition cost | 470 | 470 |
| Opening amortisation | -168 | -121 |
| Amortisation for the year | -47 | -47 |
| Closing accumulated amortisation | -215 | -168 |
| Closing book value | 255 | 302 |
| Customer relations* | ||
| Opening acquisition cost | 131 | 131 |
| Acquisitions during the year | – | – |
| Closing acquisition cost | 131 | 131 |
| Opening amortisation | -47 | -34 |
| Amortisation for the year | -13 | -13 |
| Closing accumulated amortisation | -60 | -47 |
| Closing book value | 71 | 84 |
| Leasehold rights | ||
| Opening acquisition cost | 1,074 | 1,115 |
| Acquisitions during the year | 125 | 71 |
| Sales/disposals | -45 | -99 |
| Translation effects | -60 | -13 |
| Closing acquisition cost | 1,094 | 1,074 |
| Opening amortisation | -489 | -427 |
| Sales/disposals | 28 | 63 |
| Amortisation for the year | -125 | -123 |
| Translation effects | 29 | -2 |
| Closing accumulated amortisation | -557 | -489 |
| Closing book value | 537 | 585 |
| Capitalised expenditure** | ||
| Opening acquisition cost | – | – |
| Acquisitions during the year | 631 | – |
| Closing acquisition cost | 631 | 0 |
| Goodwill* | ||
| Opening book value | 64 | 64 |
| Adjusted consideration/additional consideration | – | – |
| Closing book value | 64 | 64 |
* Brands, customer relations and goodwill assets were added through the acquisition in 2008 of the company FaBric Scandinavien AB, which is a cash-generating unit. H&M acquired the remaining 40 percent of the shares in FaBric Scandinavien AB at the end of November 2010.
** Capitalised expenditure refers mainly to IT-related investments.
A goodwill impairment test was carried out at the end of 2012. The impairment test is based on a calculation of value in use. The value in use has been assessed based on discounted cash flows according to forecasts for the next ten years and with an annual growth rate of 2 percent (2) in subsequent years. A discount rate of 16 percent (12) before tax was used. The cash flows are based on H&M's business plan. The growth rate of 2 percent (2) is based on H&M's assessment of the opportunities and risks associated with the business. The discount rate is based on an average weighted capital cost that is estimated to be on a par with the external requirements that the market imposes for similar companies. No impairment was identified and H&M is of the opinion that reasonable possible changes in the variables above would not have such a significant impact that the recovery amount would be reduced to a lower amount than the book value.
| GROUP | PARENT COMPANY |
|||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Buildings | ||||
| Opening acquisition cost | 959 | 781 | 105 | 105 |
| Acquisitions during the year | 30 | 157 | 6 | – |
| Sales/disposals | – | – | – | – |
| Translation effects | -41 | 21 | – | – |
| Closing acquisition cost | 948 | 959 | 111 | 105 |
| Opening depreciation | -252 | -220 | -63 | -60 |
| Sales/disposals | – | – | – | – |
| Depreciation for the year | -28 | -26 | -4 | -3 |
| Translation effects | 11 | -6 | – | – |
| Closing accumulated | ||||
| depreciation | -269 | -252 | -67 | -63 |
| Closing book value | 679 | 707 | 44 | 42 |
| Land | ||||
| Opening acquisition cost | 97 | 95 | 3 | 3 |
| Acquisitions during the year | 33 | – | – | – |
| Sales/disposals | – | – | – | – |
| Translation effects | -4 | 2 | – | – |
| Closing book value | 126 | 97 | 3 | 3 |
| Equipment | ||||
| Opening acquisition cost | 28,085 | 24,632 | 700 | 756 |
| Acquisitions during the year | 6,008 | 4,946 | 119 | 119 |
| Sales/disposals | -1,678 | -1,518 | -43 | -175 |
| Translation effects | -1,111 | 25 | – | – |
| Closing acquisition cost | 31,304 | 28,085 | 776 | 700 |
| Opening depreciation | -11,496 | -9,819 | -304 | -387 |
| Sales/disposals | 1,545 | 1,404 | 43 | 175 |
| Depreciation for the year | -3,492 | -3,053 | -103 | -92 |
| Translation effects | 465 | -28 | – | – |
| Closing accumulated | ||||
| depreciation | -12,978 | -11,496 | -364 | -304 |
| Closing book value | 18,326 | 16,589 | 412 | 396 |
The Group has no significant leasing agreements other than the rental agreements for rented premises entered into on normal market terms. Rental costs for the 2012 financial year amounted to SEK 14,056 m (12,993), of which sales-based rent amounted to SEK 1,541 m (1,232).
Rent according to the Group's rental agreements (basic rent excluding any sales-based rent) amounts to (SEK m): Rental commitments in next 12 months 10,080 (9,942) Rental commitments in next 2–5 years 27,800 (28,085) Rental commitments more than five years ahead 17,440 (18,273)
| GROUP | PARENT COMPANY |
|||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Prepaid rent | 796 | 769 | 9 | 7 |
| Other items | 340 | 341 | 16 | 7 |
| Total | 1,136 | 1,110 | 25 | 14 |
| GROUP | PARENT COMPANY |
|||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Short-term investments, 4–12 months |
2,995 | 6,958 | 2,993 | 5,038 |
| Total | 2,995 | 6,958 | 2,993 | 5,038 |
The balance sheet item includes interest-bearing investments, i.e. investments in securities issued by banks or in short-term bank deposits.
Investments are made on market terms and the interest rates are between 1.97 and 2.59 percent. The difference in interest rate depends mainly on the currency in which the funds are invested.
| GROUP | PARENT COMPANY |
|||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Cash and bank balances Short-term investments, |
9,566 | 5,739 | 305 | 177 |
| 0–3 months | 4,582 | 8,580 | 0 | 501 |
| Total | 14,148 | 14,319 | 305 | 678 |
Investments are made on market terms and the interest rates are between 0.10 and 8.25 percent. The difference in interest rate depends mainly on the currency in which the funds are invested.
The table below shows the outstanding forward contracts as of the closing date:
| Currency pair | Book value and fair value |
Nominal amount | Average remaining term in months. |
|||
|---|---|---|---|---|---|---|
| Sell/buy | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 |
| NOK/SEK | -8 | -2 | 411 | 371 | 4 | 4 |
| GBP/SEK | 9 | -26 | 1,355 | 1,276 | 4 | 4 |
| DKK/SEK | -2 | 0 | 440 | 415 | 4 | 4 |
| CHF/SEK | -2 | 22 | 579 | 626 | 4 | 3 |
| EUR/SEK | -48 | 3 | 8,434 | 8,669 | 4 | 4 |
| PLN/SEK | -18 | 22 | 437 | 364 | 4 | 4 |
| USD/SEK | 34 | -68 | 2,017 | 1,407 | 4 | 4 |
| CAD/SEK | 3 | -4 | 320 | 307 | 4 | 4 |
| JPY/SEK | 25 | -7 | 428 | 128 | 4 | 3 |
| SEK/USD | -66 | 365 | 9,665 | 9,441 | 2 | 2 |
| SEK/EUR | 9 | 1 | 1,018 | 1,099 | 2 | 2 |
| Total | -64 | 306 | 25,104 | 24,103 |
All changes in the value of derivatives are recognised initially via Other comprehensive income in equity. From other comprehensive income the fair value is transferred to the income statement in conjunction with a hedged transaction taking place. As of the closing date forward contracts with a positive market value amount to SEK 158 m (456), which is reported under Other current receivables. Forward contracts with a negative market value amount to SEK 222 m (150), which is reported under Other current liabilities. Of the outstanding forward contracts, losses of SEK 10 m were transferred to the income statement when hedged transactions occurred for these contracts. The residual fair value of SEK 54 m was recorded in the hedge reserve in equity.
Regarding measurement see Note 19.
The share capital is divided between 194,400,000 class A shares (ten votes per share) and 1,460,672,000 class B shares (one vote per share). There are no other differences between the rights associated with the shares. The total number of shares is 1,655,072,000.
H & M Hennes & Mauritz AB effected bonus issues in the years 1983, 1984, 1985 and 1986, at which times so-called scrips were issued in accordance with the Companies Act effective at that time. A number of bonus share rights have not yet been
received for exchange. In accordance with an announcement in June 2009, the corresponding bonus shares were sold on the market in June 2010. The holders of the bonus share rights then have a further four years in which to withdraw their share of the proceeds less the costs of the reminder and sale. The proceeds of the sale in 2010, which total SEK 48 m after costs have been deducted, are therefore being reported as a shortterm liability until 30 June 2014. Any of these proceeds for which no valid claim is made will accrue to the company and thereby increase equity.
| GROUP | PARENT COMPANY |
||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Capitalised value of defined benefit obligations | 989 | 951 | 348 | 256 | 271 | 252 | |
| Fair value of managed assets | -612 | -574 | -91 | -27 | -31 | -29 | |
| Provision for pension obligations recorded in the balance sheet | 377 | 377 | 257 | 229 | 240 | 223 | |
| Opening balance, 1 December | 377 | 257 | 254 | 240 | 223 | 211 | |
| Adjustment of opening balance* | – | 64 | – | – | – | – | |
| Adjusted opening balance | 377 | 321 | 254 | 240 | 223 | 211 | |
| Reported pension expenses, net | 61 | 120 | 33 | 7 | 33 | 28 | |
| Premiums paid | -40 | -43 | -13 | -2 | -1 | -3 | |
| Pensions paid out | -21 | -21 | -17 | -16 | -15 | -13 | |
| Recorded amount of defined benefit obligations, 30 November | 377 | 377 | 257 | 229 | 240 | 223 |
* The 2011 change in the capitalised value of defined benefit obligations and the fair value of managed assets was mainly due to the fact that up to and including 2010 the pension plan in Switzerland had been reported as a defined contribution plan. With effect from the 2011 financial year this is reported in accordance with the rules for defined benefit plans. Had the plan been reported in accordance with these rules in 2010, the commitment would have amounted to SEK 64 m. This effect, adjusted by deferred tax, was recognised in 2011 as an adjustment of opening shareholders' equity.
The amounts recorded as pension expenses include the following items:
| Reported pension expenses, net | 61 | 120 | 33 | 7 | 33 | 28 |
|---|---|---|---|---|---|---|
| Changes in foreign exchange rates for plans valued in a currency other than the reporting currency |
-6 | 4 | -2 | – | – | – |
| Recognised past service cost | -2 | 0 | 13 | 0 | 0 | 10 |
| Reductions/adjustments gains (-) and losses (+) | -3 | 0 | -10 | 0 | 0 | -4 |
| Actuarial gains (-) and losses (+) | 16 | 51 | 7 | -4 | 21 | 6 |
| Expected return on managed assets | -14 | -19 | -3 | -1 | -1 | -1 |
| Interest expense | 25 | 29 | 12 | 9 | 8 | 8 |
| Expenses for service during the current year | 45 | 55 | 16 | 3 | 5 | 9 |
The cost of defined contribution pension plans amounts to SEK 279 m (240).
Significant actuarial assumptions on the balance sheet date (weighted average amounts)
| Discount rate 2.30% |
2.77% | 3.25% | 3.00% | 3.25% | 3.25% |
|---|---|---|---|---|---|
| Expected return on managed assets 1.66% |
1.73% | 3.12% | 2.00% | 2.25% | 3.25% |
| Future salary increases 2.60% |
2.72% | 4.73% | 5.00% | 5.00% | 5.00% |
| Future pension increases (inflation) 0.80% |
0.83% | 2.00% | 2.00% | 2.00% | 2.00% |
| 2012 | Loans receivable and accounts receivable |
Financial assets held to maturity |
Deriv. for hedging recognised at fair value |
Other financial liabilities |
Total book value |
|---|---|---|---|---|---|
| Other long-term receivables | – | 628 | – | – | 628 |
| Accounts receivable | 2,207 | – | – | – | 2,207 |
| Other receivables | – | – | 158 | – | 158 |
| Short-term investments | – | 2,995 | – | – | 2,995 |
| Liquid funds | 9,566 | 4,582 | – | – | 14,148 |
| Total financial assets | 11,773 | 8,205 | 158 | – | 20,136 |
| Accounts payable | – | – | – | 4,234 | 4,234 |
| Other liabilities | – | – | 222 | – | 222 |
| Total financial liabilities | – | – | 222 | 4,234 | 4,456 |
| 2011 | Loans receivable and accounts receivable |
Financial assets held to maturity |
Deriv. for hedging recognised at fair value |
Other financial liabilities |
Total book value |
|---|---|---|---|---|---|
| Other long-term receivables | – | 608 | – | – | 608 |
| Accounts receivable | 2,337 | – | – | – | 2,337 |
| Other receivables | – | – | 456 | – | 456 |
| Short-term investments | – | 6,958 | – | – | 6,958 |
| Liquid funds | 5,739 | 8,580 | – | – | 14,319 |
| Total financial assets | 8,076 | 16,146 | 456 | – | 24,678 |
| Accounts payable | – | – | – | 4,307 | 4,307 |
| Other liabilities | – | – | 150 | – | 150 |
| Total financial liabilities | – | – | 150 | 4,307 | 4,457 |
The fair value of all financial assets and liabilities essentially corresponds to the book value. Assets and liabilities that are recognised at accrued acquisition cost have short remaining terms, making the difference between book value and fair value negligible.
The category derivatives for hedging recognised at fair value is measured based on observable data; in other words, in accordance with level 2 in the measurement hierarchy established in IFRS 7.
| GROUP | PARENT COMPANY |
|||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Holiday pay liability | 744 | 672 | 92 | 67 |
| Social security costs | 481 | 440 | 86 | 71 |
| Payroll liability | 615 | 544 | 24 | 18 |
| Costs relating to premises | 2,869 | 2,078 | 0 | 0 |
| Other accrued overheads | 2,302 | 2,437 | 78 | 102 |
| Total | 7,011 | 6,171 | 280 | 258 |
Ramsbury Invest AB, which is owned by Stefan Persson and family, is the parent company of H & M Hennes & Mauritz AB. The H&M Group leases the following store premises in properties directly or indirectly owned by Stefan Persson and family: Drottninggatan 50–52, Drottninggatan 56 and Drottninggatan 57 in Stockholm, Kungsgatan 55 in Gothenburg, Stadt Hamburgsgatan 9 in Malmö, Amagertorv 23 in Copenhagen, Oxford Circus and Regent Street in London, Kaufinger Strasse in Munich and, since January 2008, premises for H&M's head office in Stockholm. Rent is paid at market rates and totalled SEK 256 m (227) for the financial year.
Karl-Johan Persson received remuneration in the form of salary and benefits amounting to SEK 12.0 m (13.9), which included variable remuneration of SEK 0 m (2.1), for work carried out during the 2012 financial year as Managing Director of H & M Hennes & Mauritz AB.
The Group is sometimes involved in various types of disputes, but it is assessed that no current disputes will have any significant impact on the Group's results.
| PARENT | COMPANY | |
|---|---|---|
| 2012 | 2011 | |
| Reversal of tax allocation reserve | – | – |
| Depreciation in excess of plan | -23 | -9 |
| Provision for tax allocation reserve | -305 | – |
| Total | -328 | -9 |
All Group companies are wholly-owned.
| 2012 | Corporate ID number |
No. of shares |
Book value |
Domicile |
|---|---|---|---|---|
| Parent company shareholdings | ||||
| H & M Hennes & Mauritz | ||||
| Sverige AB | 556151-2376 | 1,250 | 0.1 Stockholm | |
| H & M Online AB | 556023-1663 | 1,150 | 0.6 Stockholm | |
| H & M Hennes & Mauritz GBC AB | 556070-1715 | 1,000 | 2.6 Stockholm | |
| H & M Hennes & Mauritz | ||||
| International B.V. | 40 | 0.1 Netherlands | ||
| H & M India Private Ltd | 8,650,000 | 12.5 | India | |
| H & M Hennes & Mauritz Japan KK | 99 | 11.7 | Japan | |
| FaBric Scandinavien AB | 556663-8522 | 1,380 | 560.7 | Tranås |
| H & M Hennes & Mauritz | ||||
| International AB | 556782-4890 | 1,000 | 0.1 Stockholm | |
| Total | 588.4 |
| Corporate | ||
|---|---|---|
| 2012 | ID number | Domicile |
| Subsidiaries' holdings | ||
| H & M Hennes & Mauritz AS | Norway | |
| H & M Hennes & Mauritz A/S | Denmark | |
| H & M Hennes & Mauritz Ltd | UK | |
| H & M Hennes & Mauritz SA | Switzerland | |
| H & M Hennes & Mauritz B.V. & Co. KG | Germany | |
| Impuls GmbH | Germany | |
| H & M Hennes & Mauritz Logistics AB Co. KG | Germany | |
| H & M Hennes & Mauritz online shop AB & Co. KG | Germany | |
| H & M Hennes & Mauritz Holding B.V. | Netherlands | |
| H & M Hennes & Mauritz Netherlands B.V. | Netherlands | |
| H & M Hennes & Mauritz Management B.V. | Netherlands | |
| H & M Hennes & Mauritz Belgium NV | Belgium | |
| H & M Hennes & Mauritz Logistics GBC NV | Belgium | |
| H & M Hennes & Mauritz GesmbH | Austria | |
| H & M Hennes & Mauritz Oy | Finland | |
| H & M Hennes & Mauritz SARL | France | |
| H & M Hennes & Mauritz Logistics GBC | France | |
| H & M Hennes & Mauritz LLP | USA | |
| Hennes & Mauritz SL | Spain | |
| H & M Hennes & Mauritz sp. z.o.o. | Poland | |
| H & M Hennes & Mauritz Logistics sp. z.o.o. | Poland | |
| H & M Hennes & Mauritz CZ. s.r.o. | Czech Republic | |
| Hennes & Mauritz Lda | Portugal | |
| H & M Hennes & Mauritz S.r.l. | Italy | |
| H & M Hennes & Mauritz Inc. | Canada | |
| H & M Hennes & Mauritz d.o.o. | Slovenia | |
| H & M Hennes & Mauritz Ltd | Ireland | |
| H & M Hennes & Mauritz Kft | Hungary | |
| H & M Hennes & Mauritz Far East Ltd | Hong Kong | |
| Puls Trading Far East Ltd | Hong Kong | |
| H & M Hennes & Mauritz Holding Asia Ltd | Hong Kong | |
| H & M Hennes & Mauritz Ltd | Hong Kong | |
| Hennes & Mauritz (Shanghai) Commercial Ltd Co | China | |
| H & M Hennes & Mauritz (Shanghai) Trading Ltd Co | China | |
| H & M Hennes & Mauritz (Shanghai) Garment Company Ltd | China | |
| H & M Hennes & Mauritz SK s.r.c. | Slovakia | |
| H & M Hennes & Mauritz A.E. | Greece | |
| H & M Hennes & Mauritz LLP | Russia | |
| H & M Hennes & Mauritz TR Tekstil ltd sirketi | Turkey | |
| H & M Hennes & Mauritz Ltd | South Korea | |
| H & M Hennes & Mauritz SRL | Romania | |
| H & M Hennes & Mauritz d.o.o. za trgovinu | Croatia | |
| H & M Hennes & Mauritz PTE Ltd | Singapore | |
| H & M Hennes & Mauritz EOOD | Bulgaria | |
| Weekday Brands AB | 556675-8438 | Sweden |
| FaBric Sales AB & Co. KG Germany | Germany | |
| Fabric Sales Hong Kong Limited | Hong Kong | |
| H & M Hennes & Mauritz S.A de C.V. | Mexico | |
| H & M Hennes & Mauritz Management S.A de C.V. | Mexico | |
| 2012 | Domicile |
|---|---|
| H & M Hennes & Mauritz Servicios S.A de C.V. | Mexico |
| H & M Hennes & Mauritz Support S.A de C.V. | Mexico |
| H & M Hennes & Mauritz SIA | Latvia |
| H & M Retail SDN BHD | Malaysia |
| H & M Hennes & Mauritz SpA | Chile |
| H & M Hennes & Mauritz OÜ | Estonia |
| H & M Hennes & Mauritz UAB | Lithuania |
| H & M Hennes & Mauritz d.o.o. | Serbia |
| PARENT | COMPANY | |
|---|---|---|
| 2012 | 2011 | |
| Depreciation in excess of plan | 151 | 128 |
| Tax allocation reserve | 305 | – |
| Total | 456 | 128 |
| PARENT | COMPANY | |
|---|---|---|
| 2012 | 2011 | |
| Parent company's lease guarantees | 8,376 | 9,321 |
| Total | 8,376 | 9,321 |
Profit for the year in relation to average shareholders' equity.
Profit after financial items plus interest expense in relation to average shareholders' equity plus average interest-bearing liabilities.
Shareholders' equity plus deferred tax liability in relation to the balance sheet total.
Shareholders' equity in relation to the balance sheet total.
Shareholders' equity divided by number of shares.
Price per share divided by earnings per share.
Comparable units refers to the stores and the internet and catalogue sales countries that have been in operation for at least one financial year. H&M's financial year runs from 1 December to 30 November.
The undersigned hereby provide an assurance that the Annual Report and consolidated accounts have been drawn up in accordance with IFRS international accounting standards, as adopted by the EU, with good accounting practice, and that they provide a true and fair view of the Group's and the parent company's position and earnings, and also that the Administration Report provides a true and fair view of the development of the Group's and the parent company's business, position and earnings, and also describe the significant risks and uncertainties faced by the companies making up the Group.
Stockholm, 29 January 2013
Stefan Persso n Mia Br unell Livfors A nders Dahlvig Chairman of the Board Board member Board member
Lottie Knutson Sussi Kvart Bo Lundquist Board member Board member Board member
Board member Board member Board member
Melker Schörling Christian Sievert Marie Björs tedt
Margareta Welinder Karl-Johan Persso n Board member Managing Director
Our audit report was submitted on 30 January 2013
Ernst & Young AB
Erik Åström Authorised Public Accountant
To the Annual General Meeting of H & M Hennes & Mauritz AB (publ), corporate identity number 556042-7220
We have audited the annual accounts and consolidated accounts of H & M Hennes & Mauritz AB for the financial year 1 December 2011 to 30 November 2012 on pages 43–70.
Director for the annual accounts and consolidated accounts The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts and consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on the annual accounts and the consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the annual accounts and consolidated accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence supporting the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers the aspects of internal control that are relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 30 November 2012 and of its financial performance and its cash flows for the year in accordance with the Annual Accounts Act, and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 30 November 2012 and of its financial performance and cash flows for the year in accordance with
International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The administration report is consistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the Annual General Meeting adopts the income statement and balance sheet for the parent company and the group.
In addition to our audit of the annual accounts and consolidated accounts, we have examined the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of H & M Hennes & Mauritz AB for the financial year from 1 December 2011 to 30 November 2012.
The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act.
Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.
As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss, we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.
As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We recommend to the Annual General Meeting that the profit be appropriated in accordance with the proposal in the administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.
Stockholm, 30 January 2013 Ernst & Young AB
Erik Åström Authorised Public Accountant
Good corporate governance is about ensuring that companies are managed as efficiently as possible in the interests of the shareholders.
H&M applies the Swedish Code of Corporate Governance (the Code) and has therefore prepared this corporate governance report in accordance with the Annual Accounts Act and the Code (available at www.bolagsstyrning.se). This corporate governance report for 2012 describes H&M's corporate governance, management and administration as well as internal control over financial reporting. H&M has chosen to have the corporate governance report as a separate document to the Annual Report in accordance with Chapter 6 § 8 of the Swedish Annual Accounts Act. The information that must be provided under Chapter 6 § 6 items 3–6 of the Annual Accounts Act is included in the administration report on page 46 of the H&M Annual Report 2012 and is therefore not included in this corporate governance report. In accordance with Chapter 6 § 9 of the Annual Accounts Act the company's auditors have issued a statement on the corporate governance report that can be found on page 84.
The Code is based on the principle of "comply or explain", which means that companies applying the Code may deviate from individual rules provided they give an explanation of the deviation, describe the chosen alternative and provide the reasons for the deviation.
H&M's corporate governance is regulated by both external regulations and internal control documents.
Appoints/elec ts/pro poses
Examples of external regulations:
Reason for the deviation: The Election Committee appointed Chairman of the Board Stefan Persson as chairman of the Election Committee on the grounds that this is deemed an obvious choice in view of the ownership structure of H&M.
H&M's shareholders make the ultimate decision on the company's direction, since the shareholders at the Annual General Meeting appoint the Board of Directors and the Chairman of the Board. The Annual General Meeting also elects auditors, decides on the principles of the Election Committee and selects the members of this committee. The task of the Board of Directors is to manage H&M's affairs on behalf of the shareholders. The auditors report to the Annual General Meeting on their scrutiny. The Board of Directors establishes a work plan for the Board as well as instructions for the Managing Director. Auditing matters are dealt with in the Auditing Committee, which is the main channel of communication between the Board and the company's auditors. The Board of Directors appoints the Managing Director. The Managing Director in turn appoints the members of the executive management team and the country managers. H&M has a matrix organisation.
The general meeting is the company's highest decision-making body and is the forum in which shareholders exercise their right to decide on the company's affairs.
The ordinary general meeting (the Annual General Meeting) is convened once a year in order to carry out tasks such as adopting the annual accounts and consolidated accounts, discharging the members of the Board of Directors and the Managing Director from liability and deciding how the profit for the past financial year is to be allocated. The Annual General Meeting also decides on guidelines for remuneration to senior executives. In addition, the meeting decides on any proposed amendments to the Articles of Association and elects the Board of Directors and, when necessary, auditors for the forthcoming period of office. Extraordinary general meetings can be held where there is a particular need to do so.
Auditors are appointed by the shareholders at H&M's Annual General Meeting every four years. The auditors scrutinise the company's financial statements, the consolidated statements and the accounts, and the management of the company by the Board and Managing Director.
The Election Committee is the general meeting's body that prepares the necessary information as a basis for decisions at the general meeting as regards election of the Board of Directors, Chairman of the Board, auditors and the chairman of the Annual General Meeting, fees to the Board and auditors, as well as principles for the Election Committee. An account of the work of the Election Committee ahead of each AGM is available in a separate document on the website. The members of H&M's Election Committee are elected by the general meeting.
The task of the Board of Directors is to manage the company's affairs on behalf of the shareholders. The Board members are elected by the shareholders at the Annual General Meeting for the period up until the next AGM.
In addition to laws and recommendations, H&M's Board work is regulated by the Board's work plan which contains rules on the distribution of work between the Board, its committees and the Managing Director, financial reporting, investments and financing. The work plan, which also includes a work plan for the Auditing Committee, is updated when needed but is established at least once a year.
According to the Articles of Association, H&M's Board is to consist of at least three but no more than twelve members elected by the AGM and no more than the same number of deputies. The Annual General Meeting determines the number of Board members.
The Auditing Committee monitors the company's financial reporting, which includes monitoring the effectiveness of the company's internal control and risk management. Its work includes handling auditing issues and financial reports published by the company. The auditors appointed by the Annual General Meeting attend the meetings of the Auditing Committee to report on their scrutiny of the Group's annual accounts, consolidated accounts, etc. The Auditing Committee also reviews and monitors the impartiality and independence of the auditor and regulates which assignments the accounting firm may conduct for H&M in addition to the audit. The Committee also assists the Election Committee with any proposals to the AGM concerning the election of auditors.
H&M's Auditing Committee is made up of three Board members, all of which have expertise in accounting or auditing. All the members are independent of the company, its management and the company's major shareholders. The Committee is appointed annually by the Board of Directors at the statutory board meeting held in conjunction with the AGM.
Under Swedish law, the employees have the right to appoint employee representatives with deputies to the company's Board. These are appointed via employee organisations (trade unions). The trade unions appoint two Board members and two deputies to the Board of H&M.
The Managing Director is appointed by the Board of Directors and is responsible for the daily management of the company as directed by the Board. This means that the Managing Director must focus in particular on recruitment of senior executives, buying and logistics matters, the customer offering, pricing strategy, sales and profitability, marketing, expansion, development of the store network and of online and catalogue sales, and IT development. The Managing Director reports to the Board on H&M's development and makes the necessary preparations for taking decisions on investments, expansion, etc. The role of Managing Director includes contact with the financial market, the media and the authorities.
H&M has a matrix organisation, which means that the members of the executive management team responsible for each department are responsible for that department's support, training and best practice, and for each country working efficiently in accordance with the policies and guidelines issued by head office. The country managers are responsible for sales, profitability and daily operations in their country, and thereby have overall responsibility for all the departments in their country. The country organisations are in turn divided into regions, with a number of stores in each region.
Internal control is evaluated annually by each central department, which checks that this department of the business in each country is working in accordance with the policies and guidelines laid down. The stores are in turn checked by internal store auditors.
To find out more about H&M's corporate governance visit www.hm.com/corporategovernance
H&M's class B share is listed on NASDAQ OMX Stockholm AB. At the end of the financial year H&M had 193,878 shareholders. The total number of shares in H&M is 1,655,072,000, of which 194,400,000 are class A shares (ten votes per share) and 1,460,672,000 are class B shares (one vote per share).
H&M's largest shareholder is Stefan Persson and family, who via Ramsbury Invest AB hold all the class A shares, which represent 57.1 percent of the votes, as well as 393,049,043 class B shares, which represent 11.5 percent of the votes. This means that as of 30 November 2012, Stefan Persson and family via Ramsbury Invest AB represent 68.6 percent of the votes and 35.5 percent of the total number of shares. Ramsbury Invest AB is thus the parent company of H & M Hennes & Mauritz AB.
The shareholders registered directly in the register of shareholders who have given notice of their attendance on time are entitled to participate in the meeting and vote for the total number of shares they hold. Shareholders who cannot be present in person may be represented by proxy. Notice of the general meeting is published on the company's website and also by advertisements in Post- och Inrikes Tidningar, Svenska Dagbladet and Dagens Nyheter.
Information material from H&M's most recent Annual General Meetings as well as H&M's Extraordinary General Meeting in 2011 can be found on www.hm.com under the heading Corporate Governance. Here there is also information about the right of shareholders to raise matters at the meeting and when such requests must be received by H&M so that the matter is certain to be included on the agenda in the notice to attend. H&M's e-mail address is also given for those shareholders who wish to submit their questions in advance to H&M.
H&M's Annual General Meeting 2012 was held on 3 May in Victoriahallen at the Stockholm International Fairs in Stockholm. 1,721 shareholders were represented at the meeting, representing 83.3 percent of the votes and 65.7 percent of the capital. H&M's Board of Directors, executive management and Election Committee as well as the company's auditors attended the meeting.
The main resolutions passed were the following:
The minutes of the Annual General Meeting were published on the website within two weeks of the meeting. Material from the meeting, such as the notice to attend the meeting, the Board's statement concerning the proposed allocation of profits, the Managing Director's address and presentation and the minutes, etc. were translated into English and also published on the website.
Votes and capital represented at H&M's Annual General Meeting
| YEA R |
% OF VOTES | % OF CA PITA L |
|---|---|---|
| 2008 | 80.9 | 60.7 |
| 2009 | 81.3 | 61.5 |
| 2010 | 81.9 | 62.7 |
| 2011 | 82.3 | 63.5 |
| 2012 | 83.3 | 65.7 |
The members of the Election Committee were elected by the 2012 AGM. The Election Committee was elected on the basis of its principles, which, in brief, state that the Election Committee shall be made up of the Chairman of the Board and four other members, each representing one of the four biggest shareholders as of 29 February 2012, apart from the shareholder that the Chairman of the Board represents. The principles include a procedure for replacing any member who leaves the Election Committee before the Committee's work is complete. To read the principles in full, see the document "Account of the work of H&M's Election Committee 2012" under the heading Election Committee in the Corporate Governance section at www.hm.com.
The composition of the Election Committee following the 2012 AGM was:
The composition of the Election Committee meets the Code's requirements with respect to independent members.
H&M deviated from Code rule 2.4 which states, among other things, that the Chairman of the Board shall not be the chairman of the Election Committee. The Election Committee appointed Chairman of the Board Stefan Persson as chairman of the Election Committee during the year on the grounds that this is deemed an obvious choice in view of the ownership structure of H&M.
The Election Committee elected at the 2011 AGM presented its proposals to the 2012 AGM. The Election Committee provided the following grounds for its proposed composition of the Board before the 2012 AGM:
"The Election Committee judges that the proposed composition of the Board of Directors accords well with section 4.1 of the Swedish Code of Corporate Governance, i.e. that the proposed Board is characterised by diversity and breadth of expertise, experience, background and equal gender distribution. It is felt that the proposed composition of the Board more than satisfies the requirements made of expertise and experience, taking into account the company's operations and future development.
The proposed composition meets the applicable requirements concerning the independence of members and stock market experience."
Since the 2012 AGM the Election Committee has held one meeting at which minutes were taken and the Committee was
| NAM e |
YEA R ELECTED |
INDE PENDENT |
1) INDE 2) PENDENT |
3) FEES (SEK) |
BOARD MEETING S |
AUDITING COMMITTEE |
SHA REH OLDING | SHARES HE LD BY RELATED PARTIE S |
|---|---|---|---|---|---|---|---|---|
| Stefan Persson, Chairman |
1979 | No | No 1,350,000 | 6/6 | 1/4 4) | 194,400,000 5) 393,049,043 6) |
||
| Mia Brunell Livfors | 2008 | Yes | Yes | 450,000 | 6/6 | 600 7) | ||
| Anders Dahlvig | 2010 | Yes | Yes | 450,000 | 6/6 | 17,510 | ||
| Lottie Knutson | 2006 | Yes | Yes | 450,000 | 6/6 | 1,400 | ||
| Sussi Kvart | 1998 | Yes | Yes | 550,000 | 6/6 | 4/4 | 4,400 | 1,700 |
| Bo Lundquist | 1995 | Yes | Yes | 600,000 | 5/6 | 3/4 | 100,000 8) | |
| Melker Schörling | 1998 | Yes | Yes | 450,000 | 5/6 | 228,000 9) | ||
| Christian Sievert | 2010 | Yes | Yes | 450,000 | 6/6 | 3/4 4) | 50,000 | 600 |
| Marie Björstedt, 10) employee rep. | 2011 | 6/6 | ||||||
| Margareta Welinder, employee rep. | 2007 | 6/6 | ||||||
| Agneta Ramberg, 10) employee rep. | 1997 | 2/6 | ||||||
| Ingrid Godin, 10) deputy employee rep. |
2012 | 4/6 | ||||||
| Tina Jäderberg, deputy employee rep. |
2007 | 6/6 |
1) Independent of the company and company management in accordance with the Swedish Code of Corporate Governance.
2) Independent of major shareholders in the company in accordance with the Swedish Code of Corporate Governance.
3) Fees as resolved at the 2011 Annual General Meeting. This means that the fees relate to the period until the next AGM is held, i.e. for the period 28 April 2011 to 3 May 2012.
The amount was paid out after the 2012 AGM .
4) At the statutory Board meeting Christian Sievert was elected to supersede Stefan Persson as a member of the Auditing Committee.
5) Class A shares owned through Ramsbury Invest AB . 6) Class B shares owned through Ramsbury Invest AB .
7) Shares held together with related parties.
8) Shares owned through Bo Lundquist's company Caboran AB .
9) Shares owned through Melker Schörling AB . 10) Employee representative Agneta Ramberg retired in 2012. Former deputy employee representative Marie Björstedt succeeded Agneta Ramberg as employee representative at the 2012 AGM and Ingrid Godin became the new deputy employee representative.
There are no outstanding share or share price related incentive programmes for the Board of Directors.
also in contact at other times. At the Election Committee's meeting Stefan Persson gave a verbal account of the work of the Board during the year. The conclusion was that the Board had worked effectively over the course of the year.
The Board's work is presented so that the Election Committee can make the best possible assessment of the Board's competence and experience. The Election Committee also discussed the size of the Board, its composition, the election of a chairman for the meeting, fees for Board members and the election of auditors. No fees were paid to the Election Committee's chairman or to any of the other members of the Election Committee.
The Election Committee's work in preparation for the next AGM is not yet complete and more information will be presented before and at the 2013 AGM.
H&M's Annual General Meeting 2013 will be held on Tuesday 23 April 2013 in Victoriahallen at the Stockholm International Fairs in Stockholm. To register to attend the 2013 AGM, see H&M Annual Report 2012 page 90 or visit www.hm.com/agm.
The composition of H&M's Board during the year met the independence requirements set out in sections 4.4 and 4.5 of the Code. This means that the majority of the Board members elected by the general meeting are independent of the company and company management. At least two of these are also independent of the company's major shareholders.
Since the 2012 AGM the Board has consisted of eight ordinary members elected by the AGM and no deputies. There are also two employee representatives, with two deputies for these positions. The Board is comprised of seven women and five men. Only the employee representatives are employed by the company.
For facts about H&M's Board members, see pages 80–81. The Board members are to devote the time and attention that their assignment for H&M requires. New Board members receive introductory training which, among other things, includes meetings with the heads of various functions.
During the financial year H&M normally holds six regular Board meetings, one of which is the statutory Board meeting. Extraordinary Board meetings are held when the need arises. The Managing Director attends all Board meetings, except when the Managing Director's terms and conditions are being evaluated. The Managing Director reports to the Board on the operational work within the Group and ensures that the Board is given relevant and objective information on which to base its decisions. Other members of the management team, such as the CFO and Chief Accountant, also attend in order to provide the Board with financial information. The Board is assisted by a secretary who is not a member of the Board.
H&M's Board held six Board meetings during the financial year, one of which was the statutory meeting.
The Board's attendance is reported in the table entitled "Composition of the Board of Directors and Attendance during the Year". The Managing Director Karl-Johan Persson attended all the Board meetings held in 2012.
In connection with the Board's review of the proposed Annual Report for 2012, auditor Erik Åström gave an account of the year's audit work.
Since the statutory meeting held in conjunction with the 2012 AGM, the Auditing Committee has consisted of chairman Bo Lundquist and members Sussi Kvart and Christian Sievert. The committee held four meetings at which minutes were taken in 2011/2012.
Ernst & Young attended the Auditing Committee meetings and reported on the auditing assignments. The meetings were also attended by CFO Jyrki Tervonen and Chief Accountant Anders Jonasson, among others. The Committee's meetings are minuted and the minutes are then distributed to the Board members. During the year the Auditing Committee addressed the following matters, among others:
H&M's financial reporting is carried out in compliance with the laws and other rules that apply to companies listed on NASDAQ OMX Stockholm AB. It falls to the Board of Directors to ensure the quality of financial reporting with the help, for example, of the Auditing Committee. More information is available in the section on internal control over financial reporting.
At the 2009 AGM the accounting firm Ernst & Young AB was elected as auditor of H&M for a four-year period, i.e. until the end of the 2013 Annual General Meeting. Authorised Public Accountant Erik Åström from Ernst & Young holds the main responsibility for the audit.
As previously, the 2012 AGM resolved that the auditors' fees should be paid based on the invoices submitted.
Ernst & Young AB is a member of a global network used for auditing assignments for most of the Group companies and meets H&M's requirements with respect to competence and geographical coverage. The auditors' independent status is
guaranteed partly by legislation and professional ethics rules, partly by the accounting firm's internal guidelines and partly by the Auditing Committee's guidelines regulating which assignments the accounting firm is permitted to conduct for H&M in addition to the audit. Authorised Public Accountant Erik Åström conducts
auditing assignments for companies such as Svenska Handelsbanken, as well as for NASDAQ OMX.
The fees invoiced by the auditors over the past two financial years are as follows:
| GROUP | PARENT COMPANY |
||||
|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | ||
| Ernst & Young | |||||
| Audit assignments | 17.3 | 15.5 | 2.7 | 2.5 | |
| Auditing other than audit assignments |
1.8 | 1.3 | 0.3 | 0.1 | |
| Tax consultancy | 10.5 | 11.4 | 0.1 | 0.1 | |
| Other auditors | |||||
| Audit assignments | 2.8 | 3.3 | – | – | |
| TOTAL | 32.4 | 31.5 | 3.1 | 2.7 |
Karl-Johan Persson, born in 1975, has been the Managing Director and Chief Executive Officer of H & M Hennes & Mauritz AB since 1 July 2009.
Before taking over as Managing Director Karl-Johan Persson held an operational role within H&M from 2005, including working as head of expansion, business development, brand and new business. Since 2000 Karl-Johan Persson has been a member of the boards of H&M's subsidiaries in Denmark, Germany, the US and the UK. Between the years 2006 and 2009 he was also a member of the Board of H & M Hennes & Mauritz AB.
Between 2001 and 2004 Karl-Johan Persson was CEO of European Network. Karl-Johan Persson holds a BA in Business Administration from the European Business School in London.
Karl-Johan Persson currently has external board assignments for, among others, the Swedish Chamber of Commerce in the UK, Ramsbury Invest AB and the GoodCause foundation. Karl-Johan Persson is a shareholder in Ramsbury Invest AB, and also personally holds 12,136,289 class B shares in H&M.
H&M has a matrix organisation in which country managers and the members of the executive management team report directly to the Managing Director (see section on control environment). The matrix organisation consists of the sales countries, headed by the country managers, and the Group functions/central departments for which the heads of department on the executive management team are responsible.
In accordance with the Swedish Companies Act the 2012 Annual General Meeting adopted guidelines for remuneration of senior executives within H&M. To view the full guidelines please refer to the Administration Report on pages 45–46 of the H&M Annual Report 2012.
H&M has no remuneration committee since the Board of Directors deems it more appropriate for the entire Board to carry out the tasks of a remuneration committee. The Board prepares proposals for guidelines for remuneration to senior executives and these proposals are presented at the Annual General Meetings.
The Board decides on the Managing Director's salary according to the guidelines adopted at the 2012 AGM. The terms of employment for other senior executives are decided by the Managing Director and the Chairman of the Board. No severance pay agreements exist within H&M other than for the Managing Director.
Before the 2012 Annual General Meeting the Board carried out an assessment of the application of the guidelines for remuneration to senior executives that were adopted by the 2011 AGM. The results of this assessment were published on the website in good time before the 2012 AGM.
Christian Sievert Board member and member of the Auditing Committee
Sussi Kvart Board member and member of the Auditing Committee
Bo Lundquist Board member and Chairman of the Auditing Committee
Marie Björstedt Employee representative
ingrid godin Deputy employee representative
Mia Brunell Livfors Board member
78
Lottie Knutso n Board member
Tina Jäderberg Deputy employee representative
Melker Schörling Board member
Stefan Persson Chairman of the Board Margareta Welinder Employee representative Anders Dahlvig Board member
Chairman of the Board. Born 1947.
PRIMA RY OCCUPATI ON Chairman of the Board of H&M.
Member of the board of MSAB and board assignments in family-owned companies.
Stockholm University and Lund University, 1969–1973.
| 1976–1982 | Country Manager for H&M in the UK and |
|---|---|
| responsible for H&M's expansion abroad. | |
| 1982–1998 | Managing Director and CEO of H&M. |
| 1998– | Chairman of the Board of H&M. |
Board member. Born 1965.
Managing Director and Chief Executive Officer of Investment AB Kinnevik.
| Member of the following boards since: | |
|---|---|
| 2006 | Metro International S.A. |
| Tele2 AB | |
| Transcom WorldWide S.A. | |
| Korsnäs AB | |
| 2007 | Modern Times Group MTG AB |
| Millicom International Cellular S.A. | |
| 2008 | Efva Attling Stockholm AB |
| 2010 | CDON AB |
Studies in Business Administration at Stockholm University.
1989–1992 Consensus AB.
| 1992–2006 Various managerial positions within Modern | |
|---|---|
| Times Group MTG AB and CFO 2001–2006. | |
| 2006– | Managing Director and CEO, |
| Investment AB Kinnevik. |
Board member. Born 1957.
OTHER SIGNI FICANT BOARD ASSIGNMENT S
Chairman of New Wave Group, member of the boards of Kingfisher plc, Oriflame SA, Axel Johnson AB, Resurs Bank AB and Pret A Manger.
Bachelor of Science in Business Administration, Lund University, 1980 and Master of Arts from the University of California, Santa Barbara, 1982.
| 1983–1993 | Various roles within IKEA in Sweden, Germany, |
|---|---|
| Switzerland and Belgium. | |
| 1993–1997 | Managing Director of IKEA UK. |
| 1997–1999 | Vice President of IKEA Europe. |
| 1999–2009 President and CEO of the IKEA Group. | |
Board member. Born 1964.
Marketing Director at Fritidsresor Group Nordic with responsibility for communications as well as corporate social responsibility.
No positions other than as member of the Board of H&M.
Université de Paris III, Diplôme de Culture Française, 1985–1986. Theatre History, Stockholm University, 1989. Department of Journalism at Stockholm University, 1987–1989.
Board member and member of the Auditing Committee. Born 1956.
Consulting, with a focus on strategic business advice, corporate governance and board procedures.
Chairman of Kvinvest AB. Member of the boards of Healthcare Provision – Stockholm County Council, Stockholms Stadshus AB, Transparency International Sweden and DGC One AB.
Bachelor of Laws from Lund University, 1980.
| 1981–1983 | Mölndal District Court, court clerk. |
|---|---|
| 1983–1989 Lagerlöf law firm (now Linklaters), | |
| as lawyer from 1986. | |
| 1989–1991 | Political Expert, Riksdagen (Swedish parliament), |
| parliamentary office of the Swedish Liberal Party. | |
| 1991–1993 Political Expert, Swedish Cabinet Office. | |
| 1993–1999 Company lawyer, LM Ericsson. | |
| 1997–2001 | Member of Aktiebolagskommittén (Swedish |
| Companies Act Committee). | |
| 2000–2001 Lawyer and Business Developer, LM Ericsson, | |
| Corporate Marketing and Strategic Business | |
| Development. | |
| 2002– | Sussi Kvart AB. |
Board member and Chairman of the Auditing Committee. Born 1942.
Head of family-owned investment company. Board assignments.
Chairman of the boards of the Swedish School of Sport and Health Sciences (GIH), Shareville AB, Club Consulting AB and Gothenburg School of Gymnastics. Member of the boards of Teknikmagasinet AB and the Anders Wall Foundation for Free Enterprise.
MSc in Engineering from Chalmers University of Technology, Gothenburg, 1968.
1970–1974 Administrative Director, Luleå University.
Board member. Born 1947.
Chairman of MSAB, AarhusKarlshamn AB, Hexagon AB, Hexpol AB and Securitas AB.
MSc in Business and Economics from the School of Business, Economics and Law, Gothenburg University, 1970.
| 1970–1975 LM Ericsson, Mexico. |
|---|
| 1975–1979 ABB Fläkt, Stockholm. |
| 1979–1983 Managing Director, Essef Service, Stockholm. |
Board member and member of the Auditing Committee. Born 1969.
CEO of Segulah Advisor AB, a venture capital company.
Member of the boards of Segulah Advisor AB, AB Segulah, Gunnebo Industrier, Kemetyl, CCS Healthcare and St. Erik's.
MSc in Business Administration from the School of Economics, Stockholm, 1994.
1994–1997 Bain & Company, Consultant, Stockholm and San Francisco, USA.
1997–2003 Investment Manager and Partner, Segulah.
2003– CEO/Managing Partner of Segulah.
Employee representative on the H&M Board since 2007. Born 1962.
Employee representative on the H&M Board since 2011. Born 1957.
Deputy employee representative on the H&M Board since 2012. Born 1959.
Deputy employee representative on the H&M Board since 2007. Born 1974.
The Board of Directors is responsible for the company's internal control, the overall aim of which is to safeguard the company's assets and thereby its shareholders' investment. Internal control and risk management are part of the Board's and the management's control and follow-up responsibilities, the purpose of which is to ensure that the business is managed in the most appropriate and effective manner possible, to ensure reliable financial reporting and to ensure compliance with applicable laws and regulations.
This description of H&M's internal control and risk management for financial reporting has been prepared in accordance with Chapter 6 § 6 of the Swedish Annual Accounts Act and section 7.4 of the Swedish Code of Corporate Governance.
H&M uses the COSO framework as a basis for internal control over financial reporting. The COSO framework, which is issued by the Committee of Sponsoring Organizations of the Treadway Commission, is made up of the following five components: control environment, risk assessment, control activities, information and communication as well as monitoring.
The control environment forms the basis of internal control, because it includes the culture that the Board and management communicate and by which they work. The control environment is made up primarily of ethical values and integrity, expertise, management philosophy, organisational structure, responsibility and authority, policies and guidelines, as well as routines.
Of particular importance is that management documents such as internal policies, guidelines and manuals exist in significant areas and that these provide the employees with solid guidance. Within H&M there exists above all a Code of Ethics; an ethical policy that permeates the entire company, since it describes the way in which the employees should act within the company and in business relations with suppliers.
H&M's internal control structure is based on:
– The division of work between the Board of Directors, the Auditing Committee and the Managing Director, which is clearly
described in the Board's formal work plan. The executive management team and the Auditing Committee report regularly to the Board based on established routines.
H&M has a matrix organisation, which means that those on the executive management team are responsible for the work within their function in each country being efficient (the vertical arrows). The country managers are responsible for sales and profitability in their country and thereby have overall responsibility for all the functions within their operations (the horizontal arrows). The country organisation is in turn divided into regions, with a number of stores in each region.
All the companies within the H&M Group – apart from Weekday Brands, which is engaged in wholesale operations – have the same structure and accounting system with the same chart of accounts. This simplifies the creation of appropriate routines and control systems, which facilitates internal control and comparisons between the various companies.
There are detailed instructions for the store staff that control daily work in the stores. Many other guidelines and manuals are also available within the Group. In most cases these are drawn up in the central departments at the head office in Stockholm and then communicated to the respective departments in the country offices. Each central department regularly reviews its guidelines and manuals to see which ones need updating and whether new guidelines need to be developed.
H&M carries out regular risk analysis to review the risk of errors within its financial reporting. At the end of each financial year the analysis of the main risks within financial reporting is updated in a group-wide document. The same is done for the analysis of operational risk.
As in previous years, at the end of 2012 each central function reviewed is main risks, assessed these and identified
| Group functions/central departments* | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales countries |
Finance/ Accounts |
Sales | Buying | Production | Expansion | Marketing | Communications & Press |
HR | Sustainability | Security | IT | Logistics |
| Country 1 | ||||||||||||
| Country 2 | ||||||||||||
| Country 3 | ||||||||||||
| Country 4 | ||||||||||||
| Country 5 | ||||||||||||
| Etc |
* Those responsible for Group functions are members of the executive management team. In addition to the functions mentioned above and the Managing Director, the areas of Business development, IR and New Business are also included in the executive management team.
the systems, methods and controls that are in place to minimise any impact of the risks. This information was compiled at Group level into an overall risk analysis and was discussed with the functions with a view to gaining an overall picture of the main risks within the company.
The risk analyses for operational risks and the risks within financial reporting were then dealt with in the Auditing Committee and thereafter communicated to the Board.
For a description of H&M's operational risks see the Administration Report, pages 46–47, and for risks within financial reporting see Note 2 Financial risks on page 60 of the H&M Annual Report 2012.
To limit the risks there are appropriate policies and guidelines as well as processes and controls within the business.
There are a number of control activities built into every process to ensure that the business is run effectively and that financial reporting on every reporting occasion provides a fair picture. The control activities, which aim to prevent, find and correct inaccuracies and non-compliance, are at all levels and in all parts of the organisation. Within H&M the control activities include effective control and analysis of sales statistics, account reconciliation, monthly accounts and financial reports.
IT systems are scrutinised regularly during the year to ensure the validity of H&M's IT systems with respect to financial reporting. In 2012 general IT controls for certain selected systems were scrutinised by an external party together with those responsible for systems and system areas within H&M.
Policies and guidelines are of particular importance for accurate accounting, reporting and provision of information, and also define the control activities to be carried out.
H&M's policies and guidelines are updated on an ongoing basis. This takes place primarily within each central function and is communicated to the sales countries by e-mail and via the intranet, as well as at meetings.
H&M has a communications policy providing guidelines for communication with external parties. The purpose of the policy is to ensure that all information obligations are met and that the information provided is accurate and complete. Financial communication is provided via:
In 2012 an examination of internal control issues was carried out at Group level to ascertain what could be improved and updated in the functions' working materials for 2013. This work was carried out in cooperation with the functions and resulted in updated checklists – both general and department-specific – for the central functions to use in their audits in 2013.
In 2012 Group functions/the central departments carried out assessments of internal control within their respective functions in the sales countries based partly on general issues and partly on department-specific issues, using the COSO model. The work resulted in a plan of action for each central department containing the areas that should be improved to further strengthen internal control, not only in respect of each country but also for the central function. The functions also followed up on the assessments made in the previous year. It is felt that the way in which H&M assesses internal control is firmly rooted within the organisation. It is an aid and a control by which the central functions can ensure that their respective departments in the sales countries are working in a uniform and desirable way. The assessment of internal control also allows each sales country to provide valuable and constructive feedback to the central function regarding where there is room for improvement at central level. An important part of the internal control work is the feedback to the country management (country manager and country controller) which the central function provides based on the results of the evaluation in each country. This is done with a view to being transparent and ensuring that the countries apply best practice. Within the production organisation there is a firm control and monitoring process for the internal routines that are brought together in the Routine Handbook.
Internal shop controllers perform annual checks at the stores with the aim of determining the strengths and weaknesses of the stores and how any shortcomings can be corrected. Follow-up and feedback with respect to any non-compliances found during the assessment of internal control constitute a central part of internal control work.
The Board of Directors and the Auditing Committee continuously evaluate the information provided by the executive management team, including information on internal control. The Auditing Committee's task of monitoring the efficiency of internal control by the management team is of particular interest to the Board. This work includes checking that steps are taken with respect to any problems detected and suggestions made during the assessment by the central departments and internal shop controllers as well as by external auditors. The work on internal control maintains awareness of the importance of effective internal control within the Group and improvements are made on a continuous basis.
In accordance with section 7.4 of the Swedish Code of Corporate Governance, during the year the Board assessed the need for a specific internal audit department. The Board concluded that H&M's present model of monitoring internal control is the most appropriate for the company. In the Board's opinion, this model – which is applied by the central departments such as Accounts, Communications, Security, Logistics, Production, etc. in the sales countries – and the work carried out by internal shop controllers are well in line with the work performed in other companies by an internal audit department. The issue of a specific internal audit department will be reviewed again in 2013.
Stockholm, January 2013
The Board of Directors
More information on H&M's corporate governance work can be found in the section on Corporate Governance at www.hm.com.
To the Annual General Meeting of H & M Hennes & Mauritz AB (publ), corporate identity number 556042-7220
We have reviewed the corporate governance report for the financial year 1 December 2011 to 30 November 2012 on pages 72–83. The corporate governance report is the responsibility of the Board of Directors, which is responsible for the report being prepared in accordance with the Swedish Annual Accounts Act. Our responsibility is to express an opinion on the corporate governance report based on our review.
Our review was conducted in accordance with RevU 16, Auditors' review of the corporate governance report. This means that we planned and performed the audit in order to obtain a reasonable degree of assurance that the corporate governance report is free from material misstatement. An audit includes examining, on a test basis, evidence supporting the information in the corporate governance report. We believe that our audit provides a reasonable basis for our opinion set out below.
In our opinion, a corporate governance report has been prepared and its content is consistent with the annual report and the consolidated accounts.
Stockholm, 30 January 2013
Ernst & Young AB
Erik Åström Authorised Public Accountant
| THE FINANCIA L YEA R |
2012 | 2011 | 2010 | 2009 | 2008 |
|---|---|---|---|---|---|
| Sales including VAT, SEK m | 140,948 | 128,810 | 126,966 | 118,697 | 104,041 |
| Sales excluding VAT, SEK m | 120,799 | 109,999 | 108,483 | 101,393 | 88,532 |
| Change from previous year, % | +10 | +1 | +7 | +15 | +13 |
| Operating profit, SEK m | 21,754 | 20,379 | 24,659 | 21,644 | 20,138 |
| Operating margin, % | 18.0 | 18.5 | 22.7 | 21.3 | 22.7 |
| Depreciation for the year, SEK m | 3,705 | 3,262 | 3,061 | 2,830 | 2,202 |
| Profit after financial items, SEK m | 22,285 | 20,942 | 25,008 | 22,103 | 21,190 |
| Profit after tax, SEK m | 16,867 | 15,821 | 18,681 | 16,384 | 15,294 |
| Liquid funds and short-term investments, SEK m | 17,143 | 21,277 | 24,858 | 22,025 | 22,726 |
| Stock-in-trade, SEK m | 15,213 | 13,819 | 11,487 | 10,240 | 8,500 |
| Equity, SEK m | 43,835 | 44,104 | 44,172 | 40,613 | 36,950 |
| Number of shares, thousands* | 1,655,072 | 1,655,072 | 1,655,072 | 1,655,072 | 1,655,072 |
| Earnings per share, SEK* | 10.19 | 9.56 | 11.29 | 9.90 | 9.24 |
| Shareholders' equity per share, SEK* | 26.49 | 26.65 | 26.69 | 24.54 | 22.33 |
| Cash flow from current operations per share, SEK* | 11.42 | 10.53 | 13.19 | 10.86 | 10.86 |
| Dividend per share, SEK | 9,50** | 9.50 | 9.50 | 8.00 | 7.75 |
| Return on equity, % | 38.4 | 35.8 | 44.1 | 42.2 | 44.3 |
| Return on capital employed, % | 50.3 | 47.1 | 58.7 | 56.7 | 61.1 |
| Share of risk-bearing capital, % | 76.1 | 74.9 | 76.2 | 78.5 | 75.7 |
| Equity/assets ratio, % | 72.8 | 73.3 | 74.6 | 74.7 | 72.1 |
| Total number of stores | 2,776 | 2,472 | 2,206 | 1,988 | 1,738 |
| Average number of employees | 72,276 | 64,874 | 59,440 | 53,476 | 53,430 |
* Before and after dilution. Number of shares has been adjusted for all periods due to the 2-for-1 share split effected by H&M in 2010.
** Proposed by the Board of Directors.
For definitions of key ratios, see page 69.
| Key ratios share |
2012 | 2011 | 2010 | 2009 | 2008 |
|---|---|---|---|---|---|
| Shareholders' equity per share, SEK | 26.49 | 26.65 | 26.69 | 24.54 | 22.33 |
| Earnings per share, SEK | 10.19 | 9.56 | 11.29 | 9.90 | 9.24 |
| Change from previous year, % | +7 | -15 | +14 | +7 | +13 |
| Dividend per share, SEK | 9.50* | 9.50 | 9.50 | 8.00 | 7.75 |
| Market price on 30 November, SEK | 215.90 | 214.00 | 237.40 | 206.15 | 149.00 |
| P/E ratio | 21 | 22 | 21 | 21 | 16 |
* Board's proposal.
In 2010 H&M implemented a 2-for-1 share split. The years 2008–2009 in the table above have therefore been adjusted for the new number of shares.
| Sharehol ding | No. of sharehol ders | % | No. of shares | % | Average shares per sharehol der |
|---|---|---|---|---|---|
| 1–500 | 147,547 | 76.1 | 23,274,401 | 1.4 | 158 |
| 501–1,000 | 22,280 | 11.5 | 17,762,588 | 1.1 | 797 |
| 1,001–5,000 | 18,992 | 9.8 | 42,097,109 | 2.5 | 2,217 |
| 5,001–10,000 | 2,448 | 1.3 | 17,990,923 | 1.1 | 7,349 |
| 10,001–15,000 | 715 | 0.4 | 8,980,045 | 0.5 | 12,560 |
| 15,001–20,000 | 443 | 0.2 | 7,919,364 | 0.5 | 17,877 |
| 20,001– | 1,453 | 0.7 | 1,537,047,570 | 92.9 | 1,057,844 |
| Total | 193,878 | 100 | 1,655,072,000 | 100 | 8,537 |
| Major shareholders , 30 November 2012 |
No. of shares | % of vo ting rights | % of total shares |
|---|---|---|---|
| The Persson family and related companies | 623,849,332 | 69.71 | 37.69 |
| Lottie Tham and family | 88,080,400 | 2.59 | 5.32 |
| Alecta Pensionsförsäkring | 64,840,000 | 1.90 | 3.92 |
| Swedbank Robur fonder | 45,988,720 | 1.35 | 2.78 |
| AMF - Försäkring och Fonder | 31,569,030 | 0.93 | 1.91 |
| Afa Försäkring | 16,288,140 | 0.48 | 0.98 |
| SEB Investment Management | 15,705,376 | 0.46 | 0.95 |
| Fjärde AP-fonden (Fourth Swedish National Pension Fund) | 15,657,489 | 0.46 | 0.95 |
| Handelsbanken Fonder | 15,299,666 | 0.45 | 0.92 |
| Jan Bengtsson | 14,222,030 | 0.42 | 0.86 |
| 1947 | The first store opens in Västerås, selling women's clothing. The store is called Hennes. | ||
|---|---|---|---|
| 1952 | Hennes opens in Stockholm. | ||
| 1964 | The first store outside Sweden opens in Norway. | ||
| 1968 | Founder Erling Persson buys Mauritz Widforss, a hunting and fishing equipment store. Sales of men's and children's clothing begin. The name is changed to Hennes & Mauritz. |
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| 1974 | H&M is listed on the Stockholm Stock Exchange. | ||
| 1976 | The first store outside Scandinavia opens in London in the UK. | ||
| 1977 | Impuls stores are launched. Sales of cosmetics begin. | ||
| 1980s | Stores open in Germany and the Netherlands. H&M acquires the mail order company Rowells. | ||
| 1990s | Progress continues in Europe with the opening of the first store in France in 1998. Newspaper and magazine advertising is complemented by outdoor advertising featuring famous models. In 1998 H&M online shopping begins. |
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| 2000 | The first US store opens on Fifth Avenue in New York. The same year stores open in Spain. In subsequent years, H&M opens in more European markets. |
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| 2004 | H&M initiates designer collaborations starting with Karl Lagerfeld. More collaborations follow with Stella McCartney, Viktor & Rolf, Madonna, Roberto Cavalli, Comme des Garçons, Matthew Williamson, Jimmy Choo, Sonia Rykiel, Lanvin, Versace, Marni, David Beckham, Anna Dello Russo and Maison Martin Margiela. |
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| 2006 | A major expansion of online and catalogue sales begins with the Netherlands as the first market outside the Nordic region. The first stores in the Middle East open via franchise. |
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| 2007 | The first Asian stores open in Hong Kong and Shanghai. In the same year, the new concept store COS is launched. The expansion of online and catalogue sales continues with the inclusion of Germany and Austria. |
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| 2008 | H&M opens its first Japanese store in Tokyo and acquires fashion firm FaBric Scandinavien AB, which comprises the brands Weekday, Monki and Cheap Monday. |
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| 2009 | The first H&M stores in Russia open. Beijing gets its first H&M store and Lebanon becomes a new franchise market. H&M Home is launched. Weekday and Monki open in Germany. |
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| 2010 | The first H&M stores in South Korea and Turkey open. Israel becomes a new franchise market. Online shopping starts in the UK. H&M Home stores open outside Sweden. Monki moves into Asia with a store in Hong Kong. H&M becomes the world's largest consumer of organic cotton and will continue to increase its use of this material. |
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| 2011 | H&M opens in Romania, Croatia and Singapore, as well as via franchise in Morocco and Jordan. COS opens in Sweden, and Monki and Cheap Monday in the UK. The H&M Incentive Program – a reward and recognition programme for all employees – starts. COS and Monki launch online shopping in 18 countries. |
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| 2012 | H&M opens in Bulgaria, Latvia, Malaysia and Mexico, and via franchise in Thailand. COS opens in Finland, Italy, Poland, Hong Kong and Austria, and opens via franchise in Kuwait. The Monki brand grows in China and Weekday opens in the Netherlands. |
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| 2013 | The first H&M store in the southern hemisphere opens in Chile. H&M also opens in Estonia, Lithuania and Serbia. Indonesia becomes a new franchise market. H&M plans to introduce online shopping in the US. The & Other Stories brand is launched in ten countries. COS, Monki, Weekday and Cheap Monday to open in new countries. Weekday starts online shop ping. Global clothing collecting initiative starts in selected stores. |
> Read all about H&M's collections, brands, markets, sustainability work, employees and much more at hm.com.
In 1947 Hennes women's clothing store opened in Västerås, Sweden. Today the H&M Group offers fashion for everyone under the brands of H&M, COS, Monki, Weekday, Cheap Monday and & Other Stories, along with interior textiles for the home at H&M Home.
| HEAD OFFICE | H & M Hennes & Mauritz AB, Mäster Samuelsgatan 46A, 106 38 Stockholm, Sweden Telephone: +46 (0)8 796 55 00 For information about H&M and addresses of the country offices, please see www.hm.com. |
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|---|---|---|---|---|
| CONTACTS | ceo Karl-Johan Persson finance Jyrki Tervonen accounts Anders Jonasson sales Daniel Ervér buying Stina Westerstad design Ann-Sofie Johansson production Karl Gunnar Fagerlin sustainability Helena Helmersson expansion Fredrik Olsson |
business development Björn Magnusson new business Pernilla Wohlfahrt marketing/brand Anna Tillberg Pantzar communications Kristina Stenvinkel investor relations Nils Vinge human resources Sanna Lindberg it Kjell-Olof Nilsson logistics Jonas Guldstrand security Cenneth Cederholm |
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| DISTRIBUTION POLICY |
H&M sends out the printed version of the Annual Report to shareholders who have specifically expressed an interest in receiving the printed version. The Annual Report is also available to read and download at www.hm.com. |
| time and place |
The Annual General Meeting 2013 will be held at Victoriahallen, Stockholm International Fairs, Stockholm, on Tuesday 23 April at 3 p.m. |
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|---|---|---|---|
| Shareholders who are registered in the share register print-out as of Wednesday 17 April 2013 and give notice of their intention to attend the AGM no later than Wednesday 17 April 2013 will be entitled to participate in the AGM. |
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| Nominee shares |
Shareholders whose shares are registered in the name of a nominee must re-register their shares in their own name in order to be entitled to participate in the AGM. In order to re-register shares in time, shareholders should request temporary owner registration, which is referred to as voting right registration, well in advance of 17 April 2013. |
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| Notice of attendance |
Shareholders must provide notice of their intention to participate in the Annual General Meeting by post, fax, telephone or via H&M's website to: |
H & M Hennes & Mauritz AB Head Office/Carola Ardéhn SE-106 38 Stockholm, Sweden Telephone: +46 (0) 8 796 55 00 Fax: +46 (0) 8 796 55 44 www.hm.com/agm |
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| Shareholders must provide their name, civil identity number and telephone number (daytime) when providing notice of their intention to participate. |
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| Dividend | Meeting a dividend for 2012 of SEK 9.50 per share. The Board of Directors has proposed 26 April been purchased no later than 23 April 2013. |
The Board of Directors and the Managing Director have decided to propose to the Annual General 2013 as the record day. With this record day, Euroclear Sweden AB (formerly VPC AB) is expected to pay the dividend on 2 May 2013. To be guaranteed dividend payment, the H&M shares must have |
CALENDAR H & M Hennes & Mauritz AB will provide the following information:
19 June 2013 Six-month report 26 September 2013 Nine-month report 30 January 2014 Full-year report
21 March 2013 Three-month report 23 April 2013 Annual General Meeting 2013, Victoriahallen, Stockholm International Fairs at 3 p.m.
The annual report is printed on FSC® certified paper.
hm.com/a n n ua lr eport
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