Annual Report • Aug 28, 2008
Annual Report
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| he Managing Director | 14 |
| ncept, Goals and Strategy | 16 |
| эls | 18 |
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| ctions | 24 |
| Customer | 32 |
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| pcial Responsibility | 42 |
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| Report and Consolidated Accounts | |
| tion Report including proposed distribution of earnings | 51 |
| ome Statement | 54 |
| ance Sheet | 55 |
| n Shareholders' Equity for the Group | 56 |
| sh Flow Analysis | 57 |
| mpany Income Statement | 58 |
| mpany Balance Sheet | 59 |
| n Shareholders' Equity for the Parent Company | 60 |
| mpany Cash Flow Analysis | 61 |
| he Financial Statements | 62 |
| the Annual Report | 71 |
| oort | 72 |
| mmary | 73 |
| overnance Report including the Board of Directors | 74 |
| are | 81 |
| Imation and Contact Details | 82 |
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2007 was H&M's most intense year ever, with many new stores, new markets, new customer offerings as well as a completely new store chain. Here are some of the highlights.
The expansion of Internet and catalogue sales outside the Nordic region continued in 2007, with catalogue sales in the Netherlands and online sales in Germany and Austria. This expansion follows the successful launch of online sales in the Netherlands in 2006.
Superstar Kylie Minogue was the face of H&M for one of the summer's beachwear collections. Kylie's beachwear collection was sold in all H&M stores that sell women's wear. Ten percent of revenues went directly to WaterAid, an organisation that helps to provide the world's poorest with clean water. The Kylie collection will contribute to give around 229,000 people access to clean water and 129,000 people access to sanitation facilities in Tanzania, Mozambique and Madagascar.
The fi rst H&M store in Greece was opened during the year. As usual, it was in the best business location – in the middle of Athens's shopping district. Many fashionconscious customers came to the opening and helped make it a fantastic premiere.
2007 was the year of H&M's 60th birthday. To celebrate, the Anniversary Foundation was established and the sum of SEK 60 million was transferred to it. The proceeds of the foundation will be spent on projects in areas such as health, education and access to water in countries in which H&M's clothes are produced.
The successful collaboration with style icon Madonna continued in 2007, resulting in one of the spring's large women's collections, M by Madonna. The collection was available in all H&M stores that sell women's wear.
H&M's move into Asia, one of the true highlights of the year, was celebrated with an opening party in Shanghai at which Kylie Minogue performed before 2,000 people. The store openings in Hong Kong and Shanghai were very well received by customers and form a good base for H&M's continued expansion in Asia.
Great attention for this year's guest designer – Roberto Cavalli The launch of Roberto Cavalli's unique collection for H&M was the big fashion party of the year. Customers queued up to buy the fashion legend's party collection and the collaboration received attention all over the world. The Roberto Cavalli at H&M collection was sold in 200 selected H&M stores.
| KEY RATIOS | 2007 | 2006 |
|---|---|---|
| Sales including VAT, SEK m | 92,123 | 80,081 |
| Sales excluding VAT, SEK m | 78,346 | 68,400 |
| Change, % | +15 | +11 |
| Operating margin, % | 23.5 | 22.4 |
| Profi t after fi nancial items, SEK m | 19,170 | 15,808 |
| Profi t for the year, SEK m | 13,588 | 10,797 |
| Earnings per share, SEK (before and after dilution) | 16.42 | 13.05 |
| Change, % | +26 | +17 |
| Return on equity, % | 45.4 | 40.2 |
| Return on capital employed, % | 63.7 | 58.7 |
| Share of risk-bearing capital, % | 78.5 | 80.0 |
| Equity/assets ratio, % | 76.9 | 78.1 |
| Total number of stores | 1,522 | 1,345 |
| Average number of employees | 47,029 | 40,368 |
H&M's profi tability is continuing to develop strongly. In the past fi ve years sales including VAT has increased by 73 percent and profi t after tax by 139 percent.
Earnings per share amounted to SEK 16.42 for the fi nancial year 2006/2007.
Sales including VAT by country 2007, SEK m
" At the end of 2007 H&M delivered fashion and quality at the best price to customers at more than 1,500 stores."
0 5,000 10,000 15,000 20,000 25,000
At the time of the IPO in 1974, H&M was present in Sweden, Norway and Denmark. In 1976 the company started to expand outside the Nordic region and today H&M is present in 28 countries with more than 1,500 stores.
Internet sales in Germany and Austria during the year and this has developed very well. Other 2007 milestones included the launch of an expanded collection of women's footwear and a small range of men's footwear, both of which have been very well received so far. The same is true of H&M's new store concept COS, Collection of Style, which offers fashion and quality at the best price in a higher price segment. By the end of the fi nancial year, we had successfully established eleven COS stores in some of Europe's top metropolitan cities.
Our geographical markets are growing in number, as is our number of employees. During the year, the net increase was 177 stores, and at the end of the fi nancial year H&M had about 68,000 employees spread across 1,522 stores in 28 countries. In addition to China, we expanded into Slovakia and Greece, and into Qatar through our franchising arrangement. Our expansion into new markets was successful, thanks largely to comprehensive preparation.
The fi nancial year was characterised by very good sales development with well-received collections. This also applies to countries where the retail sector has in general been weaker. It was particularly pleasing to see strong sales development in Germany, which is H&M's largest market with 319 stores.
Successful collections are the key to H&M's success – and behind our successes, of course, lies the great commitment of our colleagues. H&M's colleagues are key to the success of all the exciting things we do. For example, we rely on the experience of colleagues in existing H&M countries when expanding into new markets. They help get the new stores up and running and are an effective way of passing on the "H&M spirit". Our employees also play an important role in our initiative to increase clarity in the stores and in the buying organisation – an initiative that continued to bear fruit during the year. H&M continued to refi ne the Group structure in 2007, in order to be even more effective in meeting the demands made by our expansion.
H&M wants to renew itself and surprise people, and consequently we sometimes seek out collaborations with well-known designers and artists. The attention that these partnerships receive from customers and the media around the world are clear evidence of how global the H&M brand has become. During the spring, we continued our successful collaboration with Madonna by designing a wider H&M collection with her, called M by Madonna. This was followed in early summer by Kylie Minogue, who became the face of one of this year's beachwear collections, from which some of the proceeds went to WaterAid. The autumn's collaboration with designer Roberto Cavalli was the grand fi nale. The collection – Roberto Cavalli at H&M – was a huge success and sold out very quickly.
H&M continued to grow in new markets and through new offerings in 2007. Among other things, we entered the Asian market with stores in Hong Kong and Shanghai, one of the most important steps that the Group has taken since its expansion into the USA in 2000. This expansion, as well as H&M's collections, new concepts and offerings, form a good foundation for continued growth for a long time to come.
Sales increased by 15 percent to SEK 92 billion including VAT in 2007. This increase took place with continued good profi tability; the gross margin improved to 61.1 percent from the previous year's record level of 59.5 percent. Profi t after fi nancial items increased by 21 percent to SEK 19 billion.
Key to our success were the winning collections that were well received by our customers, and the fact that we strive for continual improvement in everything we do. H&M is constantly working to rejuvenate itself, in order to produce new attractive offerings. At the end of 2007, H&M delivered fashion and quality at the best price to customers at more than 1,500 stores. Sixty years after the fi rst H&M store opened in Västerås, we continued to gain market share in the Scandinavian countries – some of our most mature markets. This indicates the strength of our business concept and is a good sign for the whole Group. To celebrate our 60th Anniversary we set aside SEK 60 million in a foundation, the proceeds of which are to go to projects within areas such as health, education and access to water in the countries in which H&M's merchandise is produced.
During the year, we succeeded to increase sales in comparable stores by 5 percent. We accomplished this by always focusing on our customers' needs. H&M's business is based on the fashion year, which centres around autumn and spring collections, so we can only evaluate how successful we are at the end of a full season. Exactly when the season occurs may vary by a few weeks from year to year, often depending on what the weather is like in our major markets. This year's sales and profi tability are a refl ection of our good work and the fact that our customers appreciated what we delivered.
H&M is expanding through new offerings and via new channels such as Internet and catalogue sales. We began offering catalogue sales in the Netherlands and
" Behind our successes, of course, lies the great commitment of our colleagues."
All of this year's collaborations were well received both by customers and media from around the world. A great highlight was Kylie Minogue's performance at the opening of the store in Shanghai. It was a glittering demonstration of the strength of H&M's brand and a good example of how this type of collaboration can help H&M to grow further.
Increasing attention is being paid to sustainability issues – not least of which is the subject of climate change. H&M responded by initiating a new sustainability policy during the year. H&M takes responsibility for all who contribute to our success. We cooperate with our suppliers in order to develop long-term, sustainable social and environmental standards in the factories that produce H&M products. We do this primarily by establishing requirements for our suppliers, following-up on these requirements and supporting the suppliers as they work to improve.
The policy also specifi es that through our choice of materials and improved production processes, we can proactively work to minimise our environmental impact. One example of this is our organic cotton initiative. In 2007, we used 1,300 tonnes of organic cotton, which is several times the volume used in the previous year.
Most of our expansion in 2008 will take place in the USA, Spain, the UK, France, Germany and Italy. In total we expect to increase the storecount by 190 stores net this year. This year's expansion includes entry into an exciting new market – Japan – where H&M will open stores this autumn in two of Tokyo's most exclusive shopping districts, Harajuku and Ginza. In cooperation with our franchise partner Alshaya the opening of H&M stores in four new markets is planned in 2008: Egypt, Saudi Arabia, Bahrain and Oman. Another exciting development is our planned expansion into Russia. The fi rst stores are expected to open in Moscow in 2009. The Russian market is of great interest and has great growth potential. Initially we will focus on Moscow and the surrounding area.
Overall, 2007 was a very eventful year for H&M. Once again we achieved record profi tability and we established our fi rst stores in the large Asian market – in Hong Kong and Shanghai. This would not have been possible without the good work of all of our H&M colleagues. Our strong fi nances and clear business concept have taken us far beyond the borders of Sweden. With stores from San Francisco in the west to Shanghai in the east, H&M is now truly global. Having established a solid foundation for continued expansion, we welcome our customers to a new and exciting year at H&M.
Rolf Eriksen Managing Director
H&M's business concept is to offer fashion and quality at the best price.
H&M's growth target is to increase the number of stores by 10–15 percent per year, but also to increase sales at existing stores. The availability of attractive business locations is the major deciding factor in our rate of expansion. In 2007, 193 new stores were opened and 16 were closed.
H&M is an expansive and fi nancially strong company. The objective is to grow in a controlled manner while maintaining profi tability. In the past fi ve years sales including VAT have increased by 73 percent and earnings per share by 139 percent. This expansion has been entirely self-fi nanced.
In order to offer the latest fashions H&M has its own design and buying department that creates the collections. Good product quality is ensured through continuous quality controls. In addition to product quality itself, quality also means producing the items with minimal impact on the environment and under good working conditions.
The store is the most important sales channel H&M meets the customer through three complementary sales channels: the stores, the Internet and the catalogues. The most important of these is the stores. It is here that the customer can see what is new, try on and feel the items, get ideas for putting outfi ts together and be inspired. The stores are a shop window for the range and must attract the customers.
The aim is for H&M stores always to be located in the best business location, whether in a big city or a shopping centre. This has been a fi rm principle of H&M since the fi rst store opened and is still true today. H&M stores can for example be found on Fifth Avenue in New York, on Regent Street in London, on Corso Vittorio Emanuele in Milan and on Queen's Road in Hong Kong.
The fact that H&M leases all the store premises is an advantage. It makes it easier to move a store to another site if the best business location in a city changes.
H&M offers a wide range of stores – everything from big full-range stores to small concept stores. The stores vary in size from a few hundred square metres to several thousand square metres. In 2007 the number of new and refurbished stores reached a record high. In addition,
the standard of these stores was raised to make them more attractive and thereby further reinforce H&M's competitive strength.
In 2007 H&M also opened a new store chain – COS Collection of Style – with a new fashion concept in a higher price segment to attract a different customer group.
For more than 25 years H&M's customers in the Nordic countries have been able to shop from home using catalogues, and since 1998 also via the Internet. The strength is freedom of choice – the customers can choose the sales channel that suits them best at that moment.
In autumn 2006 H&M began a roll-out of Internet and catalogue sales outside the Nordic region. The fi rst new country was the Netherlands, with Internet sales. In spring 2007 the fi rst H&M catalogue was sent out to customers in the Netherlands in a initiative that has produced good results so far. In late July 2007 it was time to take the next step, with the launch of Internet sales in both Germany and Austria, and the fi rst German-language catalogue was issued in January 2008. H&M IS CONTINUING to grow through all three sales channels. Although the stores are H&M's primary sales channel, Internet and catalogue sales strengthen H&M's profi le and increase the level of service to customers, thereby making H&M even more accessible. In the future, customers in more and more H&M countries will be able to shop online and using the catalogue, although the Group's main expansion will take place through stores.
The best location is crucial when establishing a successful store. H&M prefers not to open a store until the right business location becomes vacant. Every individual store is unique. To create a store with the best possible commercial conditions, H&M analyses the customers on the street, the other stores nearby and the traffi c fl ows and relates this to the circumstances of the premises.
Sometimes it may be a concept store for teenagers that has greatest commercial potential, while at other times it may be a family store. The most important thing is that the format is right in each case.
Before H&M decides to move into a new market, an assessment is made of the market's potential. Factors such as demographic structure, purchasing power, economic growth, infrastructure and political risk are analysed.
An on-the-spot assessment of the customer base and store locations is then carried out. The fi rst store should preferably be a large store in the best business location in a big city, which is subsequently supplemented with a mix of stores offering all or parts of the product range. H&M can then continue to grow by opening stores in other cities.
The store is the most important sales channel. Today H&M has stores in Europe, North America, the Middle East and Asia, where the fi rst stores opened in spring 2007. Here is the fi rst store in Shanghai – as always, in the best location.
H&M Shop on the Internet is an easy, convenient way to fi nd shopping inspiration.
In the Nordic countries and the Netherlands, and from 2008 also in Germany and Austria, H&M's customers can also shop by catalogue.
What all these markets have in common is that they are major catalogue markets with a high level of Internet penetration and well developed broadband networks.
Although more and more Internet and catalogue sales customers are making their purchases online, the catalogues remain important. Each year H&M produces four large catalogues – two in the spring and two in the autumn. These are supplemented by smaller seasonal
catalogues with a particular focus.
The catalogues are sent out at the beginning of the season and generate interest in the new collections. The range is more or less the same as in our stores. The catalogue inspires customers and provides an overview of the full range, while also providing tips and ideas. It is then up to the customer to choose in each case where he or she wants to shop – in store, using a catalogue or by ordering online.
Markets 2007 Additional markets 2008 Additional market 2009
H&M HAS HAD another record year. Sixty years have passed since H&M opened the doors of its fi rst store in Västerås and today H&M can be found in Europe, North America, the Middle East and Asia. 2007 was a year of continued strong sales, high profi tability and many new customers. The year was intense, with a high level of activity. H&M moved into four new countries, opened 193 new stores, presented a number of new concepts and continued the launch of Internet and catalogue sales in Europe. At the end of the fi nancial year there were 1,522 H&M stores in 28 countries.
In total, H&M increased its sales by 15 percent to SEK 92 billion including VAT. In local currencies sales increased by 17 percent and sales in comparable stores increased by 5 percent. Comparable stores means stores that have been open for at least a full fi nancial year, which means from 1 December to 30 November.
The fashion scene is infl uenced by trends and is spread rapidly around the world via the Internet, music, fi lms and travel. In each market H&M faces competition from global fashion companies, local retail chains, department stores and individual shops – each with its own profi le and range of products. But entertainment, home electronics and travel also compete for customers' attention and
demand. A strong brand and a competitive offering are important success factors. H&M aims to always offer fashion for all occasions in a new and creative way.
In 2007 H&M has opened new stores and launched new offerings at a faster pace than ever before. New offerings allow H&M to exploit growth opportunities even in countries where the company has been present for many years.
More and more customers want to be able to buy footwear that matches the collections. In 2007 H&M launched a wider range of women's footwear as well as
a small collection of men's footwear in selected stores. Customers really appreciated H&M's footwear collections and sales of both women's and men's footwear have started well.
Other examples of how H&M has surprised customers are the collections developed together with style icons such as Madonna and Kylie Minogue, and also the design collaboration with Roberto Cavalli. During the year H&M also opened a completely new store chain, COS – again with fashion and quality at the best price as its business concept, but in a higher price segment. COS complements H&M well and is a way of attracting a new customer group.
Growth while maintaining profi tability is one of H&M's aims, and by continually working on making things even better H&M lived up to this again in 2007. During the year the net increase of stores was 177. The majority of the new stores were opened in the USA, the UK, Germany, France and Italy. At the same time, the operating margin for the Group increased to 23.5 percent from 22.4 percent.
H&M has successfully taken its concept – to sell fashion and quality at the best price – to new markets. During 2007 stores were opened in Greece, Slovakia and in China through stores in Hong Kong and Shanghai. In Qatar stores were opened on a franchise basis. In parallel, preparations continued for expansion into Japan in 2008.
In the Nordic region the retail business had a good year and H&M continued to take market share while at the same time increasing sales in comparable stores. H&M has a strong position with a high degree of market coverage in the region, not only in Sweden but also in Norway, Denmark and Finland. It is a matter of constantly attracting customers with new collections and new offerings such as footwear and various collaborations. During the autumn the Nordic region got its fi rst COS store in Copenhagen, and two new Divided stores fi tted out specifi cally to appeal to young, trend-conscious customers opened in Stockholm and Århus.
Germany is H&M's biggest market and accounts for almost a quarter of the Group's sales. With a large population and strong purchasing power, H&M still has good opportunities for growth in Germany. There was a high level of activity during the year, with a large number of major initiatives and projects. These involved not only the opening of new stores, but also renewal and refurbishments in order to have an attractive and inspiring store environment. In total, 20 stores were opened, of which six were COS stores. Four stores were closed. The expansion of Internet sales to Germany and Austria, which started in August, also got off to a good start.
H&M has had a very good year in the Netherlands, which was the Group's fi fth largest market at the end of the fi nancial year. Sales were given a lift by the highly successful launch of Internet and catalogue sales. Internet sales began in August 2006 and in spring 2007 the fi rst catalogue was sent out.
The UK continued to do well, with an increase in sales of 9 percent in local currencies. Here, too, there was a high level of activity, with many new stores and a number of store refurbishments. In March, for example, the fi rst store in H&M's new store chain COS opened on London's prestigious Regent Street.
Business has developed positively in Southern Europe, with more and more customers discovering and appreciating H&M's fashions. The countries of Southern Europe, where H&M has had a presence for less than ten years, have all a rapid rate of expansion. H&M now has a fi rm foothold and a good base for further growth.
In Spain, which has 79 stores well distributed across the country, sales increased substantially. In Italy the number of stores almost doubled to 31 stores. Among others, a large store opened in Rome at Porta di Roma, one of the country's largest shopping centres, and H&M's fi rst stores in southern Italy opened in Bari. In France, too, the positive development continued. New stores this year included a large store in France's third largest city, Lyon.
During the year H&M moved into Greece. The fi rst store was opened in Athens on one of the very best shopping streets, and was followed by a further two stores. The reception was a great success, with many new customers discovering H&M.
H&M is also popular among the customers in the eastern parts of Europe. Poland has developed into a strong H&M market and sales have continued to increase. At the end of the fi nancial year the number of stores had increased by a net contribution of seven stores to 42 stores. H&M has also sold well in the Czech Republic, Slovenia and Hungary. H&M's fi rst store in Slovakia, which got a great reception, opened in Bratislava during the spring. Eastern Europe is an exciting growth region where H&M sees great opportunities for establishing more stores.
Sales in North America have developed well. H&M continued its substantial expansion in both the USA and Canada. In the USA this included strengthening the company's presence on the West Coast by opening a number of stores in Los Angeles. In October the opening of the fi rst H&M store in Las Vegas took place. Business were also going well for H&M in Canada. Vancouver on the West Coast and Quebec in the east of Canada are new locations on the H&M map.
In the Middle East H&M has been in partnership since 2006 with a franchisee, Alshaya, which is a leading retail player in the region. It is a classic franchising arrangement in which H&M sells and delivers items to Alshaya, which in turn stocks and then sells the items in stores. Except for the Middle East, franchising is not part of H&M's expansion strategy.
H&M's fashions are also appreciated in the Middle East and the stores have sold well. In March the fi rst H&M store in Doha, the capital of Qatar, was opened. In total there were ten franchise stores in Dubai, Kuwait and Qatar at the end of the fi nancial year.
Asia is a really exciting region with a high population and strong economic growth. During spring 2007 H&M's fi rst store in Hong Kong opened, closely followed by two stores on mainland China in Shanghai. A further store in Shanghai and three more stores in Hong Kong opened during the year. There were seven H&M stores in China in total at the end of the fi nancial year.
The response in Hong Kong and Shanghai has been fantastic and sales have by far exceeded the company's expectations.
The stores in Hong Kong and Shanghai are the bridgehead for H&M's continued expansion in Asia, an exciting continent with great potential for growth.
H&M IS CONTINUING to grow. In 2008 a net addition of 190 stores is planned. The main expansion will take place in the USA, Spain, the UK, France, Germany and Italy.
Japan will become a new H&M country during the year. In autumn 2008 two excellently located stores will open in Tokyo in a couple of the city's best known and most exclusive shopping districts. Japan, which is the second largest economy in the world, is a very exciting market, with a fashion-conscious public with strong purchasing power. Both Japan and China will undoubtedly be important expansion markets in the future.
New franchise markets in 2008 will be Egypt, Saudi Arabia, Bahrain and Oman, where the stores will be
opened in cooperation with Alshaya. H&M plans to establish stores in Russia in 2009, focusing initially on Moscow and the surrounding area.
H&M is growing not only by turning to customers in new stores and new places. It is at least equally important that the company continually develops and enhances its offering by means of creative solutions and surprises in the collections.
To ensure that the new home textile range, H&M Home, meets H&M's high requirements of fashion, price, quality and suppliers, the launch of the concept has been deferred until autumn 2008. H&M Home will initially be sold via Internet and catalogue sales.
| Total | 1,522 | 193 | 16 | 92,123 | 80,081 | 46,469** | |
|---|---|---|---|---|---|---|---|
| Franchise | 2006 | 10 | 6 | 259*** | 72*** | ||
| China | 2007 | 7 | 7 | 482 | 646 | ||
| Greece | 2007 | 3 | 3 | 141 | 85 | ||
| Slovakia | 2007 | 2 | 2 | 81 | 45 | ||
| Hungary | 2005 | 6 | 2 | 197 | 93 | 98 | |
| Ireland | 2005 | 7 | 2 | 418 | 327 | 188 | |
| Slovenia | 2004 | 6 | 3 | 485 | 354 | 115 | |
| Canada | 2004 | 35 | 9 | 1,449 | 1,027 | 800 | |
| Italy | 2003 | 31 | 13 | 1,742 | 996 | 753 | |
| Portugal | 2003 | 15 | 1 | 672 | 425 | 425 | |
| Czech Republic | 2003 | 14 | 1 | 610 | 513 | 249 | |
| Poland | 2003 | 42 | 8 | 1 | 1,776 | 1,208 | 1,150 |
| Spain | 2000 | 79 | 11 | 5,114 | 3,845 | 3,415 | |
| USA | 2000 | 145 | 31 | 5,816 | 5,109 | 6,329 | |
| France | 1998 | 98 | 13 | 6,972 | 5,943 | 2,950 | |
| Finland | 1997 | 34 | 2 | 1 | 2,247* | 1,988* | 823 |
| Luxembourg | 1996 | 8 | 1 | 331 | 310 | 134 | |
| Austria | 1994 | 58 | 6 | 2 | 4,543* | 4,286 | 1,936 |
| Belgium | 1992 | 54 | 6 | 2 | 2,836 | 2,776 | 1,400 |
| Netherlands | 1989 | 89 | 9 | 1 | 6,147* | 4,990* | 2,254 |
| Germany | 1980 | 319 | 20 | 4 | 22,150* | 20,181 | 10,085 |
| Switzerland | 1978 | 60 | 4 | 4,206 | 4,045 | 1,474 | |
| Denmark UK |
1967 1976 |
65 129 |
7 18 |
1 | 3,746* 7,320 |
3,293* 6,769 |
1,278 3,872 |
| Norway | 1964 | 82 | 4 | 1 | 5,155* | 4,840* | 1,509 |
| Sweden | 1947 | 124 | 4 | 3 | 7,228* | 6,690* | 4,456 |
| est. | stores 30-11-07 |
during the year |
during the year |
including VAT (SEK m) |
including VAT (local currency) employees |
no. of | |
| Market | Year | Number of Openings | Closings | Sales 2007 | Sales 2006 | Average |
* including Internet and catalogue sales
** Group total 47,029
*** excluding VAT
With a sense of style and quality, the new sophisticated fashion concept COS – Collection of Style – was launched in the spring. COS is about timeless yet fashionable garments with a focus on quality in everything from fabrics and fi t to fi nish.
Modern, soft and fashionable are words that sum up H&M's Organic Cotton collection. The garments are marked with a special label to make them easy to fi nd.
H&M is addressing everyone with an interest in fashion and offers a wide and varied range. At H&M customers should always be able to fi nd clothes, footwear and accessories for every occasion and then combine these to create their own personal style. It should always be possible to fi nd something new and exciting – in the store, in a catalogue or online. The range is continually updated with new items. Just as important as renewing the range is to surprise customers with new exciting offerings.
THIS YEAR H&M launched a number of exciting new fashion lines, such as footwear to match the collections, high quality underwear basics, fashionable garments in organic cotton, H&M's skin care range for men and the new store chain COS.
In the spring H&M launched Organic Cotton, the new range using organic cotton, which received a warm welcome from customers. The collection was colourful and fashionable and included everything from underwear to outerwear. In the autumn the initiative was expanded to offer even more garments for women, men, teenagers and children. A conscious choice of material combined with the latest fashions allows customers to look good and up-to-date while at the same time looking after the environment.
COS – Collection of Style – is a new store chain that offers fashion and quality at the best price, in a higher price segment. COS is about fashion with a sense of style and quality. The garments are timeless, yet fashionable. The collections include basics with a high fashion content, updated classics and the latest trends. The fi rst store opened its doors on London's Regent Street in March 2007, after which a further ten stores were opened in European cities during the year.
A new collection of women's underwear – Our Perfect – was created in 2007. It is about high quality modern underwear basics, designed to provide the perfect fi t. There are four bra models and two matching models of briefs available in black, white, skintone, brown, pink and chalk blue.
By H&M offers an extensive range of make-up, skin care and body care products. In 2007 H&M expanded the part of the range that is aimed at men to include skin care products. The products for men are recognisable by their grey packaging labelled H&M MAN.
Fashionable from top to toe. One of H&M's new moves this year was the introduction of a range of men's and women's footwear to match the collections.
Customers appreciated the women's footwear initiative. In the spring a collection of women's footwear was launched in 200 stores around the world and in the autumn the collection was expanded to include even more models matching H&M's other collections. In addition, a small collection of men's footwear was launched.
The tailored look is back in spring 2008. H&M's men's collection is based on traditional tailoring updated with new materials and cuts and with global infl uences. The look is minimalist, simple and well-cut, with few but well-executed details.
THE WOMEN'S WEAR DEPARTMENT has a wide range of fashions for fashion-conscious women of all ages. The collections consist of a section of tailored classics and a section containing current fashions, including everything from underwear and everyday garments to party wardrobes. The big city stores also sell fashions with a particularly high fashion content for women who want to keep up with the very latest international trends.
Women's wear also includes L.O.G.G. with updated classic casuals, H&M Sport for the active lifestyle, Mama for women who want to be fashionable during their pregnancy and BiB in plus sizes. During the spring season there is also a wide range of swimwear.
For all the concepts there is a wide range of accessories to match the collections. There are also matching socks and tights, underwear and nightwear – everything from basic items to more exclusive sets. One of this spring's big women's collections – M by
Madonna – was designed by H&M in collaboration with the superstar Madonna. It was a broad collection that included tailored garments with a feminine touch. The women's collections are aimed at the modern woman who wants to be well-dressed from morning to evening.
This year all stores that sell women's wear carried a small range of women's footwear and in around 200 selected stores H&M launched a wider range. Another new line is Our Perfect, a modern collection of high quality underwear basics, designed to provide the perfect fi t. H&M's focus on organic cotton was expanded by offering a trendy, colourful collection called Organic Cotton. A conscious choice of material combined with the latest fashions allows customers to look good and up-to-date while at the same time looking after the environment.
H&M'S MEN'S WEAR DEPARTMENT has a coordinated range of clothing and accessories that covers different tastes and needs. The men's collections contain everything from timeless tailored garments such as jackets and outerwear to seasonal fashion garments that refl ect the very latest trends. In selected stores Modern Classic is available, a high quality tailored collection consisting mainly of suits with matching shirts, knitwear, ties and other accessories. The men's wear department also includes L.O.G.G.,
with updated retro-inspired casuals. There are matching accessories for all H&M's men's collections, such as socks, underwear and pyjamas.
The dress and the tunic were undoubtedly this year's key pieces for the modern woman. For the autumn collections the colour scale was grey with accents such as lilac, mustard, cerise and plum.
Tailored and classic still characterise the fashion scene for men, with traditional garments such as suits, cardigans and double-breasted coats with updated details and a new silhouette. Today, most people combine their working wardrobe with their casual clothes. Jeans, T-shirts and knitwear are therefore important complements to the classic men's line, as are sports-inspired garments.
Following the successful launch of women's footwear, a small collection of footwear for men was also launched. The collection is available in about 70 H&M stores around the world. Also new for male customers is Organic Cotton, a trendy, colourful collection made using organic cotton.
Like the rest of H&M's range, the men's look is about styling and personal style – in other words, classic dressing that is nonetheless up-to-date and modern.
For many people, jeans are the most important item in their wardrobe. &denim has jeans for all tastes and in all sizes. The prices are unbeatable, starting at ¥ 19,90.
H&M'S DIVIDED DEPARTMENT offers fashion with a young look. It is about creative design and references from the very latest trends from street and club wear in a style that appeals to both teenagers and adults. The range consists of denim and street wear fashion for all occasions – from everyday clothes to party wear. This is supplemented with matching accessories and underwear. The Divided customer can also choose from updated basics and the organic collection Organic Cotton.
Divided is where trend-conscious customers with a great interest in fashion are found. The collections are a way for them to express themselves, to make the most of their personal style. Often it is here that future bestsellers can be identifi ed.
Divided is particularly important to show H&M's fashion profi le, with a feel for the latest trends.
H&M'S JEANS CONCEPT &DENIM offers everything from traditional fi ve-pocket models to trendy fashion jeans. &denim gives customers a wide jeans range of high quality, with everything from basic models to the very trendiest cuts.
The aim of &denim is to ensure that everyone is able to fi nd exactly the jeans they need, whatever their fashion requirements and style. Jeans are the cornerstone of a wardrobe and many customers buy new jeans each season. Perhaps this is why jeans are the garment that most refl ect current fashions, which is also why the entire range is updated each season.
Since autumn 2007 there is also a selection of &denim models in organic cotton.
The look at Divided in autumn 2007 was inspired by 50s rockabilly, elegant 70s rock and 90s grunge with layering and pared-down minimalism. This was complemented by sports-inspired garments and a wide range of jeans and denim items.
THE CHILDREN'S RANGE is divided into different concepts for babies, children and H&M Young, which is aimed at children up to 14 years old. It is particularly important that garments for children are comfortable and functional, while at the same time fashion and trends are highly signifi cant. The collections must be as fashionable as they are practical, hard-wearing, safe and comfortable. To guarantee the highest level of safety H&M's children's items undergo careful testing.
The baby wear collection consists of clothes for the youngest children (0–18 months). With a focus on function and safety, the season's trends are expressed in a playful way.
The children's wear collection for boys and girls aged 18 months to 8 years combines fashion, colour, graphics and design with comfort and functionality. The clothes must be fashionable, practical and hard-wearing.
H&M Young is the collection for 9–14 year olds. H&M Young customers often look to older teens for their fashion inspiration and they are more fashion-conscious than younger children. H&M Young offers fashionable garments that are functional, comfortable and safe.
Just as for men and women, the children's department includes L.O.G.G., which offers timeless casual wear, as well as matching socks, underwear, nightwear, accessories and swimwear.
When H&M designs clothing for babies and children, quality and safety are given priority. Children's wear has to be particularly hard-wearing because it is washed more than twice as often as other clothing.
H&M'S COSMETICS DEPARTMENT offers an extensive range of make-up, skin care and body care products. The range is constantly being renewed with new colours, fragrances and products that refl ect current fashion trends.
By H&M is H&M's own brand for make-up and skin care products. This product line contains a wide range of cosmetic products in carefully coordinated colours for both women and men. H&M updates the entire range each season and coordinates it with the collections. The range also includes body care products and accessories such as brushes, make-up bags and toilet bags. Since autumn 2007 H&M has had a greater focus on products for men, with everything from creams, masks, scrubs to hair styling.
H&M does not allow its cosmetic products to be tested on animals, either during the production process or in the fi nished state. All suppliers must guarantee that the content, packaging and labelling meet EU quality and safety requirements.
H&M's cosmetics range is constantly being renewed with new colours, fragrances and products that refl ect current fashion trends.
H&M creates and plans its collections centrally. In this work it is incredibly important to understand what customers want – from the idea, through the creation of a new product to the customer buying it. H&M's designers, pattern makers and buyers agree on the trends that will inspire H&M's fashion in the coming season and try to fi nd a good balance between modern basics, current fashions and high fashion. H&M outsources the production of the items to independent suppliers, mainly in Asia and Europe. Getting everything to work places great demands on planning and organisation. Millions of items are involved and these are sent out to the stores via a number of distribution centres. Getting the right item to the right store at the right time is the key to H&M customers always fi nding something new and exciting. The path of the products from idea to customer is shown on pages 33 to 37.
H&M's own designers, pattern makers and buyers create the collections together. Taking the world as inspiration, styles are identifi ed that are right for the times and trends are adapted to fashions that work. It is about creating a good balance between fashion, quality and the best price.
The idea and design work is a continual creative process. To pick up on forthcoming trends H&M constantly monitors the world around it and draws inspiration from street fashion, fi lms, travel and other cultures, the media, trend institutes, trade fairs and exhibitions as well as fashion history. The overall themes are often planned up to a year in advance, while the very latest trends are picked up at short notice.
H&M's collections always emerge with the customer in focus. To meet demand from customers of all ages, each with their own particular style, H&M offers many different concepts. Trends and infl uences are adapted to styles and models that will suit the customers. The themes, colours, fabrics, silhouettes and garment types are decided in order to create the new season's collections.
Taking the world as inspiration, H&M's designers, pattern makers and buyers create the collections.
H&M builds up its range by putting together a balanced mix of modern basics, current fashions and high fashion within each concept. A number of different factors affect the fi nal composition of the range. What sold well last season is combined with the coming season's big trends, colours and models. The aim is that the range should refl ect what customers want at all times.
Customer demand in different markets and in different stores determines the mix of the product range. Once again, the previous season's sales form a good guide. The size of the stores, their location and whether it is a city store or a regional store also have a bearing on how the product range is distributed.
High fashion garments that are produced in limited quantities, for example, will be sold only in stores in the big cities. Modern basics – such as jackets, tops and trousers in a range of colours and in the current season's cut –
are ordered in larger volumes and distributed to more stores.
Each concept has its own team of designers, buyers, assistants, pattern makers, a section manager and a controller. They are all united by their common interest in fashion and trends and by their understanding of what customers want. The teams produce the right mix of merchandise for each concept.
The number of people working on the teams varies depending on the concept. For the larger concepts, e.g. in women's wear, a number of designers, buyers and pattern makers may work in parallel, while concepts such as Mama or BiB have considerably smaller teams.
" The range should reflect what customers want at all times."
H&M does not own any factories. Clothes and other products are instead bought in from around 700 independent suppliers, primarily in Asia and Europe.
The buying department plans the range, while the production offi ces deal with contacts with the suppliers. They are responsible for each order being placed with the right supplier. The combination of quality, price, quantity, lead time, fl exibility and the supplier's ability to live up to H&M's CSR requirements are decisive in the choice of supplier. That production must take place under good working conditions and that H&M's policy must be met are fundamental requirements. The cooperation is strategic and long-term and H&M's ambition is to grow together with its suppliers.
The quality and safety of the goods are checked at the production offi ces, where extensive testing is carried out in respect of matters such as child safety and laundering, as well as chemical tests to check that the items meet
H&M's quality requirements. H&M always abides by the strictest regulations in the countries where the company has a presence and the most stringent regulation is then adopted as H&M's standard in all countries.
The time from an order being placed until the items are in the store may be anything from a few weeks up to six months. The best lead time will vary. For high-volume fashion basics and children's wear it is advantageous to place orders further in advance. In contrast, trendier garments in smaller volumes have to be in the stores much quicker.
The concept teams produce the right mix of merchandise for each concept. One of H&M's fundamental requirements is that production takes place under good working conditions.
The right item to the right country and the right store H&M handles millions of items each year. Through a number of distribution centres items are sent to more than 1,500 stores in 28 countries. Having the right items in the right quantity in the right store in the right country at the right time at the right cost calls for extremely well-functioning logistics. In order to succeed, accuracy, fl exibility and effi ciency are required throughout the supply chain.
H&M controls every link in the chain, from coming up with an idea right through until the item reaches the customer. Doing so the logistic fl ow is considerably more effi cient than that of an individual producer, importer and/or retailer. Another crucial supply chain success factor is good IT support providing rapid sales feedback from the stores.
H&M makes efforts to use clean and effi cient modes of transport with limited environmental impact. The majority of the merchandise is transported by ocean, but goods are also transported by rail, road or sometimes air from the production countries to H&M's distribution centres.
The most advantageous option is chosen for each consignment. The environment is an important parameter in this decision. Whenever possible, transport by rail is the fi rst choice. The ambition is that any transport by air must be combined with transports by ocean, which results in considerably less environmental impact. Transporting as much as possible in well utilised transport units directly to the sales countries is also an important factor in reducing the infl uence on the environment.
Once the items have been received and checked, they are distributed directly to the stores or to the stores' central replenishment facilities. The stores are then refi lled as the items are sold.
In 2007 H&M opened a new large distribution centre in Poznan, Poland. This new facility supplies the Internet and catalogue sales countries outside the Nordic region as well as the stores in Eastern Europe. A new large distribution centre is also being built in Hamburg, Germany. It is expected to be completed by summer 2008 and will serve the stores in Germany, the Netherlands and Austria.
H&M's customers can choose between a number of different sales channels – in store, online or by catalogue. This increases accessibility and gives increasing numbers of customers the option of shopping at any time and from any place. Internet and catalogue sales are available in the Nordic region, the Netherlands, Germany and Austria.
Within H&M there are different kinds of stores – everything from very large stores offering all the concepts to small stores aimed at a narrower customer segment. This is why there is often more than one H&M store on a street, because they provide different shopping experiences and are aimed at somewhat different customer segments.
The display window plays an important part in attracting customers and profi ling H&M as a brand. It must be clear and inviting and must inspire customers to make purchases.
H&M stores are self-service stores and it must be easy for customers to fi nd their way about. The store environment should be pleasant and generate a sense of wellbeing. It shall give customers ideas and inspire them to
choose what suits their own style. H&M matches the range of garments in the stores to make it easier for customers to combine items. Display windows, mannequins, torsos and tables must all provide attractive shopping suggestions and are therefore updated frequently.
New items every day make the stores interesting and lively. Having a number of collections each season also means that the store changes its appearance often. The aim is that customers should always be able to fi nd something new and exciting.
New stores are continually being opened and older stores refurbished in order to be inviting and easy for customers to navigate. Stores in the big cities and stores aimed at young people are renovated more often.
The store is by far H&M's most important sales channel, although catalogue and Internet sales are increasing. Internet and catalogue sales offer a wide and well-matched product range, with various shopping suggestions and combinations illustrated. Ordering is quick and easy for customers, whether traditionally via a catalogue or online.
The most advantageous transport option is chosen for each consignment and environmental impact is an important parameter. The store is H&M's most important sales channel. The store environment must be pleasant and provide ideas and inspiration.
H&M's messages are the same all over the world and through all communication channels. Kylie Minogue was the face for one of the beachwear collections in summer 2007. Kylie performed at the spectacular opening party for H&M's fi rst store in Shanghai.
A STRONG BRAND is an increasingly important competitive advantage. All H&M's communication aims to build the brand, short- and long-term, while at the same time conveying the company's offering. Collections, stores, the magazine, PR activities, shows, events and design collaborations must communicate the same messages. Customers must be able to recognise H&M and know what H&M stands for – fashion and quality at the best price.
There is always something new happening at H&M – new items come in, stores are refurbished and new campaigns are launched. H&M must be inviting, exciting and must always surprise. This way of thinking has guided H&M throughout its history and has helped to build the strong brand that exists today.
When H&M's fi rst store in Hong Kong opened in March 2007, customers queued for 48 hours ahead of the doors opening. The fact that people choose to do this shows how strong the brand is. The queues and the success of the openings create a positive buzz around H&M.
Each year H&M launches a number of big campaigns supplemented with smaller campaigns. This generates interest in the season's new collections. The campaigns are an exciting, recurrent invitation to H&M.
One of the spring's largest women's collections was a wide, classic collection produced by H&M in collaboration with style icon Madonna. In the autumn H&M's collaboration with Roberto Cavalli received a great deal of attention when the Italian fashion legend created an exclusive women's and men's collection for H&M. These collaborations show the strength and breadth of H&M's offering by illustrating clearly that fashion and design is not a matter of price. The attention they receive also strengthens the H&M brand as an international fashion company.
H&M communicates through all channels. The collaborations with designers and style icons are good examples of this. When H&M wanted to produce a beachwear collection based on Australian surf style and was looking for someone who could symbolise this, the choice was Kylie Minogue.
Kylie was the face of one of the summer's beachwear collections – in the stores and in H&M's advertising. When she then performed at the opening in Shanghai, the world's media reported on this and on H&M's move into Asia. H&M does the unexpected and the high level of attention strengthens the brand and also makes it more exciting to go into the local store.
H&M has high requirements that all its communication must be of the highest quality.
H&M Magazine provides a good idea of how H&M views fashion. It offers readers a mix of fashion, inspiration and the latest lifestyle trends. It is issued four times a year and is aimed equally at customers and staff. Like all H&M's communication, the magazine can be seen as an invitation to H&M. It is important for building the brand in the long term and is also available on the H&M website.
H&M is in close contact with the media in order to showcase its fashion and increase knowledge about H&M. H&M also communicates continually with the business press and fi nancial markets.
The H&M share is one of the most traded shares on the OMX Nordic Exchange in Stockholm. In terms of market capitalisation H&M was the largest company on the exchange in Stockholm and had at the end of the fi nancial year approximately 170,000 shareholders. The message in H&M's fi nancial communications follows the same patterns as the company's other communications. Providing accurate and relevant information – at press conferences and telephone conferences, for example – gives journalists and analysts a sound basis for their work and at the same time strengthens the H&M brand.
Current information about H&M, its campaigns, collections and stores can be found at www.hm.com. Financial information is also available there.
The Kylie campaign could be seen in all PR material, from bags, hangers and gift packs to the customer magazine and store displays.
The Kylie collection will contribute to give around 229,000 people access to clean water and 129,000 people access to sanitation facilities in Tanzania, Mozambique and Madagascar.
H&M's competent and committed colleagues are one of the major reasons why H&M has succeeded in growing with good profi tability for such a long period.
At the fi nancial year-end, H&M employed about 68,000 people. Converted into full-time positions the number was 47,029, 80 percent of whom were female. Of those in positions of responsibility within the company, such as store managers and country managers, 76 percent were female.
If H&M is to continue its expansion, it is essential that the colleagues want to develop and grow along with the company. It is therefore very important that H&M is and continues to be an attractive employer, since many staff will need to be recruited in the period ahead.
An important ingredient in creating an attractive work place is that the staff can develop with the company. We believe in individuals and in our colleagues' ability to use their common sense to take responsibility and take initiatives. We call this the spirit of H&M. To encourage individual development among colleagues, H&M also provides internal training – generally with the emphasis on learning on the job.
Like H&M's concept, this approach has proved to work all around the world. Everywhere we fi nd capable colleagues with a sense of commitment and a desire to improve the business.
Job rotation is a good way for colleagues to develop, thereby developing the company. In a store, job rotation may mean that a person's duties vary from customer service, the cash-desk, fi tting rooms and unpacking to display and follow-up of advertising and campaigns.
When we open stores in new markets job rotation may involve colleagues from established H&M countries supporting a store manager and store colleagues on site for the intensive period that precedes a store opening. One example of this is the establishment of H&M's fi rst stores in
Hong Kong and Shanghai. Here the new employees were supported by more than 100 store collegues, store managers, builders, decorators and others from eight different established H&M countries. The management team received special training in the Netherlands for three intensive months before the openings.
The openings in Hong Kong and Shanghai are good examples of how H&M succeeds in transferring its knowledge and culture, which is particularly important when moving into new countries. Having more varied duties gives colleagues a greater understanding of how H&M's approach is put into practice in different parts of the business. It also gives us an opportunity to discover new talent for management and specialist functions within the company.
At present, the majority of those in managerial positions were recruited from within H&M.
H&M has grown substantially for many years and has never employed more people than now. This, together with the fact that these colleagues are spread all over the world, leads to greater requirements of H&M as an employer. To meet these new demands we are working hard on preparing our global policies on diversity and equality and against discrimination. H&M aims to be a good employer even in countries where laws and regulations do not live up to H&M's requirements. The entire business must be characterised by a fundamental respect for the individual, which applies to everything from fair pay, reasonable working hours and freedom of association to the opportunity to grow and develop within the company.
H&M has found open and constructive dialogue with trade unions a positive experience and we welcome such relations wherever we operate. Such cooperations are essential if we are to improve still further. Examples of cooperation on staff issues include our agreement with UNI (Union Network International) and the work that we carry out with the European Works Council.
For the opening of H&M's fi rst stores in Hong Kong and Shanghai the store managers and store staff were supported by more than 100 colleagues from eight different countries. In our new markets it is very important to transfer knowledge from already established countries in order for the business to get going as quickly and smoothly as possible.
Many women in positions of responsibility
The colleagues' commitment is H&M's strength. Women hold 76 percent of the positions of responsibility within H&M and the majority were recruited internally.
Men, 24%
Women, 76%
TAKING RESPONSIBILITY FOR how people and the environment are impacted by our activities is important and is essential to H&M's success. H&M conducts a dialogue both internally and with external stakeholders concerning how the company can develop further. It is therefore important to formulate and convey clearly how we should work, especially since H&M does not own any factories of its own. Our products are instead produced by around 700 independent suppliers, primarily in Asia and Europe.
Our Code of Conduct and our Sustainability Policy (page 45) form the backbone of our work on corporate social responsibility. All the factories involved in producing H&M's products are covered by the Code of Conduct. It applies both to our suppliers and to any production outsourced to subcontractors that they may use.
The Code of Conduct, which is based on ILO conventions and on the UN Convention on the Rights of the Child, includes the following requirements:
H&M works intensely to check compliance with the Code of Conduct. This is done by visits to the suppliers' factories by our own auditors as well as independent audits carried out by the Fair Labor Association. Through a new IT system, developed especially for H&M's CSR work this year, the auditors' reports can be accessed by the production offi ces and the CSR department in Stockholm. H&M employs nearly 60 auditors in total.
H&M carries out an extensive audit consisting of more than 300 points when it starts cooperating with new
suppliers, or when a supplier uses a new subcontractor. This is known as the FAP audit and forms part of our Full Audit Programme. The aim is to obtain as accurate a picture as possible of conditions at the factory in question. The supplier is then given a certain period in which to draw up a plan for remedying any shortcomings.
The auditors follow up the implementation of these measures. In 2007 follow-up of the audits was a priority matter. In connection with the follow-up visits the auditors review the suppliers' action plans and improvements. The visits act as a forum for in-depth discussions with the suppliers, focusing on the suppliers' own solutions. The key to long-term development is that the suppliers themselves are committed to sustainable improvements in the business.
H&M's Code of Conduct states that the suppliers must comply with environmental legislation. In practice, the requirements cover the handling of chemicals, waste management and waste-water treatment. H&M requires factories that carry out wet processes such as washing and dyeing to treat their waste-water. We also set requirements of the quality of water discharged by applying the guidelines developed by a working group made up of clothing companies within Business for Social Responsibility (BSR), which include H&M. During the year H&M analysed water samples from factories with water treatment. The results will form a basis for future FAP audits of the factories. Read more about the BSR guidelines at www.bsr.org/waterquality.
We are also proud of our partnership with the charity WaterAid. In 2007 we donated more money than ever before for the organisation's work to provide the world's poorest with clean water. H&M's donation will contribute to giving around 229,000 people access to clean water and 129,000 people access to sanitation facilities in Tanzania, Mozambique and Madagascar. This money came from sales of the Kylie collection. In addition, sales of a specially-designed bikini contribute to WaterAids projects in Bangladesh.
The water samples from the factories are an example of how we actively check that our products are being manufactured with limited environmental impact. This is possible to do thanks to our suppliers' commitment to observing the Code of Conduct. It does not solve all the problems, however. H&M does not buy fabrics directly from fabric suppliers, for example, and therefore cannot inspect their operations in the same way. Consequently, we realise that other types of cooperation and other methods are required if we are to have a positive infl uence on developments. Within the Cleaner production project we work to encourage the fabric dyeing mills to take environmental considerations into account in their activities by making suggestions for more effi cient use of resources.
H&M works continually to improve its own methods and routines. Consequently, in 2006 H&M became a member of the Fair Labor Association (FLA). The FLA carries out independent audits of our suppliers' factories in China and also reviews our system for follow-up of the Code of Conduct. The cooperation with the FLA is an important quality assurance, but is also a way for H&M to show stakeholders how effective its own follow-up is. In 2007 the FLA reported for the fi rst time on the results of its audits on H&M's suppliers. The FLA's conclusions are in line with the results of our own FAP audits and are available on the organisation's website www.fairlabor.org.
The challenges faced in the production countries are complex. We therefore cooperate with other players in the clothing industry. Among other things, H&M supports the Better Factories Cambodia programme. This initiative, which is run by the International Labour Organization (ILO), aims to improve working conditions for those employed through education and independent monitoring. During the year a number of H&M's suppliers in Cambodia took part in BFC's courses. The courses educate factory workers in matters such as employment rights and obligations.
Another educational project was carried out in India, where H&M organised training for the members of workers' councils at three factories. The aim of this training, which was implemented in conjunction with the Fair Wear Foundation and two other international clothing companies, was to establish well-functioning workers' councils capable of representing the workers vis-à-vis the factory management.
Another current project is the MFA Forum Bangladesh. In addition to around ten buyers, other participants include representatives of the Bangladeshi government, local industry organisations, the World Bank, the global trade union organisation ITGLWF and a number of other organisations. One of the focuses of this year's work was on the purchasing behaviour of the buying companies, including H&M. The aim is to fi nd ways of working that
do not impact negatively on the suppliers' ability to comply with the Code of Conduct.
H&M started its cooperation with UNICEF in 2004 and in 2007 a new cooperation agreement was formulated that is effective for a further three-year period. The cooperation involves a programme for the prevention of HIV/AIDS in Cambodia as well as the investigation of the social consequences of cotton growing in preparation for future work. A major study on this topic was carried out during the year which identifi ed a number of problem areas. Based on the information in the report, H&M and UNICEF will be planning and implementing concrete measures in 2008.
H&M works actively to reduce the environmental impact of cotton growing. We want to encourage the growing of organic cotton by contributing to increased demand and we also want to improve conventional cotton growing. Where organic cotton is concerned, we are very pleased that our work on collections that use organic cotton has been so well received by our customers. In total we used around 1,300 tonnes of organically grown cotton in 2007.
In order to contribute to improvements within conventional cotton growing, H&M is a member of the Better Cotton Initiative (BCI). The BCI is a partnership between organisations, clothing companies, cotton growers and others. The objective is to measurably reduce the negative effects of conventional cotton growing. This cooperation was initiated by WWF in 2004. More information on the BCI can be found at www.bettercotton.org.
Reducing the company's carbon dioxide emissions and thus limiting its climate impact is an important part of H&M's environmental work. This mainly involves working on climate-smart solutions for the transportation of goods and use of energy in our stores and warehouses. We continually evaluate our transportation with a view to reducing its environmental impact. Since transport by air has the greatest environmental impact, we always try to choose other transport options. If this is not possible, transport by air is combined with transport by boat. Land-based transport should preferably be by train. H&M also supports the Clean Shipping Project's (CSP) requirements of shipping. From the start of 2008 we will be applying the CSP criteria when assessing the environmental performance of different transport companies.
In the stores lighting is controlled in order to reduce energy consumption. A number of sales countries continually check energy consumption in the stores in order to identify any consumption above normal levels quickly. Remedial action can then be taken promptly.
Corporate social responsibility work is an ongoing process and we are always looking for ways to improve. At the
same time, naturally it is fl attering when our work is noticed and rewarded. H&M received the highest marks in a review of 35 garment companies' CSR work that was carried out by the organisation Consumers Research and Testing. In addition, H&M's CSR work was noted by Ethisphere Magazine, which named H&M as one of the world's most sustainable companies in its rankings for 2007.
H&M dissociates itself from corruption in any form. This position is made clear in our Code of Ethics. All H&M's suppliers and employees that come into contact with suppliers undertake to comply with the Code.
H&M is included in a number of sustainability indexes, including the Dow Jones Sustainability Index World and FTSE4Good. The aim of these indexes is to make it easier for institutional investors to choose socially and environmentally sustainable investments.
H&M's efforts in respect of corporate social responsibility are aimed at a number of overall objectives. To come closer to these objectives, each year we formulate a number of detailed intermediate targets to be achieved in a specifi ed time period.
Since 2005 H&M has been licensed to use the European Union's offi cial eco-label, the Flower. The Flower represents restrictions on harmful substances and reduced water pollution throughout the production chain, from raw cotton to the fi nished product. In 2007 more than 630,000 baby garments labelled with the Flower were sold in our stores.
H&M's business concept is to offer fashion and quality at the best price. Quality also means that the products must be made in an environmentally and socially sustainable way. Like all H&M's operations, the company's CSR work is based on working towards continual improvement.
We have a responsibility to everyone who contributes to our success, even those who are not employed by H&M. That is why we cooperate with our suppliers in order to develop long-term sustainable social and environmental standards in the factories that manufacture H&M's products.
We must ensure that our employees' human rights are not infringed and we have the same commitment to the people employed by our suppliers and other cooperation partners, as well as to our customers.
We apply the precautionary principle in our environmental work and carry out preventive work involving the substitution of hazardous chemicals.
We endeavour to use resources effi ciently and to minimise waste. By noting new technologies, our choices of material and improved production process can be part of our preventive work on minimising our environmental impact. We must continually review the company's aims and strategies in order to reduce the company's climate impact.
Our decisions are based on considerations in which short- and long-term environmental benefi ts are taken into account in order to ensure that we choose solutions that are sustainable long-term.
We must be a good global citizen and act responsibly in our business relations. We distance ourselves from all forms of corruption. We conduct a dialogue with various stakeholders in order to build confi dence in our business in the world on which we are dependent for our long-term success.
More information about H&M's CSR work and the latest CSR report are available at www.hm.com/csr.
H&M'S QUALITY, CHEMICAL and safety tests form an important and natural part of the company's care for and service to its customers. Tests are carried out both in H&M's own laboratories and at external facilities. H&M has laboratories at the majority of its production offi ces around the world, as well as at the buying offi ce. Around half a million tests are carried out annually and these include everything from laundry tests to chemicals testing.
High quality requirements – meticulous controls H&M's tests and quality controls are an important part of the company's buying operations. Quality assurance is carried out at all stages in the buying process. Sample garments are tested fi rst, followed by garments from the production. Laundry tests cover shrinkage, twisting, colourfastness and dry rubbing, among other things. In addition, H&M tests salt and chlorine bleaching, pilling and seam strength. Durability tests are carried out on details such as zips and press-studs. Flame tests are carried out on all fabrics, i.e. material, suspected of being easily fl ammable such as thin and fl uffy materials or fabrics with a brushed surface. The production offi ces have quality controllers who inspect the suppliers' factories and ensure that the products meet H&M's quality requirements.
H&M has long been a driving force in the safety of children's wear and always follows the strictest rules in all the countries in which the company is present. The strictest of these rules is then applied in all Group countries. Training constantly develops safety-consciousness among colleagues and suppliers.
Risk analyses are carried out as early as at the design stage and continue throughout product development,
and quality and safety tests are also performed. These tests are then carried out on an ongoing basis throughout production in accordance with current standards.
One example of H&M's safety-consciousness is detachable hoods on outerwear to reduce the risk of accidents if the child should get caught by the hood while playing. H&M's products conform to the EU standard on cords and drawstrings on children's clothing, up to an age of 14 years. Further information on quality and safe children's wear can be found at www.hm.com.
All H&M's suppliers must abide by a special agreement – H&M's Chemical Restrictions. Cosmetics suppliers must also comply with H&M's Cosmetics Restrictions. The restrictions include a list of chemicals that are impermissible in the clothes and production or must not be present above specifi ed levels. Substances on the list include metals such as cadmium, lead and mercury, certain dyes, formaldehyde, PVC, phthalates and brominated fl ame retardants. More information is available at www.hm.com. Metal parts in prolonged contact with the skin are not permitted to release nickel, since nickel can cause an allergic reaction. These restrictions contribute to reducing the environmental impact of the production stage and when worn-out items are scrapped.
The products undergo extensive testing to check that all the chemical requirements are met. Most of the tests are carried out at independent external laboratories. As an important part of H&M's long-term work against allergies we are participating in European standardisation work aimed at establishing reliable standards for testing allergenic substances, for example in perfumes.
Despite having a well thought-out system for product safety, on rare occasions a product that does not live up to H&M's requirements may reach the stores. To ensure that such products are recalled quickly, a special recall routine has been established. No products were recalled during the year.
H&M only sells leather from cattle, buffalo, sheep, goats and pigs that are raised for meat production.
H&M does not buy leather from India due to the cruel animal transportation that takes place.
H&M has long been a driving force in the safety of children's wear and always follows the strictest rules in all the countries in which H&M is present. The strictest of these rules is then applied in all Group countries.
| Administration Report including proposed distribution of earnings | 51 |
|---|---|
| Group Income Statement | 54 |
| Group Balance Sheet | 55 |
| Changes in Shareholders' Equity for the Group | 56 |
| Group Cash Flow Analysis | 57 |
| Parent Company Income Statement | 58 |
| Parent Company Balance Sheet | 59 |
| Changes in Shareholders' Equity for the Parent Company | 60 |
| Parent Company Cash Flow Analysis | 61 |
| Notes to the Financial Statements | 62 |
| Signing of the Annual Report | 71 |
| Auditors' Report | 72 |
| Five Year Summary | 73 |
| Corporate Governance Report including the Board of Directors | 74 |
| The H&M Share | 81 |
| Financial Information and Contact Details | 82 |
The Board of Directors and the Managing Director of H & M Hennes & Mauritz AB (publ), 556042-7220, domiciled in Stockholm, submit herewith their annual report and consolidated accounts for the fi nancial year 1 December 2006 to 30 November 2007.
The Group's business consists mainly of the sale of clothing and cosmetics to consumers.
H&M's business concept is to offer fashion and quality at the best price. The business is operated from leased store premises as well as via Internet and catalogue sales. At the end of the fi nancial year H&M was present in 28 countries, of which three are on a franchise basis. The total number of stores at the end of the fi nancial year was 1,522, of which ten were franchise stores. Internet and catalogue sales are offered in Sweden, Norway, Denmark, Finland and the Netherlands, and also in Germany and Austria where Internet sales started in autumn 2007.
H&M's own design and buying function creates the collections centrally. To ease the supply of goods H&M is increasingly using the concept of regional grouping. This means that goods are bought for and distributed to a group (region) of sales countries, rather than to each sales country as previously. The goods are then divided between the sales countries in the region according to demand in each market.
To facilitate this regional grouping and support the major on going expansion, the Group structure was reviewed and refi ned during the year. Among other things, this refi nement involved transferring the central functions of design, buying, logistics and stock keeping into a separate buying company, H & M Hennes & Mauritz GBC AB, as of 1 June 2007 and the strengthening of the production function in Hong Kong to become a central procurement function for the Group.
The collections are produced by around 700 external suppliers in about 20 countries where H&M's production offi ces maintain contacts with the suppliers. This means that the production offi ces are responsible for placing the order with the right supplier and for the items being produced at the right price, being of good quality and being delivered at the right time. They also carry out controls to ensure that production takes place under good working conditions. The goods are then transported by ocean, rail, road or air to various distribution centres. From there the goods are distributed directly to the stores and/or to the stores' central regional replenishment centres.
The best price is achieved by having few middlemen, buying in large volumes, purchasing the right product from the right market, being cost-conscious in every part of the organisation and having effi cient distribution processes. To assure the quality of the goods, H&M works in close partnership with all its suppliers, from product development to production. All testing, such as chemical testing and laundry tests, are carried out continually at the production offi ces and at external laboratories.
The Group opened 193 (168) new stores during the fi nancial year and 16 (16) stores were closed. Of the new store openings, 6 (4) were opened under the franchising arrangement. This represents a net increase of 177 (152) stores. In the fourth quarter 94 (86) stores were opened and 4 (5) stores were closed. The total number of stores in the Group thereby amounted to 1,522 (1,345).
During the year H&M moved into Asia by establishing stores in China, with four stores in Hong Kong and three in Shanghai. H&M's reception in China has been very good and there is great potential for growth. Greece and Slovakia are other new countries in which H&M again had a positive reception, as was also the case in Qatar, which was a new franchise country.
In autumn 2007 H&M started up Internet sales in Germany and Austria, with a very positive impact.
As part of the regional grouping, the new logistics facility in Poznan, Poland, was opened during the year, initially supplying goods to the stores in Eastern Europe as well as H&M's Internet and catalogue sales outside the Nordic region. In Hamburg, building work has begun on a new, larger logistics centre that will serve the stores in Germany, the Netherlands and Austria.
With effect from 1 June 2007 operation of the Swedish stores was transferred to the subsidiary H & M Hennes & Mauritz Sverige AB.
Internet and catalogue sales operations in Sweden were transferred to a Swedish subsidiary, H & M Rowells AB, with effect from 1 December 2007.
H&M works continually on developing its offering to the customer and in 2007 a number of new initiatives took place. For example, H&M opened a new store chain under the brand name COS – Collection of Style. The stores carry a range for women and men in a higher price segment. H&M aims to offer the best price for comparable items also in this segment. Eleven stores opened in 2007 in the UK, Germany, the Netherlands and Belgium.
The expanded footwear range for women was launched initially in around 200 H&M stores in spring 2007. During the autumn the men's collections were supplemented with a small collection of men's footwear. H&M's footwear was well received by customers; this was refl ected in good sales development.
As announced previously, the Group has started a new home textiles initiative. To assure the quality of the concept the launch of H&M Home was deferred until autumn 2008. Sales of H&M Home will initially start through Internet and catalogue sales in the Nordic countries, the Netherlands, Germany and Austria.
During the year SEK 60 m was placed in an anniversary foundation to mark the fact that 60 years have passed since H&M was established in Västerås in 1947. The proceeds of the foundation will be spent on projects in areas such as health, education and access to water in countries in which H&M's goods are produced.
H&M Group sales excluding VAT increased in the fi nancial year by 15 percent (in local currencies by 17 percent and in comparable stores by 5 percent) compared with the previous year and amounted to SEK 78,346 m (68,400). Sales including VAT were SEK 92,123 m (80,081).
The gross profi t amounted to SEK 47,847 m (40,664), which corresponds to 61.1 percent (59.5) of sales.
The operating profi t after deducting selling and administrative expenses was SEK 18,382 m (15,298). This represents an operating margin of 23.5 percent (22.4).
The operating profi t has been charged with depreciation of SEK 1,814 m (1,624).
The Group's fi nancial net income amounted to SEK 788 m (510). Profi t after fi nancial items was SEK 19,170 m (15,808), an increase of 21 percent.
The Group's profi t for the fi nancial year after applying an average effective tax rate of 29.1 percent (31.7) was SEK 13,588 m (10,797), which represents earnings per share of SEK 16.42 (13.05), an increase of 26 percent. The lower tax rate is due to changes in internal pricing, corporation tax reductions in Denmark, the Netherlands and Slovenia, as well as a non-recurring effect of a tax refund in the Netherlands of SEK 130 m relating to previous fi nancial years.
The profi t for the year represents a return on shareholders' equity of 45.4 percent (40.2) and a return on capital employed of 63.7 percent (58.7).
The fi nancial year was characterised by very good sales development with well-received collections. This also applies to countries where the retail sector has in general been weaker. It is particularly pleasing that sales developed well in Germany, H&M's largest market. New customer offerings such as the expansion of H&M's Internet and catalogue sales, the launch of the footwear range in a number of H&M stores and the start-up of the COS stores have contributed to the Group sales positively.
The number of new and refurbished stores reached a record high during the year. In addition, the standard of these stores was raised to make them more attractive and thereby further strengthen H&M's competitiveness.
The pre-tax profi t for the fi nancial year was negatively affected by currency translation effects of around SEK 199 m (+127) when compared with the result recalculated at average rates for the
previous year. These translation effects arise because of changes in the exchange rates for the local currencies of the various foreign subsidiaries relative to Swedish kronor.
The Group's total assets on the closing date increased by 17 percent, amounting to SEK 41,734 m (35,555).
The Group's cash fl ow for the fi nancial year amounted to SEK 6,010 m (-201). Current operations generated a positive cash fl ow of SEK 15,381 m (12,055). Cash fl ow was affected by, among other things, dividends of SEK -9,515 m (-7,861), investments in fi xed assets of SEK -3,608 m (-1,982) and fi nancial investments with a term of three to twelve months amounting to SEK 3,848 m (-2,398). Liquid funds and short-term investments amounted to SEK 20,964 m (18,625).
Stock-in-trade increased by 10 percent compared with the same date the previous year and amounted to SEK 7,969 m (7,220). This represents 10.2 percent (10.6) of sales excluding VAT. Stock-in-trade accounted for 19.1 percent (20.3) of total assets.
The Group's equity/assets ratio was 76.9 percent (78.1) and the share of risk-bearing capital was 78.5 percent (80.0).
Shareholders' equity apportioned to the outstanding 827,536,000 shares equalled SEK 38.78 (33.57) per share on the closing date.
In 2007 the longest investment period was six months. The Group does not use any derivative instruments in the interest-bearing securities market, nor does the Group trade in shares or similar instruments. See also Note 2, Financial Risks.
H&M's business shall be characterised by a fundamental respect for the individual, which 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 ever since the days of H&M's founder, Erling Persson, are partly based on the colleagues' ability to use their common sense to take responsibility and use their initiative.
H&M has grown signifi cantly ever since its beginnings in 1947 and at the end of the fi nancial year employed about 68,000 people. The average number of employees in the Group, converted to full-time positions, was 47,029 (40,855), of which 4,456 (4,142) were employed in Sweden.
In many markets H&M acts as both a buyer and a seller. This requires H&M to act responsibly and sustainably as regards corporate social responsibility, which includes environmental considerations. Corporate social responsibility has been a Group management function for a number of years.
H&M does not own any factories of its own, but instead buys its goods from around 700 independent suppliers. A fundamental principle is that H&M's goods must be produced under good working conditions. H&M therefore sets high requirements of good working conditions and uses its Code of Conduct to work towards long-term improvements for those making the products. H&M aims to incorporate environmental work into day-to-day routines in every area of the company's activities.
H&M continues to take a positive view of future expansion and development opportunities. In 2008 H&M's expansion will continue to focus on established markets that are judged to have great potential for growth for a long time to come. A net addition of 190 (177) stores is planned for the fi nancial year. The largest numbers of stores are planned for the USA, Spain, the UK, France, Germany and Italy.
The proportion of renovations of existing stores will remain the same as in 2006/2007. The investments and costs calculated per unit are expected to be at the same level as in the previous year.
In January 2008 Internet sales in Germany and Austria were supplemented with catalogue sales.
In cooperation with H&M's franchise partner Alshaya the opening of H&M stores in four new markets is planned for 2008: Egypt, Saudi Arabia, Bahrain and Oman.
Preparations are underway for H&M's opening in Tokyo, Japan in autumn 2008.
H&M plans to expand into Russia. The fi rst stores are expected to open in Moscow in 2009. The Russian market is deemed to be of much interest with great potential for growth for a long time to come and H&M will focus initially on Moscow and the surrounding area.
H&M's objective is to increase the number of stores by 10 to 15 percent each year while at the same time increasing sales at existing stores.
For the full-year 2007/2008 the Group's effective tax rate is expected to decline further compared with the 2006/2007 tax rate of 29.1 percent. The tax rate for 2007/2008 is expected to be 27.5 percent due to the full effect of the changes in internal pricing and the fact that corporation taxes in some countries will decline.
In local currencies sales increased by 10 percent in December 2007 compared with the same month in the previous year. Sales in comparable stores reduced by 1 percent.
January sales up to and including 29 January 2008 increased by 16 percent in local currencies compared with the same period in the previous year.
At the Annual General Meeting on 3 May 2007 a resolution on remuneration paid to senior executives within H&M was passed for the fi rst time in accordance with the new Companies Act. The number of people considered to be senior executives is around 30. The guidelines below are effective until the 2008 AGM.
The term senior executives covers the Managing Director, other members of the executive management team and country managers.
Compensation to senior executives is based on factors such as work tasks, expertise, position, experience and performance. Senior executives are compensated at competitive market rates. H&M is present in more than 20 countries and therefore levels of compensation may vary between countries. The greatest share of the remuneration consists of a regular basic salary. For variable components see the section below.
Senior executives receive a regular basic salary, pension benefi ts and certain executives also receive other benefi ts such as car benefi ts.
The Managing Director, certain members of the executive management team and all the country managers may also receive a bonus. In addition to the ITP plan, the executive management team is covered by either a benefi t-based or a premium-based pension solution. The retirement age for the members of the executive management team, with the exception of the Managing Director, varies between 60 and 65 years. Members of the executive management team and country managers that are employed by a subsidiary abroad are covered by local pension arrangements as well as a premium-based pension solution. The retirement age for these is in accordance with local rules on retirement age. The cost of these commitments is partly covered by separate insurance policies.
The notice period for senior executives varies from three to twelve months. No severance pay is payable within H&M, except in the case of the Managing Director.
The retirement age for the Managing Director is 65. He receives a pension of 65 percent of regular salary for three years and thereafter a lifetime pension equivalent to 50 percent of that salary. The Managing Director is entitled to 12 months' notice. In the event that the company cancels his employment contract, the Managing Director will receive severance pay of an extra year's salary in addition to the 12 months' notice.
The Managing Director, country managers and certain senior executives are included in a bonus system. The size of the bonus per person is based on 0.1 percent of the increase in the dividend approved by the Annual General Meeting and the fulfi lment of targets in their respective areas of responsibility. The maximum bonus per person and year has been set at SEK 0.3 m net after tax. In the case of the Managing Director the bonus is 0.3 percent of the dividend increase, up to a maximum of SEK 0.9 m net after tax. The bonus paid must be invested entirely in shares in the company, which must be held for at least fi ve years.
In certain cases other members of the executive management team as well as country managers may receive further one-off payments, up to a maximum of 30 percent of regular salary, at the discretion of the Board or the Managing Director.
The Board may deviate from the guidelines where there is a particular reason to do so in individual cases.
The Board's proposal for guidelines for adoption at the 2008 AGM is the same as the text above.
The total number of shares in H&M is 827,536,000, of which 97,200,000 are class A shares (ten votes per share) and 730,336,000 are class B shares (one vote per share). Class A shares are entitled to ten votes each and are not listed on a regulated market. The company Stefan Persson Placering AB, which is primarily owned by Stefan Persson, holds all 97,200,000 class A shares, which represent 57.1 percent of the votes. In addition, Stefan Persson holds 186,274,400 class B shares, which represent 10.9 percent of the votes. This means that overall, 68.0 percent of the votes and 34.3 percent of the total number of shares are represented by Stefan Persson, personally and through companies.
§ 15 of the Articles of Association states that the Annual General Meeting shall elect the Board of Directors.
IFRS has been applied to the Group with effect from 1 December 2005, which means that this annual report is H&M's second full report prepared in accordance with IFRS. For further information see Note 1.
A number of factors may affect H&M's results and business. Most of these can be dealt with through internal routines, while certain others are affected more by external infl uences. There are risks and uncertainties related to fashions, weather situations, quota systems and exchange rates, but also in connection with expansion into new markets, the launch of new concepts, changes in consumer behaviour or handling of the brand.
Working in the fashion industry is a risk in itself. Fashion is a perishable item and there is always a risk that one of the collections will not be well received by customers.
Within each concept H&M must have the right volumes and achieve the right balance in the mix between fashion basics and trend items. To optimise fashion precision, H&M buys items on an ongoing basis during the season.
The purchasing patterns are relatively similar in the various markets, but differences do occur. For example, the start of the season and the length of the season can vary between countries. Both delivery dates and volumes of goods for the different countries and stores are adjusted accordingly.
H&M's goods are bought and launched in stores on the basis of normal weather patterns. Major deviations from normal conditions may affect sales. The effect will be greatest if there are major deviations at the beginning of a season.
The textile industry has been working with textile quotas for many years. Changes in textile quotas could have an effect on buying costs. The textile quotas affect the entire industry and are therefore largely competition-neutral.
The most signifi cant purchase currencies for the Group are the US dollar and the euro. Fluctuation in the dollar/euro exchange rate is the single largest transaction exposure for the Group.
To hedge the product fl ows in foreign currencies and thus reduce the effects of future exchange rate fl uctuations, the majority of the Group's product fl ows are hedged under forward contracts on an ongoing basis throughout the year. Information on hedge accounting is provided in Note 1, Accounting Principles, and also in Note 2, Financial Risks.
In addition to the effects of transaction exposure, translation effects also affect the Group's results due to changes in exchange rates between the local currencies of the various foreign subsidiaries and the Swedish krona as compared with the same period in the previous year. The underlying profi t/loss in a market may be unchanged in the local currency, but may increase or decrease when converted into Swedish currency depending on whether the Swedish krona has weakened or strengthened.
Translation effects also arise in respect of the Group's net assets on consolidation of the foreign subsidiaries' balance sheets. No equity hedging is carried out for this risk. See also Note 2, Financial Risks. For other fi nancial risks see Note 2, Financial Risks, on page 65.
H&M's fi nancial 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 expansion, as in the past, proceeds with the same high degree of fi nancial strength and continued freedom of action.
Based on this policy, the Board of Directors has determined that the total dividend should equal around half of the profi t after taxes. In addition, the Board may propose that surplus liquidity can also be distributed.
The Board of Directors will propose to the Annual General Meeting a dividend of SEK 14.00 (11.50) per share.
At the disposal of the Annual General Meeting SEK 12,366,931,306
The Board of Directors and the Managing Director propose: A dividend to the shareholders of SEK 14.00 per share SEK 11,585,504,000 To be carried forward as retained earnings SEK 781,427,306 SEK 12,366,931,306
The Board of Directors is of the opinion that the proposed distribution of earnings is justifi able taking into consideration the fi nancial position 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.
| EQUITY AND LIABILITIES | 2007 | 2006 |
|---|---|---|
| EQUITY | ||
| Share capital, Note 16 | 207 | 207 |
| Reserves | 263 | 22 |
| Retained earnings | 18,035 | 16,753 |
| Profi t for the year | 13,588 | 10,797 |
| TOTAL EQUITY | 32,093 | 27,779 |
| Long-term liabilities* | ||
| Provisions for pensions, Note 18 | 156 | 130 |
| Deferred tax liabilities, Note 10 | 651 | 650 |
| 807 | 780 | |
| Current liabilities* | ||
| Accounts payable | 2,483 | 1,942 |
| Tax liabilities | 2,036 | 1,224 |
| Other liabilities | 1,468 | 1,560 |
| Accrued expenses, Note 19 | 2,847 | 2,270 |
| 8,834 | 6,996 | |
| TOTAL LIABILITIES | 9,641 | 7,776 |
| TOTAL EQUITY AND LIABILITIES | 41,734 | 35,555 |
* Only provisions for pensions are interest-bearing.
| PROFIT FOR THE YEAR | 13,588 | 10,797 |
|---|---|---|
| Tax, Note 10 | -5,582 | -5,011 |
| PROFIT AFTER FINANCIAL ITEMS | 19,170 | 15,808 |
| Interest expense | -5 | -5 |
| Interest income | 793 | 515 |
| OPERATING PROFIT | 18,382 | 15,298 |
| Administrative expenses, Notes 6, 8, 9 | -1,778 | -1,395 |
| Selling expenses, Notes 6, 8 | -27,687 | -23,971 |
| GROSS PROFIT | 47,847 | 40,664 |
| Cost of goods sold, Notes 6, 8 | -30,499 | -27,736 |
| Sales excluding VAT, Notes 3, 4 | 78,346 | 68,400 |
| Sales including VAT | 92,123 | 80,081 |
| 1 December – 30 November | 2007 | 2006 |
All profi t is attributable to the parent company's shareholders.
| Earnings per share, SEK (before and after dilution) | 16.42 | 13.05 |
|---|---|---|
| Number of shares (before and after dilution) | 827,536,000 827,536,000 |
BALANCE SHEET
| 30 November | ||
|---|---|---|
| ASSETS | 2007 | 2006 |
| FIXED ASSETS | ||
| Intangible fi xed assets | ||
| Leasehold rights, Note 11 | 266 | 222 |
| 266 | 222 | |
| Tangible fi xed assets Buildings and land, Note 11 |
466 | 420 |
| Equipment, tools, fi xtures and fi ttings, | ||
| Note 11 | 8,821 | 7,134 |
| 9,287 | 7,554 | |
| Long-term receivables | 253 | 155 |
| Deferred tax receivables, Note 10 | 883 | 102 |
| TOTAL FIXED ASSETS | 10,689 | 8,033 |
| CURRENT ASSETS | ||
| Stock-in-trade | 7,969 | 7,220 |
| Current receivables | ||
| Accounts receivable | 1,122 | 865 |
| Other receivables | 356 | 249 |
| Prepaid expenses, Note 12 | 634 | 563 |
| 2,112 | 1,677 | |
| Short-term investments, Note 13 | 4,900 | 8,748 |
| Liquid funds, Note 14 | 16,064 | 9,877 |
| TOTAL CURRENT ASSETS | 31,045 | 27,522 |
| TOTAL ASSETS | 41,734 | 35,555 |
| GROUP | ||
|---|---|---|
SEK m
| 1 December–30 November | 2007 | 2006 |
|---|---|---|
| Profi t after fi nancial items* | 19,170 | 15,808 |
| Provisions for pensions | 27 | 52 |
| Depreciation | 1,814 | 1,624 |
| Tax paid | -5,557 | -5,565 |
| Cash fl ow from current operations before changes in working capital | 15,454 | 11,919 |
| Cash fl ow from changes in working capital | ||
| Current receivables | -421 | -317 |
| Stock-in-trade | -615 | -748 |
| Current liabilities | 963 | 1,201 |
| CASH FLOW FROM CURRENT OPERATIONS | 15,381 | 12,055 |
| Investment activities | ||
| Investments in leasehold rights | -86 | -30 |
| Sales of/investments in buildings and land | -56 | 6 |
| Investments in fi xed assets | -3,466 | -1,958 |
| Change in fi nancial investments, 3–12 months | 3,848 | -2,398 |
| Other investments | -96 | -15 |
| CASH FLOW FROM INVESTMENT ACTIVITIES | 144 | -4,395 |
| Financing activities | ||
| Dividend | -9,515 | -7,861 |
| CASH FLOW FROM FINANCING ACTIVITIES | -9,515 | -7,861 |
| CASH FLOW FOR THE YEAR | 6,010 | -201 |
| Liquid funds at beginning of year | 9,877 | 10,496 |
| Cash fl ow for the year | 6,010 | -201 |
| Exchange rate effect | 177 | -418 |
| Liquid funds at end of year | 16,064 | 9,877 |
* Interest paid amounts for the Group to SEK 5 m (5).
* Received interest amounts for the Group to SEK 822 m (487).
All shareholders' equity is attributable to the parent company's shareholders since there are no minority interests.
| Share capital |
Reserves, translation effects |
Retained earnings |
Total shareholders' equity |
|
|---|---|---|---|---|
| Shareholders' equity, 1 December 2005 | 207 | 1,103 | 24,614 | 25,924 |
| Translation effects for the year | – | -1,081 | – | -1,081 |
| Income and expenses posted directly to equity | – | -1,081 | – | -1,081 |
| Profi t for the year | – | – | 10,797 | 10,797 |
| Total income and expenses | – | -1,081 | 10,797 | 9,716 |
| Dividend | – | – | -7,861 | -7,861 |
| Shareholders' equity, 30 November 2006 | 207 | 22 | 27,550 | 27,779 |
| Reserves, | Total | |||
| Share | translation | Retained | shareholders' | |
| capital | effects | earnings | equity | |
| Shareholders' equity, 1 December 2006 | 207 | 22 | 27,550 | 27,779 |
| Translation effects for the year | – | 241 | – | 241 |
| Income and expenses posted directly to equity | – | 241 | – | 241 |
| Profi t for the year | – | – | 13,588 | 13,588 |
| Total income and expenses | – | 241 | 13,588 | 13,829 |
| Dividend | – | – | -9,515 | -9,515 |
| Shareholders' equity, 30 November 2007 | 207 | 263 | 31,623 | 32,093 |
| EQUITY AND LIABILITIES | 2007 | 2006 |
|---|---|---|
| EQUITY | ||
| Restricted equity | ||
| Share capital, Note 16 | 207 | 207 |
| Restricted reserves | 88 | 88 |
| 295 | 295 | |
| Non-restricted equity Retained earnings, Note 17 |
2,050 | 2,898 |
| Profi t for the year | 10,317 | 8,667 |
| 12,367 | 11,565 | |
| TOTAL EQUITY | 12,662 | 11,860 |
| Untaxed reserves, Note 23 | 119 | 249 |
| Long-term liabilities* | ||
| Provisions for pensions | 113 | 99 |
| 113 | 99 | |
| Current liabilities* | ||
| Accounts payable | 124 | 1,078 |
| Accounts payable, subsidiaries | 0 | 23 |
| Tax liabilities | 5 | 171 |
| Other liabilities Accrued expenses and |
221 | 115 |
| deferred income, Note 19 | 232 | 455 |
| 582 | 1,842 | |
| TOTAL LIABILITIES | 814 | 2,190 |
| TOTAL EQUITY AND LIABILITIES | 13,476 | 14,050 |
| Pledged assets | – | – |
| Contingent liabilities, Note 24 | 12,431 | 10,966 |
* Only provisions for pensions are interest-bearing.
| ASSETS | 2007 | 2006 |
|---|---|---|
| FIXED ASSETS | ||
| Tangible fi xed assets Buildings and land, Note 11 |
59 | 61 |
| Equipment, tools, fi xtures and fi ttings, Note 11 |
258 | 458 |
| 317 | 519 | |
| Financial assets | ||
| Shares and participation rights, Note 22 | 17 | 11 |
| Receivables from subsidiaries | 0 | 24 |
| Long-term receivables | 10 | 13 |
| Deferred tax receivables, Note 10 | 32 | 25 |
| 59 | 73 | |
| TOTAL FIXED ASSETS | 376 | 592 |
| CURRENT ASSETS | ||
| Stock-in-trade | 407 | 759 |
| Current receivables | ||
| Accounts receivable | 508 | 492 |
| Receivables from subsidiaries | 5,786 | 4,991 |
| Other receivables | 42 | 11 |
| Prepaid expenses and accrued income, | ||
| Note 12 | 40 6,376 |
51 5,545 |
| Short-term investments, Note 13 | 4,900 | 5,000 |
| Liquid funds, Note 14 | 1,417 | 2,154 |
| TOTAL CURRENT ASSETS | 13,100 | 13,458 |
| TOTAL ASSETS | 13,476 | 14,050 |
SEK m
SEK m
| 1 December– 30 November | 2007 | 2006 |
|---|---|---|
| Sales including VAT | 10,738 | 7,727 |
| Sales excluding VAT, Note 5 | 9,629 | 6,221 |
| Cost of goods sold, Notes 6, 8 | -3,579 | -1,432 |
| GROSS PROFIT | 6,050 | 4,789 |
| Selling expenses, Notes 6, 8 | -2,934 | -2,356 |
| Administrative expenses, Notes 6, 8, 9 | -1,092 | -663 |
| OPERATING PROFIT | 2,024 | 1,770 |
| Income from fi nancial investments | ||
| Dividends from subsidiaries | 8,465 | 7,219 |
| Interest income | 449 | 247 |
| Interest expense | 0 | 0 |
| PROFIT AFTER FINANCIAL ITEMS | 10,938 | 9,236 |
| Year-end appropriations, Note 21 | 130 | 3 |
| Tax, Note 10 | -751 | -572 |
| PROFIT FOR THE YEAR | 10,317 | 8,667 |
Up to and including 31 May 2007 the Swedish stores were operated within the parent company; since this date they have been operated in a separate subsidiary. The departments for design, logistics and buying that were previously part of the parent company were also transferred into a separate subsidiary as of 1 June 2007.
Up to and including 31 May 2007 the Swedish stores were operated within the parent company; since this date they have been operated in a separate subsidiary. The departments for design, logistics and buying that were previously part of the parent company were also transferred into a separate subsidiary as of 1 June 2007.
| Cash flow from current operations before changes in wo | |
|---|---|
| Tax paid | |
| Depreciation | |
| Provisions for pensions | |
| Profit after financial items* |
| 1 December– 30 November | 2007 | 2006 |
|---|---|---|
| Profi t after fi nancial items* | 10,938 | 9,236 |
| Provisions for pensions | 14 | 28 |
| Depreciation | 88 | 120 |
| Tax paid | -924 | -940 |
| Cash fl ow from current operations before changes in working capital | 10,116 | 8,444 |
| Cash fl ow from changes in working capital | ||
| Current receivables | -831 | -2,850 |
| Stock-in-trade | 352 | -54 |
| Current liabilities | -1,094 | 558 |
| CASH FLOW FROM CURRENT OPERATIONS | 8,543 | 6,098 |
| Investment activities | ||
| Net investments in fi xed assets | 114 | -117 |
| Change in fi nancial investments, 3–12 months | 100 | 1,350 |
| Other investments | 21 | -1 |
| CASH FLOW FROM INVESTMENT ACTIVITIES | 235 | 1,232 |
| Financing activities | ||
| Dividend | -9,515 | -7,861 |
| CASH FLOW FROM FINANCING ACTIVITIES | -9,515 | -7,861 |
| CASH FLOW FOR THE YEAR | -737 | -531 |
| Liquid funds at beginning of year | 2,154 | 2,685 |
| Cash fl ow for the year | -737 | -531 |
| Liquid funds at end of year | 1,417 | 2,154 |
* Interest paid amounts for the parent company to SEK - m (-).
* Received interest amounts for the parent company to SEK 452 m (252).
| Shareholders' equity, 30 November 2006 | 207 | 88 | 11,565 | 11,860 |
|---|---|---|---|---|
| Profi t for the year | – | – | 8,667 | 8,667 |
| Dividend | – | – | -7,861 | -7,861 |
| Shareholders' equity, 1 December 2005 | 207 | 88 | 10,759 | 11,054 |
| Share capital |
Restricted reserves |
earnings | Total Retained shareholders' equity |
| Share capital |
Restricted reserves |
earnings | Total Retained shareholders' equity |
|
|---|---|---|---|---|
| Shareholders' equity, 1 December 2006 | 207 | 88 | 11,565 | 11,860 |
| Dividend | – | – | -9,515 | -9,515 |
| Profi t for the year | – | – | 10,317 | 10,317 |
| Shareholders' equity, 30 November 2007 | 207 | 88 | 12,367 | 12,662 |
The fi nancial 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 transactions such as income, expenses, receivables and liabilities as well as unrealised gains and losses are eliminated entirely in the preparation of the consolidated accounts.
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. Such exchange rate differences are posted directly to equity as translation effects.
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 year. The translation difference arising from this, and also as a result of the fact that 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. On disposal of a foreign business the accumulated exchange rate differences in the income statement are posted together with the profi t or loss on disposal. Where foreign businesses are concerned, the accumulated translation differences attributable to the period before 1 December 2004 – the date of adoption of IFRS – have been set at zero in accordance with the transitional rules in IFRS 1.
The Group's income is generated mainly by sales 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. The Group's income exhibits seasonal variations. The fi rst quarter of the fi nancial year is normally H&M's weakest and the last quarter its strongest. Interest income is reported as it is earned. Franchise sales comprise 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.
Advertising costs and other marketing activities are expensed on a continuous basis.
Intangible and tangible fi xed assets are reported at acquisition cost less accumulated depreciation and any accumulated writedowns. Depreciation is distributed linearly over the assets' expected period of use. No depreciation is applied to land. See also Note 8 and Note 11.
Costs relating to intangible and tangible fi xed assets are reported in the balance sheet if it is likely that the company will gain from the future fi nancial benefi ts associated with the asset and if the asset's acquisition cost can be reliably calculated. Costs relating to ongoing maintenance and repair are reported as an expense in the period in which they arise.
The recorded value of intangible and tangible fi xed assets is tested to see if impairment is indicated. If the asset's recorded value exceeds its recovery value (the net sales value or the value in use, whichever is the higher), a write-down of the required amount takes place. Any write-down is recorded in the income statement.
Leasing agreements in which a substantial part of the risks and benefi ts of ownership are retained by the lessor are classifi ed as operational leasing agreements. Minimal leasing agreements relating to operational leasing are recorded in the income statement as an expense and distributed linearly over the term of the agreement. The Group's main leasing agreements are leases for premises. Variable (sales-dependent) rent supplements are recorded in the same period as the corresponding sales.
Financial instruments are assessed and recognised in accordance with the rules of IAS 39. 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 and equity 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 fl ows from the asset cease. Financial liabilities are removed from the balance sheet when the obligation is met, cancelled or ends.
The Group classifi es its fi nancial instruments in the following categories:
This category consists of two sub-groups: fi nancial assets and liabilities held for trading, and other fi nancial assets and liabilities that the company initially chose to place in this category when they were fi rst reported. Assets and liabilities in this category are assessed continually at fair value, with changes in value recognised in the income statement.
This category primarily covers cash and bank balances plus accounts receivable.
Accounts receivable have a short expected term and are recognised at the original invoiced amount without discounting, with deductions for doubtful receivables.
Financial assets held to maturity refers to assets with payment fl ows that are fi xed or that can be established in advance, and with a fi xed 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. At the closing date, all the Group's short-term investments fall into this category.
This category contains fi nancial assets that were either placed in this category at the time of acquisition or have not been classifi ed in any other category. These are valued continually at fair value, with changes in value recognised in equity. No fi nancial assets have been classifi ed in this category.
Financial liabilities that are not held for trading are assessed at 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.
All derivatives are reported initially and continually at fair value in the balance sheet. The result of the revaluation of derivatives
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 Group's business consists mainly of the sale of clothing and cosmetics to consumers. The company's fi nancial year is 1 December – 30 November. The Annual Report was approved for publication by the Board of Directors on 30 January 2008 and will be submitted to the Annual General Meeting for adoption on 8 May 2008.
Stefan Persson Placering AB's shareholding in H & M Hennes & Mauritz AB corresponds to 11.75 percent of all the shares and 57.1 percent of the total number of votes. Stefan Persson Placering AB (556423–5769) is thus the parent company of H & M Hennes & Mauritz AB.
The consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the interpretations provided by the International Financial Reporting Interpretations Committee (IFRIC). Since the parent company is a company within the EU, only IFRS approved by the EU are applied. The consolidated accounts also contain disclosures as set out in Recommendation RR 30:06 of the Swedish Financial Accounting Standards Council on Supplementary Accounting Rules for Groups.
The statements are based on historical acquisition costs, apart from certain fi nancial instruments that are reported at fair value.
The functional currency for the parent company 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 Recommendation RR 32:06 from the Swedish Financial Accounting Standards Council, entitled Accounting for Legal Entities, and the Swedish Annual Accounts Act in the preparation of its fi nancial statements. The main difference from the Group's accounting principles is that the parent company does not apply IAS 39.
The accounting principles applied in 2006/07 are the same as those applied in the previous year, with the exception of the following:
Application of the above standards and statements has had no effect on the Group's position or profi t.
A number of new standards, amendments and interpretations of existing standards have been published but have not yet entered into force. The standards, amendments and interpretations below, which it is judged may be applicable to the Group, are not expected to have any effect on the consolidated accounts on their introduction beyond the provision of supplementary information in certain cases:
The preparation of the Annual Report and consolidated accounts requires estimates and assumptions to be made, as well as judgements in the application of the accounting principles. These affect recorded amounts for assets, liabilities, income, expenses and supplementary information. The estimates and assumptions are reviewed regularly and are based on historical experience, other relevant factors and expectations of the future. The actual outcome may therefore deviate from previous estimates and assumptions. It is the company's assessment that the estimates and assumptions made in the statements to 30 November 2007 cannot signifi cantly affect the results and position for the forthcoming fi nancial year.
The consolidated accounts encompass 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 determining infl uence, and are included in the consolidated accounts until such date as the determining infl uence ends. Currently all subsidiaries are 100 percent owned. The acquisition method is used in the preparation of the consolidated accounts. The net assets of the acquired subsidiaries are determined based on a market valuation 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 at the time of acquisition of the Group's share of the net assets of the acquired company, the difference is reported as goodwill upon consolidation. If the acquisition cost is less than the fi nally established value of the net assets, the difference is reported directly in the income statement.
In the course of conducting business the Group is exposed to risk associated with fi nancial instruments, such as liquid funds, short-term investments, accounts receivable and accounts payable. The Group also conducts transactions involving currency derivatives with a view to managing currency risks that arise in the course of its business.
The risks related to these instruments are primarily the following:
How these risks are handled and controlled is regulated in the fi nancial policy adopted by the company's Board of Directors. The fi nancial policy is the most important fi nancial control tool for the company's fi nancial activities and establishes the framework within which the company works.
The Group's accounting principles for fi nancial instruments, including derivatives, are described in Note 1.
Interest risk is the risk that the value of a fi nancial instrument will vary due to changes in market interest rates. Interest risk relates to the risk that the Group's exposure to changes in market interest rates may affect net profi t.
The Group's exposure to risk from changes in interest rates relates to liquid funds as well as short-term investments. In accordance with the fi nancial policy, the Group's surplus liquidity is invested in current bank accounts or in fi xed-interest deposits with a bank as the counterparty. The original term of the investments as of the closing date is up to six months. The fi nancial policy allows investments for up to two years.
Currency risk is the risk that the value of a fi nancial instrument will vary due to changes in exchange rates. The currency used for H&M's accounts is Swedish kronor, but the Group conducts business in countries all around the world. This means that the Group is exposed to currency risk due to the fact that changes in exchange rates may affect profi t and capital.
The payment fl ows in the form of payments in foreign currencies for accounts receivable and payable expose the Group to currency risk. With a view to dealing with the currency risk relating to changes in exchange rates, the Group hedges its currency risk within the framework of the fi nancial policy. The currency risk exposure is dealt with at central level. The bulk of the Group's sales are made in euro and the Group's most signifi cant purchase currencies are the US dollar and the euro. Fluctuation in the dollar/euro exchange rate forms the single largest transaction exposure faced by the Group.
To hedge the product fl ows in foreign currencies and thus reduce the effects of future exchange rate fl uctuation, the majority of the Group's product fl ows are secured under forward contracts on an ongoing basis throughout the year. Since the sole purpose of this currency management is to reduce the risks, only exposure in the product fl ows is hedged.
The Group's exposure to outstanding derivatives is reported in Note 15.
The Group's operating result for the year has been affected by SEK 375 m (146) as a result of exchange rate differences relating to product fl ows.
In addition to the effects of transaction exposure, the profi ts are also affected by translation effects as a result of changes in exchange rates for the local currencies of the various foreign subsidiaries vis-à-vis Swedish kronor compared with the same period in the previous year. The underlying profi t/loss in a market may be unchanged in the local currency, but when converted into SEK may increase in kronor if the Swedish krona has weakened or decrease if the Swedish krona has strengthened. These translation effects have affected profi t after tax for the year by SEK -199 m (127) compared with the result that would have been reported in SEK if exchange rates had remained the same.
Translation effects affect the Group's net assets on consolidation of the foreign subsidiaries' balance sheets (translation exposure in the balance sheet). No equity hedging is carried out for this risk. The translation difference for the year, which is recognised directly in Group equity, amounts to SEK 241 m (-1,081).
Credit risk is the risk that a party in a transaction involving fi nancial instruments may not be able to fulfi l its commitment and thereby cause a loss to the other party.
Credit risk exposure arises when liquid funds are invested, including short-term investments, but also in the form of a counterparty risk associated with trading in derivatives. To limit credit risk, forward contract transactions are only executed with counterparties with a good credit rating, and funds are only invested in banks with a minimum rating of A-1/A- (Standard & Poor) and P2/A3 (Moody's).
The overwhelming majority of the Group's sales are made against cash payment and consequently this part of the credit risk is low.
used for hedging is reported as described in the section Derivatives and Hedge Accounting below.
Liquid funds covers cash and bank balances as well as shortterm investments with a term of maximum three months from the date of acquisition. The investments carry no signifi cant risk of value changes.
The Group's policy is for derivatives to be held only for hedging purposes. Derivatives comprise forward currency contracts that are used to cover the risk of exchange rate changes in product fl ows.
With effect from 1 December 2005 H&M is applying hedge accounting in accordance with IAS 39. To meet the requirements of hedge accounting there must be a clear link to the hedged item. In addition, the hedging must effectively protect the hedged item, hedge documentation must have been prepared and the effectiveness must be measurable.
In hedge accounting, derivatives are classifi ed as cash fl ow hedging or as fair value hedging. How these hedging transactions are reported is described below.
Currency exposure relating to future forecast fl ows is hedged through forward currency contracts. Derivatives that hedge the forecast fl ow are reported in the balance sheet at fair value. Changes in value are reported directly in equity in the hedge reserve until such time as the hedged fl ow is recognised in the income statement, at which time the hedging instrument's accumulated changes in value are transferred to the income statement where they then correspond to the profi t/loss effects of the hedged transaction.
Hedging of contracted currency fl ows – fair value hedging Currency exposure relating to future contracted fl ows is hedged through forward currency contracts. When a hedging instrument is used to hedge fair value, the hedges are reported at fair value in the balance sheet and the contracted fl ow is also reported at fair value with regard to the currency risk being hedged. Changes
in the value of the derivative are reported in the income statement
together with changes in the value of the hedged item.
Stock-in-trade is valued at the lower of the acquisition cost and the net realisable value. For stock-in-trade in the stores the acquisition cost is determined by reducing the selling price by the calculated gross margin (retail method). The net realisable value is the assessed market value less the projected selling expenses.
Provisions are reported in the balance sheet where there is a commitment as a result of an event that has occurred and it is likely that an outfl ow of resources will be required in order to settle the commitment and the amount can be reliably estimated.
H&M has several different plans for benefi ts after employment has ended. The plans are either defi ned benefi t or defi ned contribution plans. Defi ned contribution plans are reported as an expense in the period when the employee performs the service to which the benefi t relates. Defi ned benefi t plans are assessed separately for the respective plan, based on the benefi ts earned during previous and current periods. The defi ned benefi t obligations less the actual value of managed assets are reported under the heading 'Provision for pensions'. Defi ned benefi t 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 and 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 profi ts in the year they arise.
For salaried employees in Sweden, H&M applies the ITP plan through insurance with Alecta. According to a statement by the Swedish Financial Accounting Standards Council's Emerging Issues Task Force (URA 42), this is a defi ned benefi t plan that covers a number of employers. The plan will be reported as a defi ned contribution plan until the company gains access to information allowing this plan to be reported as a defi ned benefi t plan. Alecta's surplus may be allocated to the insured employees and/or the employer taking out the insurance. As of 30 September 2007, Alecta's consolidation ratio was 164.0 percent (141.4). 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.
For further information see Note 18.
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 corporate income tax rate in force in each country is applied. The statutory corporate income tax rate in Sweden is 28 percent. Deferred tax is calculated according to the balance sheet method based on temporary differences arising between reported and fi scal 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 invoiced or the liabilities are settled, based on the tax rates (and the tax legislation) in force on the closing date. Deferred tax receivables for temporary differences and loss carry-forward are recognised only to the extent that it is likely that these will be able to be utilised. As of the closing date, the Group has no loss carry-forward other than the reported deferred taxes receivable.
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 fl ow analysis is prepared according to the indirect method. The reported cash fl ow 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 segment reporting the operations are divided into three geographical regions: the Nordic region, Euro Zone countries excluding Finland, and the Rest of the World. The risks and opportunities are similar in each segment. There is no internal division into different business segments and hence reporting in secondary segments is not relevant.
Transactions between segments take place on normal commercial terms.
Formal Annual Report
| SEK |
|---|
| 1,250,000 |
| 350,000 |
| 350,000 |
| 400,000 |
| 400,000 |
| 450,000 |
| 350,000 |
| 350,000 |
Based on the resolution on guidelines passed by the 2007 AGM – see Administration Report on page 52.
Remuneration to the Managing Director in the form of salary and benefi ts amounted to SEK 14.0 m, which included a bonus of SEK 1.5 m (11.9 including a bonus of 1.5). The pension expenses for the Managing Director during the year were SEK 20.6 m (25.9), of which SEK 19.9 m comprises pension commitments entered as liabilities. The total pension commitments entered as liabilities amount to SEK 76.9 m. The retirement age for the Managing Director is 65. The Managing Director receives a pension of 65 percent of regular salary for three years and thereafter a lifetime pension equivalent to 50 percent of that salary. The Managing Director is entitled to 12 months' notice. In the event that the company cancels his employment contract, the Managing Director will receive severance pay of an extra year's salary in addition to the 12 months' notice. The Managing Director's terms of employment are determined by the Board of Directors.
Remuneration to other members of the executive management team in the form of salary and benefi ts amounted to SEK 26.0 m (27.1), which included bonuses of SEK 3.2 m (2.5). Pension expenses for other members of the executive management team during the year were SEK 5.2 m (5.7). Other members of the executive management team comprise eleven people, four of whom are women.
In addition to the Managing Director, the executive management team includes those responsible for the following functions: Finance, Buying, Production, Expansion, IR, Accounts, Marketing, HR, Communications, Corporate Social Responsibility and Security. There are rules in place for these senior executives in respect of supplements to retirement pension beyond the ITP plan. The retirement age varies between 60 and 65 years. The cost of this commitment is partly covered by separate insurance policies.
In addition, bonuses amounting to SEK 6.1 m (6.9) were paid out 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 team are determined by the Managing Director and the Chairman of the Board.
| 2007 | 2006 | |||
|---|---|---|---|---|
| Total | Male % | Total | Male % | |
| Sweden | 4,456 | 18 | 4,142 | 20 |
| Norway | 1,509 | 7 | 1,481 | 7 |
| Denmark | 1,278 | 6 | 1,238 | 6 |
| UK | 3,872 | 22 | 3,617 | 23 |
| Switzerland | 1,474 | 12 | 1,412 | 11 |
| Germany | 10,085 | 20 | 9,302 | 19 |
| Netherlands | 2,254 | 18 | 2,023 | 18 |
| Belgium | 1,400 | 16 | 1,308 | 15 |
| Group total | 47,029 | 20 | 40,855 | 20 |
|---|---|---|---|---|
| Other countries | 560 | 41 | 511 | 39 |
| China | 646 | 34 | 259 | – |
| Greece | 85 | 24 | – | – |
| Slovakia | 45 | 24 | – | – |
| Hungary | 98 | 12 | 54 | 11 |
| Ireland | 188 | 19 | 170 | 20 |
| Slovenia | 115 | 17 | 95 | 20 |
| Canada | 800 | 20 | 608 | 17 |
| Italy | 753 | 27 | 474 | 23 |
| Portugal | 425 | 22 | 324 | 10 |
| Czech Republic | 249 | 7 | 239 | 7 |
| Poland | 1,150 | 28 | 978 | 23 |
| Spain | 3,415 | 19 | 2,568 | 19 |
| USA | 6,329 | 30 | 4,870 | 30 |
| France | 2,950 | 25 | 2,486 | 26 |
| Finland | 823 | 11 | 731 | 12 |
| Luxembourg | 134 | 16 | 126 | 11 |
| Austria | 1,936 | 12 | 1,839 | 14 |
Sickness absence in Sweden
| % of sickness | ||||
|---|---|---|---|---|
| Sickness absence as % absence lasting | ||||
| of reg. working hours | over 60 days | |||
| 2007 | 2006 | 2007 | 2006 | |
| Female employees | 5.0 | 5.5 | 46.1 | 51.2 |
| Male employees | 3.1 | 3.9 | 28.7 | 36.7 |
| Employees | ||||
| < 30 years old | 3.2 | 3.3 | 20.7 | 24.6 |
| Employees | ||||
| 30–49 years old | 5.2 | 6.0 | 50.4 | 57.0 |
| Employees | ||||
| > 50 years old | 8.4 | 8.4 | 60.8 | 59.3 |
| All employees | 4.7 | 5.2 | 44.3 | 49.4 |
Depreciation has been calculated at 12 percent of the acquisition cost of equipment and leasehold rights (intangible fi xed assets) and 20 percent for computer equipment and vehicles, based on estimated economic life. The fact that lease rights are depreciated over a period of more than fi ve years is due to the crucial importance of the store locations to the business. Buildings are depreciated at 3 percent of acquisition cost. No depreciation is applied to land values. Depreciation for the year is reported in the income statement as follows:
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Cost of goods sold | 203 | 172 | 12 | 15 |
| Selling expenses | 1,505 | 1,374 | 72 | 99 |
| Administrative expenses | 106 | 78 | 4 | 6 |
| Total | 1,814 | 1,624 | 88 | 120 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Ernst & Young | ||||
| Audit assignments | 12.8 | 11.3 | 2.4 | 2.4 |
| Other assignments* | 18.4 | 10.8 | 11.5 | 4.8 |
| Other auditors | ||||
| Audit assignments | 2.5 | 2.3 | – | – |
| Other assignments | 1.3 | 1.1 | – | – |
| Total | 35.0 | 25.5 | 13.9 | 7.2 |
* Other assignments refers mainly to tax advice in connection with changes to internal pricing principles and refi nement of the Group structure.
| 2007 | 2006 | |
|---|---|---|
| Nordic region External net sales Operating profi t Operating margin in % |
15,017 7,033 46.8 |
13,499 3,655 27.1 |
| Assets Liabilities Investments Depreciation |
17,826 3,317 322 231 |
12,065 2,470 209 219 |
| Euro Zone countries excluding Finland External net sales Operating profi t Operating margin in % |
43,430 8,316 19.1 |
37,804 8,677 23.0 |
| Assets Liabilities Investments Depreciation |
14,716 2,703 1,778 872 |
15,889 2,373 985 797 |
| Rest of the World External net sales Operating profi t Operating margin in % |
19,899 3,033 15.2 |
17,097 2,966 17.3 |
| Assets Liabilities Investments Depreciation |
8,309 934 1,508 711 |
7,499 1,059 788 608 |
| Total External net sales Operating profi t Operating margin in % |
78,346 18,382 23.5 |
68,400 15,298 22.4 |
| Assets excluding taxes recoverable Liabilities excluding tax liabilities Investments Depreciation |
40,851 6,954 3,608 1,814 |
35,453 5,902 1,982 1,624 |
SEGMENT REPORTING
Internal follow-up of the business is carried out by country. To present information on different segments in an easily accessible way, the operations are divided into three geographical regions: the Nordic region, Euro Zone countries excluding Finland, and the Rest of the World. There is no internal division into different business segments and hence reporting in secondary segments is not relevant. In 2007 the Group structure was reviewed and refi ned in order to facilitate the division of the logistics function into regions and to support the expansion in progress. As a result of this, the central functions of design, logistics, stock keeping and buying were transferred into a separate subsidiary that is included in the Nordic segment. A great deal of the Group's value-added is created in this segment. The internal pricing model was adapted in accordance with this with effect from 1 June, with the result that the operating profi t and operating margin in individual segments for the current fi nancial year are not comparable with previous years. Internal sales of goods within the Group during the fi nancial year amounted to SEK 23,364 m (0). This has been eliminated in full in the segment reporting. Slovenia has changed its currency from SIT to EUR and has therefore been moved from Rest of the
World to Euro Zone countries for both years.
| 2007 | 2006 | |
|---|---|---|
| Sweden | 5,788 | 5,359 |
| Norway | 4,123 | 3,873 |
| Denmark | 3,003 | 2,638 |
| UK | 6,404 | 5,914 |
| Switzerland | 3,909 | 3,759 |
| Germany | 18,674 | 17,408 |
| Netherlands | 5,166 | 4,193 |
| Belgium | 2,344 | 2,295 |
| Austria | 3,797 | 3,585 |
| Luxembourg | 299 | 280 |
| Finland | 1,843 | 1,629 |
| France | 5,830 | 4,969 |
| USA | 5,612 | 4,926 |
| Spain | 4,428 | 3,317 |
| Poland | 1,481 | 1,009 |
| Czech Republic | 514 | 432 |
| Portugal | 556 | 351 |
| Italy | 1,452 | 830 |
| Canada | 1,290 | 905 |
| Slovenia | 409 | 299 |
| Ireland | 358 | 279 |
| Hungary | 165 | 78 |
| Slovakia | 68 | – |
| Greece | 118 | – |
| China | 456 | – |
| Franchise | 259 | 72 |
| Total | 78,346 | 68,400 |
The parent company's sales include royalties received from Group companies of SEK 2,517 m (0).
| 2007 | Board, MD, executive management, employees salary |
Salary, | other overheads total |
Payroll of which pens. |
of which pens. total Board, MD, exec mgmt |
|---|---|---|---|---|---|
| Sweden, | |||||
| parent company* | 44 | 804 | 306 | 90 | 26 |
| Subsidiaries | 39 | 9,042 | 1,941 | 81 | 7 |
| Group total | 83 | 9,846 | 2,247 | 171 | 33 |
| 2006 | Board, MD, | Salary, | Payroll of which | of which | |
| executive | other overheads | pens. | pens. | ||
| management, employees salary |
total | total Board, MD, exec mgmt |
|||
| Sweden, | |||||
| parent company* | 43 | 1,216 | 538 | 101 | 32 |
| Subsidiaries | 39 | 7,626 | 1,538 | 54 | 2 |
| Group total | 82 | 8,842 | 2,076 | 155 | 34 |
* The executive management includes two people not formally employed by the parent company; these are employees of H & M Hennes & Mauritz GBC AB.
Board fees for the year as approved by the AGM amounted to SEK 3.9 m (3.9). The Board consists of eight ordinary members elected by the Annual General Meeting. There are also two employee representatives with two deputies. Six of the members of the Board are women and six men; fi ve out of twelve are employed within the company. During the year the Board fees of SEK 3.9 m were paid out as follows:
Formal Annual Report
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Tax expense (-) /tax receivable (+): |
||||
| Current tax | ||||
| Tax expense for the period -6,408 Adjusted tax expense |
-5,072 | -758 | -577 | |
| for previous years | 120 | – | – | – |
| Total | -6,288 | -5,072 | -758 | -577 |
| Deferred tax Deferred tax receivable (+) /tax expense (-) in respect of temporary differences |
||||
| stock-in-trade Deferred tax receivable (+) /tax expense (-) in respect |
787 | – | – | – |
| of loss carry-forward Deferred tax receivable (+) /tax expense (-) in respect |
-15 | -21 | – | – |
| of temporary differences | -66 | 82 | 7 | 5 |
| Total | 706 | 61 | 7 | 5 |
| Total | -5,582 | -5,011 | -751 | -572 |
| -61 84 120 – |
-97 15 – |
-17 -5 2,370 |
-6 – 2,021 |
|||
|---|---|---|---|---|---|---|
| -358 | -503 | – | – | |||
| -5,367 | -4,426 | -3,099 | -2,587 | |||
| Reconciliation between current tax rate and effective tax rate: | ||||||
| Total | 883 | 102 | 32 | 25 |
|---|---|---|---|---|
| Other temporary differences | 41 | 60 | – | – |
| in stock-in-trade | 787 | – | – | – |
| Temporary differences | ||||
| subsidiaries | 2 | 17 | – | – |
| Loss carry-forward in | ||||
| Pensions | 53 | 25 | 32 | 25 |
The loss carry-forward is expected to be utilised within the next few years. There is no other loss carry-forward for which deferred tax receivable is not reported.
| 651 | 650 |
|---|---|
| 186 | 175 |
| 465 | 475 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| Leasehold rights | 2007 | 2006 | 2007 | 2006 |
| Opening acquisition value | 392 | 383 | – | – |
| Acquisitions during the year | 86 | 30 | – | – |
| Sales/disposals | -15 | -3 | – | – |
| Translation effects | 13 | -18 | – | – |
| Closing acquisition value | 476 | 392 | – | – |
| Opening depreciation | -170 | -133 | – | – |
| Sales/disposals | 15 | 2 | – | – |
| Depreciation for the year | -50 | -45 | – | – |
| Translation effects | -5 | 6 | – | – |
| Closing accumulated | ||||
| depreciation | -210 | -170 | – | – |
| Closing book value | 266 | 222 | – | – |
| Buildings | ||||
|---|---|---|---|---|
| Opening acquisition value | 503 | 536 | 107 | 107 |
| Acquisitions during the year | 56 | – | – | – |
| Sales/disposals | – | -6 | – | – |
| Translation effects | 5 | -27 | – | – |
| Closing acquisition value | 564 | 503 | 107 | 107 |
| Opening depreciation | -143 | -136 | -48 | -45 |
| Sales/disposals | – | 2 | – | – |
| Depreciation for the year | -14 | -15 | -3 | -3 |
| Translation effects | -1 | 6 | – | – |
| Closing accumulated | ||||
| depreciation | -158 | -143 | -51 | -48 |
| Closing book value | 406 | 360 | 56 | 58 |
| Land | ||||
| Opening acquisition value | 60 | 67 | 3 | 3 |
| Acquisitions during the year | – | – | – | – |
| Sales/disposals | – | -4 | – | – |
| Translation effects | – | -3 | – | – |
Closing book value 60 60 3 3
The tax assessment values of the Swedish properties amount to SEK 57 m (57). The book value of these amounts to SEK 59 m (61).
| Equipment | ||||
|---|---|---|---|---|
| Opening acquisition value | 13,605 | 12,971 | 1,001 | 957 |
| Acquisitions during the year | 3,466 | 2,000 | 123 | 117 |
| Sales/disposals | -999 | -580 | -388 | -73 |
| Translation effects | 101 | -786 | – | – |
| Closing acquisition value | 16,173 | 13,605 | 736 | 1,001 |
| Opening depreciation | -6,471 | -5,819 | -543 | -500 |
| Sales/disposals | 905 | 525 | 150 | 74 |
| Depreciation for the year | -1,750 | -1,564 | -85 | -117 |
| Translation effects | -36 | 387 | – | – |
| Closing accumulated | ||||
| depreciation | -7,352 | -6,471 | -478 | -543 |
| Closing book value | 8,821 | 7,134 | 258 | 458 |
The Group has no signifi cant leasing agreements other than the leasing agreements for rented premises that were signed on normal market terms. Rental charges for the 2007 fi nancial year amount to SEK 8,467 m (7,549), of which sales-dependent supplements amount to SEK 657 m (519).
| excluding any sales-dependent supplements) amount to (SEK m): | ||
|---|---|---|
| Due 2008 | 6,801 | |
| Due 2009–2012 | 19,732 |
Due 2013 and thereafter 12,478
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Prepaid rent | 549 | 455 | 14 | 37 |
| Other items | 85 | 108 | 26 | 14 |
| Total | 634 | 563 | 40 | 51 |
This balance sheet item includes interest-bearing investments, i.e. investments in securities issued by governments or banks or in short-term bank deposits. As of 30 November 2007 there were no investments with terms longer than 6 months. The book value of short-term investments plus accrued interest equals the actual value. Investments are made on market terms and the interest rates are in the range 1.93– 6.70 percent. The difference in interest rate depends on the currency in which the amount is invested. Short-term investments with a term of 0–3 months are reported as liquid assets (refer to note 14).
| Total | 16,064 | 9,877 | 1,417 | 2,154 |
|---|---|---|---|---|
| 0–3 months | 14,415 | 8,541 | 1,308 | 2,048 |
| Short-term investments, | ||||
| Cash and bank balances | 1,649 | 1,336 | 109 | 106 |
| 2007 | 2006 | 2007 | 2006 | |
| GROUP | PARENT COMPANY |
The table below shows the outstanding forward contracts as of the closing date:
| Currency pair | Average | |||||||
|---|---|---|---|---|---|---|---|---|
| Book | Fair | Nominal | remaining | |||||
| value | value | amount term in months | ||||||
| Sell/buy | 2007 2006 2007 2006 2007 2006 2007 2006 | |||||||
| NOK/SEK | – | – | – | – | – | – | – | – |
| GBP/SEK | – | – | – | – | – | – | – | – |
| NOK/USD | 2 | -7 | 2 | -7 231 214 3.0 3.0 | ||||
| DKK/USD | -6 | -5 | -6 | -5 199 161 2.5 3.0 | ||||
| GBP/USD | -7 -13 | -7 -13 455 381 3.0 3.0 | ||||||
| CHF/USD | -9 | -5 | -9 | -5 298 245 3.0 3.0 | ||||
| EUR/USD | -88 -66 -88 -66 2,525 2,192 3.0 3.0 | |||||||
| PLN/USD | -12 | -5 -12 | -5 195 106 2.5 3.0 | |||||
| CZK/USD | – | – | – | – | – | – | – | – |
| CAD/USD | 1 | 1 | 1 | 1 | 82 | 67 2.5 2.5 | ||
| SEK/USD | -6 | -11 | -6 | -11 494 224 3.0 2.0 | ||||
| Total | -125 -111 -125 -111 4,479 3,590 |
Forward contracts with a positive market value amount to SEK 7 m, which is reported under Other current receivables. Forward contracts with a negative market value amount to SEK 132 m, which is reported under Other current liabilities.
In accordance with H&M's principles for fair value hedging (refer to note 1 Accounting principles), the binding purchase commitment is also reported at fair value in respect of the currency risk hedged. These amounts are included in Other current receivables at SEK 132 m and in Other current liabilities at SEK 7 m.
As of 30 November 2007 SEK 139 m (113) was thus included in current receivables and current liabilities in respect of hedge accounting.
The market valuation was performed using data provided by the banks.
The share capital consists of 97,200,000 class 'A' shares (10 votes per share) and 730,336,000 class 'B' shares (1 vote per share). There are no other differences between the rights of the shares. The total number of shares is 827,536,000.
| Retained earnings | 2,050 |
|---|---|
| Refunded dividend | 1 |
| Dividend, SEK 11.50 per share | -9,516 |
| balance sheet on 30 November 2006 | 11,565 |
| Unappropriated earnings as per |
| GROUP | |||
|---|---|---|---|
| 2007 | 2006 | ||
| Capitalised value of defi ned benefi t obligations | 218 | 265 | |
| Fair value of managed assets | -62 | -135 | |
| Provisions recorded in the balance sheet | |||
| for pension obligations | 156 | 130 | |
| Opening balance, 1 December | 130 | 78 | |
| Reported pension expenses, net | 39 | 76 | |
| Premiums paid | -8 | -19 | |
| Pensions paid out | -5 | -5 | |
| Recorded amount of defi ned benefi t | |||
| obligations 30 November | 156 | 130 |
The amounts recorded as pension expenses include the following items:
| Interest expense 8 Expected return on managed assets -3 Actuarial gains and losses 9 Changes in foreign exchange rates for plans valued in a currency other than the reporting currency 1 |
76 |
|---|---|
| – | |
| 48 | |
| -6 | |
| 9 | |
| Expenses for service during the current year 24 |
25 |
The cost of defi ned contribution pensions amounts to SEK 132 m (79).
| Signifi cant actuarial assumptions on the balance sheet date | ||
|---|---|---|
| (weighted average amounts) | ||
| Discount rate | 4.37% | 4.12% |
| Expected return on managed assets | 4.32% | 4.50% |
| Future salary increases | 4.60% | 4.00% |
| Future pension increases (infl ation) | 2.00% | 3.00% |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Holiday pay liability | 547 | 449 | 44 | 144 |
| Payroll overheads | 182 | 190 | 61 | 102 |
| Accrued interest | – | – | – | – |
| Payroll liability | 441 | 312 | 22 | 65 |
| Costs relating to premises | 761 | 607 | – | – |
| Other accrued | ||||
| overheads | 916 | 712 | 105 | 144 |
| Total | 2,847 | 2,270 | 232 | 455 |
Stefan Persson Placering AB 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 in Stockholm, Drottninggatan 56 in Stockholm, Sergelgatan 11 in Stockholm, Kungsgatan 55 in Gothenburg, Stadt Hamburgsgatan 9 in Malmö and Amagertorv 23 in Copenhagen. In November 2007 Stefan Persson's company Ramsbury AB acquired the property at Oxford Circus in London in which H&M leases store premises.
Rent is paid at market rates and amounted to a total of SEK 49 m (39) for the fi nancial year.
In 2005 an agreement was entered with Ramsbury AB regarding future leasing of offi ce premises in Stockholm, for occupancy at the end of 2007/beginning of 2008. The rent has been reviewed by two independent evaluators and is at the market rate.
In addition to his Board fees, Board member Karl-Johan Persson received salary amounting to SEK 1.2 m for work carried out in the subsidiary H & M Hennes & Mauritz UK Ltd. For information regarding salaries and other remuneration to related parties please refer to note 6.
Stockholm, 30 January 2008
Stefan Persson Fred Andersson Lottie Knutson
Chairman
Sussi Kvart Bo Lundquist Stig Nordfelt
Marianne Norin-Broman* Karl-Johan Persson Melker Schörling
Margareta Welinder* Rolf Eriksen Managing Director
* Employee representative
Our audit report was submitted on 31 January 2008
Åsa Lundvall Erik Åström Authorised Public Accountant Authorised Public Accountant Ernst & Young AB Ernst & Young AB
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, and 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 signifi cant risks and uncertainties faced by the companies making up the Group.
| $Q_{\text{tot}}$ ought ronort woo o | ||
|---|---|---|
| Total | 130 | 3 | |
|---|---|---|---|
| Depreciation in excess of plan | 130 | 3 | |
| 2007 | 2006 | ||
| PARENT COMPANY |
| (All subsidiaries are wholly-owned) | |||||||
|---|---|---|---|---|---|---|---|
| Corporate | No. of Book | ||||||
| ID number | shares value Domicile | ||||||
| Parent company participation | |||||||
| K E Persson AB | 556030-1052 | 1,000 | 0.1 Stockholm | ||||
| AB Hennes | 556056-0889 | 1,000 | 0.1 Stockholm | ||||
| Big is Beautiful, BiB AB | 556005-5047 | 3,300 | 0.4 Stockholm | ||||
| Bekå AB | 556024-2488 | 450 | 1.3 Stockholm | ||||
| H & M Hennes & Mauritz Sverige AB | |||||||
| 556151-2376 | 1,250 | 0.1 Stockholm | |||||
| Carl-Axel Herrmode AB | 556099-0706 | 1,000 | 3.0 Stockholm | ||||
| H & M Rowells AB | 556023-1663 | 1,150 | 0.6 Stockholm | ||||
| Mauritz AB | 556125-1421 | 2,000 | 0.2 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 | 1,633,500 | 2.9 | India | ||||
| H & M Hennes & Mauritz Japan KK | 99 | 6.0 | Japan | ||||
| Total | 17.4 |
| Subsidiaries' participations | |||
|---|---|---|---|
| Carl Axel Pettersons AB | 556027-7351 | 1,200 | Stockholm |
| H & M Hennes & Mauritz A/S | Norway | ||
| H & M Hennes & Mauritz A/S | Denmark | ||
| H & M Hennes & Mauritz UK Ltd | UK | ||
| H & M Hennes & Mauritz SA | Switzerland | ||
| H & M Trading SA | Switzerland | ||
| H & M Hennes & Mauritz B.V. & Co. KG | Germany | ||
| Impuls GmbH | Germany | ||
| Magis GmbH & Co. KG | Germany | ||
| H & M Hennes & Mauritz Logistics GBC GmbH | Germany | ||
| H & M Hennes & Mauritz Logistics GmbH & Co. KG | Germany | ||
| H & M Hennes & Mauritz Holding BV | Netherlands | ||
| H & M Hennes & Mauritz Netherlands BV | Netherlands | ||
| H & M Hennes & Mauritz USA BV | Netherlands | ||
| H & M Hennes & Mauritz Belgium NV | Belgium | ||
| H & M Hennes & Mauritz GesmbH | Austria | ||
| H & M Hennes & Mauritz OY | Finland | ||
| H & M Hennes & Mauritz SARL | France | ||
| H & M Hennes & Mauritz LP | 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 (Ireland) 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 SK s.r.c. | Slovakia | ||
| H & M Hennes & Mauritz A.E. | Greece | ||
| Total | 119 | 249 |
|---|---|---|
| Depreciation in excess of plan | 119 | 249 |
| 2007 | 2006 | |
| PARENT COMPANY |
| Total | 12,431 | 10,966 |
|---|---|---|
| Parent company's lease guarantees | 12,431 | 10,966 |
| 2007 | 2006 | |
| PARENT COMPANY |
| Return on equity: | Profi t for the year divided by average shareholders' equity. |
|---|---|
| Return on capital employed: | Profi t after fi nancial items plus interest expense divided by average sharehold ers' equity plus interest-bearing liabilities. |
| Share of risk-bearing capital: | Shareholders' equity plus deferred tax liability divided by the balance sheet total. |
| Equity/assets ratio: | Shareholders' equity in relation to balance sheet total. |
| Shareholders' equity per share: Shareholders' equity divided by number of shares. |
|
| P/E ratio: | Price per share divided by earnings per share. |
| Comparable shops: | A shop is comparable if it has been open and has had an unchanged sales area for at least one fi nancial year. |
To the Annual General Meeting of H & M Hennes & Mauritz AB (publ) Corporate identity number 556042-7220
We have audited the annual accounts, consolidated accounts, accounting records and the administration of the Board of Directors and the Managing Director of H & M Hennes & Mauritz AB for the fi nancial year 1 December 2006 to 30 November 2007. The company's annual accounts and consolidated accounts are included in this document on pages 51–71. These accounts, the administration of the company and compliance with the Annual Accounts Act in the preparation of the annual report and the application of IFRS international accounting standards, as adopted by the EU, and of the Annual Accounts Act to the consolidated accounts are the responsibility of the Board of Directors and the Managing Director. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.
Our audit was conducted in accordance with generally accepted auditing standards in Sweden. This means that we planned and performed the audit in order to obtain a high, but not absolute, degree of assurance that the annual accounts and consolidated accounts are free from material misstatement. An audit includes examinating, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board and the Managing Director and evaluating the signifi cant assessments made by the Board and the Managing Director in preparing the annual accounts and
consolidated accounts, as well as assessing the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined signifi cant decisions, actions taken and circumstances in the company to be able to determine the liability, if any, to the company of any Board member or the Managing Director. We also examined whether any Board member 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 our audit provides a reasonable basis for our opinion set out below.
The annual report has been prepared in accordance with the Annual Accounts Act and gives a true and fair view of the company's and the Group's earnings and fi nancial position in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been compiled in accordance with IFRS international accounting standards, as adopted by the EU, and the Annual Accounts Act and give a true and fair view of the Group's earnings and fi nancial position. The administration report is consistent with the other section of the annual accounts and the consolidated accounts.
We recommend to the Annual General Meeting that the income statement and balance sheet of the parent company and the Group be adopted, that the profi t for the parent company be dealt with 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 fi nancial year.
Åsa Lundvall Erik Åström Authorised Public Accountant Authorised Public Accountant Ernst & Young AB Ernst & Young AB
| Financial year | 2007 | 2006 | 2005 | 2004 | 2003 |
|---|---|---|---|---|---|
| Sales including VAT, SEK m | 92,123 | 80,081 | 71,886 | 62,986 | 56,550 |
| Sales excluding VAT, SEK m | 78,346 | 68,400 | 61,262 | 53,695 | 48,238 |
| Change from previous year, % | +15 | +12 | +14 | +11 | +6 |
| Operating profi t, SEK m | 18,382 | 15,298 | 13,173 | 10,667 | 9,223 |
| Operating margin, % | 23.5 | 22.4 | 21.5 | 19.9 | 19.1 |
| Depreciation for the year, SEK m | 1,814 | 1,624 | 1,452 | 1,232 | 1,126 |
| Profi t after fi nancial items, SEK m | 19,170 | 15,808 | 13,553 | 11,005 | 9,609 |
| Profi t after tax, SEK m | 13,588 | 10,797 | 9,247 | 7,275 | 6,386 |
| Liquid funds and short-term investments, SEK m | 20,964 | 18,625 | 16,846 | 15,051 | 13,194 |
| Stock-in-trade, SEK m | 7,969 | 7,220 | 6,841 | 5,142 | 5,050 |
| Equity, SEK m | 32,093 | 27,779 | 25,924 | 22,209 | 20,097 |
| Number of shares, thousand (before and after dilution) | 827,536 | 827,536 | 827,536 | 827,536 | 827,536 |
| Earnings per share, SEK (before and after dilution) Shareholders' equity per share, SEK (before and after |
16.42 | 13.05 | 11.17 | 8.79 | 7.72 |
| dilution) | 38.78 | 33.57 | 31.33 | 26.84 | 24.28 |
| Return on shareholders' equity, % | 45.4 | 40.2 | 38.4 | 34.4 | 32.6 |
| Return on capital employed, % | 63.7 | 58.7 | 56.3 | 51.9 | 48.9 |
| Share of risk-bearing capital, % | 78.5 | 80.0 | 80.2 | 82.5 | 81.6 |
| Equity/assets ratio, % | 76.9 | 78.1 | 78.1 | 79.0 | 78.0 |
| Total number of stores | 1,522 | 1,345 | 1,193 | 1,068 | 945 |
| Average number of employees | 47,029 | 40,855 | 34,614 | 31,701 | 28,409 |
For defi nitions of key ratios refer to note 25.
International Financial Reporting Standards (IFRS) are applied with effect from 2005/2006. Restatement of 2004/2005 in accordance with IFRS has not involved any adjustment. Years 2002/2003–2003/2004 have been reported according to the previously applied principles based on the Swedish Financial
Accounting Standards Council's recommendations.
The minutes of the AGM were posted on the website within two weeks of the meeting.
Material from the meeting, such as the notice of the meeting, the Board's statement concerning allocation of profi t and the Managing Director's address and presentation etc. were translated into English and posted on the website.
H&M's Annual General Meeting 2008 will be held in Victoriahallen at the Stockholm International Fairs on 8 May. To register to attend the 2008 AGM please see page 82 of the Annual Report or visit www.hm.com under Investor Relations, Corporate Governance, Annual General Meeting. Since September 2007 information has been provided on the website concerning shareholders' rights to raise matters at the meeting and when such business must be received by H&M in order to be included in the notice of the meeting.
Prior to each AGM the Election Committee produces proposals for resolutions at the AGM. These include proposing the chairman of the meeting, the Board of Directors and Chairman of the Board, the remuneration to the Board and its distribution as well as auditing fees, principles for the Election Committee and, when necessary, proposing auditors. A report of the work of the Election Committee in advance of the AGM is available in a separate document on the website. In accordance with the principles of the Election Committee adopted at the AGM, the Election Committee is made up of the Chairman of the Board plus four other members each representing one of the four largest shareholders as at 31 August 2007, apart from the shareholder represented by the Chairman of the Board. To read the principles of the Election Committee in full, please see the section on the Election Committee under Investor Relations, Corporate Governance at www.hm.com.
A deviation from the Code is that the Election Committee appointed Stefan Persson as chairman of the Election Committee, on the grounds that this may be deemed an obvious choice in view of the ownership structure of H&M.
Since the 2007 AGM the Election Committee has held two meetings at which minutes were taken and was also in contact between these times. As a basis for its proposals to the 2008 AGM the Election Committee carried out an assessment of the composition of the Board of Directors. This assessment was partly based on Stefan Persson's verbal account of the work of the Board. The work of the Board functioned well over the course of the year.
No special fees were paid to the Election Committee's chairman, nor to any other member of the Committee.
Shareholders wishing to submit proposals to the Election Committee can do so either to individual members of the Election Committee or by e-mail to [email protected].
During the fi nancial year, H&M normally holds fi ve regular Board meetings and one statutory Board meeting. Extraordinary Board meetings are held when the need arises. The Board consists of eight ordinary members elected by the AGM and no deputy
members. There are also two employee representatives with two deputies. Six of the members of the Board are female and six male; fi ve out of twelve are employed within the company. The Managing Director attends all Board meetings except when the Managing Director's work is 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 such as the CFO and Chief Accountant also attend in order to provide the Board with fi nancial information. The Board is assisted by a secretary who is not a member of the Board.
In addition to laws and recommendations, the work of H&M's Board is governed by its formal work plan, which is established once a year. The work plan regulates matters such as the distribution of work between the Board and the Managing Director, fi nancial reporting, investments and fi nancing.
The Managing Director's responsibilities include issues relating to expansion, buying, human resources, fi nance and accounts, as well as reporting to the Board on operating activities. The Managing Director is also responsible for relationships with the company's stakeholders, including fi nancial markets and government agencies.
H&M's Board held fi ve regular Board meetings during the year, as well as a statutory Board meeting and an extraordinary meeting held by circulation. One of the meetings was held in Poznan in Poland, the location of the new warehouse serving the countries of Eastern Europe as well as Internet and catalogue sales outside the Nordic region. The attendance of the Board members is reported in the table Composition of the Board of Directors and Attendance during the Year. Managing Director Rolf Eriksen was present at all the Board meetings during the year.
The Board meetings begin with a discussion of the company's fi nancial situation, with costs and sales as the main focus. The various fi nancial reports and the Annual Report are discussed and verifi ed before being published. Accounting matters are dealt with in detail within the Auditing Committee and reported back to the Board.
Matters dealt with at the Board meetings in 2007 included the company's main aims for the year, the rate of expansion and the results of expansion into markets such as Hong Kong, Shanghai, Slovakia, Greece and Qatar. In addition, the Managing Director reported on the status of new concepts such as COS, the organic cotton collection, H&M Home and footwear, as well as for example developments in buying work and Internet and catalogue sales, future marketing campaigns, etc. The refi nement and review of the Group structure were also discussed. The Board was kept informed of the company's CSR and environmental work. Before the 2007 AGM the Board proposed that a foundation be established, to which H&M would contribute SEK 60 million, to commemorate H&M's 60th anniversary. The purpose of the foundation is to help improve the quality of life of people in regions in which H&M's products are manufactured.
Decisions taken by the Board in 2007 include the planned expansion into Russia in 2009; investments to increase the total number of stores and the level of these investments; and expansion of the footwear range in a number of H&M stores.
The Board also discussed strategic matters such as competition and development opportunities, and also revised its fi nancial policy and information policy.
In connection with the Board's review of the proposed annual report for 2007, auditor Erik Åström gave an account of the year's audit work.
H&M applies the Swedish Code of Corporate Governance and has therefore prepared this corporate governance report in accordance with the Code. This corporate governance report describes H&M's corporate governance, management and administration as well as internal control over fi nancial reporting. The Corporate Governance Report for 2007 is not part of the formal Annual Report and has not been reviewed by the company's auditors.
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. The box below gives a brief statement of the rules from which H&M deviates. Explanations for the deviations are given in the relevant sections later in the report.
Deviations from the Code:
Corporate governance is basically about how the company is to be run in order to safeguard the shareholders' interests. Corporate governance is regulated by Swedish legislation, primarily the Swedish Companies Act and the listing agreement with OMX Nordic Exchange Stockholm AB, as well as rules and recommendations such as the Swedish Code of Corporate Governance. In addition, H&M's articles of association form a central document, establishing, among other things, the company's name, domicile, business orientation and share capital. To read H&M's articles of association, please see the section on Corporate Governance under Investor Relations at www.hm.com.
The Annual General Meeting (AGM) 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 AGM is convened once a year in order to carry out tasks such as adopting the annual accounts, discharging the members of the Board of Directors and the Managing Director from liability and deciding how the profi t or loss for the past fi nancial year is to be allocated. The meeting also elects the Board of Directors and, when necessary, auditors for the forthcoming period of offi ce. Extraordinary general meetings can be convened where there is a particular need to do so.
The Election Committee is the AGM's body for preparing the Meeting's decisions on appointment matters with a view to creating a good basis for the Meeting's treatment of these matters.
The task of the Board of Directors is to manage the company's affairs on behalf of the shareholders.
The auditors are appointed by the shareholders at the AGM. The auditors scrutinise the company's annual report and accounts as well as the management of the company by the Board and Managing Director.
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. The demarcation between the tasks of the Board and the Managing Director is laid down in written instructions approved by the Board.
H&M has a matrix organisation in which the country managers and 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 central functions/departments, for which the executive management team is responsible.
All shareholders who are entered by name in the register of shareholders and have notifi ed their attendance on time are entitled to participate in the meeting and vote for all their shares. Shareholders who cannot be present in person may be represented by a proxy. H&M's Annual General Meeting 2007 was held in Victoriahallen at the Stockholm International Fairs on 3 May. 1,111 shareholders attended the meeting, representing 80.9 percent of the votes and 60.7 percent of the total number of shares. H&M's Board of Directors, management and Election Committee as well as the company's two auditors attended the meeting.
In the main, the following resolutions were passed:
Chairman of the Board. Born 1947. PRIMARY OCCUPATION: Working Chairman of the Board of H&M. OTHER SIGNIFICANT BOARD ASSIGNMENTS: Member of the board of MSAB and board assignments in family-owned companies. EDUCATION: Stockholm University & Lund University, 1969 –1973. WORK EXPERIENCE: 1976 –1982 Country Manager for H&M in the UK
and responsible for H&M's expansion abroad. 1982–1998 Managing Director and Chief Executive Offi cer of H&M. 1998 – Chairman of the Board of H&M.
Board member. Born 1946. PRIMARY OCCUPATION: CEO of Coromandel förvaltning AB. OTHER SIGNIFICANT BOARD ASSIGNMENTS: Chairman of Corem Property Group AB. Member of the boards of Consilium AB, Viamare Invest AB, Bonnier Industrier, Hammarplast Industrier, Climate Well. EDUCATION:
Economics, Finnish Institute of Exports. WORK EXPERIENCE: Founder of Indoor Design in Helsinki, a design company with its own production.
1984 – 1989 Managing Director of Ikea of Sweden, Ikea's product range and buying company. 1989 – 1992 CEO of Scandic Hotels.
1992 – 1993 Consulting assignment for Securum. 1993 – 1996 Managing Director, Volvo Personbilar Sverige. 1996 – 1998 Chairman and responsible for EF's
Whitbread project. 1998 Founded the Coromandel companies. 2002 – 2008 CEO and partner in the Nicator Group.
2008 – CEO of Coromandel förvaltning AB.
Board member. Born 1964. PRIMARY OCCUPATION: Communications Director at Fritidsresor Group Nordic, with responsibility for communications as well as corporate social responsibility. OTHER SIGNIFICANT BOARD ASSIGNMENTS: No positions other than as member of the Board of H&M.
EDUCATION:
Université de Paris III, Diplôme de Culture Française, 1985–1986. Theatre History, Stockholm University, 1989. Department of Journalism at Stockholm University, 1987–1989.
1988 – 1989 Journalist, Svenska Dagbladet. 1989 – 1995 Communications department at SAS Group.
1995 – 1996 PR Consultant, Johansson & Co. 1996 – 1998 PR and Communications Consultant, Bates Sweden.
1998 – 1999 Communications Consultant, JKL. 1999 – Communications Director at Fritidsresor Group for the Nordic countries.
SUSSI KVART
Board member and member of the Auditing Committee. Born 1956.
PRIMARY OCCUPATION:
Consulting, with a focus on strategic business advice, corporate governance and board procedures.
OTHER SIGNIFICANT BOARD ASSIGNMENTS: Chairman of Kvinvest AB. Member of the boards of Healthcare Provision – Stockholm County Council, Stockholms Stadshus AB, Transparency International Sweden and DGC One AB.
EDUCATION:
Bachelor of Laws, Lund University 1980.
WORK EXPERIENCE:
BO LUNDQUIST
Board member and member of the Auditing Committee. Born 1942.
PRIMARY OCCUPATION:
Head of family-owned investment company. Board
assignments.
EDUCATION:
M.Sc. Engineering, Chalmers University of Technology
in Gothenburg 1968. WORK EXPERIENCE:
STIG NORDFELT
Board member and Chairman of the Auditing
Consulting, with a focus on board procedures.
Committee. Born 1940. PRIMARY OCCUPATION: OTHER SIGNIFICANT BOARD ASSIGNMENTS: Member of the boards of CGU Life AB and Capinordic Fonder AB. EDUCATION :
M.Sc. Business and Economics from the School of Business, Economics and Law, Gothenburg
University 1963.
| 1964 – 1981 Authorised Public Accountant, Reveko |
|---|
| AB, Stockholm, from 1971 Senior |
| Partner and joint owner. |
| 1982 – 1985 Managing Director, Tornet AB, |
| Stockholm. |
| 1986 – 2006 Managing Director, Pilen AB, |
| Stockholm. |
Board member. Born 1975. PRIMARY OCCUPATION:
Board assignments and responsible for expansion and business development at H&M.
H&M's subsidiaries in Denmark, the USA, the UK and Germany. The Swedish Chamber of Commerce in the UK and the GoodCause Foundation.
EDUCATION:
European Business School, London, 1996–2000. WORK EXPERIENCE:
2001 – 2004 Managing Director, European Network. 2005 – 2007 Business development, H&M. 2007 – Responsible for expansion and business development at H&M.
Founder and owner of MSAB. OTHER SIGNIFICANT BOARD ASSIGNMENTS: Chairman of MSAB, AarhusKarlshamn AB, Hexagon
AB, Securitas AB, Securitas Systems AB. Vice Chairman of Assa Abloy AB.
M.Sc. Business and Economics from the School of Business, Economics and Law, Gothenburg University 1970.
Employee representative on the H&M Board since 1995. Born 1944.
Employee representative on the H&M Board since 2007. Born 1962.
Deputy employee representative on the H&M Board since 2007. Born 1974.
Deputy employee representative on the H&M Board since 1997. Born 1946.
Marianne Norin-Broman Margareta Welinder Tina Jäderberg Agneta Ramberg
The composition of H&M's Board meets the independence requirements set of members by the OMX Nordic Exchange Stockholm AB. The composition of the Board also satisfi es the Code's rule that at least two of the Board members who are independent of the company and the company management are also independent of the company's major shareholders.
The Code states, however, that a majority of the Board members elected by the AGM must be independent of the company and the company management. H&M deviates from this rule in that four of the eight Board members elected by the AGM have sat on the Board for over twelve years and one is employed by the company. The explanation given by the Election Committee for the fi rst deviation is that H&M should have a Board made up of members who have come to know the company and its business very well over a long period of time. The second deviation, which is that an employee is also a Board member, is deemed natural in this case in view of the ownership structure of H&M.
H&M's fi nancial reporting is carried out in compliance with the laws, statutes, agreements, regulations and recommendations that apply to companies listed on the OMX Nordic Exchange Stockholm AB. It falls to the Board of Directors to ensure the quality of fi nancial reporting with the help, for example, of the Auditing Committee (see text below). More information is available in the section on internal control over fi nancial reporting.
H&M's Auditing Committee is made up of three Board members. The Committee is appointed annually by the Board of Directors at the statutory Board meeting held in conjunction with the AGM. The Auditing Committee is responsible for preparation of the Board's work on quality assurance of the company's fi nancial reporting. The Committee is also the main path of communication between the Board and the company's auditors.
The Auditing Committee, which comprises chairman Stig Nordfelt and members Sussi Kvart and Bo Lundquist, held three meetings during the year at which minutes were kept.
A deviation from the Code is that the majority of the members of the Committee are not independent of the company and the company management, since Stig Nordfelt and Bo Lundquist have sat on the Board for over twelve years. The reason for the deviation is that these members have an in-depth knowledge of
the company and of business economics and their experience and skills are deemed to make a constructive contribution to the Committee's work. During the year the Committee addressed issues concerning the company's fi nancial reporting and internal control, gathered information concerning the scope and focus of auditing assignments, and also gathered information on matters including the refi nement and review of the Group structure, work on the Code of Ethics and ongoing IR work. It also discussed the annual report and interim reports. Authorised Public Accountants Åsa Lundvall and Erik Åström have attended the Auditing Committee's meetings and reported to the Committee on their auditing work. The meetings were also attended by Leif Persson, CFO and Anders Jonasson, Chief Accountant, among others. The Committee's meetings are always minuted. The minutes are then distributed to the Board.
The Annual General Meeting appoints auditors every four years. The 2005 AGM appointed Authorised Public Accountants Åsa Lundvall and Erik Åström and deputies Torsten Lyth and Anders Wiger from the Ernst & Young AB accounting fi rm. The 2007 AGM resolved that, as previously, the auditors' fees should be paid based on the invoices submitted.
Åsa Lundvall, Authorised Public Accountant, has conducted auditing assignments for H&M for a number of years and has been a deputy auditor since the 2003 Annual General Meeting. At the 2005 AGM Åsa Lundvall was appointed as auditor for H&M.
Erik Åström, Authorised Public Accountant, conducts auditing assignments for a number of listed companies, such as Hakon Invest, Investment AB Kinnevik, Modern Times Group, Saab and Apoteket.
| Name | Year | elected Independent 1) Independent 2) | Fees 3) (SEK) |
Board meetings |
Auditing Committee |
Shareholding | Shares held by related parties |
|
|---|---|---|---|---|---|---|---|---|
| Stefan Persson, Chairman 1979 | No | No | 1,250,000 | 7/7 | 186,274,400 | 97,200,000 4) | ||
| Fred Andersson | 1990 | No | Yes | 350,000 | 7/7 | 800 | ||
| Lottie Knutson | 2006 | Yes | Yes | 350,000 | 7/7 | 400 | ||
| Sussi Kvart | 1998 | Yes | Yes | 400,000 | 7/7 | 3/3 | 2,200 | 850 |
| Bo Lundquist | 1995 | No | Yes | 400,000 | 7/7 | 3/3 | 20,000 5) | |
| Stig Nordfelt | 1987 | No | Yes | 450,000 | 7/7 | 3/3 | 4,000 | |
| Karl-Johan Persson | 2006 | No | No | 350,000 | 7/7 | 6,066,000 | ||
| Melker Schörling | 1998 | Yes | Yes | 350,000 | 6/7 | 114,000 | ||
| Marianne Norin-Broman, | ||||||||
| employee representative | 1995 | No | No | 7/7 | 70 | 120 | ||
| Margareta Welinder 6), | ||||||||
| employee representative | 2007 | No | No | 2/4 | ||||
| Tina Jäderberg 7), | ||||||||
| deputy empl. representative 2007 | No | No | 4/4 | |||||
| Agneta Ramberg, | ||||||||
| deputy empl. representative 1997 | No | No | 7/7 | |||||
1) Independent of the company and the company management as defi ned by the Swedish Code of
Corporate Governance. 2) Independent of major shareholders in the company as defi ned by the Swedish Code of Corporate
Governance. 3) Fees as resolved at the 2007 Annual General Meeting. The fees relate to the period until the next AGM is held and will be paid out in 2008.
4) Shares owned through Stefan Persson Placering AB.
5) Shares owned through Bo Lundquist's company Smideseken AB. 6) Margareta Welinder succeeded Vivian Enochsson as employee representative on 19 June 2007.
7) Tina Jäderberg succeeded Eva Nilsson as deputy employee representative on 19 June 2007.
There are no outstanding share- or share price-related incentive programmes for the Board of Directors.
| (SEK million) | ||
|---|---|---|
| GROUP | PARENT COMPANY | |
| 06/07 05/06 04/05 | 06/07 05/06 04/05 | |
| Ernst & Young | ||
| Audit assignments | 12.8 11.3 10.3 | 2.4 2.4 1.9 |
| Other assignments* 18.4 10.8 5.1 | 11.5 4.8 0.4 |
|
| Other auditors | ||
| Audit assignments | 2.5 2.3 2.2 | – – – |
| Other assignments | 1.3 1.1 2.1 | – – – |
| Total | 35.0 25.5 19.7 | 13.9 7.2 2.3 |
* Other assignments refers mainly to tax advice in connection with changes to Internal pricing principles and refi nement of the Group structure. * Executive Management Team Board of Directors
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, partly by the accounting fi rm's internal guidelines and partly by the Auditing Committee's guidelines regulating which assignments the accounting fi rm is permitted to conduct in addition to the audit.
The fees invoiced by the auditors over the past three fi nancial years, see page 78.
H&M's Managing Director is responsible for the day-to-day operations. The Managing Director has appointed a team of senior executives with ongoing responsibility for the various parts of the business. This team consists of the Managing Director himself and eleven other individuals, four of whom are women. The executive management team is responsible for the following functions: Finance, Buying, Production, Expansion, Accounts, Human Resources, Marketing, Communications, Investor Relations, Security and Corporate Social Responsibility.
Rolf Eriksen has long, sound experience of the retail sector, starting with fi ve years' training in decoration and scene painting in Copenhagen, Denmark, which he completed in 1964. He then worked as a marketing manager for the next 20 years for the Danish department store ANVA in Copenhagen.
Rolf Eriksen joined H&M in 1986 as Country Manager for H&M Denmark. For a four-year period in the 1990s he was also Country Manager for H&M Sweden. In March 2000 he became Managing Director and CEO of H & M Hennes & Mauritz AB. Rolf Eriksen has no signifi cant assignments outside of H&M.
His shareholding in H&M as at 30 November 2007, was 39,700.
In accordance with the Swedish Annual Accounts Act, the 2007 AGM adopted guidelines for remuneration paid to senior executives at H&M. To view the full guidelines refer to the Administration Report on page 52 of the 2007 Annual Report.
H&M deviates from the Code in having no Remuneration Committee, since the Board of Directors may be regarded as carrying out these tasks. The Board decides the remuneration to the Managing Director in accordance with the guidelines established at the 2007 AGM. The terms of employment of 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.
This section has been prepared in accordance with section 3.7.2 of the Swedish Code of Corporate Governance, i.e. a description of how internal control over fi nancial reporting is organised, and the recommendations issued by the Swedish Corporate Governance Board in September 2006, as well as the guidelines produced by the Swedish Institute of Authorised Public Accountants (FAR) and the Confederation of Swedish Enterprise.
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.
H&M uses the COSO framework for internal control over fi nancial reporting as a basis. The COSO framework, which is issued by the Committee Of Sponsoring Organizations of the Treadway Commission, is made up of fi ve components: control environment, risk assessment, control activities, information and communication, and 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. For further information on our colleagues see pages 40–41 of the Annual Report.
Of particular importance is that management documents such as internal policies, guidelines and manuals exist in signifi cant areas and that these provide colleagues with good guidance. Within H&M there exists above all a Code of Ethics, a policy that permeates the entire company since it describes the way in which our colleagues should act in relation to the company and the outside world.
| 2007 | 2006 | 2005 | 2004 | 2003 | |
|---|---|---|---|---|---|
| Shareholders' equity per share, SEK | 38.78 | 33.57 | 31.33 | 26.84 | 24.28 |
| Earnings per share, SEK | 16.42 | 13.05 | 11.17 | 8.79 | 7.72 |
| Change from previous year, % | +26 | +17 | +27 | +14 | +12 |
| Dividend per share, SEK | 14.00* | 11.50 | 9.50 | 8.00 | 6.00 |
| Market price on 30 November, SEK | 399.00 | 319.00 | 253.00 | 216.00 | 176.50 |
| P/E ratio | 24 | 24 | 23 | 25 | 23 |
| Average | |||||
|---|---|---|---|---|---|
| Number of | Number of | shares per | |||
| Shareholdings | shareholders | % | shares | % | shareholder |
| 1– 1,000 | 157,258 | 92.8 | 30,451,351 | 3.7 | 194 |
| 1,001– 5,000 | 9,263 | 5.5 | 20,590,129 | 2.5 | 2,223 |
| 5,001– 10,000 | 1,299 | 0.8 | 9,618,848 | 1.2 | 7,405 |
| 10,001– 50,000 | 1,097 | 0.6 | 23,362,448 | 2.8 | 21,297 |
| 50,001– 100,000 | 200 | 0.1 | 14,393,659 | 1.7 | 71,968 |
| 100,001– | 420 | 0.2 | 729,119,565 | 88.1 | 1,735,999 |
| Total | 169,537 | 100 | 827,536,000 | 100 | 4,881 |
| No. of shares | % of voting rights % of total shares | ||
|---|---|---|---|
| Stefan Persson and family | 301,672,400 | 69.1 | 36.5 |
| Lottie Tham and family | 44,040,200 | 2.6 | 5.3 |
| Alecta Pensionsförsäkring | 24,305,000 | 1.4 | 2.9 |
| Swedbank Robur Fonder | 22,365,837 | 1.3 | 2.7 |
| JP Morgan Chase Bank | 21,932,792 | 1.3 | 2.7 |
| AMF Pensionsförsäkrings AB | 15,500,000 | 0.9 | 1.9 |
| Handelsbanken Fonder | 14,637,642 | 0.9 | 1.8 |
| SSB CL Omnibus | 11,776,103 | 0.7 | 1.4 |
| Clearstream Banking | 11,774,098 | 0.7 | 1.4 |
| SEB Investment Management | 11,350,777 | 0.7 | 1.4 |
* Proposed by the Board of Directors
H&M's internal control structure is based on:
H&M has a matrix organisation (see page 79), which means that those on the executive management team with responsibility for a function are responsible for the results of work within their function in each country (the vertical arrows). The country managers are responsible for profi tability in their country and thereby have overall responsibility for all the functions within their business (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 have the same structure and accounting system with the same chart of accounts. This simplifi es the creation of appropriate routines and control systems, which favours internal control and facilitates comparisons between the different 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 offi ce in Stockholm and then communicated out to the respective department in the country offi ces. In 2007 each central department reviewed its guidelines and manuals to see which needed updating and what new guidelines needed to be developed.
H&M carries out regular risk analyses to review the risks of errors within the fi nancial reporting of signifi cant income and balance sheet items. Operational risks are also charted. H&M has identifi ed certain areas with a higher intrinsic risk of errors, including stockin-trade shrinkage, cash-desk manipulation and misappropriation of merchandise. Another risk area is the valuation of stock-in-trade, including assessments relating to dead stock.
To limit the risks there are appropriate policies and guidelines as well as processes and controls within the business.
Policies and guidelines are of particular importance for accurate accounting, reporting and provision of information and also defi ne the control activities to be carried out.
Within H&M policies and guidelines relating to the fi nancial process are updated on an ongoing basis. This takes place primarily within the central function concerned and is communicated to the countries via e-mail and the intranet as well as at meetings.
The aim of the control activities is to discover, prevent and correct inaccuracies and non-compliance. Control activities include such things as account reconciliation, analytical follow-up, comparisons between income statement and balance sheet items and controls in IT systems.
In 2007 the company's general IT controls were audited by an external party. These controls were mainly assessed with the assistance of those responsible for the systems and system areas in certain business processes.
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.
As part of the company's 2007 internal control work, each central department assessed internal control within its respective functions in the sales countries using the COSO model. Where necessary, this work resulted in action plans for the countries setting out further work on areas in which internal control can be strengthened further. As part of this assessment, the central departments were also provided with feedback concerning areas that could be improved centrally in the future.
Within the stores, controls are performed annually by internal shop controllers with the aim of fi nding out the strengths and weaknesses of the store assessed and how any defi ciencies can be corrected. Within each central department risks within each function were also reviewed and documented during the year as part of the assessment of internal control in the sales countries.
Follow-up and feedback in respect of any problems found during the annual assessment of internal control form a central part of internal control work, since this is an effective way for the company to ensure that defi ciencies are corrected and that control is strengthened further.
The Board of Directors and the Auditing Committee continuously evaluate the information provided by the executive management team, including in respect of internal control. The Auditing Committee's task of monitoring the effi ciency of internal control by the executive 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 as well as by external auditors.
H&M has not found it necessary up to now to establish a specifi c internal audit function. The work on internal control during the year has further increased awareness of internal control within the Group. In the company's opinion, the assessment of internal control carried out in the sales countries during the year by all the central departments – such as Expansion, Communications, Security, Logistics and Production – as well as the work carried out by internal shop controllers largely corresponds to the work performed in other companies by an internal audit function. The issue of a specifi c internal audit function will be reviewed again in 2008.
Stockholm, February 2008
The Board of Directors
More information on H&M's corporate governance work can be found in the section on Corporate Governance under Investor Relations at www.hm.com.
The Annual General Meeting will be held at Victoriahallen, Stockholm International Fairs in Stockholm on Thursday 8 May 2008, at 3 p.m. Shareholders who are registered in the share register print-out as of Friday 2 May 2008 and give notice of their intention to participate in the AGM no later than 12 noon, Friday 2 May 2008 (same date as above) are entitled to participate in the AGM.
Shareholders whose shares are registered in the name of a nominee must re-register their shares in their own names 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, in good time before 2 May 2008.
Notice of intention to participate in the Annual General Meeting must be submitted by mail, fax or telephone to:
H & M Hennes & Mauritz AB Head Offi ce/Carola SE-106 38 Stockholm Telephone: +46 (0)8-796 55 00 Fax: +46 (0)8-796 55 44 www.hm.com/arsstamma
Shareholders must state in the notice their name, civil identity number and telephone number (daytime).
The Board of Directors and the Managing Director have decided to propose to the Annual General Meeting a dividend for 2007 of SEK 14.00 per share.
The Board of Directors has proposed Tuesday 13 May 2008 as record day. With this record day, VPC (the Nordic Central Securities Depository) is expected to pay the dividend on 16 May 2008. To have the right to receive a dividend H&M shares must be bought on 8 May 2008 at the latest.
H & M Hennes & Mauritz AB will provide the following information:
| 27 March 2008 | Three Month Report |
|---|---|
| 8 May 2008 | Annual General Meeting 2008 at |
| 3 p.m. at Victoriahallen, Stockholm | |
| International Fairs, Stockholm | |
| 18 June 2008 | Half Year Report |
| 30 September 2008 Nine Month Report | |
| 29 January 2009 | Full Year Report |
| 26 March 2009 | Three Month Report |
| 4 May 2009 | Annual General Meeting 2009 |
As previously, we plan to publish monthly sales fi gures on the 15th of the following month. If the 15th falls on a weekend, the sales fi gures will be published on the following weekday. However, the sales fi gures for February, May, August and December are planned to be published in each following interim report.
This information will be available at www.hm.com .
H & M Hennes & Mauritz AB Mäster Samuelsgatan 46A SE-106 38 Stockholm Tel.: +46 (0)8-796 55 00
For information on H&M and addresses of the country offi ces visit www.hm.com.
Contacts Head Offi ce
Managing Director Rolf Eriksen Finance Leif Persson Accounts Anders Jonasson Sales Jonas Guldstrand Buying Madeleine Persson Design Ann-Sofi e Johansson Production Karl Gunnar Fagerlin Corporate Social Responsibility Ingrid Schullström Expansion Karl-Johan Persson Marketing Jörgen Andersson Communications Kristina Stenvinkel Investor Relations Nils Vinge Human Resources Pär Darj IT Kjell-Olof Nilsson Logistics Danny Feltmann Security Angelika Giese
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