Annual report 2018 - H&M

1 Annual report 2018 ContentsH&M Conscious Exclusive, spring 2019. The collection is made of sustainable, innovative materials including Pi atex , made from cellulosic fibres extracted from pineapple leaves, BLOOM Foam, a plant-based flexible foam using algae biomass and Orange Fiber , a silk-like fabric made from citrus juice by-products and one of the previous winners of H&M Foundation s Global Change Award. See more at & M Hennes & Mauritz AB s Annual accounts and consolidated accounts for the financial year 2017/2018 comprise pages 36 Group in brief 4 Comments by our CEO 6 Our brands 10H&M 11 COS 12 Weekday 12 Monki 13H&M Home 13& Other Stories 14 Afound 14 ARKET 15 Cheap Monday 15 Markets and expansion 16 Five year summary 18 The H&M share 19 Corporate governance report including the board of directors 20 Auditor s statement on the corporate governance report 34 Administration report including sustainability report 36 Financial reports 46 Group income statement 46 Consolidated statement of comprehensive income 46 Group balance sheet 48 Group changes in equity

2 50 Group cash flow statement 51 Parent company income statement 52 Parent company statement of comprehensive income 52 Parent company balance sheet 53 Parent company changes in equity 54 Parent company cash flow statement 55 Notes to the financial statement 56 Signing of the Annual report 74 Auditor s report 75 Calendar and contact details 78H&M GroupWe are a family of brands with a shared ambition to make great design available to everyone in a sustainable way. Together we offer fashion, design and experiences that enable people around the world to be inspired and to express their own personal valuesWe are one teamWe believe in peopleEntrepreneurial spiritConstant improvementCost-consciousStraightforward and open-mindedKeep it simpleThe H&M group is characterised by the same entrepreneurial spirit and values-driven way of working that have defined our corporate culture since the days of our founder, Erling Persson.

3 In the H&M group we want everyone to be themselves, and respect others for who they are. Together our shared values create an open and down to earth culture where everything is about how we strive for diversity and inclusion on pages 44 45 and at GROUP IN BRIEFOur marketsWe are expanding online, through physical stores and digital marketplaces. The global roll-out of online continues, with the ambition to offer online in all our 71 markets and in other markets market overview on pages 16 transformation workChanging consumer behaviour and technological innovation will continue to transform how and when people shop. We are building a business with the flexibility to respond to this constant evolution.

4 The H&M group is taking advantage of the opportunities created by the digitalisation of our industry to meet customers new expectations. We are integrating the physical stores with the online stores, and we are exploring the strength of our global brand in combination with local relevance and more personalised more about our strategic focus areas on pages 6 sales +2 1% in local currencies in 20181947 Erling Persson opens the womenswear store Hennes with the idea of making fashion available and affordable for everyone. This store in V ster s, Sweden, would soon be followed by more. Today the H&M group inspires people around the world to dress their personal the journey through our history at online markets including 4 new markets in 2018 Our brandsOur brands all have their own unique identity.

5 Together they offer a wealth of styles and trends in fashion, beauty, accessories and homewares as well as caf s focusing on modern, healthy food. The H&M group includes the brands H&M, COS, Weekday, Cheap Monday, Monki, H&M Home, & Other Stories, ARKET and our brands on pages 10 from sustainable sourcesWe aim for 100 percent sustainable cotton in our brands own assortments by the year 2020. In 2018 we reached 95 percent, an increase from 59 percent in 2017. This is an important step towards our overall materials goal: to use only recycled or other sustainably sourced materials by 2030. In 2018 the share of sustainable materials increased to 57 percent from 35 percent in more about our sustainable materials on page 43 and at Swedish kronor in net sales in 2018 Our sustainability strategyThe H&M group wants to lead the change towards a circular, fair and equal fashion industry.

6 We are using our size to drive transparency throughout the value chain. With a long-term approach we can promote innovations for a circular economy. One of our goals is to be climate positive across the value chain by more about our sustainability work on pages 42 45 and at GROUP IN BRIEFThe rapid transformation of fashion retail continues, and 2018 was a challenging year for us as well as for the industry. Digitalisation is rapidly changing consumer behaviour. Competition is intense, with the arrival of new players and business models, and customers expectations are changing. With more and more shopping taking place online the retail landscape isbeing reshaped, also changing the role ofstores.

7 Against this backdrop we accelerated the H&M group s transfor-mation during the year to ensure long-term positive development for the a difficult first half, the group s transformation work started to take effect and we ended 2018 with clear signals that we are on course. We built momentum through the year with sales growth of 3 percent in local currencies for the full year and 6 percent in the fourth quarter. Online sales developed well, increasing by 21 percent over the full FULL-PRICE SALESS ales in the fourth quarter were driven by more full-price sales and lower markdowns. This is one of a number of signs that customers appreciate the improvements we are making to the product assortment regarding design, quality, price and sustainability.

8 While inventory levels were up year-on-year, the inventory situation improved in the fourth quarter com-pared with the third quarter in terms of both level and composition. This sequential development is a result both of stronger collections and of the improvements of our buying and logistics we look back, we can see that we did not reach the goals we set for the year. While we are obviously not content with that, it must be viewed in the light of the rapid transformation of the industry and an even tougher market than we had anticipated, as well as issues in con-nection with the implementation of logistics systems during the year in some important markets which led to higher costs. To secure upcoming transitions of logistics systems and the replacement of the online plat-form in Germany, there were additional costs in the fourth quarter.

9 While this had a negative impact on earnings, it will lead to a range of improve-ments for our customers. STRATEGIC FOCUS AREASWe are driving the transformation in a number of focus areas that we see as strategically important for taking the H&M group to a new level. These focus areas are: create the best customer offering; make sure we have afast, efficient and flexible product flow; secure a stable and scalable infrastructure our tech foundation; and adding growth by expanding through stores, online and through digital are making progress in all these focus areas and I would like to take this opportunity to thank all our colleagues in the H&M group for such amazing commitment and great teamwork.

10 It is very important that we keep up the fast pace of change that characterised our work in THE BEST CUSTOMER OFFERINGBy far the most important aspect of our work to create the best customer offering is to constantly improve the product assortment for all the group s brands. As part of this, we have given our customers even better prices and quality. Increased full-price sales, more returning customers and greater customer satisfaction all confirm that these improvements are sustainable cotton in 2018We have also added value for our customers through our sustainability initiatives, such as increasing the use of sustainable materials in our rang-es. By 2020 a full 100 percent of the cotton used by our own brands is to come from sustainable sources.