H&M Group Annual Report and Financial Statements 2016, Exercises of Business and Society

Download H&M Group Annual Report and Financial Statements 2016 and more Exercises Business and Society in PDF only on Docsity! ANNUAL REPORT 2016 Top €9.99 stories.com weekday.com \ i 7 . | - , Y WY HE ; - a ae A By q thy ¥ Fe i ie " | | : ~ {| f 7 10 T H E H& M GROU P Fashion and design – our passion With our brands we want to inspire fashion fans around the world to dress their own personal style. We are driven by a desire to always create the best offering for our customers – and to do so in a sustainable way. We love fashion and design. Our unique brands make us one of the world’s leading fashion companies. With 4,351 stores in 64 markets and e-commerce in 35 H&M markets, we have a global store net- work and a strong digital presence. We are driven by a desire to always create the best offering and the best experience for our cus- tomers – and to do so in a sustainable way. With a vision to lead the change towards a circular, fair and equal fashion industry, we use our size and our position to drive positive change for people and the environment throughout the value chain. The ambition for our sus- tainability work is based on our company’s long-term approach and values-driven way of working. The H&M group’s shared values have existed ever since the very first store opened in 1947 and are a large part of what our company is and stands for. Our values help create an open, dynamic and down-to-earth company culture where anything is possible. Today there are more than 161,000 of us around the world. Together we are the H&M group. H&M. 11 T H E H& M GROU P 2013 2015 2016 2012 2014 Our unique brands The H&M group includes several clearly defined fashion brands, each with its own unique identity. We offer fashion from the brands H&M, COS, Monki, Weekday, & Other Stories and Cheap Monday, as well as homeware from H&M Home. Together our brands provide a wide and varied range, enabling us to offer our customers many different styles and trends. All our brands share the same passion for fashion and quality, a drive to give customers the best value for money and an ambition to dress customers in a sustain- able way. 4,351 stores in 64 markets and e-commerce in 35 H&M markets. Our goal is for 100 percent of the cotton in our ranges to come from sustainable sources by 2020, which includes cotton that is either organic, recycled or certi- fied by the Better Cotton Initiative (BCI). 34% 22% 16% 43% 13% & Other Stories. COS, Bukarest. MORE SUSTAINABLE COTTON 12 T H E H& M GROU P We want to contribute to positive develop- ment in society. Our growth creates job opportunities and our size gives us a unique reach and ability to contribute to positive change for people and the environment throughout the value chain. Along with inno- vators, scientists, trade unions, suppliers and other stakeholders, we work for a sustain- able future. Our vision is to lead the change towards a circular, fair and equal fashion industry. We are pushing for fair working conditions and greater transparency. The H&M group is one of the world’s larg- est users of organic cotton, recycled polyester and lyocell. Thanks to the commitment of our customers and employees, our global garment collecting contributes to increased recycling and reduced environmental impact. Responsible use of water, chemicals and energy is important to us. Even as we grow, we are reducing the greenhouse gas emis- sions from our own operations – mainly through switching to renewable electricity. Our value chain is made up of every stage from idea to customer. We have a circular approach and sustainability is an integral part of our business. The collections are created by our own designers, pattern makers and buyers, while manufacturing is outsourced to independent suppliers. We have no middlemen; we always strive to buy the right product from the right market, to have effective logistics and to be cost-conscious in every part of the business. Flexible assortment planning and efficient distribution ensure that both the latest trends and timeless classics can always be found in our stores and online – at the best price. 15,888 tonnes of textiles were collected in 2016 for reuse and recycling. 96% of the electricity we used in 2016 was renewable. H&M Conscious Exclusive. Sustainability in everything we do A CIRCULAR APPROACH Our value chain C OM M E N TS BY T H E C E O 15 service. We are upgrading our supply chain to make it even faster and more flexible – which includes investments in technology, such as RFID and automated warehouses. We are also adding new delivery options for customers – such as next day delivery, which we now offer in five markets, and we have also started offering time-slot deliveries in Japan. We see advanced analytics as providing important support for our operations, and the algorithms we have started to use will contribute to improvements in everything from assortment planning to logistics and sales. You have also rephrased the H&M group’s growth target. What does the new target involve? – In the light of our current development phase, it was only natural for us to rephrase our growth target. This means that our previous target of increasing the number of stores by 10 to 15 percent per year is instead becoming a sales target that includes both stores and online sales. Our new target, which will apply for 2017 and going forward, is for the H&M group’s sales to increase by 10 to 15 percent in local cur- rencies per year with continued high profitability. What are the expansion plans for the stores in the future, given that e-commerce is growing more and more and the sales channels are becoming increasingly integrated? – Today we have a strong store portfolio with more than 4,300 stores, which gives us a unique proximity to our customers, and being close to the customers is becoming even more important in a world where the physical and the digital experience becomes increasingly integrated. The stores that we are opening have very favourable and flexible leases, are in good locations and are profitable with a short payback period. In those circumstances, it is natural for us to continue expanding through physical stores too. In 2017 we plan to open around 430 new stores net. With H&M we will be entering five new store mar- kets – Kazakhstan, Colombia, Iceland, Vietnam and Georgia – and six new online markets – Turkey, Taiwan, Hong Kong, Macau, Singapore and Malaysia. Alongside opening new stores, we are constantly review- ing the existing store portfolio to make sure that we have the optimal mix of brands, space and number of stores in each market. It will lead to some re-locations, the adding of new store space and also closures. Most of the new stores that we open in 2017 will be H&M stores. What are your expansion plans for the other brands in the group? – Around 70 to 80 of the new stores in 2017 will consist of our other brands. H&M Home is also developing very well, and so going forward we will be opening standalone H&M Home stores and profiling H&M Home even more as an individual brand. In 2016 you also established a new sustainability strategy, in which you raise your ambitions further in order to drive long-lasting positive change in the fashion industry. Why is sustainability so important to the H&M group? – We have always worked on making fashion available to many. The idea is that everyone who enjoys fashion should be equally able to dress sustainably. The reason that sustainability is so important to us is also because we have a long-term approach and a values-driven way of working. The world’s population is growing, but our planet has finite resources – and to be able to meet the needs of current and future generations, it is commercially vital for us to have a sustain- able supply of materials and stable sourcing markets where people work in good conditions. With our size we can create large-scale demand for sustainable materials and renewable electricity, we can stimulate innovation for a circular use of resources and we can drive structural changes in the fashion industry. If we can also lead the way in diversity and transparency, we believe that it will create loyalty among both employees and customers – which in turn builds an even stronger company. A new year has begun. How do you see the future and 2017? – I am optimistic about the future. We have fantastically capable, committed employees and we have a corporate culture that allows us to keep developing and that has been our formula for success since the start. In 2017 we are looking forward to delivering strong collec- tions and customer experiences, and also to launching one or two new brands. All this, combined with the improvements that we are work- ing on and our investments in the omni-channel offering, the supply chain and advanced analytics, makes us positive towards our oppor- tunities for reaching our newly rephrased growth target, both in 2017 and going forward. Karl-Johan Persson, CEO H & M Hennes & Mauritz AB Colleagues at H&M, Shanghai. H&M, Barcelona. H&M’s online store. 16 2016 I N BR I E F JANUARY H&M MOVES UP THE INDEX OF THE WORLD’s MOST SUSTAINABLE CORPORATIONS H&M climbed to 20th from 75th place in research company Corporate Knights’ annual index of the Global 100 Most Sustainable Corporations in the World. H&M was also the only speciality retailer to be ranked in the prestigious index. FEBRUARY COS CONTINUES TO EXPAND The first COS store in the Czech Republic opened at Parizska 23 in Prague and was very well received. Later in the year Romania and Latvia also became new COS markets, mak- ing a total of 33 markets. Highlights of the year 2016 was yet another eventful year for the H&M group, with stores opening in fantastic locations around the world and several new online markets. It was also a year of inspiring partnerships and exciting innovations on the way to the fashion of the future. COS A/W 2016. GLOBAL CHANGE AWARD Textiles from citrus juice by-products, polyester-recycling microbes and an online marketplace for textile leftovers were three of the five innovations to win the Global Change Award 2015. The annual competition started by the H&M Foundation aims to spur innovations to close the loop for fashion. At an award ceremony in Stockholm in 2016 the winners shared EUR 1 million, along with access to an innovation accelerator run by the H&M Foundation, Accenture and KTH Royal Institute of Technology in Stockholm. 17 2016 I N BR I E F APRIL ARTISTIC PIECES IN SUSTAINABLE MATERIALS Conscious Exclusive is a recurring H&M col- lection of glamorous, well thought-out pieces in innovative, sustainable materials. In spring 2016 H&M collaborated with Musée des Arts Décoratifs in Paris, drawing inspiration from its collections for artistically sophisticated MARCH H&M STUDIO SHOWS DIVERSITY IN PARIS H&M’s show at Paris Fashion Week breathed feminine strength and individuality. Amber Valletta, Ashley Graham, Soo Joo Park, Hari Nef and others modelled the Studio A/W 2016 collection to more than 600 guests at the historic Bourse de Commerce, with a global audience watching live at studio.hm.com. MAY UNIQUE H&M DESIGNS AT THE MET GALA For the second year running H&M’s design team created pieces for celebrities attending the Metropolitan Museum of Art Costume Institute Benefit in New York. Inspired by the theme of this year’s exhibition “Manus x Machina: Fashion in an Age of Technology”, the design team at H&M used handcrafted traditions and cutting-edge techniques and materials to create individual looks. garments in materials such as organic silk, recycled linen and Tencel®. Accessories included earrings made of Denimite, a hard material made from recycled denim. The collection was launched to coincide with the opening of the museum’s exhibition “Fashion Forward – 300 Years of Fashion”. H&M and WWF. H&M Conscious Exclusive. H&M Studio A/W 2016. TRANSPARENCY INDEX GIVES H&M TOP RATING H&M sees transparency and traceability as important tools in the development towards a more sustainable textile industry. The Fash- ion Transparency Index placed H&M among the top three when ranking how open the world’s 40 largest fashion corporations are with their production. The index was created by Ethical Consumer and Fashion Revolution. WWF AND H&M IN GLOBAL PARTNERSHIP H&M and WWF World Wide Fund for Nature began a five-year global partnership that builds on an earlier three-year partnership on water stewardship. The new partner- ship includes climate action and strategic dialogue on sustainability challenges in the fashion industry, such as circularity and future materials. NEW LIFE FOR OLD CLOTHES Since 2013 H&M stores all over the world have collected old clothing for reuse and recycling. To encourage even more people to use resources responsibly, H&M organised World Recycle Week. Customers around the world brought in 1,100 tonnes of clothing in a single week. The initiative was part of H&M’s longer-term goal to close the loop for fashion. STORE NO. 4,000 H&M is expanding rapidly and reaching customers around the world. In April another milestone was passed as the group’s store no. 4,000 opened in Noida, India – one of H&M’s 64 markets. H&M ONLINE IN 11 NEW MARKETS In 2016 H&M’s online store opened in 11 new markets – Slovenia, Croatia, Estonia, Latvia, Lithuania, Luxembourg and Ireland in March, Japan and Greece in April, and Canada and South Korea in October. At the end of the year customers in 35 markets could shop online at H&M. H&M in Noida, India. 20 OU R BR A N DS Fashion for all With several brands and concepts, the H&M group offers a wide and varied range of inspiring fashion. The collections include everything from the latest trends to timeless classics, so that customers all over the world can dress their own personal style. The H&M group offers fashion from the brands H&M, & Other Stories, COS, Monki, Weekday and Cheap Monday, as well as homeware from H&M Home. All the brands are clearly defined with their own unique identity and complement each other well. They all share the same pas- sion for fashion and the ambition to dress customers in a sustainable way. Together, the H&M group brands offer a wide variety of styles at vari- ous price points. The collections have everything from the latest trends to timeless classics. All the brands strive to give customers the best value for money. The customer offering is for anyone who loves fashion, wherever they are in the world. H&M has stores on six continents, while Monki, COS, & Other Stories, Weekday and Cheap Monday are also interna- tionally established brands. All have their own stores and offer online shopping in a large number of markets. Read more about H&M and some of its many different concepts on pages 22 –27, followed by H&M Home on page 28. & Other Stories, Cheap Monday, COS, Monki and Weekday are presented on pages 30–35. 21 OU R BR A N DS 22 OU R BR A N DS – H& M H&M’s business concept is to offer fashion and quality at the best price in a sustain- able way. Stores around the world and online offer fashion fans everything from the latest trends to lasting classics that can be worn season after season. With collections for women, men, teenagers, children and babies, H&M’s product range also includes sportswear, underwear, cosmetics, accessories and shoes, as well as homeware from H&M Home. H&M is constantly inspired by the diversity of its customers. With a global customer base, influences come from every corner of the world. Anything from travel, films and art exhibitions to trend seminars, fashion shows and street style can give rise to new ideas. This diversity is reflected in the creative process. Designers, buyers and pattern makers are some of the many roles working together to create new collections. Everyone on the team is equally important. Colleagues with different knowledge, backgrounds and experience can all contribute their own ideas and fresh perspectives. 3,962 stores 64 store markets 35 online markets hm.com 25 OU R BR A N DS – H& M KIDS Charming new styles and playful favourites for children of all ages – with a focus on function, safety and quality. MEN Everything for the modern man’s wardrobe – from tailored suits and the key pieces of the season to casual everyday wear. DIVIDED The latest fashion, where urban street style meets romantic influences – for a personal look with extra attitude. 26 OU R BR A N DS – H& M DENIM Jeans are a key item in the fashion wardrobe. A wide range of different styles and washes make it easy to find the perfect denim look – for him or her, and for all ages. UNDERWEAR The women’s range offers everything from bras, briefs, bodies and shapewear in the season’s latest colours and pat- terns to favourite basics in soft cotton. The men’s selection includes a wide range of shorts and briefs, socks and loungewear. SPORT Sports collections for women, men and children. Smart pieces in quick-drying materials provide the perfect combination of fashion and function. The collections include wear and accessories for a number of activities – from running to yoga and training outdoors as well as at the gym. 27 OU R BR A N DS – H& M BEAUTY H&M’s wide-ranging, high quality beauty concept was launched in 2015 and now forms a natural part of H&M’s fashion offering. H&M Beauty has make-up in all the colours of the season as well as hair styling, body care and make-up accessories. The variation in the product range lets cust- omers highlight their own personal style. No products are tested on animals, and as a minimum all the products meet the requirements in the laws and regulations of each sales market. The range also includes a Conscious line of products that are made using organic ingredients certified by Ecocert. ACCESSORIES Bags, jewellery, scarves, hats and belts – in the finest leather and natural materials or in the season’s latest colours and designs. SHOES A wide range covering everything from timeless designs and great everyday favourites to sporty trainers, high boots and open sandals. OU R BR A N DS – & O T H E R ST OR I E S 30 & OTHER STORIES offers a wide range of shoes, bags, jewellery, beauty products, stationery and ready-to-wear, providing all the makings of a great look. The range extends from masculine tailoring to feminine chic and offers endless styling choices. Ateliers in Paris, Stockholm and Los Angeles create fashion, beauty and stationery collections with great attention to detail and quality, and always at a good price. Successfully launched in 2013, & Other Stories has a multitude of stores across Europe and the US along with an online store at stories.com, and during spring 2017 the brand is launching in Asia and the Middle East. 45 stores 11 store markets 14 online markets stories.com OU R BR A N DS – C H E A P MON DAY 31 CHEAP MONDAY is a Swedish jeanswear brand founded in Stockholm in 2004 and has been part of the H&M group since 2008. The brand creates bold and modern collec- tions for men and women at a great price and mixes influences from street fashion and youth subcultures. Cheap Monday is primarily sold via selected retailers around the world, through its website cheapmonday.com and its icon store located at 39 Carnaby Street, London. 2,000 retailers in more than 35 markets 18 online markets cheapmonday.com OU R BR A N DS – C OS 32 COS is a fashion brand offering reinvented classics and wardrobe essentials for women, men and children. Made to be worn beyond the season, COS collections merge lasting quality with timeless design; clean silhouettes, innovative techniques and functional details. Based in London, COS opened its first store on Regent Street in 2007. The brand is now available in select locations across Europe, Asia, North America, the Middle East and Australia. Committed to supporting the world of art and design through collaboration, COS partners with established and emerging artists, studios and galleries all over the world, creating unique brand projects alongside the seasonal fashion collections. In 2016, COS collaborated with the Solomon R. Guggenheim Museum in New York to support the new Agnes Martin retrospective, and also created a limited-edition capsule collec- tion for women and men, inspired by the artist’s work. 194 stores 33 store markets 19 online markets cosstores.com OU R BR A N DS – W E E K DAY 35 28 stores 7 store markets 18 online markets weekday.com WEEKDAY is a modern and mindful fashion and denim brand offering international current fashion, influenced by Scandinavian style, for women and men always at great prices. Weekday has a clear and strong sense of its own style and identity that balances between femininity and masculinity. Weekday is a brand, full of contrasts, for conscious and style-aware young adults. Independently founded in Stockholm, Sweden in 2002, Weekday has been part of the H&M group since 2008. Today there are 28 Weekday stores throughout Europe as well as an online store, weekday.com. 36 SUSTA I NA BL E DE V E L OPM E N T Fashion as a force for change The H&M group wants to use its size and position to create long-term, positive change for people and the environment throughout the value chain. The vision is to lead the change towards a circular, fair and equal fashion industry. Monki. 37 SUSTA I NA BL E DE V E L OPM E N T The world is growing, and the planet, with its finite resources, must provide for an ever larger population. The UN estimates that by 2050 there will be 9.7 billion people in the world, and also predicts a rapidly growing middle class. Satisfying the needs of current and future generations in a sustainable way demands new ways of making and consuming products. A shift is needed to a circular approach in which discarded products are no longer seen as waste but instead are recycled as valuable assets, and where growth is decoupled from the use of natural resources. The H&M group wants to make it affordable for as many people as possible to express their own style through clothes that they like and that are also sustainable. To achieve this also in the long term, a new sustainability strategy has been drawn up with the vision of leading the change towards a sustainable fashion industry based on a fully circular approach and using only renewable energy. The vision also includes working to achieve a fair, equal workplace both within the H&M group and among suppliers, and contributing to good communities based on diversity and inclusion. The new strategy builds on the group’s sustainability work over many years – already a strong programme – and has been developed with help from external experts, innovators and other stakeholders. Setting a good example, paving the way for new solutions, stimulating innovation and transparency and having a positive impact on people’s lives are all important parts of the new sustainability strategy. Thanks to its size, the H&M group has a unique reach and opportunity to drive structural changes towards increased sustainability across the entire fashion industry. Through the strategy the H&M group will set long- term goals in line with scientific methods, in close cooperation with stakeholders within various areas. THE UN’s SUSTAINABLE DEVELOPMENT GOALS The reason that sustainability is so important to the H&M group is because of the company’s long-term focus and its values-driven way of working. Commercially, it is vital for the company’s future to have a sus- tainable supply of materials and stable sourcing markets where people work under good conditions. Showing the way on the basis of human rights, diversity and participation creates loyalty among both employees and customers, which in turn builds an even stronger company. A starting point for the H&M group is that the business must contribute to the UN’s sustainable development goals. In 2015 the UN’s 193 member countries unanimously adopted 17 global sustain- able development goals that are to be achieved by 2030. Ending poverty and hunger, creating decent work and economic growth, achieving equality and combating climate change are all goals that form part of Agenda 2030. All the goals are integrated with each other to achieve development that is socially, environmentally and economically sustainable. TRADE FIGHTS POVERTY Achieving these goals depends on sustainable growth. The UN estimates that 600 million more jobs will be needed in the world by 2030. As a buyer and seller in many markets, the H&M group helps provide employment which lifts people and nations out of poverty. The jobs are created largely in the textile industry in Asia, where much of the company’s sourcing takes place. Production is outsourced to independent suppliers and, with a strong local presence, the H&M group works for good and secure jobs to be created at these suppliers. The majority of the suppliers’ employees are women. For many women this is their first job that provides an income, and so is a first step to more independence. In Cambodia, the World Bank says that the textile industry has helped bring about higher wages for women. The World Bank has also found that in Bangladesh, the export-led growth in the textile industry is the main contributory factor to poverty having been halved in the country since 1990. In a number of countries it can be seen that over time, jobs in the textile industry lead to further progress – resulting in increased productivity, a higher level of knowledge, greater specialisation and higher wages. The presence of long-term, responsible buyers – which are in turn driven by demand from increasingly aware consumers – is therefore vital to the future of these countries. GOOD COLLABORATION BASED ON TRANSPARENCY Progress has been made in the textile industry on a number of social and environmental issues, but as in other industries many challenges remain. To tackle complex sustainability issues systematically, more organisations need to work together. Only through collaboration can long-term changes be achieved, such as fair living wages and the circular use of resources. The H&M group therefore collaborates with others including trade unions, academics and scientists, the ILO, Sida, WWF and the Ellen MacArthur Foundation, as well as with other companies in the industry and with the H&M Foundation. Another important focus area is openness and transparency. Increased traceability is important in enabling customers to make sustainable choices. In 2013 the H&M group was one of the first fashion companies in the world to publish its supplier list, on hm.com. The company is also a member of the Sustainable Apparel Coalition – an organisation that, among other things, is developing the Higg Index, an assessment tool that measures both social and environ- mental sustainability. The goal is to make the Higg Index an industry standard and to use it for labelling clothing and footwear. SYSTEMATIC AND TARGETED WORK Sustainability is an integral part of the H&M group’s business, and to be able to drive long-term change throughout the value chain it is important that all the company’s functions are pulling in the same direction. Each function and sales country sets its own measurable sustainability goals and activities, based on the strategic direction set by the company’s global sustainability department. In addition to supporting the other functions, the sustainability department has 25 experts who establish strategies, targets, key indicators, policies and follow-up procedures to ensure that the sus- tainability work is carried out systematically and leads forward. In the sales markets and in other functions around 50 employees focus primarily on sustainability. In the sourcing markets there are 145 employees whose job it is to ensure that suppliers live up to the com- pany’s requirements of good social and environmental conditions, and to support the suppliers through various programmes and pro- jects as they develop towards improved sustainability. SUSTAINABLE LEADERSHIP WITH LONG-TERM GOVERNANCE The H&M group’s head of sustainability is a member of the executive management, reporting directly to the CEO. The company’s board of directors discusses and addresses sustainability matters actively and regularly as part of the long-term governance of the company. “ More transparency is needed so that customers can make sustainable choices. ” 40 SUSTA I NA BL E DE V E L OPM E N T The H&M group’s business impacts many people and communities around the world. For sustainable development it is positive that much-needed jobs are created, and equally important that everyone who works for the company’s suppliers does so under good and secure conditions. The requirements that the company makes of its partners are based on internationally adopted standards such as the UN’s Universal Declaration of Human Rights, the ILO conventions and legislation in the individual countries. All the H&M group’s suppliers commit to fulfilling the social and environmental requirements that are regu- lated in the company’s strict code of conduct, known as the Sustainability Commitment. The H&M group has production offices mainly in Asia and Europe that handle everything from order processing through quality and chemicals checks to making visits to suppliers – both announced and unannounced – to monitor compliance with the company’s sustainability requirements. Good, long-term business relationships are of great importance for bringing about lasting improvements. The H&M group therefore supports the suppliers in their own develop- ment towards improved sustainability. Collaboration for good working conditions Visit hm.com for the H&M group’s full Sustainability Report, which is based on the GRI Standards issued by the Global Reporting Initiative (GRI) and is also reported in accordance with the UN Guiding Principles Reporting Framework (UNGP RF). The code of conduct (Sustain- ability Commitment), supplier list, policies and Code of Ethics can also be found here. Well-functioning dialogue between the parties in the labour market is an important precondition for achieving long-lasting improvements in working conditions, includ- ing fair living wages. Achieving structural changes in countries that do not have a his- tory of good labour market dialogue is a major challenge for the industry, and an issue that the H&M group is driving as a priority. The company is dependent on access to stable sourcing markets in countries that are able to develop their industries in a sustainable way. FAIR LIVING WAGES Various partnerships conduct wide-ranging, active work to promote a textile industry in which all workers are able to organise and have their voices heard, where wages are revised regularly, where there are good rela- tions between trade unions and employers, and where collective bargaining takes place. H&M’s global framework agreement with the trade unions IndustriALL and IF Metall is one example of this. The framework agree- ment has proved to be successful and has helped resolve various conflicts in factories, such as in Myanmar. It was therefore made permanent in 2016. At factory level, the H&M group works for fair living wages through what is known as the Fair Wage method and through training in social dialogue. Good progress has been made, and to date 140 factories are included in the Fair Wage method and 290 factories in social dialogue training, in a total of eight countries including China and Bangladesh. Equally important is genuine commitment by governments, not least because it is the governments that are ultimately responsible for setting the legal frameworks and ensur- ing that minimum wages are set and revised annually. Thanks to the H&M group’s size and active presence, CEO Karl-Johan Persson and the company’s local representatives have had opportunity to meet government officials to discuss these matters. This dialogue will continue. “ Fair living wages require well- functioning dialogue between the parties of the labour market. ” At supplier in Bandung, Indonesia. Manufacturing at supplier in Hangzhou in China. Supplier employee in Suzhou in China. 41 SUSTA I NA BL E DE V E L OPM E N T Goals and key indicators The H&M group engages in systematic, targeted sustainability work throughout the value chain. The results are reported in detail in the company’s annual sustainability report. Below are seven selected key indicators showing developments in some important areas. * Historical material data has been updated as a result of improved calculation methods. GOAL By 2020 all cotton in the product range is to come from sustainable sources – in other words organic cotton, recycled cotton or cotton grown under the Better Cotton Initiative. GOAL By 2020 the H&M group’s global garment collecting is to bring in at least 25,000 tonnes of textiles per year for reuse and recycling. RESULT The H&M group has increased the share of cotton from sustainable sources from around 13 percent* in 2012 to 43 percent in 2016. RESULT In 2016 customers brought in 15,888 tonnes of textiles. GOAL Reduce total emissions of greenhouse gases from own operations in absolute terms, despite the H&M group’s continued expansion. RESULT In 2016 emissions fell by 47 percent to 80,541 tonnes, from 151,753 tonnes the previous year. Since 2014 greenhouse gas emissions have been cut by 76 percent, mainly thanks to the switch to renewable electricity. GOAL 100 percent of all electricity used in the group’s own operations is to come from renewable sources. RESULT 96 percent of all electricity used in the group came from renewable sources in 2016. GOAL Reduce energy consumption per square metre in the H&M group’s stores by a total of 20 per- cent by 2020, as compared with 2007. The goal will be revised and enhanced in 2017, when further emphasis will be placed on this area. RESULT Electricity consumption in the stores decreased by 8 percent between 2007 and 2016. The first six indicators on this page (page 41) have been generally reviewed by the company’s auditors. For the auditor review statement see the company’s sustainability report for 2016. GOAL To discover all violations of the Code of Ethics. RESULT In 2016 a total of 39 suspected violations of the Code of Ethics were investigated. These investiga- tions led to action being taken in 26 cases. The action taken involved both employees and suppliers. 96% renewable electricity. 13% 16% 22% 34% 43% FAIR WORKING CONDITIONS ANTI-CORRUPTION REDUCE ENERGY USE RENEWABLE ELECTRICITY REDUCE EMISSIONS OF GREENHOUSE GASES A CLOSED LOOP FOR TEXTILE FIBRES MORE SUSTAINABLE COTTON GOAL Long-lasting improvements in working condi- tions at the supplier stage, including fair living wages, require well-functioning dialogue between the parties of the labour market. With RESULT In 2016 a total of 290 factories were included in social dialogue training and 140 factories had implemented the Fair Wage method. the aim of achieving long-term change, one of the ways that the H&M group works is at fac- tory level – through training in social dialogue and implementation of the Fair Wage method. 2013 2015 20162012 2014 2013 2015 20162012 2014 OU R E M PL OY E E S 42 Diversity creates positive energy Committed employees are key to the H&M group’s success. Shared values create an open and inclusive workplace where colleagues from all over the world can grow and develop together. Employees behind the scenes during the 2016 production of the H&M group’s corporate values film. 45 OU R E M PL OY E E S Visit about.hm.com to read more about what it is like to work and make a career within the H&M group and about the benefits offered. One example is the H&M Incentive Program for all employees within the H&M group which rewards and encourages long-term com- mitment to the company. Information can be found at career.hm.com about different professional roles and career opportunities at H&M. More about work- ing at COS, & Other Stories, Weekday, Monki and Cheap Monday can be found on each brand’s website. Thirty years of fashion & Other Stories Join Kicki Algotsson, store manager at & Other Stories, on her career journey through the years of fashion. Kicki Algotsson’s story within the H&M group begins in the early 1980s. Style icons such as Madonna, Brooke Shields and Cindy Craw- ford inspired the teenager from the northern Swedish town of Skellefteå. “I was fashion- conscious even back then, flicking through fashion magazines and dreaming about all the gorgeous clothes.” Today, Kicki has a well-filled fashion wardrobe. “I have lots of great pieces, but I wear them to work all the time. So when I’m going to a party, I don’t have anything to wear and I have to buy something new!” As a new store manager at & Other Stories she has every opportunity. “I really like the concept of & Other Stories where every woman can create her own style, her own story.” Since autumn 2016 she has been respon- sible for the & Other Stories store in the Mall of Scandinavia outside Stockholm. For the whole of her career Kicki has worked in the H&M group. Her very first day at what is today a global fashion company was in 1984. It was the pre-Christmas rush and the place was the H&M store in Skellefteå. “My friend’s mum worked at H&M and I got to help out as a trainee, packing garments. That was how it all started.” As time went on Kicki was offered a permanent position. “I was a sales advisor and clearly the youngest. The ‘older ladies’ in the shop showed me how to do the job. They knew how to provide great service and taught me everything from pinning up trousers in the fitting rooms to making the store look neat and tidy.” The year was 1987, the ‘older ladies’ were younger than Kicki is today, and H&M had celebrated its 40th birthday and was in six countries with a total of 188 stores. When the global expan- sion picked up real speed in the following years, Kicki longed for new challenges. She had already gained experience of different roles in the store, and had been involved in training and recruiting employees around Sweden. Now the world was waiting. Phila- delphia, Washington, Athens and Istanbul are just some of the places where Kicki went to support new store openings. In 2011 it was time for the next step. “I got the chance to become a store manager for the first time, and took it.” The new role meant moving to Sundsvall and the H&M store at the Birsta City mall. “I’m no economist and I haven’t been to university, but I’ve always been interested in sales. And as a leader you are never alone. It’s always together with the others in the team that you reach success.” During her career Kicki has grown together with the H&M group, which today has over 4,300 stores in 64 markets. The company has several unique, independent fashion brands, and & Other Stories is the newest. “When the role of managing the store in Mall of Scandinavia came up, I was immediately interested. With & Other Stories it feels like being part of something brand new again – we’re in a development phase and buzzing with creativity. At our studio in Kungsholmen in Stockholm, I was struck by how much innovation and creative thought there can be in one place.” What Kicki finds most rewarding in her role is creating an inspiring environment for the customers. “It’s about always seeing the little things, having an eye for detail. Like when we have presented a story in a nice new way, and we see the garments lift from the shelves. I love that feeling.” “ It’s always together with your colleagues in the team that you reach success. ” Kicki Algotsson, & Other Stories. E X PA NSION Inspiring shopping in stores and online The H&M group is reaching increasingly more customers in both new and existing markets. The expansion encompasses all our fashion brands and is taking place through new stores as well as online. & Other Stories, Utrecht. 46 E X PA NSION 47 The H&M group continues to expand at a fast pace and is currently present in 64 markets around the world. With more than 4,300 stores and brands H&M, COS, & Other Stories, Monki, Weekday and Cheap Monday as well as H&M Home, the H&M group is one of the world’s leading fashion companies. In the 2016 financial year three new, exciting H&M markets were added: Puerto Rico, Cyprus and New Zealand. At the same time, rollout of e-commerce continued, with H&M’s online store now being available in 35 markets in Europe, North America and Asia. Including all company brands the H&M group opened more than one store a day – adding 427 new stores net during the year. Together the stores and e-commerce create a strong global pres- ence. The brands of the H&M group are for everyone who likes fashion, and diversity among the group’s customers is great. A broad and varied fashion range enables new stores to be established just as successfully in the world’s biggest fashion metropolises as in small and mid-sized cities. The majority of the expansion is taking place in existing mar- kets. During the year, the H&M group opened its 4,000th store in the world – in the Indian city of Noida. This means the number of stores has doubled in just six years, as store number 2,000 opened in Japan in 2010. In 2016 Asia’s biggest H&M store to date opened in Taipei in Taiwan, where it was very well received by customers. THREE NEW H&M MARKETS The year’s new markets also enjoyed a very good reception. In October H&M’s first store in New Zealand opened at the Sylvia Park Shopping Centre in Auckland. The store was much awaited, with more than 1,000 customers lining up for the store to open. The two other new H&M markets, Puerto Rico and Cyprus, also attracted great interest, with crowds gathering ahead of openings both in The Mall of San Juan and on Ledra Street in Nicosia. GROWING WITH SEVERAL FASHION BRANDS The H&M group started in 1947 with a single ladieswear shop, Hennes, in the Swedish city of Västerås and has since grown to become a global fashion company, today encompassing several brands, each with its own unique identity. COS was launched in 2007, while Monki, Weekday and Cheap Monday were acquired in 2008 and & Other Stories opened its first stores in 2013. In 2016 COS opened 41 new stores and expanded into the Czech Republic, Romania and Latvia. COS is a globally established fashion brand that now has 194 stores in 33 markets. For & Other Stories expansion was rapid, too. With the opening of 15 new stores and Poland as a new store market, at the end of the year & Other Stories had 45 stores in 11 markets. Monki opened 12 stores net, one of which opened on Mariahilfer Strasse 52 in Vienna, making it the first Monki store in Austria. Weekday also opened its first store in Austria during 2016, as well as its first store in Belgium. Weekday increased its num- ber of stores from 20 to 28 during the year. H&M Home is also continuing to expand, and during the year many new H&M Home departments were opened selling inspiring and mod- ern homeware. At the end of the year, H&M Home could be found in a total of 269 H&M stores in more than 40 markets. H&M, Taipei. “ In 2016 we opened 427 new stores net and rolled out H&M’s online store to 11 new markets. ” H&M, Marseille. 50 E X PA NSION “ The digital and physical shopping experiences become increasingly integrated. ” CONTINUED STRONG EXPANSION – REPHRASED GROWTH TARGET In the light of the development phase that the industry and the H&M group are going through with an ever growing online market and digitalisation, it is natural to rephrase the company’s previous growth target. This means that the previous target of increasing the number of stores by 10–15 percent per year will instead become a sales target that includes both stores and online sales. The new growth target which applies for 2017 and going forward is that the H&M group’s sales shall increase by 10–15 percent in local currencies per year with continued high profitability. NEW STORES AND MARKETS FOR 2017 A strong store portfolio gives the H&M group a unique proximity to its customers. Being close to the customers is becoming even more important as the physical and the digital shopping experiences become increasingly integrated. In each market there should be an optimal mix of brands, space and number of stores. In 2017 the H&M group plans to open approximately 430 new stores net and enter five new markets – Kazakhstan, Colombia, Iceland, Vietnam and Georgia. Six new online markets are planned: Turkey, Taiwan, Hong Kong, Macau, Singapore and Malaysia. Most of the new stores in 2017 will be H&M stores and approxi- mately 70 to 80 stores will consist of the other brands in the group. H&M Home will also continue its rapid expansion, with approxi- mately 50 new H&M Home departments planned for 2017. & Other Stories, Bordeaux. Weekday, Antwerp. Monki, Vienna. M A RI A K RA SA EXPANSION Pee, coa,oane epee ee eee . . DSO we eee | Fer cE E 2 2 2 2-2 = 2 2 eee eee ee ee SS Sa oeceneeceseesarce =e BEBE BEBEBeBEEE eee eee eee ee eee eee Pe Pee e eee PRE RRR E EEE i ee hrPeneeeooer! — eee eee keer! oe eee rr eeee SSR RSeR OPER R REE EERE bebeeE SEE! ome PAUP PT eReeeeerveve Pr RA! OP REP eee FeSFTee ee ree renrerreti errr > serene VORP eeeeeeeeeerrrnnet eeerr © wean (PEPER eeeeeeeerrrnneaeaee VU beeen SOG SSRSBRRSRPRRRPPEERCRPEEE PFE RP CPPPPPER COS, Miami 51 M A R K ET OV E RV I E W 52 Market overview With several fashion brands, a total of 4,351 stores in 64 markets and e-commerce in a large number of countries the H&M group has a strong global position. In 2016 sales including VAT totalled SEK 223 billion. MARKET SALES 2016 INCL VAT (SEK M) SALES 2015 INCL VAT (SEK M) NEW STORES (NET) DURING YEAR NUMBER OF STORES 30 NOV 2016 Germany* 37,174 36,943 10 459 USA* 26,874 25,135 53 468 United Kingdom* 15,058 16,001 17 281 France* 13,559 13,579 16 238 China* 10,842 10,559 91 444 Sweden* 10,151 9,495 0 176 Italy* 9,081 8,644 16 166 Netherlands* 7,898 7,521 6 145 Spain* 7,894 7,736 4 169 Switzerland* 6,328 6,844 2 98 Norway* 5,926 5,806 7 127 Denmark* 5,682 5,413 -1 102 Austria* 5,557 5,361 5 83 Poland* 4,701 4,356 12 166 Japan* 4,600 3,754 9 66 Belgium* 4,404 4,215 5 90 Canada* 4,330 3,918 7 85 Russia* 4,304 3,460 17 113 Finland* 2,866 2,805 1 61 Turkey 2,816 2,193 16 62 Romania* 2,102 1,796 10 52 Australia 1,999 1,133 12 22 Hong Kong 1,919 1,870 3 28 Greece* 1,891 1,637 3 35 South Korea* 1,675 1,277 4 35 Hungary* 1,590 1,336 2 42 MARKET SALES 2016 INCL VAT (SEK M) SALES 2015 INCL VAT (SEK M) NEW STORES (NET) DURING YEAR NUMBER OF STORES 30 NOV 2016 Mexico 1,561 1,097 9 25 Czech Republic* 1,428 1,207 4 48 Portugal* 1,272 1,276 1 31 Malaysia 1,130 973 6 35 Chile 1,129 573 0 4 Ireland* 1,103 1,026 0 23 Singapore 1,030 970 1 13 Philippines 869 557 9 21 Croatia* 846 817 0 15 Slovakia* 681 579 1 19 Taiwan 665 332 4 10 South Africa 645 98 6 8 Bulgaria* 641 511 1 19 India 606 77 10 12 Slovenia* 542 529 0 12 Peru 510 261 4 6 Luxembourg* 464 433 0 10 Estonia* 377 312 2 8 Serbia 369 318 3 9 Latvia* 332 309 2 8 Lithuania* 317 296 1 8 Macau 166 89 0 2 Puerto Rico* 63 2 2 New Zealand 55 1 1 Cyprus 35 1 1 Franchise** 4,808 4,494 32 188 TOTAL 222,865 209,921 427 4,351 *) Market with e-commerce. **) United Arab Emirates, Kuwait, Qatar, Saudi Arabia, Egypt, Bahrain, Oman, Lebanon, Israel, Morocco, Jordan, Thailand and Indonesia. The H&M share KEY RATIOS PER SHARE 2016 2015 2014 2013 2012 Shareholders’ equity per share, SEK 37.00 35.07 31.15 27.34 26.49 Earnings per share, SEK 11.26 12.63 12.07 10.36 10.19 Change from previous year, % -11 +5 +17 +2 +7 Dividend per share, SEK 9.75* 9.75 9.75 9.50 9.50 Share price on 30 November, SEK 267.90 323.50 319.40 278.00 215.90 P/E Ratio 24 26 26 27 21 * Proposed by the board. DISTRIBUTION OF SHARES, 30 NOVEMBER 2016 SHAREHOLDING NO. OF SHAREHOLDERS % NO. OF SHARES % AVERAGE SHARES PER SHAREHOLDER 1–500 214,779 80.0 28,630,420 1.7 133 501–1,000 25,460 9.5 20,171,489 1.2 792 1,001–5,000 22,317 8.3 49,149,981 3.0 2,202 5,001–10,000 2,651 1.0 19,288,434 1.2 7,276 10,001–15,000 854 0.3 10,715,066 0.6 12,547 15,001–20,000 457 0.2 8,072,415 0.5 17,664 20,001– 1,772 0.7 1,519,044,195 91.8 857,248 Total 268,290 100.0 1,655,072,000 100.0 6,169 MAJOR SHAREHOLDERS, 30 NOVEMBER 2016 NO. OF SHARES % OF VOTING RIGHTS % OF TOTAL SHARES The Stefan Persson family and related companies 636,849,332 70.1 38.5 The Lottie Tham family and related companies 88,580,400 2.6 5.4 Alecta Pensionsförsäkring 51,008,000 1.5 3.1 Swedbank Robur Fonder 38,819,761 1.1 2.3 AMF – Försäkring och Fonder 27,722,075 0.8 1.7 Clearstream Banking S.A. 27,618,452 0.8 1.7 State Street Bank and Trust 22,346,915 0.7 1.4 SEB investment management 19,537,189 0.6 1.2 JPm Chase 18,202,601 0.5 1.1 Handelsbanken fonder 17,745,566 0.5 1.1 2015 Jan 1, 2017201320112009Jan 1, 2007 0 100 200 300 400 SOURCE CISION/MILLISTREAM Development of the H&M share price in SEK over the past 10 years. For more information see the investor relations section at hm.com. 55 T H E H& m SH A R E Corporate governance report 2016 H & M Hennes & Mauritz AB H & M Hennes & Mauritz AB is a Swedish public limited company. H&M’s class B share is listed on Nasdaq Stockholm. H&M applies the Swedish Corporate Governance Code (the Code) and has therefore prepared this corporate governance report in accordance with the Annual Accounts Act and the Code. H&M has applied the Code since 2005. The report was prepared by the company’s board of directors and has been reviewed by the company’s auditors. The H&m group is governed by both external regulations and internal control documents. Examples of external regulations that affect H&M: – Swedish Companies Act – Accounting legislation including the Swedish Bookkeeping Act and Annual Accounts Act – Eu market Abuse Regulation (596/2014 /Eu) – Nasdaq Stockholm Rules for issuers – Swedish Corporate Governance Code (the Code), which is available at corporategovernanceboard.se. 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 expla- nation of the deviation, describe the chosen alternative and provide the reasons for the deviation. Examples of internal control documents: – Articles of association – The board’s work plan including instructions for the CEO and auditing committee – The H&m Way – Code of Ethics – Code of Conduct: Sustainability Commitment (formerly Code of Conduct) – insider Policy – Financial Policy – Communications Policy – Human Rights Policy – Tax Policy – Whistleblowing Policy – Other policies, guidelines and manuals H&m’s corporate governance is governed by values, since it is based both on external regulations and on our values – which, in brief, can be described as a sound, simple, straightforward, cost-conscious, entrepreneurial corporate culture that focuses on teamwork, our belief in people and constant improvement. Sustainability work is well integrated into every part of the business and forms a natural part of our employees’ everyday life. Today, H&m is present in more than 60 retail markets and around 20 production countries. As a global company, it is of the utmost impor- tance that we always act ethically, transparently and responsibly at every stage – from doing business with our suppliers to meeting with customers. Through good purchasing routines and close cooperation with our suppliers, our products should always be produced with the greatest possible consideration for people and the environment. Our risk management and internal control work ensure that we work pur- posefully in every part of the organisation, and the board of directors and auditing committee receive regular feedback from the organisa- tion concerning how the internal control work is being conducted. Every year a thorough review is carried out of the company’s risks, both operational and financial, with well-defined action plans to mini mise risk. A long-term risk analysis is also performed, to provide supporting documentation for long-term commercial decisions. Responsibility for management and control is shared between the shareholders, board, auditing committee and CEO. The board’s work plan states how the work is to be distributed between the board, the auditing committee and the CEO, with the board having the ultimate responsibility for the company’s organisation and administration and the CEO taking care of the ongoing management of the business, with regular feedback to the board. The board of directors has eight members elected by the AGM, two employee representatives and two deputies for these. Overall, the board has 12 members – seven women and five men. The composition of the board is characterised by breadth and diversity, and the various competencies of the board members com- plement each other well, providing experience within areas such as retailing, entrepreneurship, fashion, digitalisation, sustainability and communication which forms a good basis for valuable discussions with the CEO and management. During the year the board held seven board meetings, including a statutory meeting in conjunction with the AGM. As in previous years, there was a very high level of attendance by board members. The CEO, CFO and chief accountant also attend all the meetings. Generally, one or two functions/departments are invited to each meeting to give a status presentation concerning what their particu- lar function is working on; for example, every six months the head of sustainability provides an update on the company’s sustainability work, making reference to key indicators and targets. These presen- tations act as a complement to the CEO’s status reports and provide opportunity for more in-depth discussions concerning specific areas of the operations. At each board meeting the chair of the auditing committee also gives an account of the matters addressed by the auditing committee at its most recent meeting within areas such as accounting, auditing, tax, internal control, risks, as well as various new regulations and legislation. Good and sound corporate governance ensures that companies are managed as sustainably, responsibly and efficiently as possible in the interests of the shareholders. It is a matter of complying with external regulations and doing the right thing. In the H&M group, our values and global policies and guidelines are important tools in our approach to the world around us. Our Code of Ethics, which is signed by all our employees who have business relationships and by all business partners, clearly states our approach to doing business. Acting consistently and with a strong ethical compass is of great importance, because we operate in many different markets that have different challenges and where the laws, environmental requirements and social conditions may differ. 56 C OR POR AT E G Ov E R NA NC E R E PORT 2016 H&m has chosen to have the corporate governance report as a separate document to the annual report in accordance with chapter 6 § 8 of the Swedish Annual Accounts Act. The information that must be provided under chapter 6 § 6 items 3–6 of the Annual Accounts Act is included in the administration report on page 75 of H&m’s annual report for 2016 and is therefore not included in this corporate governance report. In accordance with chapter 6 § 9 of the Annual Accounts Act, the company’s auditors have issued a statement on the corporate governance report that can be found on page 70. in 2016 H&m deviated from the Code on the following two points: 1.2 At H&M’s extraordinary general meeting on 8 March 2016 the board members present did not constitute a quorum, which was due to business trips and other commitments. The only material matter dealt with at the meeting was a motion to supplement the articles of association so as to allow general meetings also to be held in Solna. The chairman of the board was present at the meeting and was able to answer questions. In view of the nature of the matter, there was no possible adjustment of the proposed resolution, and for this reason the board members present were not required to constitute a quorum. 2.4 The fact that Stefan Persson, the chairman of the board, also chairs the nomination committee. The nomination committee is unanimous that, as the chairman of the board and the largest shareholder in H&m, Stefan Persson is the natural choice to chair H&M’s nomination committee. READ mORE about H&m’s corporate governance at about.hm.com/corporategovernance Among other things, you will find here: – Previous corporate governance reports – Articles of association – Information on the nomination committee, board of directors, CEO, auditors, auditing committee, guidelines and policies, etc. – Information and material from previous AGMs – Risks and uncertainties H&M’s corporate governance structure H&m’s corporate governance structure encompasses shareholders, the board of directors, the auditing committee, the CEO, the nomi- nation committee, auditors, the executive management team, brands, employees and employee organisations – see the illustration below. The illustration summarises H&m’s corporate governance struc- ture. H&M’s shareholders ultimately decide the company’s direc- tion, since the shareholders at the general meeting appoint the board of directors and the chairman of the board. Proposals for the composition of the board, board fees and the election of audi- tors are prepared previously within the nomination committee. The board in turn appoints the CEO to take care of day-to-day administration, and the CEO appoints members of the executive management team within H&M’s matrix organisation. The board includes two employee representatives and two deputies for these, who are appointed by their respective employee organisations. The board appoints an auditing committee from among its mem- bers, which deals with accounting and auditing matters on an ongoing basis and which is the main channel of communication between the board and the auditors. Each year the auditors report to the board and the annual general meeting on their scrutiny. REPORTS TO/PROViDES iNFORmATiON APPOiNTS/ELECTS/PROPOSES 1. SHAREHOLDERS and ANNuAL GENERAL MEETING 4. BOARD OF DiRECTORS 7. CEO mATRiX ORGANISATION – see page 64 3. AUDITORS 2. NOMINATION COmmiTTEE 5. AUDITING COmmiTTEE 6. EMPLOYEE ORGANISATIONS 8. BRANDS: H&m, COS, & Other Stories, monki, Weekday, Cheap monday, H&m Home 9. EXECUTIvE MANAGEMENT 57 C OR POR AT E G Ov E R NA NC E R E PORT 2016 financial reporting, investments and financing. The work plan, which also includes a work plan for the auditing committee, is updated when needed but is established at least once a year. Composition of H&M’s board and independence of its members The board members are elected by the shareholders at the annual general meeting for the period up until the next AGM. Since the 2016 AGM the board has consisted of eight ordinary members elected by the AGM and no deputies. There are also two employee representatives, with two deputies for these positions. The board is comprised of seven women and five men. Only the employee representatives are employed by the company. Since the 2016 AGM the board has comprised the following members elected by the meet- ing: Stefan Persson (chairman), Stina Bergfors, Anders Dahlvig, Lena Patriksson Keller, melker Schörling, Christian Sievert, Erica Wiking Häger and Niklas Zennström. Ingrid Godin and Margareta Welinder are the regular employee representatives, with Rita Hansson and Alexandra Rosenqvist as their deputies. For more facts about H&M’s board members, see pages 66–69. The board members are to devote the time and attention that their assignment for H&M requires. New board members receive introduc- tory training which, among other things, includes meetings with the heads of various functions. other members of the auditing committee, the executive management and other key individuals. The auditor also takes part in the AGM, reporting the conclusions drawn from the audit. Alongside its mandate as elected auditor, Ey has also carried out re lated tasks such as verification of the Sustainability Report. In addition, EY has assisted with other consulting services, primarily tax advice. EY has internal processes to ensure its independence before these tasks are begun. The auditing committee also has a pro- cess for approving non-auditing services in advance, before such assignments are begun. The auditing committee evaluates the auditor annually to gain assurance that the auditor’s objectivity and inde- pendence cannot be questioned. 4. BOARD OF DIRECTORS The task of the board of directors is to manage H&M’s affairs in the interests of the company and all its shareholders. This means that the board has the overall responsibility for H&M’s administration. This takes place in a long-term, sustainable way with a focus on the customer offering and growth. In addition to laws and recommendations, H&M’s board work is regu- lated by the board’s work plan, which contains rules on the distribu- tion of work between the board, its committees and the CEO and on COMPOSITION OF THE BOARD AND ATTENDANCE IN 2016 NAME YEAR ELECTED INDEPENDENT 1) INDEPENDENT 2) FEES (SEK) 3) BOARD MEETINGS 4) AUDITING COMMITTEE SHARE- HOLDING SHARES HELD BY RELATED PARTIES Stefan Persson, chairman 1979 No No 1,500,000 7/7 194,400,000 5) 406,049,043 6) Stina Bergfors 7) 2016 yes yes 4/4 1,000 3,000 8) Anders Dahlvig 2010 yes yes 675,000 7/7 4/4 17,510 Lottie Knutson 7) 2006 yes yes 550,000 3/3 1,400 Sussi Kvart 7) 1998 yes yes 675,000 3/3 1/1 4,400 1,700 Lena Patriksson Keller 2014 yes yes 550,000 7/7 1,200 9) and 9,450 9) melker Schörling 1998 yes yes 550,000 4/7 228,000 10) Christian Sievert 2010 yes No 11) 725,000 7/7 4/4 81,000 19,000 and 2,400 12) Erica Wiking Häger 7) 2016 yes yes 4/4 3/3 750 and 8513) Niklas Zennström 2014 yes yes 550,000 7/7 72,700 Ingrid Godin employee rep. 2012 7/7 60 margareta Welinder employee rep. 2007 6/7 Rita Hansson deputy employee rep. 2014 7/7 300 Alexandra Rosenqvist deputy employee rep. 2015 6/7 1) Independent of the company and company management in accordance with the Swedish Corporate Governance Code. 2) Independent of major shareholders in the company in accordance with the Swedish Corporate Governance Code. 3) Fees as resolved at the 2015 annual general meeting. This means that the fees related to the period until the next AGM, i.e. the period 29 April 2015 to 3 May 2016. The amounts were paid out after the 2016 AGM. 4) Attendance via technology is equated with attendance in person. 5) Class A shares owned through Ramsbury Invest AB. 6) Class B shares owned through Ramsbury Invest AB as of 30 January 2017. 7) Lottie Knutson and Sussi Kvart stepped down from the board at the annual general meeting on 3 May 2016, and consequently their shareholdings are stated as of that date. Stina Bergfors and Erica Wiking Häger were first elected to the board at the AGM. 8) Shares held by spouse. 9) 1,200 shares are owned through Lena Patriksson Keller’s private company Verdani Holding AB. 9,450 shares held by spouse. 10) Shares owned through Melker Schörling AB. 11) Christian Sievert is not considered independent of Ramsbury Invest AB since Ramsbury Invest AB is a major shareholder in a company of which Christian Sievert is CEO. 12) Shares held by related parties: 19,000 shares held through Christian Sievert’s company Whitechris Industri AB and 2,400 shares held by spouse and children. Additional information: in addition to Christian Sievert’s shareholding shown above, Christian Sievert holds 9,000 H&M shares via a pension plan. 13) 750 shares are owned through Erica Wiking Häger’s company Erica Wiking Häger Advokataktiebolag, and 85 shares are held by her spouse. There are no outstanding share or share price related incentive programmes for the board of directors. 60 C OR POR AT E G Ov E R NA NC E R E PORT 2016 erence to key indicators and targets, such as compliance with the Code of Conduct, sustainable material, climate impact, anti-corruption, etc. At each board meeting the chairman of the auditing committee reports to the board on what the auditing committee discussed at its latest meeting. This primarily concerns areas such as accounting, auditing, tax, internal control, risk, various new regulations and new legislation, etc. The overall risk assessment, involving the very largest risks – in both the short and the long term – is then also discussed at subsequent board meetings. At four of the year’s meetings the board goes through quarterly reports before they are published and at the January meeting the board discusses the annual report, with the auditor also reporting on the year’s audit. During the year the board takes a number of different decisions such as on the expansion and investment plan, the proposed dividend, which was SEK 9.75 per share for the 2015 financial year, as proposed to the 2016 AGM, guidelines for remuneration of senior executives, the financial reports, etc. In 2016 the board also took the decision to pro- pose amendment of the articles of association. At a board meeting on 30 January 2017 the board decided to rephrase the earlier growth target. Since H&M does not have a separate review function (internal audit) for work on internal control, but has instead established its own model for managing the company’s risk and internal control (see pages 63–65), once a year the board assesses the need for a separate internal audit function. This year the board again reached the conclu- sion that the present model for monitoring internal control is working in a satisfactory way. Before the 2016 annual general meeting the board carried out an assessment of the application of the guidelines for remuneration to senior executives that were adopted by the 2015 AGM. The results of this assessment were published on the website in good time before the 2016 AGM. H&m has no remuneration committee, since the board of directors deems it more appropriate for the entire board to carry out the tasks of a remuneration committee. It is the board that prepares the proposed guidelines for remuneration to senior executives that are presented at the AGMs, and it is the board that decides on the CEO’s salary in accord- ance with the guidelines adopted at the last AGM. The board continu- ally assesses the CEO’s work and once a year discusses this matter separately in conjunction with the setting of the CEO’s remuneration for the coming year. No member of executive management is present when this is discussed. 5. AUDITING COMMITTEE The auditing committee monitors the company’s financial reporting, which among other things involves monitoring the effectiveness of the company’s internal control and risk management. Its work includes handling auditing issues and financial reports published by the com- pany. The auditors attend the meetings of the auditing committee to report on their scrutiny of the group’s annual report and financial statements, including the consolidated financial statements. The auditing committee also reviews and monitors the impartiality and independence of the auditor, and regulates which assignments the accounting firm may conduct for H&M in addition to the audit. The auditing committee receives a written assurance of independence from the auditor stating which assignments the accounting firm has provided to H&M during the financial year in addition to the audit. The auditing committee also assists the nomination committee with any proposals to the AGM concerning the election of auditors. H&m’s auditing committee is made up of three board members, two of whom have expertise in accounting or auditing while the third The composition of H&m’s board during the year met the independ- ence requirements set out in sections 4.4 and 4.5 of the Code. This means that the majority of the board members elected by the general meeting are independent of the company and company management. The majority of the board members are also independent of the company’s major shareholders. Number of board meetings During the financial year H&M normally holds six regular board meetings, one of which is the statutory board meeting. Extraordinary board meetings are held when the need arises. The CEO attends all board meetings, except when the CEO’s terms of employment are being discussed. The CEO 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. The CFO and chief accountant also attend the board meetings in order to provide financial information. The board is assisted by a secretary who is not a member of the board. During the 2016 financial year seven board meetings were held. The level of attendance at board meetings is high, with each member’s attendance shown in the table on page 60. Work of the board in 2016 H&M’s board meetings are generally structured as follows, which is then supplemented by one or more business presentations, e.g. by heads of functions or country managers. The following areas are usually reviewed at each board meeting: – minutes of the previous meeting – CEO’s status report – Report by CFO – Strategic matters – Feedback from latest auditing committee meeting – Financial reporting, such as interim report, annual report – Decisions on particular matters During 2016 CEO Karl-Johan Persson provided information on the follow- ing, among other things: sales, costs, results, the customer offering for each brand and market performance, investments, store and online ex- pansion, sustainability, external factors and development opportunities. The CEO also provided ongoing information on purchasing, production, the stock-in-trade, marketing and PR activities, organisational changes, the broadening of the product range, and new initiatives and the devel- opment of new brands. Decisions taken by the board during the year included the opening of around 425 new stores net, with Puerto Rico, Cyprus and New Zealand as new store markets for 2016, as well as rapid online expansion, with eleven new H&M online markets in 2016. The sector is undergoing interesting structural changes and rapid shifts in technology – which creates great opportunities, but also puts demands on the organisation. The board therefore discusses the signifi- cance of the increased digitalisation and which investments need to be made in order to be able to offer customers a shopping experience that is as complete and seamless as possible. The board receives on going updates on these projects. These might concern development of the online offering in terms of faster delivery options, mobile payment solutions, handling of returns, changes of platforms and advanced data analytics, etc. The long-term investments being made aim to ensure the group’s future expansion and position. The group’s integrated sustainability work is very important and is discussed regularly by the board. Every six months, the head of sustain- ability provides an update on the group’s sustainability work with ref- 61 C OR POR AT E G Ov E R NA NC E R E PORT 2016 Karl-Johan Persson, born in 1975, has been the chief executive officer of H & M Hennes & Mauritz AB since 1 July 2009. Before taking over as CEO, Karl-Johan Persson held an operational role within H&M from 2005, including working as head of expansion, business development, brand and new business. Since 2000 Karl-Johan Persson has been a member of the boards of H&m’s subsidiaries in Denmark, Germany, the US and the UK. From 2006 until 2009 he was also a member of the board of H & M Hennes & Mauritz AB. From 2001 until 2004 Karl-Johan Persson was CEO of European Network. Karl-Johan Persson holds a BA in business administration from the European Business School in London. Karl-Johan Persson currently has external board assignments for, among others, the Swedish Chamber of Commerce in the UK, Ramsbury Invest AB and the GoodCause Foundation. Since 2013 Karl-Johan Persson has also been a member of the board of the H&M Foundation. Karl-Johan Persson is a shareholder in Ramsbury invest AB, and also personally holds 12,136,289 class B shares in H&M. 8, 9. ORGANISATION AND MANAGEMENT The H&M group has a multi-brand matrix organisation with cur- rently seven well-defined brands: H&M, COS, & Other Stories, Monki, Weekday, Cheap Monday and H&M Home. Each brand has its own organisation and managing director, and all the brands have their own local sales organisations. Centrally, there are also a number of group-wide functions that support each brand in order to capitalise on the benefits within these shared areas, so that each brand and country works purposefully according to central policies and guide- lines. The CEO is responsible for day-to-day management of the H&M group and appoints the members of the executive management team, which is made up of the CEO plus 10 others – six of whom are women. The executive management team consists of the chief financial officer and the individuals responsible for the following group-wide func- tions: production, sustainability, expansion, communications, human resources, business development and logistics, as well as the person responsible for the H&M brand and the person responsible for new business (which includes the other brands such as COS, & Other Stories, Monki, Weekday, Cheap Monday and H&M Home). Those responsible for the other group-wide functions are appointed by the chief finan- cial officer. The matrix organisation provides a good combination of central and local perspectives on leadership and entrepreneurship. The local sales organisations are responsible for sales, profitability and daily operations in their country, giving them a collective respon- sibility for all the functions in their country. has expertise in commercial law. All the members are independent of the company and its management. The majority of the members are also independent of the company’s major shareholders. The auditing committee is appointed annually by the board of directors at the stat- utory board meeting held in conjunction with the AGM. Since the statutory meeting held in conjunction with the 2016 AGM, the audit- ing committee has consisted of chairman Christian Sievert and mem- bers Anders Dahlvig and Erica Wiking Häger. The committee held four meetings at which minutes were taken during the 2015/2016 financial year. Ey attended the auditing committee meetings and reported on the auditing assignments. The meetings were also attended by CFO Jyrki Tervonen and chief accountant Anders Jonasson, among others. The committee’s meetings are minuted and the minutes are then distributed to the board members. During the year the auditing committee addressed the following matters, among others: – The company’s financial reporting, including interim reports, the corporate governance report and annual report. – Compliance with the group’s internal control and risk management processes and review of the overall risk analysis for the group – both financial risk and operational risk – with well-defined action plans to minimise risk. Among others, the following functions also gave presentations/provided information on their work: expansion/con- struction, security, accounting/tax and H&M’s buying department. – The internal pricing model and tax matters. A status update regard- ing tax matters is given at each meeting, which is partly related to the OECD’s BEPS project that deals with, among other things, how and where profits in multinational companies are to be taxed. – In addition, customs matters were discussed in view of the fact that this is becoming an increasingly pressing matter for multinationals due to increased protectionism in certain countries. – Ey informed the committee of the audit plan, the scope of the audit and the results of scrutiny carried out. – in addition, Ey provided information on current regulatory develop- ments in the areas of accounting and auditing. – Review of the auditors’ independence and impartiality. The auditing committee finds that it is clear which assignments EY takes on in addition to auditing and sees no reason to question the accounting firm’s impartiality. A process has been established for non-auditing services to be approved in advance. H&M also uses consulting services from other accounting firms and tax advisors. 6. EMPLOYEE ORGANISATIONS Under Swedish law, the employees have the right to appoint employee representatives with deputies to the company’s board. These are appointed via employee organisations (trade unions). The trade unions appoint two board members and two deputies to the board of H&M. 7. CEO The CEO is appointed by the board of directors and is responsible for the daily management of the company as directed by the board. This means that, among other things, the CEO must focus in particular on recruitment of senior executives, buying and logistics matters, the cus- tomer offering, pricing strategy, sales and profitability, sustainability matters, marketing, expansion, development of the store network and of online sales, and IT development. The CEO reports to the board on H&m’s development and makes the necessary preparations for taking decisions on investments, expansion, etc. The role of CEO includes contact with the financial market, the media and the authorities. CEO: Karl-Johan Persson CFO: Jyrki Tervonen JOINT GROUP FUNCTIONS BRANDS Accounting: Anders Jonasson Business development: Kjell-Olof Nilsson Communications: Kristina Stenvinkel Controlling: Fredrik Nilsén Expansion: Katja Ahola HR: Helena Thybell IT: morten Halvorsen Legal: Fredrik Björkstedt Logistics: Patrik Berntsson Production: Helena Helmersson Security: Cenneth Cederholm Sustainability: Anna Gedda H&M: Fredrik Olsson New Business: madeleine Persson COS: marie Honda & Other Stories: Samuel Fernström Monki: Lea Rytz Goldman Weekday: David Thörewik Cheap Monday: Peter Klagsmark H&M Home: Anders Sjöblom 62 C OR POR AT E G Ov E R NA NC E R E PORT 2016 INTERNAL AUDIT In accordance with section 7.4 of the Swedish Corporate Governance Code, during the year the board assessed the need for a specific inter- nal audit department. The board concluded that H&M’s present model of monitoring internal control is the most appropriate for the company. In the board’s opinion, this model – which is applied by the central departments such as accounts, communications, security, logistics, production, etc. in the subsidiaries – and the work carried out by internal store auditors are well in line with the work performed in other companies by an internal audit department. It was therefore deemed that there was no need for an internal audit department. The issue of a specific internal audit department will be reviewed again in 2017. Stockholm, January 2017 The Board of Directors More information on H&M’s corporate governance work can be found in the section on corporate governance at hm.com. The next four pages contain information about the board members. H&m has a communications policy providing guidelines for commu- nication with external parties. The purpose of the policy is to ensure that all information obligations are met and that the information provided is accurate and complete. Financial communication is provided via: – H&m’s annual report – interim reports, the full-year report and monthly sales reports – Press releases on events and circumstances that may impact the share price – H&M’s website hm.com MONITORING in 2016 the group functions/central departments assessed internal control within their respective functions in the sales countries based partly on general issues and partly on department-specific issues, using the COSO model. The work resulted in a plan of action for each central department defining the areas that ought to be improved in order to further strengthen internal control, not only in respect of each country but also for the central function. The functions also followed up on the assessments made in the previous year. It is felt that the way in which H&M assesses internal control is firmly established within the organ- isation. It is an aid and an instrument that the central functions can use to ensure that their respective departments in the sales countries are working in a uniform and desirable way. The assessment of inter- nal control also allows each sales country to provide valuable and constructive feedback to the central function regarding where there is room for improvement at central level. An important part of the inter- nal control work is the feedback to the country management (country manager and country controller) which the central function provides based on the results of the evaluation in each country. This is done with a view to transparency and to ensuring that the countries adopt best practice. Within the production organisation there is a firm and regular con- trol and monitoring process for the internal routines that are brought together in the Routine Handbook for Production. These routines are about how H&M ensures that the company does business in an ethical and transparent way. Most of these routines are monitored on a monthly basis at regional level and every other month at global level. Internal store auditors perform annual checks at the stores with the aim of determining the strengths and weaknesses of the stores and how any shortcomings can be corrected. Follow-up and feedback with respect to any non-compliances found during the assessment of internal control constitute a central part of internal control work. The board of directors and the auditing committee continuously evaluate the information provided by the executive management team, including information on internal control. The auditing com- mittee’s task of monitoring the efficiency of internal control by the management team is of particular interest to the board. This work includes checking that steps are taken with respect to any shortcom- ings detected and suggestions made during the assessment by the central departments and internal store auditors, as well as by external auditors. The work on internal control maintains awareness of the importance of effective internal control within the group and ensures that continuous improvements are made. 65 C OR POR AT E G Ov E R NA NC E R E PORT 2016 INGRID GODIN Employee representative STINA BERGFORS Board member LENA PATRIKSSON KELLER Board member STEFAN PERSSON Chairman of the board NIKLAS ZENNSTRÖM Board member MELKER SCHÖRLING Board member 66 C OR POR AT E G Ov E R NA NC E R E PORT 2016 ALEXANDRA ROSENQVIST Deputy employee representative RITA HANSSON Deputy employee representative ANDERS DAHLVIG Board member and member of the auditing committee ERICA WIKING HÄGER Board member and member of the auditing committee CHRISTIAN SIEVERT Board member and chairman of the auditing committee MARGARETA WELINDER Employee representative 67 C OR POR AT E G Ov E R NA NC E R E PORT 2016 AUDITOR’S STATEMENT ON THE CORPORATE GOVERNANCE REPORT To the Annual General Meeting of H & M Hennes & Mauritz AB (publ), corporate identity number 556042-7220 Assignment and division of responsibility We have reviewed the corporate governance report for the financial year 1 December 2015 to 30 November 2016. The corporate govern- ance report is the responsibility of the Board of Directors, which is responsible for the report being prepared in accordance with the Swedish Annual Accounts Act. Our responsibility is to express an opinion on the corporate governance report based on our review. Orientation and scope of review Our review was conducted in accordance with RevU 16, Auditor’s review of the corporate governance report. This means that we planned and performed the audit in order to obtain a reasonable degree of assurance that the corporate governance report is free from material misstatement. An audit includes examining, on a test basis, evidence supporting the information in the corporate govern- ance report. We believe that our audit provides a reasonable basis for our opinion set out below. Opinion in our opinion, a corporate governance report has been prepared and its content is consistent with the annual accounts and the consolidated accounts. Stockholm, 30 January 2017 Ernst & young AB Åsa Lundvall Authorised Public Accountant 70 Au Di T OR’ S STAT E m E N T The board of directors and the chief executive officer of H & M Hennes & Mauritz AB (publ), 556042-7220, domiciled in Stockholm, Sweden, hereby submit their annual report and consolidated accounts for the financial year 1 December 2015 to 30 November 2016, hereinafter referred to as the 2016 financial year. BUSINESS The H&m group’s business consists mainly of sales of clothing, accessories, footwear, cosmetics and home textiles to consumers. The H&M group’s brand portfolio includes clearly defined fashion brands – H&M and H&M Home, COS, & Other Stories, Monki, Weekday and Cheap Monday – each of which has its own unique profile and identity. The group’s brands complement each other well, and together they offer customers a wide variety of styles and trends at various price points. All the brands share the same passion for fashion, quality and best price and all aim to dress customers in a sustainable way. The broad customer offering allows people around the world to dress in their own personal style. H&m is a design-driven, creative and responsible fashion company guided by strong values based on a fundamental respect for the indi- vidual and a belief in people’s ability to use their initiative. With a focus on fashion and customers, and a shared aim among employees to always exceed customers’ expectations, H&M has developed since 1947 into one of the world’s leading fashion companies. For each brand there is a design and buying function where design- ers, pattern makers and buyers work together to create an inspiring product range for their particular customer group. H&M’s design and buying function creates its collections centrally in Stockholm – while COS, for example, has its design and buying function in London. Production The group does not own any factories but instead has its products manufactured by around 790 independent suppliers through local production offices, mainly in Asia and Europe. For a few years now a small part of production has also taken place in Africa. To ensure future expansion, production capacity and geographical location are continually reviewed. H&M is a responsible company and considers it of the utmost importance to ensure that the products are of good quality and have been produced under good working conditions with the greatest possible consideration for people and the environment. Each supplier therefore undergoes a careful process based on the re- quirements in the H&m Code of Conduct (Sustainability Commit- ment) before being approved for production. H&M then works closely with the suppliers, with continual follow-up and knowledge-building programmes to ensure compliance with the Code. H&M also supports the suppliers in their own development towards improved sustain- ability. H&M’s production offices are responsible for ensuring that each order is placed with the right supplier, that the products are manufactured at the right price and are of good quality, and that they are delivered at the right time. The production offices also check that manufacturing takes place under good working conditions. Tests such as chemical and laundry tests are carried out on a con- tinuous basis at the production offices and at external laboratories. The goods are subsequently transported to various distribution cen- tres – primarily by sea and rail, but also by road and air. From there the goods are distributed directly to the stores and/or to regional replenishment centres. The group achieves the best prices by having in-house designers, having no middlemen, utilising economies of scale, buying the right product from the right market, being cost-conscious in every part of the organisation and by having efficient logistics. Sustainability As a buyer and seller in many markets, the H&m group helps provide employment which lifts people and nations out of poverty. The jobs are created largely in the textile industry, primarily in Asia, where much of H&M’s sourcing takes place. Sustainable growth is essential if the world is to achieve the global goals for socially, environmentally and economically sustain- able development that the uN member countries unanimously adopted in 2015 and that are to be achieved by 2030. A starting point for the H&m group is that the business must contribute to these goals, which are summarised in Agenda 2030. The group’s sustainability work includes environmental, ethical and human rights aspects, with the aim of contributing to social development, improving working conditions and minimising environ- mental impact. H&M actively pursues extensive work to bring about improvements throughout the life cycle of the products and in the communities where H&M operates. H&M uses its size and influence to help move this development in the right direction and to work for long-term improvements in human rights and the environment. To make a real difference in the long term, H&M also works with external experts, innovators, other companies, NGOs and govern- ments, including on important industry-wide issues such as health, safety, wages, water, the climate, chemicals, etc. In 2016 the H&M group implemented a new sustainability strategy, with the vision of leading the change towards a sustainable fashion industry based on a fully circular approach and only renewable energy. The vision also includes working to achieve a fair, equal work- place both within the H&M group and among the suppliers, and to contribute to good communities based on diversity and inclusion. Setting a good example, paving the way for new solutions, stimulating innovation and transparency and having a positive impact on people’s lives are all important parts of the new sustainability strategy. Through the strategy the H&M group will set long-term goals that are in line with scientific methods and in close cooperation with experts and other stakeholders within various areas. Thanks to its size, the H&M group has a unique reach and opportunity to drive forward structural changes towards increased sustainability throughout the whole fashion industry. The H&M group’s sustainability work is an integral part of its business. This means that the sustainability work forms part of daily work in every area of the company and that each of the group’s depart- ments is itself responsible for environmental and social matters, while the central sustainability department establishes the direction and overall targets for the company’s sustainability work as well as providing the departments with support on sustainability matters. More information on H&M’s sustainability work can be found on pages 36–41 of the 2016 annual report and in H&M’s sustainability report that is published annually at hm.com. Sales channels The group sells its products from leased store premises and digitally, i.e. via online shopping. At year-end there were 64 store markets, of which 13 are operated on a franchise basis, and 35 H&M online markets. The total number of stores at the end of the 2016 financial year was 4,351 – including 3,962 H&M stores, 194 COS stores, 118 Monki stores, 45 & Other Stories stores, 28 Weekday stores and 4 Cheap Monday Administration report 72 A Dm i N i ST R AT iON R E PORT guidelines for remuneration of senior executives is divided into two parts: general guidelines and supplementary guidelines. The general guidelines are aimed at a group of around 50 senior executives and are based on performance in the previous year, linked to certain quantifiable targets set in advance. The supplementary guidelines are aimed at some of these individuals. The supplementary guidelines are based on performance compared with targets set, but are also conditional upon the senior executive remaining employed by the H&M group for at least five years. The board’s reasoning for the supplementary guidelines is as follows: in view of H&M’s strong expansion and the important stage of develop- ment that H&M is at, including multi-brand and multi-channel develop- ments, the aim is to ensure that these key individuals in senior positions remain with the H&M group during this important development phase. Below is a more detailed account of the board’s proposal to the 2016 AGM for guidelines: General guidelines The term “senior executives” covers the CEO, other members of exec- utive management, country managers and certain key individuals. The number of individuals covered by the term senior executives is currently around 50. Compensation for senior executives is based on factors such as work tasks, expertise, position, experience and performance. Senior executives are compensated at what are considered by the company to be competitive market rates. Senior executives are also entitled to the benefits provided under the H&M Incentive Program. H&m is present in nearly 50 countries excluding franchise markets and levels of compensation may therefore vary from country to country. Senior executives receive a fixed salary, pension benefits and other benefits such as healthcare and car benefits. The largest portion of the remuneration consists of the fixed salary. For information on variable components, see the section below. in addition to the iTP plan, executive management and certain key individuals are covered by either a defined benefit or defined contri- bution pension plan. The retirement age for these individuals varies between 60 and 65 years. Members of executive management and country managers who are employed by a subsidiary abroad are cov- ered by local pension arrangements and a defined contribution plan. Other than the ITP plan, no defined benefit pension plans have been taken out for executive management since 2005. The retirement age for these is in accordance with local retirement age rules. The cost of these commitments is partly covered by separate insurance policies. The period of notice for senior executives varies from three to twelve months. No severance pay agreements exist within H&M other than for the CEO. Pension terms etc. for the CEO The retirement age for the CEO is 65. The CEO is covered by the ITP plan and a defined contribution plan. The total pension cost shall amount in total to 30 percent of the CEO’s fixed salary. The CEO is entitled to 12 months’ notice. In the event that the company cancels the CEO’s employment contract, the CEO will also receive severance pay of an extra year’s salary. Variable remuneration The CEO, country managers, certain senior executives and certain key individuals are included in a bonus scheme. The size of the bonus per person is based on the fulfilment of targets in their respective areas of regulations in the countries where H&M operates. H&M’s tax policy, which can be found at hm.com, reflects and supports H&M’s business. H&M follows the OECD Transfer Pricing Guidelines, which means that profits are allocated and taxed where the value is created. In 2016 H&M became ISO certified for direct taxation and transfer pricing. H&M works continually to ensure that its tax strategy is designed to limit any distortion arising from differences in tax legislation in different parts of the world. The OECD guidelines on transfer pricing can be interpreted in var- ious ways, and consequently tax authorities in different countries may question the outcome of H&m’s transfer pricing model even though the model complies with the OECD guidelines. This may mean a risk of tax disputes in the group in the event that H&m and the local tax authorities interpret the guidelines differently. ARTICLES OF ASSOCIATION, ANNUAL GENERAL MEETING According to H&m’s articles of association, H&m’s board is to consist of at least three but no more than twelve members elected by the AGM and no more than the same number of deputies. The annual general meeting decides the exact number of board members, and which in- dividuals are to be elected to the board. Board members are elected for the period until the end of the next annual general meeting. The annual general meeting also decides on amendments to the articles of association. NUMBER OF SHARES ETC. At the end of the financial year H&M had 268,290 shareholders. The total number of shares in H&M is 1,655,072,000, of which 194,400,000 are class A shares (ten votes per share) and 1,460,672,000 are class B shares (one vote per share). Class A shares are not listed. Class B shares are listed on the Stockholm stock exchange, Nasdaq Stockholm. Ramsbury Invest AB holds all 194,400,000 class A shares, which rep- resent 57.1 percent of the votes, as well as 406,049,043 class B shares, which represent 11.9 percent of the votes. This means that as of 30 November 2016, Ramsbury Invest AB represents 69.0 percent of the votes and 36.3 percent of the total number of shares. Ramsbury Invest AB is owned by Stefan Persson and family, and primarily by Stefan Persson. Karl-Johan Persson is also a shareholder in Ramsbury Invest AB. There are no restrictions on voting rights or authorisations to the board relating to the issue or acquisition of the company’s own shares. CORPORATE GOVERNANCE REPORT H&m has elected to present its corporate governance report as a sepa- rate document to the annual report in accordance with Chapter 6 § 8 of the Swedish Annual Accounts Act. The corporate governance report is available at hm.com. GUIDELINES FOR REMUNERATION OF SENIOR EXECUTIVES The annual general meeting held on 3 May 2016 adopted the following guidelines for remuneration of senior executives. The board considers it of the utmost importance that senior executives are paid competitive, attractive remuneration at a market level, as regards both fixed and variable compensation, based on responsibilities and performance. The board’s proposed remuneration is in the best interests of the company and its shareholders from a growth perspective, since it helps motivate and retain talented and committed senior executives. Like the guidelines adopted at the 2015 and 2014 annual general meetings, the board’s proposal to the 2016 annual general meeting for 75 A Dm i N i ST R AT iON R E PORT performance. The board’s proposed remuneration is in the best interests of the company and its shareholders from a growth per- spective, since it helps motivate and retain talented and committed senior executives. Guidelines for remuneration of senior executives were re-examined in conjunction with the review of the organisation and its composition carried out in 2016. Below are the board’s proposed new guidelines for senior executives, which in addition to the CEO include members of the executive management team and those responsible for other group-wide functions; overall, this amounts to nearly 20 individuals. The guidelines are based on industry comparisons. Senior executives shall be compensated at what are considered by the company to be competitive market rates. The criteria used to set levels of compensation shall be based partly on the significance of the duties performed and partly on the employee’s skills, experience and performance. Over time, the largest portion of the total remuneration shall consist of the fixed salary. The forms of compensation shall motivate senior executives to do their utmost to ensure the good financial and sustainable development of the H&M group. The total annual remuneration may consist of the following  components: – fixed basic salary – short-term variable remuneration – long-term variable remuneration – pension benefits – other benefits Fixed basic salary Senior executives shall have a fixed basic cash salary that is at a  market level based on each position’s significance for the company as a whole. The basic salary shall reflect the individual’s area of responsibility, skills and experience and requires the individual to work in a committed manner at a high professional level. Variable remuneration There shall be a clear link between the level of variable remuneration paid and the H&M group’s financial and sustainable development. From time to time, therefore, senior executives are entitled to variable remuneration that depends on the fulfilment of targets – which includes group-wide financial targets such as pre-set targets for profits and sales, sustainability targets, and individual targets within that person’s area of responsibility. The targets are aimed at promoting the H&M group’s development in both the short and the long term. At individual level it is the position’s significance and opportunity to influence the overall development of the group that decides the level of the variable remuneration. The CEO decides the maximum possible outcome for each position, but always within the framework of these guidelines. variable remuneration is not paid if the individual has given notice to terminate his/her employment. The variable remuneration may consist of: Short-term variable remuneration, which is the possibility of a cash payment provided that the target criteria that were set in advance for both the group and the individual have been fulfilled. Half of the payment shall be invested in H&m shares that must be held for at least three years. Short-term variable remuneration must never exceed the fixed basic salary for each individual. responsibility. The result is linked to the measurable profit targets (qualitative, quantitative, general, individual) set in advance within their respective areas of responsibility. These targets also include measurable targets for sustainability. The targets within each area of responsibility are aimed at promoting H&m’s development in both the short and the long term. For the CEO the maximum bonus is SEK 0.9 m net after tax. For other senior executives the maximum bonus is SEK 0.3 m net after tax. Net after tax means that income tax and social security costs are not included in the calculation. The bonuses that are paid out must be invested entirely in shares in the company, which must be held for at least five years. Since H&M is present in markets with varying personal income tax rates, the net model has been chosen because it is considered fair that the recipients in the different countries should be able to purchase the same number of H&M shares for the amounts that are paid out. in individual cases other members of executive management, key individuals and country managers may, at the discretion of the CEO and the chairman of the board, receive one-off payments of up to a maximum of 30 percent of their fixed yearly salary. Supplementary guidelines in addition to the general guidelines, the board has prepared supple- mentary guidelines for certain managers and other key individuals, such that these individuals are covered by both the general guidelines and the supplementary guidelines. The CEO is not, however, included in the supplementary guidelines. Remuneration according to the supplementary guidelines is based on performance compared with targets set, but is also conditional upon the senior executive remaining employed by the H&m group for at least five years. The five-year rule applies with effect from the year that the annual general meeting adopted the arrangement – which was at the annual general meeting in spring 2014 – up to and including the month of May five years later, i.e. in 2019. Provided that the abovementioned criteria are met, the senior executives covered by the supplementary guidelines are thus entitled to a cash payment after five years. At individual level, the cash payment may vary between SEK 0.5 m and SEK 5 m net after tax; the exact distribution per individual will be decided by the CEO and the chairman of the board. Cost to H&m: The total cost to the company is estimated at around SEK 30 m per year including social security costs over five years. Miscellaneous The board of directors may deviate from the guidelines for remunera- tion of senior executives in individual cases where there is a particular reason for doing so. Where a board member performs work for the company in addition to his or her board work, a separate fee may be paid for this. This also applies if the work is performed by a company wholly or partly owned by the board member. THE BOARD’s PROPOSALS TO THE 2017 AGM FOR GUIDELINES FOR REMUNERATION OF SENIOR EXECUTIVES The board is proposing the following guidelines for remuneration of senior executives to the annual general meeting on 10 May 2017. The board considers it of the utmost importance that senior execu- tives are paid competitive remuneration at a market level, as regards both fixed and variable compensation, based on responsibilities and 76 A Dm i N i ST R AT iON R E PORT DIVIDEND POLICY AND PROPOSED DIVIDEND H&M’s financial goals are to enable the company to continue enjoying good growth and to be ready to exploit business opportunities. It is essential that, as in the past, the expansion proceeds with a continued high degree of financial strength and continued freedom of action. Based on this policy, the board of directors has decided that the total dividend should equal about half of the profit after tax. In addition, the board may propose that any surplus liquidity is also distributed. The board of directors has decided to propose a dividend of SEK 9.75 (9.75) per share to the annual general meeting on 10 May 2017, corresponding to 87 percent (77) of the profit after tax. many companies in the uS and Europe divide their dividends into quarterly or semi-annual payments. In Sweden, too, there are larger companies which pay their dividend in more than one instalment. Until now H&M has paid its dividends in conjunction with the annual gen- eral meeting in the spring. H&M’s board of directors is to propose to the annual general meeting that the dividend is paid out semi-annually in the future, i.e. one instalment in the spring and one in the autumn, since this is more cost efficient for the company and also simplifies liquidity planning during the year. The record date proposed for the first dividend payment of SEK 4.90 per share is 12 May 2017. This would then be paid out on 17 May 2017. The record date proposed for the second dividend payment of SEK 4.85 per share is 14 November 2017. This would then be paid out on 17 November 2017. PROPOSED DISTRIBUTION OF EARNINGS At the disposal of the annual general meeting: SEK 16,562,033,368 The board of directors proposes a dividend of SEK 9.75 per share SEK 16,136,952,000 To be carried forward as retained earnings SEK 425,081,368 SEK 16,562,033,368 The board of directors is of the opinion that the proposed distribu- tion of earnings is justifiable taking into consideration the financial position and future freedom of action of the group and the parent company, and observing the requirements that the nature and extent of the business, its risks and future expansion plans impose on the group’s and the parent company’s equity and liquidity. Long-term variable remuneration, which is based on performance relative to set targets, but is also conditional upon the senior execu- tive remaining employed within the H&M group for at least five years. The board’s reasoning is – in view of H&M’s strong expansion and the important stage of development that H&M is at, including within multi-brand and omni-channel developments – to ensure that these key individuals in senior positions remain with the H&M group during this important development phase. The five-year rule applies with effect from the year that the annual general meeting adopted this rule, which was at the annual general meeting in spring 2014 (when it was referred to as supplementary guidelines) up to and including the month of May five years later, i.e. in 2019. At individual level, the remuneration may vary between SEK 0.5 m and SEK 5 m net after tax; the exact distribution per individual will be decided by the CEO and the chairman of the board. The total cost to the group is estimated at around SEK 30 m per year including social security costs over five years. In addition to this, in a few cases senior executives may, at the dis cretion of the CEO and the chairman of the board, receive one-off payments of up to an extra year’s fixed basic salary. Discretionary one-off amounts may also be paid to other key individuals. Pension benefits By far the majority of senior executives are covered by a premium- based pension plan, in addition to the ITP plan. Other than the ITP plan, no defined benefit pension plans have been taken out for senior executives since 2005. The retirement age for senior executives varies between 60 and 65 years. The cost of these commitments is partly covered by separate insurance policies. Other benefits Senior executives receive other benefits such as healthcare and car allowances. Senior executives are also entitled to the benefits accruing under the profit-sharing programme known as the H&M Incentive Program, which is for all employees of the H&M group. Information concerning the CEO The retirement age for the CEO is 65. The CEO is covered by the ITP plan and a defined contribution plan. The total pension cost shall amount in total to 30 percent of the CEO’s fixed basic salary. The CEO is entitled to 12 months’ notice. In the event that the company cancels the CEO’s employment contract, the CEO will also receive severance pay of an extra year’s salary. The board of directors sets the CEO’s total remuneration. The CEO is not included in the long-term variable remuneration, i.e. what was previously referred to as supplementary guidelines. Other The period of notice for senior executives varies from three to twelve months. The board of directors may deviate from the guidelines for remu- neration of senior executives in individual cases where there is a particular reason for doing so. Where a board member performs work for the company in addition to his or her board work, a separate fee may be paid for this. This also applies if the work is performed by a company wholly or partly owned by the board member. 77 A Dm i N i ST R AT iON R E PORT Group balance sheet SEK M 30 NOVEMBER 2016 2015 EQUITY AND LIABILITIES EQUITY Share capital, note 18 207 207 Reserves 2,651 1,904 Retained earnings 58,378 55,938 TOTAL EQUITY 61,236 58,049 LIABILITIES Long-term liabilities Provisions for pensions, note 19 527 449 Deferred tax liabilities, note 10 4,898 4,378 Other interest-bearing liabilities, note 13, 23 213 – 5,638 4,827 Current liabilities Accounts payable 7,262 6,000 Tax liabilities 434 – Liabilities to credit institutions, note 23 2,068 – Interest-bearing liabilities, note 13, 23 59 – Other liabilities 5,036 3,192 Accrued expenses and prepaid income, note 21 16,846 13,745 31,705 22,937 TOTAL LIABILITIES 37,343 27,764 TOTAL EQUITY AND LIABILITIES 98,579 85,813 Pledged assets and contingent liabilities, note 27 – – SEK M 30 NOVEMBER 2016 2015 ASSETS FIXED ASSETS Intangible fixed assets Brands, note 11 66 114 Customer relations, note 11 20 32 Leasehold and similar rights, note 11 630 660 Capitalised expenditures, note 11 4,567 3,245 Goodwill, note 11 64 64 5,347 4,115 Property, plant and equipment Buildings and land, note 12 850 797 Equipment, tools, fixture and fittings, note 12 37,843 32,165 38,693 32,962 Financial fixed assets Long-term receivables 1,014 862 Deferred tax receivables, note 10 2,862 2,338 3,876 3,200 TOTAL FIXED ASSETS 47,916 40,277 CURRENT ASSETS Stock-in-trade, note 14 31,732 24,833 Current receivables Accounts receivable 4,881 4,021 Tax receivables – 379 Other receivables 2,533 1,469 Prepaid expenses, note 15 2,071 1,884 9,485 7,753 Cash and cash equivalents, note 16 9,446 12,950 TOTAL CURRENT ASSETS 50,663 45,536 TOTAL ASSETS 98,579 85,813 80 F i NA NC i A L R E PORTS FINANCIAL POSITION AND CASH FLOW The H&M group remains in a strong financial position. The group’s equity/assets ratio was 62.1 percent (67.6) and the share of risk- bearing capital was 67.1 percent (72.7). Shareholders’ equity apportioned on the outstanding 1,655,072,000 (1,655,072,000) shares as of 30 November 2016 was SEK 37.00 (35.07). Liquidity management In 2016 the longest investment period was four months. The group does not use any derivative instruments in the interest-bearing securities market, nor does it trade in shares or similar instruments. See also note 2, Financial risks. 2015 2016 STOCK-IN-TRADE SEK M 24,833 31,732 + 28% 81 F i NA NC i A L R E PORTS Group changes in equity Since there are no minority interests, all shareholders’ equity is attributable to the shareholders of the parent company H & M Hennes & Mauritz AB. SEK M SHARE CAPITAL TRANSLATION EFFECTS HEDGING RESERVES RETAINED EARNINGS TOTAL SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY, 1 DECEMBER 2015 207 1,663 241 55,938 58,049 Profit for the year – – – 18,636 18,636 Other comprehensive income Translation differences – 1,186 – – 1,186 Change in hedging reserves Reported in other comprehensive income – – -223 – -223 Reclassified to profit or loss – – -355 – -355 Tax related to hedging reserves – – 139 – 139 Remeasurement of defined benefit pension plans – – – -78 -78 Tax related to the above remeasurement – – – 19 19 Other comprehensive income – 1,186 -439 -59 688 Total comprehensive income – 1,186 -439 18,577 19,324 Dividend – – – -16,137 -16,137 SHAREHOLDERS’ EQUITY, 30 NOVEMBER 2016 207 2,849 -198 58,378 61,236 SEK M SHARE CAPITAL TRANSLATION EFFECTS HEDGING RESERVES RETAINED EARNINGS TOTAL SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY, 1 DECEMBER 2014 207 149 55 51,145 51,556 Profit for the year – – – 20,898 20,898 Other comprehensive income Translation differences – 1,514 – – 1,514 Change in hedging reserves Reported in other comprehensive income – – 1,826 – 1,826 Reclassified to profit or loss – – -1,581 – -1,581 Tax related to hedging reserves – – -59 – -59 Remeasurement of defined benefit pension plans – – – 43 43 Tax related to the above remeasurement – – – -11 -11 Other comprehensive income – 1,514 186 32 1,732 Total comprehensive income – 1,514 186 20,930 22,630 Dividend – – – -16,137 -16,137 SHAREHOLDERS’ EQUITY, 30 NOVEMBER 2015 207 1,663 241 55,938 58,049 82 F i NA NC i A L R E PORTS SEK M 30 NOVEMBER 2016 2015 ASSETS FIXED ASSETS Property, plant and equipment Buildings and land, note 12 127 71 Equipment, tools, fixture and fittings, note 12 313 435 440 506 Financial fixed assets Shares and participation rights, note 25 588 588 Receivables from subsidiaries 779 1,085 Long-term receivables 11 11 Deferred tax receivables, note 10 42 43 1,420 1,727 TOTAL FIXED ASSETS 1,860 2,233 CURRENT ASSETS Current receivables Receivables from subsidiaries 16,179 14,808 Tax receivables – – Other receivables 7 2 Prepaid expenses, note 15 0 0 16,186 14,810 Cash and cash equivalents, note 16 376 1,758 TOTAL CURRENT ASSETS 16,562 16,568 TOTAL ASSETS 18,422 18,801 SEK M 30 NOVEMBER 2016 2015 EQUITY AND LIABILITIES EQUITY Restricted equity Share capital, note 18 207 207 Restricted reserves 88 88 295 295 Non-restricted equity Retained earnings 861 829 Profit for the year 15,701 16,169 16,562 16,998 TOTAL EQUITY 16,857 17,293 UNTAXED RESERVES, NOTE 26 429 447 LIABILITIES Long-term liabiliities Provisions for pensions, note 19 191 195 Current liabiliities* Accounts payable 3 5 Tax liabilities 729 671 Other liabilities 206 182 Accrued expenses and prepaid income, note 21 7 8 945 866 TOTAL LIABILITIES 1,136 1,061 TOTAL EQUITY AND LIABILITIES 18,422 18,801 Pledged assets and contingent liabilities, note 27 * No current liabilities are interest-bearing. Parent company balance sheet 85 F i NA NC i A L R E PORTS Parent company changes in equity SEK M SHARE CAPITAL TRANSLATION EFFECTS RETAINED EARNINGS TOTAL SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY, 1 DECEMBER 2015 207 88 16,998 17,293 Profit for the year – – 15,704 15,704 Other comprehensive income Remeasurement of defined benefit pension plans – – -4 -4 Tax related to the above remeasurement – – 1 1 Other comprehensive income – – -3 -3 Total comprehensive income – – 15,701 15,701 Dividend – – -16,137 -16,137 SHAREHOLDERS’ EQUITY, 30 NOVEMBER 2016 207 88 16,562 16,857 SEK M SHARE CAPITAL TRANSLATION EFFECTS RETAINED EARNINGS TOTAL SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY, 1 DECEMBER 2014 207 88 16,966 17,261 Profit for the year – – 16,140 16,140 Other comprehensive income Remeasurement of defined benefit pension plans – – 37 37 Tax related to the above remeasurement – – -8 -8 Other comprehensive income – – 29 29 Total comprehensive income – – 16,169 16,169 Dividend – – -16,137 -16,137 SHAREHOLDERS’ EQUITY, 30 NOVEMBER 2015 207 88 16,998 17,293 86 F i NA NC i A L R E PORTS Parent company cash flow statement SEK M 1 DECEMBER – 30 NOVEMBER 2016 2015 Current operations Profit after financial items* 16,562 16,929 Provisions for pensions -8 9 Depreciation 127 145 Taxes received/paid -816 -55 Cash flow from current operations before changes in working capital 15,865 17,028 Cash flow from changes in working capital Current receivables -1,376 -2,604 Current liabilities 21 -971 CASH FLOW FROM CURRENT OPERATIONS 14,510 13,453 Investing activities investment in buildings and land -61 -2 Net investment in equipment – -1 Change in short-term investments, 4–12 months – 2,602 Other investments 306 -180 CASH FLOW FROM INVESTING ACTIVITIES 245 2,419 Financing activities Dividend -16,137 -16,137 CASH FLOW FROM FINANCING ACTIVITIES -16,137 -16,137 CASH FLOW FOR THE YEAR -1,382 -265 Cash and cash equivalents at beginning of the financial year 1,758 2,023 Cash flow for the year -1,382 -265 Cash and cash equivalents at year-end** 376 1,758 * Interest paid for the parent company amounts to SEK 0 m (7). Received interest for the parent company amounts to SEK 21 m (45), note 28. ** Cash and cash equivalents and short-term investments at the end of the financial year amounted to SEK 376 m (1,758). 87 F i NA NC i A L R E PORTS Credit risk investments are only permitted to be made in banks based in coun- tries with a minimum rating of AA- (according to Standard & Poor’s long-term rating) and funds are only invested in banks with a mini- mum rating of A- (Standard & Poor’s) and A3 (Moody’s). The financial policy stipulates for various ratings the maximum amount that may be invested and the term for which it may be invested. Investments are only allowed in banks defined by Standard & Poor’s or Moody’s as having systemic importance in the country where they are based. under Standard & Poor’s rating model the bank shall have at least “moderate systemic importance” and under moody’s model the bank shall have at least “one-notch uplift for systemic support”. No further investments shall be made in countries or banks which have the mini- mum allowed long-term rating and a negative outlook. Maximum credit exposure as of 30 November 2016 totalled SEK 16,189 m (18,540) and corresponds to the book value for cash and cash equiva- lents of SEK 9,446 m (12,950), accounts receivable of SEK 4,881 m (4,021) and other SEK 1,862 m (1,569). Accounts receivable are divided between a large number of customers with low amounts per customer. The average debt was around SEK 2,585 (2,330). Bad debts during the year from accounts receivable were insignificant. Liquidity risk In view of the group’s good liquidity and good cash flow H&M utilised external borrowing to only a limited extent in 2016, and this on favourable terms. 3. SEGMENT REPORTING The group’s business consists mainly of sales of clothing, accessories, footwear, cosmetics and home textiles to consumers. Internal follow- up is carried out on a country by country basis by the CEO, who is the group’s chief operating decision maker. Each country is thus an oper- ating segment. Since some countries have similar economic character- istics, such as long-term economic results, these may be combined in segment reporting in accordance with IFRS 8. H&M has combined countries to form the segments Asia & Oceania, Europe & Africa, and North & South America. The parent company and subsidiaries with no external sales are reported in a separate Group Functions segment. The same accounting principles are applied to segment reporting as in the consolidated accounts. Transactions between segments take place on normal commercial terms. 2016 2015 Asia and Oceania External net sales 27,416 23,610 Operating profit 1,927 1,740 Operating margin, % 7.0 7.4 Assets excluding tax receivables 14,657 11,171 Liabilities excluding tax liabilities 1,430 1,736 investments 2,505 2,516 Depreciation 1,169 843 Europe and Africa External net sales 132,689 128,200 Operating profit 4,006 4,828 Operating margin, % 3.0 3.8 Assets excluding tax receivables 41,143 33,258 Liabilities excluding tax liabilities 11,975 9,950 investments 5,787 4,845 Depreciation 3,995 3,578 risk of changes in value is limited. An interest rate increase of 0.5 per- centage points on these amounts would increase interest income from cash and cash equivalents and short-term investments by SEK 47 m (65), and would increase interest expense for external borrowing and financial leases by SEK 12 m (0). A corresponding decrease in the interest rate would reduce interest income by the same amount and would decrease interest expense related to liabilities to credit institu- tions and for financial leases. Currency risk Currency risk is, among other things, the risk that the value of financial instruments or future cash flows will vary due to changes in exchange rates. Currency exposure associated with financial instruments H&M’s currency risk associated with financial instruments is mainly related to financial investments, accounts payable and derivatives. The group’s accounts payable in foreign currencies are mainly handled in Sweden and are largely hedged through forward contracts. Based on this, a change in the value of the Swedish krona of 2 percent in relation to other currencies would result in an insignificant momen- tary effect on profit related to the financial instrument holdings as of the closing date. A 2 percent strengthening of the Swedish krona would have a positive effect on the hedge reserve in equity of around SEK 269 m (86) before taking into account the tax effect, of which SEK 316 m (178) relates to EUR and SEK -269 m (-233) to USD. The group’s exposure to outstanding derivative instruments is reported in note 17. The group’s operating result for the year was affected by exchange rate differences relating to flows of goods in the amount of SEK -63 m (-254). Transaction exposure associated with commercial flows The payment flows in the form of payments in foreign currencies for accounts receivable and payable expose the group to currency risk. To manage the currency risk relating to changes in exchange rates the group hedges its currency risk within the framework of the financial policy. The currency risk exposure is dealt with at central level. Most of the group’s sales are made in euros, and the group’s most signifi- cant purchase currencies are the US dollar and the euro. Fluctuation in the uS dollar/euro exchange rate is the single largest transaction exposure within the group. To hedge the flows of goods in foreign currencies and thereby reduce the effects of future exchange rate fluctuations, 100 percent of the group’s purchases of goods and the bulk of corresponding forecast inflows from the sales companies are hedged under forward contracts on an ongoing basis. The average term of outstanding forward contracts is around three months. Since the sole purpose of this currency management is to reduce risk, only exposure in the flow of goods is hedged. Translation exposure on consolidation of units outside Sweden In addition to the effects of transaction exposure, profits are also affected by translation effects as a result of changes in exchange rates for the local currencies of the various foreign subsidiaries against the Swedish krona, compared to the same period the previous year. The underlying profit/loss in a market may be unchanged in the local currency, but when converted into SEK may increase if the Swedish krona has weakened or decrease if the Swedish krona has strength- ened. Translation effects affect the group’s net assets on consolidation of the foreign subsidiaries’ balance sheets (translation exposure in the balance sheet). No exchange rate hedging (equity hedging) is carried out for this risk. 90 NO T E S 2016 No. of stores 30 nov. 2016 2015 No. of stores 30 nov. 2015 Netherlands 6,536 145 6,217 139 Belgium 3,641 90 3,483 85 Austria 4,637 83 4,473 78 Luxembourg 408 10 384 10 Finland 2,317 61 2,269 60 France 11,300 238 11,316 222 uSA 25,495 468 23,884 415 Spain 6,610 169 6,453 165 Poland 3,825 166 3,544 154 Czech Republic 1,182 48 999 44 Portugal 1,037 31 1,038 30 italy 7,443 166 7,085 150 Canada 3,882 85 3,517 78 Slovenia 445 12 433 12 ireland 929 23 864 23 Hungary 1,254 42 1,053 40 Slovakia 568 19 482 18 Greece 1,531 35 1,332 32 China 9,327 444 9,084 353 Hong Kong 1,919 28 1,870 25 Japan 4,259 66 3,476 57 Russia 3,702 113 2,978 96 South Korea 1,523 35 1,161 31 Turkey 2,581 62 2,016 46 Romania 1,745 52 1,448 42 Croatia 677 15 654 15 Singapore 963 13 906 12 Bulgaria 534 19 426 18 Latvia 274 8 256 6 malaysia 1,066 35 937 29 mexico 1,345 25 946 16 Chile 950 4 482 4 Lithuania 262 8 245 7 Serbia 307 9 265 6 Estonia 314 8 260 6 Australia 1,817 22 1,030 10 Philippines 776 21 497 12 Taiwan 634 10 316 6 Peru 433 6 223 2 macau 166 2 89 2 india 574 12 73 2 South Africa 566 8 86 2 Puerto Rico 57 2 Cyprus 30 1 New Zealand 48 1 Franchise 4,802 188 4,485 156 Total 192,267 4,351 180,861 3,924 5. REVENUE FROM GROUP COMPANIES The parent company’s internal sales consist of royalties of SEK 3,849 m (3,457) and other income of SEK 136 m (148) from group companies. 2016 2015 North and South America External net sales 32,162 29,051 Operating profit 971 619 Operating margin, % 3.0 2.1 Assets excluding tax receivables 17,369 14,157 Liabilities excluding tax liabilities 5,998 4,712 investments 3,360 2,966 Depreciation 1,791 1,547 Group Functions Net sales to other segments 79,284 91,297 Operating profit 16,919 19,755 Operating margin, % 21.3 21.6 Assets excluding tax receivables 22,548 24,510 Liabilities excluding tax liabilities 12,608 6,988 investments 2,009 1,732 Depreciation 650 431 Eliminations Net sales to other segments -79,284 -91,297 Total External net sales 192,267 180,861 Operating profit 23,823 26,942 Operating margin, % 12.4 14.9 Assets excluding tax receivables 95,717 83,096 Liabilities excluding tax liabilities 32,011 23,386 Investments 13,661 12,059 Depreciation 7,605 6,399 Operating results for each segment are based on how H&M tracks results internally within the group and may deviate from the fiscal result in each market. The group’s property, plant and equipment amounted to SEK 38,693 m (32,962) as of 30 November 2016. The fixed assets are largely distributed between the countries in accordance with each country’s level of sales. In Sweden property, plant and equip- ment amounted to SEK 1,722 m (1,546) as of 30 November 2016. 4. NET SALES BY MARKET The group’s income is generated mainly by the sale of clothing, acces- sories, footwear, cosmetics and home textiles to consumers. Sales rev- enue is reported less value-added tax, returns and discounts as sales excluding vAT in the income statement. Income from store and online sales is reported in conjunction with sale/delivery to the customer. Franchise sales have two components: sales of goods to franchisees, which are reported on delivery of the goods, and franchise fees, which are reported when the franchisee sells goods to the consumer. The group’s income exhibits seasonal variations. The first quarter of the financial year is normally the weakest and the last quarter the strongest. 2016 No. of stores 30 nov. 2016 2015 No. of stores 30 nov. 2015 Sweden 8,127 176 7,606 176 Norway 4,744 127 4,648 120 Denmark 4,549 102 4,334 103 uK 13,005 281 13,799 264 Switzerland 5,860 98 6,337 96 Germany 31,291 459 31,102 449 Cont. Note 3, Segment reporting Cont. Note 4, Net sales by market 91 NO T E S CEO’s fixed salary. Pension expenses amounted to SEK 4.0 m (3.9). The retirement age for the CEO is 65. The CEO is entitled to a 12-month period of notice. In the event that the company cancels his employment contract, the CEO will also receive severance pay of an extra year’s salary. The CEO’s terms of employment are determined by the board of directors. The CEO is not covered by the supplementary guidelines on senior executives – see the administration report on page 76. Pension for the former CEO The former CEO retired on 1 September 2009. The total pension commitments entered as liabilities, which are based on the fact that the former CEO receives a pension for the first three years of his retirement equivalent to 65 percent of his fixed salary followed by a lifelong pension equivalent to 50 percent of the same salary, amount to SEK 141.3 m (142.1). The change in the year’s pension commitments entered as liabilities include actuarial losses of SEK 2.5 m (actuarial gains of SEK 16.6 m). Pension costs for the former CEO are included under “of which pensions to board, CEO, executive management”. Remuneration of the executive management team During the year the composition of the executive management was changed such that, in addition to the CEO, it now encompasses ten (16) individuals, of whom six are women. The executive management team consists of the CFO and the individuals responsible for the following group-wide functions: production, sustainability, expansion, commu- nications, human resources, business development and logistics, as well as the person responsible for the H&m brand and the person respon- sible for new business (which includes the other brands such as COS, & Other Stories, Monki, Weekday, Cheap Monday and H&M Home). Remuneration paid to members of the executive management team in the form of salary and benefits amounted to SEK 48.0 m (66.5), which included variable remuneration of SEK 0 m (6.4). In addition to this, an estimated expense of SEK 30.0 m (30.0) has been recog- nised in respect of remuneration that certain senior executives may receive in accordance with the supplementary guidelines – see further descrip tion in the administration report on page 76. This will be paid out no earlier than 2019, in accordance with the guidelines approved at the 2014 AGM. Pension expenses relating to other mem- bers of the executive management during the year amounted to SEK 15.1 m (24.9). There are rules in place for members of the execu- tive management team with respect to supplements to retirement pension beyond the ITP plan. The retirement age varies between 62 and 65. The cost of this commitment is partially covered by separate insurance policies. H&M Incentive Program (HIP) An extraordinary general meeting held on 20 October 2010 resolved to introduce an incentive programme for all employees of the H&M group. The programme was initiated by Stefan Persson and family through the donation of 4,040,404 H&M shares worth around SEK 1 billion to a Swedish foundation, Stiftelsen H&M Incentive Program. All employees of the H&m group, regardless of their position and salary level, are included in the programme according to the same basic principle – based on length of employment, either full-time or part-time. The number of years that the employee has worked for the company previously is taken into account in the qualification period, which is five years unless local rules require otherwise. As a general rule, funds will begin to be paid out no earlier than the age of 62. However, it will also be possible for payments to be made after ten years of employment – but no earlier than 2021. 6. SALARIES, OTHER REMUNERATION AND SOCIAL SECURITY COSTS 2016 Board, CEO, executive management team, salary Salary, other employees Social sec. costs total of which pens. total of which pens. board, CEO, executive management team Sweden, parent company* 19 0 13 13 13 Subsidiaries 48 26,166 6,333 607 23 Group total 67 26,166 6,346 620 36 * Social security costs have been affected by SEK 6 m relating to the repayment of premiums for the previous years. 2015 Board, CEO, executive management, salary Salary, other employees Social sec. costs total of which pens. total of which pens. board, CEO, executive management Sweden, parent company** 21 – -21 -28 -28 Subsidiaries 134 24,056 5,783 458 37 Group total 155 24,056 5,762 430 9 ** The negative social security and pension costs are due to actuarial changes in pension liability. Board fees Board fees paid for the year as approved by the 2015 AGM amounted to SEK 5,825,000 (5,525,000). Board fees were paid as follows: SEK Stefan Persson, chairman 1,550,000 Anders Dahlvig 675,000 Lottie Knutson 550,000 Sussi Kvart 675,000 Lena Patriksson Keller 550,000 melker Schörling 550,000 Christian Sievert 725,000 Niklas Zennström 550,000 The fees were paid as resolved at the 2015 annual general meeting. This means that the fees related to the period until the next AGM was held; that is, for the period 29 April 2015 to 3 May 2016. The amounts were paid out after the 2016 AGM. As of the AGM on 3 May 2016 the board consists of eight ordinary members elected by the AGM. There are also two employee repre- sentatives, with two deputies for these positions. Seven members of the board are women, five are men, and four of the 12 are employed by the company. Board member Lena Patriksson Keller is the majority shareholder in Patriksson Communication AB, which had business relations with H&M during the year. The transactions took place on market terms and remuneration for 2016 amounted to SEK 0.4 m (0.6). There were no outstanding balances as of 30 November 2016. Remuneration of senior executives Based on resolutions on guidelines adopted annually by the AGM – see the administration report on pages 75–76. Remuneration of the chief executive officer Remuneration paid to the CEO for the 2016 financial year in the form of salary and benefits amounted to SEK 13.4 m (15.0), which included variable remuneration of SEK 0 m (2.0). Pension benefits for the CEO are covered by a defined contribution plan and by the ITP plan. The combined pension expenses shall amount in total to 30 percent of the 92 NO T E S A goodwill impairment test was carried out at the end of 2016. Significant assumptions used when testing goodwill for impairment are sales development and gross margin. The impairment test is based on a calculation of value in use. The value in use has been assessed based on discounted cash flows according to forecasts for the next five years and with an annual growth rate of 2 percent (2) in subsequent years. A discount rate of 14 percent (14) before tax was used. The cash flows are based on H&M’s business plan. The growth rate of 2 percent (2) is based on H&M’s assessment of the opportuni- ties and risks associated with the business. The discount rate is based on an average weighted capital cost that is estimated to be on a par with the external requirements that the market imposes for similar companies. No impairment was identified and H&M is of the opinion that reasonable possible changes in the variables above would not have such a significant impact that the recovery amount would be reduced to a lower amount than the carrying amount. 12. BUILDINGS, LAND AND EQUIPMENT Costs relating to property, plant and equipment are reported in the balance sheet if it is likely that the company will gain from future financial benefits associated with the asset and if the asset’s acquisi- tion cost can be reliably calculated. Other costs and costs relating to ongoing maintenance and repair are reported as an expense in the period in which they arise. Property, plant and equipment are reported at acquisition cost less accumulated depreciation and any accumulated write-downs. Depreciation is distributed linearly over the assets’ expected useful life. No depreciation is applied to land. The carrying amount of property, plant and equipment is tested for any indication of im pairment. If the book value of the asset exceeds the recoverable amount (the higher of the net realisable value and the value in use), the necessary amount is written down. Any write-down is recognised in profit/loss. GROUP PARENT COMPANY 2016 2015 2016 2015 Buildings Opening acquisition cost 1,037 972 146 112 Acquisitions during the year 0 34 0 34 Sales/disposals -21 – – – Translation effects 52 31 – – Closing acquisition cost 1,068 1,037 146 146 Opening depreciation -377 -334 -78 -74 Sales/disposals 4 0 – 0 Depreciation for the year -31 -31 -5 -4 Translation effects -19 -12 – – Closing accumulated depreciation -423 -377 -83 -78 Closing book value 645 660 63 68 Opening value, projects in progress 0 32 0 32 Change for the year 57 -32 57 -32 Translation effects – – – – Closing value, projects in progress 57 0 57 0 Total closing book value 702 660 120 68 Land Opening acquisition cost 137 134 3 3 Acquisitions during the year 3 – 4 – Sales/disposals 0 – – – Translation effects 8 3 – – Closing book value 148 137 7 3 GROUP 2016 2015 Brands* Opening acquisition cost 470 470 Acquisitions during the year – – Closing acquisition cost 470 470 Opening amortisation -356 -309 Amortisation for the year -48 -47 Closing accumulated amortisation -404 -356 Closing book value 66 114 Customer relations* Opening acquisition cost 131 131 Acquisitions during the year – – Closing acquisition cost 131 131 Opening amortisation -99 -86 Amortisation for the year -12 -13 Closing accumulated amortisation -111 -99 Closing book value 20 32 Leasehold rights and similar Opening acquisition cost 1,372 1,179 Acquisitions during the year 100 315 Sales/disposals -70 -130 Translation effects 36 8 Closing acquisition cost 1,438 1,372 Opening amortisation -721 -670 Sales/disposals 69 122 Amortisation for the year -175 -172 Translation effects -28 -1 Closing accumulated amortisation -855 -721 Closing book value 583 651 Opening value, projects in progress 9 – Change for the year 39 9 Translation effects -1 – Closing value, projects in progress 47 9 Total closing book value 630 660 Capitalised expenditure Opening acquisition cost 3,376 2,237 Acquisitions during the year 1,476 1,139 Closing acquisition cost 4,852 3,376 Opening amortisation -131 -54 Amortisation for the year -154 -77 Closing accumulated amortisation -285 -131 Closing book value 4,567 3,245 Capitalised expenditure refers mainly to IT-related investments. To a small extent these were taken into use during 2013–2016, whereupon amortisation was commenced for these parts. Significant parts of the projects will be taken into use within one to four years. Those projects that are not yet ready for use are tested for impairment annually. This year’s impairment testing of these projects did not result in any need for write-downs. Goodwill* Opening book value 64 64 Adjusted consideration/additional consideration – – Closing book value 64 64 * Brands, customer relations and goodwill assets were added through the acquisition in 2008 of the company FaBric Scandinavien AB, which is a cash-generating unit. H&m acquired the remaining 40 percent of the shares in FaBric Scandinavien AB at the end of November 2010. Cont. Note 11, Intangible fixed assets Cont. Note 11, Intangible fixed assets 95 NO T E S Finance leases The group has assets held under finance leases with a year-end residual value according to plan of SEK 272 m (0). Finance lease payments are due as follows: Current interest cost Future In next twelve months 59 1 60 In next two to five years 190 3 193 More than five years ahead 23 1 24 Total 272 5 277 There were no finance leases in 2015. Leased property, plant and equipment GROUP 2016 2015 Opening balance – – Additional contracts 272 – Repayments – – Translation effects – – Total 272 – As of 30 November 2016, expenses attributable to finance leases including depreciation, were charged to earnings for the group in the amount of SEK 0 m (0) as well as interest expenses of SEK 0 m (0). 14. STOCK-IN-TRADE Stock-in-trade is valued at the lower of the acquisition cost and the net realisable value. From the moment the goods are transferred from the supplier to the transport service provider appointed by H&m, the goods are owned according to civil law by H&M and become part of H&M’s reported stock-in-trade. The net realisable value is the esti- mated market value less the calculated selling expenses. Goods that have not yet arrived at a store are valued at their actual acquisition cost including the estimated cost of customs duties and freight. For stock in the stores the acquisition cost is determined by reducing the selling price by the calculated gross margin (retail method). The composition of the stock-in-trade as of the closing date is judged to be good, but the stock level is assessed as being too high. Significant write-downs are rare. There were no material write-downs in the current or previous financial years. Only an insignificant part of the stock-in-trade is measured at net realisable value. The stock- in- trade is not considered to have any material degree of obsolescence. 15. PREPAID EXPENSES GROUP PARENT COMPANY 2016 2015 2016 2015 Prepaid rent 1,527 1,431 0 0 Other items 544 453 – 0 Total 2,071 1,884 0 0 GROUP PARENT COMPANY 2016 2015 2016 2015 Equipment Opening acquisition cost 54,812 45,266 1,001 983 Acquisitions during the year 11,579 9,594 – 70 Sales/disposals -4,402 -2,705 – -52 Translation effects 1,738 2,657 – – Closing acquisition cost 63,727 54,812 1,001 1,001 Opening depreciation -24,044 -19,450 -566 -477 Sales/disposals 4,055 2,451 – 52 Depreciation for the year -6,959 -6,059 -122 -141 Translation effects -785 -986 – – Closing accumulated depreciation -27,733 -24,044 -688 -566 Closing book value* 35,994 30,768 313 435 Opening value, projects in progress 1,397 328 – 69 Change for the year 409 1,000 0 -69 Translation effects 43 69 – – Closing value, projects in progress 1,849 1,397 0 – Total closing book value 37,843 32,165 313 435 * Finance leases for cash registers in stores are included in the closing book value of equipment at SEK 272 m (0). The leases run for up to seven years. 13. PAYMENTS FOR OPERATING LEASES AND FINANCE LEASES Leases are classified in the consolidated accounts as either finance or operating leases. Finance leases exist when the financial risks and benefits associated with the ownership of an object are essentially transferred from the lessor to the lessee, regardless of whether the legal ownership lies with the lessor or the lessee. Assets held under finance leases are reported as fixed assets and future payment com- mitments are reported as liabilities in the balance sheet. On initial recognition, the asset and liability are reported at the net present value of future minimum lease payments and any residual value. On subsequent occasions, the expense is distributed between an interest portion and a repayment portion. All other rental agreements that do not fulfil the conditions for classification as finance leases are deemed to be operating leases. Lease charges paid under operating leases are expensed over the lease period using the straight-line method, even if the payment schedule deviates from this. With effect from the 2016 financial year, H&M has not only operating leases but also some leases that are classified as finance leases. The group’s main leases are rental agreements for premises. variable (sales-based) rents are recognised in the same period as the corresponding sales. Operating leases The group has leases relating to rented premises which were entered into on normal market terms. Most of the agreements contain options to extend the term. Rental costs for the 2016 financial year amounted to SEK 22,332 m (20,554), of which sales-based rent amounted to SEK 3,853 m (2,983). Rent according to the group’s rental agreements (basic rent exclud- ing any sales-based rent) amounts to: GROUP 2016 2015 Rental commitments in next twelve months 16,068 14,626 Rental commitments in next two to five years 41,605 41,732 Rental commitments more than five years ahead 23,820 28,965 Total 81,493 85,323 Cont. Note 12, Buildings, land and equipment Cont. Note 13, Payments for operating leases and finance leases 96 NO T E S ASSETS/LIABILITIES 2016 Derivative assets Derivative liabilities Total Gross amounts 547 1,034 -487 Gross amounts set off in the balance sheet – – – Net amount in balance sheet 547 1,034 -487 Related amounts not set off in the balance sheet Financial instruments -519 -519 0 Net amount 28 515 -487 Other instruments not subject to netting agreements 301 142 159 Total in balance sheet 848 1,176 -328 ASSETS/LIABILITIES 2015 Derivative assets Derivative liabilities Total Gross amounts 547 264 283 Gross amounts set off in the balance sheet – – – Net amount in balance sheet 547 264 283 Related amounts not set off in the balance sheet Financial instruments -208 -208 0 Net amount 339 56 283 Other instruments not subject to netting agreements 160 38 122 Total in balance sheet 707 302 405 At the closing date, forward contracts with a positive market value amount to SEK 848 m (707), which is reported under other current receivables. Forward contracts with a negative market value amount to SEK 1,176 m (302), which is reported under other current liabilities. Of the outstanding forward contracts, losses of SEK -69 m (gains 87) were transferred to the income statement when hedged transactions occurred for these contracts. The residual fair value of SEK -259 m (318) is included in the hedging reserve in equity. Regarding measurement see note 20. 18. SHARE CAPITAL The share capital is divided between 194,400,000 class A shares (ten votes per share) and 1,460,672,000 class B shares (one vote per share). There are no other differences between the rights associated with the shares. The total number of shares is 1,655,072,000. The dividend paid per share in 2016 was SEK 9.75. The group’s managed capital consists of shareholders’ equity. The group’s goal with respect to managing capital is to enable good growth to continue and to be prepared to exploit business opportuni- ties. It is essential that, as in the past, the expansion is able to proceed with a continued high degree of financial strength and con- tinued freedom of action. In view of this, the board of directors has established a dividend policy whereby the dividend should equal around half of the profit for the year after tax. In addition, the board may propose that any surplus liquidity is also distributed. H&M meets the capital requirements set out in the Swedish Companies Act. There are no other external capital requirements. 16. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and bank balances as well as short-term investments with a maximum term of three months from the date of acquisition. These investments carry no significant risk of changes in value. GROUP PARENT COMPANY 2016 2015 2016 2015 Cash and bank balances 8,312 11,924 376 1,758 Short-term investments, 0–3 months 1,134 1,026 – – Total 9,446 12,950 376 1,758 investments are made on market terms and the interest rates are between 0.00 and 10.25 percent. The difference in interest rate depends mainly on the currency in which the funds are invested. In the case of cash and cash equivalents for the parent company, cash pool accounts in the comparison figures were reclassified from cash and cash equiv- alents to intra-group balances. 17. FORWARD CONTRACTS All changes in the value of derivatives are recognised initially in equity as a hedging reserve through other comprehensive income. Through other comprehensive income, the fair value is transferred from the hedging reserve to the income statement in conjunction with a hedged transaction taking place. The table below shows the outstanding forward contracts for cash flow hedging as of the closing date: Book value and fair value Nominal amount, SEK Average remaining terms in months SELL/BUY 2016 2015 2016 2015 2016 2015 NOK/SEK -36 9 957 491 3 4 GBP/SEK -53 -23 3,377 1,806 3 4 DKK/SEK -21 7 1,121 449 3 4 CHF/SEK -18 21 750 613 3 4 EuR/SEK -393 139 19,967 10,405 3 4 PLN/SEK -7 12 1,128 606 3 4 uSD/SEK -328 -135 4,734 3,414 3 4 CAD/SEK -26 -5 612 450 3 4 JPy/SEK 14 -16 820 591 3 4 HKD/SEK -29 -8 405 185 3 4 RON/SEK -8 2 464 310 4 4 CZK/SEK -4 0 304 37 3 6 HuF/SEK -6 0 323 49 4 6 AuD/SEK -25 -3 458 55 4 6 CNH/SEK -39 -36 982 736 3 4 RuB/SEK -63 -13 750 272 3 3 TRy/SEK 17 -27 452 338 3 3 SEK/uSD 688 496 16,820 14,723 2 2 SEK/EuR 9 -15 1,628 1,384 2 2 Total -328 405 56,052 36,914 Cont. Note 17, Forward contracts 97 NO T E S