31/01/2024 - H&M - Hennes & Mauritz AB: H & M Hennes & Mauritz AB Full-year report 2023

H & M Hennes & Mauritz AB

Full-year report

Full-year (1 December 2022 - 30 November 2023)

• The H&M group's net sales in SEK increased by 6 percent in the 2023 financial year to
  SEK 236,035 m (223,553). Excluding Russia and Belarus the increase was 8 percent in SEK and 1 percent in local currencies.
• Sales for Portfolio brands in the financial year increased by 15 percent in SEK and by 9 percent in local currencies.
• Gross profit increased by 7 percent to SEK 120,896 m (113,370). This corresponds to a gross margin of 51.2 percent (50.7).
• Operating profit including allocation to the H&M Incentive program (HIP) increased to SEK
  14,537 m (7,169), corresponding to an operating margin of 6.2 percent (3.2). Operating profit amounted to SEK 14,714 m (7,169) excluding allocation to HIP. This corresponds to an operating margin of 6.2 percent (3.2).
• The result after tax increased by 145 percent to SEK 8,723 m (3,566), corresponding to SEK 5.35 (2.16) per share.
• Cash flow from operating activities increased by 37 percent to SEK 33,949 m (24,745).
• Financial net cash amounted to SEK 9,316 m (10,929). Cash and cash equivalents plus undrawn credit facilities were SEK 44,570 m (39,176).
• The year's increase in profit means that SEK 177 m (0) has been allocated to HIP, which is for all employees.

Fourth quarter (1 September 2023 - 30 November 2023)

• The H&M group's net sales amounted to SEK 62,650 m (62,433). Excluding Russia and Belarus the increase was 3 percent in SEK and decreased by 1 percent in local currencies.
• Gross profit increased by 8 percent to SEK 33,657 m (31,104). This corresponds to a gross margin of 53.7 percent (49.8).
• Operating profit amounted to SEK 4,509 m (821), excluding allocation to HIP. This corresponds to an operating margin of 7.2 percent (1.3). Operating profit including allocation to HIP increased to SEK 4,332 m (821). This corresponds to an operating margin of 6.9 percent (1.3).
• The result after tax increased to SEK 1,576 m (-864), corresponding to SEK 0.97 (-0.53) per share.
• Currency adjusted the stock-in-trade decreased by 13 percent compared with the previous year. Converted into Swedish kronor the stock-in-trade decreased by 12 percent to SEK 37,358 m (42,495).
• In the fourth quarter cash flow from operating activities improved by 41 percent to SEK 9,207 m (6,524).
• The H&M group's sales decreased by 4 percent in local currencies in the period
  1 December 2023 - 29 January 2024 compared with the same period the previous year.
• CapEx in comparable currency is planned to amount to SEK 11-12 billion (9,0) for 2024, corresponding to an increase of up to around 30 percent compared with 2023.
• The board of directors is proposing to the 2024 annual general meeting that an unchanged ordinary dividend of SEK 6.50 per share is paid in two instalments.
• The board of directors will also ask the annual general meeting for a general authorisation allowing the board to choose to buy back the group's own B shares.

"Operating profit has been positively impacted by a stronger gross margin, the cost and efficiency programme, and good cost control. The H&M group is taking important steps towards the company's ambitious climate goals. Preliminary results indicate that greenhouse gas emissions decreased by more than 20 percent in 2023 compared with the 2019 baseline*," says Helena Helmersson, CEO.

*Refers to science-based targets for own operations (scope 1 & 2) and for the company's entire value chain (scope 3), and excludes the use of sold products.

Q4

Cash flow from operating

activities

SEK 9,207 m

+41%

Fourth quarter 2023

Stock-in-trade in SEK in relation to

sales, rolling 12-months

15.8%

The result after tax

+145%

Full-year 2023

Full-year report 2023 (1 Dec 2022 - 30 Nov 2023)

Comments by Helena Helmersson, CEO

In 2023 we took important steps towards our long-term goals. Our improvement work in the supply chain and continued normalisation of the external factors that influence purchasing costs resulted in a stronger gross margin. A focus on cost control, profitability and increased inventory productivity also contributed to improved cash flow that is financing increased reinvestments in the business. For many consumers the year was marked by lower purchasing power because of high inflation and high interest rates. Despite this, our net sales in comparable markets increased in relation to 2022. The fourth quarter started with unusually hot weather in several of our important European markets. From mid-October sales recovered as more normal autumn weather returned, with well-received collections.

The H&M group's brands are well positioned for continued growth, and we are making progress in all our growth areas:

H&M. Our top priority is H&M, where our focus is on further enhancing the customer experience and the customer offering. Our customers are gaining access to a broader and more relevant assortment in stores and online thanks to our investments in areas such as tech and AI, which support our continued work on greater precision and shorter response times. Simultaneously we are continuing to integrate the two channels for a convenient customer experience with better product availability. In 2024 we are stepping up the pace of investment in our existing stores to provide an even more inspiring experience, while at the same time securing our store portfolio for continued profitability and growth.

Portfolio brands - COS, Monki, Weekday, & Other Stories and Arket - continue to develop well. Sales at COS, Arket and Weekday have developed particularly strongly over the year, and these brands are contributing more and more to the group's profitability development.

New growth and ventures. We are creating new revenue streams through a variety of strategic partnerships and new circular business models, and we see great potential in the companies that we invest in. One example is Sellpy, which is growing rapidly in 24 European markets as demand for second-hand fashion continues to increase. Our investments in innovation also mean we are taking important steps on our journey towards circularity. Through greater use of recycled and more sustainably produced materials we are moving closer to our long-term sustainability goals.

Our climate goals are set high, and preliminary results show that we reduced greenhouse gas emissions by more than 20 percent compared with our 2019 baseline*. This takes us even closer to our science-based targets, which are some of the most ambitious in our industry.

The H&M group stands strong with a robust financial position, strong cash flow and improved profitability. With our continued customer focus, committed colleagues and faster pace of investment we see good conditions for continued profitable and sustainable growth in 2024.

• For own operations (scope 1 & 2) and for the rest of our value chain (scope 3) and excluding use of sold products..

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Full-year report 2023 (1 Dec 2022 - 30 Nov 2023)

Sales

SEK m

250,000				+ 6%
200,000			223,553	236,035
150,000						2022
100,000
	+ 0%				2023
50,000
62,433	62,650
0
		Q4	Full year

The H&M group's net sales in the fourth quarter were flat compared with the corresponding quarter the previous year and amounted to SEK 62,650 m (62,433). Excluding Russia and Belarus the increase was 3 percent in SEK and decreased by 1 percent in local currencies. In total, the H&M group's net sales decreased by 4 percent in local currencies compared with the corresponding quarter last year.

For the financial year net sales increased by 6 percent to SEK 236,035 m (223,553). In local currencies the decrease was 1 percent. Excluding Russia and Belarus the increase was

8 percent in SEK and 1 percent in local currencies. Around 30 percent of sales are online.

Net sales for Portfolio brands in the fourth quarter increased by 11 percent in SEK and by

6 percent in local currencies. For the financial year the increase was 15 percent in SEK and 9 percent in local currencies.

Sales per region, full-year

						New stores
	SEK m	SEK m	SEK	LCY		(net)		Number of stores
									30 Nov -
	2023	2022	Change in %		2023		30 Nov - 23
			22
The Nordics	21,307	20,128	6	4		-10		389	399
Western Europe	79,049	71,452	11	2		-28		1,051	1,079
Eastern Europe	19,633	21,991	-11	-19		-6		475	481
Southern Europe	31,186	28,611	9	5		-15		608	623
North & South America	53,785	50,990	5	-2		5		745	740
Asia, Oceania & Africa	31,075	30,381	2	0		-42		1,101	1,143
Total	236,035	223,553	6	-1		-96		4,369	4,465

Excluding Russia, Belarus and Ukraine, sales in eastern Europe had an increase for the full-year 2023 of 15 percent in SEK and 5 percent in local currencies. Sales were temporarily resumed in Russia from August until November 2022. Development in eastern Europe should be seen in light of the fact that the H&M group's operations in Russia and Belarus have been fully wound down since 30 November 2022. Operations in Ukraine were paused from the end of February 2022 and 7 stores in the country were reopened during November 2023.

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Full-year report 2023 (1 Dec 2022 - 30 Nov 2023)

Gross profit and gross margin

Gross profit and gross margin are a result of many factors, internal as well as external, and are mostly affected by the decisions that the H&M group takes in line with its strategy to always have the best combination of fashion, quality, price and sustainability.

SEK m
120,000			50.7%	51.2%
			120,896
100,000			113,370
80,000
60,000						2022
40,000	49.8%	53.7%				2023
20,000	31,104	33,657
0
	Q4	Full year

Gross profit increased by 8 percent to SEK 33,657 m (31,104) for the fourth quarter, corresponding to a gross margin of 53.7 percent (49.8).

For the financial year gross profit increased by 7 percent to SEK 120,896 m (113,370). This corresponds to a gross margin of 51.2 percent (50.7).

The improvement work in the supply chain, the cost and efficiency programme and continued normalisation of the external factors that influence purchasing costs resulted in a stronger gross margin in 2023.

The cost of markdowns in relation to sales in the fourth quarter was flat compared with the corresponding quarter the previous year.

For the goods that will be sold in the first quarter of 2024, the overall effect of external factors is expected to be positive compared with the previous year.

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Selling and administrative expenses decreased in the fouth quarter by 2 percent to SEK 29,314 m (30,014). In local currencies these expenses decreased by 6 percent.

For the full year, selling and administrative expenses amounted to SEK 107,330 m (105,932). In local currencies these expenses decreased by 4 percent compared with the same period the previous year.

This development is made possible by good operational cost control combined with the cost and efficiency programme that was initiated during the fourth quarter 2022. The programme's actions had already started to have an effect in the second and third quarters of 2023. In the fourth quarter further parts of the cost and efficiency programme were implemented and the programme will be completed during 2024. The programme is expected to result in annual savings of around SEK 2 billion once fully implemented.

Operating profit and operating margin

SEK m

15,000		+ 103%
		14,537
10,000
	+ 428%	7,169		2022
5,000		2023
	4,332
0	821
	Q4	Full year

Operating profit in the fourth quarter amounted to SEK 4,509 m (821), excluding allocation to HIP, corresponding to an operating margin of 7.2 percent (1.3). Operating profit including allocations to HIP amounted to SEK 4,332 m (821), corresponding to an operating margin of

6.9 percent (1.3). The strong gross margin, the cost and efficiency programme, and good operational cost control all had a positive impact on operating profit.

One-time costs of SEK 836 m were charged to the fourth quarter the previous year for the cost and efficiency programme.

Operating profit for the full year including allocation to HIP increased to SEK 14,537 m (7,169), corresponding to an operating margin of 6.2 percent (3.2). Operating profit amounted to SEK 14,714 m (7,169), excluding allocation to HIP. This corresponds to an operating margin of 6.2 percent (3.2).

In 2022 results for the full year were impacted by one-time costs of SEK 2,591 m for winding down the Russian operations and for the cost and efficiency programme.

The result from investments in associated companies and joint ventures amounts to SEK 971 m (-269) for the full year and primarily refers to the remeasurement during the first quarter of the former associated company Sellpy.

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Full-year report 2023 (1 Dec 2022 - 30 Nov 2023)

Income statement including and excluding IFRS 16 effects

	Q4	Q4	Full year	Full year
SEK m	2023	2022	2023	2022
Net sales	62,650	62,433	236,035	223,553
Gross profit	33,657	31,104	120,896	113,370
Gross profit excl. IFRS 16	33,589	31,069	120,738	113,281
Operating profit	4,332	821	14,537	7,169
Operating margin, %	6.9	1.3	6.2	3.2
Operating profit excl. IFRS 16	4,204	680	13,043	6,263
Operating margin, %, excl.IFRS 16	6.7	1.1	5.5	2.8
Net financial items	-416	-358	-1,527	-953
Net financial items, excl. IFRS 16	72	-52	217	-81
Profit after financial items	3,916	463	13,010	6,216
Profit after financial items, excl. IFRS 16	4,276	628	13,260	6,182
Profit for the period	1,576	-864	8,723	3,566
Profit for the period, excl. IFRS 16	1,850	-738	8,913	3,539
Depreciation & amortisation / write-downs	6,230	5,791	22,955	22,579
Depreciation & amortisation / write-downs, excl. IFRS 16	2,666	2,634	9,838	10,474

For definitions of alternative performance measures, see the second to last page of the report.

Stock-in-trade

SEK m
50,000	- 12%
40,000
42,495
30,000	37,358

10,000

0

30 November

Currency adjusted the stock-in-trade decreased by 13 percent compared with the previous year. Converted into SEK the stock-in-trade decreased by 12 percent to SEK 37,358 m (42,495).

The composition of the stock-in-trade is assessed to be good.

The stock-in-trade in SEK represented 15.8 percent (19.0) of rolling 12 months sales.

The investments in the supply chain and the integration of the sales channels continue. With a higher share of nearshoring, a more efficient and more flexible supply chain and more purchasing in season, the group is well placed for continued improvement of the stock-in-trade situation.

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Full-year report 2023 (1 Dec 2022 - 30 Nov 2023)

Expansion through integrated channels

Expansion is taking place with a focus on increased omnichannel sales. Customers want to be able to shop and be inspired where, when and how they choose - in the stores, on the brands' own websites, on digital marketplaces and on social media. In 2024 the company is stepping up the pace of investment in existing stores to provide an even more inspiring experience while also securing our store portfolio for continued profitability and growth.

Albania became a new store market for H&M in 2023. In the first half of the year H&M opened online in Ecuador and Vietnam, as well as beginning a collaboration with Superbalist.com in South Africa. H&M was launched on two new marketplaces: JD.com and, via franchise, on Namshi.com.

Arket opened a first store in Estonia and in Switzerland during the financial year, while in December the first store in Riga, Latvia also opened. Mexico became a new store market for COS when it opened its first flagship store, and & Other Stories opened its first store in Switzerland. Both & Other Stories and COS opened on Iconic.com in Australia and New Zealand during the year. At the same time, Monki expanded its presence on Zalora.com by adding a further market when it launched in Hong Kong.

In 2024 Arket will open a first store in Spain, Italy and Poland respectively.

The H&M group is continuing to renegotiate a large number of leases, which also involves rebuilds, adjustment of the number of stores and of store space to ensure it has the best store portfolio in each market. The H&M group's contracts allow around a third of leases to be renegotiated or exited each year. The store portfolio has reached a level of fewer closures going forward while at the same time new stores will be opened. For 2024 the plan is to open around 100 new stores and close around 160 stores, making a net decrease of around 60 stores. These portfolio changes will start to make a positive contribution to the H&M group's sales. Most of the openings will be in growth markets, while the closures will mainly be in established markets.

Store count and markets by brand

As at 30 November 2023 the H&M group had 4,369 (4,465) stores, i.e. the total number of stores has decreased by 96 compared with the same point in time the previous year. During the financial year 101 (91) new stores have opened and 197 (427) stores have closed. A total of 282 (288) of the group's stores are operated by franchise partners.

							No. of markets
	New Stores 2023 (net)		Total No of stores	Store	Online
Brand	Q4	Full year		30 Nov - 2023	30 Nov - 2022	30 Nov - 2023
H&M	-3	-75		3,872	3,947		77	60
COS	-3	-14		245	259		47	38
Monki	-5	-14		64	78		15	29
Weekday	0	-1		53	54		14	29
& Other Stories	2	1		72	71		25	32
ARKET	3	5		30	25		14	31
Afound	0	0		0	0		0	7
H&M HOME*	0	2		33	31		57	42
Sellpy	0	0		0	0		0	24
Total	-6	-96		4,369	4,465

* Concept stores. H&M HOME is also available through shop-in-shop in 433 H&M stores.

COS, Monki, Weekday, & Other Stories and ARKET offer Global selling which enables customers in around 70 additional markets to shop online. The exact number of markets per brand that have this service varies.

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Full-year report 2023 (1 Dec 2022 - 30 Nov 2023)

Tax

The group's tax rate for the financial year 2023 was 35.6 percent (42.6). The final tax rate depends on, among other things, the results of the group's various companies, the corporate tax rates in each country, non-deductible costs and tax expense relating to previous years. The relatively high tax rate for full-year 2023 is mainly due to tax expense relating to previous years.

The H&M group's tax rate for the financial year 2024 is expected to be 25 - 26 percent based on known circumstances. For the first three quarters of the year a tax rate of 25 percent is planned to be used to calculate tax expense on the earnings in each period.

Employees

To stay successful and competitive, the H&M group creates customer value by having a clear direction, adapting to a constantly changing world and acting fast. The company's continuous development includes advancing digitalisation, utilising new technologies, secure right competence, simplifying the organisational structure and establishing more efficient ways of working.

The average number of employees in the group as at 30 November 2023, converted into full- time positions, was 101,103 (106,522), of which 10,281 (10,447) were employed in Sweden.

Current quarter

Sales during the period 1 December 2023 - 29 January 2024 decreased by 4 percent in local currencies compared with the same period last year.

The cost of markdowns in relation to sales in the first quarter is estimated to increase by

1 percentage point compared with the corresponding quarter the previous year since the late arrival of normal autumn weather in the fourth quarter left a relatively brief window of time in which to sell the autumn assortment. High inventory productivity and an attractive customer offering remain priority areas.

The company monitors developments in the Red Sea day by day and act to minimise impact on the company's product availability, freight costs and stock levels.

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Full-year report 2023 (1 Dec 2022 - 30 Nov 2023)

Financing and liquidity

The H&M group aims to secure financial flexibility and freedom of action on the best possible terms. As previously, the efforts focus on continued improvements in working capital, cash flow and more efficient financing.

Cash flow and working capital

Cash flow from operating activities for the full year increased by 37 percent to SEK 33,949 m (24,745). Operating working capital amounted to SEK 19,632 m (24,419).

In the fourth quarter cash flow was significantly improved compared with the previous year. Good earnings development combined with the release of working capital as a result of improved inventory efficiency contributed to the development. In the fourth quarter cash flow from operating activities improved by 41 percent to SEK 9,207 m (6,524).

SEK m	30 Nov - 2023	30 Nov - 2022
Accounts receivable	3,301	3,014
Stock-in-trade	37,358	42,495
Accounts payable	-21,027	-21,090
Operating working capital	19,632	24,419

Liquidity and debt financing

The H&M group's liquidity remains very good. As at 30 November 2023 cash and cash equivalents amounted to SEK 26,398 m (21,707). In addition, the group has undrawn credit facilities of SEK 18,172 m (17,469). The total liquidity buffer, i.e. cash and cash equivalents plus undrawn credit facilities, amounted to SEK 44,570 m (39,176).

Financial net cash amounted to SEK 9,316 m (10,929). Net debt including provisions for pensions and lease liabilities amounted to SEK 51,951 m (51,261). Net debt in relation to EBITDA amounted to 1.4 (1.7) including IFRS 16. Until this quarter the H&M group has calculated net debt in relation to EBITDA excluding IFRS 16 effects. After consideration the H&M group has decided to include IFRS 16 effects in the calculation; see more information under Target capital structure - update.

Interest-bearing liabilities in the form of commercial papers, bonds and loans from credit institutions amounted to SEK 17,082 m (10,778). The average maturity of interest-bearing liabilities was 5.1 (4.3) years.

A maturity analysis of outstanding interest-bearing liabilities and undrawn credit facilities as at 30 November 2023 is given in the table below. Lease liabilities are not included.

	Commercial	Bonds	Loans from	Unused credit
Year	papers	(EMTN)	credit institutions	facilities
2023	-	-	2,272	-
2024	625	-	339	-
2025	-	-	-	-
2026	-	-	2,000	3,407
2027	-	-	-	-
2028	-	-	260	14,765
2029	-	5,679	-	-
2030	-	-	-	-
2031	-	5,907	-	-
Total SEK m	625	11,586	4,871	18,172

With a view to improving the maturity structure of the group's interest-bearing liabilities and to support financing of projects within circularity and climate, the H&M group issued its first green bond in October. The EUR 500 million bond has a term of 8 years and generated great interest among a broad international base of institutional investors, being more than 3.5 times oversubscribed. At the time the bond was issued, the H&M group entered into an interest rate swap that converts the bond's fixed interest rate to a variable rate.

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Full-year report 2023 (1 Dec 2022 - 30 Nov 2023)

Share buybacks

The board of directors decided to utilise the authorisation granted by the 2023 annual general meeting and in September 2023 began a SEK 3 billion share buyback programme. As at

30 November 2023 a total of 7,138,790 B shares in H&M had been repurchased for a sum of SEK 1,123 million and the programme is expected to continue until latest 31 March 2024. It is intended that the shares repurchased will be cancelled through a resolution at the 2024 annual general meeting.

Target capital structure - update

The H&M group has decided to make two updates to its target capital structure

Net debt/EBITDA:

• Include IFRS 16 effects: The H&M group has previously defined the capital structure exclusive of lease liabilities, interest expense on lease liabilities, and depreciation of right-of-use assets arising from IFRS 16. After consideration the H&M group has decided to update the target capital structure by including these IFRS 16 effects in the definition of the target capital structure measure Net debt/EBITDA. Including IFRS 16 effects simplifies communication with internal and external stakeholders concerning debt and capital structure. From now on it will be possible to derive the key performance indicators directly from the financial reporting in the H&M group's income statement and balance sheet.
• Defined target range: The H&M group has decided to define the target capital structure as a range to be managed within instead of having a ceiling that should not be exceeded, as previously. The target capital structure remains one of the most important targets for decisions on capital allocation, and the updated range is intended to further clarify the H&M group's views on debt and capital structure. The updated range is 1.0-2.0 x EBITDA over time including IFRS 16 effects, and the H&M group's capital structure has remained within this range in recent years.

The H&M group's financial risk profile does not change as a result of these updates.

Capital structure

The H&M group advocates a conservative leverage ratio, aiming for a strong capital structure with strong liquidity and financial flexibility. It is essential that, as in the past, expansion and investments can proceed with continued freedom of action. The capital structure is defined as Net debt in relation to EBITDA. Including IFRS 16 effects it should be within the range 1.0-2.0 x EBITDA over time. As at 30 November 2023 Net debt/EBITDA including IFRS 16 effects was 1.4 (1.7) with a financial net cash of SEK 9,316 m (10,929).

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