H & M Hennes & Mauritz AB (publ)

Good afternoon, my name is Nadia and I'll be your conference call operator today. At this time I would like to welcome everyone to the H&M conference call full year report for 2022. For the first part of this call all participants will be in a listen-only mode during the speaker presentation and afterwards there'll be a question and answer session. If you would like to ask a question please register by the link in the confirmation email and then dial in and then press star 1 on your telephone keypad. If you wish to withdraw your question please press star 2. on your telephone keypad or press star zero for operator assistance. Please be advised that today's conference is being recorded. Today, I am pleased to present Nils Bing, Head of Investor Relations. I will now hand over to your speakers. Please begin.

Hi, everyone. Thank you all for joining us today. And welcome to this telephone conference in connection with the H&M Group's full year report 2023. With me today is our CEO, Helena Helmersson, and our CFO, Adam Karlsson. We will start with a short summary of the fourth quarter and full year. After that, we will be happy to answer your questions. You'll find the full year report at hmgroup.com, Investor Relations. Now, I'll hand over to you, Helena.

Thank you very much, Nils. So we started the year having left the worst of the negative effects of the pandemic behind us. Then war broke out in Ukraine and we quickly decided to pause sales in the countries affected and later on also decided to wind down our business in Russia and Belarus. Russia was an important and profitable market for us, so our decision to wind down the business there has had a significant negative impact on our results. The hikes in raw materials and freight costs combined with a historically strong US dollar led to substantial cost increases for purchases of goods. We have increased prices, but rather than passing on the full increase to our customers, we chose to strengthen our market position further. On top of this, there were increased energy costs as well as a one-time charge for the cost and efficiency program that was initiated at the end of the year. The combined effect of these factors amounted to a negative impact on profit in the fourth quarter totaling around 5 billion Swedish crowns compared with the same quarter last year. Although 2022 was a turbulent and characterized by negative external factors, our sales increased by 6% during the year. Customers are showing that they appreciate our offering and customer preference is increasing among women. The external factors that have had a negative impact on our purchasing costs are gradually reversing and are expected to become positive for our results in the second half of 2023. Purchasing costs are already lower for the orders being placed now compared with the same time last year. In addition, the second half will also see the positive effect of the cost and efficiency program that will drive growth and is expected to provide 2 billion Swedish crowns on an annual basis. Our long-term 2030 goals remain in place including a double-digit operating margin for full year 2024. To achieve these goals we are focusing on three growth areas. First and foremost H&M which is one of the world's largest fashion destinations with several billions of visits yearly in store and online across the world. We are further improving the assortment and the customer experience both in store and online. In order to meet our customers ever evolving expectations, we are continuing to strengthen, develop and broaden our offering with more products and services. By engaging our customers in various ways, we are strengthening the existing relationships with our customers, but also attracting new ones globally by offering them unbeatable value with affordable fashion in a more sustainable way. The new financial year has started well with strong sales development during the holidays. Sales development between the 1st of December and 25th of January increased by 5% in local currencies compared with the same period last year. Excluding Russia, Belarus and Ukraine the increase was 9%. This was mostly driven by H&M Women's Wear and COS which continued to perform well. We are focusing our expansion on increasing sales across all our channels. We have made large long-term investments with a focus on digital. Online sales continue to develop well and around 30% of sales are online which is at the same level as last year. With our digital expansion we are attracting both existing customers to more channels as well as new customers who can meet us when, where and how they want. At the same time the physical store remains much appreciated by our customers and we are continuously optimizing the store portfolio to make sure that we have the right store with the right format in the right place. We see clearly that customers want to shop both online and in store and we are continuing to grow with omnichannel sales. This once again shows the value of having both physical and digital channels which strengthen and complement each other. We are therefore continuing the integration of our sales channels to offer customers a convenient and inspiring experience. In 2022, H&M opened its first stores in Ecuador, Kosovo, North Macedonia and via franchise in Cambodia, Costa Rica and Guatemala. We are also accelerating expansion in India as well as in the North and South America region with a focus on Latin America which continues to perform well. H&M is also scheduled to open its first store in Albania during the first half of 2023 and Ecuador will be a new online market for H&M from the start of 2023. Over the past year, we have made several investments in H&M's lifestyle brands, which covers sports, beauty and home. H&M Move, a broadened sports assortment, is our latest addition and has been very well received by our customers worldwide since its launch in August. We are also growing our beauty and home offerings. In 2022, we continued to develop H&M Beauty with good results, both in-store and online. In 2023, we will launch the first flagship stores for H&M Beauty in two European markets. H&M Home also continues to perform well. In 2022, we opened seven standalone home stores and six additional markets will have H&M home concept stores in 2023. In parallel, we continue to develop all our portfolio brands and business ventures. This is our second growth area, and during the fourth quarter, we saw strong sales development for our portfolio brands, such as Koss and Arket, with an increase of 22%. Our third growth area is investments and innovative partnerships. We continue to invest through our investment arm CoLab and in a short time these investments have created significant value both financially and in the existing operations. SELPI, which we are the majority owner of, is a good example of how we continuously work on developing new circular business models and how investments in sustainability also provide H&M Group with long-term business opportunities. SELPI continues to grow rapidly with sales expecting to pass a billion Swedish crowns during 2023 and is already one of the biggest players in second-hand fashion in Europe. We also continue to invest in other areas particularly within tech, AI and a supply chain. An important part of our supply chain is our logistics systems. We currently have several global initiatives involving new highly automated logistics centers with a focus on innovation. Two examples of this are our new logistics centers in Canada scheduled for completion in the first half of 2023 and also one in the Czech Republic which is scheduled to open at the end of 2025. This will create additional capacity, flexibility and speed between sales channels as well as improved availability. Looking ahead, the external factors are still challenging, which we are humbled by, but things are moving in the right direction. Despite the tough situation in the world around us, the H&M Group stands strong with a robust financial position, healthy cash flow and a well-balanced inventory. Sales in the new financial year have started well. Combined with our investments and efficiency improvements, there are very good prerequisites for 2023 to be a year of increased sales and improved profitability. Therefore, our previously communicated goal of achieving a double digit operating margin for full year 2024 remains in place. Thank you all very much for listening and now we're happy to take your questions.