Annual report 1996 in English (2.93 Mb) - About H&M

autumn 1997. Five stores are expected to openduring the year. During the establishment phase,the Finnish stores will be supplied from the centralwarehouse in Stockholm.A full-range store will open in England in theautumn. As sales rose relatively rapidly in recent years, warehouse capacity in England willalso increase.Working in the clothing industry involves constant risks. Fashion can shift quickly, whichmeans that goods in stock and on order can become outdated rapidly. When this happens,goods must be placed on sale and new products must be ordered, both of which require ahealthy level of liquidity. Our strong financial position and limited risk-taking outside the coreareas of operation have played a major role in the Group’s success. In view of the specialrisks involved in the nature of this business, the Group has adopted a cautiousfinancing and currency policy.As a result of our continued expansion abroad, H&M’s currency exposure willincrease. This applies to both transaction and translation exposure. The former islargely centralized in the Swedish parent company and the Group’s netting company inSwitzerland. The two companies are working to reduce the impact of change inexchange rates on earnings. In additionto loans in foreign currencies, only forwardexchange agreements are used toreduce transaction exposure, and onlyestablished or contracted risks areguaranteed. Consequently, the Groupdoes not assume any positions for thebudgeted flow or for speculative purposes.Changes in the U.S. dollarexchange rate against the ten H&Msales currencies represent the singlegreatest transaction exposure in the Group. The effects of changes in exchange ratescannot be quantified by simple calculations. Market price adjustments and customerreactions are equally important and impossible to predict, of course.Translation exposure is defined here as the effect on the value of a Group’s foreignnet assets due to changes in exchange rates. In H&M’s case, these assets consistof shareholders’ equity in foreign companies. The Group does not utilize equity hedging.Translation effects also arise in conjunction with the consolidation of foreign companiesin the Group into Swedish krona. A 10 per cent change in the exchange rate of the Swedishkrona against other currencies in the Group affects H&M earnings before tax by nearly SEK200 M. The size of the amount depends upon the earnings in each country and the change inthe exchange rate against the Swedish krona.H&M limits its credit risk by placing liquid funds in government, municipal and banksecurities. These are short-term investments of up to three months. The Group does notassume any positions, deal with options and futures or the like or trade in shares or similarinstruments.