Welcome to the H&M conference call, nine-month report for 2022. For the first part of the call, all participants are in listen-only mode during the speaker's presentation, and afterwards, there will be a question-and-answer session. If you wish to ask a question, you will need to press star on your telephone and wait for your name to be announced. Please be advised that today's conference is being recorded. Today, I am pleased to present Nils Vinge, Head of Investor Relations. I will now hand you over to our speakers. Please begin. Thank you. Hi, everyone, and thank you all for joining us today. Welcome to this telephone conference about the H&M Group's 9 months results 2022. With me today is our CEO, Helena Helmersson, and our CFO, Adam Karlsson. We will now start with a short summary of the third quarter, and after that, we will be happy to answer your questions. You'll find the 9-month report on hmgroup.com Investor Relations. Now, I'll hand over to you, Helena. Thank you, Nils. Sales and profitability in the third quarter was largely impacted by the effects of our decision to pause sales and then wind down the business in Russia. This explains half of the decrease in profits compared with the third quarter last year. In common with the rest of the industry, sales were weak in many of our major markets at the start of the period but picked up gradually despite a heat wave in several European countries and some remaining delays in the supply chain. The quarter was also impacted by several other external headwinds, such as increased raw materials and freight prices, as well as stronger US dollar. This resulted in substantial cost increases for purchases of goods. We have chosen not to fully compensate for these costs, which is reflected in the gross margin. Overall, the external factors had a substantial negative impact on profit for the quarter. With our long-term approach, we are continuously developing all parts of the company with a focus on meeting customers' ever-increasing expectations of affordable and sustainable fashion. It's now more important than ever to continue offering customers the best value for money. Customers should always feel confident that all the group's brands provide the best combination of fashion, price, quality, and sustainability. We are continuing the integration of our sales channels to offer customers a smooth and inspiring experience in all our touch points. At the same time, we continue with the investments in tech and the digitalization of the supply chain. Efficiency, speed, and flexibility have never been more important. In parallel, a program to reduce costs and further improve efficiency is being initiated. From the second half of 2023 onwards, this is expected to free up SEK 2 billion per year. With loyal customers all over the world, engaged colleagues, and sound finances in combination with a long-term perspective, we see good opportunities to strengthen our position despite the situation in the world around us. The autumn collections have been well-received, and sales from the first to the 27th of September are up 7% compared to last year. This is an important proof that we can grow also when customers' purchasing power is decreasing. Thank you very much for listening, and we're now happy to take your questions. We will now begin the question-and-answer session. Please press star and one for questions. To remove your question, please press star and two. The first question comes from Fredrik Ivarsson of ABG Sundal Collier. Thank you. Good morning, everybody. Can you hear me? Yes. Good morning. Good morning. Excellent. Two questions. First one on the cost savings program. Can you give some information about it? What is it? How much will it cost, et cetera? That's my first question. The second one on the gross margin was 50.4% if adjusting for the Russian one-off. Price obviously did not fully offset the external headwinds. When we look into the coming quarters, should we expect the price effect to be more positive or similar to what we saw in Q3? Thank you. Okay, thank you. I'll start with the cost program then. It's a wide program that's directed to the overhead costs. There are a number of components into it. It's everything from how we purchase services to how we set up our business when it comes to offices and travel, but of course also to ensure that we have an efficient organization set up. As we write in the comment here, we believe that we will start to see the effects second half of next year, and there may be some costs connected to the program throughout the spring. When it comes to pricing, it's always the long-term approach from a customer perspective and of course, always balancing the best offering and profitability. That's all I can say. Okay, thanks. Can you say anything about the price effect in Q3 then? What you saw in Q3? No. Obviously, we have, as we discussed before, we have raised prices, but obviously not fully to compensate for the severe headwinds in sourcing. I can comment a little bit also because of course it's different with different segments in the collections than in the assortment. Again, we have adjusted prices a little bit differently in different markets and different segments within our assortment, but always with a thought to improve our long-term kind of position and make sure that we have the best customer offer. Okay, great. Thank you. The next question is from Nikolaos Katsapos of BNP Paribas Exane. Hi there. Thank you for taking my questions. I have a couple of questions on Russia. I wanted to know how much the liquidation of inventory in Russia continued into September and how that affected the current trading figure. And then, linked to that, do you expect any further costs to exit Russia coming through in Q4? Because I see you called out total costs of SEK 2.5 billion, but only costs of SEK 2.1 billion related to that exit. Thank you. The 2.1 is the currency-adjusted level that we communicated in mid-July as the Russian ruble has appreciated. We now estimate the costs to go up from SEK 2 billion to SEK 2.1 billion. The local currency amounts are still the same. When it comes to the other sort of SEK 400 million that's connected to the net effect of us having a profitable third quarter in Russia last year and not as profitable this year as we only traded for less than a month. Thank you. The liquidation continuing to Q4? Yeah, sorry. Yeah. Okay. It will gradually decrease now as we have started to permanently close some stores. It will continue, but we are now starting to see some of the permanent closures coming through. Okay, thank you. The next question is from Niklas Ekman of Carnegie. Thanks. Yes. Can I follow up on that question? Just the impact from Russia here in September, is there any tangible impact from this in the 7% growth that you're reporting here? Is that boosted by Russian liquidation at all? Well, it depends on you, how you see it. Year-on-year, we sell less in Russia, so excluding it both years, it's actually sort of the average selling is above the reported figure here. Of course, the fact that we opened in Russia now gives us some kind of support in the 7% figure. It depends on how you see it. If you exclude it totally both years, it is dragging down the results. The 7% we should have been higher, excluding Russia both years. Of course, the current selling in Russia contributes to the turnover right now. Thank you. That's clear. Can you give any indication how far you are from exiting Russia entirely? How many weeks or months away could that be? Well, as we have communicated before, we have gradually opened up the stores and that goes also for the closures. Now we have closed a bit more than 30 stores, as of now, and this will continue then, the coming months, so in the near future. We don't have an end date to communicate at this point in time. We will try to sell off a majority of the stock. Okay. Fair enough. Another question is just on cost inflation, which you're warning of continuing in coming quarters. Are you expecting cost inflation to be sequentially worse in Q4 than in Q3? And do you expect a severe impact also in H1, given what we know now about cost inflation? If you decompose it into two parts, we see that the currency effect on cost of goods is worsening sequentially as we've had an appreciation of the US dollar all through the summer here and into the autumn. That we sequentially see could worsen. We also of course have uncertainties when it comes to the energy cost and prices going forward. These are the two things that we feel are uncertain going forward. Right now in a negative trajectory when it comes to the currency. Okay. Thank you so much for taking my questions. The next question is from Daniel Schmidt of Danske Bank. Yes, good morning, Lena and Adam and Nils. Couple of questions from me then. Just coming back to the savings program that you initiate, and Adam, you said that you will see some effects gradually on this as of H2 next year, and there may be some costs for this program. Is it sort of more organically driven or is it sort of you're not bringing forward the big axe? This is gonna happen gradually, was my interpretation of what you're saying. Doesn't that mean that you will see some savings, at least at the start of 2023? Absolutely. Some of the components are more immediate, but as there are also some organizational components to it, that has a more gradual impact. That's what I meant. There are some immediate savings on sort of purchases of services and all, but the organization transformation that we are in and focusing even more on has more of a gradual effect. Is it reasonable to assume that we will see some of that already in Q1 next year then? Parts of it, but as I said, that will be a more long-term effect. We estimate that we write in the report that the majority of the impact will come second half year next. Okay. Just coming back to another question that we talked about last time, and that's been a topic on some other of your peers, sort of introducing a return fee, and I think you said that you were looking into that. Has anything happened on that front? We are about to test return fees in a few of the markets to see the response from the customers. Let's see how they receive that. Do you feel any need to sort of fast track that development given to what's happening in general on the sort of, the need to cut costs? Has that been sort of... Yeah. Yeah. Go ahead. It all depends on how it's received by the customer. That's why we do a test to see if that is something to fast track. Of course, that's only one initiative to improve the situation. There's many other things to do as well. How quick could that happen? How long time do you need to evaluate that? Well, the evaluation doesn't have to take long time. Of course, if we're about to roll it out, it will take some time. We don't have an exact time limit on it. Again, let's see when we see the evaluation of the tests, whether this is the most impactful thing to do or not. Okay. Just the last question on sort of not compensating fully in terms of price increases. You are seeing quite good growth, at least for September, and even better if you adjust for Russia. Isn't that giving you any confidence that you could be a bit more aggressive on sort of passing along input cost inflation? Yeah, we do see good sales figures in September. Of course, to some extent that can also be. We saw a weather effect in August where big parts of Europe had a heat wave, and in September, we got colder weather. We're trying to assess that type of effect, of course, as well. Overall, we think and we see that it's very important now to stay flexible within certain areas, and pricing is of course one of them. To gradually follow the customer sentiments and also look into the different segments in the assortment where we see that some segments are less price sensitive than others. We try to work with this in a very kind of flexible way, and always with the thought that we will also, at the same time, strengthen our position more long term, which means that customers have to trust us to give the best combination then of price, fashion, quality, and sustainability. All right. Thank you, guys. That's all for me. Thank you. Thank you. The next question is from Richard Chamberlain of RBC. Thank you. Morning, everyone. Couple from me, please. Back on the cost savings program, can you just give a bit more color on why that's taking until second half of next year to see most of the benefits of that? That's my first question. Thank you. It is about the nature of the program that changing the organization to ensure that we set this up efficiently isn't a quick fix. We need to do it with speed and efficiency, but still, we need to make sure that it's a long-term setup that we're going into. We're looking into organizational structures to ensure that we have quick decision making, that we remove layers, and that we have a robust foundation to grow from. We estimate that will take 6-9 months. Thank you. Second one is on the cash flow. It sounds like you're still getting a financial benefit from changes you've made to the invoice management and payment processes. Are you expecting more benefit from that program in Q4? The program is fully implemented, with the exception that we're also looking into non-commercial goods just to. That is, of course, a smaller purchase portion of our purchases. Now the effect will sort of fluctuate with the purchase volumes. I think now the effect in this quarter was more related to that we went into the autumn, as we now build up stock and that we now plan to sell out throughout the autumn. For Q4, not a big. We were not predicting it to have a major positive effect. Thank you. The next question is from Simon Irwin of Credit Suisse. Good morning, everyone. Can you hear me okay? Yes. Firstly, could I just have a few thoughts around input costs for spring summer next year? Obviously, we know about the currency, but how are you seeing dollar input costs, for example, through raw materials, for next year, labor cost inflation, and also just how is your freight situation looking? Are you still seeing an increase in your average freight rates into next year? As we also discussed during the Q2 report, we have seen that the input costs have peaked and we believe that they are more on an elevated but stable level. What has not peaked or at least we are in a negative trajectory is the currency effect. That is the big change of headwind now coming through for the work then. On the freight side, we can see that the volume pressure is coming down. Here as well, we have not seen substantial positive effects in the short term here, but we foresee that more into the later part of the spring. Okay. Just given the outlook, both kind of economic and in terms of your business, are you having any thoughts at the moment around capital allocation, particularly around either the buyback or in terms of new stores? We have gradually adjusted our CapEx for the year. Sort of the current estimates are now in the range of SEK 6 billion-SEK 7 billion. That is one of the adjustments we do to the capital allocation. Okay. The others for now, your store program and stuff are largely unchanged. Yep, that's unchanged. Great. Thank you very much. The next question is from Adam Cochrane of Deutsche Bank. Hi, good morning. The first question I've got is relating to markdown. You saw markdown up in the third quarter, and you're talking about markdown up again in the fourth quarter. Is the fact that markdown is increasing informing your pricing decisions and the decision not to fully pass it through to the consumer? Or is the markdown going up because you're passing through price increases that the consumer is not accepting? Thanks. There are many factors affecting the markdown. One is of course the current selling situation. But then also there is also a positive way of looking at markdown as an activation. So I think you can look at it in two ways. We believe we have an opportunity to activate customers and to really show that we have attractive prices throughout the autumn now. That's why we sort of indicate a slightly elevated level also through Q4. In terms of customer behavior, this strong September and weaker parts of the summer, do you think? Can you draw any conclusions on consumer behavior? Or as you say, is it still? It could be weather, it could be other factors that are at play at the moment. You're not seeing any trading down or up or anything within your own with your own brands or your own ranges? Following customer sentiments, of course, it's not very easy to understand what is what. When looking into customer insights, it's of course clear, and only looking at how we have started the autumn selling, it's truly clear that affordable and sustainable fashion is. There's high demand, which comes with an opportunity for us. Again, we saw the heatwave especially during summer or in August that we saw affected to some extent, and that the cold weather came more in September. Really hard to say what is what, but the fact that the customers really appreciate an offer that is based on both good prices, value for money and sustainability is very very clear. Final question is, others may be clear on this, but I'm struggling to work out the trajectory into Q4, Q1 of next year, Q2, Q3 of FX freight and what is the scope of these headwinds? I sort of got different views on hedging policies, on rates, and it just. Is the picture for gross margin looking to get worse over the next few quarters or better? I just sort of a feeling of direction, really. We can only repeat what we've said, Adam. I mean, the world around us is very challenging at the moment. We've had a pandemic, we've had a war, we have geopolitical challenges, and we try to navigate as well as possible through this. The visibility is very low even for us. That's why flexibility, speed, efficiency is more important than ever as we write in the report. I think we have good chances in this environment to succeed and improve our positioning. I think even though it's early in the season, and we've of course been helped by weather and rushed up partly in the September numbers. We think, as Helena said, the customers clearly show that they appreciate value for money more than ever. Okay, thanks. Of course, we don't give forecasts, as you know, so it's up to you as an analyst to make your own bets. Yes. With things like hedging of freight, utilities, FX, without sort of knowing some of the hedging pieces, it's quite hard for us to do forecasts. That's why I suppose we're just looking for a bit of directional input, really. Of course. As a reminder, if you wish to register for a question, please press star and one on your touchtone telephone. The next question is from Ashley Wallace of Bank of America. Oh, hi, good morning. I have two follow-up questions, actually. One is just on the September revenue. Are you able to share with us which regions drove the acceleration in September? And then a follow-up question, sorry, on the gross margin and the direction of travel. In the release, you mentioned that the headwinds from external factors will grow in the fourth quarter versus last year. I was wondering if the headwind will also be bigger than the headwinds that you've just seen in Q3, which you know, you call out at SEK 1.5 billion or 260 basis points of gross margin pressure. Looking at September, I will also talk a little bit about the third quarter because it's connected. In the third quarter, we saw great progress in regions such as the Americas, especially Latin America, Southeast Asia, to mention a few examples. We saw less good progress in some parts of Europe, Central and Eastern Europe, and Northern Europe. During September, that picked up. The markets that had low progress during the third quarter in the whole industry, I would say, have picked up during September. The question on gross margin, yeah. Yeah. Could you say again, please, because it was a long question. Sorry. Sure. Yeah, sure. You know, in the release, you talk about the external factors which will grow in the fourth quarter versus last year. But I was wondering if the external factors will also be bigger than the headwind of Q3, which I think you call out in the release as SEK 1.5 billion of headwind or 260 basis points of gross margin pressure. As I mentioned previously, the negative trend we see right now is within the currency. That is sort of our assessment right now that we don't see that the US dollar to euro has started to shift in a positive direction from our point of view. That is a sort of increased headwind coming from currency. I guess in aggregate, the increased pressure coming from the U.S. dollar, offset, I guess, slightly from the fact that you said that, freight and some of those other pressures have started to ease. The net impact is therefore still a bigger one in the fourth quarter, or it's less severe than what you had in Q3 taking all the pieces together? No. Here to be clear, it's a timing effect. We can see that sort of spot rates are coming down, but of course, that doesn't sort of give an immediate effect on the gross margin in the current quarter. I think the biggest parameter to look out for is the strengthening of the US dollar. Okay. Can I ask a follow-up question just on the product that you're liquidating in Russia right now? Considering you've already taken the one-off impact of closing down Russia, how do those revenues drop through to the bottom line? Are they taken at extremely high margin, incremental margin drop-through as a result of the costs already incurred in Q3 to write down the Russia business? The write-down costs are connected to specific closure costs. The selling and profit is as of last year when it comes to the stores that they operate, so to say. That's no different when it comes to how we consolidate the current operations. The incremental margin drop through of the product you're liquidating in Russia today is not gonna be significantly higher than your Russia profitability in Q4 last year? Right. Right. Okay. All right. Thank you. Once again, if you wish to ask a question, please press star and one on your touchtone telephone. The next question comes from Rebecca McClellan of Santander. Yeah. Good morning. Can you hear me? Yep. Yep. Yeah. Good morning, everybody. Most of my questions have been answered. I was just curious about whether you could give any more sort of detail on regions specific North America, sort of the main markets in Europe, anything that's going on in China, possibly? Sure. We've had good progress in North America, where we have also, of course, done certain investments since we've progressed. Those investments are, well, mainly they are linked to tech and supply chain. Now, of course, with the strong US dollar, that is also, of course, affecting the results in the third quarter. Overall, we've seen a good progress when it comes to both the customer offer and the customer experience and how that is received. When it comes to Europe, again, going back to the third quarter we had, I would say that the whole industry went down a bit in the central parts and in markets that are big for us that has picked up during September. Again, we need to follow this very, very closely. We've seen that when we, for example, have put even more effort into showing our great prices, something that we think we could have done even more during the third quarter. When we have changed those things, we also see better progress in those markets. Looking at China, we keep on working with improving our customer offer so that it's also very locally relevant, and same with the whole customer experience. We do see slow progress. We're still in dialogue, of course, with different stakeholders. We're still in a challenging and complex situation, but we do believe in the markets moving forward. Thank you. When you say showing good prices in Europe, what do you mean? Does that mean commercial activity, or does it mean? Yes. So basically- Obviously, when customers have less money to spend, it's super important in our commercial plans, both in physical stores and online, to really highlight the great prices, great value for money that we have. We saw that we could have done that even more, especially in the beginning of the third quarter, which we have amended with the very good results. Okay, thank you. The next question is from Andreas Lundberg of SEB. Thank you. Good morning. Can you hear me? Yep. I'll follow up on the last one there with, you know, highlighting the good prices you have. We talked about Europe. Could you be more concrete? What does that mean? Well, that actually means that when we see that it's high demand on a particular product, and of course, we have super competitive prices to simply highlight them more. When you enter a store with the price signs, with how you actually guide the customers to see the great offers that we have and the amazing value for money that we can offer. Same in the digital store. If you would enter H&M.com, if you would do that now, I think you would see amazing fashion, and I would think you would also recognize several of the big prices that we highlight. It's those type of very, you know, commercial activities. It's in our backbone, but we see that we could have done it even more during the third quarter, also because we see that customer sentiments are also obviously changing a little bit since due to the inflation. Good. A follow-up on China. Could you say sales were up or down year-on-year in the third quarter? Slightly up. Slightly up. Cool. Lastly, on buybacks, when do you expect the current program to be completed, and how do you view buybacks once that is completed? Thank you. The plan remains and as communicated, it is to end the program by late November. Looking ahead, it's we will need to come back to that. The current program is still in effect and planned to end by late November. Cool. Thank you so much. This is a final reminder. For any further questions, please press star and one on your touch tone telephone. Ms. Helmersson, at this time, there are no questions registered. Thank you everyone so much for participating then. Thank you for all your questions. I wish you all a very nice day. Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.