AN INTENSIVE YEAR OF DEVELOPMENT towards a broader target ...ir.mq.se/afw/files/press/mq/mq_annual_report_2016-2017.pdf · Operating margin, % 6.8 7.2 10.2 8.7 3.4 Profit/loss after

ANNUAL REPORT 2016/2017

AN INTENSIVE YEAR OF DEVELOPMENT towards a broader target group

Co n t e n tsTHE YE AR IN SUMMARY 4

COMMENTS BY THE CEO 7

THE MQ GROUP 8

Two Strong Brand Chains

STR ATEGIES AND GOALS 12

SUSTAINABLE DE VELOPMENT 15

Stakeholders

Quality in All Relations

Priorities

THE VALUE CHAIN 19

Design and Purchasing

Production

Logistics

Sales and Marketing

Consumption and Use

EMPLOYEES 35

THE MQ CHAIN CONCEPT 38

THE JOY Chain Concept 40

THE MQ SHARE 42

CORPOR ATE GOVERNANCE 4 4

Board of Directors

Management

Corporate Governance Report

F INANCIAL STATEMENTS 52

Five-Year Review

Definitions

Administration Report

Consolidated Financial Statements

Parent Company Financial Statements

NOTES 66

AUDIT REPORT 98

SUSTAINABILIT Y INFORMATION 1 0 1

Materiality Analysis

GRI Index and Management approach

INFORMATION AND CONTACT 1 07

Annual General Meeting and Financial Calendar

Contact Details, Group

ANNUAL REPORT 2016/2017

The Annual Report describes the MQ Group’s

operations, financial development and work on

sustainability. The Group’s Sustainability Report is

incorporated into the Annual Report. This is the

second year that the Group’s Annual Report and

Sustainability Report have been prepared in accor-

dance with Global Reporting Initiative (GRI) guide-

lines, and the first in accordance with GRI Stan-

dards, Core option. Unless otherwise stated, this

year’s report includes MQ and Joy, and refers to

the 2016/2017 financial year. The Group’s point of

departure is that sustainability issues are part of

the day-to-day endeavour to develop a healthy

company from all angles of sustainability. Sus-

tainability has a major impact on the MQ Group’s

development, profitability and value generation.

THE MQ GROUP

3 MQ ANNUAL REPORT 2016/2017

The MQ Group

shall develop into a strong omnichannel in

branded fashion.

THE MQ GROUP

The MQ Group is a well-established player in Swedish fashion retail, with the MQ and Joy chains. The Group develops its market position through a clear stra-tegy as an omnichannel player and by clarifying the customer offering in branded fashion. There is a broad target group: MQ targets men and women who have an interest in fashion and a mental age of between 30 and 40, while Joy targets women at midlife who are curious and enthusiastic about fashion. The Group is headquartered in Gothenburg, Sweden, has a total of 173 stores and an online shopping concept for both MQ and Joy. The MQ Holding share has been listed on the NASDAQ OMX in Stockholm since 18 June 2010. The joy of fashion and fashion know-how are hallmarks of the Group, and the customer offering is based on brands, quality and personal service in all channels.

The MQ Group in brief

Consolidated net sales increased 8.3 per cent during the full year September 2016 to August 2017. Joy has been included in the consolidated statements since May 2016, and contributed to the increase along with new stores and growth in online shopping. Like-for-like sales declined 1.4 per cent, as compared to like-for-like sales for the market as a whole, which according to

HUI Research declined by 2.0 per cent.

NET SALES

The gross margin for the year September 2016

to August 2017 improved to 57.1 per cent (54.0).

The main reason for the positive development

is a conscious effort to plan purchasing, sales

and campaigns so as to reduce the percentage

of items in clearance sales. At the same time,

the high proportion of proprietary brands in the

assortment enables the Group to optimise

purchasing with suppliers, and thus offer

good value fashion in the mid segment.

STRONG GROSS MARGIN

IN MAY 2016, THE MQ GROUP GREW WITH THE

ACQUISITION OF JOY, WHICH HAS SINCE BEEN

INCLUDED IN THE FINANCIAL REPORTING.

2016

THE SWEDISH MARKET IS IN FOCUS. THE

NORWEGIAN OPERATIONS WERE DISCON-

TINUED ACCORDING TO PLAN.

2017


2016/2017 was a very eventful year for the MQ Group, which is continuing to develop with great drive and a high level of activity. The Group is restructuring as planned, and is now developing in synergy as an omnichannel player with two strong brand chains.

The Year in Summary

• Net sales amounted to SEK 1,821 million (1,681),

an increase of 8.3 per cent.

• The gross margin was 57.1 per cent (54.0).

• Operating profit amounted to SEK 124 million (121), which

corresponds to an operating margin of 6.8 per cent (7.2).

• Profit after tax was SEK 94 million (95), corresponding

to SEK 2.67 (2.70) per share after dilution. The fact that

profit after tax is lower than last year, despite higher

operating profit, is attributable to the previous year’s

deferred tax income from Joy’s loss carry-forward.

• Cash flow from operating activities was SEK 108

million (95).

• The Board proposes a dividend of SEK 1.75 (1.75) per

share, which corresponds to 66 per cent of profit

after tax for the year.

Q2

• The development of Joy stores continues with the new opening of a concept store in Väla, where external brands are also introduced.

• The MQ assortment is extended with a further

two external brands in all stores: Rains and Becksöndergaard.

• The store in Grensen, Oslo, is closed down in

line with the structuring decision in the fourth quarter of 2015/2016 to discontinue MQ’s operations in Norway.

Q4

• MQ celebrates 60 successful years in Swedish retail focusing on branded fashion.

• The MQ assortment is extended with the Re-play (ladies) brand in all stores.

• External brands are launched in all Joy stores in August – the same ones previously available in the chain’s online shopping and a few selected stores.

• One Bag Habit, an initiative to reduce the consumption of plastic, is introduced in MQ and Joy.

• A dispute at the Port of Gothenburg adversely affects goods deliveries to Joy.

Q1

• MQ’s first Online Flagship Store, full-scale online shopping integrated into a store, opens on Norrlandsgatan in Stockholm.

• Joy launches four external brands in its Joy Shop Online: Lee, Bondelid, Esprit and Saint Tropez.

• Three of Joy’s largest stores (Bromma, Frölunda and Allum) re-open after remodelling in line with the new store concept. External brands are introduced in two of the concept stores.

• The Joy Familia store in Hyllinge closes down.

Q3

• The Group opens a third outlet store, Outlet by MQ, in the Port 73 mall in Haninge.

• Joy converts a further 14 stores in line with the new store concept.

• MQ Shop Online is bolstered with three new external brands, and there are now 40 web- exclusive brands.

• Joy closes two stores (one to re-open in autumn 2017 at a new site), and MQ closes another store in Norway.

• A decision is made to establish a fourth outlet store in Malmö in autumn 2017.

THE YE AR IN SUMMARY


GROUP 2016/2017 2015/2016 2014/2015 2013/2014 2012/2013

Net sales, SEK m 1,821 1,681 1,557 1,520 1,463

Gross margin, % 57.1 54.0 55.8 56.2 55.3

Operating profit, SEK m 124 121 158 132 50

Operating margin, % 6.8 7.2 10.2 8.7 3.4

Profit/loss after tax, SEK m 94 95 120 96 62

Earnings per share after dilution, SEK 2.67 2.70 3.42 2.76 1.79

Interest-bearing net debt/EBITDA, multiples 1.0 1.2 0.6 1.1 3.5

Equity/assets ratio, % 61 60 63 58 50

Equity, SEK m 1,089 1,078 1,043 956 872

Number of stores at the end of the period 173 177 119 121 122

No. of employees 782 802 593 608 645

No. of outstanding shares 35,156,507 35,156,507 35,156,507 35,156,507 35,156,507

FINANCIAL KEY FIGURES 2016/2017

THE YE AR IN SUMMARY

2013/14

500

1,000

1,500

2,000

SEK m

2012/13 2014/15 2015/16 2016/17

C ONSOLIDATED NET SALES

2013/14

50

100

150

200

SEK m

2012/13 2014/15 2015/16 2016/17

C ONSOLIDATED OPERATING PROFIT

COMMENTS BY THE CEO


6MQ ANNUAL REPORT 2016/2017

"The transformation taking place in the fashion industry presents new opportunities to reach a broader target group and secure more satisfied customers."


Christina StåhlPresident & CEO, MQ Holding AB

COMMENTS BY THE CEO


Comments by the CEO

An intensive year of development towards a broader target group

The MQ Group has developed positively during the year.

We have comparatively good profitability, and have

strengthened an already high gross margin without losing

competitiveness. We can see and are leveraging the

opportunities presented by the rapid, ongoing trans-

formation of the fashion industry. Swiftness, drive and

receptiveness to customer needs are crucial aspects in

how we approach an exciting new time in fashion retail.

The Group has been strengthened because we now

have two brand chains with clearly defined target groups.

We are broader, and we now reach more customers than

before since the strategically important acquisition of Joy.

With well-judged store networks and well-established,

growing online shopping in both chains, we are deve-

loping as customers’ buying habits change. We can see

ourselves moving towards a new state of equilibrium,

one where digital channels are accounting for a higher

proportion of sales, but where stores play a vital part in

availability, personal service and inspiration.

The high rate of change in the Group is powered by

employees at all levels. There is a strong desire to con-

tinue improving MQ’s now 60-year-old brand and streng-

thening Joy’s position among the large, affluent customer

group of women aged 50+. Several crucial steps have

been taken during the year. In MQ online shopping has

been developed, the concept has been strengthened

and new outlet stores have been opened. In Joy there

has been a very high rate of renewal in terms of stores

and the assortment, and four carefully selected external

fashion brands have reinforced the customer offering. It

is worth noting that out of all our various sales channels

– MQ stores, Joy stores, outlet trade, online shopping

concepts for MQ and Joy, and online shopping integrated

in stores – three focus on digital market share.

Our vision is for the MQ Group to continue developing

into a strong omnichannel for branded fashion. In rein-

venting ourselves for a new era, we seek profitability and

growth from a long-term perspective as a healthy fashion

company. This means that we are developing both the

Group as a whole and the chain brands MQ and Joy

individually. The identity of each chain is, and will remain,

distinct for our customers. Yet at the same time, behind

the scenes we are growing stronger by leveraging the

synergies that come from having two chains. This work

has come a long way in finance and administration, safety

and HR issues, and in matters related to establishment

and development. Sustainability issues too are being taken

forward based on a shared strategy which is gradually

being implemented in all areas. The fact that sustainability

is now reported as part of the Annual Report is a clear

indication of the progress being made in priority areas

for the industry. One highly visible example that has been

very popular with customers is MQ and Joy’s participa-

tion in One Bag Habit, an initiative that has dramatically

reduced the use of plastic bags and helped to lower

carbon dioxide emissions.

Moving forward, we can see potential in greater joint

production with suppliers and better co-ordinated trans-

port. This applies particularly to international transport

after Joy, as a small player, was hit hard by the drawn-out

dispute at the Port of Gothenburg during the final quarter

of 2016/2017. Avoiding a repeat is a top priority.

It is important that the MQ Group continues to be re-

newed in harmony with customers and the market. The

business model, with several sales channels and a broader

target group, is a true asset. Our focus on quality fashion

in the mid-price segment and a strong brand position enhan-

ce our attractiveness. Profitability and excellent cost cont-

rol bring stability, as well as financial muscle for investment.

Based on our set strategies, our customers and their

needs are our natural focus areas. Availability and the

customer offering are being strengthened so as to reach

a broader target group and secure more satisfied custo-

mers. The transformation taking place in the fashion in-

dustry presents new opportunities to reach a broader

target group and secure more satisfied customers.

We are changing and improving – preparing ourselves

for a future full of opportunities.





THE MQ GROUP

MQ Holding owns and manages two fashion chains – MQ and Joy – encompas-sing physical stores, outlet trade, online shopping, and online shopping integra-ted in stores. Fashion brands with quality and design, along with a high level of service, form the basis of the Group’s development as an omnichannel player.

The MQ Group

The MQ Group is a modern fashion and retail company.

It has a long history that is testament to continuous de-

velopment with the aim of achieving growth and creating

sustainable values. The Group’s objective is to grow in

both the short and long term, with a clear brand and quali-

ty position. This will be achieved by developing the Group

as a strong omnichannel for branded fashion.

The 2016/2017 financial year has been one of great

drive and high activity. The ongoing, rapid transformation

in the retail sector towards more digital trade has been

included in the Group’s planning for some time, and the

trend means that the digital channels are accounting

for a higher proportion of sales. The physical stores

do, however, remain the most important sales channel,

contributing a high level of service and well-considered

customer care, with inspiration as a vital component.

HISTORY

The foundations of today’s Group, which comprises the

Parent Company MQ Holding and the two fashion chains

MQ and Joy, was laid back in 1957, when MQ started

out as a purchasing collaboration between a number of

privately owned stores – a relatively common practice at

the time. Since then, there have been several stages of

reform and restructuring. In 2006 all MQ stores became

wholly owned, and this eventually led to public listing four

years later; In June 2010, MQ shares were listed for tra-

ding on the Swedish Nasdaq OMX Stockholm exchange.

May 2016 saw another important milestone with the ac-

quisition of Joy. This added more than 50 new stores to the

Group, along with sales of over SEK 260 million and a brand

new, affluent, growing target group of women aged 50+.

Alongside the acquisition of Joy a decision was made

to discontinue MQ’s operations in Norway, and this pro-

cess is now complete.

BUSINESS CONCEPT AND VISION

The MQ Group offers high-fashion brands in attractive

stores and via online shopping. The vision is to use an

omnichannel strategy to create the leading brand and

quality position on the Swedish market.

A healthy corporate culture and keen business acumen

drive the operation forward. Thanks to the personal app-

roach that permeates all aspects of the company’s busi-

ness, the customer is always in focus.

GROUP STRUCTURE

Within the framework of the omnichannel strategy, the

Group has the following prioritised development areas:

the physical stores of MQ and Joy respectively, the

online shopping concepts in each chain, online shopping

in store (already implemented at MQ) and the outlet

concept being managed by MQ.

The synergies of two fashion chains are gradually being

leveraged, but the process has been intensified so as to

retain the Group’s strong efficiency and cost control. Syn-

ergies are also very apparent in sustainability development.

A high rate of change is a hallmark of the MQ Group.

Customers and their needs are the natural strategic

focus.

In autumn 2017, MQ celebrated 60 successful years on the fashion scene. Branded fashion has always been MQ’s signature, alongside quality and design. With a strong market presence based on

the needs of the age, MQ has built a robust position among men and women who have an interest in fashion and want to be inspired, well-dressed, and feel amazing whatever the occasion.

60 YEARS OF SUCCESS WITH MQ


THE MQ GROUP

MQ HOLDING AB

118 MQ stores

3 Outlet by

MQ stores

MQ Shop Online

MQ Retail AB

Joy Shop AB

52 Joy stores

Joy Shop Online

The Group’s brand position has been considerably strengthened during 2016/2017. A large number of new brands have been launched at MQ, and at Joy external brands have once again bolstered the assortment.

Two Strong Brand Chains


BR AND CHAINS

The foundation of both the MQ and the Joy assortment

is proprietary brands. These are developed and designed

internally and produced by selected suppliers based on

strict requirements on quality, sustainability and health and

safety, as well as price.

The proprietary brands comprise a mixture of basic and

more fashion-based garments in the mid-price segment.

With a focus on a higher fashion content, quality and de-

sign, and on efficiency in the purchasing process, these

brands are an important, competitive part of the assort-

ment which contribute to the MQ Group’s gross margin,

which is high and improved during the year. Of the Group’s

total sales, proprietary brands account for around 60-70

per cent.

To optimise the brand portfolio and make it as attractive

as possible, many strong, carefully selected external

fashion brands have also been added. This is a long-

established business model in the MQ chain, but the

assortment has been considerably broadened in recent

years under the strategy of offering web-exclusive fa-

shion brands. For the Group, this means greater opportu-

nities to reach a broader customer group, with a low level

of risk. During 2016/2017 MQ’s web-exclusive assortment

has been developed, and there are now 40 online brands

(27 for ladies and 13 for men). Three new external brands

have also been launched in all stores, in order to further

clarify what MQ represents.

In Joy, external brands play a somewhat more minor

role. Proprietary brands alone have comprised the chain’s

profile for several years, but since August 2016 four ex-

ternal brands have been tested in Joy’s online shop, with

positive results. In August 2017, the same external brands

were therefore launched in all physical Joy stores. One of

Joy’s external brands is Bondelid, which has been owned

by the MQ Group since the beginning of 2016.

Since the beginning of 2017 Yvonne Ryding, entrepreneur and former Miss Universe,

has been an ambassador and model for Joy. Yvonne Ryding is a good representative of Joy’s target group, women in midlife, and has natural strength and beauty. Yvonne

Ryding takes part in Joy’s marketing, Joy Magazine and in store events.

JOY AND YVONNE RYDING

500,000 plastic bags, equating to around 16 tonnes of plastic, were saved at MQ and Joy in the last quarter

of 2016/2017 alone, thanks to the chains’ involvement in the One Bag Habit initiative. Several retail chains are

behind the initiative, and the aim is to raise awareness and reduce the use of plastic bags in retail. The scheme

has been very successful, and is popular with customers who want to do their bit for sustainable development.

ONE BAG HABIT

Thanks to a well-considered and upgraded con-

cept, the MQ chain has taken its outlet store to

a new level. The store sells proprietary and external

brands, as well as brand collections exclusive to

the outlet concept. This is an important growth area

for the Group. At the end of the financial year there

were three outlet stores located at Freeport in

Kungsbacka, Ullared, and Port 73 in Haninge.

A fourth outlet store was opened in Jägersro

outside Malmö in September 2017.

Outlet by MQ


BR AND CHAINSBR AND CHAINS

MQ – MEET ALL OUR BRANDS

One of MQ’s biggest and most effective campaigns of 2016/2017 was “Meet all our brands”. The aim was to further strengthen and highlight the extensive brand portfolio offered by MQ in store and online. The

online shopping solution in stores, which uses tablets/touch screens, provides a vast array of products which are promoted by knowledgeable retail assistants. Click & Collect provides simplicity in that customers can come to a store to collect their goods, which enables further inspiration and sales.

The MQ Group shall develop into a strong

omnichannel in branded fashion.


The MQ Group’s operation has grown progressively and

now reaches a broader customer group. Proprietary

brands have been supplemented with external brands.

Shopping opportunities have been expanded from the

store checkout to traditional online shopping, and on to

online shopping integrated in stores, enabling tens of

thousands of square metres worth of stock

to be offered in a highly cost-effective

way. With the acquisition of Joy, MQ’s

target group – men and women with a

mental age of 30-40 – has now been

expanded with a new one: women

in midlife, Sweden’s largest and

fastest growing customer group for

fashion. The outlet offering has been

enhanced and repackaged so as to

further broaden the customer group.

The Group-wide business strategy sets

the guidelines for joint and individual initiatives.

Annual business plans in each segment show the

way, with clearly defined priorities. Employees are given

the foundation for translating strategies and goals into

action. A strong, healthy corporate culture contributes

drive and the joy of work. A long-term approach brings

environmental, social and economic sustainability. The

overriding goal is to develop a healthy fashion company,

where all parts work together to move the MQ Group in

the right direction.

Whatever the channel, each target group is met with inspiration, quality

and a high level of service.


STR ATEGIES AND GOALS

The MQ Group is driven by a desire to develop and pursue growth. The customer offering is designed based on the market’s needs. The customer is always the pri-me focus, and is the natural point of departure for the brand and quality position in all channels.

Strategies and Goals

SUSTAINABILITY OBJECTIVES

• To create competitive fashion products with re-gard to people, animals and the environment that will maintain their shape and quality over time.

• To exceed consumer expectations and to offer consumers a sustainable wardrobe.

• To proactively advocate sustainable production throughout the value chain.

• That each employee feels proud, is happy and is committed to their daily work.

• To operate within the planetary boundaries (read more on page 18).

FINANCIAL OBJECTIVES

• Net sales growth of minimum 10 per cent annually over a business cycle.

• Operating margin of at least 12 per cent over a business cycle.

• Inventories that do not exceed 11.5 per cent of sales for the most recent 12-month period.


With the aim of becoming a leading omnichannel player

for branded fashion, the Group aims to offer customers

an experience that is perceived as simple, accessible and

attractive, whichever channel they choose. It should be

easy to shop for fashion at the Group’s two retail chains,

which customers should perceive as two clearly

defined independent chain brands. At the

same time, the Group should be run with

high efficiency, and should leverage

the synergies that come with having

two chains and a higher sales volu-

me. The strategy is long term and is

supported by extensive knowled-

ge of retail and early insight into

changes in shopping habits. This is

particularly true of fashion, where a

far-reaching transformation is under

way as more and more people shop via

digital channels. This places great demands

on all the Group’s platforms, which have to deve-

lop in harmony with customers and the market. Digitalisa-

tion brings opportunities, and drive produces results. With

prioritised development areas – MQ’s and Joy’s physical

stores and the chains’ online shopping platforms, online

shopping in store and outlet stores – a seamless custo-

mer offering is created. The aim is to be all-encompassing

in a way that builds recognition among customers, and

lets them perceive the simplicity and high level of service.

STR ATEGIES AND GOALS

As a healthy fashion company, the MQ Group shall pursue its operations with sound

business ethics. It shall appreciate each customer’s unique requirements and meet

their expectations, and each employee shall develop based on a sound and swift-footed

corporate culture. The MQ Group shall pursue long-term environmental, social

and economic sustainability, thereby generating long-term value for the

company’s shareholders.

THE HEALTHY FASHION COMPANY

• The MQ Group is a fashion company.

• The MQ Group is highly accessible.

• The MQ Group has a distinct brand position.

• The MQ Group pursues growth.

• The MQ Group takes a long-term approach.

PRINCIPAL STRATEGIES



PRINCIPAL STRATEGY

THE MQ GROUP IS A FASHION COMPANY

With two well-established omnichannel brand chains on

the Swedish market, the Group has access to a large

target group of fashion-conscious customers. Both

chains have solid historical positions in fashion retail.

As competition is intensified and broadened, the MQ

Group monitors the title “fashion company” based on

the catchwords fashion sense, certainty in style and life-

style – as well as quality which is the Group’s hallmark.

PRINCIPAL STRATEGY

THE MQ GROUP IS HIGHLY ACCESSIBLE

Consumer behaviour is undergoing rapid change. Incre-

ased digitalisation means that the offering is fresh, global

and always accessible. Based on its established position,

the Group has major opportunities to retain and penetrate

new customer segments through further digitalisation.

Stores and online shopping are being integrated as

channels for both sales and marketing. Customers are

offered thousands of physical and virtual square metres

seamlessly, which work together and enhance the pro-

duct assortment. Our unique customer interaction and

personalised approach are strengthened by a high level

of accessibility.

PRINCIPAL STRATEGY

THE MQ GROUP HAS A DISTINCT BRAND POSITION

With a total of 173 stores and two online shopping chan-

nels in Sweden, there are major opportunities for achie-

ving growth with a distinctive brand and quality position.

The brand position is clarified in both chain concepts with

proprietary as well as external brands. The brand mix is

tailored to the target group of each chain. Proprietary

brands are enhanced in their fashion content, design and

quality. Customers are offered excellent opportunities to

choose and mix and match a wide assortment of brands

in all channels, with a high level of service. The Group’s

image as a department store with a large, highly acces-

sible offering in fashion is strengthened.

PRINCIPAL STRATEGY

THE MQ GROUP PURSUES GROWTH

The Group’s explicit goal is to grow with profitability. All chan-

nels are developed in harmony with the changing behaviour

of customers. The customer is in focus and the chain con-

cepts meet customers based on their needs and expecta-

tions. There is tremendous drive and good cost control.

PRINCIPAL STRATEGY

THE MQ GROUP ACTS WITH A LONG-TERM APPROACH

The MQ Group aims to be a winner in the long term. This

entails responsibility at all stages and maintaining the

chain concepts in relation to all stakeholders. The Group’s

brand and quality position is a hallmark that is reflected in

the Group’s responsibility for sustainable production. Per-

sonalised customer interaction is nurtured as a compo-

nent of our unique and unmatched customer offering.

PRINCIPAL STRATEGIES

STRATEGIES AND GOALS

Annual business plans ensure that appropriate

attention is given to achieving the desired shift in position for both chain

concepts.


SUSTAINABLE DE VELOPMENT

Sustainability efforts are a feature of the business opera-

tions and are viewed as a positive force, one that helps to

develop the company and assure an attractive customer

offering.

The Group’s Sustainability Strategy 2020 aims to boost

internal sustainability efforts in a manner that advances

the Group’s position. It is one of the Group’s principal

strategies for pursuing long-term action and develop-

ment. The fundamentals of the sustainability strategy will

be gradually implemented throughout the Group in order

to capitalise on synergies and increase its momentum.

The strategy proceeds from quality that is a hallmark of

the Group’s brand. Quality and design are therefore the

starting points for all relationships in the sustainability

work: consumer, producer, employee and the planet.

Sustainability efforts encompass many challenges and

co-operation is required on different levels in order to

achieve results. The work involves minimising risks, mo-

tivating employees, meeting the expectations of external

stakeholders and ensuring an attractive offering to

increasingly well-informed customers. It is a long-term

process that requires expertise, humility and respect. The

Sustainability Manager is responsible for production, revi-

sion and follow-up. The executive management is ultima-

tely responsible for the strategy. Department managers are

responsible for implementing the strategy, and for ensuring

that all activities in it are achieved in their departments. All

Group employees are involved through information, the

sharing of knowledge and a clear allocation of respon-

sibilities. Suppliers are involved in the process through

demands on materials and production, and through condi-

tions conducive to their meeting the requirements.

Garments sold by the MQ Group should be able to be

used by the customer in good conscience for a long time.

The garments should be produced with consideration for

humans and the environment. They should retain their

shape, quality and design over time. Efficient sustainabi-

lity work strengthens the Group as a fashion and brand

destination, as a workplace for its employees and as an

investment for shareholders.

For the MQ Group, sustainability entails a long-term commitment based on the conviction that it is a prerequisite for good business. Success – in both the short and long term – requires a broad assumption of corporate responsibility.

Sustainable Development

Sustainability Strategy 2020 is a long-term, yet down-to-earth strategy that affects everyone

and all aspects of MQ’s operations. Taking a holistic approach both broadens and deepens

sustainability work in the Group.

Bags with less of an environmental impact were launched during the year. They are made of 10 per cent

renewable material based on oyster calcium, 35 per cent recycled plastic from the consumer market, and 55 per cent recycled industrial plastic. The new bags produce far lower CO2 emissions, while MQ and Joy

have reduced consumption by 500,000 plastic

bags during the last quarter of 2016/2017.

• MQ’s CO2 EMISSIONS FROM INTERNATIONAL TRANSPORT DECREASED BY 30 PER CENT PER

GARMENT DURING THE YEAR.

• BEHIND THE REDUCTION ARE ACTIVE EFFORTS FOR MORE CLIMATE-SMART TRANSPORT. DURING THE

YEAR, MORE TRANSPORTATION HAS BEEN REDIRECTED TO RAIL, BOTH WITHIN AND OUTSIDE OF EUROPE.

Reduced CO2 emissions

• THE MQ GROUP USES THE QUIZRR SERVICE TO OFFER SUPPLIERS TRAINING FOR THEIR

FACTORY WORKERS.

• FOURTEEN OF THE GROUP’S SUPPLIER FACTORIES CURRENTLY USE THE TRAINING SERVICE – A 100% INCREASE IN ONE YEAR.

Better working conditions

More sustainable bags

A positive force


Styling with a sustainability perspective

With knowledge of materials and clothing care, store personnel can help ensure the customer enjoys their new garment for many rewarding years. Accordingly, in 2016/2017 a digital training course called Smart Styling was

introduced, primarily for MQ store personnel, to enhance the information passed on to the customer. Another improvement relates to new procedures for offering help from a tailor, when returned garments can be repaired

rather than exchanged. Extending the life of a garment can reduce the environmental impact considerably.





CONSUMERS/CUSTOMERS

Conscious, well-informed customers are an asset to the

development of the fashion industry. Customers must

feel confident about the Group’s actions and that our

goods are manufactured in a responsible manner. MQ

conducts dialogue through its interaction with sales

personnel, customer service and online.

SUPPLIERS

Long-term relationships with a limited number of principal

suppliers of proprietary collections are crucial to ensuring

a high degree of transparency in working and production

conditions. Dialogues are conducted both by Group head-

quarters and local purchasing offices, through meetings,

field visits and workshops, as well as in conjunction with

audits. During 2017, dialogues have begun with Joy’s

principal suppliers.

BRAND SUPPLIERS

External brands are highly significant to the Group’s

customer offering, and brand suppliers are encompassed

by requirements on corporate social and environmental

responsibility. Dialogues are proactively pursued prior to

the signing of agreements, and are held on an ongoing

basis through the systematic monitoring of compliance

with agreements and the Code of Conduct.

EMPLOYEES

Skilled, dedicated, responsible employees are critical

to the success of the MQ Group. Dialogues are held

on a daily basis through leadership, meetings, employee

performance reviews, training courses, trade fairs and the

intranet. Employee satisfaction is measured annually. An

employee satisfaction index for Joy will be introduced.

SHAREHOLDERS AND INVESTORS

Long-term shareholders and investors are accessed

through the Group’s targets for profitability, which

generate dividends and positive trends in share prices.

Dialogue is maintained through financial reporting, general

shareholder meetings and other meetings.

STUDENTS

Gaining the interest of students in the Group’s operations

secures future recruitment, while information is disse-

minated about, for example, MQ’s sustainability efforts.

Dialogue is generated through direct contact and online,

as well as through trainee posts at headquarters.

INDUSTRY ORGANISATIONS/PARTNERS

Non-profit organisations, joint industry initiatives and

development projects are key to staying abreast of new

information in fields such as the environment, corporate

social responsibility and materials development. Dialogue

is also fostered through active membership and partici-

pation in various initiatives and partnerships.

STAKEHOLDERS

The selection of stakeholders is based on their impact on and by the MQ Group’s sustainability work. All stakeholder groups were represented in dialogues con-ducted in the process of developing the Sustainability Strategy and reporting.

Dialogues were held with stakeholders in 2015/2016 when the Sustainability Strategy was being drawn up, and during the materiality analysis. The process was supplemented in spring 2017 when store managers and

management representatives at Joy were interviewed. The results show that one key emerging issue is the environmental impact of materials during raw material extraction and manufacturing. The quality of the

garments has grown in importance, as has water use and emissions to water during production. Child labour and working conditions in supplier companies remain important among the key stakeholders. Page 100

shows an account of the materiality analysis, along with a presentation of the highest priority areas.

IMPORTANT ISSUES RAISED THROUGH STAKEHOLDER DIALOGUES




Sustainability efforts are all about relationships. All

aspects have an impact on and are impacted by each

other. The Group’s strategy builds on a framework where

quality and design are the foundation upon which all other

relationships are defined. The decisions made in the

design process have far-reaching consequences, both

upstream and downstream in the value chain.

QUALITY THROUGH DESIGN concerns the creation

of competitive fashion products that retain their shape

and quality over time, while taking into account people,

animals and the environment.

QUALITY IN RELATION TO THE PLANET is about mini-

mising emissions, energy consumption and the use of

natural resources in order to operate within the planetary

boundaries in the long term, so that no more natural re-

sources are utilised than the planet can provide within a

12-month period.

QUALITY IN RELATION TO PRODUCERS pertains to

the proactive promotion of sound working conditions

and a safe working environment along the entire pro-

duction chain.

QUALITY IN RELATION TO THE CONSUMER deals

with meeting and, preferably, exceeding customer

expectations.

QUALITY IN RELATION TO EMPLOYEES is about provi-

ding an inspiring workplace where employees feel pride,

satisfaction, and commitment in their work.

QUALITY IN ALL RELATIONS

PLANET

EMPLOYEES

CONSUMERPRODUCER QUALITY

DESIGN

DESIGN

DESIGNDESIGN

PRODUCER

• Ensure responsible production with respect to working conditions and human rights

• Ensure responsible production from the perspective of the environment and climate, with an emphasis on water consumption

• Work towards increased transparency

• Sustainable procurement methods for external brands

EMPLOYEES

• Sustainable leadership

• Promote commitment to sustainability issues

• Integrate sustainability issues throughout the operations

• Training and education

• Business ethics

DESIGN

• Design sustainable products

• Sustainable buying methods

• Animal welfare

• Quality of product assortment

• Contribute to an environment free from hazardous chemicals

C ONSUMER

• Increase the lifespan of gar-ments

• Increase in-store knowledge of textiles with the aim of educating customers

• Transparency and relevance in external communication on sustainability

• Establish and strengthen rela-tionships

• Transparency

PLANET

• Map climate impact

• Reduce energy consumption

• Create an environmental stra-tegy for sustainable stores

• Climate-smart transportation

• Strive for reuse and recycling

PRIORITIES

SUSTAINABLE DE VELOPMENT VALUE CHAIN


SALES AND

MARKETINGPRODUCTION

CONSUMPTION AND USE

LOGISTICSDESIGN

AND PURCHASING

The MQ Group helps to generate value in several sections of the chain, in several countries and for many people. Acting responsibly regarding environmental, social and economic sustainability entails systematic, target-oriented work throughout the value chain.

Value Chain

DESIGN AND PURCHASING

The design process has far-reaching consequences

along the entire value chain. Consequently, great impor-

tance is placed on creating and procuring garments that

retain their shape and quality over time. Read more about

this on page 20.

PRODUCTION

All production takes place at selected suppliers in Europe

and Asia. The MQ Group has purchasing offices with its

own staff in Shanghai, China, its own local representation

in Turkey, and a business partner with offices in Bangla-

desh. All suppliers, including external brand suppliers, are

covered by the MQ Group’s requirements on responsible

production. Read more on page 26.

LOGISTICS

Large volumes of goods are transported every year on

behalf of the MQ Group, from suppliers to stores and

customers. The Group strives for efficient goods flows

and optimal handling, as well as environmentally efficient

transport at every stage. Read more on page 30.

SALES AND MARKE TING

Communication and consumption are increasingly inte-

grated, and the boundaries between the MQ Group’s

physical and digital channels are being erased. A seam-

less offering is being created through digital and mobile

communication, and ever more customers are being

reached. Read more on page 32.

CONSUMPTION AND USE

Customer expectations are to be fulfilled and, preferably,

exceeded. Confidence in the MQ Group’s sustainability

efforts is crucial and these are communicated with an

emphasis on quality and design. Customers are to be

offered a sustainable wardrobe, along with sound advice

on how to care for it. Read more on page 34.

SUSTAINABILITY THROUGHOUT THE VALUE CHAIN

With a focus on quality throughout the value chain – from design and purchasing, production, transport and sale, to the customer’s long-term use and enjoyment of each item of clothing – there is an ongoing process to evolve the MQ Group in a way that contributes to sustainable development.


VALUE CHAIN: DESIGN AND PURCHASING

DESIGN AND PURCHASING

High-quality products which the customer can use for a

long time are the core of the customer offering. The design

and purchasing process is therefore critical to achieving

results in all areas of sustainability work. Demands are

placed on choice of materials, manufacturing processes

and working conditions, all based on sustainability issues.

Ensuring success at every stage calls for clearly defined

regulations and well-considered processes, as well as

continuous training and updates with regard to production

methods and materials development, so that informed

choices can be made based on the right foundation.

THE DESIGN PROCESS

Fashion, design and quality, as well as price are crucial to

developing the Group’s proprietary collections, the aim

being to make them a competitively priced part of the as-

sortment. Proprietary products are designed at the com-

panies’ headquarters in Gothenburg, where designers,

assistant designers, graphic designers, buyers, assistant

buyers, pattern designers, managers, controllers and

sustainability managers work to create the best product

for the customer. So as to integrate sustainability work into

the design process, a material tool has been developed

that will sup-port designers and buyers in making informed

decisions about the materials they select. The tool will

be implemented gradually, and the process begins with

categorising materials. Quality and careful selection are

the guiding principles.

BUYING ME THODS

The MQ Group’s manner of working has an impact on its

producers’, such as their working hours, costs, delays,

employee bonuses and so on. A well-defined process

on the part of the purchaser can potentially improve the

efficiency and work flow at the factories. For instance, a

lead-time schedule is jointly set with suppliers before each

season, in order to plan production. The schedule also

serves as the basis for internal design processes and trial

runs that help prevent problems such as delays.

PURCHASING OFFICES

MQ engages external producers for its proprietary col-

lections. The MQ Group maintains a presence in its most

important purchasing markets, with offices in Shanghai

(China), Dhaka (Bangladesh) and Istanbul (Turkey). Co-

ordination of purchasing for MQ and Joy is set to increase,

a process which is already under way. Long-term supplier

relations are regarded as critical in several aspects, such

as improved working conditions at producers, as well as

quality and profitability. Sustainable fashion entails a sustai-

nable production process, all the way from the production

of raw materials through to the finished product in store.

To achieve this, the Group provides its producers with

support to improve production and increase competence.

The Group’s purchasing offices play a key role in building

collaboration and partnerships. The principle is to achieve

transparency in working methods.

SUPPLIER ASSESSMENT

Joint supplier assessments are performed twice yearly by

purchasing organisations, CSR managers and purchasing

offices. Suppliers are now assessed holistically in eight

areas: gross margin, product quality, delivery precision,

compliance with the Code of Conduct, production, sus-

tainability, price, and relationships. All of MQ’s suppliers

were mapped with regard to sustainability work in 2016/2017.

The results are used as part of the supplier assessment.

Joy’s suppliers are assessed on an ongoing basis as the

supplier base is mapped.

E X TERNAL BR ANDS

External fashion brands have an important part to play in

MQ’s assortment. At Joy, four carefully selected external

brands were added during the year in order to broaden and

strengthen the customer offering. All suppliers of external

brands are encompassed by the Group’s requirements

on responsible production, to ensure that the products

are manufactured under sound working conditions based

on MQs social, animal rights and chemical requirements.

Responsibility is regulated in agreements and by a require-

ment to monitor and report. Before a new brand is added

to the assortment, steps are taken to ensure it lives up to

the Group’s set demands. During the year the MQ Group

mapped the sustainability work of all its brand suppliers,

and the results will form the basis of supplier assessments

in the coming year.

All brands and products have to meet the Group’s requirements on quality and design. Careful selection is the starting point for the assortment mix at both MQ and Joy.

THE ASSORTMENT’S SUCCESS FACTORS


MQ’s target group is men and women with a

mental age of 30-40.

“At MQ I find interesting, attractive brands I like! I want fashions that suit me and my style, both for work and special occasions.

Shopping online is just as easy and inspiring as shopping in store. MQ knows me and

knows what I like. The staff give me personal service, and I get relevant inspiration, advice

and styling tips that are just right for me.”

MQ WOMAN

“I want quality, and a style that feels right for me in any situation. MQ offers a good,

reliable selection of my favourite brands and the latest fashions, which makes it quicker

and easier to find the right clothes. MQ knows me and knows what I like. The staff

give me personal service, and I get rele-vant inspiration, advice and styling tips

that are just right for me.”

MQ MAN




SUSTAINABLE PRODUCTS


The textile industry has a major impact on the environ-

ment. This comes not only from cultivating and manu-

facturing fibres, but also production processes such

as dyeing and washing, which use a lot of water and

chemicals. The environmental impact can be reduced

by choosing the right materials and processes. The MQ

Group has a responsibility for the environmental footprint

of the waste generated by the manufacture of its pro-

ducts. One of our objectives is to increase the percen-

tage of garments that have a low environmental impact.

Choice of materials is a part of this.

To facilitate a systematic approach to material selec-

tion, the MQ Group has created a material tool, which

provides practical support for the design and purchasing

departments. The tool categorises materials based on

environmental, traceability and quality aspects on a scale

of A to D. The highest classification, A, means the mate-

rial has the lowest environmental impact, the best quality,

and traceability right down to farm level for animal-

based materials. The environmental factors are based

on existing life cycle analyses, materials tools and quality

requirement level at the Group’s. Synthetic materials are

non-renewable and chemical-intensive, and therefore

carry a low classification. Recycled synthetic materials

can, however, be chosen and they carry a higher classifi-

cation as they use less raw material.

Cotton production requires a lot of water, chemicals and

land area, and cultivating it affects the soil, groundwater

and biodiversity. Conventionally grown cotton therefore

carries a low classification in the materials tool, while

organic cotton and Better Cotton have a higher rating

based on better cultivation techniques.

Regenerated fibres account for an increasing percenta-

ge of unsustainable deforestation. Therefore, conventio-

nally produced viscose, for instance, has a low classifica-

tion, but Tencel® has a high one as the fibre is made from

fast-growing FSC-certified trees and produced in closed

systems that allow for the multiple reuse of chemicals and

water. This results in a smaller environmental footprint.

The MQ Group’s current target for cotton is that 100

per cent of all its cotton should be sustainable by 2020,

i.e. organic, recycled or Better Cotton. Targets for recyc-

led materials and materials from sustainable forestry will

be set.

• 74 PER CENT RENEWABLE MATERIALS (NATURAL

FIBRE, REGENERATED FIBRE AND ANIMAL-BASED

FIBRE) IN MQ’s PROPRIETARY BRANDS 2016/2017. * **

* This is the first reporting occasion and relates to MQ.

** Joy will be reported from the next Annual Report.

INCREASED SHARE OF SUSTAINABLE COTTON

In 2016/2017, MQ increased the use of sustainably grown

cotton in garments, partly as a result of working with

the Better Cotton Initiative (BCI). Joy also joined the

organisation during the year and has begun buying cotton

labelled Better Cotton. MQ and Joy now use the same

criteria when it comes to working with sustainable cotton.

Through the BCI, more than 400 cotton growers were

trained in sustainable production methods as a direct re-

sult of MQ’s investments in the initiative. The training aims

to promote cultivation methods that use less insecticide,

fertiliser and water, and to increase knowledge about

soil and biodiversity. This improves working conditions

for cotton growers, and cotton growing becomes more

economically, environmentally and socially sustainable.

Better Cotton now encompasses 12 per cent of cotton

production globally, and last year BCI farmers in China

used on average 26 per cent less water than those not

using BCI techniques.

• 51 PER CENT SUSTAINABLE COTTON OF THE TOTAL

AMOUNT OF COTTON IN MQ’s PROPRIETARY BRANDS

2016/2017. * **

* No comparison figure from last year since the total amount of cotton in

proprietary brands is now reported.



VALUE CHAIN: DESIGN AND PURCHASINGVALUE CHAIN: DESIGN AND PURCHASING

One result of the Sustainability Strategy 2020, which was

developed for the MQ chain in 2016 and is now also being

implemented at Joy, is a proprietary materials tool. It pro-

vides support in selecting and monitoring the materials

used to produce proprietary brands.

The tool categorises the materials on environmental,

traceability and quality aspects, and classifies them based

on each material’s impact on each factor. During the year,

FACILITATING SUSTAINABLE MATERIAL CHOICES

the design and purchasing department in the MQ chain

primarily has begun using the tool, and it is also being

further developed. With accompanying system support

for mapping, all ordered materials can now be assessed,

analysed and followed up. This enables annual follow-up

and goal setting for sustainable materials moving forward.

ANIMAL WELFARE POLICY

The MQ Group believes that animals are entitled to

have their basic needs met. All suppliers and facto-

ries involved in the production chain must respect

the well-being of animals and the five freedoms,

which are animal protection recommendations

formalised by the Farm Animal Welfare Council.

In addition, the Group has specific requirements

on every animal-based material used, to which all

suppliers are contractually obliged to adhere. Trace-

ability is a priority issue that enables the guarantee

of these five freedoms. The MQ Group does not

currently have traceability for all of the animal-based

materials used, but is working on a way to achieve

this. Materials that are traceable comprise down

and feathers, as well as merino wool. These requi-

rements have also been implemented at Joy.

MQ is a member of the Swedish Trade Fede-

ration’s network for animals rights issues, which

works for animal welfare in the fashion industry.

Read more about the specific requirements for

animal-based materials at www.mq.se.

DOWN AND WOOL

In the 2016/2017 financial year, all of the garments

sold by MQ containing down or merino wool were

certified. Joy has not had certified merino wool during

the year, but follows the same stringent requirements

as MQ from 2017/2018.

• 100 PER CENT CERTIFIED DOWN IN LINE WITH

THE RESPONSIBLE DOWN STANDARD AT

MQ 2016/2017. *

• 100 PER CENT CERTIFIED MERINO WOOL AT

MQ 2016/2017. *




VALUE CHAIN: DESIGN AND PURCHASING VALUE CHAIN: DESIGN AND PURCHASING

Producing textiles requires a lot of water, and water is in

short supply in several countries. Water consumption and

emissions vary widely depending on the material, produc-

tion process and country.

The MQ Group works with the BSCI (Business Social

Compliance Initiative), which works in an area of the

Code of Conduct known as “protection of the environ-

ment”. It stipulates demands on water being handled in a

way that respects the environment. It applies particularly,

but not exclusively, to preserving local water sources.

The BSCI uses audits to ascertain whether a factory

is meeting the necessary requirements. For instance,

there must be a working water management system with

supporting processes and policies, while workers at the

factory must be aware of the company’s policy and know

how water should be handled. BSCI audits are performed

at the sewing factories producing for the group.

BROAD MUSTERING OF STRENGTH

The greatest environmental impact, however, can be

found among our second-tier suppliers, such as laundries

and dye works. In 2010, MQ therefore founded the Sweden

Textile Water Initiative (STWI) alongside industry collea-

gues, which has joint guidelines for more sustainable ma-

nagement of water, energy and chemicals used in textile

production, focusing on second-tier suppliers. The aim is

to reduce impact on the water environment in production

countries, and to improve the working environment in

subsupplier companies.

In 2016, MQ had three suppliers in the STWI project.

Together they saved 43,033 cubic metres of water, which

equates to the daily water requirement for 860,660 peop-

le. One of the three suppliers truly distinguished itself and

was voted Best Overall Performing Supplier by STWI for

investing in better management in all of the project’s areas:

water, energy and chemicals. This supplier produces both

outerwear and formal wear with never out of stock qualities.

The MQ Group can reduce its environmental impact by

outsourcing fabric production with suppliers that have

improved environmental processes. Different suppliers’

environmental work was mapped during the year, and

an analysis of this will lay the foundation of the Group’s

ongoing work on this issue.

MQ currently uses three laundries that are internally

audited and meet MQ’s requirements on water and che-

micals management. Mapping and auditing of laundries

are ongoing for Joy, where one supplier contract was

terminated during the year as the environmental impact

was deemed to be too high.

CHEMICAL RESTRICTIONS

Together with its suppliers, the MQ Group takes respon-

sibility for ensuring that its products do not contain any

prohibited, harmful or environmentally hazardous che-

micals. Suppliers are contractually obliged to abide by

applicable chemical restrictions. These restrictions are

based on and updated annually in line with EU legislation,

REACH and the chemicals list issued by the Swedish

Textile Importers’ Association.

The Group applies the precautionary principle and

avoids using materials that contain potentially hazardous

substances and chemicals, such as polyfluorinated

chemicals (PFCs) and PVC in its products. Spot checks

are performed to ensure adherence to the regulatory

framework. If a product fails a chemicals test, the order is

halted and a dialogue with the supplier is initiated in order

to prevent a reoccurrence.

The MQ Group is a member of the Textile Chemicals

Group – a knowledge base platform managed by Swerea

IVF. Joy began implementing spot checks in spring 2017,

and now adheres to the same requirements as MQ. The

Group did not recall or halt any products during the year

due to not meeting the set requirements on chemicals.

In 2016/2017, MQ’s purchasing office in Shanghai started a chemicals project with four suppliers who have been trained in efficient chemicals management systems. This made work on the chemicals issues more proactive, so as to reduce the risks of illegal and hazardous chemicals both in production and in

MQ’s products. The training included risk analysis, control and monitoring systems, for instance.

PROACTIVE CHEMICALS PROJECT

WATER AND CHEMICALS



QUALITY C ONTROL FLOW

FACTORY AUDIT BY QUALITY

CONTROLLER

RISK ANALYSIS OF PRODUCT

FINAL INSPECTION

FOLLOW-UP

INLINE INSPECTION

FIRST TEST

MATERIALS CONTROL

PRODUCTION MEETING

TEST PRODUCTION

Quality is an ongoing focus area in the Group. Proprietary

brand collections undergo various stages of testing: in

the factory, at independent testing institutes, and inter-

nally within the company. Suppliers guarantee the level of

quality in agreements and contracts, and through quality

control processes in the factory.

Before entering into a new collaboration, the quality

manager at the Group’s production office conducts

internal audits to establish that the supplier can meet the

set demands.

MQ has well-established procedures for quality con-

trol, and these are now being transferred to Joy as well.

In spring 2017, Joy began deploying quality control pro-

cesses in factories. Joy will now follow MQ’s procedures

moving forward.

Returns are followed up and assessed in accordance

with established quality control flows, in order to effect

improvements for every new season. Reducing the

percentage of returned items is important to both the

MQ Group and producers.

The MQ Group ensures that the products it sells are

safe, of high quality, and do not contain any hazardous

chemicals. Suppliers guarantee product safety through

agreements and contracts, and ensure that this is fol-

lowed up through testing. When producing new products

and qualities, a risk analysis is always carried out to

ensure that the product can achieve the set requirements

for quality and chemicals, for example.

QUALITY ASSURANCE

RETURNS 2016/2017

MQ Joy

Rate of returns, proprietary and external brands 0.60% (0.65) 0.40% (-)

Product recalls from stores 2 orders (1) 6 orders (-)

Discontinued products 1) 13 orders (11) 6 orders (-)

Number of repaired returns 2) 7% (-) - (-)

1) Products that failed to meet quality requirements and did not reach

customers.

2) New key figure applicable from spring 2017.

Previous year in parentheses.

For Joy, 2016/2017 is the first year this data is being compiled.





VALUE CHAIN: PRODUCTION


PRODUCTION

The MQ Group does not own any factories. Instead, all pro-

duction takes place with selected suppliers, and is purcha-

sed either directly by the Group or through selected exter-

nal-brand partners. Suppliers either handle all production or

just selected parts. All production is encompassed by the

MQ Group’s requirements on sustainable production.

SUPPLY CHAIN

SupplierA company with which the Group conducts business di-

rectly, signs agreements and places orders to, excluding

suppliers of external brands.

FactoryA unit at which production takes place and which must

undergo internal or external auditing prior to manu-

facturing products on behalf of the Group.

SubcontractorAn external unit chosen for full or partial production by a

supplier to the MQ Group; these production units must

also undergo internal or external auditing before they may

start manufacturing on behalf of the Group.

SubsupplierSubsuppliers deliver, for example, fabrics and buttons,

or services such as laundry and embroidery to the MQ

Group’s suppliers, who are then responsible for ensuring

compliance with CSR requirements. During the year, the

MQ Group has requested updated information regarding

suppliers’ subsuppliers, and has begun mapping suppliers’

monitoring of their subsuppliers. This is also part of the

follow-up in BSCI auditing. The information forms the

basis for setting priorities moving forward.

Raw materials supplier Raw materials suppliers deliver materials such as cotton

and viscose to subsuppliers. The MQ Group has begun

improvement work for cotton by implementing Better

Cotton, and has begun mapping other materials.

Home workersThe MQ Group only allows the use of home workers

when the work in question requires a special skill and can

be regarded as a handicraft. All forms of home working

are subject to approval by MQ. An equivalent process is

currently being deployed for Joy.

External brand supplierBrands from which the MQ Group buys finished products.

All suppliers of external brands are encompassed by the

MQ Group’s requirements on responsible production.

PRODUCTION OF PROPRIETARY BRANDS

During 2016/2017, the MQ Group has reduced the num-

ber of suppliers and factories that produce its proprieta-

ry brands. There are now 21 fewer suppliers and 31 fewer

factories. The reduction is the consequence of active

consolidation work in the supplier base, which increa-

sed dramatically when Joy was acquired in May 2016.

The Group’s suppliers and factories

CountryNumber of suppliers Factories

China 42 78

India 13 23

Turkey 12 18

Bangladesh 11 13

Sweden 9 -

Netherlands 2 -

Italy 2 2

Denmark 2 -

Bulgaria 1 1

Thailand 1 1

Germany 1 -

Serbia - 1

Laos - 1

Vietnam - 1

Portugal - 2Slovakia - 1

96 142

PRODUCTION OF E X TERNAL BR ANDS

External brands are a part of the assortment at both

MQ and Joy. The strategies, however, differ. MQ aims

to represent a broad brand mix, with proprietary brands

complemented by a high proportion of external brands in

store, and with an even broader assortment of external

brands in online shopping. Joy aims to have a high pro-

portion of proprietary brands complemented by a small

number of external brands which are the same both in

store and online.

In 2016/2017 MQ has added eight external brands,

four of which are web-exclusive. In all MQ has 64 exter-

nal brands, of which 40 are web-exclusive. Joy has four

external brands which have been in all stores and online

since August 2017. All new brands have been assessed

to ensure compliance with the set requirements.




THE SUPPLY CHAIN IN OUTLINE

PROPRIETARY BRANDS

MQHOLDING

FACTORY/ SUBC ONTRACTOR SUPPLIER

SUB SUPPLIER

FACTORY/ SUBC ONTRACTOR

RAW MATERIALS SUPPLIER

SUB SUPPLIER

RAW MATERIALS SUPPLIER

EXTERNAL BRANDS


VALUE CHAIN: PRODUCTION VALUE CHAIN: PRODUCTION

Since 2007, the MQ Group has been a member of the

Business Social Compliance Initiative (BSCI), a busi-

ness-driven initiative for improving working conditions

across the global supply chain. BSCI unites more than

2,000 members and supports their efforts to create an

ethical supply chain.

The foundation is a shared Code of Conduct that all

members are committed to implementing and following

in their supply chain. This Code is based on the UN Uni-

versal Declaration of Human Rights, the UN Convention

on the Rights of the Child and the International Labour

Organization (ILO) Core Conventions. Through external

accredited audit companies, MQ’s own audits and audit

reports from other approved systems, the MQ Group

assesses how well the factories comply with the Code

of Conduct.

The MQ Group also applies a Critical Violation Policy,

CVP, for criteria that form the basis of the company’s de-

cisions to begin new collaborations or terminate existing

ones. The aim is for 100 per cent of the factories to meet

the CVP. By accepting other standards with equivalent

requirements, the Group can verify the Critical Violation

Policy and spend more time on improvement work with

the factories.

In addition to the Code of Conduct, BSCI also offers

capacity-raising initiatives for factories and member com-

panies. The focus and content of the initiatives are custo-

mised to prioritised issues and identified challenges. BSCI

also maintains active dialogue with local stakeholders in

the members’ countries of production. During the year,

BSCI has introduced new auditing procedures, whereby

all audits are now semi-announced, i.e. the factories are

notified of a period during which the audit will be conduc-

ted, rather than the exact date as before.

An audit assesses how well the factory lives up to the requirements set out in the Code of Conduct. The factory is assessed in 13 areas on a scale of A to E.

Level A: Outstanding, the factory has no or only minor deviations from the Code. All Level A suppliers are encouraged to obtain SA8000 certification, which is a global standard for certification of social accountability and improved working conditions. No need for a follow-up audit.

Level B: Good, the factory has only minor deviations from the Code, and no deviations in critical areas. The factory has a high level of maturity and can manage its own improvement process. No need for a follow-up audit.

Level C: Acceptable, the factory has no deviations in critical areas and meets at least half of all the audit requirements.

Level D: Insufficient, the factory has one or more deviations in critical areas and meets less than half of the audit requirements.

Level E: Unacceptable, the factory has critical deviations from the Code that require immediate monitoring and action.

Factories at levels C–E need greater support in the improvement pro-cess and are obliged to draw up an action plan no more than 60 days after the audit, and to conduct a follow-up audit within one year.

THE BSCI ASSESSMENT SCALE

BINDING CODE OF CONDUCT


VALUE CHAIN: PRODUCTION VALUE CHAIN: PRODUCTION

MQ’s AUDITED FACTORIES JOY’S AUDITED FACTORIES

BSCI audits

Own audits

Not audited

MQ• 65 per cent of the factories delivering to MQ were audited

according to BSCI in 2016/2017. Last year’s figure of 85 per

cent audited factories also included audits where the validity

date had expired.

• Factories not audited according to BSCI were verified

by internal audits or audit reports from other approved

systems. This means that 100 per cent of all the factories

delivering to MQ have been audited.

• Nine new suppliers were added during the year, all of

whom were reviewed in accordance with the MQ Code

of Conduct.

JOY• Efforts to map Joy’s supplier base were initiated in

2016/2017.

• Up to the balance sheet date on 31 August 2017, 51 per

cent of factories delivering to Joy had been audited

according to BSCI.

• No new suppliers were added during the year.

MQ • MQ uses three factories that are SA8000 certified. Of

MQ’s BSCI-audited factories, 13 are levels A-B, 26 are

level C and 13 are level D. No factory is level E.

• In 2016/2017, MQ identified seven factories that deviated

from the MQ Critical Violation Policy after a follow-up

audit. Action plans have been drawn up in association with

the relevant suppliers.

JOY• Joy uses one factory that is SA8000 certified. Of Joy’s

BSCI-audited factories, 4 are level B, 19 are level C and 6

are level D. No factory is level E.

• Joy has begun implementation of the MQ Critical Violation

Policy. The aim is that the policy should apply for all facto-

ries used by Joy in 2017/2018.

BSCI audits

Own audits

MQ AUDIT RESULTS JOY AUDIT RESULTS

SA8000

Level A

Level B

Level C

Level D

Level E

SA8000

Level A

Level B

Level C

Level D

Level E

EgnaBSCI EgnaBSCI

BSCI Level EBSCI Level DBSCI Level C

BSCI Level BBSCI Level ASA8000

BSCI Level EBSCI Level DBSCI Level C

BSCI Level BBSCI Level ASA8000

Not audited65%

35%

51%

49%

63%

20%

47%

24%

15%

9%5%

13%3%



The greatest challenges for the MQ Group’s suppliers

are in the areas of health and safety in the workplace,

management systems and overtime. In the event of de-

viations from the Code of Conduct, the underlying cause

as to why the supplier has breached the Code is always

investigated, before an action plan is drawn up together.

If the supplier is unwilling to co-operate or deviates

from the Code multiple times, the collaboration may be

terminated.

TRAINING FACTORY WORKERS

The MQ Group offers training via the BSCI, and also via

the collaboration with QuizRR, which delivers a digital

training tool and knowledge platform for factory workers.

There is potential in bringing about change in the factory

stage. Training covers the following areas: working en-

vironment, health and safety, fire and building safety, and

communication. The training is based on international

conventions, global codes of conduct, local laws and

regulations.

The MQ Group was involved in pilot projects in China

and Bangladesh, and also in the start-up of QuizRR. The

Group’s goal is for an additional five factories to use

QuizRR within one year.

Training initiatives in 2016/2017- A total of 14 factories used by the Group use QuizRR.

- Seven new factories have joined the scheme during the

year.

- A total of 2,313 people were trained in 7,141 sessions.

- One of the factories the MQ Group uses in China was

voted “Supplier of the Month” during the year, after

training all its workers in all areas over a short space of

time. This was highlighted on the QuizRR website.

ZERO TOLERANCE FOR CHILD LABOUR The MQ Group has zero tolerance for child labour. This is specified in the Code of Conduct and is based on the UN Universal Declaration of Human Rights, the UN Conven-tion on the Rights of the Child and the International Labour Organization (ILO) Core Conventions. All suppliers must work preventively and have action plans in place. In the event of child labour being detected, the Group has an internal action plan that was drafted in line with Save the Children’s guidelines and in co-operation with the Center for Child Rights and Corporate Social Responsibi-lity (CCR CSR) in China. Action plans against child labour are also available through membership in the BSCI. If child labour should be identified through an external audit, it is reported to the MQ Group and all other members linked to the subcontractor. The Group’s employees are respon-sible for reporting their suspicions of there being any underage children at a subcontractor company.

CHILD LABOUR IN 2016/2017

In connection with a follow-up audit, MQ identified two ca-

ses of child labour in China during the year. The children

were 15, whereas the minimum working age in China is 16.

MQ ensured that the children were immediately taken out

of work and contacted the CCR CSR to draw up an action

plan. The recommendation was that the children should go

back to school at the cost of MQ’s supplier. Unfortunately,

the children’s families chose not to follow the recommen-

dation as the children were unwilling to return to school. The

supplier has undergone training with the CCR CSR, has up-

dated its internal policy and processes for assuring clearer

employment procedures, and has committed to introduce

QuizRR training tools at the factory. Since the supplier has

followed the action plan and implemented the changes, the

MQ Group decided to continue working with the factory.

POLICY ON SYRIAN REFUGEES

During the year, the MQ Group drew up a policy regarding Syrian refugees in Turkey, which all of the

Group’s suppliers in Turkey have signed. The policy is based on the BSCI’s guidelines on Syrian refugees,

and the MQ Group’s Code of Conduct. Demands are stipulated on preventive work in the supply chain so as

to avoid the exploitation of Syrian refugees. The suppliers were also invited to an information meeting on the

issues, arassortmentd by the BSCI in association with UNHCR. No deviations from the policy have been iden-

tified. The MQ Group has also signed a letter to the Turkish President regarding the situation of Syrian refugees

in Turkey. The letter was an initiative of the Fair Labor Association and UNHCR, and was signed by the BSCI

which also invited its members to co-sign. The letter aims to simplify the process around applying for a

work permit, how wages are paid and the ability to open a bank account.

VALUE CHAIN: LOGISTICS



LOGISTICS

Every year, large volumes of goods are transported from other parts of the world to Sweden, and to MQ’s and Joy’s stores. To maintain our operations and satisfy the demands of customers, an efficient goods flow is required all the way from factory to store. As a part of our day-to-day optimisation efforts, we continuously strive to optimise lead times and inventory levels and to streamline goods flows. Efforts related to transportation are also crucial in minimising the Group’s greenhouse gas emissions. Initiatives were taken during the year to co-or-dinate the Group’s transport. This is a lead in sustainability work, but also in achieving a more efficient flow that leverages synergies between the MQ and Joy chains. Neither MQ nor Joy have proprietary central warehou-ses, rather external logistics companies are used. Lo-gistics flows of both proprietary and external brands are managed through central warehouses in close co-ope-ration with brand suppliers. Deliveries to stores utilise a replenishment-on-demand system as well as scheduled deliveries. Online shopping goods are delivered both tostores for collection and directly to customers or third-party collection points. The MQ chain uses DHL Texport as an external logistics partner, while Joy uses Schenker.

REDUCING EMISSIONSThe choice of transport method is critical to minimising adverse environmental impact. Airfreight is only to be used in exceptional cases. In 2016/2017, rail transport from Asia has been successfully used as an alternative to airfreight for situations such as production delays, and this has dramatically reduced CO2 emissions. Above

all MQ has been able to reduce the volume of goods transported by air thanks to a proactive, conscious effort to plan and manage international transport. Within Europe, MQ has moved from road transport to intermodal means by sea/rail/road. This too reduces the environmental footprint for carbon dioxide emissions. This change was implemented during the fourth quarter and will continue bringing benefits over the next year. For international transport, MQ’s CO2 emissions have come down by just over 30 per cent per garment – from 0.23 kg CO2 per garment in 2015/2016 to 0.16 kg in 2016/2017. For domestic transport, CO2 emissions per garment remain unchanged at 0.06 kg. Joy is reporting CO2 emissions for the first time. For international transport they are 0.14 kg per garment, and for domestic transport 0.015 kg per garment. Reported emissions data is calculated by each trans-portation company. DIALOGUE WITH FORWARDING AGENTS Carbon dioxide emissions from sea, road and air transport are calculated based on the well-to-wheel principle, through which consideration is given to the entire production and distribution chain, and to the efficiency of vehicular energy conversion. The Group works and maintains dialogues continuously with forwarding agents to influence and pro-mote activities that will reduce the environmental impact of transport. Examples include the use of shipping companies with superior environmental classification, companies that invest in engines with reduced environmental impact and consolidate shipments at ports of departure.

VALUE CHAIN: LOGISTICS

Landtansport bil inrikesLandtansport bil utrikes

Landtansport tåg utrikesBåttransportFlygtransport

0

300

600

900

1200

1500

2016/172015/16

MQ koldioxidutsläpp totalt, ton CO²MQ EMISSIONS C O2 TOTAL, TONNES JOY EMISSIONS C O2 TOTAL, TONNES

Landtansport bil inrikesLandtansport bil utrikes

Landtansport tåg utrikesBåttransportFlygtransport

0

300

600

900

1200

1500

2016/172015/16

Joy koldioxidutsläpp totalt, ton CO²

2016/2017 is the first year Joy reports CO2 emissions.

Air transport

Road transport international

Sea transport

Road transport domestic

Rail transport domestic

Air transport

Road transport international

Sea transport

Road transport domestic

Rail transport international

2015/2016 2016/2017 2016/2017

VALUE CHAIN: SALES AND MARKE TING

SALES AND MARKETING

The MQ Group’s focus is to be Sweden’s best omnichan-

nel in carefully selected branded fashion. The Group is

well prepared to benefit from the ongoing transformation

in retail, with increasing digitalisation. With a combination

of stores and online shopping, the Group meets custo-

mers where they are. Simplicity and availability are crucial

factors in determining where a customer chooses to buy.

It is an important factor in the MQ Group’s development

that its omnichannel focus is already well established.

OMNICHANNEL

The MQ chain introduced online shopping in 2010. Online

shopping in store was launched in all MQ stores during

2016/2017, with access to tablets/touch screens. The on-

line assortment has been further extended with more web-

exclusive brands, considerably expanding the assortment

as they are available via online shopping in stores. The

MQ chain’s customer offering should be seamless, and

digital and physical channels integrate with each other.

In the Joy chain, online shopping was established in

2013. Joy offers the same assortment both in stores and

online. Four selected external brands were launched in

Joy online in August 2016, while the external brands were

also launched in a number of selected stores. One year

later, in August 2017, the same brands were launched in

all Joy stores.

Just as in fashion retail generally, altered consumption

patterns are being clearly noted in more visits and higher

sales via online shopping in the MQ Group. The Group

reports sales development as an aggregate for all stores

including both online shopping concepts. There is no

separate reporting for physical and online stores.

EVOLVED STORE NETWORKAs of 31 August 2017, the Group has 173 (174) store locations in Sweden. Of these, 121 (119) are MQ stores and 52 (55) are Joy stores. The store network is well spread geographically, with high access to personal service from knowledgeable salespeople. During the year, 11 MQ stores were newly ope-ned or refurbished. At Joy, a rapid upgrade is under way in line with a new cost-effective store concept. Up to 31 Au-gust 2017, 20 Joy stores had been refurbished, and a further 18 are being remodelled during autumn 2017. The Group is working constantly to develop its storenetwork and store operation. The synergies of two fashion chains are gradually being leveraged. The guiding princip-les are retail know-how and a knowledge of fashion and trends, along with high cost control and a focus on greeting and treating customers. Also in an age of increasing digita-lisation, the stores should be strong commercial channels where customers feel inspired to shop and assisted in fin-ding their style. Positive customer interaction and a perso-nalised approach are vital and constitute unique competitive tools. The customer experience is surveyed and monitored continuously using various tools. The 2016/2017 trend in

customer satisfaction was positive at both MQ and Joy.

C OMMUNICATIONMarketing communication is largely, but not exclusively, digital. With a strong presence in social media through the MQ and Joy loyalty clubs respectively, digital advertising is a highly cost-effective method. With an omnichannel strategy, customers are met in each chain by the same message, regardless of channel. Read more about each

chain concept on pages 38-41.

As an omnichannel player, the MQ Group re-ports total sales including online shopping. This is because online shopping is growing ever more

important in fashion shopping, as customers change their behaviour and seek new purchasing channels. Customers are constantly on the move,

and a large proportion of online shopping today is done on mobile devices. Online shopping increa-

sed at both MQ and Joy during the year.

INCREASED DIGITAL SHOPPING

The MQ chain has long offered a click and

collect solution, i.e. the ability to shop online and

collect an order in store. Many people find this an

attractive way to shop, with a distinct perception

of simplicity and availability. During the year, click

and collect in MQ has been strengthened with

tablets /touch screens in all stores, thus conside-

rably expanding the customer’s freedom of choi-

ce. The customer has various delivery options

to choose from, and more will be developed and

offered to meet a wider assortment of needs.

CLICK AND COLLECT



VALUE CHAIN: SALES AND MARKE TING

Joy’s target group

is women in midlife.

Yvonne Ryding is an ambassador and model for Joy, whose motto is about the joy and

pride of being a woman. To remain curious in midlife is second nature to Yvonne, and a quality she is keen to pass on. Part of this curiosity is about fashion, the drive and de-

sire to try new things. Looking good is about well-being; we dress not only for the people

we meet, but for the women we are.

THE JOY OF BEING A WOMAN

Joy Magazine, which is available in Joy stores and online, communicates how the

chain is being upgraded in terms of assort-ment, stores and fashion content. The maga-zine was launched in spring 2017. The web integration means, for instance, that inte-rested customers can click on a garment

shown in the magazine and be taken directly to the buying page.

JOY MAGAZINE



VALUE CHAIN: CONSUMPTION AND USE

CONSUMPTION AND USE

span of the garments so as to reduce waste in the form

of discarded clothes. During 2016/2017, the MQ chain has

focused on a repair service, giving customers who return

an item the option of having the item repaired if possible,

rat-her than exchanging it for a new one. This involves the

customer in the sustainability process and increases aware-

ness. MQ has also updated its monitoring and procedures

for returned items, so as to increase the percentage of

repaired garments. Among other things, figures are now

kept for returns that lead to a garment being

repaired rather than discarded. Communica-

tion and sustainability work will progres-

sively be strengthened, clarified and

broadened to consumers and custo-

mers; this process began during the

year and will be further evolved.

SMART ST YLING

A digital training tool has been int-

roduced for MQ store staff, called

“SmartStyling” course increases the

staff’s knowledge of materials and clot-

hing care. The aim is to boost staff confiden-

ce in their knowledge, and to increase the desire to

inform customers. Customers appreciate care advice

that preserves the freshness of the garment and increa-

ses its lifespan. Giving such advice builds confidence in

the level of quality and is part of the personal touch. MQ

has also invested in and developed training profiles for all

store employees, and in 2016/2017 has also earmarked

training hours for these people. Work on training profiles

is set to continue so as to ensure the training of new

employees, and employees can also refresh and update

their training as required. Joy applies the same focus to

sustainability work as MQ, and this is being implemented

gradually throughout the value chain.

The goal is to exceed customer’s expectations

of a sustainable wardrobe.


EMPLOYEES

The MQ Group’s engagement in One Bag Habit has quickly produced good results. The com-mitment means customers are informed about the environmental impact of plastic bags, they are

offered bags in more sustainable materials, MQ and Joy charge for bags, all proceeds from bag sales are donated, and the results are reported annually. Over the first three months (June-August 2017) of One Bag Habit, MQ reduced the use of plastic bags by 50 per cent and Joy by 60 per cent, which

equates to 16 tonnes less plastic. Proceeds from bag sales are donated to the Swedish Society for Nature Conservation for its work for the environment, nature and a sustainable future.

FEWER PLASTIC BAGS AND MORE SUSTAINABLE BAGS

The MQ Group aims to exceed customer expectations with

a carefully selected assortment based on quality, fashion

content and price. Customers should feel confident

about how the Group’s garments have been manufac-

tured in terms of people and the environment.

Garments should be free from dangerous and harmful

chemicals, and produced in a responsible manner. A fo-

cus on design and choice of materials increases the gar-

ments’ lifespan, which is a factor in customer satisfaction.

The objective is that the customer should want

to use and wear their garment often. Each

new collection is designed to live up to

requirements on fashion, style varia-

tion, quality and price for MQ’s and

Joy’s target groups respectively.

The product assortment should be

suitable for different lifestyles, oc-

casions and needs, such as work,

leisure time, daily wear and special

occasions. A holistic approach en-

tails providing options for combining

garments from different proprietary and

external brands, in order to create a personal

and sustainable style based on individual customer

preferences. Superior quality extends the life of each gar-

ment, thus considerably reducing the environmental im-

pact. By developing clear care guides and washing instruc-

tions, along with information from the in-store staff to the

customer in store, the MQ Group wants to enhance the cus-

tomer’s knowledge and desire to take care of their clothes.

QUALITY REDUCES WASTE

The MQ Group’s focus on quality encompasses several

aspects focusing on sustainability. Design and choice

of materials are significant, as is the knowledge of the

in-store staff. Ultimately, this is about prolonging the life-

VALUE CHAIN: CONSUMPTION AND USE


EMPLOYEES

Dedicated employees are vital to the MQ Group’s ability to achieve its set goals. A focus on inspiration, quality and personal treatments in sales work leads to a positive customer encounter.

Employees

To retain and recruit the best employees, the Group needs to be one of the most attractive employers in the fashionindustry. Part of this means that the Group must developfrom a sustainability perspective. One of the overriding goals of all HR work is that each employee should feel proud, happy and committed to their daily work. This work has the following strategies as its starting points: • A culture guided by objectives and values• Leadership and employees who safeguard the organisa-

tion’s competence based on the business goals, and• Processes and tools for ensuring an optimal organisation

with clear areas of responsibility. All HR work starts from a Group perspective, whereby corporate culture, the implementation of new systems and so on encompass both MQ and Joy. The aim is to achieve a Group-wide attitude towards leadership and employ-eeship, but also to ensure full leveraging of synergies and make the organisation more efficient.

A POSITIVE C ORPORATE CULTUREPromoting a positive corporate culture is a top priority. With two chains, each with its own profile, it is even more important to have a common starting point centred around the customer. A strong sales culture and solid business acumen are fundamental, along with a desire to guide customers toward their own style through personal ser-vice. These values strengthen the customer offering and help ensure success in each chain’s market segment.

BUSINESS ETHICS POLICYIt is important for the Group’s employees to act respon-

sibly in all situations, and to have clear ethical guidelines for day-to-day operations. The Group’s business ethics policy is based on the principle that the company should be pro-fitably and ethically run. The MQ Group assumes respon-sibility for ensuring that all its activities and relationships comply with strict requirements on professional integrity. Responsibility is an issue that concerns both executive management and the individual employee. At executive management level, responsibility for business ethics lies with HR with regard to employee ethics, and with finance with regard to corruption. No one in the Group may use his or her position for personal gain at the expense of the company, its suppliers or its customers. In 2017-2018 the Group’s business ethics policy will be updated and clarified for all personnel. All employees in Sweden will be made aware of the business ethics policy, and it will be incorpo-rated into the onboarding process for new employees. A new system for learning and management makes it pos-sible to check that information about the policy has made the necessary impact.

DISTINCT LEADERSHIPLeadership within the Group must be clear, fair and inspira-tional. Employees should be familiar with business-plan ob-jectives and given the prerequisites for contributing to their achievement. Work methods include drive, a high degree of willingness to change and cost awareness throughout the organisation. Recruitment of new managers is done primarily internally in an attempt to both reinforce the corporate cultu-

re and build career paths.

50-30-490-29

GENDER DISTRIBUTION

ManKvinna

HK

ManKvinna

Butik

ManKvinna

HK

ManKvinna

ButikHeadquarters Stores

AGE DISTRIBUTIONPAY BREAKDOWN

ManKvinna

HK

ManKvinna

Butik

ManKvinna

HK

ManKvinna

ButikHeadquarters Stores

Women Men Women Men 0-29 years old

30-49 years old

50+ years old

THE MQ GROUP

Group

Gender distribution at management level in the Group is 60 per cent women and 40 per cent men.

80%

20%

91%

9% 20%

80%

8%

92%

14%

48%38%

A SECURE, DEVELOPMENTAL WORKPLACE

In the MQ Group, all employees should feel a sense of

personal responsibility, and should have an attitude that

matches the Group’s guidelines for business ethics.

Competence development is provided at all levels,

based on requirements. Employees and managers have

individually tailored training and education activities.

The foundation is a cohesive process in which business

plans shape the year’s objectives, performance reviews,

action plans and competence development activities.

The Group’s organisation comprises multiple workplaces,

which imposes special requirements on taking an orga-

nised and systematic approach to maintain the structure

and co-ordination of development activities. One way

of continuously increasing product knowledge and the

joy of fashion is to hold internal fashion shows and brand

exhibitions for store managers, who then carry this into

their stores with distinct leadership.

The Group aims to be a gender-equal employer, where

competency is the deciding factor for each position. MQ

and Joy have long been workplaces where women ac-

count for a clear majority. The definition of gender equali-

ty is that no employee should receive special treatment

on any grounds. Measurement of gender equality inclu-

des ratios showing the gender distribution for manage-

ment positions, as well as pay distribution. The highest

proportion of salary payments are made to women, both

in stores and at headquarters, since women are in majo-

rity. Zero tolerance applies to all forms of discrimination.

Policies are available to all employees and encompass

a gender-equality policy, a remuneration policy and an

occupational health and safety policy.

A survey of work environments at all workplaces

and departments within the Group is conducted, and is

always followed by action plans to rectify any shortco-

mings. The percentage of areas requiring action incre-

ased by one percentage point compared with last year,

equalling 9 per cent in 2016/2017. A great effort is put into

assuring employees’ safety and security. Retail is subject

to various risks such as theft and robbery, and there are

clear safety and security regulations and procedures in

place to keep employees from being exposed to risks.

All incidents are followed up, and employees are cared

for and offered support.

At the end of the financial year, the Group had 1,411

employees (1,427), which equates to 741 full-time posi-

tions. Just over 70 per cent of employees are permanent.

Most of them, 90 per cent of the total number of employ-

ees, work at one of the 173 stores that are part of MQ and

Joy. The majority (76 per cent) are part-time employees.

Employee turnover at the headquarters totalled 15.2 per

cent (13.6), compared to the industry average of 22.5 per

cent*. In stores employee turnover was 24.0 per cent (16.0),

compared to the industry average of 37.1 per cent*. Absen-

ce due to illness during the year was 5.1 per cent (4.9).

* According to statistics from the Confederation of Swedish Enterprise.

SATISFIED EMPLOYEES

Every year, the Group measures how satisfied its employ-

ees are and how they perceive their workplace. This is

reported in an Employee Satisfaction Index, a regular

parameter that is an important instrument in prioritising

initiatives and identifying areas for improvement. Based

on the survey, each manager is responsible for identify-

ing areas for improvement together with employees, so

that each workplace can work systematically on its own

results.

The MQ chain has long experience of employee sur-

veys, and they have both a high response frequency and

high values. Joy will conduct its first employee survey in

2017/2018 and will publish its first report in the next Annual

Report.


EMPLOYEES


13/14 14/15 15/16 16/17

Motivation 5.2 5.1 5.1 5.0

Leadership 5.0 5.0 5.0 4.8

Communication 5.0 4.9 4.8 4.6

Safety/security 5.0 4.9 4.8 4.7

Development 4.3 4.5 4.5 4.5

Gender equality 5.4 5.5 5.5 5.5

Values 5.3 5.3 5.2 5.1

Total 5.0 5.0 5.0 4.8

EMPLOYEE SATISFACTION INDE X MQ*


* Table refers solely to the MQ chain and the balanced result applies to all

levels in the company.

EMPLOYEES



AN ATTRACTIVE, INSPIRING

WORKPLACE FOR FASHION.

CHAIN CONCEPT: MQ

ASSORTMENT

A broad mix of proprietary and external fashion brands characterises MQ’s product assort-ment. A total of 80 brands are represented at MQ, 22 of which are included in the assortment

in all stores, while the others are offered via the online shopping service which is also available in stores. Proprietary brands are Stockhlm, 365 and Zoul for women, Bläck and Emilio for

men, and Bondelid and Dobber for both women and men. The assortment for both women and men accounts for half of sales. Proprietary brands account for around 60-70 per cent of sales.

MQ IN THE GROUP

MQ accounted for 86 per cent of total Group sales in 2016/2017. Sales in the 121 (119) stores, including

online shopping and three outlet stores, amounted to SEK 1,557 million (1,596). MQ started in 1957 and ce-

lebrated its 60th anniversary during the year. The chain has enjoyed constant development since the begin-

ning, from the early days as a purchasing collaboration between privately owned fashion stores to a wholly

owned retail chain which was publicly listed in 2010. MQ today is Sweden’s largest retailer of women’s and

men’s fashion brands, with both physical stores and online shopping. The Group’s focus is to expand, and to

be Sweden’s best omnichannel in carefully selected branded fashion. A higher number of visitors in stores

will be converted into customers, MQ Shop Online will grow further, and Outlet by MQ will expand.


CHAIN CONCEPT: MQ


CHAIN CONCEPT: MQ

The MQ chain continues to develop in the right direction A strategically impor-tant focus on the gross margin permeates the organisation. Modern customers are met with a high rate of renewal when digital and physical channels are integrated with each other.

The MQ chain concept

MQ aims

to be Sweden’s best omnichannel in

carefully selected branded fashion.

The MQ loyalty club had a total of 840,000 members (799,000) on 31 August 2017,

an increase of 5 per cent during the year. Of this number, 78 per cent were active mem-bers, i.e. they had bought something in an

MQ store or online over the past 12 months. MQ has had a loyalty club since 1993.

MQ LOYALTY CLUB

An important step was taken in November 2016 when

MQ opened the chain’s first online flagship store on Norr-

landsgatan, central Stockholm. The store was already

well established, but touch screens and communication

for online purchases in store were integrated in connec-

tion with a major concept innovation. This also conside-

rably expanded the product assortment thanks to direct

access to all of MQ’s web-exclusive brands.

In spring 2017 the initiative was deployed in further

stores, and by June all MQ stores had access to tablets

or touch screens. Online shopping in store is a key stage

in developing as an omnichannel player. It should be

simple for customers to shop, and MQ’s offering should

be perceived as being seamless and all-encompassing,

no matter where, when or how the customer chooses

to shop. Success requires that there be an omniculture

in stores, whereby the online assortment is valued just

as highly in the customer encounter as the assortment

directly accessible in store. The result is one of the broa-

dest and most available brand offerings on the market.

STORES BUILD THE BR AND

MQ’s 121 stores – including three outlet stores from 31 Au-

gust 2017 – are the foundation of the strong retail brand.

MQ has been a part of Swedish fashion and retail for

60 years, and today’s chain logo is well known and well

liked. It is by building on this position, with a strong focus

on inspiration, quality and personal treatment, that MQ

will continue to develop. New, complementary success

factors as customers become more digitalised and mobi-

le are the brand mix and the high availability.

Fresh, upgraded stores that signal fashion are part of

MQ’s renewal. During the year, 10 stores were built in

line with the store concept first introduced in the Mall of

Scandinavia store outside of Stockholm. In conjunction

with the upgrade, some of the stores have also been

relocated to more commercially favourable sites.

E VERY OPPORTUNIT Y ASSESSED

Having the right store location with the right size and the

right assortment complements and reinforces the digital

development. Every new opportunity is assessed based

on a holistic mindset, whereby all channels work together

with the aim of bringing more people into MQ, both physi-

cally and digitally, and turning them into customers. Based

on this, in September a fourth outlet store, Outlet by MQ,

opened in Jägersro Center outside Malmö, and in Octo-

ber a new store opened in the best signposting and com-

mercial spot on Drottninggatan in Stockholm. The final

remaining store in Norway is being closed down in De-

cember 2017.


CHAIN CONCEPT: JOY

Joy’s customer offering has been considerably strengthened during this first year Joy has been part of the MQ Group. Twenty stores were successfully upgraded in a way that increases attractiveness and sales, while also being cost effective.

The Joy chain concept

Joy aims

to be Sweden’s best fashion retailer in

service and personal treatment.

The Joy loyalty club had a total of 249,000 members (240,000) on 31 August 2017,

an increase of 4 per cent during the year. Of this number, 61 per cent were active mem-

bers, i.e. they had bought something in a Joy store or online over the past 12 months. Joy

has had a loyalty club since June 2014.

JOY LOYALTY CLUB

In contrast with the general trend in fashion retail, Joy has

increased footfall and the number of customers in its

stores. One important factor is the rapid rate of refurbish-

ment where a new store concept was rolled out. During

autumn 2017, rapid remodelling is continuing in a further

18 of the 52 stores in the chain.

Development at Joy has been swift ever since the

MQ Group acquired the chain. Joy has a large, growing

target group which has great purchasing power. Women

aged 50+ already account for the highest proportion of

purchases in Swedish women’s fashion retail. With the

right customer offering, proprietary brands with a higher

fashion content and the addition of four external brands,

Joy has managed to successfully attract its target group.

Joy Shop Online has also developed well, with higher

footfall and higher sales.

PORT DISPUTE AFFECTED SALES

In the last quarter of the financial year, June-August 2017,

Joy’s previously strong sales development was slowed

down following problems with incoming goods deliveries.

The cause was a dispute at the Port of Gothenburg which

meant that Joy, as a small player sharing containers with

other small players, could not access important incoming

deliveries of its early autumn collection. This led to a

temporary shortage of goods in stores, and sales decli-

ned. By September deliveries had been made up and

sales began recovering.

SALES FOCUS

Joy has a well-consolidated position in service, and

aims to be Sweden’s best fashion retailer in service and

personal treatment. Many stores have in-house stylists

who act as personal shoppers and guide customers to

a personal style that they find comfortable. This is a form

of active selling. Over the coming year the sales work

will be further developed so as to increase the rate of

conversion. Communication and Joy’s campaign strategy

will also be more finely honed.

SUSTAINABLE ASSORTMENT DE VELOPMENT

Joy has begun the process of implementing the Group’s

sustainability strategy. Much of the work is being done in

association with MQ so as to leverage collective know-

ledge and synergies. The process includes following up

purchases, materials and suppliers for proprietary brands.

Another prioritised area is to continue developing the

proprietary collections in order to reinforce the reposi-

tioning towards more fashion.


CHAIN CONCEPT: JOY

ASSORTMENT

Joy’s proprietary collections form the basis of the product assortment. These are well-establis-hed brands among the target group, and the collections have been renewed during the year with a focus on fashion content, quality and fit. Proprietary brands are Alice Bizous, Honey, Honey B Blue and RoseBud. Since August 2017, all of Joy’s stores have been enhanced with four selected external brands: Bondelid, Esprit, Lee and Saint Tropez. External brands were first introduced

in online shopping. Proprietary brands represent roughly 80-90 per cent of sales.

JOY IN THE GROUP

Joy accounted for 14 per cent of total Group sales in 2016/2017. Sales in 52 (55) stores and online

shopping amounted to SEK 264 million (Joy is included in the MQ Group from May 2016, which is why

no comparison figures are reported). Joy started in 1971 as a privately owned retail chain and has gradually

grown ever since. Joy only sells women’s fashion and targets women aged 50+, thus complementing the

MQ chain and extending the Group’s target demographic. With positive visitor development in stores Joy is

reaching more and more people in the growing target group, which accounts for more than half the

total sales volume in Swedish women’s fashion sales. Joy continues to focus on growth, and on

being Sweden’s best fashion retailer for service and personal treatment.



THE MQ SHARE


MQ Holding is a Swedish publicly listed company with a share listed on the Nasdaq Stockholm since June 2010. Through its financial reporting, MQ Holding always aims to provide clear, relevant information about the operation.

The MQ share

SHARE CAPITAL

The share capital in MQ Holding AB amounts to SEK

3,515,651 divided between 35,156,507 shares with a quo-

tient value of SEK 0.1 per share There is only one type of

share and all shares entitle the holder to an equal share in

the company’s assets and profit.

SHARE TR ADING

The last price paid on 31 August 2017 was SEK 32.00,

which gave MQ Holding a market capitalisation of SEK

1,125 million. The highest share price noted during the

financial year was SEK 37.70 and the lowest was SEK

31.10. A total of 22,210,103 shares were traded on Nasdaq

Stockholm during the 2016/2017 financial year, correspon-

ding to a value of SEK 756 million. The average number

of shares that changed hands per trading day was 87,787.

The share price fell by 8.6 per cent during the year.

SHAREHOLDERS

On 31 August 2017, the number of shareholders was 11,912

according to Euroclear. The 10 largest shareholders held

shares corresponding to 54.7 per cent of the company’s

votes and capital.

D IVIDEND POLICY

The Board’s objective is to propose a dividend that on

average over time corresponds to approximately 50 per

cent of profit after tax for the year. The date and amount

of any future dividend will be determined by factors such

as the company’s future earnings, potential for expansion

and acquisitions, and financial position in general.

DIVIDEND PROPOSAL

The Board proposes a dividend of SEK 1.75 (1.75) per

share for 2016/2017, which corresponds to 66 per cent of

profit after tax for the year.

STOCK MARKE T INFORMATION

MQ Holding strives to provide shareholders, analysts and

other stakeholders with clear and relevant information. Fi-

nancial information is provided primarily in annual reports,

year-end reports and in three interim reports.

Prior to publication of year-end and interim reports,

MQ Holding maintains a silent period of 30 days where

no personal meetings with investors or analysts are plan-

ned, and no comments are made in relation to financial

performance.

In line with the Group’s sustainability efforts, the Annual

Report will not be published in printed form, but can

be sent to shareholders as a printed document upon

request. MQ Holding’s annual reports, interim reports,

year-end reports and press releases are available on the

company’s website (www.mq.se). The website also has

further information about the company, the share and

financial statistics, and also offers the opportunity to

subscribe to information from MQ Holding.

ANALYSTS

Analysts that follow MQ Holding:

Carnegie Niklas Ekman

Nordea Stefan Stjernholm

SEB Enskilda Nicklas Fhärm

THE MQ SHARE


THE MQ SHARE

SHARE CAPITAL TREND

Date EventChange in

share capitalChange in

number of sharesShare capital after change

Number of shares after change

December 2005 Company formed 100,000 100,000 100,000 100,000

May 2006 New share issue 1,984,000 1,984,000 2,084,000 2,084,000

October 2006 New share issue 71,865 71,865 2,155,865 2,155,865

January 2010 New share issue 21,100 21,100 2,176,965 2,176,965

May 2010 Split — 19,592,685 2,176,965 21,769,650

June 2010 Exercise of warrants 138,533 1,385,330 2,315,498 23,154,980

June 2010 Offset issue 900,153 9,001,527 3,215,651 32,156,507

June 2010 New share issue 300,000 3,000,000 3,515,651 35,156,507

DATA PER SHARE SEK 000s 2016/2017 2015/2016 2014/2015 2013/2014 2012/2013

Earnings per share, SEK 2.67 2.70 3.42 2.77 1.78


Equity per share, SEK 30.96 30.66 29.66 27.59 24.80

Equity per share after dilution, SEK 30.96 30.66 29.66 27.56 25.13

No. of outstanding shares 35,156,507 35,156,507 35,156,507 35,156,507 35,156,507

Average number of shares 35,156,507 35,156,507 35,156,507 34,631,507 34,631,507

Average number of shares after dilution 35,156,507 35,156,507 35,156,507 34,667,053 34,678,373

SHARE PRICE TREND

0

320

640

960

1280

1600

0,0

22,5

45,0

augjuljunmajaprmarfebjandecnovoktsep

OMX StockholmMQ

Omsatt antal aktier i 1000-tal per veckaShares traded per week in 000s.MQ OMX Index

NameNumber

of sharesShare

capital, %

Öresund, Investment AB 6,257,170 17.8

Swedbank Robur Fonder 3,396,966 9.7

Jaller Klädcenter AB 3,062,000 8.7

Engebretsen, Anna 1,371,836 3.9

Unionen 1,100,000 3.1

Qviberg, Eva 1,000,000 2.8

Försäkringsaktiebolaget Avanza Pension 977,858 2.8

10 LARGEST SHAREHOLDERS IN MQ HOLDING AB (PUBL) ON 31 AUG 2017

NameNumber

of sharesShare

capital, %

Clients Account-Dcs 743,872 2.1

DNB – Carlson Fonder 677,319 1.9

CBNY-Dfa-Int Sml Cap V 658,536 1.9

Total 10 largest 19,245,557 54.7

Other 15,910,950 45.3

35,156,507 100.00

ANNIK A ROST Born 1957.

Board Member since 2014.

EDUCATION: Economics, University of Gothenburg

NO OTHER BOARD ASSIGNMENTS

SHAREHOLDING: 4,500 shares.

MICHAEL OLSSON Born 1963.

Board Member since 2014. Member of the Audit Committee.

EDUCATION: Degree in business and economics/MSc Stockholm School of Economics and McGill University Montreal.

OTHER BOARD ASSIGNMENTS: Nexus Technology (Chairman of the Board), KGH Customs, Ekman, Ernströmgruppen (Board Member), and a number of assignments relating to the family business in Novargus.


MERNOSH SA ATCHI Born 1979.


EDUCATION: Masters in electronics, KTH Royal Institute of Technology in Stockholm.

OTHER BOARD ASSIGNMENTS: eWork Group AB, Stockholms Universitet Holding AB.


Details of shareholders on 31 August 2017.

AUDITORSKPMG AB, Mathias Arvidsson, Authorised Public Accountant.

CL AES- GÖR AN SYLVÉN Born 1959.

Chairman of the Board and Board Member since 2015. Member of the Nomination Committee, Audit Committee and Remuneration Committee.

EDUCATION:Economics, corporate management, leadership development.

OTHER BOARD ASSIGNMENTS: ICA Gruppen AB (Chairman of the Board), Centrum Fastigheter i Norrtälje AB, Varuhuset Flygfyren Aktiebolag.

SHAREHOLDING:60,000 shares.

ANNA ENGEBRE TSEN Born 1982.


EDUCATION: Degree in Business Administration, Oslo Business School.

OTHER BOARD ASSIGNMENTS: Investment AB Öresund, Bilia AB, Fabege AB.

SHAREHOLDING: 1,371,836 shares.

BENGT JALLER Born 1954.

Deputy Chairman Board Member since 2012. Member of the Remunera-tion Committee.

EDUCATION: Textiles/commerce university education.

OTHER BOARD ASSIGNMENTS: Jaller Klädcenter AB, Danielsson Motorsport AB (Chairman of the Board in both).

SHAREHOLDING: 3,062,000 shares.

ARTHUR ENGEL Born 1967.

Board Member since 2014. Member of the Audit Committee.

EDUCATION: Degree in business and economics, Stockholm University.

OTHER BOARD ASSIGNMENTS: Caliroots AB, Rapunzel of Sweden AB, Five Seasons AB (Chairman of the Board in all), Marimekko OY, Eton Shirts AB (Board Member).


ARTHUR ENGELBENGT JALLERANNA ENGEBRETSENCLAES-G ÖRAN SYLVÉN

MERNOSH SAATCHIMICHAEL OLSSONANNIKA ROST


CORPOR ATE GOVERNANCE

Board of Directors and auditors



CHRISTINA STÅHL Born 1970.

President of MQ and Joy, CEO. Joined in 2013.

EDUCATION: Bachelors and masters degree in economics, Lund University.

OTHER BOARD ASSIGNMENTS: Nobia AB, Board Member.

SHAREHOLDING: 65,114 shares. Has no shares in companies with which MQ has significant business connections.

TONY SIBERG Born 1962.

CFO and Deputy CEO. Joined in 2007.

EDUCATION: Degree in business and economics, School of Business, Economics and Law at the University of Gothenburg.

OTHER BOARD ASSIGNMENTS: MQ Retail AB, Deputy Board Member.


JERKER LE VIN Born 1972.

Sales Manager. Joined in 2017.

EDUCATION: -


SHAREHOLDING: 0 shares.

FREDRIK A ERL ANDSSON Born 1973.

Assortment & Purchasing Manager. Joined in 2015.

EDUCATION: BSc in textile economics, Swedish School of Textiles at the University of Borås.



PERNILL A SIE WERTZ Born 1971.

HR Manager. Joined in 2016.

EDUCATION: Masters Degree, Personnel and Work Life Program with focus on Occupational and Organisational Psychology, Gothenburg University, and EMBA, School of Business, Economics and Law at the University of Gothenburg.

OTHER BOARD ASSIGNMENTS: Vestigium AB and Investigium AB, Deputy Board Member.


Omnichannel Manager and Marketing Manager positions currently vacant.


JER KER LE VINTONY SIBERGCHRISTINA STÅHL

PERNILLA SIEWERTZFREDRIKA ERLANDSSON



MQ’s executive management

CHRISTINA STÅHL Born 1970.

President of MQ and Joy, CEO. Joined in 2013.

EDUCATION: Bachelors and Masters degree in economics, Lund University.

OTHER BOARD ASSIGNMENTS: Nobia AB, Board Member.

SHAREHOLDING: 65,114 shares. Has no shares in companies with which MQ has significant business connections.

K IM BERGQVIST Born 1971.

Establishment & Sales Director. Joined in 2003.

EDUCATION: Degree in business and economics, School of Business, Economics and Law at the University of Gothenburg.

OTHER BOARD ASSIGNMENTS: Marie Bergqvist Kunskap Utveckling Lärande AB, Deputy Board Member.


MARIE RÖNNBERG Born 1966.

Financial Manager. Joined in 2007.

EDUCATION:Degree in business and economics, Karlstad University.

OTHER BOARD ASSIGNMENTS: Rollsbo Bensinhandel AB, deputy board member.


JOSEFIN L ARSSON Born 1975.

Marketing Manager. Joined in 2017.

EDUCATION: Degree in media and communication science, Jönköping University.



JERKER LIND Born 1971.

Logistics & Purchasing Manager. Joined in 2009.

EDUCATION:Degree in business and economics, School of Business, Economics and Law at the University of Gothenburg.

NO OTHER BOARD ASSIGNMENTSSHAREHOLDING: 0 shares.

ANNE T TE SIMONSSON Born 1964.

IT Manager. Joined in 2001.

EDUCATION: PC Engineer, network engineer, certified for Windows server/PC higher vocational education, Gothenburg.




JOSEFIN L ARS SONKIM BERG QVIST MARIE RÖNNBERG

JERKER LIND ANETTE SIMONSSON

CHRISTINA STÅHL



Joy’s executive management




The management and control of MQ Holding AB is divided between sharehol-ders at Annual General Meetings (AGMs), the Board of Directors and the Pre-sident & CEO. Governance is performed in accordance with relevant rules and regulations. There have been no breaches of relevant rules and regulations

Corporate Governance Report

Governance is performed in accordance with relevant

rules and regulations, such as the Swedish Companies

Act, Nasdaq Stockholm’s rule book for issuers and the

Swedish Corporate Governance Code, as well as MQ

Holding AB’s Articles of Association and instructions. MQ

Holding AB has not breached any of the relevant rules

and regulations that govern the company during the past

financial year other than that which is specified in accor-

dance with the Swedish Corporate Governance Code’s

“comply or explain” principle for the relevant topic.

THE SWEDISH C ORPORATE G OVERNANCE

C ODE (THE C ODE)

The Code applies to all Swedish companies listed for

trading on a regulated marketplace, and MQ Holding AB

started to apply the Code in conjunction with its listing

on the Nasdaq OMX Stockholm in June 2010. In accor-

dance with the “comply or explain” principle of the Code,

MQ Holding AB must disclose any deviations from the

Code and justify such deviations in its annual Corporate

Governance Report.

ANNUAL GENERAL MEETING

The shareholders’ right of decision in MQ Holding AB is

exercised at the AGM. Within six months of the close of

the financial year, MQ Holding AB is required to hold an

ordinary meeting of shareholders, an AGM. The last AGM

of MQ Holding AB was held on 26 January 2017.

AGM notificationNotice to attend the AGM is given in accordance with

the law and in the manner stipulated by MQ Holding AB’s

Articles of Association.

Resolutions and attendance Issues relating to MQ Holding AB’s Articles of Associa-

tion and the Swedish Companies Act are addressed at

AGMs. The AGM resolves issues in accordance with the

majority requirement stipulated by the Swedish Compa-

nies Act. The CEO, Chairman of the Board and at least

half of the Board’s other members must be present at

the AGM. If possible, all members of the Board should

attend the meeting. In addition, the auditor and at least

one member of the Nomination Committee should be

present.

Nomination CommitteeThe Nomination Committee submits proposals regarding

the Board of Directors and its Chairman, as well as remu-

neration and other fees to members of the Board. The

Nomination Committee also submits proposals on the

appointment and remuneration of auditors. At the AGM

on 26 January 2017, a resolution was adopted regarding

the establishment of a new Nomination Committee prior

to the 2018 AGM. More information about MQ Holding

AB’s Nomination Committee is available at mq.se.

2017 Annual General MeetingMQ Holding AB’s Annual General Meeting was held in

Gothenburg on 26 January 2017. At the meeting, a resolu-

tion was passed concerning the company’s appropriation

of profits and a dividend of SEK 1.75 per share. It was also

resolved that the Board of Directors was to comprise

seven members until the next AGM. Bengt Jaller, Arthur

Engel, Annika Rost, Mernosh Saatchi, Michael Olsson,

Anna Engebretsen and Claes-Göran Sylvén (Chairman)

were appointed to the Board through re-election. The

AGM also adopted a resolution regarding remuneration

for senior executives and the establishment of a new

Nomination Committee prior to the 2018 AGM. Further

information concerning motions passed at the AGM is

available at mq.se. No authorisation was granted to the

Board for MQ Holding AB to issue new shares or purcha-

se its own shares.

BOARD OF DIRECTORS

Composition of the Board of DirectorsThe Chairman of the Board and other members are ap-

pointed by the AGM in accordance with the Nomination

Committee’s proposals. At the 2017 AGM, the following

members were elected to MQ Holding AB’s Board

of Directors: Bengt Jaller, Arthur Engel, Annika Rost,

Mernosh Saatchi, Michael Olsson, Anna Engebretsen

and Claes-Göran Sylvén (Chairman) through re-election.

None of the members of the Board were active in MQ

Holding AB’s executive management or in the manage-




Claes-Göran Sylvén

Anna Engebretsen

Bengt Jaller

Annika Rost

MichaelOlsson

MernoshSaatchi

Arthur Engel

Christina StåhlCEO

Tony Siberg

Deputy CEO & CFO

Scheduled board meeting 5 Oct 2016 Yes Yes Yes Yes Yes No Yes Yes Yes

Scheduled board me-eting 20 Oct 2016 Yes Yes Yes Yes Yes Yes Yes Yes Yes

Scheduled board meeting 14 Dec 2016 Yes Yes Yes Yes Yes Yes Yes Yes Yes

Scheduled board me-eting 15 Dec 2016 Yes No Yes Yes Yes No No Yes Yes

Unscheduled board meeting 26 Jan 2017 Yes Yes Yes Yes No Yes Yes Yes Yes

Board meeting follo-wing election 26 Jan 2017 Yes Yes Yes Yes No No Yes Yes Yes

Scheduled board meeting 31 Jan 2017 Yes Yes No Yes No Yes Yes Yes Yes

Scheduled board meeting 8 Mar 2017 Yes Yes Yes Yes Yes Yes Yes Yes Yes

Scheduled board me-eting 15 March 2017 Yes Yes Yes Yes Yes Yes Yes Yes Yes

Scheduled board me-eting 4-5 May 2017 Yes Yes Yes Yes Yes Yes Yes Yes Yes

Scheduled board meeting 7 Jun 2017 Yes Yes Yes Yes Yes Yes Yes Yes Yes

Scheduled board meeting 19 Jun 2017 Yes Yes Yes Yes Yes Yes Yes Yes Yes

Scheduled board meeting 24 Aug 2017 Yes Yes Yes Yes Yes Yes Yes Yes Yes

BOARD MEETINGS MQ HOLDING AB, 1 SEP 2016 – 31 AUG 2017

ment teams of any of MQ Holding AB’s subsidiaries

during the 2016/2017 financial year. The Nomination Com-

mittee has determined that all members of the Board are

independent of MQ Holding AB and its executive mana-

gement, and of the major shareholders of MQ Holding

AB, with the exception of Anna Engebretsen, who is con-

sidered to be dependent in relation to MQ Holding AB’s

largest shareholder. Remuneration for members of the

Board is approved at the AGM, based on proposals by

the Nomination Committee. For a more detailed presen-

tation of the Board of Directors, see page 44.

BOARD OF DIRECTORS’ ORGANISATION

AND WORK

According to the Swedish Companies Act, the Board of

Directors is responsible for MQ Holding AB’s organisation

and the administration of MQ Holding AB’s operations. On

behalf of the shareholders, the Board administrates MQ

Holding AB’s affairs to optimise the return on capital for

shareholders.

The Board’s responsibility for MQ Holding AB’s orga-

nisation and the administration of its affairs includes the

following:

• establishing MQ Holding AB’s overall objectives, strate-

gies, financial goals and action plans;

• ensuring that MQ Holding AB has a satisfactory orga-

nisation and that MQ Holding AB is managed in an app-

ropriate manner and in compliance with MQ Holding AB’s

Articles of Association, the Swedish Companies Act and

other laws and ordinances;

• ensuring that MQ Holding AB has appropriate manage-

ment and reporting procedures; and

• ensuring that MQ Holding AB has good internal control and

continuously evaluates and stays informed regarding the

functioning of MQ Holding AB’s system for internal control.

The Board of Directors’ work is led by the Chairman,

whose duties under the formal work plan adopted for

the Board includes organising the work, ensuring that the

Board is continuously updated and deepens its knowled-

ge of MQ Holding AB and its operations, and otherwise

receives the necessary training for this purpose. It is also

incumbent upon the Chairman to receive and convey

the viewpoints of shareholders, consult with the CEO,

and to be responsible for contacts with Finansinspektio-

nen, Sweden’s financial supervisory authority. The Board

of Directors shall approve steering documents for MQ

Holding AB’s operations, such as the formal work plan for

the Board of Directors, instructions to the CEO, instruc-

tions on reporting procedures, as well as other requisite

policies and steering documents.

CORPOR ATE GOVERNANCE CORPOR ATE GOVERNANCE


Formal work plan for the Board of DirectorsEvery year, the Board of Directors adopts a formal work plan for its operations. Among other items, the formal work plan regulates how and when the Board meetings are to be held, the agenda for these Board meetings, the Board’s and the CEO’s areas of responsibility and the Chairman of the Board’s duties, and contains instructions for the Audit Committee and Remuneration Committee. Pursuant to the formal work plan adopted by the Board of Directors on 16 March 2016, it was resolved that the Board is to hold a minimum of five scheduled Board mee-tings per financial year. During the financial year 1 Sep-tember 2016 – 31 August 2017, the Board held a total of 13 meetings, see table. The Board meetings dealt with matters such as the company’s earnings position, total assets, interim reports and the Annual Report, as well as market evaluations, risk analysis, the business operations’ focus and organisational issues.

C OMMITTEES

Audit CommitteeAccording to the Swedish Companies Act, all limited

liability companies whose shares are traded on a regu-

lated market are required to have an audit committee.

However, the Board of Directors as a whole may perform

the assignments that are otherwise the duty of an audit

committee on condition that at least one member of the

Board is independent and possesses accounting and

auditing skills.

MQ Holding AB has an Audit Committee comprising

the Chairman of the Board, Claes-Göran Sylvén, as well

as members of the Board Arthur Engel and Michael Ols-

son. The duties of the Audit Committee include:

• being responsible for work to guarantee the quality of

MQ Holding AB’s financial reporting, including a report on

internal control over financial reporting for the financial

year, as well as risk management;

• regularly meeting with MQ Holding AB’s auditor to re-

ceive information on the scope and orientation of the

audit, as well as to discuss the outlook on MQ Holding

AB’s risks;

• establishing guidelines for the services other than audi-

ting that MQ Holding AB may procure from its auditor;

• evaluating auditing activities and informing MQ Holding

AB’s Nomination Committee about the results of the

evaluation; and

• assisting the Nomination Committee to formulate pro-

posals for auditors and remuneration for auditing activities.

During the year, the Audit Committee held six meetings,

which were presented to the Board of Directors.

Remuneration CommitteeAccording to the Swedish Companies Act, guidelines for

the remuneration of senior executives of all limited liability

companies with shares traded on a regulated market are

to be decided at the AGM. The Code also stipulates that

the Board is to establish a Remuneration Committee.

MQ Holding AB’s Board of Directors has a Remunera-

tion Committee comprising the Chairman of the Board,

Claes-Göran Sylvén, and the Deputy Chairman of the

Board, Bengt Jaller. The members of the Remuneration

Committee are independent in relation to MQ Holding AB

and its executive management.

The Remuneration Committee is required to prepare

the Board of Directors’ rulings concerning remuneration

policies, remuneration and other terms of employment for

MQ Holding AB’s executive management. Consequently,

the Remuneration Committee’s tasks include:

• proposing policies for remuneration for the CEO and

other senior executives of MQ Holding AB;

• proposing individual remuneration for the CEO and other

senior executives of MQ Holding AB;

• tracking and evaluating ongoing and completed pro-

grammes during the year for variable remuneration for

MQ Holding AB’s executive management; and

• following and evaluating the application of the guidelines

approved at the AGM regarding remuneration for senior

executives.

In accordance with its formal work plan, the Remunera-

tion Committee keeps the Board continuously abreast of

its work and decisions. Minutes are kept at the Remu-

neration Committee’s meetings, and presented to the

Board not later than one week after a meeting has been

held. During the year, the Remuneration Committee held

three meetings where minutes were taken and these were

presented to the Board of Directors.

GUIDELINES FOR REMUNERATION TO

SENIOR EXECUTIVES

Under the Swedish Companies Act, the AGM decides

on guidelines for remuneration of senior executives. The

guidelines adopted by the AGM on 26 January 2017 are

presented below.

Salaries and other benefitsRemuneration for the CEO and other senior executives

comprises a fixed market-based salary. Other benefits

where they may exist, such as company cars, may only

comprise a limited part of the remuneration package. The

extent to which management receives variable remunera-

tion is to be connected to predetermined and measurable

criteria, designed with the aim of promoting MQ Holding

AB’s long-term value generation. Maximum ceilings

should be set for variable cash remuneration.

PensionsThe standard retirement age is 65 years. MQ Holding AB

or the executive in question is entitled to request that



retirement be taken from the age of 60 at the earliest. Re-tirements before the age of 65 take the form of defined-benefit or defined-contribution pension plans. Retire-ments from the age of 65 onward shall follow the ITP plan. In addition, executives are entitled to receive a supplementary retirement pension.

Severance payIf notice of termination is given by the company, severan-ce pay to the CEO may not exceed the equivalent of 12 months’ salary, in addition to salary during the period of notice. No other senior executives receive any severan-ce pay in connection with notice of termination.

Incentive programmesDecisions concerning share and share-price-based incentive programmes for senior executives will be made by the AGM. Share and share-price-based incentive programmes are to be designed to promote increased alignment between the interests of participating exe-cutives and MQ Holding AB’s shareholders. Incentive programmes that represent the acquisition of shares are designed to promote personal holdings of MQ Holding AB shares. The vesting period, or the period from the commencement of the agreement until the date a share may be acquired, may not be less than three years. Members of the Board who are not also employed by MQ Holding AB are ineligible for participation in incentive programmes aimed at executive management or other employees. Share options are not included in incentive programmes designed for the Board. The Board reserves the right to deviate from these guidelines in individual cases with extenuating circumstances. If such deviations should occur, information regarding the deviation and the underlying reasons are to be submitted at the next AGM.

MQ HOLDING AB’S EXECUTIVE MANAGEMENTCEOIn accordance with the rules of the Swedish Companies Act, MQ Holding AB’s Board of Directors has appointed a CEO to manage MQ Holding AB’s day-to-day adminis-tration and to co-ordinate MQ Holding AB’s operations. According to the Board’s formal work plan, the CEO may not be involved with any material external assignments without the approval of the Board. The CEO is to perform his/her duties pursuant to the annually issued instructions adopted by the Board. These instructions to the CEO must specify that the CEO is responsible for the day-to-day administration and co-ordination of MQ Holding AB’s operations, that MQ Holding AB’s accounting records are managed in accordance with applicable legislation, that MQ Holding AB has an updated authorisation manual, and that MQ Holding AB follows essential rules, regula-tions and instructions. The CEO is to attend Board meetings and provide the

Board with requisite data to reach decisions, and ensure that the Board is continually given the necessary informa-tion to facilitate monitoring of MQ Holding AB’s financial situation. The CEO is to independently decide on issues that concern MQ Holding AB’s internal organisation, but the approval of the Board is to be obtained prior to major changes or measures. Regular reporting to the Board is undertaken on a monthly basis and consists of a monthly report reflecting MQ Holding AB’s financial position and developments, as well as a special CEO report.

Executive Management TeamDuring the 2016/2017 financial year, MQ Holding AB’s Executive Management Team comprised Christina Ståhl (President & CEO), Tony Siberg (Deputy CEO & CFO), Pernilla Siewertz (HR Manager), Fredrika Erlandsson (Assortment & Purchasing Manager), Thérese Elmquist (Sales Manager until November 2016), Jerker Levin (Sales Manager from April 2017), Ali Reza (Norway Manager until March 2017), Jens Axelsson (Omnichannel Manager until June 2017). The Executive Management Team is presen-ted in more detail on page 45.

AUDITINGExternal auditMQ Holding AB’s Articles of Association specify that MQ Holding AB have either one or two auditors with a maximum of two deputies, or one or two registered public accounting firms. According to the aforementio-ned, auditors must be elected by the AGM for a term of four years. The accounting firm KPMG was re-elected as MQ Holding AB’s auditor at the AGM on 30 January 2014. Mathias Arvidsson is in charge of the audit. MQ Holding AB’s auditor examines the Board’s and CEO’s administration of MQ Holding AB, the annual accounts, as well as certain other financial statements prepared by MQ Holding AB. The conclusions of the auditor’s examination are presented in the audit report, which is then submitted to the AGM. Regular reports to the Audit Committee/Board are also submitted by the auditor several times a year.

Internal auditThere is no need for an internal audit since the internal control in MQ Holding AB functions satisfactorily. The company aims to maintain high quality in regard to internal control work (see also the “Internal control” section be-low). The Board is to annually review the need for internal auditing and include the results of the evaluation in MQ Holding AB’s annual Corporate Governance Report. Fol-lowing an evaluation in 2016/2017, the Board of Directors made the assessment that no internal auditing is needed.

Internal controlThe Board of Directors has overall responsibility for

CORPOR ATE GOVERNANCE CORPOR ATE GOVERNANCE


MQ Holding AB’s internal control procedures. The CEO is responsible for maintaining internal steering and control of the day-to-day operations. The overall purpose of in-ternal control is to ensure that MQ Holding AB’s financial statements are prepared in accordance with law, relevant accounting standards and other requirements for listed companies, and to ensure the protection of MQ Holding AB’s assets. MQ Holding AB applies the same system of internal control for both the Group and the Parent Com-pany. MQ Holding AB has opted to abide by COSO’s1) definition of internal control as the foundation of its work on internal control. According to COSO, internal control should consist of five separate parts: control environme-nt, risk assessment, control activities, information and communication, and monitoring. These separate parts are described briefly below.

Control environmentThe foundation for internal control is the control environ-ment, which encapsulates the culture that the Board and executive management communicate and operate upon.

It primarily comprises integrity and ethical values, competence, management philosophy and management style, organisational structure, responsibility and authori-sation, as well as policies and procedures. An important component of the control environment is to ensure that decision paths, authorisation and responsibility are clearly defined and communicated between various levels of the organisation, as well as to ensure that steering documents in the form of internal policies and guideli-nes include all material areas identified and provide the requisite guidance to various senior executives at MQ Holding AB. MQ Holding AB’s approach to internal control is evident from its Ethics Policy, as available on MQ Holding AB’s intranet, which outlines the fundamentals on how an employee should behave. The Ethics Policy is reviewed with all new employees. As a part of maintaining effective steering and control of financial reporting, MQ Holding AB stresses the importance of good skills and compe-tence development in these areas. Relevant job descrip-tions and performance reviews form part of this work. 1) Committee of Sponsoring Organizations of the Treadway Commission

(COSO).

Risk assessmentThrough risk assessment, material risks that affect the internal control of financial reporting can be identified and localised to company, business unit and process levels. Risk reviews are implemented annually in conjunction with the preparation of the business plan and the Annual Report. Risk assessments take into special consideration risks associated with improprieties and inappropriate favouring of other parties at the expense of MQ Holding AB, as

well as risks of loss or the embezzlement of assets. Risks are also identified through the work of MQ Holding AB’s security department. Risk assessment results in control objectives that support the fulfilment of the basic require-ments on financial statements – known as financial state-ment assertions. Risk assessment is updated continually in order to encompass any changes that may significantly affect internal control of the financial reporting.

Control activitiesTo prevent, discover and rectify irregularities and devia-tions, control activities have been established in relation to the risks that have been identified. The areas covered by control activities include:1. the inventory process, including existence and valuation;2. authorised approval of business transactions;3. business systems that affect financial reporting, inclu-ding the verification process;4. accounting processes, including annual accounts and consolidated financial statements; and 5. critical, unusual or complex business transactions that comprise essential elements of valuations.

Information and communication MQ Holding AB’s steering documents, such as guideli-nes, manuals and policy documents that are significant for external and internal communication are continuously updated and communicated to the employees concer-ned at meetings, and via the intranet, for example. The policy documents are communicated to the relevant people in the organisation in such a manner that the content and implications of deviating from these policies and guidelines can be understood. The purpose of the policy documents is to ensure full andcorrect compliance with all of MQ Holding AB’s disclosure requirements under applicable laws and regulations. Re-ports of deficiencies in the internal control are passed to the Board of Directors and executive management based on an assessment of the implications of the deficiencies. During the past financial year, MQ Holding AB satisfied its undertakings as a listed company without any known breaches. Communication between the central service organisa-tion and the store level was made clearer and takes place regularly through meetings, the intranet and e-mail.

Follow-upMQ Holding AB ensures that established control activities are implemented in the intended manner through spot checks. If possible, control activities are automated to ensure that their implementation is not hindered for any re-ason. MQ Holding AB’s core values are examined annually and importance is then placed on the policies and instruc-tions that signify the executive management’s and Board of Directors’ approach to internal steering and control.


FINANCIAL STATEMENTS

Five-Year Review – GROUP

SEK M 2016/2017 2015/2016 2014/2015 2013/2014 2012/2013

Income statement Net sales 1,821 1,681 1,557 1,520 1,463

Earnings before interest, taxes, depreciation and amortisation (EBITDA) 153 145 184 163 88

Operating profit (EBIT) 124 121 158 132 50

Profit for the year 94 95 120 96 62

Balance sheet Non-current assets 1,341 1,341 1,250 1,259 1,280

Inventories 342 341 286 250 291

Other current assets 102 124 128 140 158

Total assets 1,785 1,807 1,665 1,650 1,728

Equity 1,089 1,078 1,043 956 872

Long-term liabilities 237 286 274 357 401

Current liabilities 459 443 348 337 456

Total equity and liabilities 1,785 1,807 1,665 1,650 1,728

Cash flowFrom operating activities 108 95 137 152 57

From investing activities -31 -80 -20 -8 -25

From financing activities -86 -10 -134 -147 -28

Cash flow for the year -9 4 -17 -2 5

Key figuresSales growth, % 8.3 8.0 2.4 3.9 -4.6

Sales growth, comparable stores, % -1.4 1.7 3.3 2.6 -7.4

Gross margin, % 57.1 54.0 55.8 56.2 55.3

Operating margin, % 6.8 7.2 10.2 8.7 3.4

Interest-bearing net debt, SEK m 156 172 103 188 312

Interest-bearing net debt/EBITDA, multiple 1.0 1.2 0.6 1.1 3.5

Equity/assets ratio, % 61.0 59.6 62.6 57.9 50.4

Data per shareEarnings per share before dilution, SEK 2.67 2.70 3.42 2.77 1.78


Dividend per share, SEK1) 1.75 1.75 1.75 1.36 0.39

Dividend yield, % 5.5 5.0 4.8 4.3 2.3

Total number of stores 173 177 119 121 122

Average number of full-time employees 782 802 593 608 645 1) 2016/2017 the Board of Directors’ dividend proposal



Definitions

GROSS MARGINNet sales less costs for goods sold as a percentage of sales.

DIVIDEND YIELDDividend in relation to share price.

EBITDAEarnings before interest, taxes, depreciation and amortisa-tion.

EQUITYShare capital, other contributed capital, reserves and retai-ned earnings, including the Group’s profit for the year.

LIKE-FOR-LIKE SALESAll sales in MQ’s Swedish operations, with the exception of sales in new stores. A new store becomes comparable one year after its opening.

OPERATING MARGINOperating profit as a percentage of the period’s net sales.

INTEREST-BEARING NET DEBTInterest-bearing liabilities less cash and cash equivalents.

INTEREST-BEARING NET DEBT/EBITDAInterest-bearing liabilities divided by EBITDA for the most recent twelve-month period.

EQUITY/ASSETS RATIOEquity as a percentage of total assets.


Administration Report

OPERATIONSThe MQ Group operates fashion stores and online shopping under two business areas, MQ and Joy. The acquisition of the unlisted company, Joy Shop AB, was completed on 2 May 2016 and is in line with the MQ Group’s long-term stra-tegy to generate growth and advance its position as a player in the fashion industry.

PARENT COMPANYThe Parent Company reported net sales of SEK 13 million (11) for the financial year and an operating loss of SEK 4 million (loss: 5).

Parent Company’s operationsThe Parent Company’s operations involve selling manage-ment services to other Group companies and managing the Group’s long-term borrowing.

STORE NETWORKThe MQ Group operates a total of 173 stores (177) and online shopping, in Sweden and Norway, under the business areas, MQ and Joy.

MQ operates 121 stores and online shopping in Sweden and Norway. Through a combination of proprietary and external brands, MQ offers high-fashion menswear and womenswear in attractive stores.

Joy has 52 stores and online shopping in Sweden, and tar-gets fashion-conscious women at midlife who desire excel-lent quality, fit and comfort. Customers are offered a well co-ordinated product assortment with an inspiring variety of textiles, colours, patterns and prints to create a personal and unique fashion style.

SIGNIFICANT EVENTS DURING THE YEAR MQ opened its first Online Flagship Store with integrated communications for online purchases in the store. A new Outlet by MQ opened in Haninge. The store in the Forum mall in Uppsala was re-established. Major remodelling was undertaken by the stores in Luleå, Hansa in Malmö, Uppsala Gränby, Farsta, Varberg and Hede Outlet.

As regards MQ’s Norwegian operation, the stores in Gren-sen, Oslo and Kristiansand closed.

Many new brands were introduced to both MQ stores and MQ Shop Online during the year. MQ celebrated 60 suc-cessful years in branded fashion during the year.

A new retail concept was developed for Joy and 20 stores were remodelled in line with the concept. External brands were introduced in five stores. The stores in Familia and Sol-lentuna were closed during the year and the store in Bromma was relocated. The store in Forum mall, Uppsala was tempo-rarily closed for an upgrade and relocation to new premises.

MARKETAccording to the Swedish Retail Institute Index (HUI), the sales trend in the market for the financial year (September 2016 – August 2017) was negative, down 2.0 per cent (up: 2.6). The MQ Group’s sales in comparable units for the year decreased by 1.4 per cent (increased: 1.7).

SIGNIFICANT EVENTS AFTER THE END OF THE FINANCIAL YEAR MQ opened a new Outlet by MQ in Jägersro, the store in Kista was relocated and re-opened. The Group saved 16 tonnes of plastic through the One Bag Habit initiative. In Joy a further six stores were remodelled in line with the

The Board of MQ Holding AB, Corporate Registration Number 556697-2211, hereby submits its Annual Report and Consolidated Financial Statements for the financial year 1 September 2016 – 31 August 2017.

DEVELOPMENT OF THE GROUP’S OPERATIONS, EARNINGS AND POSITION

12 months2016

-20172015

-20162014

-20152013

-20142012

-2013

Net sales (SEK M) 1,821 1,681 1,557 1,520 1,463

Operating profit (SEK M) 124 121 158 132 50

Total assets (SEK M) 1,785 1,807 1,665 1,650 1,728

Equity/assets ratio (%) 61 60 63 58 50



new retail concept. Furthermore, external brands have now been introduced in all Joy stores.

NET SALES AND EARNINGSConsolidated net sales amounted to SEK 1,821 million (1,681), down 1.4 per cent in comparable units.

Gross profit was SEK 1,040 million (908), equal to a gross margin of 57.1 per cent (54.0).

Operating profit amounted to SEK 124 million (121), equal to an operating margin of 6.8 per cent (7.2). Depreciation/amortisation according to plan amounted to SEK 29 million (24). Net financial items amounted to SEK -3 million (-2) for the financial year. Profit after financial items was SEK 121 mil-lion (118). Earnings per share after dilution totalled SEK 2.67 (2.70).

FINANCIAL POSITION AND LIQUIDITY The Group’s total assets amounted to SEK 1,785 million, compared with SEK 1,807 million at the end of the preceding financial year. At the end of the period, equity amounted to SEK 1,089 million (1,078), resulting in an equity/assets ratio of 61 per cent (60). The value of inventories was SEK 342 million (341). However, the overall composition of inventory is dee-med to be at a satisfactory level.

The MQ Group’s cash flow from operating activities for the period amounted to SEK 108 million (95).

Cash flow after investments amounted to SEK 77 million (14).On 31 August 2017, the Group’s interest-bearing net debt

totalled SEK 156 million, compared with SEK 172 million on the same date the previous year. At the end of the period, cash and cash equivalents totalled SEK 19 million (28). The interest-bearing net debt/EBITDA amounted to 1.0 (1.2) at the end of the period.

INVESTMENTSInvestments during the financial year totalled SEK 31 million (80) and related to a new MQ store and the relocation of one store. There were also investments in the form of remo-delling, for example at Norrlandsgatan in Stockholm, the first Online Flagship Store with integrated communications for online purchases in store. A number of stores were given a new retail concept or underwent minor remodelling. There have been investments in tablets for each store to meet a more digital future.

INTERNAL CONTROLInformation concerning the Group’s and Parent Company’s internal control is presented in the Corporate Governance Report on pages 47-51. The Corporate Governance Report has been prepared as a separate document to the Annual Report.

EMPLOYEESThe average number of full-time employees during the finan-cial year amounted to 782, compared with 802 on the same date the preceding financial year.

ENVIRONMENT AND SOCIAL RESPONSIBILITY For a couple of years, the MQ Group has been working on a new strategy on sustainability which will run until 2020. The strategy builds on a framework of quality, since the Group’s approach to quality and design has an impact on its relation-

ships with customers, employees, manufacturers and, parti-cularly, the planet. By working with sustainability issues the MQ Group ensures that these relationships are beneficial and thus sustainable in the long-term.

The Executive Management Team and Board of Directors make strategic decisions based on proposals put forward by the CSR team. The sustainability strategy and its goals are part of the business plan decided by the Executive Management Team and Board of Directors.

The MQ Group’s proprietary brands are produced by selec-ted suppliers in Europe and Asia. The MQ Group has purcha-

sing offices with its own staff in Shanghai, China, its own local

representation in Turkey, and a business partner with offices in

Bangladesh to ensure efficient, responsible production.The MQ Group’s aim is to establish long-term relations-

hips and partnerships with a limited number of principal suppliers. Long-term supplier relationships are paramount to improving working conditions, strengthening profitability and maintaining high quality.

The MQ Group’s Code of Conduct stipulates the require-ments and expectations that MQ has for its suppliers. The Code of Conduct covers such issues as laws and regula-tions, bans on child labour, bans on discrimination, freedom of association, wages and benefits, working hours, and occupational health and safety.

SUSTAINABLE WORKPLACESEvery year, the MQ Group conducts a survey of work envi-ronments at all workplaces and departments. This year’s survey indicates that the work environment at the Group remains good. The percentage of issues requiring action rose 9.0 percentage points, an increase of 1.0 percentage point on the previous year. The MQ Group has ongoing efforts to improve the work environment in all areas in all parts of the Group. The objective is for all employees to be provided with a safe and secure work environment in which everyone can thrive. Read more about sustainable develop-ment on pages 15-36.

INFORMATION CONCERNING RISKS AND UNCERTAINTIES Through its operations, the Group is exposed to a number of risks that could impact the Group’s earnings and financial position. These include risks that the company can manage through internal procedures and risks that are largely gover-ned by external factors. The most significant risks and uncertainties are described below:

Fashion trendsThe MQ Group is dependent on consumer preferences with respect to trends, design and quality. The MQ Group makes conscious efforts to develop its trend monitoring, informa-tion systems, forecasts, supply chain management and to shorten lead times in the development of products to minimise the risks relating to shifts in fashion.

Since continuously changing fashion trends mean that fashion is a perishable product, there is a constant risk that all or part of a collection will not be appreciated by custo-mers. It is crucial that the MQ Group has the capacity to deli-ver new, attractive products at the right time and in the right volumes, with a healthy mix of formal and casual wear, and basic and trend fashion.



If the MQ Group fails to deliver the above, it could lead to surplus inventory, price reductions or maybe even damage to the brand. To manage these risks, the MQ Group recruits talented designers and purchasers, looks for local produ-cers in order to adapt more rapidly to changing trends, works continuously to understand and forecast trends, has esta-blished purchasing offices with its own staff in Shanghai, China, has local representation in Turkey and business part-ners with offices in Bangladesh (to rapidly purchase and control colour, form and quality), and analyses customers and their behaviour.

Establishment risk The Group’s growth strategy is highly dependent on the MQ Group’s continued attractiveness as a partner of shopping mall developers and other owners of retail space. The MQ Group’s position as a player in an increasingly competitive market impacts the commercial centres to which the MQ Group is granted access and the terms and conditions when signing rental agreements.

Through approved measures to more clearly distinguish the MQ and Joy concepts and focus on creating more stri-king stores, the MQ Group can become an even more att-ractive partner, thus reducing this risk.

Economic conditions Economic conditions also constitute one of the external risks. Increased purchasing power among Swedish consu-mers is essential for growth in the retail sector. In particular, this has been an important factor in the growth of the high-fashion collections in the upper price assortment sold by the specialised retail segment and brand specialists. Pat-terns of consumption are influenced by a number of general factors outside the company’s control, including interest rates, exchange rates, inflation and deflation levels, stock market trends, unemployment levels and uncertainty about future financial outcomes. A slowdown in Sweden’s econo-mic growth would have a negative impact on consumer purchasing power and thus also on growth in the retail sec-tor. Combined with robust growth in establishments, a slow-down in the economy could result in increased competition and downward pressure on prices. During the financial year, the Group’s like-for-like sales decreased by 1.4 per cent, which is better than the market’s decrease in like-for-like sales of 2.0 per cent.

Competition among fashion chains Another risk is that other companies in the specialist retail segment will significantly advance their positions through organic and structural growth activities. The intense compe-tition in the industry may lead to a downward pressure on prices and reduced market shares. The MQ Group is focu-sing on clarifying its concept and brand position through a well-defined target group and a distinct message in order to achieve competitive advantages.

Financial instruments and risk management “Financial risk” refers to fluctuations in the Group’s earnings and cash flow resulting from movements in exchange rates, interest rates, liquidity and credit risks. The Group’s financial risks are managed by the Group’s finance department, which is in charge of identifying and minimising the risk of negative

effects on earnings and improving the predictability of future earnings.

For further information on financial instruments and risk management, see Notes 25 and 26.

WORK OF THE BOARD OF DIRECTORSDuring the financial year of September 2016 to August 2017, the Board of Directors held a total of 13 (11) meetings. At each of its scheduled meetings, the Board addressed the fixed items on the agenda concerning the strategic plan, budget, annual financial statements and interim reports. In addition, it dealt with issues relating to investments, as well as structural and organisational issues.

The Board of Directors acts in accordance with the formal work plan that has been adopted and the terms of reference relating to the division of responsibilities between the Board and the CEO. For further information, refer to the Corporate Governance Report on pages 47-51.

NOMINATION COMMITTEE At the 2017 Annual General Meeting, it was decided that a Nomination Committee would be appointed with represen-tatives from the four largest owners as of 1 April each year. The Nomination Committee’s task is, together with the Chairman of the Board, to nominate members of the Board ahead of the 2018 AGM. Guidelines for MQ Holding AB’s Nomination Committee are presented on the website (mq.se) under Corporate Governance/Nomination Committee. Members of the Nomination Committee ahead of the Annual General Meeting on 24 January 2018 were appointed in accordance with a resolution passed at the 2017 Annual General Meeting and comprise the Chairman of the Board Claes-Göran Sylvén, Gustav Linder representing Investment AB Öresund, Per Wall representing Jaller Klädcenter AB, Lisen Skarborg Oliw representing Anna Engebretsen, and Evert Carlsson representing Swedbank Robur Fonder. Claes-Göran Sylvén is independent in relation to MQ Holding AB’s largest shareholder. The Nomination Committee has determi-ned that all Board members are independent of MQ Holding AB and its executive management, as well as the major sha-reholders of MQ Holding AB. For further information, refer to the Corporate Governance Report on pages 47-51.

GUIDELINES FOR REMUNERATION TO THE CEO AND SENIOR EXECUTIVES Proposals for principles for remuneration, including perfor-mance-based compensation, to the CEO and senior execu-tives are drafted and presented by MQ Holding AB’s Remu-neration Committee. The pay structure for the CEO and individuals who are members of Group Executive Manage-ment and Executive Management comprises a fixed portion (basic salary) and a variable portion (bonus). The bonus portion depends on the degree of target fulfilment by the company and the individual. A ceiling of a maximum of four months’ salary, excluding proceeds from incentive program-mes, is established for the part of the variable portion that is paid in cash. For further information, refer to the Corporate Governance Report on page 47-51 and Note 8. The Board proposes that the Annual General Meeting approve unchan-ged principles for remuneration of the CEO and senior exe-cutives to apply for the 2017/2018 financial year.



OWNERSHIP STATUS AND THE MQ SHAREOn 31 August 2017, the number of shareholders was 11,912 of whom 10,316 are registered in Sweden. There are no restric-tions on the transferability of the MQ share. The three lar-gest shareholders on 31 August 2017 were Öresund Invest-ment AB, Swedbank Robur Fonder and Jaller Klädcenter AB. On 31 August 2017, the number of shares in the company totalled 35,156,507, all of which were ordinary shares carry-ing equal entitlements.

For further information, refer to “The MQ Share” on pages 42-43.

DIVIDENDThe Board intends to propose that the Annual General Mee-ting approve a dividend of SEK 1.75 per share (1.75).

EXPECTATIONS FOR FUTURE DEVELOPMENT For the past few years, the fashion industry market has been weak. Consumers have become cautious after being inundated with negative financial news in the media, thus impacting their desire to spend. The trend for the next year is therefore uncertain.

PROPOSED APPROPRIATION OF THE COMPANY’S PROFITThe Board proposes that the profit at the disposal of the Annual General Meeting be appropriated as follows:

SEK

Profit brought forward 562,680,620

Dividend to shareholders of SEK 1.75 per share -61,523,887

To be carried forward 501,156,733

For other information concerning the company’s earnings and financial position, refer to the following income state-ments and balance sheets with accompanying notes.



SEK 000s Note 1 Sep 2016

–31 Aug 20171 Sep 2015

–31 Aug 2016

Net sales 2, 3, 5 1,821,099 1,681,409

Other operating income 6 15,527 9,347

Total income 1,836,626 1,690,756

Goods for resale -781,073 -773,189

Other external costs 9, 27 -442,521 –388,926

Employee benefit expenses 8 -457,290 –382,363

Depreciation/amortisation of property, plant and equipment/intangible assets 10 -28,887 –24,442

Other operating expenses 7 -2,886 -1,280

Operating profit 123,969 120,556

Financial income 228 288

Financial expenses -3,188 -2,534

Net financial items 12 -2,960 -2,246

Profit before tax 121,009 118,310

Tax 13 -27,113 -23,458

Profit for the year 93,896 94,852

Other comprehensive income 21Items that have been restated or that can be restated in profit for the periodTranslation differences for the year -5,275 1,181

Cash-flow hedge reserve -20,950 651

Tax attributable to items in other comprehensive income 13 4,609 -143

Total other comprehensive income -21,616 1,689

Comprehensive income for the year 72,278 96,541

Profit for the year attributable to:Parent Company shareholders 93,896 94,852


Comprehensive income for the year attributable to:Parent Company shareholders 72,278 96,541

Comprehensive income for the year 72,278 96,541

Earnings per share 14Before dilution (SEK) 2.67 2.70

After dilution (SEK) 2.67 2.70

Average number of shares 35,156,507 35,156,507Average number of shares after dilution 35,156,507 35,156,507

Statement of Comprehensive Income – GROUP



Balance Sheet– GROUP

SEK 000s Note 31 Aug 2017 31 Aug 2016

AssetsIntangible assets 5, 15 1,273,268 1,273,162

Property, plant and equipment 5, 16 67,684 68,232

Total non-current assets 1,340,952 1,341,394

Inventories 17 341,630 341,082

Accounts receivable 18 805 779

Tax assets 13 2,688 1,028

Prepaid expenses and accrued income 19 78,037 86,069

Other receivables 32 1,952 8,707

Cash and cash equivalents 20 18,585 27,652

Total current assets 443,697 465,317Total assets 1,784,649 1,806,711

Equity 21Share capital 3,516 3,516

Other contributed capital 595,475 595,475

Provisions -19,012 2,604

Profit brought forward including profit for the year 508,650 476,278

Equity attributable to Parent Company shareholders 1,088,629 1,077,873Total equity 1,088,629 1,077,873

LiabilitiesLong-term interest-bearing liabilities 22, 25, 26 34,580 83,087

Endowment insurance 223 223

Provision for deferred tax 13 202,280 202,468

Total long-term liabilities 237,082 285,778

Current interest-bearing liabilities 22, 26 48,507 48,383

Overdraft facility 93,724 71,063

Accounts payable 173,641 158,984

Other liabilities 32 38,881 30,014

Accrued expenses and deferred income 24 77,878 107,910

Provisions 23 26,307 26,706

Total current liabilities 458,938 443,060Total liabilities 696,020 728,838Total equity and liabilities 1,784,649 1,806,711

For information concerning the Group’s pledged assets and contingent liabilities see Note 28.



Statement of Changes in Equity– GROUP

SEK 000sShare

capital

Other contributed

capital Provisions

Profit brought forward inclu-ding profit for

the yearTotal

equity

1 Sep 2015 – 31 Aug 2016Equity, opening balance 1 Sep 2015 3,516 595,475 915 442,950 1,042,856Comprehensive income for the yearProfit for the year 94,852 94,852

Translation differences for the year 1,181 1,181

Cash-flow hedge reserve 651 651

Tax effect of cash-flow hedges -143 -143

Total other comprehensive income 1,689 1,689Total comprehensive income for the year 1,689 94,852 96,541Contributions from and value transfer to shareholdersDividend -61,524 -61,524

Total contributions from and value transfer to shareholders -61,524 -61,524Equity, closing balance 31 Aug 2016 3,516 595,475 2,604 476,278 1,077,873

1 Sep 2016 – 31 Aug 2017Equity, opening balance 1 Sep 2016 3,516 595,475 2,604 476,278 1,077,873Comprehensive income for the yearProfit for the year 93,896 93,896

Translation differences for the year -5,275 -5,275

Cash-flow hedge reserve -20,950 -20,950

Tax effect of cash-flow hedges 4,609 4,609

Total other comprehensive income -21,616 -21,616Total comprehensive income for the year -21,616 93,896 72,280Contributions from and value transfer to sha-reholdersDividend -61,524 -61,524

Total contributions from and value transfer to shareholders -61,524 -61,524Equity, closing balance 31 Aug 2017 3,516 595,475 -19,012 508,650 1,088,629

See also Note 21.


Equity attributable to Parent Company shareholders


Cash Flow Statement– GROUP


–31 Aug 20171 Sep 2015

–31 Aug 2016

Operating activitiesProfit before tax 121,009 118,310

Adjustments for non-cash items 29,535 26,846

Income tax paid -24,352 -51,160

Cash flow from operating activities before changes in working capital 126,193 93,996

Cash flow from changes in working capitalIncrease (–)/Decrease (+) in inventories -548 -27,414

Increase (–)/Decrease (+) in operating receivables 16,007 18,516

Increase (+)/Decrease (–) in operating liabilities -28,045 9,402

Cash flow from operating activities 113,607 94,500

Investing activitiesAcquisition of property, plant and equipment -28,561 –37,829

Acquisition of intangible assets -2,596 -11,448

Acquisition of subsidiaries 4 0 -30,873

Cash flow from investing activities -31,157 -80,150

Financing activitiesRepayment of debt -47,000 -42,500

Loans raised 0 40,000

Dividend paid -61,524 -61,524

Utilisation of overdraft facility 22,660 53,621

Cash flow from financing activities -85,864 -10,403

Cash flow for the year -3,414 3,948Cash and cash equivalents at the beginning of the year 27,652 23,231Exchange rate difference in cash and cash equivalents -5,653 473

Cash and cash equivalents at the end of the year 18,585 27,652



Income Statement– PARENT COMPANY


–31 Aug 20171 Sep 2015

–31 Aug 2016

Net sales 2, 5 13,394 10,808

Total income 13,394 10,808

Other external costs 9 -4,490 -4,296

Employee benefit expenses 8 -12,983 -11,331

Operating profit -4,079 -4,819

Profit from participations in Group companies 11 61,524 61,524

Group contributions received 2,989 4,046

Other interest income and similar profit items 12 1,034 984

Interest expense and similar profit/loss items 12 -1,035 -987

Profit after financial items 60,432 60,748

Tax 13 0 -3

Profit for the year1) 60,432 60,744

1) Comprehensive income for the year corresponds to profit/loss for the year

FINANCIAL STATEMENTS FINANCIAL STATEMENTS


Balance Sheet– PARENT COMPANY

SEK 000s Note 31 Aug 2017 31 Aug 2016

AssetsNon-current assetsFinancial assets

Participations in Group companies 30 1,155,946 1,155,946

Total financial assets 1,155,946 1,155,946Total non-current assets 1,155,946 1,155,946

Current assets

Receivables in Group companies 145 39

Other receivables 90 2

Prepaid expenses and accrued income 19 1,009 223

Total current receivables 1,244 264

Cash and bank balances - -

Total current assets 1,244 264Total assets 1,157,190 1,156,210

Equity and liabilitiesEquity 21Restricted equity

Share capital (35,156,507 shares) 3,516 3,516

Non-restricted equity

Share premium reserve 595,475 595,475

Profit brought forward -93,227 -92,449


Total equity 566,196 567,286

Long-term liabilitiesLiabilities to Group companies 5,000 5,000

Long-term interest-bearing liabilities 22, 25, 26 27,500 72,500

Total long-term liabilities 32,500 77,500

Current liabilitiesAccounts payable 2,215 218

Current portion of liability to credit institutions 22 45,000 45,000

Tax liabilities 629 153

Other liabilities 1,035 1,258

Liabilities to Group companies 29 506,702 461,486

Accrued expenses and deferred income 24 2,913 3,309

Total current liabilities 558,494 511,424Total liabilities 590,994 588,924Total equity and liabilities 1,157,190 1,156,210



Statement of Changes in Equity– PARENT COMPANY

SEK 000s Share capital

Share premium

reserve

Profit brought forward

Profit for the year Total equity

1 Sep 2015 – 31 Aug 2016Equity, opening balance 1 Sep 2015 3,516 595,475 -77,819 46,894 568,066Appropriation of profits 46,894 -46,894


Contributions from and value transfer to shareholdersDividend -61,524 -61,524

Total contributions from and value transfer to shareholders -61,524 -61,524Equity, closing balance 31 Aug 2016 3,516 595,475 -92,449 60,744 567,286

1 Sep 2016 – 31 Aug 2017Equity, opening balance 1 Sep 2016 3,516 595,475 -92,449 60,744 567,286Appropriation of profits 60,744 -60,744


Contributions from and value transfer to shareholdersDividend -61,524 -61,524

Total contributions from and value transfer to shareholders -61,524 -61,524Equity, closing balance 31 Aug 2017 3,516 595,475 -93,227 60,432 566,196

1) Comprehensive income for the year corresponds to profit/loss for the year

FINANCIAL STATEMENTS FINANCIAL STATEMENTS

Non-restricted equity Restricted

equity


Cash Flow Statement– PARENT COMPANY


–31 Aug 20171 Sep 2015

–31 Aug 2016

Operating activitiesProfit after financial items 60,432 60,748

Adjustments for non-cash items -78 189

Income tax paid 3 114

Cash flow from operating activities before changes in working capital 60,357 61,051

Cash flow from changes in working capitalIncrease (–)/Decrease (+) in operating receivables -980 -37

Increase (+)/Decrease (–) in operating liabilities 47,146 42,828

Cash flow from operating activities 106,524 103,842

Investing activitiesAcquisition of subsidiaries - -40,531

Cash flow from investing activities 0 -40,531

Financing activitiesRepayment of debt -45,000 -42,500

Loans raised 0 40,000

Dividend paid -61,524 -61,524

Cash flow from financing activities -106,524 -64,024

Cash flow for the year 0 -713Cash and cash equivalents at the beginning of the year 0 713Cash and cash equivalents at the end of the year 0 0



NotesTO THE FINANCIAL STATEMENTS

NOTE 1. IMPORTANT ACCOUNTING POLICIES

(A) AGREEMENT WITH STANDARDS AND LEGISLATIONThe consolidated financial statements have been prepared in accor-dance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). In addition, the Swedish Financial Reporting Board’s recommendation RFR 1 Supplementary Accounting Rules for Groups has been applied. The Parent Company applies the same accounting policies as the Group except in the cases listed below in the section “Parent Com-pany accounting policies”. The Annual Report and the consolidated financial statements were approved for publication by the Board of Directors on 18 December 2017. The consolidated statement of comprehensive income and balance sheet together with the Parent Company income statement and balance sheet will be subject to adoption by the Annual General Meeting on 24 January 2018.

(B) VALUATION BASES APPLIED WHEN PREPARING THE PARENT COMPANY AND CONSOLIDATED FINANCIAL STATEMENTSAssets and liabilities are recognised at historical cost, except for certain financial assets and liabilities that are measured at fair value. Financial assets and liabilities measured at fair value comprise deri-vative instruments.

(C) FUNCTIONAL CURRENCY AND PRESENTATION CURRENCYThe Parent Company’s functional currency is the Swedish krona (SEK), which is also the presentation currency for the Parent Com-pany and Group. Consequently, the financial statements are presen-ted in SEK. All amounts are rounded to the nearest thousand unless otherwise stated.

(D) ACCOUNTING ESTIMATES IN THE FINANCIAL STATEMENTSPreparing the financial statements in accordance with IFRS requires the Executive Management to make accounting estimates and assumptions that affect the application of the accounting policies and the carrying amounts for assets, liabilities, income and expen-ses. The actual outcome may diverge from these accounting esti-mates. Estimates and assumptions are reviewed regularly. Changes in estimates are recognised in the period the changes are made if this is the only period affected by the change, or in the period the changes are made and in future periods if they affect current and future periods. Accounting estimates made by the Executive Mana-gement when applying IFRS that have a substantial effect on the financial statements and estimates made that may involve material adjustments in the following year’s financial statements are descri-bed in more detail in Note 33.

(E) IMPORTANT ACCOUNTING POLICIES APPLIEDThe accounting policies presented below have been consistently applied in all periods presented in the consolidated financial state-ments. Furthermore, the Group’s accounting policies have been consistently applied by the Group’s companies.

(F) NEW AND REVISED ACCOUNTING POLICIESAs of the current financial year, a number of revised IFRSs have come into force. These revisions have had no material effect on the consolidated or Parent Company’s financial statements.

A number of revised IFRSs will not come into force until coming

NOTE 1 Important accounting policies

NOTE 2 Income breakdown

NOTE 3 Segment reporting

NOTE 4 Business combinations

NOTE 5 Net sales and non-current assets by geographi-cal market

NOTE 6 Other operating income

NOTE 7 Other operating expenses

NOTE 8 Employees, employee benefit expenses and remuneration for senior executives

NOTE 9 Auditors’ fees and expense allowances

NOTE 10

Depreciation/amortisation of property, plant and equipment/intangible assets

NOTE 11 Profit/loss from participations in Group compa-nies

NOTE 12 Net financial items

NOTE 13 Tax

NOTE 14 Earnings per share

NOTE 15 Intangible assets

NOTE 16 Property, plant and equipment

NOTE 17 Inventories

NOTE 18 Accounts receivable

NOTE 19 Prepaid expenses and accrued income

NOTE 20 Cash and cash equivalents

NOTE 21 Equity

NOTE 22 Interest-bearing liabilities

NOTE 23 Provisions

NOTE 24 Accrued expenses and deferred income

NOTE 25 Financial assets and liabilities

NOTE 26 Financial risks and financial policies

NOTE 27 Operating leases

NOTE 28 Pledged assets

NOTE 29 Related parties

NOTE 30 Group companies

NOTE 31 Cash flow statement

NOTE 32 Current receivables and liabilities

NOTE 33 Important accounting estimates

NOTE 34 Information about the Parent Company

NOTE 35 Events after the balance sheet date

CONTENTS

NOTES


financial years and have not been applied in advance when prepa-ring these financial statements. There are no plans to apply any new standards or revisions in advance.

IFRS 9 Financial Instruments will replace IAS 39 Financial Instru-ments: Recognition and Measurement. Through IFRS 9, the IASB has produced an entire “package” of changes regarding the recognition of financial instruments. The package includes new bases for classi-fying and measuring financial instruments, a forward-looking expec-ted loss write-down model and a simplified approach to hedge accounting. IFRS 9 takes effect on 1 January 2018 and early adoption is permitted. The potential effects of this standard have not yet been fully analysed but a preliminarily assessment suggests that it will not have any material effects on the consolidated financial statements.

IFRS 15 Revenue from Contracts with Customers. The purpose of this standard is to have a single, principles-based model for all indu-stries to replace existing standards and statements on revenue. IFRS 15 comes into force on 1 January 2018. Work on analysing its effects has begun and the effects are deemed to be limited, although further analysis is required of the policies for the customer loyalty pro-gramme, for example.

IFRS 16 Leases is a new standard on leasing contracts. The classi-fications in IAS 17 relating to operating and financial leases are being discontinued for lessees, and being replaced with a model under which the assets and liabilities of all leases are recognised in the balance sheet. There are, however, exceptions to recognition in the balance sheet for leases involving minor amounts and for leases with a maximum term of 12 months. Depreciation/amortisation is to be recognised in the income statement separately from interest expenses relating to leasing liabilities. IFRS 16 will have an effect on the Group’s financial position since all leased assets, including rent for premises, will be recognised as assets and liabilities in the balance sheet. A more detailed analysis and quantification of the effects is yet to be performed. IFRS 16 is to be applied as of the financial year commencing on or after 1 January 2019. Advance app-lication is permitted provided that IFRS 15 is applied from the same date and that the EU adopts the standard.

Other future revisions are not currently deemed to have a material effect on the financial statements.

(G) CLASSIFICATION, ETC.Non-current assets and long-term liabilities essentially consist of amounts that are expected to be recovered or paid more than 12 months after the balance sheet date. Current assets and current lia-bilities essentially consist of amounts that are expected to be reco-vered or paid within 12 months of the balance sheet date.

(H) BASIS OF CONSOLIDATION(I) SubsidiariesSubsidiaries are companies over which MQ Holding AB has a con-trolling influence. The term “controlling influence” means the direct or indirect power to formulate a company’s financial and operating strategies in order to achieve economic benefits. Potential voting rights that are currently exercisable or convertible are considered when assessing whether or not a controlling influence exists.

Subsidiaries are recognised using the acquisition method. By this method, the acquisition of a subsidiary is considered a transaction in which the Group indirectly acquires the subsidiary’s assets and takes over its liabilities. The acquisition analysis establishes the fair value of acquired identifiable assets and assumed liabilities on the acquisition date. Transaction costs that arise are recognised directly in profit for the year, with the exception of transaction costs attributable to the issuing of equity instrument or debt instruments.

For business combinations where the consideration transferred

exceeds the fair value of acquired assets and assumed liabilities that are recognised separately, the difference is recognised as goodwill. When the difference is negative, i.e. a “bargain purchase”, it is recognised directly in profit for the year.

Consideration transferred in connection with the acquisition does not include payments relating to the settlement of earlier business relations. This type of settlement is recognised in profit.

Contingent consideration is measured at fair value on the acquisi-tion date. If the contingent consideration is classified as an equity instrument, no revaluation or settlement is made in equity. All other contingent consideration is re-measured on each reporting date and the difference is recognised in profit for the year.

(II) Transactions eliminated on consolidationIntra-group receivables and liabilities, income or costs and unreali-sed gains or losses arising from intra-group transactions are elimina-ted in their entirety when preparing the consolidated financial state-ments.

(III) Translation of foreign subsidiariesAssets and liabilities in foreign operations, including goodwill and other consolidated surpluses and deficits, are translated from the foreign operation’s functional currency to the Group’s presentation currency, the Swedish krona, at the exchange rate in force on the balance sheet date. Income and costs in foreign operations are translated to Swedish kronor at an average rate which constitutes an approximation of the exchange rates that existed on each reporting date. Translation differences arising from currency translations of foreign operations are recognised in other comprehensive income and accrued in a separate component in equity, called the transla-tion reserve. When a controlling influence over a foreign operation ceases, the accumulated translation differences attributable to the operation are realised, whereby they are reclassified from the trans-lation reserve in equity to profit for the year. In the event of a divest-ment where the controlling influence continues, a proportional share of accumulated translation differences is transferred from the trans-lation reserve to non-controlling interests.

(I) TRANSACTIONS IN FOREIGN CURRENCIESTransactions in foreign currencies are translated into the functional currency using the exchange rates in force on the transaction date. The functional currency is the currency of the primary economic environments in which the companies operate. Monetary assets and liabilities in foreign currencies are translated into the functional cur-rency using the exchange rates in force on the balance sheet date. Exchange rate differences arising from translation are recognised in profit for the year. Non-monetary assets and liabilities that are recognised at historic cost are translated to the exchange rate in force on the transaction date. Exchange rate differences are offset.

(J) INCOMEIncome from sales of goods is recognised in the income statement when the significant risks and benefits associated with ownership of the goods have been transferred to the buyer. Income is not recog–nised if it is likely that the economic benefits will not fall to the Group. If there is material uncertainty regarding payment, associated costs or risk of return, or if the seller remains involved in the ongoing admi-nistration that is normally associated with ownership, no income is recognised. Income is recognised at the fair value of the amount received, or expected to be received, less any discounts.

MQ Group customers can participate in a loyalty programme and receive discount vouchers on future purchases based on purchases made in earlier periods. Not all of the vouchers are redeemed, which

NOTES

NOTE 1. CONTINUED


is why each sale in the loyalty programme is reduced by the fair value of members’ future redemption of discount vouchers. The probable future redeemed value of members’ discount vouchers is also taken into account.

(K) LEASING(I) Operating leasesCosts relating to operating leases are recognised in the income sta-tement on a straight-line basis over the term of the lease. Benefits received in connection with signing a contract are recognised in the income statement as a reduction in the lease fees on a straight-line basis over the term of the lease. Variable fees are expensed in the periods in which they arise.

(II) Financial leases Minimum lease fees are distributed between the interest expense and repayment of the outstanding liability. The interest expense is distributed across the leasing period so that each leasing period is charged with an amount that corresponds to a fixed interest rate for the recognised liability during the respective period. Variable fees are expensed in the periods in which they arise.

(L) FINANCIAL INCOME AND EXPENSESFinancial income comprises interest income on invested funds. The company’s financial assets are specified in Note 25. Gains from divesting a financial instrument are recognised when the risks and benefits associated with owning the instrument are transferred to the buyer and the Group no longer controls the instrument.

Financial expenses comprise interest expenses for loans. Borro-wing costs are recognised under income using the effective interest method, except for the portion that is included in the asset’s cost. The effective interest rate is the rate that discounts estimated future receipts or payments during the expected term of a financial instru-ment to the net carrying amount of the financial asset or liability. The calculation includes all fees paid or received by contractual parties that are part of the effective interest rate, transaction costs and all other premiums and discounts.

(M) TAXESIncome tax comprises current and deferred tax. It is recognised in profit for the year except when the underlying transaction is recogni-sed in other comprehensive income or equity, in which case the associated tax effects are recognised in other comprehensive income or equity. Current tax is tax to be paid or recovered for the current year using the tax rates already enacted or substantially enac-ted on the balance sheet date, including adjustments to current tax attributable to earlier periods.

Deferred tax is calculated using the balance sheet method star-ting with temporary differences between the carrying amounts and tax bases of assets and liabilities. Temporary differences are not considered in consolidated goodwill, nor are differences arising from initial recognition of goodwill or initial recognition of assets and liabilities in a transaction that are not business combinations and that at the time of the transaction affect neither recognised nor taxa-ble earnings. In addition, temporary differences are not recognised when attributable to participations in subsidiaries that are not expec-ted to be reversed in the foreseeable future. Measurement of defer-red tax is based on how the underlying assets or liabilities are ex-pected to be realised or settled. Deferred tax is calculated using the tax rates and tax rules already enacted or substantially enacted on the balance sheet date.

Deferred tax assets relating to deductible temporary differences and loss carry-forwards are recognised only insofar as it is probable

that they can be utilised. The value of deferred tax assets is reduced when it is no longer deemed probable that they can be utilised. Any additional income tax relating to the dividend is recognised on the same date the dividend is recognised as a liability.

(N) FINANCIAL INSTRUMENTSFinancial instruments recognised in the balance sheet include, on the assets side, cash and cash equivalents, accounts receivable and derivatives with a positive value. The liabilities side includes accounts payable, borrowings and derivatives with a negative value.

(I) Recognition in and derecognition from the balance sheetA receivable is recognised when the company has performed and there is a contractual obligation for the counterparty to pay, even if the invoice has not yet been issued. Accounts receivable are inclu-ded in the balance sheet when an invoice has been issued. Howe-ver, only a very small portion of income is invoiced, as most purcha-ses are in cash. Liabilities are recognised when the counterparty has performed and there is a contractual obligation to pay, even if the invoice has not yet been received. Accounts payable are recogni-sed when the invoice has been received. A financial asset is dere-cognised from the balance sheet when its contractual rights are rea-lised, expire or the company loses control over them. The same applies for a portion of a financial asset. A financial liability is dere-cognised from the balance sheet when the contractual obligation has been fulfilled or has expired in some other way. The same app-lies for a portion of a financial liability. A financial asset and a finan-cial liability are only offset and recognised as a net amount in the balance sheet when there is a legal right to offset the amounts and an intention to settle the items as a net amount or to simultaneously realise the asset and settle the liability. Acquisitions and divestments of financial assets are recognised on the transaction date, which is the date the company commits to acquiring or selling the asset.

(II) Classification and measurementFinancial instruments that are not derivatives are initially recognised at cost, which equates to the instrument’s fair value plus transaction costs, except those classified as financial assets measured at fair value through profit or loss, which are recognised at fair value. A financial instrument is classified upon initial recognition based on the purpose of the acquisition. The classification determines how the financial instrument is measured after initial recognition as described below. Derivative instruments are initially measured at fair value, mea-ning that transaction costs are charged to profit or loss in that period. After initial recognition, derivative instruments are recognised as des-cribed below. Cash and cash equivalents comprise cash and bank balances available at banks.

(III) Financial assets measured at fair value through profit or lossThis category comprises two sub-categories: financial assets held for trading and other financial assets that the company initially choo-ses to put in this category (according to the fair value option). Finan-cial instruments in this category are measured continually at fair value, and the changes in value are recognised in the income state-ment. The first sub-category includes derivatives with positive fair values for which hedge accounting is not applied. The MQ Group has no assets in this category. Further information on derivatives can be found in section “O”.

(IV) Loan receivables and accounts receivableLoan receivables and accounts receivable are non-derivative finan-cial assets with payments that are determined or can be determined and are not listed on an active market. These assets are measured

NOTES

NOTE 1. CONTINUED


at amortised cost. Amortised cost is determined based on the ef-fective interest calculated on the acquisition date. Accounts recei-vable are recognised at the amounts expected to be received, that is, after deductions for doubtful receivables.

(V) Financial liabilities measured at fair value through profit or lossThis category comprises two sub-categories: financial liabilities held for trading and other financial liabilities that the company choo-ses to put in this category (according to the fair value option). The first sub-category includes derivatives with negative fair values for which hedge accounting is not applied. The MQ Group has no liabili-ties in this category. Further information on derivatives can be found in section “O”.

(VI) Other financial liabilitiesThis category includes loans and other financial liabilities. The liabili-ties are measured at amortised cost.

(O) DERIVATIVES AND HEDGE ACCOUNTINGAll of the Group’s independent derivative instruments have been acquired to financially hedge the risks and currency exposure to which the Group is subject. Embedded derivatives are recognised separately unless they are closely related to the host contract. No embedded derivatives have been identified. Derivatives are recogni-sed as follows:

(I) Hedging of flows in foreign currenciesTransaction exposure relating to future forecast flows is hedged using currency forward contracts. The currency forward contract that hedges the forecast flow is recognised at fair value in the ba-lance sheet as other receivables or other liabilities. Changes in value for the year are recognised in other comprehensive income with cumulative effect in the cash flow hedge reserve in equity until the hedged flow affects the income statement, at which time the hedging instrument’s accumulated changes in value are transferred to the income statement to match the hedged transaction’s effect on profit. The hedging instrument’s effect on profit is recognised in the “Goods for resale” item in the income statement. The hedged flows can be contracted or forecast. If a hedged future cash flow relates to a tran-saction set up as an asset in the balance sheet, the hedge reserve is reversed when the hedged item is recognised in the balance sheet. If the hedged item constitutes a non-financial asset or non-financial lia-bility, the reversal from the hedge reserve is included in the original cost of the asset or liability. When a hedging instrument expires, is sold, discontinued or redeemed, or the company ceases to identify the hedging relationship before the hedged transaction takes place and the forecast transaction is still expected to occur, the reported accumulated gain or loss remains in the hedge reserve in equity and is recognised in the same way as above when the transaction occurs. If the hedged transaction is no longer expected to occur, the hedging instrument’s accumulated gain or loss is reversed immediately in the income statement. The Group uses currency forward contracts to hedge receivables or liabilities against exchange rate risks. Invento-ries have been measured at the calculated rate, which is set every season based on the average for signed currency contracts. On the balance sheet date 31 August 2017, no inefficiency linked to hedge accounting had been reported. If inefficiency arises in future, it will be recognised in the income statement under net financial items.

(P) PROPERTY, PLANT AND EQUIPMENT(I) Owned assetsProperty, plant and equipment are recognised in the Group at cost after deductions for accumulated depreciation and any write-downs.

Cost includes the purchase price and expenses directly attributable to bringing the asset to where it belongs and in the condition required for it to be used in accordance with the aim of the purchase. The ac-counting policies for write-downs are detailed below. The carrying amount for property, plant and equipment is removed from the balan-ce sheet if the asset is disposed of or divested or if no future financial benefits are expected from the use or disposal/divestment of the asset. Gains or losses arising from the divestment or disposal of an asset comprise the difference between the sales price and the asset’s carrying amount, less direct selling costs. Gains and losses are recognised as other operating income/expenses.

(II) Leased assetsIn the consolidated financial statements, leases are classified as financial or operating leases. With a financial lease the economic risks and benefits associated with ownership are in all essentials transferred to the lessee; all other leases are operating leases. Assets leased through financial leases are recognised as non-current assets in the consolidated balance sheet and are initially measured at the lower of the lease object’s fair value and the pre-sent value of the minimum leasing fees at the start of the contract. The obligation to pay future lease fees is recognised as long-term or current liabilities. Leased assets are depreciated according to plan while the lease payments are recognised as interest and repayment of liabilities. With an operating lease, the leasing fee is expensed over the term of the lease based on its useful life, which may differ from the actual payment made to cover the leasing fee during the year. (III) Additional expenditureAdditional expenditure is added to the cost only if it is probable that the future economic benefits associated with the asset will accrue to the company and the cost can be reliably calculated. All other additional expenditures are expensed in the period they are incurred.

(IV) Depreciation policiesDepreciation is applied on a straight-line basis over the estimated useful life of an asset. Leased assets are also depreciated over their estimated useful lives or, if this is shorter, over the agreed lease term.

Estimated useful life:Equipment, tools, fixtures and fittings 5-7 yearsComputers 3 years

The depreciation methods applied and the assets’ residual values and useful lives are reviewed each year-end.

(Q) INTANGIBLE ASSETS(I) GoodwillGoodwill is measured at cost less any accumulated write-downs. Goodwill is distributed among cash-generating units and reviewed at least annually for any write-down requirement; see below.

(II) BrandsBrands are measured at cost less any accumulated write-downs and are not amortised, instead brands are reviewed for any write-down requirement annually.

The MQ brand has been on the fashion market since the late 1980s and has progressively grown to become the strong brand that it is today in the Swedish fashion market. The Joy brand was established in the Swedish fashion market in 1971. Joy is a well-known, established chain concept among the target group “midlife women”. There have been continuous efforts to strengthen Joy’s brand and customer loyalty.

NOTES NOTES

NOTE 1. CONTINUED


Chain concepts such as MQ and Joy have performed positively in the market and the Group is intent on continuing this trend. Based on each company’s development, the brands are expected to last for a long time in the future, which is why the MQ and Joy brands are dee-med to have an indefinite useful life.

Since its creation in the early 1980s, Bondelid has become a well-established brand where the MQ Group sees clear added value fol-lowing several years of licensing, and the brand is thus deemed to have an indefinite useful life.

Costs incurred for internally generated goodwill and internally generated brands are recognised in the income statement when the cost is incurred.

(III) Other intangible assetsOther intangible assets acquired by the Group take the form of ren-tal rights and computer software, and are recognised at cost less accumulated amortisation and write-downs.

(III) Additional expenditureAdditional expenditure for capitalised intangible assets is recogni-sed as an asset in the balance sheet only to the extent that it increa-ses the future economic benefits of the specific asset to which it is attributable. All other expenditures are expensed as incurred.

(IV) Amortisation policiesAmortisation is recognised in the income statement on a straight-line basis over the estimated useful life of the intangible asset, un-less the useful life is undefinable. Useful lives are reviewed at least once a year. Goodwill and intangible assets with an indefinite useful life are reviewed for any write-down requirement annually or as soon as there is an indication that an asset has decreased in value. Amor-tisable intangible assets are amortised from the date the asset is available for use.

Estimated useful life:Rental rights and similar rights 5 yearsComputer software 5 years

(R) INVENTORIESInventories are measured at the lower of cost and net realisable value. The cost of inventories is calculated using the “first-in, first-out” (FIFO) method and includes expenditure that arises during the acquisition of the stock items and transportation of the items to their current location and state. Net realisable value is the estimated sales price in the operating activities, less estimated costs for com-pletion and for accomplishing a sale. Inventories are always expo-sed to obsolescence. The main factors are theft, damage to clothes during transportation and production, as well as any wrong invest-ments. The MQ Group monitors obsolescence by conducting rolling stocktaking and inventory spot checks which, over the course of a year, should encompass each item of clothing at least once. This analysis of actual obsolescence is used as a basis for regularly recording a provision for obsolescence. Test collections are not included in the inventory value since no payment is made for them.

(S) WRITE-DOWNSThe carrying amounts of the Group’s assets are reviewed every balance sheet date to determine whether there are indications of any write-down requirements. IAS 36 is applied to review the write-down requirement for assets other than financial assets, inventories and deferred tax assets. The carrying amounts of the above exceptions are reviewed in accordance with the relevant standard.

(I) Write-down review for property, plant and equipment and intangible assets as well as participations in subsidiaries If a write-down requirement is indicated, the asset’s recoverable amount is calculated in accordance with IAS 36. The recoverable value of goodwill and other intangible assets with an indefinite useful life is calculated annually. If it is not possible to establish largely inde-pendent cash flows for an individual asset, when the write-down requirement is reviewed the assets are grouped at the lowest level at which it is possible to identify largely independent cash flows, known as a cash-generating unit. A write-down is recognised when an asset or cash-generating unit’s (group of units’) carrying amount exceeds the recoverable amount. A write-down is charged to profit for the year. Write-downs of assets attributable to a cash-generating unit (group of units) are initially allocated to goodwill and later on to other assets in the unit (group of units) on a pro rata basis. The recoverable amount is the higher of fair value less selling costs and value in use. When calculating value in use, future cash flows are discounted using a discount factor that takes into account risk-free interest and the risk associated with the specific asset.

(II) Write-down review for financial assetsAt the end of each accounting period, the Group assesses whether there is any objective evidence that a financial asset or group of assets needs to be written down. Objective evidence may consist of observable circumstances that have occurred and have a nega-tive impact on the ability to recover the cost. or a significant or protracted decrease in the fair value of a financial investment classi-fied as a financial asset available for sale. Financial assets which are subject to write-down reviews are accounts receivable.

The recoverable amount of assets in the categories loan receiva-bles and accounts receivable, which are recognised at amortised cost, is calculated as the present value of future cash flows discoun-ted by the effective interest in force when the asset was initially recognised. Assets with a short term are not discounted. A write-down is charged to the income statement.

(III) Reversing write-downsA write-down is reversed if there is an indication that there is no longer a write-down requirement and also the assumptions that formed the basis for calculating the recoverable amount have changed. However, write-downs of goodwill are never reversed. A reversal is only perfor-med to the extent that the asset’s carrying amount after reversal does not exceed the carrying amount that would have been recognised, less any applicable amortisation, if no write-down had been perfor-med. Write-downs of loan receivables and accounts receivable car-ried at amortised cost are reversed if a later increase in the recove-rable amount can be objectively attributed to an event that occurred after the write-down was performed.

(T) REMUNERATION FOR EMPLOYEES(I) Defined-benefit and defined-contribution pension plansDefined-contribution pension plans are classified as plans in which the company’s obligation is limited to the contributions the Group has committed to pay. In such cases, the size of an employee’s pension is based on the contributions the company pays into the plan or to an insurance company and the return on capital generated by the contributions. Consequently, it is the employee who bears the actuarial risk (that the payment will be lower than expected) and the investment risk (that the invested assets will be inadequate to provide the expected benefits). The Group’s obligation to make payments to defined-contribution plans is recognised as an expense in the income statement at the rate at which the payments are earned through services provided by the employee to the company over a period.

NOTE 1. CONTINUED

NOTES


The commitment to retirement pensions and survivor pensions for employees in Sweden is covered through insurance with Alecta. A statement from the Swedish Financial Reporting Board, UFR 3, describes this as a defined-benefit multi-employer plan. A pension plan covered through insurance with Alecta in accordance with ITP shall be recognised as a defined-contribution plan for financial years for which companies had no access to such information that makes it possible to recognise this plan as a defined-benefit plan. The MQ Group has not had access to this information for the current year or previous year. The pension plan is therefore recognised as a defined-contribution plan. At the end of June 2017, Alecta’s surplus in the form of the collective consolidation level was 156 per cent (140). No other defined-benefit pension plans exist within the Group. Pension costs for the year are stated in Note 8.

(II) Remuneration upon termination of employmentA cost for remuneration in connection with termination of employ-ment is only recognised if the Group is clearly obligated, without a realistic possibility of reversal, to a formal, detailed plan to terminate employment before the normal time. When payment is offered as an incentive for voluntary redundancy, a cost is recognised if it is pro-bable that the offer will be accepted and the number of employees who will accept the offer can be reliably estimated.

(III) Short-term benefitsShort-term employee benefits are calculated without discounting and are recognised as a cost when the related services are received.

(U) PROVISIONSA provision is recognised in the balance sheet when the Group has an existing legal or informal obligation resulting from a transpired event and it is likely that an outflow of economic benefits will be required for its settlement and a reliable estimate of the amount can be made. Where the effect of the timing of the payment is material, provisions are calculated by discounting the expected future cash flow using an interest rate before tax that reflects current market assessments of the time value of money and, where applicable, the risks associated with the debt. For information on the types of provi-sion in the Group, see Note 23.

(V) CONTINGENT LIABILITIESA contingent liability is recognised when there is a possible obliga-tion arising from past events whose existence will only be confirmed by one or more uncertain future events or when there is an obliga-tion that is not recognised as a liability or provision since it is not probable that an outflow of resources will be required.

(W) SEGMENT REPORTINGA business segment is a part of the Group that engages in business activities from which it may generate revenues and incur expenses, and for which discrete financial information is available. A business segment is reported in a way that corresponds to the internal re-porting submitted to the highest decision-making body in the MQ Group. The highest decision-making body has been identified as the Group’s Executive Management Team, which evaluates results and allocates resources to the business segments. For more information on business segments, see Note 3.

(X) EARNINGS PER SHAREEarnings per share are calculated based on profit for the year in the Group attributable to Parent Company shareholders and the weigh-ted average number of shares outstanding during the year. When

calculating earnings per share after dilution, the average number of shares is adjusted to take into account the dilutive effects of poten-tial ordinary shares.

PARENT COMPANY ACCOUNTING POLICIESThe Parent Company has prepared its annual accounts in accor-dance with the Annual Accounts Act (1995:1554) and the Swedish Financial Reporting Board’s recommendation, RFR 2 Accounting for legal entities. Statements issued by the Swedish Financial Reporting Board for listed companies are also applied. RFR 2 means that the Parent Company, in the annual accounts for the legal entity, shall apply all IFRS and statements adopted by the EU, as far as possible, within the framework of the Annual Accounts Act, the Swedish Pen-sion Obligations Vesting Act and taking into account the connection between accounting and taxation. RFR 2 specifies the exceptions and supplements that should be applied in relation to IFRS.

Differences between the accounting policies of the Group and Parent CompanyDifferences between the accounting policies of the Group and Parent Company are detailed below. The accounting policies pre-sented below for the Parent Company have been consistently app-lied in all periods presented in the Parent Company’s financial state-ments. Classification and presentation formatsThe Parent Company’s income statement and balance sheet have been presented in accordance with Annual Accounting Act schedu-les, and the statement of changes in equity and the cash flow state-ment are based on IAS 1 Presentation of Financial Statements and IAS 7 Statement of Cash Flows respectively. The differences in the Parent Company income statement and balance sheet compared with the consolidated statements mainly comprise the recognition of equity.

SubsidiariesParticipations in subsidiaries are reported in the Parent Company in accordance with the cost method. This means that transaction costs are included in the carrying amount for holdings in subsidiaries.

Contingent consideration is measured based on the probability that the consideration will be paid. Possible changes to the provi-sion are added to the cost.

Financial instrumentsWith regard to the connection between accounting and taxation, financial instruments are recognised based on the cost principle.

Financial guaranteesThe Parent Company’s financial guarantees comprise guarantees on behalf of subsidiaries. When recognising financial guarantees, the Parent Company applies a regulation permitted by the Swedish Financial Reporting Board that entails a relaxation compared with IAS 39.

The relaxation relates to financial guarantees written on behalf of subsidiaries. The Parent Company recognises financial guarantees as provisions in the balance sheet when the company has a commit-ment for which payment will probably be required to settle the com-mitment.

Recognising Group contributionsGroup contributions received from subsidiaries are recognised as financial income.

NOTES NOTES

NOTE 1. CONTINUED


The MQ Group’s operations comprise two business areas: MQ and Joy. The internal follow-up includes separate financial information for each business area.

The income measure reported per segment is operating profit/loss, which is included in the internal reports reviewed by the highest decision-making body.

MQFounded in 1957, MQ currently operates 121 stores in Sweden and Norway as well as online shopping. MQ is Sweden’s largest retailer of fashion brands today. Through a combination of proprietary and

external brands, MQ offers high-fashion menswear and womenswear in attractive stores.

JOYJoy was founded in 1971 and currently operates 52 stores in Sweden as well as online shopping. Joy targets fashion-conscious women at midlife who desire excellent quality, fit and comfort. Customers are offered a well co-ordinated product assortment with an inspiring variety of textiles, colours, patterns and prints to create a personal and unique fashion style.

NOTE 3. SEGMENT REPORTING

NET SALES AND OPERATING PROFIT/LOSS PER SEGMENT

2016/2017 SEK 000s MQ JOY

Shared Group functions Eliminations Group total

From external customers 1,557,446 264,129 - -476 1,821,099

From other segments - - 21,977 -21,977 0

Total net sales 1,557,446 264,129 21,977 -22,453 1,821,099

Operating profit/loss 132,331 -4,447 -3,915 - 123,969

Inventories 288,176 53,454 - - 341,630

2015/2016 SEK 000s MQ JOY

Shared Group functions Eliminations Group total

From external customers 1,596,051 85,359 - - 1,681,410

From other segments - - 19,360 -19,360 0

Total net sales 1,596,051 85,359 19,360 -19,360 1,681,410

Operating profit/loss 132,642 625 -12,711 - 120,556

Inventories 303,633 37,449 - - 341,082

NOTE 2. INCOME BREAKDOWN

INCOME BY KEY TYPE

Group Parent CompanySEK 000s 2016/2017 2015/2016 2016/2017 2015/2016

Net sales

Sale of goods 1,821,099 1,681,409 - -

Service assignments - - 13,394 10,808

Total 1,821,099 1,681,409 13,394 10,808

Sale of goods refers entirely to the sale of clothes.

NOTES



NOTES

NOTE 5. NET SALES AND NON-CURRENT ASSETS BY GEOGRAPHICAL MARKET

Group Income from external customers Non-current assetsSEK M 2016/2017 2015/2016 2016/2017 2015/2016

Geographical areas

Sweden 1,810 1,653 1,341 1,336

Norway 11 28 - 5

Total 1,821 1,681 1,341 1,341

Sales in Sweden refer to sales in Swedish stores and online. Sales in Norway refer to sales in Norwegian stores and online.

The Parent Company’s sales are 100 per cent linked to the Swedish market.

On 2 May 2016, the Group acquired 100% of the shares in the unlisted company Joy Shop AB for SEK 38,500,000. The acquisition was paid for in cash and financed by raising a new loan in the amount of SEK 40,000,000. Direct acquisition costs amounted to SEK 2,031,000 and have been charged to “Other external costs” in the consolidated income statement for 2015/2016.

Joy Shop AB is a nationwide fashion chain and there is great

potential to develop the company as a strong retail concept for the women at midlife target group, which has strong buying power. The acquisition is in line with the MQ Group’s long-term strategy to generate growth and advance its position as a player in the fashion industry.

A preliminary acquisition analysis was reported for 2015/2016, the table below shows the definitive acquisition analysis.

NOTE 4. BUSINESS COMBINATIONS

ACQUIRED NET ASSETS

SEK 000s Fair value

Brands 56,394

Other intangible assets 3,198

Property, plant and equipment 8,059

Inventories 27,186

Other current receivables 8,635

Cash and cash equivalents 7,627

Provisions -177

Deferred tax liability -12,794

Current interest-bearing liabilities -12,749

Current non-interest-bearing liabilities -36,879

Acquired net assets 38,500

Purchase price 38,500

Less:Cash and cash equivalents -7,627

Impact on the Group’s cash and cash equivalents 30,873

NOTES


NOTE 6. OTHER OPERATING INCOME

Group

SEK 000s 2016/2017 2015/2016

Re-invoiced rent 40 484

Investment contribution1) 5,492 3,798

Damages received 3,323 -

Other 6,672 5,065

Total 15,527 9,347

1) An investment contribution is income from the landlord which by agreement is received to complete a rental premises.

NOTE 7. OTHER OPERATING EXPENSES

GroupSEK 000s 2016/2017 2015/2016

Loss from divestment of non-current assets 2,886 1,280

Total 2,886 1,280

NOTE 8. EMPLOYEES, EMPLOYEE BENEFIT EXPENSES AND REMUNERATION FOR SENIOR EXECUTIVES

AVERAGE NUMBER OF EMPLOYEES

2016/2017of whom

men 2015/2016 of whom men

Parent CompanySweden 3 39% 2 50%

Parent Company total 3 39% 2 50%

Subsidiaries

Bangladesh 2 75% 4 75%

China 16 25% 16 25%

Turkey 1 0% 1 0%

Norway 8 13% 16 19%

Sweden 752 12% 763 13%

Total in subsidiaries 779 14% 800 14%Group total 782 14% 802 14%

Percentage of womenGender breakdown of Executive Management 2016/2017 2015/2016

Parent CompanyBoard of Directors 43% 43%

Other senior executives 50% 50%

Group totalBoard of Directors 43% 43%

Other senior executives 60% 58%

The category “Other senior executives” above comprises members of the Group companies’ executive management teams, a total of 10 per-sons (12).

NOTES NOTES



NOTES

PAY, OTHER REMUNERATION AND PAYROLL OVERHEADS

2016/2017 2015/2016

SEK 000sPay and

remunerationPayroll

overheadsPay and

remunerationPayroll

overheads

Parent Company 6,773 8,484 7,781 5,704(of which pension costs) 6,3041) 3,1711)

Group 323,319 127,638 273,586 101,802(of which pension costs) 26,6452) 21,4662)

1) Of the Parent Company’s pension costs, SEK 6,027,000 (3,149,000) relates to 2 (2) members of Executive Management and SEK 0 (0) to the 7 (7) members of the Board of Directors. Of the pension costs for the year, SEK 22,000 (22,000) also refers to former senior executives.

2) Of the Group’s pension costs, SEK 0 (0) relates to 7 (7) members of the Board of Directors and SEK 8,331,000 (5,023,000) to 10 (12) other senior executives. Of the pension costs for the year, SEK 22,000 (22,000) also refers to former senior executives.

The Group’s costs for defined-contribution pension plans (including Alecta) amount to SEK 26,645,000 (21,466,000). Costs for future years are expected to amount to SEK 27,673,000.

NOTE 8. CONTINUED

PAY AND OTHER REMUNERATION BY COUNTRY AND DIVIDED BETWEEN THE COMPANY’S MANAGEMENT AND OTHER EMPLOYEES

2016/2017 2015/2016

SEK 000s

Senior executives

(9)Other

employees

Senior executives

(9)Other

employees

Parent Company

Sweden 6,011 762 7,781 –

(of which bonuses etc.) - – 131 –

Parent Company total 6,011 762 7,781 –(of which bonuses etc.) - – 131 –

2016/2017 2015/2016

SEK 000s

Senior executives

(17)Other

employees

Senior executives

(19)Other

employees

Group total 14,831 308,488 13,807 259,779(of which bonuses etc.) - - 151 –

REMUNERATION AND OTHER BENEFITS, PARENT COMPANY, 2016/2017

SEK 000sBasic pay/ Board fee

Variableremunera-

tionOther

benefitsPension

costs Total

Chairman of the Board 590 - - - 590

Board Member 1, 1 x SEK 247,000 247 - - - 247

Board Member 2-3, 2 x SEK 286,000 572 - - - 572

Board Member 4-6, 3 x SEK 200,000 600 - - - 600

CEO 2,647 - 87 3,1361) 5,870

Deputy CEO 1,355 - 78 2,913 4,346

Other 762 - 2 255 1,019

Total 6,773 - 167 6,304 13,244

1) Of the pension costs, SEK 22,000 refers to former senior executives.

NOTES


Other senior executives are employees of the subsidiaries MQ Retail AB and Joy Shop AB.

Severance pay On termination of employment by the employer, the company’s CEO is entitled to a maximum of 12 months’ (12) salary.

REMUNERATION AND OTHER BENEFITS, PARENT COMPANY, 2015/2016

SEK 000sBasic pay/ Board fee

Variable remunera-

tionOther

benefitsPension

costs Total

Chairman of the Board 468 – – – 468

Board Member 1-2, 2 x SEK 290,000 580 – – – 580

Board Member 3, 1 x SEK 245,000 245 – – – 245

Board Member 4-6, 3 x SEK 200,000 600 – – – 600

CEO 3,855 72 91 1,5301) 5,548

Deputy CEO 1,902 59 73 1,641 3,675

Total 7,650 131 164 3,171 11,116

1) Of the pension costs, SEK 22,000 refers to former senior executives.

NOTE 8. CONTINUED

Other senior executives are employees of the subsidiaries MQ Retail AB and Joy Shop AB.

NOTES



NOTE 9. AUDITORS’ FEES AND EXPENSE ALLOWANCES

Group Parent CompanySEK 000s 2016/2017 2015/2016 2016/2017 2015/2016

KPMG

Audit engagement 1,020 733 120 110

Audit business in addition to audit engagement 38 47 - –

Tax consultancy 10 4 - –

Other services 140 1,350 30 1,295

Total 1,208 2,134 150 1,405

Other auditors

Audit engagement 74 59 - –

Other services 140 - - -

Total 214 59 - –

“Audit engagement” refers to the review of the annual accounts and accounting records and the Board of Director’s and CEO’s adminis-tration, other duties that have to be performed by the company’s auditors, as well as advice and other assistance prompted by obser-vations during the review or when carrying out such other duties.

“Audit business in addition to audit engagement” refers to other reviews that it is incumbent upon the chosen auditor to carry out, such as issuing certificates. “Tax consultancy” refers to consultancy relating to taxes, VAT and employee taxation. Anything else comes under “Other services”.

NOTE 10. DEPRECIATION/AMORTISATION OF PROPERTY, PLANT AND EQUIPMENT/INTANGIBLE ASSETS

GroupSEK 000s 2016/2017 2015/2016

Computer software 2,114 1,549

Financial leases 1,357 1,357

Equipment, tools, fixtures and fittings 25,036 21,410

Rental rights 380 126

Total 28,887 24,442

NOTE 11. PROFIT/LOSS FROM PARTICIPATIONS IN GROUP COMPANIES

Parent CompanySEK 000s 2016/2017 2015/2016

Dividend 61,524 61,524

Total 61,524 61,524

NOTES


NOTE 12. NET FINANCIAL ITEMS

GroupSEK 000s 2016/2017 2015/2016

Interest income on bank balances 228 75

Exchange rate differences on assets - 213

Financial income 228 288

Interest expenses for financial liabilities are measured at amortised cost. -2,836 -2,534

Exchange rate differences on assets -352 -Financial expenses -3,188 -2,534Net financial items -2,960 -2,246


Interest income from other Group companies 1,035 987

Interest income, other -1 -3

Financial income 1,034 984

Interest expenses -1,035 -987

Financial expenses -1,035 -987Net financial items -1 -3

The MQ Group uses currency forward contracts to hedge exchange rates, and applies hedge accounting. The Group has not reported any effects from the currency forward contracts in net financial

items because all cash flow hedges have been effective. Interest rate levels that can be hedged in accordance with the Group’s finance policy have not been hedged during the year.

NOTE 13. TAXES

RECOGNISED IN STATEMENT OF COMPREHENSIVE INCOME/INCOME STATEMENT

GroupSEK 000s 2016/2017 2015/2016

Current tax expense (–)

Tax expense for the period -22,691 –23,760

-22,691 -23,760

Deferred tax expense (–)/income (+)Deferred tax expense/income resulting from use of previously capitalised tax amounts in temporary differences. -4,422 302

-4,422 302Total recognised tax expense in the Group -27,113 –23,458


Current tax expense (–)Tax expense for the period - -3

Total recognised tax expense in the Group - -3

NOTES



NOTES

NOTE 13. CONTINUED

RECONCILIATION OF EFFECTIVE TAX

GroupSEK 000s 2016/2017 2015/2016


Tax in accordance with applicable tax rate for Parent Company, 22 per cent -26,622 -26,028

Non-deductible costs -728 -842

Tax allowance for goodwill arising from the purchase of a business’s net assets - 376

Difference in tax rate between countries 19 16

Capitalised deferred tax asset resulting from fiscal temporary differences 2 3,176

Adjustment to tax attributable to earlier years - 45

Other 216 -200

Recognised effective tax -27,113 –23,458



Tax in accordance with applicable tax rate for Parent Company, 22 per cent -13,295 -13,365

Non-deductible costs -240 -171

Non-deductible income 13,535 13,535

Adjustment to tax attributable to earlier years - -3

Recognised effective tax 0 -3

TAX ATTRIBUTABLE TO OTHER COMPREHENSIVE INCOME

Group

2016/2017 2015/2016SEK 000s Before tax Tax After tax Before tax Tax After tax

Translation differences for the year -5,275 - -5,275 1,181 – 1,181

Cash flow hedging – unrealised changes in value -20,952 4,609 -16,343 651 -143 508

Other comprehensive income -26,227 4,609 -21,618 1,832 -143 1,689

RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets and liabilities relate to the following:

Group

Deferred tax asset

Deferred tax liability Net

SEK 000s 2016/2017 2015/2016 2016/2017 2015/2016 2016/2017 2015/2016

Financial leases 569 873 -497 -796 72 77

Brands - – -164,207 -164,207 -164,207 -164,207

Hedge accounting - – 3,198 -1,410 3,198 -1,410

Untaxed reserves - – -41,385 -39,719 -41,385 -39,719

Other temporary differences 42 2,791 - – 42 2,791

611 3,664 -202,891 -206,132 -202,280 –202,468

NOTES


NOTE 13. CONTINUED

CHANGE IN DEFERRED TAX IN TEMPORARY DIFFERENCES

Group

SEK 000sBalance on 1

Sep 2016

Recognised in Profit for

the year

Recognised in Other com-

prehensive income

Recognised in Equity

Balance on 31 Aug 2017

Financial leases 77 -5 - – 72

Brands -164,207 - - – -164,207

Hedge accounting -1,410 - 4,608 - 3,198

Untaxed reserves -39,719 -1,666 - – -41,385

Other temporary differences 2,791 -2,749 - – 42

–202,468 -4,420 4,608 - -202,280

SEK 000sBalance on 1

Sep 2015

Acquisition of subsidia-

ries

Recognised in Profit for

the year

Recognised in Other

comprehen-sive income

Recognised in Equity

Balance on 31 Aug 2016

Financial leases 58 - 19 - – 77

Brands -151,800 -12,407 - - – -164,207

Hedge accounting -1,269 - - -141 – -1,410

Untaxed reserves -36,823 -426 -2,470 - – -39,719

Other temporary differences - 39 2,752 - – 2,791

-189,834 -12,794 301 -141 - -202,468

NOTE 14. EARNINGS PER SHARE

EARNINGS PER SHARE

Group2016/2017 2015/2016

Before dilution (SEK) 2.67 2.70

After dilution (SEK) 2.67 2.70

Profit for the year before and after dilution (SEK 000s) 93,896 94,852

Average number of shares before dilution 35,156,507 35,156,507

Average number of shares after dilution 35,156,507 35,156,507

NOTES



NOTES

NOTE 15. INTANGIBLE ASSETS

Group

SEK 000sComputer soft-

ware Rental rights Goodwill Brands Total

Accumulated costOpening balance, 1 Sep 2015 14,520 250 510,753 690,000 1,215,523

Acquisitions for the year 1,448 - - 10,000 11,448

Acquisition of subsidiaries 5,609 2,774 - 56,394 64,777

Divestments and disposals - - - - -

Translation difference 3 - - - 3

Closing balance, 31 Aug 2016 21,580 3,024 510,753 756,394 1,291,751

Opening balance, 1 Sep 2016 21,580 3,024 510,753 756,394 1,291,751

Acquisitions for the year 2,596 - - - 2,596

Divestments and disposals -210 - - - -210

Translation difference -1 - - - -1

Closing balance, 31 Aug 2017 23,965 3,024 510,753 756,394 1,294,136

Accumulated amortisation and write-downsOpening balance, 1 Sep 2015 -11,473 -250 - - -11,723

Amortisation for the year -1,549 -126 - - -1,675

Acquisition of subsidiaries -3,654 -1,531 - - -5,185

Divestments and disposals - - - - -

Translation difference -6 - - - -6

Closing balance, 31 Aug 2016 -16,682 -1,907 - - -18,589

Opening balance, 1 Sep 2016 -16,682 -1,907 - - -18,589

Amortisation for the year -2,114 -380 - - -2,494

Divestments and disposals 210 - - - 210

Translation difference 5 - - - 5

Closing balance, 31 Aug 2017 -18,581 -2,287 - - -20,868

Carrying amountsOn 1 Sep 2015 3,047 - 510,753 690,000 1,203,800

On 31 Aug 2016 4,898 1,117 510,753 756,394 1,273,162

On 1 Sep 2016 4,898 1,117 510,753 756,394 1,273,162

On 31 Aug 2017 5,384 737 510,753 756,394 1,273,268

All intangible assets are amortised except for goodwill and brands. For information on amortisation, see the accounting policies in Note 1. All of the Group’s intangible assets are acquired.

REVIEW OF WRITE-DOWN REQUIREMENT FOR GOODWILLThe Group’s recognised goodwill amounts to SEK 510,753,000 (510,753,000) and applies entirely to the MQ business segment. The review of the write-down requirement was therefore carried out on the cash-generating unit MQ.

Value in use was calculated using estimated future cash flows for 10 years, and then discounted perpetual cash flows. The calculation for the first year is based on an established budget. For subsequent periods the cash flow has been assumed based on an established business plan and a general growth rate of 1 per cent (1). The fore-cast cash flows have been computed at present value with a dis-count rate of 4.5 per cent (2.1) before tax.

The recoverable amount for the MQ business segment exceeds the carrying amount and thus no write-downs are recognised.

The important assumptions and methods used to estimate the values are as follows:

Sales growthGrowth has been calculated based on the company’s business plan for the next five years and subsequently using a general growth rate of 1 per cent.

Operating marginThe operating margin is calculated as EBITDA in relation to sales. The operating margins used are based on established business plans. When calculating perpetual cash flow, the operating margin is an average of the historical operating margin.

Investment requirementThe investment requirement used does not include investments to expand operations.

NOTES


NOTE 16. PROPERTY, PLANT AND EQUIPMENT

GroupSEK 000s 2016/2017 2015/2016

CostOpening balance 376,784 321,240

Acquisitions for the year 28,746 37,959

Acquisition of subsidiaries - 37,589

Divestments and disposals -12,652 -20,154

Translation difference 290 150

Closing balance 393,168 376,784

DepreciationOpening balance -308,552 –274,976

Amortisation for the year -26,394 -22,771

Acquisition of subsidiaries - -29,530

Divestments and disposals 9,582 18,748

Translation difference -120 23

Closing balance -325,484 -308,552

Carrying amountOpening balance 68,232 46,264


NOTE 15. CONTINUED

Sensitivity analysisThe Executive Management deems that reasonable possible chan-ges in assumed variables would not have such a major effect as to reduce the recoverable amount to a value that is lower than the car-rying amount. An overall analysis has, however, been carried out of the sensitivity of the variables used.

A further increase in the discount rate to 8.4 per cent after tax would not create a write-down requirement, although the recovera-ble amount would then be on a par with the carrying amount. Nor would a decrease in the annual growth rate from 1 to 0 per cent with a retained discount rate of 4.5 per cent before tax prompt a write-down requirement.

REVIEW OF WRITE-DOWN REQUIREMENT FOR BRANDSThe Group’s carrying amount for brands amounts to SEK 756,394,000 (756,394,000) divided between the business segments as shown in the table below.

2016/2017 2015/2016

MQ 700,000 700,000

Joy 56,394 56,394

Total brands 756,394 756,394

The write-down review has been carried out for each cash-genera-ting unit and its recoverable amount using the same principles as for goodwill. The recoverable amount exceeds the carrying amount for both business segments. There is, therefore, no write-down require-ment.

Sensitivity analysis The sensitivity analysis for the MQ business segment has been pre-pared using the same assumptions and conclusions as for goodwill.

The sensitivity analysis for the Joy business segment shows that a further increase in the discount rate to 25 per cent after tax would not create a write-down requirement, although the recoverable amount would then be on a par with the carrying amount. Nor would a decrease in the annual growth rate from 1 to 0 per cent with a retai-ned discount rate of 4.5 per cent before tax prompt a write-down requirement.

FINANCIAL LEASES GroupThe Group leases store fittings. These leases have no variable fees. The value of the leased assets on 31 August 2017 was SEK 2,261,000 (3,618,000).

NOTES NOTES



NOTES

NOT 18. ACCOUNTS RECEIVABLE

Accounts receivable are recognised after considering bad debt los-ses during the year of SEK 1,102,000 (1,109,000) in the Group. There were no bad debt losses in the Parent Company. An age analysis of

accounts receivable and a specification of provisions for doubtful receivables are presented below.

AGE ANALYSIS, ACCOUNTS RECEIVABLE

31 Aug 2017 31 Aug 2016

SEK 000s Gross CollateralWrite-down Gross Collateral Write-down

Accounts receivable not due 724 – - 626 – –

Accounts receivable due in 0-30 days 2 – - 10 – –

Accounts receivable due in 30–90 days 37 – - 75 – –

Accounts receivable due after 90 days 1,144 – -1,102 1,177 – –1,109

Total 1,907 - -1,102 1,888 - -1,109Total 805 779

PROVISION ACCOUNT

SEK 000s 31 Aug 2017 31 Aug 2016

Opening balance -1,109 -18

Acquisition of subsidiaries - -1,007

Written-off receivable 394 355

Booked receivables -387 -439

Closing balance -1,102 -1,109

NOT 19. PREPAID EXPENSES AND ACCRUED INCOME

Group Parent CompanySEK 000s 31 Aug 2017 31 Aug 2016 31 Aug 2017 31 Aug 2016

Prepaid rent 49,730 39,191 - –

Accrued income relating to interest-bearing assets 2 9 - –

Goods 16,018 36,070 - –

Other 12,286 10,799 1,009 223

Total 78,037 86,069 1,009 223

NOT 17. INVENTORIES

GroupSEK 000s 31 Aug 2017 31 Aug 2016

Finished goods and goods for resale 341,630 341,082

Total 341,630 341,082

Stock write-down amounted to SEK 13,889,000 (13,384,000), which has been recognised in “Goods for resale”. There have been no reversals during the current or previous financial year.

NOTES


NOT 21. EQUITY

SHARE CAPITAL

GroupIn thousands of shares 31 Aug 2017 31 Aug 2016

Issued, opening balance 3,516 3,516

Issued, closing balance 3,516 3,516

Holders of ordinary shares are entitled to dividends which are deter-mined in due course and the shareholding entitles the holder to one vote per share at the Annual General Meeting.

OTHER CONTRIBUTED CAPITALThis refers to equity contributed by the owners and includes premi-ums paid in connection with share issues.

PROVISIONS

Cash flow hedge reserve Translation reserveTotalSEK 000s Gross Tax effect

Opening balance, 1 Sep 2016 6,418 -1,412 -2,399 2,607

Withdrawn hedges -6,418 1,412 - -5,006

Utilised hedges -14,533 3,197 - -11,336

Translation differences for the year - - -5,275 -5,275

Closing balance, 31 Aug 2017 -14,533 3,197 -7,674 -19,010

CASH FLOW HEDGE RESERVEThe hedge reserve comprises the effective portion of the accumula-ted net change in fair value of a cash flow hedging instrument attri-butable to hedging transactions that have not yet occurred.

TRANSLATION RESERVEThe translation reserve comprises all exchange rate differences that arise from translating financial statements from operations outside of Sweden that have prepared their financial statements in a cur-rency other than the one in which the Group’s financial statements are presented. The Group presents its financial reports in Swedish kronor (SEK).

PROFIT BROUGHT FORWARD Profit brought forward includes the Parent Company and its subsidi-aries’ profits from earlier periods. Previous provisions to the statu-tory reserve, excluding transferred share premium reserves, are also included in this equity item. During the financial year, the Parent Company’s dividends totalled SEK 61,524,000, which equates to SEK 1.75 per share. The proposed dividend for the 2016/2017 financial year is SEK 61,524,000, which equates to SEK 1.75 per share.

PROFIT FOR THE YEARThe Group’s profit for the financial year.

PARENT COMPANYRestricted fundsRestricted funds may not be reduced through dividends.

Non-restricted equityShare premium reserveWhen shares are issued at a premium, i.e. when the price paid is more than the shares’ quotient value, an amount equating to the amount received above the shares’ quotient value has to be transfe-rred to the share premium reserve.

Profit brought forwardComprises the previous year’s non-restricted equity after any divi-dend has been paid. Together with profit for the year, the share pre-mium reserve and the fair value fund, it represents total non-restric-ted equity, i.e. the amount available for shareholder dividends.

NOT 20. CASH AND CASH EQUIVALENTS


The following sub-components make up cash and cash equivalents:

Cash and bank balances 18,585 27,652

Total specified in balance sheet 18,585 27,652

Bank overdraft facilities that can be terminated immediately (less amount due on bank overdraft) - –

Unused bank overdraft facility 81,276 103,937

NOTES



SHARE CAPITAL TREND

Date EventChange in

share capital

Change in number of sha-

resShare capital after change

Number of shares after change

December 2005 Company formed 100,000 100,000 100,000 100,000

May 2006 New share issue 1,984,000 1,984,000 2,084,000 2,084,000

October 2006 New share issue 71,865 71,865 2,155,865 2,155,865

January 2010 New share issue 21,100 21,100 2,176,965 2,176,965

May 2010 Split – 19,592,685 2,176,965 21,769,650

June 2010 Exercise of warrants 138,533 1,385,330 2,315,498 23,154,980

June 2010 Offset issue 900,153 9,001,527 3,215,651 32,156,507

June 2010 New share issue 300,000 3,000,000 3,515,651 35,156,507

NOTE 21. CONTINUED

This note has information on the company’s contractual terms rela-ting to interest-bearing liabilities.

For further information on the company’s exposure to interest rate risk and the risk of exchange rate movements, see Note 26.


Long-term liabilitiesBank loans 33,500 80,500 27,500 72,500

Financial lease liabilities 1,080 2,587 - –

Liabilities to Group companies - – 5,000 5,000

Total 34,580 83,087 32,500 77,500

Current liabilitiesCurrent portion of bank loans 47,000 47,000 45,000 45,000

Current portion of financial lease liabilities 1,507 1,383 - –

Total 48,507 48,383 45,000 45,000

Liabilities due for payment more than five years after the balance sheet date - – –

TERMS AND REPAYMENT PERIODS

31 Aug 2017 31 Aug 2016

SEK 000s CurrencyNominal interest

Payment due

Nominal value

Carrying amount

Nominal value

Carrying amount

Bank loan DNB Bank SEK Variable 30 Jun 2018 80,500 80,500 127,500 127,500

Financial lease liabilities SEK Varies Varies 2,587 2,587 3,969 3,969

Total interest-bearing liabilities 83,087 83,087 131,469 131,469

NOT 22. INTEREST-BEARING LIABILITIES

NOTES


NOTE 22. CONTINUED

FINANCIAL LEASE LIABILITIESFinancial lease liabilities are due for payment as follows:

Group

31 Aug 2017 31 Aug 2016

SEK 000s

Minimum lease fees Interest Principal

Minimum lease fees Interest Principal

Within one year 1,677 170 1,507 1,677 294 1,383

Between 1 and 5 years 1,129 49 1,080 2,805 219 2,586

FINANCIAL LIABILITIES, MATURITY ANALYSIS AS PER 31 AUG 2017

SEK 000s CurrencyNominal

value Total < 1 month1-3

months3 months –

1 year 1-5 years > 5 years

Bank loan DNB Bank SEK 80,500 81,437 -63 -23,689 -23,865 -33,820 –

Financial lease liabilities SEK 2,587 2,806 -140 -419 -1,118 -1,129 –

Accounts payable SEK 173,641 173,641 -138,784 -34,857 - - –

256,728 257,884 -138,987 -58,965 -24,983 -34,949 -

The company’s derivatives have a term of 0-12 months (0-8) from year-end. Outstanding currency forward contracts at year-end amounted to USD 22,500,000 (23,800,000), EUR 0 (5,100,000) and HKD 355,000 (0).

FINANCIAL LIABILITIES, MATURITY ANALYSIS AS PER 31 AUG 2016

SEK 000s CurrencyNominal

value Total < 1 month1-3

months3 months –

1 year 1-5 years > 5 years

Bank loan DNB Bank SEK 127,500 128,900 -87 -23,761 -24,079 -80,973 –

Financial lease liabilities SEK 3,969 4,482 -140 -419 -1,118 -2,805 –

Accounts payable SEK 158,984 158,984 -145,397 -12,105 -1,482 – –

290,453 292,366 -145,624 -36,285 -26,679 -83,778 -

NOTES



NOTES

NOT 23. PROVISIONS

PROVISIONS THAT ARE CURRENT LIABILITIES


Gift vouchers 14,335 14,897

Returns 672 534

Turnover rent 94 -

Loyalty club 11,206 11,275

Total 26,307 26,706


Gift vouchersOpening balance 14,897 13,886


Provisions for the year 40,227 41,282

Utilised amount -38,158 –38,845

Reversals for the year -2,631 -2,700



ReturnsOpening balance 534 476

Provisions for the year 6,192 5,728

Reversals for the year -6,054 -5,670

Closing balance 672 534


Loyalty clubOpening balance 11,275 9,414

Acquisition of subsidiaries - 458

Discount vouchers issued 21,379 20,455

Discount vouchers redeemed -20,241 -18,507

Reversals for the year -1,207 -545


GIFT VOUCHER/CREDIT NOTEWhen gift vouchers are bought in store, the whole amount is recog-nised as a provision and it is only recognised as income when the gift voucher is used in store, or when it expires.

RETURNS (CHANGE OF MIND AND FAULTY ITEM)Customers of MQ Group have 14 days to return an item if they chan-ge their mind or three years from the purchase date to return a faulty item. The majority of returns are made after two days. With online shopping the majority of returns are made after eight days. The cost of goods for resale therefore increases monthly by the gross profit for two and eight days of returns respectively. The provision for returns therefore contains the cost for two and eight days of returns respectively.

LOYALTY CLUBMembers of MQ Group’s loyalty club are given bonus vouchers in various denominations depending on how much the customer has previously spent. The vouchers are sent out once every six months and are valid for one year from the issue date. Not all of the bonus vouchers are redeemed, which is why each sale in the loyalty pro-gramme is reduced by the fair value of members’ future redemption of discount vouchers. The probable future redeemed value of mem-bers’ discount vouchers is also taken into account.

NOTES


NOT 24. ACCRUED EXPENSES AND DEFERRED INCOME


Accrued pay 14,774 15,997 890 1,787

Accrued holiday pay 33,813 34,121 1,139 743

Social security contributions 24,888 24,988 624 503

Accrued interest 762 431 122 200

Other 3,641 32,373 138 76

Total 77,878 107,910 2,913 3,309

NOTE 25. FINANCIAL ASSETS AND LIABILITIES

FAIR VALUEFair value and carrying amount:

GROUP 31 AUG 2017

SEK 000s

Accounts receivable

and loan receivables

Derivatives, hedge

accounting applied

Other liabilities

Total carrying amount

Fair value

Accounts receivable 805 - - 805 805

Other receivables 2 - - 2 2

Cash and cash equivalents 18,585 - - 18,585 18,585

Total 19,393 - - 19,393 19,393

Long-term interest-bearing liabilities - - 34,580 34,580 34,580

Current interest-bearing liabilities - - 142,231 142,231 142,231

Accounts payable - - 173,641 173,641 173,641

Other liabilities - 14,535 166 14,701 14,701

Total - 14,535 350,618 365,152 365,152

GROUP 31 AUG 2016

SEK 000s

Accounts receivable

and loan receivables

Derivatives, hedge

accounting applied

Other liabilities

Total carrying amount

Fair value

Accounts receivable 779 – – 779 779

Other receivables 9 6,424 – 6,433 6,433

Cash and cash equivalents 27,652 – – 27,652 27,652

Total 28,440 6,424 - 34,864 34,864

Long-term interest-bearing liabilities – – 83,087 83,087 83,087

Current interest-bearing liabilities – – 119,446 119,446 119,446

Accounts payable – – 158,983 158,983 158,983

Other liabilities – 7 413 420 420

Total - 7 361,929 361,936 361,936

NOTES



NOTES

CALCULATING FAIR VALUEThe following is a summary of the methods and assumptions prima-rily used to establish the fair value of the financial instruments recog-nised in the table above.

DERIVATIVE INSTRUMENTSThe fair value of currency contracts (currency forward contracts) is determined based on valuations made by credit institutions, if such figures are available. If they are not available, fair value is calculated by discounting the difference between the agreed forward rate and the forward rate that can be effected on the balance sheet date for the remaining period of the contract.

If discounted cash flows have been used, future cash flows are calculated using the Executive Management’s best assessment. The discount interest used is the market-based interest on similar instru-ments on the balance sheet date. When other valuation models have been used, the input data is based on market-related data on the balance sheet date.

INTEREST-BEARING LIABILITIESThe fair value of financial liabilities that are not derivative instruments is calculated based on future cash flows of principal amounts and interest discounted to the market interest in effect on the balance sheet date.

FINANCIAL LEASE LIABILITIES Fair value is based on the present value of future cash flows dis-counted to the market interest for similar leases on the balance sheet date.

ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLEWith accounts receivable and accounts payable that have a remain-ing economic life of less than six months, the carrying amount is deemed to reflect fair value. Accounts receivable and accounts payable with an economic life of more than six months are discoun-ted as fair value is determined.

INTEREST RATES USED TO DETERMINE FAIR VALUEThe Group uses the interbank rate or interest rate from the bond market on the balance sheet date plus a relevant interest spread when discounting financial instruments. The interest used is matched to the corresponding instrument’s term. The interest rates used are stated below.

Group31 Aug 2017 31 Aug 2016

Interest-bearing liabilities 0.94% 0.83%

Financial leases 7.94% 7.94%

FINANCIAL INSTRUMENTS BY CATEGORYAccording to IFRS 7, financial instruments must be categorised into three levels based on the input data used to measure fair value. The first level relates to financial instruments quoted in an active market. The second level is for financial instruments that are not quoted in an active market but for which the market value can be determined using other market data. The last level relates to valuations where no quoted market value or other market data is available. Techniques for obtaining a valuation for level three mainly involve discounting cash flows.

All of MQ’s derivatives belong to the second level.

NOTE 25. CONTINUED

NOTES


CURRENCY FORWARD CONTRACTSThe currency forward contracts used by the Group are reported below by currency and year:

GroupSEK 000s 2016/2017 2015/2016

Receivables

EUR - 1,461

USD - 4,956

Liabilities

USD -14,480 -

HKD -55 -

CARRYING AMOUNTS On the balance sheet date the Group had the following interest rate profile for its financial instruments:

SEK 000s 31 Aug 2017 31 Aug 2016

Fixed interest

Financial assets - –

Financial liabilities - –

Total- -

Variable interest

Financial assets - –

Financial liabilities 83,087 131,469

Total 83,087 131,469

NOTE 26. FINANCIAL RISKS AND FINANCIAL POLICIES

The Group is exposed to various kinds of financial risk through its business. “Financial risk” refers to fluctuations in the Group’s ear-nings and cash flow resulting from movements in exchange rates, interest rates, liquidity and credit risks.

The Group’s financial risks are managed by the Group’s finance department, which is charged with identifying and, to the greatest possible extent, minimising the effect of these risks on earnings. All financial risks have to be reported and analysed by the Group’s finance department. This work must be carried out in accordance with the Group’s applicable procedures, which strive to restrict the Group’s financial risks.

LIQUIDITY RISKSLiquidity risk is the risk that the Group is unable to meet its payment obligations on the due date without significantly increasing the cost of securing means of payment. According to the Group’s applicable procedures, liquidity management is centralised to the Group’s finance department in order to optimise the use of cash and cash equivalents and minimise the need for financing. To minimise the liquidity risk, all of the Group’s accounts containing cash and cash equivalents are monitored on a daily basis. For the terms and repay-ment periods of interest-bearing liabilities and a maturity analysis of leasing, see Notes 22 and 27.

MARKET RISKMarket risk is the risk that the fair value of, or future cash flows from, a financial instrument will vary due to changes in market prices. In accordance with IFRS, market risks are divided into three types: cur-rency risk, interest risk and other price risks. The main market risks affecting the Group are currency risks and interest risks. The Group aims to identify, manage and minimise market risks, which it does via the finance department using applicable procedures.

INTEREST RATE RISKSInterest rate risk is the risk that the value of financial instruments will vary due to changes in market interest rates. With fixed interest rates, the interest rate risk can result in changes in fair value, chan-ges in cash flows and fluctuations in the Group’s earnings.

The Group is exposed to interest rate risks as a result of its borro-wings. Interest on the Group’s loans is variable, which is why the interest rate risk is mainly linked to interest rate rises. The interest rate risk is managed centrally by the Group’s finance department, which is responsible for identifying and managing interest rate risks. Interest rate risk management takes place via any interest hedging if the interest situation is deemed uncertain. Hedging interest rate risks is not a part of hedge accounting. During the financial year the interest rate risk was not hedged, which is in line with the policy.

NOTES NOTES



NOTES

NOTE 26. CONTINUED

Of the amounts in the table above, the total of SEK -14,535,000 (6,417,000) is classified as hedge accounting and recognised in total comprehensive income, and SEK 0 (0) is measured at fair value in the income statement.

Sensitivity analysisInterest rate exposure on the loan to DNB Bank in the parent com-pany is not limited through hedge instruments. The Group considers a 0.5 per cent change in interest rates possible over the upcoming 12-month period. A permanent interest rate rise or fall of 0.5 per cent would affect the Parent Company’s earnings by +/- SEK 402,000.

CURRENCY RISKCurrency risk is the risk that the fair values and cash flows of finan-cial instruments may fluctuate with changes in the value of foreign currencies. Transaction exposure partly comprises the risk of fluctu-ations in the value of financial instruments in the form of accounts payable, and partly the currency risk in expected and contracted payment flows. Since a large part of the Group’s purchases are in foreign currencies, USD and EUR, and all sales are in the Swedish and Norwegian currencies, the Group is exposed to currency risks. During the financial year, 49 per cent of purchases of goods were in USD, 41 per cent in SEK and 10 per cent in EUR. Accordingly, currency hedging is carried out in USD and EUR in accordance with the Group’s applicable procedures. Up to around 80 per cent of the ordered volume is hedged.

The currency trader is authorised to use the following instruments to manage currency risks: spot transactions, currency forward cont-racts and currency swaps. On the balance sheet date the Group

only had currency forward contracts. Outstanding currency forward contracts at year-end amounted to EUR 0 (5,100,000), USD 22,500,000 (23,800,000) and HKD 355,000 (0). These contracts had a term of 0-12 months (0-8) from year-end. 94 per cent (85) of the Group’s currency requirements in USD have been hedged before the season start. The corresponding figure for the Group’s currency requirements in EUR is 89 per cent (88).

The Group continuously purchases clothes in foreign currencies. The purchases are planned twice a year based on our spring and autumn seasons. To ensure the planned purchase costs equal future purchase costs, the exchange rate for the purchases is hedged through currency forward contracts twice a year. Inventory is mea-sured at a calculated exchange rate. This rate is set during purchase planning at a value that corresponds to the hedged rate. Currency forward contracts are measured during their term at fair value. Cur-rency contracts with a positive fair value are entered as other recei-vables and in other comprehensive income, while currency cont-racts with a negative fair value are entered as other liabilities in other comprehensive income. When the purchase transaction takes place, the effect of the currency forward contract leaves other comprehensive income and eliminates the currency effect on the purchase. Based on this, stock is measured at the calculated ex-change rate until the item is sold and the currency effect impacts the income statement. All exchange rate effects linked to goods are entered under goods for resale.

The consolidated income statement includes exchange rate diffe-rences of SEK -4,927,000 (-5,808,000) in operating profit and SEK 5,780,000 (-364,000) in net financial items.

TRANSACTION EXPOSUREThe Group’s transaction exposure is divided between the following currencies:

Group 2016/2017 2015/2016

EUR 000s USD 000s EUR 000s USD 000s

Sales – – – –

Purchases 8,349 40,423 8,725 37,933

TRANSLATION EXPOSUREForeign net liabilities in the Group are divided between the following currencies:

GroupCurrency 31 Aug 2017 31 Aug 2016

USD 000s 1,868 1,920

EUR 000s 462 1,196

CNY 000s 2,407 3,409

Foreign net receivables in the Group are divided between the following currencies:

Group

Currency31 Aug

2017 31 Aug 2016

HKD 000s -547 441

NOTES


NOTE 27. OPERATING LEASES

GroupSEK 000s 2016/2017 2015/2016

Lease fees carried as an expense during the year:

Minimum lease fees 229,733 193,698

Variable lease fees 46,738 41,301

Total lease fees 276,471 234,999

Sensitivity analysisThe Group considers that 5 and 10 per cent changes in the EUR/SEK and USD/SEK exchange rates respectively are possible over the upcoming 12-month period. An increase in the SEK of 5 per cent against the EUR and 10 per cent against the USD on 31 August 2017 would effect a change in earnings of SEK 36,186,000 (36,522,000). The sensitivity analysis is based on all other factors (e.g. interest rates) remaining constant. The same conditions were applied for 31 August 2016.

TRANSLATION EXPOSURETranslation exposure risk is the risk that a net investment abroad may change in value due to exchange rate movements. Foreign net recei-vables/liabilities in the Group are divided between the following cur-rencies:

SEK 000s 31 Aug 2017 31 Aug 2016

CNY 2,934 2,823

NOK -115,096 -104,787

Sensitivity analysisAn increase in the SEK of 5 per cent against the CNY and 5 per cent against the NOK on 31 August 2017 would effect a change in other comprehensive income of SEK -5,699,000 (-5,179,000). The sensiti-vity analysis is based on all other factors (e.g. interest rates) remain-ing constant. The same conditions were applied for 31 August 2016.

CREDIT RISKCredit risk in financial transactionsThe MQ Group invests cash solely in cash and cash equivalents with a low credit risk.

The MQ Group’s credit comprises loans, overdraft facilities and a revolver credit loan. Available cash and cash equivalents are used to reduce the use of overdraft facilities, thereby reducing the interest expense.

Credit risks in accounts receivableThe Group’s sales essentially comprise cash sales to customers, and the credit risk is therefore limited. Credit sales are only conduc-

NOTE 26. CONTINUED

ted after an initial credit evaluation and to a limited extent, which is why the credit risk in accounts receivable is low. For an age analysis of accounts receivable, see Note 18.

CAPITAL STRUCTURECapital is defined as total equity, excluding cash flow hedge reser-ves. As a result of its positive earnings, the Group has a strong cash flow from its operating activities, which has also been the case his-torically. Working capital is at an acceptable level with small chan-ges from year to year. Consequently, the Group’s expansion from increased retail area in existing and new stores is primarily financed through funds from the operation’s surplus, which is also part of the capital requirement strategy.

A significant portion of the Group’s financing comes from borro-wed capital. See below under “Financing”. The MQ Group’s goal is to pay its shareholders a dividend corresponding to 50 per cent of profit for the year. In the previous year the Parent Company paid a dividend of 51.6 per cent of profit, which is compatible with the goal.

FINANCINGIn 2012/2013, MQ Holding AB entered into a loan agreement with DNB Bank for SEK 250 million, and since then SEK 210 million has been repaid. The remaining liability on 31 August 2017 is therefore SEK 40 million.

In the previous year an agreement was signed regarding a revol-ver credit loan with DNB Bank for SEK 50 million. On 31 August 2017 this credit was fully unutilised.

In connection with the acquisition of Joy Shop AB in May 2016, MQ Holding AB entered into a loan agreement with DNB Bank for SEK 40 million. During the current financial year, SEK 5.0 million (2.5) has been repaid, which means that overall the remaining liability totals SEK 32.5 million.

In May 2016, Joy Shop AB entered into a loan agreement with DNB Bank for SEK 10 million. SEK 8 million of this loan is outstanding on 31 August 2017.

The loan agreement between MQ Holding AB and DNB Bank is subject to terms comprising financial measures for cash flow, profit and balance sheet ratios. If MQ were to breech any of the terms, DNB Bank has the option of cancelling the loan agreement with immediate effect. During the financial year, MQ met all of the goals.

NOTES NOTES



NOTES

NOTE 27. CONTINUED

In addition to the above operating leases, the Group has signed a rental agreement for store premises which was entered into on normal market terms.

Rent agreed in rental contracts in the Group (excluding any sales-based rent) amounts to:


Within one year 221,452 212,935

Between 1 and 5 years 294,442 267,508

Total 515,894 480,443

NOTE 28. PLEDGED ASSETS


Pledged assetsIn the form of pledged assets for Group liabilities and provisions

Net assets in subsidiaries 1,676,026 1,661,427 - –

Shares - – 1,155,946 1,155,946

1,676,026 1,661,427 1,155,946 1,155,946

Other pledged assets and collateral

Chattel mortgages 191,000 191,000 - –

191,000 191,000 - -

Total pledged assets 1,867,026 1,852,427 1,155,946 1,155,946


Contingent liabilitiesGuarantees related to subsidiaries’ completion of leasing contracts 27,591 37,013 27,591 37,013

Guarantees, other 187,298 190,311 183,337 184,023

Total contingent liabilities 214,889 227,324 210,928 221,036

LEASES IN WHICH THE COMPANY IS THE LESSEENon-cancellable lease payments amount to:


Within one year 2,359 2,494

Between 1 and 5 years 1,478 2,466

Total 3,837 4,960

NOTES


NOTE 29. RELATED PARTIES

RELATED PARTY RELATIONSHIPSThe Parent Company has a related party relationship with its subsidi-aries, see Note 30. The Parent Company performs services for its subsidiaries, see Note 2. During the financial year, all purchases and sales took place in the subsidiaries MQ Retail AB and Joy Shop AB.

The subsidiary MQ Shanghai carries out purchasing-related ser-vices for MQ Retail AB, which are invoiced monthly.

Transactions with key individuals in senior positionsSenior executives control 13 per cent (12) of the votes in the Parent Company. All remuneration is included under “Employee benefit expenses”, see Note 8.

RECEIVABLES/LIABILITIES GROUP COMPANIESParent Company

SEK 000s 31 Aug 2017 31 Aug 2016

At beginning of the year -461,486 -417,831

Group contributions 2,989 4,046

Other changes in balances -48,205 -47,701

Liabilities to Group companies -506,702 -461,486Receivables from Group companies 145 -

NOTE 30. GROUP COMPANIES

HOLDINGS IN SUBSIDIARIES

Participating interestSubsidiary’s registered office, country 31 Aug 2017 31 Aug 2016

MQ Retail AB Gothenburg, Sweden 100% 100%

Joy Shop AB Gothenburg, Sweden 100% 100%

Parent CompanySEK 000s 31 Aug 2017 31 Aug 2016

Accumulated cost

At beginning of the year 1,155,946 1,110,415


Shareholders’ contribution paid - 5,000

Carrying amount at the end of the year 1,155,946 1,155,946

SPECIFICATION OF THE PARENT COMPANY’S INDIRECT HOLDINGS OF PARTICIPATIONS IN SUBSIDIARIES

Subsidiary/ Co. Reg. No./Reg. Office

Carrying amount Shareholding Percentage 31 Aug 2017 31 Aug 2016

Xeted 54 AB, 556693-4104, Gothenburg 100,000 100 100 100

MQ Shanghai Co Ltd 100,000 100 1,974 1,974

MQ Sweden AB, 556283-8077, Gothen-burg 40,185 100 39,667 39,667

Joy Boy AB, 556455-3773, Gothenburg 1,000 100 98 98

Joy Club AB, 556556-6972, Gothenburg 1,000 100 100 100

Joy A/S, 922831101, Oslo 112 100 107 107

Total 42,046 42,046

NOTES NOTES



NOTE 31. CASH FLOW STATEMENT

CASH AND CASH EQUIVALENTS


The following sub-components make up cash and cash equivalents:

Cash and bank balances 18,585 27,652

Total specified in balance sheet and cash flow statement 18,585 27,652

CASH AND CASH EQUIVALENTS

Parent CompanySEK 000s 31 Aug 2017 31 Aug 2016

The following sub-components make up cash and cash equivalents:Cash and bank balances - -

Total specified in balance sheet and cash flow statement - -

INTEREST PAID AND DIVIDEND RECEIVED


Interest received 95 69 - -

Interest paid -3,083 -2,129 -1,113 -795

Dividend received - - 61,542 61,524

ADJUSTMENTS FOR NON-CASH ITEMS


Depreciation/amortisation 28,887 24,442 - -

Exchange gains - -453 - -

Exchange losses 5,066 - - -

Exchange rate fluctuation -5,276 1,181 - -

Accrued interest -247 405 -78 189

Financial leases -1,382 -1,268 - -

Change in provisions -399 1,259 - -

Loss from divestment of equipment 2,886 1,280 - -

Total 29,535 26,846 -78 189

NOTES


NOTE 32. CURRENT RECEIVABLES AND LIABILITIES

CURRENT RECEIVABLES


Derivative contracts, currency forward contracts - 6,424

Receivables, employees - 35

Receivables, suppliers 467 317

Other 1,485 1,931

Total 1,952 8,707

CURRENT LIABILITIES


Derivative contracts, currency forward contracts 14,535 7

Tax at source 7,863 8,234

VAT liability 9,738 15,939

Other 6,745 5,834

Total 38,881 30,014

NOTE 34. INFORMATION ABOUT THE PARENT COMPANY

MQ Holding AB is a listed company registered in Sweden with its registered office in Gothenburg. The address of the headquarters is Sankt Eriksgatan 5 in Gothenburg. The consolidated financial state-ments for the period 1 September 2016 – 31 August 2017 comprise the Parent Company and its subsidiaries, jointly referred to as the Group.

NOTE 35. EVENTS AFTER THE BALANCE SHEET DATE

As detailed below, the Annual Report and the consolidated financial statements were approved for publication by the Board of Directors on 18 December 2017. The consolidated statement of comprehen-sive income and balance sheet together with the Parent Company income statement and balance sheet are subject to approval by the Annual General Meeting on 24 January 2018.

MQ has opened a new store on Drottninggatan in Stockholm and at Hallarna on the outskirts of Halmstad. A new Outlet by MQ has also been opened in Jägersro, on the outskirts of Malmö. The store in Kista has relocated and the store in Örebro has undergone minor remodelling.

Joy’s new store concept has been launched in a further six stores and a new store has been opened in the Forum mall in Uppsala.

IMPORTANT ACCOUNTING ESTIMATESThe Executive Management has discussed the development, selec-tion and disclosures regarding the Group’s important accounting policies and accounting estimates, as well as the application of these policies and accounting estimates.

IMPORTANT SOURCES OF UNCERTAINTIES IN ACCOUNTING ESTIMATESWrite-down review of goodwill and brandsWhen calculating the cash-generating units’ recoverable value in or-der to assess any write-down requirement on goodwill and brands, several assumptions about future conditions and estimates of para-meters were made. These are outlined in Note 15. As is evident from the description in Note 15, the write-down review did not indicate any write-down requirement.

NOTE 33. IMPORTANT ACCOUNTING ESTIMATES

NOTES



NOTE 35. EVENTS AFTER THE BALANCE SHEET DATE

As detailed below, the Annual Report and the consolidated financial statements were approved for publication by the Board of Directors on 18 December 2017. The consolidated statement of comprehen-sive income and balance sheet together with the Parent Company income statement and balance sheet are subject to approval by the Annual General Meeting on 24 January 2018.

MQ has opened a new store on Drottninggatan in Stockholm and at Hallarna on the outskirts of Halmstad. A new Outlet by MQ has also been opened in Jägersro, on the outskirts of Malmö. The store in Kista has relocated and the store in Örebro has undergone minor remodelling.

Joy’s new store concept has been launched in a further six stores and a new store has been opened in the Forum mall in Uppsala.

GOTHENBURG, 18 DECEMBER 2017

Claes-Göran Sylvén Bengt JallerChairman of the Board Deputy Chairman

Anna Engebretsen Annika RostBoard Member Board Member

Arthur Engel Mernosh SaatchiBoard Member Board Member

Michael OlssonBoard Member

Christina StåhlPresident and CEO

The Board of Directors and the CEO give their assurance that this Annual Report has been prepared in accordance with generally accepted accounting principals, provides an accurate picture of the Parent Company’s financial position and performance, that the Administration Report provides a fair overview of the development of the Parent Company’s operations, financial position and performance, and also describes material risks and uncertainties facing the Parent Company. The Board of Directors and the CEO also give their assurance that the consolidated financial statements have been prepared in accordance with International Finan-cial Reporting Standards (IFRS) adopted by the EU, provides

an accurate picture of the Group’s financial position and performance, that the Administration Report for the Group provides a fair overview of the development of the Group’s operations, financial position and performance, and also describes material risks and uncertainties facing the Group.

The consolidated financial statements were approved for publication by the Parent Company’s Board of Directors on 18 December 2017. The income statement and balance sheet will be presented to the Annual General Meeting on 24 January 2018.

Our audit report regarding this Annual Report and the consolidated financial statements was submitted on 18 December 2017.

KPMG AB

Mathias ArvidssonAuthorised Public Accountant

NOTES


AUDIT REPORTTo the Annual General Meeting of MQ Holding AB (publ) Corp.

Reg. No. 556697-2211

REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED FINANCIAL STATEMENTS

OPINIONSWe have audited the annual accounts and consolidated financial statements of MQ Holding AB (publ) for the finan-cial year 1 September 2016 – 31 August 2017, with the excep-tion of the Corporate Governance Report on pages 47-51. The company’s annual accounts and consolidated financial statements can be found on pages 54-97 of this document.

In our opinion, the annual accounts have been prepa-red in accordance with the Annual Accounts Act and pre-sent fairly, in all material respects, the Parent Company’s financial position as of 31 August 2017 and its financial performance and cash flow for the financial year in accor-dance with the Annual Accounts Act. The consolidated financial statements have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the Group’s financial position as of 31 August 2017 and its financial performance and cash flow for the financial year in accordance with the International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not encompass the Corporate Governance Report on pages 47-51. The statutory administration report is consistent with the other parts of the annual accounts and consoli-dated financial statements.

We therefore recommend that the Annual General Meeting adopt the income statement and balance sheet for the Parent Company and the statement of compre-hensive income and balance sheet for the Group.

BASIS FOR OUR OPINIONS We conducted the audit in accordance with International Standards on Auditing (ISAs) and generally accepted auditing standards in Sweden. Our responsibilities under these standards are described in more detail in the “Audi-tors’ responsibility” section. We are independent in rela-tion to the Parent Company and Group in accordance with generally accepted auditing standards in Sweden and we have carried out our ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. KEY AUDIT MATTERSKey audit matters are the matters that in our professional assessment were most important to the audit of the annual accounts and consolidated financial statements for the period in question. These matters are dealt with within the framework of the audit of, and in our standpoint to, the annual accounts and the consolidated financial statements as a whole, but we do not form any separate opinions on these matters.

MEASUREMENT OF GOODWILL, BRANDS AND PARTICIPA-TIONS OF GROUP COMPANIES IN THE PARENT COMPANYSee Note 15 and the accounting policies on pages 81-82 of the annual accounts and consolidated financial statements for detailed information and descriptions of this matter.

Description of the matterOn 31 August 2017, the Group recognised goodwill and brands totalling SEK 1,267 million, which accounts for 71 per cent of total assets. Goodwill and brands must be subject to a write-down review at least once a year. The review must include both complexity and significant ele-ments of assessments from the management of the Group. A write-down review must be prepared for each of the cash-generating units, which for the Group coin-cide with its two business areas. Participations in Group companies are recognised in the Parent Company. If the value of the participations exceeds equity in the respective Group company, the same type of review is conducted using the same techni-que and entry values as for goodwill in the Group.

Applicable regulations state that the review must be conducted in accordance with a particular technique whereby the company has to make forecasts of the ope-ration’s internal and external circumstances and make plans. Examples of such forecasts include future receipts and payments that, for example, require assumptions about future market conditions and therefore indirectly about how competitors might be expected to act. Another important assumption is which discount rate should be used to take into account the fact that future forecast re-ceipts are associated with risk and are therefore worth less than cash and cash equivalents that are immediately available to the Group.

How the matter has been dealt with in the auditWe have checked the Group’s write-down reviews in or-der to assess whether they have been conducted in line with prevailing rules. We have also assessed the reasona-bility of the future receipts and payments and of the assu-med discount rates and growth rate. We have also chal-lenged the company’s estimated growth rates by compa-ring the actual outcome with forecasts from previous pe-riods with the aim of evaluating the company’s accuracy.

We have involved our own valuation specialists to en-sure the reasonability of the discount rates used, a pro-cess that includes evaluating financial and industry- specific forecasts where appropriate.

We have also carried out spot checks to test that the company’s calculations are mathematically correct.

We have applied professional judgement in our evalua-tion of the forecasts by testing how changed key assump-tions may affect the valuation through sensitivity analysis.

We have assessed the circumstances presented in the disclosures in the annual accounts and whether there is sufficient information to describe the judgements made in assumptions and describe applied methods.

OTHER INFORMATION THAN THE ANNUAL ACCOUNTS AND CONSOLIDATED FINANCIAL STATEMENTS This document also contains other information than the annual accounts and consolidated financial statements which can be found on pages 54-97. The Board of Direc-tors and CEO are responsible for this other information.

Our opinion on the annual accounts and consolidated

AUDIT REPORT

AUDIT REPORT


financial statements does not cover this other information and we do not express any form of assurance conclusion regarding this other information.

In connection with our audit of the annual accounts and consolidated financial statements, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated financial statements. During this procedure we also take into account the knowledge we have otherwise obtained during the audit and assess whether the information otherwise appears to be materi-ally misstated.

If, based on the work performed concerning this infor-mation, we conclude that there is a material misstatement of this other information, we are required to report the fact. We have nothing to report in this regard.

RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND CEOThe Board of Directors and CEO are responsible for the preparation of the annual accounts and consolidated financial statements and for ensuring that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated financial statements, in ac-cordance with IFRS as adopted by the EU. The Board of Directors and CEO are also responsible for such inter-nal control as they determine is necessary to prepare annual accounts and consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts and consolidated financial statements, the Board of Directors and CEO are responsible for assessing the company’s and Group’s ability to continue as a going concern. They disclose, where applicable, circumstances that may affect the abi-lity to continue as a going concern and use the going concern assumption. The going concern assumption is, however, not applied if the Board of Directors and CEO intend to liquidate the company, cease operations or have no realistic alternative but to do one of these.

The Board of Director’s Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s financial reporting.

AUDITORS’ RESPONSIBILITY Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated financial statements as a whole are free from material misstate-ment, whether due to fraud or error, and to issue an audit report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detecta material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated financial statements.

As part of an audit in accordance with ISAs, we exer-cise professional judgement and maintain professional scepticism throughout the audit. We also:

- Identify and assess the risks of material misstatement of the annual accounts and consolidated financial state-ments, whether due to fraud or error, design and perform audit procedures based on these risks, for example, and

obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collu-sion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- Obtain an understanding of the company’s internal control relevant to our audit in order to design audit pro-cedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effec-tiveness of the company’s internal control.

- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and CEO.

- Conclude on the appropriateness of the Board of Directors’ and CEO’s use of the going concern assump-tion in preparing the annual accounts and consolidated financial statements. We also draw a conclusion, based on the audit evidence obtained, as to whether any mate-rial uncertainty exists relating to events or conditions that may cast significant doubt on the company’s and Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our audit report to the related disclosures in the annual accounts and consolidated financial state-ments or, if such disclosures are inadequate, to modify our opinion on the annual accounts and consolidated financial statements. Our conclusions are based on the audit evidence obtained up to the date of our audit report. However, future events or conditions may mean a company and a Group are no longer able to continue as a going concern.

- Evaluate the overall presentation, structure and con-tent of the annual accounts and consolidated financial statements, including the disclosures, and whether the annual accounts and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

- Obtain sufficient and appropriate audit evidence regar-ding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our opinions.

We must inform the Board of Directors of, among other matters, the planned scope, focus and timing of the audit. We must also inform of significant audit findings during our audit, including any significant deficiencies in internal control that we have identified.

We must also provide the Board of Directors with a sta-tement that we have complied with relevant ethical requi-rements regarding independence, and disclose all rela-tionships and other matters that may reasonably be thought to influence our independence, and where appli-cable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that have been of most significance in the audit of the annual accounts and consolidated financial statements, including the most important assessed risks for material misstatement, and are therefore the key audit matters. We describe these matters in the audit report unless law or regulation preclu-des disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should

AUDIT REPORT


AUDIT REPORT

not be communicated in the audit report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

OPINIONSIn addition to our audit of the annual accounts and consolida-ted financial statements, we have also audited the administra-tion of the Board of Directors and the CEO of MQ Holding AB (publ) for the financial year 1 September 2016 – 31 August 2017 and examined the proposed appropriations of the company’s profit or loss.

We recommend that the Annual General Meeting appropri-ate the profit in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the CEO be discharged from liability for the financial year.

BASIS FOR OUR OPINIONSWe conducted the audit in accordance with generally accep-ted auditing standards in Sweden. Our responsibilities under these standards are described in more detail in the “Auditors’ responsibility” section. We are independent in relation to the Parent Company and Group in accordance with generally accepted auditing standards in Sweden and we have carried out our ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is suf-ficient and appropriate to provide a basis for our opinions.

RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND CEO The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At the propo-sal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company’s and the Group’s type of operations, size and risks place on the size of the Parent Company's and the Group’s equity, consolidation requirements, liquidity and position in general.

The Board of Directors is responsible for the company’s organisation and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s and the Group’s financial situation and ensur-ing that the company's organisation is designed so that the accounting, management of assets and the company’s finan-cial affairs otherwise are controlled in a reassuring manner.

The CEO shall manage the ongoing administration accor-ding to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to ful-fil the company’s accounting in accordance with law and handle the management of assets in a reassuring manner.

AUDITORS’ RESPONSIBILITY Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assu-rance whether any member of the Board of Directors or the CEO in any material respect:

- has undertaken any action or been guilty of any omission which could give rise to liability to the company, or

- in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appro-priations of the company’s profit or loss, and thereby our opi-nion about this, is to assess with a reasonable degree of assurance whether the proposal is in accordance with the Companies Act.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that could give rise to liability to the company, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Com-panies Act.

As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional jud-gement and maintain professional scepticism throughout the audit. The examination of the administration and the proposed appropriations of the company’s profit or loss is based prima-rily on the audit of the accounts. Additional audit procedures performed are based on our professional judgement with the starting point in risk and materiality. This means that we focus the examination on such actions, areas and relationships that are material for the operations and where deviations and vio-lations would have particular importance for the company’s situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors’ proposed appropriations of the company’s profit or loss we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

AUDITORS’ EXAMINATION OF THE CORPORATE GOVERNANCE REPORTThe Board of Directors is responsible for the Corporate Governance Report on pages 47-51, and for ensuring that it is prepared in accordance with the Annual Accounts Act.

Our examination has been conducted in accordance with FAR’s auditing standard RevU 16 The auditor’s examination of the corporate governance statement. This means that our examination of the Corporate Governance Report is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions.

A corporate governance report has been prepared. Disclo-sures in accordance with chapter 6, section 6, paragraph 2, points 2-6 of the Annual Accounts Act and chapter 7, section 31, para-graph 2 of the same law are consistent with the other parts of the annual accounts and the consolidated financial statements and are in accordance with the Annual Accounts Act.

GOTHENBURG, 18 DECEMBER 2017

KPMG AB

Mathias ArvidssonAuthorised Public Accountant

AUDIT REPORT

This is the second Annual Report and Sustainability Re-port prepared by the MQ Group in accordance with Global Reporting Initiative (GRI) guidelines, and the first in accordance with GRI Standards, Core option. The reported sustainability information has not been exter-nally audited and is thus a self-assessment by MQ.

Unless otherwise stated, this year’s report includes MQ and Joy, and refers to the 2016/2017 financial year.

The Sustainability Report for 2015/2016 was published in the MQ Group Annual Report in December 2016.

PROCESS FOR MATERIALITY ANALYSIS The materiality analysis carried out in accordance with the GRI G4 guidelines ahead of the Annual Report for 2015/2016 has been updated this year in line with GRI Standards. This is a minor update compared with the more comprehensive materiality analysis carried out for the 2015/2016 report. The actual impact and expecta-tions from the most important stakeholders resulted in a number of prioritised areas which were considered to be of the greatest material importance to report.

In 2016, an extensive two-stage stakeholder dialogue was conducted, which included employees at the head-quarters in Gothenburg, store managers, external brand suppliers, manufacturing suppliers, researchers, financi-ers, industry organisations and stakeholder organisa-tions. The first stage comprised in-depth interviews with a special focus on efforts to update MQ’s sustainability strategy. In the second stage, in-depth interviews were combined with a survey. Stakeholders were then given an opportunity to prioritise and comment on sustainabi-lity issues and the areas that they considered to be of the greatest material importance to MQ’s reporting. Customers were represented via customer questions from customer services. The results were presented in a workshop with MQ’s executive management, where the

GRI INFORMATION

outcome of the stakeholder dialogue was the focal point of discussions about the executive management’s ultimate prioritisation of material areas.

In 2017 a materiality analysis was conducted for Joy. A smaller stakeholder dialogue was conducted with employees at the headquarter in Gothenburg and with store managers.

In 2017, MQ conducted a customer survey that inclu-ded both existing and potential MQ customers. The sur-vey showed that MQ is associated with quality and that quality is the most important consideration for the MQ customer. The results were presented and discussed in a workshop with MQ’s and Joy’s executive management during which it was proposed that the previous year’s prioritised areas remain the same.

PRIORITISED AREASThe materiality analysis has resulted in seven prioritised areas:

• Environmental impact from materials in the supply chain• Water-related issues in the value chain• Climate impact• Employees’ occupational health and safety• Fair employment and working conditions at suppliers• Quality of the assortment• Business ethics (anti-corruption)

The MQ Group’s Sustainability Report mainly focuses on these areas. The Group will strive to improve its reporting by establishing relevant indicators where they do not currently exist.

A complete GRI index including boundaries and infor-mation on how the MQ Group impacts and governs the material topics can be found on pages 101-106.

SUSTAINABILIT Y INFORMATION


GRI INDEX

GRI 101: FOUNDATION 2016

GENERAL DISCLOSURES

GRI 102: General Disclosures 2016 Disclosure

Comments and any omissions of information Page reference

ORGANISATIONAL PROFILE

102-1 Name of the organisation 3

102-2 Activities, brands, products and services 12

102-3 Location of headquarters Gothenburg, Sweden

102-4 Location of operations 39

102-5 Ownership and legal form 3, 9

102-6 Markets served 39

102-7 Scale of the organisation 36, 38, 52

102-8 Information on employees and other workers

35-36

102-9 Supply chain 19, 26-27

102-10 Significant changes to the organisation and its supply chain

102-11 Precautionary Principle or approach 24

102-12 External initiatives 23-24, 28

102-13 Membership of associations BSCI, Sweden Textile Water Initi-ative, BCI, The Chemical Group, Textile Exchange, Swedish Textile Importers’ Association, Swedish Trade Federation

24

STRATEGY

102-14 Statement from senior decision-maker 7

ETHICS AND INTEGRITY

102-16 Values, principles, standards and norms of behaviour

35

GOVERNANCE

102-18 Governance structure

STAKEHOLDER ENGAGEMENT

102-40 List of stakeholder groups 17

102-41 Collective bargaining agreements All employees in Sweden are covered by collective bargaining agreements. The collective agreements’ guidelines are follo-wed for other employees.

102-42 Identifying and selecting stakeholders 17

102-43 Approach to stakeholder engagement 17, 101

102-44 Key topics and concerns raised 17, 101





TOPIC

Environmental impact from materials in the supply chainGRI 308: Supplier Environmental Assessment 2016The manufacture and production of textile materials has a major environmental impact. The Group can reduce its environmental impact through its choice of fibres and processes. For example, conventional cotton production requires a lot of water, chemicals and land area. The processes involved in producing fabrics, such as dyeing and washing, also burden the environment. The choice of material and process can reduce the environmental impact.

The MQ Group is responsible for the environmental footprint ge-nerated through the production and is striving to reduce its environ-mental impact from the production of materials and fabrics. The Code of Conduct, which MQ Group requires that all of its suppliers follow, includes requirements on environmental protection. Internal and external auditors review suppliers based on the Code of Conduct’s “Protection of the Environment” area. The sustainability strategy fo-cuses on environmental issues in production and on how the Group can broaden its efforts in this area. MQ is working to increase the company’s percentage of materials with lower environ-mental impact through, for example, working with Better Cotton and using Tencel®. However, the starting point is always to maintain a good standard of quality with strict quality requirements on materials to ensure that the product has a long lifespan, which is considered the biggest positive impact on the environment. MQ’s goal in this area is that all cotton should be 100 per cent sustainable by the year 2020. By “sustainable cotton” MQ means organic cotton, Better

Cotton and recycled cotton. The MQ Group has created a materials tool to make it easier for the design and purchasing department to make informed decisions in the product development process. The materials can be categorised based on their classification in the areas of environment, traceability and quality. The tool enables annual follow-up and goal setting. Work on sustainable ma-terials at Joy began in spring 2017. Joy’s design and purchasing de-partment has familiarised itself with the materials tool from MQ and implemen-tation of the tool has begun. In spring 2017, Joy also became a mem-ber of the BCI and has started purchasing Better Cotton. Work on this topic is led by the CSR & Environmental Manager (Headquar-ters, MQ and Joy), CSR Area Manager (Shanghai) and the assort-ment department (MQ and Joy). Read more on pages 22 and 23.

INDICATORS

GRI or own BoundaryComment/Page reference

Own indicator: Share of sus-tainable cotton in MQ pro-prietary range

page 22

GRI 308-2: Negative environ-mental impacts in the supply chain and actions taken

pages 22 and 24

GRI 301-1: Materials used by weight or volume

page 22

Outside the organisationWithin the organisation

GRI 102: General Disclosures 2016 Disclosure

Comments and any omissions of information Page reference

REPORTING PRACTICE

102-45 Entities includes in the consolidated financial statements

Any deviations relate to Joy. This is reported in connection with data reported where relevant.

102-46 Defining report content and topic boundaries 101

102-47 List of material topics 101

102-48 Restatements of information Minor adjustments have been made. This has been commented on in connection with the data reported.

102-49 Changes in reporting This year Joy is covered to the same extent as MQ.

102-50 Reporting period 101

102-51 Date of most recent report 101

102-52 Reporting cycle Annual

102-53 Contact point for questions regarding the report

The contact for MQ’s sustainabi-lity work is Eleonor Björserud, CSR & Environmental Manager, [email protected]

102-54 Claims of reporting in accordance with the GRI Standards

GRI Standards, Core option

102-55 GRI content index 102-106

102-56 External assurance 101

GRI 103: Management Approach 2016

Information regarding GRI 103-1 up to and including GRI 103-3 is reported in direct relation to the relevant topic.



TOPIC

Water-related issues in the value chainTextile production is water intensive in cotton production and dyeing but also in the user phase as clothes are washed more than ever. BSCI audits of first-tier suppliers focus on water consumption and pollutants. MQ is a member of the Sweden Textile Water Initiative (STWI) which focuses on water, energy and chemicals issues in second-tier suppliers, such as laundry and dyeing units. The MQ Group does not currently perform environmental audits in addition to the STWI audits of dye works but it is continuing its efforts to identify a working method and indicator for environmental audits of second-tier suppliers. MQ currently uses three laundry units that are inter-nally audited and meet MQ’s requirements on water and chemicals management. Mapping and auditing take place continuously for Joy, where a supplier agreement was terminated during the year because the environmental impact was deemed to be too high. The most important factor is to choose materials that cause the minimum pos-sible water consumption throughout the entire life cycle. This is why MQ will be working more on this area in line with its strategy. The aim is to increase the share of sustainable cotton with the objective of 100 per cent sustainable cotton by 2020.

In spring 2017, Joy began developing a purchasing process for of Better Cotton and materials with lower water consumption and began mapping BSCI audits in the supply chain. The Group can influ-ence water consumption relating to its customers through informa-tion about clothes care and washing instructions. Work on this is led by the CSR & Environmental Manager (Headquarters, MQ and Joy) and CSR Area Manager (Shanghai). Read more on page 24.

INDICATORS


No indicators reported. MQ does not deem GRI’s indi-cators to be di-rectly applicable and is working to identify relevant measurement methods.

TOPIC

Climate impact GRI 305: Emissions 2016Transport has a negative impact on climate as it results in green-house gas emissions. As the MQ Group’s goods are mainly produ-ced in Asia and sold in Scandinavia, emissions from the transport of goods account for a significant proportion of the company’s foot-print. The MQ Group’s policy is for all air transport to be approved by the Assortment Manager. The Assortment Manager is responsible for transport strategy while logistics is responsible for implementa-tion and follow-up.

MQ has taken the initiative to strive to reduce emissions from transport by holding discussions with forwarding agents about which measures could be implemented to reduce environmental impact. MQ is working actively with forwarding agents to choose shipping companies from an environmental classification perspec-tive, looking at investments to switch to more eco-friendly engines and continuing its efforts to achieve further gains by consolidating shipments from individual ports of departure. MQ will actively set goals in this area in line with the Sustainability Strategy for 2020. The Group also has a travel policy for business trips which recommends that transport be efficient in terms of cost, time and the environ-ment, which means that Group personnel must choose travel by train over aeroplane and choose public transport for local journeys.

Another component of the Group’s climate impact comes from energy consumption. Energy is mainly used in stores and offices for lighting, heating and cooling. MQ’s policy is to always choose green electricity when possible. An energy audit is in progress for MQ and will be reported in the first quarter of 2018. Based on the areas for improvement identified, decisions will be made on goals and activi-ties to reduce energy consumption in stores and at MQ headquar-ters. The energy audit for Joy will be carried out during the next ener-gy audit. MQ headquarters and around 60 per cent of the stores currently have renewable energy. MQ’s policy is to always choose green electricity where possible. MQ considers the installation of LED lighting to be the most effective way of reducing energy con-sumption in stores. The goal is for 60 per cent of stores to have 100 per cent LED lighting by 2020. 40 per cent of MQ stores currently have LED lighting. At present, Joy has LED lighting in 12 per cent of its stores and the stores are switching to LED as new light fittings are required. Work on environmental improvements in stores is being led by the establishment department. Read more on page 31.

INDICATORS


GRI 305-1: Direct (Scope 1) GHG emissions

MQ has no direct GHG emissions.

GRI 305-2: Energy indirect (Scope 2) GHG emissions

0 CO2e*

GRI 305-3: Other indirect (Scope 3) GHG emissions

page 31

GRI 305-5: Reduction of GHG emissions

page 31

* Applies to MQ only, which purchases 100 per cent renewable energy from hydro power. Refers only to the offices and stores where MQ has signed its own agree-ments with energy providers. The figures for Joy will be included in the 2017/2018 report. The calculation is based on the Swedish Energy Agency’s calculation for guarantees of origin and the data comes from energy providers.

TOPIC

Employees’ occupational health and safetyGRI 403: Occupational Health and Safety 2016GRI 405: Diversity and Equal Opportunity 2016 Efforts relating to our employees’ occupational health and safety are of the utmost importance to the MQ Group. Occupational health and safety is an area covered by formal agreements with unions. For several years MQ has been conducting an annual climate analysis in which all employees answer questions on subjects such as the psy-chosocial and physical working environment, communication, lead-ership and equality. The results of the employee survey are followed up through action plans. From next year onwards Joy will also be included in the survey. The climate analysis is an important tool as it provides an overall picture of what employees think about working in the Group. It is an indication for overall organisational wellbeing and provides a foundation for future development work. In addition to this, safety rounds are carried out and ergonomists work with em-ployees to achieve a good working environment. The Group actively works with equality and diversity issues when recruiting new staff and appointing managers, for example. Following the terror attack in Stockholm in April 2017, a report of any serious psychosocial da-mage resulting from the attack was sent to the Swedish Work Envi-ronment Authority. As regards reported statistics, currently the only reliable data is for absence due to illness. From next year onwards the statistics will also include absence due to occupational diseases or any accidents. No serious workplace accidents took place during the year. The HR Manager and Safety Manager are responsible for this work. Read more on pages 35-36.


SUSTAINABILIT Y INFORMATION SUSTAINABILIT Y INFORMATION

INDICATORS


GRI 403-2 1): Types of injury and rates of injury, occupa-tional diseases, lost days, and absenteeism, and num-ber of work-related fatalities

page 36

GRI 405-1: Diversity of gover-nance bodies and employ-ees

page 35

1) The Group currently only has reliable data for absence due to illness. There were no serious workplace accidents during the year.

TOPIC

Fair employment and working conditions at suppliersGRI 408: Child Labour 2016GRI 414: Supplier Social Assessment 2016Before the MQ Group starts up in a new market or a new product is evaluated, the risks are assessed along with the opportunities the MQ Group has to counter these risks. The MQ Group always per-forms a risk analysis of new suppliers and factories and an audit is conducted prior to collaboration to ensure that the factory meets the requirements set out in the Code of Conduct. The majority of the Group’s own production takes place in locations that are classified as risk countries by the BSCI. The MQ Group is aware that there is a risk of violating its Code of Conduct and therefore actively works to ensure compliance with the Code, partly through external audits via the BSCI but also through internal audits and monitoring. The aim is responsible production whereby suppliers make continuous impro-vements and fulfil the Group’s Code of Conduct, which is based on the ILO’s Core Conventions regarding labour legislation, the UN Uni-versal Declaration of Human Rights and the UN Convention on the Rights of the Child. The BSCI Code of Conduct includes require-ments on The Rights of Freedom of Association and Collective Bar-gaining, Fair remuneration, Decent working hours, Occupational health and safety, prohibition of child labour and special protection of Young workers, No bonded labour, No precarious employment, Protection of the environment, Ethical business behaviour.

The prohibition of forced labour is part of the Code of Conduct and audits ensure that suppliers have a documented process that de-monstrates that they meet the requirements and carry out their own risk analysis of the value chain. The MQ Group is aware that the risk of forced labour in the value chain is primarily further along the value chain, and has identified areas where the risk is too apparent for purchases to be made from there. As a result, the Group has a po-licy of banning the use of cotton from Uzbekistan due to the risk of both forced labour and child labour. During the year the MQ Group has also introduced a policy regarding Syrian refugees in Tur-key as reports have emerged of risks of Syrian refugees being exploited by the textile industry in Turkey. Read more on page 30.

Freedom of association is part of the MQ Group’s Code of Con-duct and the MQ Group is aware that this is a challenge in several of the production countries. Using the BSCI Code of Conduct and audits, the MQ Group strives to ensure that no workers are preven-ted from forming unions. Many factories also have employee com-mittees and checks are carried out during audits to determine whether or not these committees are structured in accordance with applicable laws and have been elected by the workers. The MQ Group encourages its suppliers to participate in the BSCI’s training courses on this subject.

The MQ Group also works with QuizRR in China and Bangladesh to take further steps towards positive changes in working conditions in the supply chain. Suppliers can use QuizRR to educate their wor-

kers in their rights and obligations regarding health and safety, fire safety, labour law policy and workplace dialogue. The MQ Group has 14 factories that use QuizRR and aims to involve a further 10 fac-tories in this competence development programme next year. The CSR & Environmental Manager (headquarters) and CSR Area Mana-ger in Shanghai are responsible for this work together with the purchasing organisation and production. Read more on pages 28-30.

Monitoring External accredited audit companies and the MQ Group’s own audi-tors evaluate how well the production units meet the requirements set out in the MQ Group’s Code of Conduct. Audits are currently carried out for the MQ Group’s first-tier suppliers, i.e. the sewing factories. Work has also begun on audits of subsuppliers such as laundry units. Using a standardised questionnaire, the factory is assessed in 13 areas on a scale from A to E or in line with the BSCI’s Zero Tolerance. “Zero Tolerance” means that immediate measures must be taken by all BSCI members affected. Level A means that the factory has no or only minor deviations from the Code. All Level A suppliers are encouraged to obtain SA8000 certification, which is a global standard for certification of social accountability and impro-ved working conditions. The MQ Group aims to audit all factories in which the company has production either via its own visits or exter-nal auditors, a goal that was fulfilled this year for MQ and initiated for Joy. The MQ Group also applies a Critical Violation Policy (CVP), which includes what cannot be tolerated in terms of human rights violations. The CVP includes a number of particularly critical issues which are part of the audit form, and lay the foundation for decisions to start new collaborations or terminate existing ones. It is very unu-sual to terminate an existing collaboration with a supplier due to a violation of the Code.

In the event of a deviation from the Code, first the fundamental reason for the violation is examined and then the MQ Group and supplier jointly prepare an action plan to reduce the deviation. If the supplier fails to show a willingness to co-operate or repeatedly vio-lates the Code, the collaboration with the supplier may be termina-ted. Work to improve working conditions in developing countries’ factories is a long-term process that requires patience. Not everyth-ing can be changed immediately, the important thing is to bring about continuous changes.

Relationships are based on trust, which creates an honest, open collaboration between the MQ Group and its suppliers. The MQ Group’s own auditor actively works to support and educate the suppliers on site in factories. The CSR & Environmental Manager (headquarters) and CSR Area Manager in Shanghai are responsible for this work together with the purchasing organisation and produc-tion. Read more on pages 28-30.

External brand suppliersSeveral of the brand suppliers who sell products to the MQ Group have production in countries that the MQ Group classifies as risk countries. The MQ Group requires all external brand suppliers to have a code of conduct based on international conventions such as the ILO’s Core Conventions regarding labour legislation, the UN Univer-sal Declaration of Human Rights and the UN Convention on the Rights of the Child. In addition, the MQ Group requires suppliers to have an implementation and control process to ensure compliance with the Code of Conduct. The MQ Group also asks for information on which countries the brand supplier has production in. Before the MQ Group starts a collaboration with a new brand, checks are car-ried out to ensure compliance with the requirements and ensure that monitoring is ongoing as the requirements are updated. If deviations from the requirements are identified, the MQ Group and the brand supplier jointly draw up an action plan to address the deviation. The CSR & Environmental Manager (headquarters) is responsible for this work together with the purchasing organisation. Read more on page 26.



Child labourEven though according to the ILO there is a sharp reduction in child labour in the risk countries, there is still a high percentage of children that are working. The risks of violations of the principles of children’s rights come from both direct and indirect influence. How children are af-fected by the industry is still largely invisible. Child labour has been pushed further down the chain and is usually found in agricul-tural work. The indirect influence often entails children being aban-doned, partly because the parents have been forced to look for work in another location or the children are left alone while their parents are at work.

The MQ Group does not accept child labour and this is part of the Group’s Code of Conduct. In the event of child labour being detec-ted, there is an internal action plan designed in accordance with Save the Children’s guidelines and in collaboration with the Center For Child Rights & Corporate Social Responsibility (CCS CSR). During the year MQ has identified two cases of child labour in China, see more information on page 30. The CSR & Environmental Mana-ger (headquarters) and CSR Area Manager in Shanghai are respon-sible for this work together with the purchasing organisation and production. Read more on page 30.

INDICATORS


GRI 408-1: Operations and suppliers at significant risk for incidents of child labour

page 30

GRI 414-1: New suppliers that were screened using social criteria

page 29

GRI 414-2: Negative social impacts in the supply chain and actions taken

page 30

TOPIC

Quality of the assortmentQuality is one of the MQ Group’s core values and it is vital in terms of both customers’ expectations and environmental resources that the products have a long lifespan. That the Group’s customers love their garments, can wear them for a long time and want to wear them frequently results both in satisfied customers and in less waste of the earth’s resources. The MQ Group’s goals are to always meet the quality requirements and for product quality to be checked through internal and external quality controls. Product quality is essential, which is why the Group continuously monitors refund claims and has an annual goal of < 1 per cent returns across the whole assortment. In 2016/2017, the percentage of refund claims was 0.6 per cent for MQ and 0.4 per cent for Joy. The MQ Group also has strict require-ments on chemicals and animal-based materials; its goal is that no goods sold should contain chemicals that are hazardous to the envi-ronment or health, and that the animal welfare policy must always be respected and its requirements met. During the year Joy updated its requirements on chemicals and animal-based materials to bring them in line with MQ’s. The MQ Group also works with tailors who not only adapt the garments for customers but also repair returned items to increase their lifespan. During the year MQ developed an indicator showing the number of returned items repaired by tailors. MQ also has a collaboration with Myrorna, a retail chain selling second-hand items, whereby Myrorna collects and sells samples and returned items that cannot be repaired and sold by MQ. Joy has yet to implement a measurement tool for the number of garments repaired by tailors and collected. Joy is currently working on local

collection solutions for returned items that are donated to charity. The Assortment & Purchasing Manager together with the CSR & Environmental Manager have overall responsibility for the quality of the assortment, but the whole design and purchasing organisation has a responsibility for the assortment’s product quality. Read more on pages 20, 22-25 and 34.

INDICATORS


Own: Rate of returns (Pro-prietary and external brands)

page 25

Own: Product recalls from stores

page 25

Own: Discontinued products page 25

Own: Number of returned items repaired by tailors

TOPIC

Business ethics (anti-corruption)GRI 205: Anti-corruption 2016The MQ Group must act responsibly both within its own operation and in its relations with the wider market. The aims of MQ’s business ethics policy are to create clarity about what good ethics entails at MQ, and to inspire employees to work together to develop the com-pany into an attractive employer and make MQ the natural choice for customers. The policy mainly refers to how managers and employ-ees should act in their day-to-day work and in contacts with other employees, customers, suppliers, competitors and external part-ners. In 2017/2018 the business ethics policy will be updated and the content clarified in the Group. In conjunction with this, the policy will be incorporated into the onboarding process for new employees. The Group is also introducing a new system for learning and mana-gement, with the ability to check that employees have accessed and understood information about the policy. Responsibility for business ethics and for compliance with the policy is divided between HR (employee ethics) and finance (corruption). Read more on page 35.

INDICATORS


GRI 205-2: Communication and training about anti- corruption policies and procedures

In 2017/2018 the Group’s busi-ness ethics policy will be updated and cla-rified for all per-sonnel.

GRI 205-3: Confirmed inci-dents of corruption and actions taken

No suspected or confirmed inci-dents of corrup-tion have been reported.



SUSTAINABILIT Y INFORMATION INFORMATION AND CONTACT

CONTACT DETAILS

MQ GROUP

HEADQUARTERSMQ Holding ABBox 11919SE-404 39 Gothenburg, SwedenVisiting address: Sankt Eriksgatan 5, Gothen-burg, SwedenTel: +46 31-388 80 00Fax +46 31-388 80 01

CONTACTSChristina Ståhl, President & CEOTony Siberg, Deputy CEO & CFO

FINANCIAL CALENDAR

2017/2018

MQ’s aim is to provide shareholders, analysts and other stakeholders with clear, relevant financial information through regular reports and presentations of the operation.Quarter 1 (Sep-Nov) 19 December 2017Quarter 2 (Dec–Feb) 16 March 2018Quarter 3 (Mar-May) 19 June 2018Quarter 4 (Jun-Aug) 4 October 2018

An up-to-date financial calendar can be found at www.mq.se The Annual Report is available to download from the website or can be sent as a hard copy on request.

ANNUAL GENERAL MEETING

The Annual General Meeting of MQ Holding AB takes place on Wednesday 24 January 2018 at 14:00 CET at MQ’s headquarters, Sankt Eriksgatan 5, Gothenburg, Sweden.

Shareholders who wish to participate in the AGM must be entered in the share register maintained by Euroclear Sweden AB by Thurs-day 18 January 2018 and have notified the company of their attendance by 16:00 CET on 18 January 2018. Shareholders can notify the company of their attendance by e-mailing [email protected], phoning +46 31-388 80 00 or writing to MQ Holding AB, Box 11919, SE-404 39 Gothenburg.

When notifying the company provide your name, personal identity number/corporate registration number, shareholding, address, daytime telephone number and information about any advisors or representatives and, if applicable, enclose complete formal docu-mentation, such as certificate of incorpora-tion or equivalent.

To be entitled to participate in the AGM, sha-reholders who have their shares registered in the name of an authorised agent such as a bank or other fund manager must temporarily register their shares in their own name with Euroclear Sweden AB. Shareholders who wish to undertake such re-registrations must personally notify their fund manager(s) regar-ding their intentions in good time before Thursday 18 January 2018.

MQ HOLDING ABBox 11919 SE-404 39 Gothenburg, Sweden

Visiting address: Sankt Eriksgatan 5, Gothenburg, SwedenTel: +46 31-388 80 00 Fax: +46 31-388 80 01

www.mq.se

Documents

AN INTENSIVE YEAR OF DEVELOPMENT towards a broader target ...ir.mq.se/afw/files/press/mq/mq_annual_report_2016-2017.pdf · Operating margin, % 6.8 7.2 10.2 8.7 3.4 Profit/loss after