INDITEX : 2023 Full Year 2023 Transcript

CONSOLIDATED RESULTS 2023

CONFERENCE CALL TRANSCRIPT

13 MARCH 2024

Important notice: Although we try to accurately reflect the speech delivered, the actual speech that was delivered may deviate from this transcript.

CONSOLIDATED RESULTS 2023

INDITEX PARTICIPANTS

Óscar García Maceiras - CEO Ignacio Fernández - CFO

Marcos López - Capital Markets Director

C o n f e r e n c e C a l l P a r t i c i p a n t s

Richard Chamberlain - RBC - Analyst

Georgina Johanan - JP Morgan - Analyst

Sreedhar Mahamkali - UBS - Analyst

William Woods - Bernstein - Analyst

James Grzinic - Jefferies - Analyst

Warwick Okines - Exane BNP Paribas - Analyst

Anne Critchlow - Société Générale - Analyst

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CONSOLIDATED RESULTS 2023

Introduction: Marcos López - Capital Markets Director - Inditex

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Buenos días a todos, good morning to everybody. A warm welcome to all of those attending the presentation of Inditex's Results for 2023. I am Marcos López, Capital Markets Director.

The presentation will be chaired by Inditex's CEO Óscar García Maceiras. Also with us is our CFO Ignacio Fernández.

The presentation will be followed by a Q&A session starting with the questions received on the telephone and then those received through the webcast platform. Before we start, we will take the disclaimer as read.

Please, Óscar.

Slide4:CEO

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Slide 5: To the next level

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Slide 6: 2023: Strong growth and execution continues

Good morning and welcome to our twenty twenty-three (2023) results presentation. It is my pleasure to join you today.

In twenty twenty-three (2023) Inditex saw a very robust operating performance driven very much by the creativity of our teams and the strong execution of our fully integrated business model.

We have experienced very satisfactory sales growth of ten point four per cent (10.4%). Our collections were very well received throughout the year as a whole.

This of course has been the main driver for why sales, EBITDA and net income reached historic highs.

The execution of the business model has also been very robust, with a healthy gross margin and controlled cost management.

On the bottom line, net income increased thirty percent (30%) to five point four (5.4)billion euros.

The operating performance of the Group further underpins our sound financial position. This can be seen in the significant free cash flow generated over the period.

We are proposing a dividend increase of twenty eight percent (28%) for financial year twenty twenty- three(2023) to one point five four (1.54) euros per share.

The strong sales performance has continued beyond this period, with our Spring/Summer twenty twenty-four (2024) collections very well received by customers.

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CONSOLIDATED RESULTS 2023

Store and online sales in constant currency between the first (1)of February and the eleventh (11th)of March adjusting for the extra trading day in February due to the leap year grew eleven percent (11%) over the same period in the previous year.

Slide 7: 2024-26 Strong commitment to profitable growth

It is evident that it is our fully integrated store and online model that has driven such a strong performance over recent trading periods.

Our performance relies on the four key pillars that we have highlighted to you on previous occasions: Our product offering, a unique customer experience, our focus on sustainability, and the talent and commitment of our people.

We have operations in two hundred and thirteen (213) markets with low market share in a highly fragmented sector and we continue to see strong global growth opportunities.

These are the principal factors driving our differentiation.

We have a strong commitment to profitable growth. In twenty twenty-two and twenty twenty-three (2022- 2023), Inditex experienced significant increase in sales and productivity. Sales have grown thirty-five percent (35%) in constant currency in the period. The growth of annual gross space in the period twenty twenty-four and twenty twenty-six(2024-2026) is expected to be around five percent (5%).

We estimate ordinary capital expenditure of around one point eight billion euros (€1.8 billion) in twenty twenty-four (2024). This investment will be mainly dedicated to the optimisation of our commercial space, its technological integration and the improvement of our online platforms.

We have also started a Logistics expansion plan twenty twenty-fourtwentytwenty-five(2024-2025). This is a two-year extraordinary investment programme focused on the expansion of the business allocating nine hundred million euros (€900m)each year to increase logistics capacities.

I will now hand over to Ignacio to go over the headline numbers.

Slide 8: CFO

Slide 9: Financial Summary

Thank you, Oscar.

Slide 10: 2023:Very strong execution

As you have seen in our release, Inditex executed very wellin2023.

As Oscar highlighted a few moments ago, sales, EBITDA and net income all reached historic highs.

Sales have progressed well at plus 10.4%. We have managed the supply chain actively, and this has driven a very healthy gross margin. Operating expenses have of course been managed rigorously and this has generated operating leverage.

Consequently, EBITDA grew 13.9% to 9.8 billion euros.

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CONSOLIDATED RESULTS 2023

Below this line and for comparability reasons it is worth noting the provision charged in 2022 relating to operations in the Russian Federation and Ukraine for 231 million euros in that year.

We have also seen very strong progress on the net income line, with an increase of 30.3% to 5.4 billion euros.

The Group continues to generate significant free cash flow and this has taken our net cash position to

11.4 billion euros. Slide11: Sales

I would like to reiterate that sales have progressed very well at plus 10.4% and have reached 35.9 billion euros. That is 14.1% in constant currency.

This strong sales growth came from both stores and online.

Additionally, sales have been positive across all regions and across all concepts.

At current exchange rates, Inditex expects a -1.5% currency impact on sales in 2024, with a first half weighting.

Slide 12: Global Store&Online sales breakdown in 2023

As we have already commented, sales have been positive across all key regions. We enjoy a global presence, and it is our goal to build upon this.

Slide 13: Gross profit

In 2023,gross profit increased 11.9% to 20.8 billion euros. In terms of the business model, it demonstrates very good execution. The gross margin reached57.8%.

For 2024, Inditex expects a stable gross margin (+/-50 bps).

Slide 14:Operating efficiencies

There has been very rigorous control of operating expenses across all departments and business areas.

Operating expenses increased below sales growth over 2023. Including all lease charges, operating expenses grew 125basis points below sales growth.

Slide 15: Working capital and net cash position

Over the period, we have experienced a robust operating performance. We have also seen a normalisation in supply chain conditions. Inventory at Inditex as of the 31st of January 2024was 7% lower than at the same date in 2023.

Let me also add that end of period inventory is considered to be of high quality.

Due to the strong cash flow generation, the net cash position has grown 13.3% to 11.4 billion euros.

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CONSOLIDATED RESULTS 2023

Slide 16: Funds from operations

With all of this, you can see funds from operations, after fixed lease cash payments, reached historic highs of7 billion euros.

And now over to Marcos.

Slide 17: Capital Markets Director

Slide18: Concepts

Thank you.

Slide 19: Concepts

Following on from Ignacio's comments I would like to reiterate that the performance over 2023 has been remarkable. Notably, this performance was across all the concepts. We are very happy with the execution over the period.

In 2023, we opened stores in41 different markets and have progressed with optimisation activities across all concepts. Store sales and Online have grown significantly.

Zara has, of course, had a good year. The performance of the younger concepts has also been robust. We are satisfied with the execution of all the concepts over 2023.

Slide 20: Concepts

This table illustrates a very healthy set of metrics across the board.

Slide 21: Concepts

I'll highlight just two of these key metrics.

Inditex's profit before tax on sales has increased 266 basis points to 19.1%...

…and remarkably, Return on Capital employed has increased 580 basis points to 39%.

And now, back to you Oscar.

Slide 22: CEO

Thank you.

Slide 23: Outlook

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Slide 24: To the next level

Inditex continues to see strong growth opportunities. Our key priorities are to continually improve the product proposition, to enhance the customer experience, to increase our focus on sustainability and to preserve the talent and commitment of our people. Strengthening these areas will drive long-term organic growth.

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CONSOLIDATED RESULTS 2023

The flexibility and responsiveness of our business in conjunction with in-season proximity sourcing allows a rapid reaction to fashion trends and a unique market position. Our business model has great potential going forward.

The growth of the Group is underpinned by the investment in stores, the advances made to the online sales channel and the improvements to the logistics platforms with a clear focus on innovation and technology. Sustainability is a key part of the strategy.

Over twenty twenty-three (2023), we have seen very strong progress of our unique business model and a material increase in differentiation. The end result has been an enhanced customer experience.

To take our business model to the next level and extend our differentiation further we are developing a number of initiatives in key areas for the coming years.

Slide 25: Unique Fashion proposition&Slide 26

Our teams remain highly dedicated to what we consider to be the core essence of all our concepts: a distinctive fashion proposition, focused around creativity and innovation.

This process is carried out by a team of seven hundred (700) designers and a six hundred and thirty

1. person prototype team using a meticulous design process that attends to every small detail of our garments and collections, while striving to provide quality fashion to more and more customers around the world.

Slide 27,28,29: Zara stores (Paris, Hamburg, Los Angeles)

Thanks to our unique integrated model of stores and online, our teams continue to take advantage of the great growth opportunities we see in all channels, formats and markets. This involves new openings and refurbishments of stores in the best locations, expanding our formats to new cities and new territories and the launch of new services that elevate the shopping experience.

Slide 30: Massimo Dutti Miami Aventura Mall

We see significant long-term growth opportunities in the United States, also for the concepts. Massimo Dutti expects to open a store in Miami by the end of the year.

We expect the concepts to launch in new markets, like Oysho in Germany at Hamburg, and first stores in India for Bershka in Mumbai Palladium and Zara Home in Bangalore.

Slide 31: Start of weekly live streaming in US and UK

We are in the process of launching a new weekly livestream experience for Zara in the United States and the UK.

The livestream reflects our continual efforts to offer the best customer experience and will be available soon in other markets.

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CONSOLIDATED RESULTS 2023

Slide 32: Zara Pre-Owned: repair, resell & donate

In terms of circularity, the Zara Pre-Owned platform, is currently available in sixteen (16) European markets. Through this platform, we will continue helping our customers to extend the life cycle of their Zara garments through donation, repair or resale.

Slide 33: Zara Pre-Owned to be launched in US

In twenty twenty-four (2024) we will extend this service to our customers in the United States.

Slide 34: Sustainability InnovationHub

Regarding innovation, our Sustainability Innovation Hub is currently working with more than three hundred and fifty (350) start-ups. Some of these projects are now contributing to our current collections. An example of this is LOOPAMID® x ZARA. ZARA Studio has developed a single-material jacket made with LOOPAMID®, a polyamide created entirely from textile waste. We have also seen commercial collaborations with CIRC. Furthermore, we have recently strengthened our commitment to Infinited Fiber with a direct investment in the capital of the company.

Slide 35: Inditex People

We continue to promote the talent and commitment of our teams in order to reinforce our attractiveness as a benchmark employer.

Hola! is our welcome training program for everyone joining a Zara store for the first time. This is an itinerary for the first four (4) weeks, combining hands-on and digital sessions on our Tra!n platform.

We highlight the figure of Zara Coach: the person in charge of welcoming, guiding, supporting and involving the rest of the team during the process. The Hola! programme is already available in fifty (50) markets, where we have about two thousand eight hundred (2,800) Zara Coaches so far.

In addition, throughout the twenty twenty-three (2023) financial year, more than twelve thousand seven hundred (12,700) people have been promoted, resulting in seventy-two (72%) percent of the Group's vacancies being filled internally. Furthermore, two point eight (2.8) million hours of training have been provided to the teams.

Slide 36: Outlook: Strong commitment to profitable growth

We operate in two hundred and thirteen (213) markets with low share in a highly fragmented sector and we see strong growth opportunities.

To meet the current strong demand, which builds on the significant growth of the business in twenty twenty-two to twenty twenty-three(2022-23), we are undertaking a number of initiatives.

Firstly, optimisation of stores is ongoing. We expect increased sales productivity in our stores going forward.

The growth of annual gross space in the period twenty twenty-four to twenty twenty-six(2024-2026) is expected to be around five percent (5%). Inditex expects space contribution to sales to be positive in the period twenty twenty-four to twenty twenty-six(2024-2026), in conjunction with a strong evolution of online sales.

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CONSOLIDATED RESULTS 2023

Slide 37: Capex

We are planning investments that will scale our capabilities, obtain efficiencies and increase our competitive differentiation to the next level.

For twenty twenty-four (2024), we estimate ordinary capital expenditure of around one point eight billion euros (€1.8 billion).This investment will be mainly directed at optimisation of our commercial space, its technological integration and the improvement of our online platforms.

Slide 38: Logistics expansion plan2024-2025 to meet strong demand

In view of the strong future growth opportunities, Inditex has designed a logistics expansion plan for twenty twenty-four and twenty twenty-five (2024 and 2025).

This two-year extraordinary investment programme focused on the expansion of the business allocates nine hundred (900) million euros per year to increase logistics capacities in each of the twenty twenty- four and twenty twenty-five (2024 and 2025) financial years. The main investments are:

Slide 39: 2024-2025 Logistics expansion plan 2024-2025

For Zara a new two hundred and eighty-six thousand (286,000) square metre distribution centre, Zaragoza Two (II), …

…and increased distribution centre capacity of one hundred and twenty-three thousand (123,000)square metres in Lelystad, the Netherlands

For Bershka: A new one hundred and sixteen thousand (116,000) square metre distribution centre in the Valencia region.

And for Tempe: A new one hundred and forty-one thousand (141,000) square metre distribution centre also in the Valencia region.

Most of these projects will be operational as early as the second half of twenty twenty-five (2025).

The objective of this logistics expansion plan is to strengthen Inditex's capacity to capture the ample global growth opportunities in the medium and long term. These investments will have the higheststandards of sustainability and use the most up-to-datetechnology.

Slide 40: Strong start to 2024

I would like to finish with a brief comment on our current performance.

Spring/Summer collections have been very well received by our customers.

Store and online sales in constant currency, adjusted for the calendar effect of an extra trading day in February due to the leap year, increased eleven percent (11%)between the first (1st) of February and eleventh (11th) of March twenty twenty-four (2024) versus the same period in twenty twenty-three(2023).

Slide 41: 28% dividend increase

We have an attractive and predictable dividend policy which consists of a sixty percent (60%) ordinary payout and bonus dividends.

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CONSOLIDATED RESULTS 2023

For financial year twenty twenty-three (FY2023), the Board of Directors will propose at the Annual General Meeting a dividend increase of twenty-eight percent (28%) to one point five-four euros (€1.54) per share, composed of an ordinary dividend of one point zero four euros (€1.04) and a bonus dividend of zero point five euros (€0.50) per share.

The dividend will be made up of two equal payments: On the second of May twenty twenty-four (2.05.2024) a payment of zero point seven seven euros (€0.77) per share, ordinary, and the remainder, zero point seven seven euros (€0.77) per share on the fourth of November twenty twenty-four (4.11.2024).

Slide 42:2023 Results

Thank you all for attending. That concludes our presentation for today. We would be happy to answer any questions you may have.

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