INDITEX : Transcript Español , PDF, 0.23MB

INDITEX

INTERIM NINE MONTHS 2021

CONFERENCE CALL SCRIPT

15 December 2021

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

INTERIM NINE MONTHS 2021

INDITEX PARTICIPANTS

Pablo Isla - Executive Chairman 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

Rebeca McClellan Santander - Analyst

Anne Critchlow Societe General - Analyst

Simon Irwin Credit Suisse - Analyst

Georgina Johanan JP Morgan - Analyst

Warwick Okines BNP Paribas - Analyst

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INTERIM NINE MONTHS 2021

Introduction: Marcos López

Good morning, Ladies and Gentlemen. Welcome to the presentation of Inditex's Results for the Interim Nine Months 2021. I am Marcos López, Capital Markets Director.

The presentation will be chaired by Inditex's Executive Chairman Pablo Isla. Here today with us are also our CEO Óscar García Maceiras and CFO Ignacio Fernández.

As usual, 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.

And now over to Pablo.

Slide 3: 2021: Differentiation and strategic transformation continues to deliver

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Slide 4: 2021: Inditex's differentiation and strategic transformation accelerates

Good morning to all of you and welcome to our nine months 2021 results presentation. I would like to highlight some key messages before we go into an analysis of the period.

Inditex's differentiation and strategic transformation towards a fully integrated, digital and sustainable business model is accelerating.

First of all, I want to recognise the effort made by our teams. Their dedication during the period has been outstanding.

Our operating performance continues to go from strength to strength. Sales, profit before tax and net income in the third quarter have reached historic highs, surpassing pre-pandemic levels. Constant currency sales growth accelerated further over the third quarter 2021 to 21% versus 2020, and 10% versus 2019.

Our collections have been very well received by our customers. Almost all of our stores are now open. Online sales continue their high rate of growth.

We continue to generate strong cash flow and to reinforce the robust financial position of the Group.

We are also making good progress with respect to the sustainable development of our business model.

Regarding digitalisation, the migration to the Inditex Open Platform is now 97% complete.

As you have seen in our release, we have had a strong start to the fourth quarter. Store and online sales in constant currency between the 1st of November and the 10th of December 2021 increased by 33% versus the same period in 2020 and 10% versus the same period in 2019.

Based on current information Inditex expects a gross margin of around 57.5% (+/- 50 bps) for FY2021.

Slide 5: Inditex's differentiation and strategic transformation accelerates

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INTERIM NINE MONTHS 2021

Let me add some detail on the year so far and our strong differentiation.

The remarkable performance in the nine months of 2021 was greatly helped by our fully integrated business model, our single inventory position and the attractiveness of the product offer.

The store optimisation programme has been a resounding success. The impact of the store absorption programme announced in June 2020 has been fully recovered in store and online sales already.

In the third quarter 2021 we have reached another milestone: In-Store sales have increased compared to 2019 with 11% less stores in operation.

We are using technology to accelerate strategic projects like RFID, SINT and IOP.

The strong trajectory of online sales that we saw last year has of course continued in 2021.

Slide 6: Strength of integration: All stores open, online grows strongly

Inditex's competitive differentiation is bigger than ever.

As of today, all of our stores are open. With sales in stores getting close to normality, online sales in constant currency in the nine months have progressed very nicely indeed at plus 28%. This compares to plus 124% versus the first nine months of 2019.

Online sales are expected to be more than 25% of total sales in 2021, one year before our initial target.

It is because of these features that our operations enjoy sector leading growth rates and profitability. Inditex's online business is non-dilutive to margins and requires lower capital intensity going forward.

Let me tell you that we have total confidence in our unique business model that fully integrates stores and online.

Slide 7: Resolutions of Inditex Board of Directors

The Board of Directors of Inditex, at my initiative and at the initiative of the founder Amancio Ortega, and following the proposal of the Nomination Committee, has approved the appointment of Marta Ortega as Chair of the Board of Directors, effective as from the 1st of April 2022.

Óscar García Maceiras, up to now General Counsel and Secretary of the Board, has been appointed Chief Executive Officer of Inditex, effective 29th of November.

With this, the Board of Directors completes the generational handover process initiated in 2011 with the replacement of Amancio Ortega as Chairman of Inditex.

The appointments will be presented for ratification at the next Annual General Meeting.

I'll hand you over to Oscar now for some introductory comments.

Slide 8: Continuity in Strategic Pillars

Good morning. I'm honoured to join you today in my capacity as CEO and I'm looking forward to meeting you all in person.

My first message to you is one of continuity in the strategic pillars of Inditex.

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INTERIM NINE MONTHS 2021

We enjoy a unique business model that fully integrates stores and online. This unique feature will remain one of the key pillars of Inditex. Let me tell you that we are at an early stage in the development of all of this potential.

The talent of the teams and individuals at Inditex is comparable to their commitment and entrepreneurial spirit. Our people are by far our main competitive advantage. What you have seen over recent months, the way the Group has managed some very difficult market conditions and the fact that we are already above pre-pandemic levels, says it all.

Sustainability and digitalisation remain also at the core of our strategy.

For those of you who have been following us for many years our main priority is to invest in key initiatives for the future profitable growth of the Group with financial discipline.

And we will continue with a predictable and attractive remuneration policy.

I'll hand you over to Ignacio now for the Financial Section.

Slide 9: Financial Summary

Thank you, Oscar.

Slide 10: 9 Months 2021: Very strong operations performance

As you have seen in our release, Inditex's operations showed a strong progression in the first nine months of 2021. We executed very well in what turned out to be a challenging operating environment.

We managed the supply chain very closely, and this drove the strong gross margin performance.

Operating expenses have of course been tightly managed.

Slide 11: 3Q21 Sales, PBT and net income at historic highs

As mentioned already, sales, PBT and net income in the third quarter 2021 reached historic highs, exceeding pre-pandemic levels. This is the result of very active management of the supply chain with a healthy gross margin evolution and tight management of the operating expenses.

Under IFRS 16 occupancy costs are allocated to operating expenses, amortisation and financial expenses. If we consider all occupancy costs to be operating expenses, there was operating leverage.

You can see this because compared to 3Q2019, PBT grew 7%, above both sales and gross profit growth of 6%.

This is mainly due to tight control of operating expenses and our ability to find efficiencies in our operations. Part of this is also driven by the renegotiation of rents.

Slide 12: 9M21 Strong Sales

Sales trends in the nine months 2021 have continually improved as store sales return to normal and online has sustained its strong performance.

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