Industria De Diseno Textil, S.a. · BME:ITX
Industria De Diseno Textil — Inditex — FY2003 Earnings Presentation
62 slides from Industria De Diseno Textil's earnings presentation, Mar 24, 2004
Slide 1: FY2003 Results Presentation
FY2003 Results Presentation 24 March 2004
Slide 2: Disclaimer
DISCLAIMER This document is of a purely informative nature and does not constitute an offer to sell, exchange or buy, or the solicitation of an offer to buy, securities issued by any of the companies mentioned herein. This document contains forward-looking statements. All statements other than state
Slide 3: José María Castellano, Deputy Chairman & CEO
José María Castellano Deputy Chairman & CEO
Slide 4: Index
INDEX • FY2003 Results • Overview • Financial summary • Concepts • Outlook • FY2004 • Strategic Overview 4
Slide 5: FY2003: Overview
FY2003: Overview Like-for-like growth 2nd Half 2003: 6,5% • Unseasonable warm weather in Q3 • Strong discounting activity in Q4 • Underperformance in some concepts • Higher weight of end-of-season sales period -2% 1H03 2H03 5
Slide 6: Performance per concepts
Performance per concepts MD Outperform EBIT Growth +60% % KC +27% BSK +19% Oysho n.a Z Home Group n.a. Zara average -12% P&B -46% STV -50% Underperform 6
Slide 7: Geographic breakdown of store sales
Geographic breakdown of store sales 2003 2002 REST OF REST OF WORLD 6.8% WORLD 6.7% AMERICAS 13.2% SPAIN 46.0% AMERICAS REST OF 11.7% EUROPE 34.1% SPAIN 46.1% REST OF EUROPE 35.5% (1) Store sales: Includes sales in OMS and franchises 7
Slide 8: FY2003 highlights
FY2003: • Sales growth +16% • LFL sales growth +1% • 364 net store openings • Net income growth +2% • RoCE 32% 8
Slide 9: Borja De La Cierva, CFO
INDITEX Borja De La Cierva CFO
Slide 10: Financial summary
INDITEX Financial summary
Slide 11: Highlights
Highlights 2003 2002 % 03/02 million € NET SALES 4,599 3,974 16% GROSS MARGIN 2,306 2,048 13% % margin 50.1% 51.5% EBITDA 874 868 1% EBITDA margin 19.0% 21.8% EBIT 627 660 (5%) EBIT margin 13.6% 16.6% NET INCOME 447 438 2% EPS 71.6 70.3 11
Slide 12: Sales growth
Sales growth Space contribution +19% LFL +1% Currency impact (4%) Top line growth 16% 12
Slide 13: LFL vs. Space contribution
LFL vs. Space contribution 44% of space Space contribution: 2002 & 2003 openings 2001 2002 2003 LFL: Stores opened from 31 Jan. 02, that haven´t been refurbished 56% of space 13
Slide 14: Selling area
Selling area FYE2003 Change Total space (m2) 988,357 +25% Average new store size (Zara) (m2) 1,300 +24% Space contribution +19% 14
Slide 15: Space growth vs. Space contribution
Space growth vs. Space contribution Space growth +25% Space contribution +19% •Bigger size of new stores •Ramp-up of new openings Initial lower sales density, as expected 15
Slide 16: Currency impact on sales growth
Currency impact on sales growth MXP EUROS 2003 2002 VAR 2003 2002 VAR Sales in Mexico 2,800 2,500 12% 226.2 266.0 (15%) Translation effect AVERAGE MXP/€ 2003 2002 VAR 12.38 9.40 (32%) 16
Slide 17: Currency impact on Gross margin
Currency impact on Gross margin MXP EUROS 2003 2002 VAR 2003 2002 VAR Sales in Mexico 2,800 2,500 12% 226.2 266.0 (15%) COST OF GOODS SOLD (1,456) (1,000) (118) (106) GROSS PROFIT 1,344 1,500 109 160 GROSS MARGIN 48% 60% 1200 b.p. 48% 60% 1200 b.p. Gross Margin effect AVERAGE MXP/€ 2003 2002 VAR 12.
Slide 18: Currency impact on Financial Results
Currency impact on Financial Results MXP EUROS 2003 2002 VAR 2003 2002 VAR SALES IN MÉXICO 2,800 2,500 12% 226.2 266.0 (15%) COST OF GOODS SOLD (1,456) (1,000) (118) (106) GROSS PROFIT 1,344 1,500 109 160 GROSS MARGIN 48% 60% 1200 b.p. 48% 60% 1200 b.p. Financial effect TRADING LIABILITIES (10 M €)
Slide 19: Currency impact: summary
Currency impact: summary 1Q03 1H03 3Q03 FY03 Translation effect (7%) (6%) (4%) (4%) Lower growth in Sales & EBIT 1H03 2H03 FY03 Gross margin impact (100 bp) (70 bp) (84 bp) Lower Gross Margin Financial impact Financial charge €4.6 m 19
Slide 20: EBIT growth on constant currency
EBIT growth on constant currency 1H2003 2H2003 FY2003 EBIT growth 10% (12%) (5%) Translation effect 6% 3% 4% Gross margin effect 9% 6% 7% TOTAL 25% (3%) 6% 20
Slide 21: Like-for-like growth
Like-for-like growth 12% 11% 10% 6.5% 1% (2%) 1H03 1H02 2H03 2H02 2003 2002 21
Slide 22: Volume vs. price
Volume vs. price +33% +20% (10%) Sales on constant currency Units sold Average price • High temperatures in Europe over 3Q • Fashion mix: lighter garments • Increase in market share 22
Slide 23: Gross margin
Gross margin (basis points) H1 H2 FY03 Currency impact (100) (70) (84) Pricing in Euro-land -- (25) (14) Inventory mgmt . (18) (60) (42) & product mix (118) (155) (140) • Higher weight of sales period in both seasons • Lighter product ranges in Autumn-Winter 2003 • Strong impact in Q4 previous year
Slide 24: Quarterly gross profit: consistency
Quarterly gross profit: consistency (Change in basis points) Q1 Q2 Q3 Q4 FY 2002 22 27 27 (193) FY 2003 (48) (184) (249) (61) • Currency impact spread over the year • Weight of mark-downs in Q2 & Q4 • Q4 2003 compares with a lower margin in Q4 2002 24
Slide 25: Pricing policy in Europe
Pricing policy in Europe Base price = 100 Euroland ex Iberia = 125 Greece = 110 Other = 135 25
Slide 26: EBIT Margin
EBIT Margin (Change in basis points) Gross margin (140) Operating de-leverage (160) Change in EBIT (300) +1% LFL is below the level required to offset the impact of new stores 26
Slide 27: Operating de-leverage
Operating de-leverage Audited FY 2003 FY 2003 Var Adjustments Adjusted Var Sales 4.598,9 16% LFL of 6% instead of 1% 4.826,6 21% Cost of sales (2.293,0) 2002 gross margin (2.339,4) Gross profit 2.306,0 13% 2.487,2 21% Gross margin 50,1% -139 b.p. 51,5% Cash & Non cash (1.678,9) (1.688,9) Increase of
Slide 28: Depreciation: quarterly performance
Depreciation: quarterly performance (€ million) 70 64 56 52 48 49 49 43 45 0 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 • Calendar of openings (65 Zara openings in 2H 03) • New DC progressively in operation in 2H 03 28
Slide 29: Financial expenses
Financial expenses (€ million) Q1 Q2 Q3 Q4 FY Financial expenses 0.2 (2.2) (3.4) 2.0 (3.4) FX losses 1.0 (1.1) (0.4) (4.1) (4.6) Other 0.0 0.1 (0.1) 0.1 0.1 1.2 (2.0) (3.9) (2.0) (7.9) • Financial expenses according to financial position • Q4 03: Impact of Latam currencies driven by USD weakness 29
Slide 30: Extraordinary results
Extraordinary results (€ million) Q1 Q2 Q3 Q4 FY Risk provisions 5 5 5 (15) -- Other 0 3 2 0.8 5.7 5 8 7 (14.2) 5.7 • Remarkable profit in Venezuela • Recognition of FX Losses via financial charge • Better outlook for capital repatriation 30
Slide 31: Working capital
Working capital FY03 Var % Var Inventories 486 104 27% Consistency: Trading receivables 129,5 32 33% Space growth +25% Trading liabilities (652,4) -146 29% WC from trading • €20 m Deferred tax operations (36,5) (10,5) 40% classified as Long Term liability Tax accounts (77,2) 43 (36%) Capex liabiliti
Slide 32: Inventory position
Inventory position FYE03 FYE02 Inventory position (€ mill.) 486 382 Increase y-o-y 27% 8% Commitment for 1H04 60% 60% 32
Slide 33: Cash Flow
Cash Flow (€ million) FYE03 FYE02 Cash from operations 725.9 747.0 CAPEX 628.4 467.2 Free Cash Flow 97.5 279.8 33
Slide 34: Financial position
Financial position NET FINANCIAL POSITION 2002 & 2003 300 245.6 250 268.3 200 MILLION EURO 150 100 143.1 57.5 50 73.5 70.8 9.5 0 Q4 01 Q102 Q2 02 Q3 02 Q4 02 Q103 Q2 03 Q3 03 Q4 03 (50) (45.1) (100) (86.0) 34
Slide 35: Marcos López, Capital Markets Director
Marcos López Capital Markets Director
Slide 36: Inditex concepts
INDITEX Inditex concepts
Slide 37: Zara
Zara million € On constant 2003 % 03/02 currency •64% Int’nal sales Sales 3,219.6 11% 15% •Largest currency EBIT 476.1 (12%) (1%) impact •Men & children EBIT margin 14.8% -370 pb 15.8% under-performed •Ramp-up of new +95 stores Stores 626 +95 •De-leverage ROCE 33% (10%) 37% 37
Slide 38: Kiddy's Class
Kiddy’s Class million € 2003 % 03/02 Sales 89.7 49% •Higher expansion rate EBIT 18.0 27% •De-leverage EBIT margin 20.0% -340 bp Stores 103 +44 ROCE 80% (51%) 38
Slide 39: Pull & Bear
Pull & Bear million € 2003 % 03/02 •Underperformance Sales 287.9 8% collection-related EBIT 18.9 (46%) •Sourcing changes for 2004: flexibility EBIT margin 6.6% -650 pb •Lower expansion rate in 2004 Stores 350 +54 ROCE 16% (23%) 39
Slide 40: Massimo Dutti
Massimo Dutti million € 2003 % 03/02 •Outperformed Sales 388.9 35% •Strong leverage EBIT 60.1 60% •Entering in larger +240 pb European markets EBIT margin 15.5% Stores 250 +47 ROCE 56% +7% 40
Slide 41: Bershka
Bershka million € 2003 % 03/02 •Currency impact Sales 395.0 32% •Outperformed mainly in EBIT 57.3 19% 1st half (160 pb) •Entering in larger EBIT margin 14.5% European markets Stores 253 +56 ROCE 46% (3%) 41
Slide 42: Stradivarius
Stradivarius million € 2003 % 03/02 •Under-performed Sales 162.0 31% •Management issue EBIT (1) 4.4 (50%) •New supporting team EBIT margin 2.7% (530 pb) •Results in 2H04 Stores 191 +38 ROCE 5% (7%) (1) Before goodwill amortisation 42
Slide 43: Oysho
Oysho million € 2003 % 03/02 •Outperformed Sales 45.1 93% •Focussed on target EBIT 2.1 n.a. market •Break-even one year in EBIT margin 4.7% n.a. advance •Higher expansion rate Stores 76 +4 in 2004 ROCE 7% n.a. 43
Slide 44: Zara Home
Zara Home million € 2003 Sales 10.6 •In-line with expectations •Still in launch phase EBIT (0.5) EBIT margin n.a. Stores 26 ROCE n.a. 44
Slide 45: Breakdown of store sales by concept
Breakdown of store sales by concept 2003 2002 OYS STD 1% ZH OYS STD BSK 4% 0% BSK 3% 1% 8% 9% MD 7% MD PB 9% 7% KC 2% PB ZARA 6% 73% KC 2% ZARA 70% 45
Slide 46: EBIT margins by concept
EBIT margins by concept 20.0% 15.5% 14.8% 14.5% 13.6% 6.6% 4.7% 2.7% Zara KC P&B MD BSK STV OYS Inditex 46
Slide 47: ROCE by concept
ROCE by concept 80% 56% 46% 33% 32% 16% 7% 5% ZARA KC P&B MD BSK STV (1) OYS Inditex (1) Before goodwill amortisation Group 47
Slide 48: José María Castellano, Deputy Chairman & CEO
José María Castellano Deputy Chairman & CEO
Slide 49: Growth prospects
INDITEX Growth prospects
Slide 50: FY2004: EBIT growth by concept
FY2004: EBIT Growth MD KC BSK Oysho Group Z Home average Zara P&B STV 50
Slide 51: FY2004: Zara store openings per market
FY2004: Zara Breakdown of Zara store openings per market Spain • Deeper expansion in key 11% European markets: RoW Europe • Italy, U.K., France, 23% ex-Spain Germany 55% • Other selected Americas International markets 11% 51
Slide 52: Growing through 50% JV's
FY2004: Zara In FY2003 ... Growing through 50% JV’s 52
Slide 53: To be increased
FY2004: Zara To be increased 80% stake 85% stake 53
Slide 54: FY2004: Zara Italy, Zara Japan
FY2004: Zara Italy, Zara Japan • Inditex to increase shareholding to: •80% of Zara Italy (prev. 51%) •85% on Zara Japan (prev. 50%) 2003 2003 2008e 2008e Stores 24 173 •Investment included in CAPEX for 2004 •No material impact on P&L in FY2004 54
Slide 55: FY2004: Group store openings per market
FY2004: Group Breakdown of Group store openings per market Spain 39% Europe RoW ex-Spain 13% 42% Americas 6% 55
Slide 56: FY2004: Stradivarius
FY2004: Stradivarius • From Dec. 2003: 10-strong team from Inditex overseeing two major functions at Stradivarius: •Sourcing management •Store management operations • Temporary slowdown in expansion plan • Stradivarius sourcing management changed • Full-replication of Inditex model • Results in 2nd
Slide 57: FY2004: Pull&Bear
FY2004: Pull&Bear • Strong focus on Spring–Summer collection • Introduce in-season flexibility • Temporary slowdown in expansion plan • Results in 1st Half 2004 57
Slide 58: FY2004: CAPEX
FY2004: CAPEX z Expected CAPEX 650-700 MM € z Store opening plan: % Int’nal Range openings ZARA 100 110 80% KIDDY’S CLASS 20 30 10% PULL & BEAR 20 30 25% MASSIMO DUTTI 30 40 50% BERSHKA 50 55 50% STRADIVARIUS 30 35 10% OYSHO 20 25 20% ZARA HOME 30 35 5% total net openings 300 360 58
Slide 59: FY2004: Growth outlook
FY2004: Growth outlook • 300 - 360 store openings • +20%/+25% space growth • Gradual recovery in Gross Margin to 2002 levels (51.5%) should currencies remain at current levels • Initial collection Spring-Summer well-received 59
Slide 60: Sourcing by area (Zara)
Sourcing by area (Zara) 2002 Asia and RoW 23% Spain 2003 51% Asia and RoW 24% Rest of Europe 26% Spain 50% Rest of Europe 26% 60
Slide 61: Use of excess capital
Use of excess capital • FYE Net cash position 246 MM € • Dividend proposal • Ordinary €14 cents per share • Bonus €21 cents per share • Total €35 cents per share • 217 MM € back to shareholders • Financial discipline • Annual “Ordinary” dividend pay-out to be doubled through 2008 61
Slide 62: Q&A
INDITE xX Q&A March 2004