Industria De Diseno Textil, S.a. · BME:ITX
Industria De Diseno Textil — Inditex — FY2006 Earnings Presentation
58 slides from Industria De Diseno Textil's earnings presentation, Mar 21, 2007
Slide 1: FY2006 Results Presentation
FY2006 Results Presentation 21 March 2007
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: Index
Index FY2006 Results Overview Financial summary Concepts Outlook
Slide 4: FY2006: Overview
FY2006: Overview Strong operating performance Satisfactory sales growth Consistent financial performance Strong cash flow and reinvestment in the business Increased shareholder remuneration
Slide 5: FY2006: Overview
FY2006: Overview Sales growth 22% LFL sales growth 5.5% Net income growth 25%, EPS of 1.61 Funds from operations growth 20% RoCE 43% 25% increase in dividend proposal
Slide 6: FY2006: Overview
FY2006: Overview Like-for-like Sales growth 5.5% 5% FY2006 FY2005 Satisfactory performance
Slide 7: Geographic breakdown of store sales
Geographic breakdown of store sales FY2006 FY2005 Asia & RoW Europe ex-Spain 40,6% 38,7% Americas Spain Spain 39,6% 43,1% Europe ex- Spain Americas 11,0% 10,7% Asia & RoW 8,9% 7,5% (1) Store sales: Includes sales in OMS and franchises
Slide 8: Highlights
Highlights million FY2006 FY2005 % 06/05 Net Sales 8,196 6,741 22% Gross profit 4,607 3,788 22% Gross margin 56.2% 56.2% EBIT 1,356 1,094 24% EBIT margin 16.5% 16.2% Net income 1,002 803 25% EPS ( ) 1.61 1.29
Slide 9: Sales growth breakdown
Sales growth breakdown H1 H2 FY2006 Space contribution 17% 16% 17% LFL 5% 6% 5.5% Currency impact 1% (2%) (1%) Sales growth 23% 20% 22%
Slide 10: Selling area
Selling area sqm. FY2006 FY2005 % 06/05 Total space 1,657,299 1,434,752 16% Openings biased to H1 Ramp-up of new openings 29% of space less than 2 years old
Slide 11: Gross margin
Gross margin % on sales FY2006 FY2005 % 06/05 Gross margin 56.2% 56.2% 2 b.p. FY Gross margin stable at 56.2% as expected Best estimate for FY2007 Gross margin at FY2006 levels Should currencies remain at current levels, positive currency impact expected for H1, decreasing over the year
Slide 12: Operating expenses
Operating expenses million FY2006 % 06/05 Personnel expenses 1,251 21% Rental expenses 718 24% Other operating expenses 831 22% Total 2,800 22% Controlled evolution of operating expenses Reduce 3 implementation on track
Slide 13: Plan Reduce 3: Initiatives
Plan Reduce 3: Initiatives Personnel Better scheduling of staff hours to customers flow has saved 2% of working hours in comparable stores, improving productivity c90% of ZARA garments alarmed by suppliers before delivery to stores
Slide 14: Plan Reduce 3: Initiatives
Plan Reduce 3: Initiatives Rental 42% decrease in start-up costs by adjusting calendar of openings and refurbishing works Average size of 2006 openings adjusted to commercial environment increasing sales productivity
Slide 15: Plan Reduce 3: Initiatives
Plan Reduce 3: Initiatives Other operating expenses Introduction of TGT in stores to deliver cost savings in FY2007 Improvements in logistic efficiency and transportation costs: consolidation of deliveries, air cargo agreements
Slide 16: Depreciation and amortization
Depreciation and amortization 124 109 98 99 102 92 95 81 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Normal evolution of depreciation and amortization charge
Slide 17: Net financial results
Net financial results million FY2006 FY2005 Financial income 4 4 FX gains (losses) (18) 4 Net financial results (14) 8
Slide 18: Working capital
Working capital million FY2006 FY2005 % 06/05 Inventory 824 684 20% Receivables 364 358 2% Payables (1,701) (1,438) 18% Other 55 16 Trade working capital (458) (379) 21% Fiscal accounts (net) (39) (137) Debt in acquisition of JV (67) Operating working capital (497) (583)
Slide 19: Cash flow
Cash flow million FY2006 FY2005 % 06/05 Funds from operations 1,492 1,239 20% Ordinary CAPEX 858 798 8% Acq. of JV’s and franch.* 171 14 Dividends 418 302 38% Net cash position 714 703 2% (*) payments for the acquisition of Zara franchised operations in Russia and the increase in the stakes in the s
Slide 20: ROE and RoCE
ROE and RoCE ROE RoCE 43% 41% 32% 30% FY2006 FY2005 FY2006 FY2005
Slide 21: Sales by concept
Sales by concept Concept FY2006 FY2005 Zara 65.3% 65.9% Non Zara 34.7% 34.1% Non- Kiddy’s Class 2.2% 2.3% Zara Zara Pull and Bear 6.3% 6.6% Massimo Dutti 7.5% 7.9% Bershka 9.7% 9.5% Stradivarius 5.2% 5.1% Oysho 2.0% 1.6% Zara Home 1.7% 1.2%
Slide 22: Zara
Zara million FY2006 % 06/05 Net Sales 5,352 21% EBIT 880 24% EBIT margin 16.4% Stores 990 +138 RoCE 40%
Slide 23: Kiddy's Class
Kiddy’s Class million FY2006 % 06/05 Net Sales 182 17% EBIT 31 8% EBIT margin 17.0% Stores 185 +36 RoCE 56%
Slide 24: Pull and Bear
Pull and Bear million FY2006 % 06/05 Net Sales 519 17% EBIT 78 4% EBIT margin 15.0% Stores 467 +40 RoCE 43%
Slide 25: Massimo Dutti
Massimo Dutti million FY2006 % 06/05 Net Sales 614 15% EBIT 81 17% EBIT margin 13.1% Stores 399 +30 RoCE 33%
Slide 26: Bershka
Bershka million FY2006 % 06/05 Net Sales 798 25% EBIT 131 33% EBIT margin 16.5% Stores 433 +65 RoCE 55%
Slide 27: Stradivarius
Stradivarius million FY2006 % 06/05 Net Sales 428 25% EBIT 98 17% EBIT margin 23.0% Stores 304 +41 RoCE 86%
Slide 28: Oysho
Oysho million FY2006 % 06/05 Net Sales 165 54% EBIT 39 59% EBIT margin 23.7% Stores 201 +47 RoCE 55%
Slide 29: Zara Home
Zara Home million FY2006 % 06/05 Net Sales 139 78% EBIT 18 1,192% EBIT margin 13.2% Stores 152 +42 RoCE 33%
Slide 30: EBIT margins and RoCE
EBIT margins and RoCE EBIT margin RoCE 40% 50% 43% 16.4% 16.8% 16.5% Zara Non-Zara INDITEX Zara Non-Zara INDITEX
Slide 31: Outlook
INDITEX Outlook
Slide 32: Outlook
Outlook Expansion Reduce 3 Efficient capital allocation Predictable attractive shareholder remuneration Reinforce our business model
Slide 33: Outlook - Expansion
Outlook - Expansion Space to grow by 15% CAGR International expansion FY2006: Focus in Europe ex–Spain: higher weight of store sales than Spain Decision to grow in Asia: strong increase in commercial presence (73%)
Slide 34: Outlook - Expansion
Outlook - Expansion Europe: Inditex domestic market Strong growth markets Growth area for all the concepts Significant potential to expand profitably in Europe
Slide 35: Outlook - Expansion
Outlook - Expansion Asia 58 stores in 7 countries at FYE2006 Japan: Expansion to accelerate China: Presence in all three key areas: Shanghai, Beijing and Hong Kong. Leverage on our current base. Increase in selling area in Asia at a rate that more than doubles the growth in selling area of the Group
Slide 36: Outlook – Reduce 3
Outlook – Reduce 3 Reduce 3 Optimization as a key part of our strategy Aiming to improve the operational efficiency High implication of all levels of the organization New initiatives being developed targeting medium/long term improvements On track to the FY2008 target
Slide 37: Outlook – Reduce 3
Outlook – Reduce 3 New initiatives Personnel: • Removal of non commercial activities at store level (external downloading teams): Clothes displayed earlier while staff fully dedicated to sales • Alarming by suppliers to be introduced in the non-Zara concepts • New cash point software to be introduce
Slide 38: Outlook – Reduce 3
Outlook – Reduce 3 New initiatives Rental expenses: • Start up costs at the same level as in FY2006 despite higher International openings • Increase of lease incentives in expansion markets Other operating expenses: • Optimization of truck routes per area • Higher efficiency in energy consumption
Slide 39: Outlook – Efficient capital allocation
Outlook – Efficient capital allocation Priorities in use of capital Profitable investment in the expansion of our business Predictable attractive shareholder remuneration
Slide 40: Outlook – Efficient capital allocation
Outlook – Efficient capital allocation Profitable investment in the expansion of our business Investment in markets with attractive long term returns Capital Expenditure to grow below space growth
Slide 41: Outlook – Efficient capital allocation
Outlook – Efficient capital allocation Predictable attractive shareholder remuneration Dividend proposal: 84 cents per share 524 MM to be distributed to shareholders 25% increase over FY2005 75% increase over FY2004
Slide 42: Outlook – Business model
Outlook – Business model Reinforce the key characteristics of our business model Flexibility Proximity sourcing Multi-concept Retail experience International retailer
Slide 43: Outlook – Business model
Outlook – Business model Design Store Manufacturing Distribution & & Sourcing Logistics
Slide 44: Outlook – Business model
Outlook – Business model Sourcing by area in FY2006 Rest of World 2% Asia 34% Proximity 50% Rest of Europe 14%
Slide 45: Outlook - Business model
Outlook - Business model Multi - concept Distinctive and focused concepts with independent management teams Pull and Bear Massimo Dutti Bershka Stradivarius Oysho Zara Home 1991 1998 1999 2001 2003
Slide 46: Outlook - Business model
Outlook - Business model Retail experience Latest fashions Fresh items twice a week Prime locations No traditional advertising Zara store nº 1,000 opened in Italy: Florence Via Calimala
Slide 47: Outlook - Business model
Outlook - Business model International retailer 8.2 6.7 5.7 4.6 4.0 60% 3.3 57% 55% 2.6 54% 54% 2.0 54% 52% 1.6 48% 1.2 46% 1.0 42% 36% 64% 58% 54% 52% 48% 46% 46% 46% 45% 43% 40% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 billion International Spain
Slide 48: FY2007: Outlook
FY2007: Outlook Store opening programme Range % Int’l Zara 130 140 85% Kiddy’s Class 35 45 35% Pull and Bear 55 65 70% Massimo Dutti 25 35 65% Bershka 60 70 80% Stradivarius 55 65 45% Oysho 45 55 60% Zara Home 35 45 70% Total net openings 440 520
Slide 49: FY2007: Outlook
FY2007: Outlook Acceleration in space growth: c260,000 sqm. Expected Capital Expenditure: 850 – 950 MM Initial collections Spring-Summer 2007 well received by our customers.
Slide 50: FY2006 Results Presentation Annex
FY2006 Results Presentation Annex 21 March 2007
Slide 51: Sustainable growth
Sustainable growth Inditex Environmental Policy. HQ in Arteixo INDITEX´ s headquarters in Arteixo (Zara, Zara Home and KC): 11 textile factories and our largest logistics hub. The whole business model in just one location: design, manufacture, logistics and headquarters. Each of the facilities has d
Slide 52: Sustainable growth
Sustainable growth Inditex Environmental Policy. Energy sources Inditex has installed: 5 MW trigeneration plant using natural gas, solar photothermal plant wind turbine. All these sources are centralized through an Integrated Control System, allowing to manage each of the energy sources with the hig
Slide 53: Sustainable growth
Sustainable growth Inditex Environmental Policy. Trigeneration Plant using natural gas To produce electricity, hot water, cold water and steam for ironing procedures It boosts efficiency, since it uses 4/5 parts of the produced energy, instead of 1/3 with a traditional system Reduction of losses ari
Slide 54: Sustainable growth
Sustainable growth Inditex Environmental Policy. Photothermal solar energy (1) Solar energy system consisting of air-water heat pumps, which meets the needs of Inditex´s headquarters. The goal of this system is to replace the electrical production of hot/cold water with sun panels which work by heat
Slide 55: Sustainable growth
Sustainable growth Inditex Environmental Policy. Photothermal solar energy (2) A 1,500 m² area is used for flat thermal solar collectors installed on the roof of the Headquarters. 565,000 KW/year will be saved, which represents 15% of the energy required, thus preventing the emission of 2,822 Kg of
Slide 56: Sustainable growth
Sustainable growth Inditex Environmental Policy. Wind power energy A wind turbine is running with a rated power of 850 kW and an estimated running of 2,100 hours per year. It produces 1,590 MWh per year, enough to provide the energy which is required for the production processes of textile factories
Slide 57: Sustainable growth
Sustainable growth Inditex Environmental Policy. ‘Stores and energy’ project Stores are our most representative element and the place where the energy consumption is the largest We have incorporated sustainability and energetic efficiency criteria The Plan seeks to have Intelligent Control Systems f
Slide 58: Sustainable growth
Sustainable growth Environmental policy. Conclusions Optimising energy consumption Increasing the use of renewal energies Reducing CO2 emissions Developing systems to offset emissions Strategic Environmental plan to be presented in July 2007