welcome} summary 1-185}

1 Corporate Responsibility at INDITEX. 3 Scope. 5 Who we are. 23 Corporate Governance. 57 Social Dimension. 91 Our people. 99 Environmental Dimension. 131 Economic Dimension. 163 Independent Validation. 165 SAM assessment. 169 Summary of GRI Indicators. 175 Glossary and indices. 181 Contacts. corporate

responsibility at INDITEX Rc

1 IN THE COURSE OF THE LAST TWO YEARS INDITEX has given a deci- ded boost to its corporate responsibility policy, the results of which are reflected in this first Sustainability Report. This policy is not, however, a novelty in the style of management of our company, but rather has been part of its sensitivity since it began operating.

The concept itself of sustainability reflects very precisely the way that INDITEX understands the development of its business model within the environment in which it operates. Sustainability, understood as the need for a company to generate not only financial benefits for its shareholders but also positive effects for any of its stakeholders.

However, in the last few years, a series of social processes have been mate- rializing that have highlighted the need for a company’s efforts in this respect to be, on one hand, subject to a process of formalization which increases its efficiency and, on the other, transmitted in a clear and transparent manner not only to the shareholders of the company, but to society as a whole.

This report has been prepared in accordance with the framework establis- hed in 2002 by the Global Reporting Initiative, and constitutes a balanced and reasonable presentation of the social, environmental and economic per- formance of our organisation. The content has been structured in three large sections, corresponding to the economic, social and environmental dimensions. In addition, information has been included in this Report rela- ting to Corporate Governance, which contains information regarding com- pliance with the recommendations both of the Olivencia Committee and of the “Report of the Special Commission for the Promotion of Transparency and Security in Financial Markets and Listed Companies”, known as the Aldama Report.

The spirit that guides INDITEX’s communication policy as regards its sus- tainability strategy is that of suitably reflecting its degree of commitment to its basic principles that exists in our Group, providing information both on the general lines and on its materialization in specific actions in each of the areas.

We want this first INDITEX Sustainability Report to be a useful instrument so c that each one of our stakeholders has at their disposal sufficient and preci- se elements so as to judge the adaptation of our efforts to the demands made by society of a group established worldwide. We are sure that the effort made in its preparation shall be suitably valued and that, in light of its contents, it will provide elements for discussion that shall not only improve R the quality of future editions but provide new approaches to INDITEX’s sus- tainability policy itself in the future.

Amancio Ortega Gaona Chairman

2 scope sS

3 AMONG THE OBJECTIVES DEFINED IN 2001 for the development of a Corporate Responsibility Model was included, among other aspects, the pre- paration of the Sustainability Report. However, it has been in this corporate year that this goal has been achieved: to maintain transparent dialogue with each of its “stakeholders” through the publication of this commitment.

The Report has been prepared taking into account the guidelines of the Sustainability Reporting Guidelines 2002 of the Global Reporting Initiative (www.globalreporting.org). The validation report drawn up by AENOR is avai- lable on page 163 of this Report.

A detailed explanation of the scope of the data included in the Sustainability Report is given below:

DIMENSION PERIOD COVERAGE

Good Governance 2001 & 2002 Consolidated group

Economic 2001 & 2002 Consolidated group

Social

Transmission of the 2001 & 2002 100% suppliers Code of Conduct

Social audit of 2001 & 2002 80% suppliers and External Manufacturers external workshops and Workshops

Social Action 2002 Spain and international

Human Resources 2002 Spain and international

Environmental 2002 Headquarters,factories and the Zara logistics S centre in Arteixo (A Coruña)

In the future and as part of our commitment to tranparency, we will continue to be actively involved in those sector debates that the Sustainability Reports of the textile and distribution sectors develop.

4 who we are

5 7-22}

7 Road Map. 9 Who we are. 11 Formats. 15 International Presence. 17 The business model. 21 The management team.

6 1 2

1963 1975 Confecciones First Zara store GOA in A Coruña

6 7

1991 1992-1994 Pull and Bear Mexico (1992), and acquisition Greece (1993), of 65% of Belgium and Massimo Dutti Sweden (1994)

11 12

1999 2000 Stradivarius. Holland, Austria, Denmark, Germany, Poland, Saudi Qatar and Andorra. Arabia, Bahrain, INDITEX headquarters Canada, Brazil, Chile in Arteixo, A Coruña and Uruguay road map 3 4 5

1988 1985 First international 1989-1990 Inditex S.A. as the opening of Zara: New York (1989) head of the group Oporto (Portugal) and Paris (1990)

8 9 10

1995 1998 1997 100 % Massimo Bershka. Argentina, Norway and Israel Dutti. Malta (1995) Japan, UK, Venezuela, and Cyprus (1996) Lebanon, UAE, Kuwait and Turkey

13

2001 14 May 2001: IPO. Oysho. Puerto Rico, Jordan, Ireland, Iceland, Luxembourg, the Czech 2002 Republic and Italy El Salvador, Finland, the Dominican Republic, Singapore and Switzerland

8 who we are Ww

9 INDITEX, ONE OF THE LARGEST FASHION DISTRIBUTION GROUPS IN THE WORLD, had 1558 stores in 44 countries at the end of corporate 2002. In addi- tion to its seven store formats –Zara, Kiddy’s Class, Pull and Bear, Massimo Dutti, Bershka, Stradivarius and Oysho– it brings together around one hundred com- panies linked with the various, different activities that make up the design, manufacture and textile distribution business.

The first Zara store opened to the public in 1975 in A Coruña, where it began its activity. Nowadays INDITEX stores can be found in the main cities around the world and always in the most important shopping areas.

INDITEX has been listed on the Stock Exchange since 23 May 2001, after an IPO which aroused great interest on the behalf of investors around the world, its sha- res being oversubscribed more than 26 times over. Its shares are included in the main stock indexes in Spain and Europe.

INDITEX has undergone significant growth in the last few years, achieving con- solidated net sales in 2002 of 3,974 million euros and net income of 438 million euros. At 31 January 2003 INDITEX had 32,535 employees.

Table 1.- The following table shows the evolution of the most significant figu- W res of the group over the last few fiscal years *: 2002 2001 2000 1999 1998 1997 1996

Net sales** 3,974 3,250 2,615 2,035 1,615 1,217 1,002

Net income** 438 340 259 205 153 117 73

w No of Stores 1,558 1,284 1,080 922 748 622 564

No of Countries 44 39 33 30 21 14 10

International Sales 54% 54% 52% 48% 46% 36% 32%

Employees 32,535 26,724 24,004 18,200 15,576 10,891 8,412

* from 1 February to 31 January of the following calendar year ** in millions of euros

10 formats Ff

11 WITH THE OBJECTIVE OF SEGMENTING ITS APPROACH to the mar- ket, INDITEX has seven fashion distribution formats. All these share the same commercial and management focus: to be the leaders in their seg- ment through a flexible business model, as well as a vocation for interna- tional presence. However, each of the formats has great autonomy in the management of its business. Their management teams are independent in the taking of commercial decisions and in the way that they adminis- trate their resources.

Nonetheless, the fact of belonging to a group spread over more than forty countries brings them a great number of organizational and knowledge- management synergies. Thus, each management team can concentrate on the roll-out of its business knowing that certain of the supporting ele- ments are covered by INDITEX’s accumulated experience.

INDITEX, as the parent company, is responsible for the central corporate services, i.e. those that are shared by the seven formats and which make easier international growth: administration, the use of logistics technology, Ff the general HR policy, legal aspects and financial capacity, amongst others.

12 Table 2.- The performance of each format in the whole INDITEX group is shown in the following chart:

SALES PER FORMAT (millions of euros)

Var% FORMAT 2002 2001 02/01

Zara 2,913.4 2,435.1 20%

Kiddy´s Class 60.4 47.6 27%

Pull and Bear 266.2 225.7 18%

Massimo Dutti 287.3 241.4 19%

Bershka 299.3 202.0 48%

Stradivarius 124.1 93.5 33%

Oysho 23.4 4,5 n/a

Total sales 3,974.0 3,249.8 22%

Graph 1.- Specific weight of the Graph 2.- Specific weight of the formats of INDITEX in 2002 (%): formats of INDITEX in 2001 (%):

Stradivarius: 3,1% Stradivarius: 2,9% 0ysho: 0,6% 0ysho: 0,1% Bershka: 7,5% Bershka: 6,2%

Massimo Dutti: 7,2% Massimo Dutti: 7,4%

Pull and Bear: 6,7% Pull and Bear: 6,9%

Kiddy´s Class: 1,5% Kiddy´s Class: 1,5%

Zara: 73,3% Zara: 74,9%

13 ZARA (www.zara.com) BERSHKA (www.bershka.com)

Zara, whose first store opened in 1975 in A Coruña Bershka was born in April 1998 as a new store and fas- (Spain), is present in 40 countries with a network of more hion concept, focussing on the younger female public than 500 stores located at prime sites in principal cities. –and also the male public as from 2002– and has 197 At Zara, design is conceived as a process that is very clo- stores in nine countries. Bershka stores are large, spa- sely linked to the public. The information that arrives con- cious and aesthetically avant-garde and aim to be meeting tinuously from the stores allows a creative team made up points between fashion, music and street art. of more than 200 professionals to transfer to the com- mercial offer the concerns and demands of its customers. STRADIVARIUS (www.e-stradivarius.com) KIDDY´S CLASS

This format, with some 59 outlets in Spain and Portugal, Stradivarius, a format acquired by INDITEX in 1999, is the result of INDITEX’s decision to strengthen its pre- brings to its young female customers the latest trends in sence in the children’s clothing segment. Its stores are design, fabrics and accessories. Its 153 stores in 9 coun- present in towns where there is no Zara store or in those tries combine colour, light, large spaces and youthful areas of big cities where the Zara stores lack sections music with the most up-to-date fashion design. dedicated to children’s wear. OYSHO (www.oysho.com) PULL AND BEAR (www.pullandbear.com) Oysho is the latest of the formats created by INDITEX, being born in 2001. This format brings to the lingerie and male and female underwear sector INDITEX’s philosophy, Pull and Bear was created by INDITEX in 1991. Its fas- offering the latest fashion trends in good quality, reasonably- hion concept focuses on a public of young urban people priced products. It has some 72 stores in seven countries. aged between 14 and 28. Pull and Bear attempts to be something more than just a simple point of sale. Its offer of clothing, accessories and cosmetics is completed with a range of added services: music, video images, a café and videogames areas, and so on. Pull and Bear has 296 stores in 17 countries.

MASSIMO DUTTI (www.massimodutti.com)

Massimo Dutti was born in 1985 and acquired by INDI- TEX in 1991. Today it has 250 stores in 23 countries. Massimo Dutti offers universal fashion design for men and women, with a variety of clothing lines ranging from the most urban and sophisticated to casual.

14 international presence p

15 Table 3.- International Presence:

COUNTRY TOTAL

SPAIN 200 52 200 155 135 128 48 918 PORTUGAL 35 7 38 32 20 14 9 155 FRANCE 71 1 1 73 BELGIUM 15 1 13 4 33 HOLLAND 41 5 UK 17 2 19 GERMANY 21 3 24 SWEDEN 2 2 NORWAY 1 1 ANDORRA 11 2 AUSTRIA 4 4 DENMARK 2 2 LUXEMBOURG 21 3 ICELAND 1 1 IRELAND 5 5 FINLAND 1 1 ITALY 325 SWITZERLAND 2226 POLAND 4 4 CZECH REPUBLIC 1 1 GREECE 23 7 3 5 1 39 MALTA 13 4 CYPRUS 3212210 ISRAEL 11 14 25 LEBANON 212 5 TURKEY 8 8 KUWAIT 321118 UAE 4444218 SAUDI ARABIA 84315 BAHRAIN 111 3 QATAR 1111 4 JORDAN 11 1 3 CANADA 8 8 UNITES STATES 9 9 I DOMINICAN REP. 1 1 MEXICO 29 10 16 19 9 83 VENEZUELA 7626223 EL SALVADOR 1 1 BRAZIL 10 10 ARGENTINA 5 5 CHILE 3 3 URUGUAY 2 2 JAPAN 6 6 SINGAPORE 1 1

TOTAL 531 59 296 250 197 153 72 1.558

16 the business model b

17 INDITEX’S BUSINESS MODEL IS CHARACTERISED BY a high degree of vertical integration compared to other models developed by internatio- nal competitors, flexible structure and strong orientation towards the cus- tomer, in which all the stages of the process are carried out: design, manu- facture, logistics and distribution to own stores.

The key element of this organization is the store, a very carefully designed space, conceived to make the customers’ meeting with our fashion pro- posal comfortable, and where we obtain the information needed to modu- late the offer in accordance with their demands.

The key of this model is to be capable to adapt the offer in the shortest possible time to the customers’ wishes. For INDITEX, time is the main fac- tor to be considered, above and beyond production costs. Vertical integra- tion allows delays to be shortened and greater flexibility, by reducing stock to a minimum and diminishing fashion risk to the greatest possible extent.

Design Retail business

M Manufacture Distribution and logistics b and supply

18 The cycle of the model starts with the designing of the gar- ments, carried out by the various teams of designers at INDITEX and taking as principal sources of inspiration both the reigning fashion trends in the market and the customers themselves, through the information received from the stores. The flexibility of the model allows the commercial and creative teams to add variations to the collections in very short spaces of time, being capable of introducing a new model into the stores in just two weeks.

A significant proportion of the production takes place in the factories belonging to INDITEX, which fundamentally carry out the manufacture of the garments containing a greater element of fashion, and through external sup- pliers. In the case of in-house production –between 40 and 50 percent of the total– INDITEX directly carries out the supply of fabrics, the marking and cutting and the final finishing of the garments, subcontracting the gar- ment-making stage to specialised companies located mainly in the north-west of the Iberian peninsula. As regards external suppliers, a high percentage of which are European, in many cases they are also supplied by INDI- TEX with the fabric and other elements needed for the production of the garments.

All the production, independently of its origin, is received at the logistics centres of each of the formats, from where distribution takes place simultaneously to all the stores worldwide on a highly-frequent and constant basis. In the case of Zara, distribution takes place twice a week, always including new models in each consignment, thus allowing constant renewal of the offer in the stores.

The point of sale does not close the process but rather starts up once again the function of design, acting as a market information collection system that provides feed- back to the design teams and reports the trends deman- ded by the customers. The store is given priority in its inte- rior and exterior design. Here the shop windows play a role of great importance, being authentic advertisements of the formats in the world’s main shopping streets. As regards interior design, it is motivated by the aim of crea- ting a space with plenty of light where the clothes take centre stage, eliminating any barrier between the gar- ments and its customers.

19 Geographic distribution of facilities Tordera (Barcelona): The principal facilities of INDITEX (excluding the stores and the offices of the different subsidiary companies out- — Central Services of Massimo Dutti, Bershka and Oysho. side Spain) are located at six sites in the Communities of — Logistics Centre of Massimo Dutti, Bershka and Oysho. Galicia, Catalonia, Valencia and Aragon: Sallent de Llobregat (Barcelona): Arteixo (A Coruña): — Central Services of Stradivarius. — Central Services of INDITEX. — Logistics Centre of Stradivarius. — Central Services of Zara. — Logistics Centre for Zara and Kiddy’s Class. Elche (Alicante): — Manufacturing centres (13) for Zara. — Central Services of Tempe (footwear company). Narón (A Coruña): — Logistics Centre of Tempe.

— Central Services of Pull and Bear. Plataforma logística Plaza (Zaragoza): — Logistics Centre of Pull and Bear. — Indipunt (knitwear manufacture). — Logistic Centre of Zara (opening date 2003).

A CORUÑA Arteixo Narón

ZARAGOZA BARCELONA Sallent de Llobregat Tordera ZARAGOZA

ALICANTE Elche

20 the management

team

21 CHAIRMAN Amancio Ortega

GENERAL COUNSEL, DEPUTY CHAIRMAN SECRETARY OF THE TAX AND CEO BOARD, BOARD MEMBER Ignacio Fernández Antonio Abril José María Castellano FINANCE AND MANAGE- MENT CONTROL LEGAL ADVISORY SERVICE Borja de la Cierva

Javier Monteoliva CAPITAL MARKETS Marcos López CORPORATE RESPONSABILITY MANAGING DIRECTOR CORPORATE Javier Chércoles AND BOARD MEMBER COMMUNICATION Juan Carlos R. Cebrián Diego Copado

INTERNET Juan Cobián DEPUTY GENERAL MANAGER Agustín García-Poveda

ADMINISTRATION AND SYSTEMS Fernando Aguiar

HUMAN RESOURCES Jesús Vega

ZARA EXPANSI0N LOGISTICS José Toledo Ramón Reñón Lorena Alba

PULL AND BEAR REAL ESTATE RAW MATERIALS Pablo del Bado Fernando Martínez José Mª Vandellós

MASSIMO DUTTI INTERNATIONAL FACTORIES Jorge Pérez Europa: Managers Luis Blanc BERSHKA Luis Lara Carlos Mato America, Asia and Middle East: STRADIVARIUS Iván Barberá Jordi Triquell Alfonso Vázquez

OYSHO Carmen Sevillano Corporate Departments

Business Units

Business Support Areas

22 corporate governance

23 25-56}

25 Road Map. 27 Introduction. 29 Regulation. 31 Shareholding structure. 33 General Shareholders’ Meeting. 35 Administrative structure. 37 Composition of the Board of Directors. 41 Remuneration of the members of the Board of Directors. 43 Procedure for the selection, appointment, or removal of the members of the Board of Directors. 45 Participation of the members of the Board of Directors in the Share Capital. 46 Duty of diligence and loyalty of the directors. 47 Committees of the Board of Directors. 53 Channels for relations with the markets. 54 Related- party transactions and intra-group transactions. 55 Shareholder relations.

24 road map 3

February/ May 1997 2 Incorporation of two new independent directors February 1997 Creation of the Executive 1 Committee of the Board of 6 Directors. The appointment of a Deputy Chairman of the July 2000 January 1993 Board of Directors Creation of Audit Incorporation of the and Compliance first independent Committee and director Nomination and 5 Remuneration Committee June 2000 Approval of the Internal Regulations 9 of Conduct regarding 4 Transactions in Securities May 2002 First Corporate June 2000 Governance Approval of the Report Board of Directors 8 Regulations

April 2001 Appointment of two new independent directors. The five independent directors represent half of the Board members 7

February 2001 10 Approval of the Code of Conduct December 2002 Setting-up of the Social Advisory Board and approval of its Regulations

26 introduction i

27 AS IS BECOMING ITS USUAL PRACTICE, THE BOARD OF DIRECTORS OF INDUSTRIA DE DISEÑO TEXTIL, S.A. (INDITEX, S.A.) has collected in this Annual Report on Corporate Governance all the relevant information rela- ting to the corporate governance corresponding to corporate year 2002, beginning on 1 February 2002 and ending on 31 January 2003. This corporate year brought with it significant changes in all matters related to the corporate governance of listed companies, as a consequence of the increasing awareness that it is important to incorporate ever greater levels of transparency. In Spain, the Report of the Olivencia Committee and more recently the Report of the Special Commission for the Promotion of Transparency and Security in Financial Markets and Listed Companies –also known as the Aldama Report– have summarised the overall series of reflections on the principles and practices that should govern the corporate governance of listed companies.

This report has been prepared following the recommendation of the Aldama Commission on fulfilling duties of trans- parency in relation to the structure and practices of good governance, and was approved by the Board of Directors of INDITEX in its meeting held on 20 March 2003.

Although the report corresponds to corporate year 2002, it has been considered appropriate to mention the modi- fications and innovations that the Board of Directors of the company instituted, in the aforementioned meeting on 20 March 2003, to adapt its corporate governance regulations to the recommendations of the Aldama Report, in Ii addition to the proposals that shall be submitted to the General Meeting of Shareholders on this subject.

28 Internal rules

ARTICLES OF ASSOCIATION

BOARD OF DIRECTORS REGULATIONS

INTERNAL REGULATIONS OF CONDUCT REGARDING TRANSACTIONS WITH SECURITIES

CODE OF CONDUCT

REGULATIONS OF THE SOCIAL ADVISORY BOARD R regulation

29 The rules of corporate governance of INDITEX are contained in the following documents:

Articles of Association

The Articles of Association currently in force were approved by the General Shareholders’ Meeting in July 2000. The General Meeting held in April 2001 introduced a modification consisting of a reduction in the number of shares required to attend the General Meeting.

Board of Directors Regulations

These were approved by the Board of Directors in July 2000. Their purpose is to determine the principles of operation of the Board, the basic rules for its organisation and working and the rules governing the conduct of its members and includes, among other matters, rules relating to the appointment and removal of directors, their rights and duties and the relations of the Board with the shareholders, the markets and the auditors, all this with the aim of achieving the highest possible degree of efficiency.

Internal Regulations of Conduct regarding Transactions in Securities

Approved by the Board of Directors in July 2000, this document contains the rules governing the confidentiality of relevant information, transactions of the people included in its scope involving securities of INDITEX and of its group of companies, its treasury stock policy and the communication of relevant facts.

Code of Conduct

Approved by the Board of Directors in February 2001, this Code is defined as an ethical commitment that includes key principles and standards for the appropriate development of the relations between INDITEX and its stakeholders: shareholders, employees, partners, suppliers, customers and society.

Regulations of the Social Advisory Board

The Social Advisory Board is the advisory body of INDITEX with regard to Social Corporate Responsibility. In December 2002, the Board of Directors agreed its setting-up and approved its Regulations, which determine the principles of action, the basic rules governing its organisation and working and the rules of conduct of its members.

Modifications in the corporate governance regulations in 2003

The Board, in its meeting on 20 March 2003, approved a revised text of the Board of Directors’ Regulations and the Internal Regulations of Conduct regarding Transactions in Securities in order to adjust them to the new obligations introduced by Law 44/2002 on Measures for Reform of the Financial System and to the recommendations of the Aldama Commission.

With the same end, it resolved to submit to the General Meeting a proposal for modification of the Articles of Association and for Regulations for the General Shareholders’ Meeting itself.

The General Shareholders’ Meeting Regulations propose to fulfil a triple purpose:

— To apply a criterion of transparency by making public, in compliance with legal and statutory rules, the procedures for the preparation and holding of the General Meetings. — To define the forms for the exercise of shareholders’ voting rights on the occasion of the convening and holding of the General Meetings. — To systematise the process of preparation and conduct of the General Meeting, in the certain knowledge that all this will be of advantage to the shareholders, this document constituting the required reference text for informed participation in the General Meetings.

The different modifications that the Board has approved in the rules on corporate governance in corporate year 2003 will be mentioned throughout this report according to their relevance and in the corresponding sections.

30 shareholding structure Ss

31 The share capital

The share capital of INDITEX is 93,499,560 euros, made up of 623,330,400 shares of the same class and series, each with a nominal value of 0.15 euros, represented by the book-entry method and are fully paid-up and subscribed.

INDITEX has been listed on the Spanish Stock Markets since 23 May 2001, and has been part of the selective IBEX35 index since July 2002. It has also formed part of the Eurostoxx 600 since September 2001, of the selective Morgan Stanley Capital International index since November 2001 and of the Dow Jones Sustainability Indexes since September 2002.

Significant holdings

Table 4.- As at 31 January 2003, the structure of the most significant holdings in the company was the following:

Participant Percentage Total no of Direct Indirect S shares holding holding Amancio Ortega Gaona 59.29% 369,600,063 63 369,600,000*

Rosalía Mera Goyenechea 6.99% 43,590,000 0 43,590,000**

* Shares held by Gartler, S.L. ** Shares held by Rosp Corunna Participaciones Empresariales, S.L.

32 The General Shareholders’ Meeting

The General Shareholders’ Meeting, convened and held with the statutory and legal formalities, is the supreme and sovereign body of the expression of the company’s will. Its resolutions are binding for all the shareholders, including dissenting or absent shareholders, without prejudice to the actions that could correspond to these as prescribed by Law. The Ordinary General Meeting is held necessarily once a year, within the six months following the year-end closing of each financial year in order to, at least, review the company’s management, to approve, where appropriate, the accounts of the previous year and to decide upon the distribution of inco- me or loss. The Extraordinary General Meeting shall meet when the Board of Directors so resolves or when a number of shareholders which represent at least five percent of the share capital so request, expressing in the request the matters to be discussed therein.

Both Ordinary and Extraordinary General Shareholders’ Meetings have to be convened by the Board, at least fifteen days before the day appointed for the meeting, the notice stating the day, time and place of the meeting, as well as the date on which, if appropriate, the General Meeting shall be held on second call, and there must be at least a 24 hour period between one call and the other. The notice shall state all the matters to be discus- sed therein. G general shareholders´ meeting 33 Rights of the Shareholders Passing of resolutions

The shareholder’s right to information The resolutions shall be passed by a majority of votes of the shares present in person or by proxy at the General INDITEX’s Investor Relations Department and its Meeting, unless there is any opposing legal or statutory Shareholder’s Office are at the disposal of the sharehol- provision. The Board of Directors’ meeting in March 2003 ders in order to supply all the information about the resolved to propose to the next General Shareholders’ General Meeting that they may require. Before the General Meeting the elimination of the requirement of the votes in Meeting, those shareholders who have so requested shall favour of the qualified majority –two thirds of the share be sent a copy of the annual report and the relevant docu- capital attending the General Meeting in person or by mentation in relation to the items on the Agenda. Likewise, proxy– for the passing of resolutions supposing the incre- the shareholders have access to these documents, to the ase or reduction of the share capital, the issuance of complete text of the resolutions proposed by the Board of bonds, the transformation of the Company, merger by the Directors, as well as any doubts or questions that other creation of a new company or through the taking-over of shareholders may have submitted and that should be the Company by another entity, total or partial split-off, the relevant for the matters on the Agenda at the General global assignment of the assets or liabilities, the replace- Meeting itself. ment of the company object as well as any other modifi- cation of the Articles of Association. Attendance at the General Meetings. Right to vote Holding of the first General Meeting after In order to attend the General Meeting, it shall be neces- the IPO of INDITEX sary for the shareholder to hold at least 50 shares, that they be registered in the name of that shareholder in the book- entry register at least five days prior to the date on which The first General Meeting after the listing of INDITEX sha- the meeting is to be held, and that shareholder is not in res on the Stock Markets was held in July 2002 at the default in the payment of capital calls. The shareholders headquarters, in Arteixo, A Coruña. Shareholders repre- who possess a number of shares that is less that that num- senting a total of 80% of the share capital with the right to ber stated in the previous paragraph may group their sha- vote attended the meeting, between those shareholders res, conferring proxy on one of the shareholders grouped present in person and by proxy. thereby or on another shareholder who is entitled to attend, grouping thus their shares with the shares of this latter. In addition to the examination and approval of the annual accounts and of the distribution of the income of the cor- Each share entitles the holder to one vote. porate year and the distribution of dividends, the most relevant items on the agenda were the appointment of Right to attend new auditors of the accounts and the approval of the dis- tribution to the personnel of INDITEX and some of its To exercise the right to attend, the shareholder must befo- companies of the shares remaining after the execution of rehand have proof of shareholder status through the the Employee Stock Participation Plan. corresponding attendance card issued in the name of that shareholder, in which is stated the number and class of All the proposed resolutions prepared by the Board were shares held, as well as the number of votes that can be approved, with an average of votes in favour of around cast by that shareholder. 98.65%.

Proxies at the General Meeting The unabridged text of the resolutions has been available to the public since 19 July 2002, on the corporate web All shareholders who are entitled to attend the General site (www.inditex.com) and through the web page of the Meeting may do so by proxy, even when the proxy holder Comisión Nacional del Mercado de Valores (CNMV) is not a shareholder. The proxy shall be in writing and (www.cnmv.es). shall be specific for each meeting. All proxies are always revocable. A shareholder’s personal attendance at the meeting shall automatically revoke a proxy.

34 administrative structure Sa

35 The Board of Directors

Principles of operation

Apart for the matters reserved for the competence of the General Meeting, the Board is the highest decision-making, supervisory and controlling body of the Company, as it is entrusted with the direction, administration, management and representation of the company, delegating in general the management of the day-to-day business of INDITEX to the executive bodies and to the mana- gement team and concentrating its efforts on the general supervisory func- tion, which includes directing the policy of INDITEX, monitoring management activity, assessing the management of the executives, taking the most relevant decisions and acting as a link with the shareholders.

The Board performs its functions under the principle of maximising the value of the Company, determining and reviewing its business and financial strate- gies in the light of said criterion.

Rules governing the organisation and working of the Board

The Chairman of the Board of Directors shall be the person to assume the chairmanship of the administrative bodies of INDITEX. At the present time, Amancio Ortega Gaona is the Chairman of the Board and of its Executive Committee.

The Board of Directors meeting in March 2003 passed a resolution to propo- se to the next General Shareholders’ Meeting the modification of article 25.3 of the Articles of Association in the sense that it remove the requirement that the Chairman of the Board of Directors must be appointed from among the members who have been directors for more than three years, except with votes in favour from more than two thirds of the Board.

The Deputy Chairman or Deputy Chairmen will substitute the Chairman in case of impossibility or absence, or when the Chairman himself should so decide. The office of Deputy Chairman of the Board of Directors is held by José María Castellano Ríos.

The Secretary, who need not be a director, shall help the Chairman in his duties, provide the necessary advice and information to the directors and shall devote particular attention to the legal and material formality of the Board’s decisions. A Vice-secretary may also be appointed, who need not be a director, to assist the Secretary or to substitute him in case of absence or Sa impossibility for the performance of his functions. The Secretary and Letrado Asesor [Consulting Lawyer] of the Board of Directors of INDITEX, Antonio Abril Abadín, holds the office of Director- General Counsel and Secretary of the Board. Javier Monteoliva Díaz, Director of the Legal Department, holds the office of Vice-secretary non-member of the Board.

The Board will hold ordinary meetings on a three-monthly basis and, on the initiative of the Chairman, as many times as this latter considers advisable for the good working of the Company. The Board must also meet when at least one third of its members so request. In corporate 2002, the Board met on five occasions.

36 composition

de of the Board of Directors c

37 Members of the Board

The Board of Directors of INDITEX is made up of ten members, of which five are independent, one is domanial, one is domanial-executive and three are executive.

Table 5.- Composition of the Board as at 31 January 2003:

Name Office held Nature of on the Board the office

Amancio Ortega Gaona Chairman Domanial-Executive

José María Castellano Ríos Deputy Chairman Executive

Juan Carlos Rodríguez Cebrián Ordinary member Executive

Carlos Espinosa de los Monteros Ordinary member Independent y Bernaldo de Quirós

Fred Horst Langhammer Ordinary member Independent

Francisco Luzón López Ordinary member Independent

Irene R. Miller Ordinary member Independent

ROSP. CORUNNA, S.L. represented Ordinary member Domanial by Rosalía Mera Goyenechea

Juan Manuel Urgoiti Ordinary member Independent Bc López de Ocaña Antonio Abril Abadín Ordinary member and Secretary Executive

In addition to the Chairman, Amancio Ortega Gaona, the executive directors hold the following posts in the company:

José María Castellano Ríos Chief Executive Officer

Juan Carlos Rodríguez Cebrián Managing Director

Antonio Abril Abadín General Counsel

38 Brief résumés of the members of the Board Manager of Dodwell Import, a Japanese subsidiary of the of Directors British firm, Inchcape. In 1975, he went on to join the Estée Lauder Companies Inc. as President of Estée Lauder Japan. Chairman In 1982, he was appointed Managing Director of Germany Amancio Ortega Gaona. Founding shareholder of INDITEX and in 1985, relocated to New York and promoted to and Chairman of its Board and its Executive Committee President and Chief Operating Officer of the Estée Lauder since its incorporation in 1985. He began his textile manu- Companies Inc. In 1999 he was again promoted to his pre- facturing operations in 1963. In 1972 he founded Confec- sent position as President and Chief Executive Officer. ciones Goa, S.A., the first garment-making factory of INDI- TEX and three years later founded Zara España, S.A. the Francisco Luzón López. An independent director since first distribution and retailing company. 1997. He is a graduate in Business Studies and Economics from the University of Bilbao. He joined the Banco Vizcaya Deputy Chairman and CEO in 1972, gaining wide experience in that Group in diffe- José María Castellano Ríos. He has held the office of rent Units and functions, becoming General Manager and member of the Board since 1985 and was appointed Director in 1986. In 1988 and after its merger with the Deputy Chairman of the Board and of its Executive Banco Bilbao, he went on to become a member of the Committee and CEO in 1997. Before joining the company Board of Directors of the BBV. At the end of the same he was IT Manager of Aegon España, S.A. from 1968 to year, he was appointed President of the Banco Exterior de 1974 and General Manager and Financial Director of España, office which he held from 1988 to 1996. In 1991 Conagra España, S.A. from 1974 to 1984. He is a Doctor he was the impulse behind the creation of the new Grupo of Economics and Business Studies and a Professor of Bancario Argentaria of which he was the founder and Financial Economy and Accounting at the Faculty of Chairman until 1996. After that, he joined the Banco Economics and Business Studies in A Coruña. He is a Santander Central Hispano as Director-General Manager, member of the Board of Directors of Fadesa, S.A. Deputy to the Chairman and in charge of Strategy, Communication and Institutional Relations. At the present Ordinary members time, he is responsible for the area of Latin America. Managing Director and Board member: Juan Carlos Rodríguez Cebrián. Executive director since 1997, he has Irene R. Miller. She has been an independent member of held the office of Managing Director since 2000. He has the Board since April 2001. She is a graduate of Cornell developed his entire career in INDITEX, where he began University with a Master of Science in chemistry and of working in 1978. Since then, he has worked in several dif- the University of Toronto with a Bachelor of Science. She ferent departments including the Commercial, Production, began her career in chemical research at General Foods Logistics, General Services, International Development Corporation and later worked as an investment banker for and Business Management Departments. Rothschild Inc. and Morgan Stanley & Co. In 1991 she joi- ned Barnes & Noble, Inc. as Senior Vice President of Carlos Espinosa de los Monteros y Bernaldo de Quirós. An Corporate Finance and became Chief Financial Officer in independent director since 1997. A graduate in Law and 1993, in advanced of the company’s flotation. In 1995, Business Studies from ICADE, he is a Commercial Expert she was appointed director and Vice-Chairman of the and State Economist and holds an MBA from the Board of Directors of Barnes & Noble. In 1997 she beca- Northwestern University. He has been the Deputy me CEO of Akim, Inc., a private investment management Chairman of the Instituto Nacional de Industria, Chairman and consulting firm. In addition to INDITEX she is also a of the Board of Directors of Iberia and Aviaco, member of member of the Boards of Directors of Coach Inc., Barnes & the Executive Committee of IATA and Chairman of the Noble, Inc., Oakley, Inc. and The Body Shop International Circulo de Empresarios, of ANFAC and of OICA. At the pre- Plc. sent time he is the Chairman of the Board of Directors of Daimler Chrysler España Holding, Mercedes Benz España, ROSP CORUNNA, S.L. is a company which is 99.9% and González Byass, S.A. and Board member of Acciona. owned by Rosalía Mera Goyenechea, founding sharehol- der of INDITEX, who has held the office of director in her Fred H. Langhammer. An independent director since April capacity as the natural person representing Rosp 2001, he began his career in Eatons, a Canadian operator of Corunna, S.L. since December 2000. She was a director department stores, and later was appointed General of INDITEX on her own account from 1991. She is a

39 member of the Boards of Directors of Zeltia, S.A. and Continuing this criterion of introducing independent pro- Grupo Continental, S.L. representing Rosp Corunna, S.L. fessionals of recognised prestige into the Board, the General Shareholders’ Meeting held in April 2001 appoin- Juan Manuel Urgoiti López de Ocaña. He has been an ted two new independent directors –Irene R. Miller and independent director since 1993. He is a graduate in Law Fred Horst Langhammer– raising the total number of from the University of Madrid, beginning his career in the independent directors to five, fully complying with the Banco de Vizcaya in 1962. After occupying many execu- recommendations of the Olivencia Committee and of the tive positions, he was named General Manager in 1978, Aldama Commission, as the external directors form the director in 1984 and CEO in 1986. In 1988, after its mer- majority on the Board, and half of the Board are indepen- ger with the Banco Bilbao he was appointed CEO of the dent directors. Banco Bilbao Vizcaya. He has been President of Ahorrobank, Banco de Crédito Canario, Banco Occidental Innovations introduced into the new Board IBYS and Laboratorios Delagrange and Board member of of Directors’ Regulations with respect to Antibióticos, S.A. At the present time he is the Chairman the independent directors of the Banco Gallego, Deputy Chairman of Acciona, mem- ber of the Board of Necso, S.A., and member of the European Advisory Board of Citigroup Global Markets. He The recent modification of the Board of Directors’ is Chairman of the Reales Patronatos of the Reina Sofia Regulations has established a limit as regards the number National Museum and Art Centre and a member of the of companies in which the independent directors may Reales Patronatos of the Prado Museum and of the perform the role, establishing that they may not hold the Spanish National Library. He presides over the private office of administrator simultaneously in more than four foundation Fundación José Antonio de Castro and is a listed companies which are other than INDITEX. In addi- member of other foundations and institutions. He holds tion, the independent directors may hold a meeting befo- the Gran Cruz de Mérito Civil and the C.B.E. re the Board is convened without the presence of the other directors. Secretary and Board member: Antonio Abril Abadín. To this end, the independent directors must elect one Since 1993, he has been the Secretary of the Board of from amongst their number to act as the coordinator of Directors and of its Executive Committee since its creation those meetings. in 1997. He has been a director since December 2002. A graduate in Law from the University of Oviedo and a civil Modifications in the composition of the Board servant by competitive exam of the Treasury Counsel in corporate 2002 Corps, he joined INDITEX in 1989 as Director of the Legal Department, after having been posted as Abogado del Estado (State lawyer) in the State Legal Service in the regio- In corporate 2002, Josefa Ortega Gaona, director of the nal office of the Treasury and Law Courts in Lugo and in the Company since its incorporation, presented her resigna- Governmental regional office in Galicia, in A Coruña. He is tion as director and member of the Executive Committee also the General Counsel of INDITEX. of INDITEX, upon her reaching the maximum age limit contemplated for the exercise of the function of director in Independent directors the Board of Directors’ Regulations. In order to cover this vacancy until the date of the holding of the next General The number of independent directors, five, is much grea- Meeting, which must resolve whether to ratify this ter than would correspond proportionally to the Board appointment, the Board, in its meeting in December 2002 taking into account the floating capital of the Company. In and after a report by the Nomination and Remuneration that respect, INDITEX was already ahead of the recom- Committee, appointed Antonio Abril Abadín as new direc- mendations of the Olivencia Committee and of the Aldama tor and member of the Executive Committee, who will Commission when the Company’s first independent direc- combine these positions with those of General Counsel tor, Juan Manuel Urgoiti López de Ocaña, joined the Board and Secretary of the Board. in January 1993, appointed by the General Meeting. In 1997, the General Meeting appointed as independent directors Francisco Luzón López and Carlos Espinosa de los Monteros y Bernaldo de Quirós.

40 THE GENERAL MEETING IS THE BODY RESPONSIBLE FOR APPROVING THE SYSTEM AND AMOUNT OF THE REMUNERATION OF THE DIRECTORS. The Board of Directors’ Regulations establish in article 26 thereof that the Board shall endeavour for the remuneration of the director to be adjusted according to market demands. Likewise, the Board shall oversee to ensure that the amount of the remuneration of the external director shall be such that it offers incentives for dedi- cation, but shall not constitute an obstacle to his independence. In particular, it shall endeavour that the independent directors do not receive remuneration that links them permanently to the company and that could compromise their independence. In turn, the Nomination and Remuneration Committee reports upon the systems and amount of the annual remuneration of the Directors.

The General Meeting held on 20 July 2000 resolved to set, with indefinite validity until a later General Meeting should resolve otherwise, the remuneration of the administrators of INDITEX, in the follo- wing manner, the quantities stated in the sections below being totally independent and fully com- patible between each other:

a) Each director will receive a fixed annual amount of 60,101.21 euros for the performance of his office;

b) The Chairman of the Executive Committee will likewise receive an additional annual amount of 30,050.60 euros;

c) The directors who in turn form part of the Executive Committee (including the Chairman of the Executive Committee) will likewise receive a fixed annual amount of 30,050.60 euros; M d) The Chairmen of the Audit and Compliance Committee and the Nominations and Remuneration Committee will likewise receive a fixed annual amount of 18,030.36 euros; and r e) The directors who in turn form part of the Audit and Compliance Committee and the Nominations and Remuneration Committee (including the Chairmen of the aforementioned Committees) will like- wise receive an additional fixed annual amount of 12,020.24 euros.

Additionally, it is recorded that the General Meeting, held on 20 July 2000, agreed, at the proposal of the Board of Directors, to approve a Stock Options Plan, directed at the members of the Board and at certain top executives and other key employees. remuneration of

41 The number of options which will finally be delivered will depend on the increase in the value of the INDITEX share in the Stock Market from the IPO in May 2001 to 31 December 2001, and in the two following calendar years. The options are exercisable two years after each one of the periods for calculation of the aforementioned incre- ase in value at the price of 2.93 euros per share.

In 2002, the conditions for the increase in value established in the Plan have been partially fulfilled, the directors thus consolidating rights over 50,736 options on shares that they may exercise, provi- ding that all the conditions foreseen in the Plan are fulfilled, in the first 30 days of 2005.

Table 6.- In light of the foregoing, it is recorded that the directors have accrued during corporate 2002 a total remuneration of 5,534,763 euros in accordance with the following breakdown:

Executive Domanial and Total M directors independents euros directors r Fixed and variable salaries 3,501,000 _ 3,501,000 Remuneration of directors 414,698 625,654 1,040,352

Options over shares (*) 402,095 591,316 993,411

Total 4,317,793 1,216,970 5,534,763

(*) Calculated taking as a base the market price of the share at the close of 30 December 2002. the members of the Board 42 procedures

for the selection appointment or removal of the p members of the Board S

43 Selection, appointment and re-election

The system of selection, appointment and re-election of members of the Board of Directors of INDITEX constitutes a formal and transparent proce- dure, expressly regulated in the Articles of Association and in the Board of Directors’ Regulations.

In this respect, the Articles of Association establish that the directors will be appointed by the General Meeting or by the Board of Directors, in accor- dance with the provisions contained in the Spanish Corporations Law and they direct that one of the missions of the Nomination and Remuneration Committee is precisely that of safeguarding the integrity of the process of selection of the directors.

The Nomination and Remuneration Committee formulates and reviews the criteria that must be followed for the composition of the Board of Directors and the selection of its members and reports on the proposed appointments of directors.

Resignation and removal

The Board of Directors Regulations, in article 22, establishes a prevision with respect to the obligation of the directors to step down in cases which could negatively affect the working of the Board or the credit and reputation of INDITEX.

The directors must place their office at the disposal of the Board and pre- sent, if the Board should consider it advisable, their resignation in the follo- wing cases:

— When they reach the age of 68. Nonetheless, the directors who hold the office of CEO or Director-Managing Director must place their office at the disposal of the Board of Directors when they reach the age of 65, being able to continue as ordinary members of the Board of Directors until the afore- mentioned age of 68. As an exception, the foregoing rules shall not apply in the case of the founding Chairman of the Company, Amancio Ortega Gaona.

p — When they cease to hold the executive posts which were associated to their appointment as directors.

— When they are involved in any of the cases of incompatibility or prohibi- S tion provided in law. — When they are seriously admonished by the Audit and Compliance Committee for having breached their obligations as directors.

— When their remaining on the Board may jeopardise the interests of INDI- TEX or when the reasons for which they were appointed disappear (e.g. when a domanial director disposes of his holding in INDITEX).

44 Table 7.- The participation of the members of the Board in the share capital as at 31 January 2003 is shown below:

Director or representative Holder of Number Percentage the shares of shares of Capital

Amancio Ortega Gaona Gartler S.L. 369,600,063 59.29%

Rosalía Mera Goyenechea Rosp Corunna, S.L. 43,590,000 6.99%

Juan Carlos Rodríguez Cebrián Natural person 3,235,337 0.52%

José María Castellano Ríos Natural person 1,409,663 0.23%

Antonio Abril Abadín Natural person 178,276 0.03%

Carlos Espinosa de los Monteros y Bernaldo de Quirós Natural person 1,990 0.00%

Juan Manuel Urgoiti López de Ocaña Natural person 1,000 0.00%

Francisco Luzón López Natural person 565 0.00% Total 418,016,894 67.06% Dp participation of the members of the Board of Directors in the share capital

45 CHAPTER IX OF THE BOARD OF DIRECTORS REGULATIONS (articles 27 to 36), regulates the different duties and obligations of the directors. Among the general obligations of the director are included those of loyalty and diligence, being bound in particular to inform themselves and prepa- re appropriately for the meetings of the Board and the sub-committees to which they belong, to attend the meetings of the bodies of which they form part and actively participate in the debates, to undertake any specific task entrusted to them by the Board or by any of its sub-committees or con- sultative bodies, to investigate any irregularity in the management of the company and to monitor any situations of risk.

The following articles (arts. 28 to 35) cover, in particular, the duty of con- fidentiality and of non-competition; the regulations in cases of conflicts of interest; the limitations in the use of company assets, the prohibition regarding the making use of non-public information for private ends, the forbidding of the taking advantage of business opportunities correspon- ding to INDITEX; the regulation of the director’s conduct upon becoming aware of indirect operations; the duty of information of the director to INDITEX about the shares of the Company that he holds directly or indi- rectly, as well as any other fact or circumstance which could turn out to be relevant for his performance as director and, lastly, the regulation of the transactions with significant shareholders that the Board must authorise D after a report from the Nomination and Remuneration Committee. duty of diligence and loyalty of the Directors

46 sub-committees

of the Board of Directors c

47 IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 29 of the Articles of Association, the Board of Directors set up three sub-committe- es, one with delegated powers (the Executive Committee) and two consul- tative committees with advisory functions (the Audit and Compliance Committee and the Nomination and Remuneration Committee). In addi- tion, in December 2002 the Social Advisory Board of INDITEX was set up.

The executive Committee

In accordance with article 29 of the Articles of Association, in March 1997 the Board established an Executive Committee which holds in delegation all the powers of the Board, except those that cannot be delegated by law or by statute, and those others that are necessary for the responsible exerci- se of the general supervisory function that is incumbent on the Board.

The regulation of this Committee is found in the Board of Directors’ Regulations, article 13 thereof providing that the Executive Committee shall be made up of a number of Directors being no less than three nor greater than seven.

The passing of the resolutions of appointment of the members of the Executive Committee will require at least two thirds of the members of the Board to have voted in favour thereof.

The Chairman of the Board of Directors acts as Chairman of the Executive Committee and the Secretary of the Board, who may also be assisted by the Vice-secretary, performs the duties of secretary.

The Executive Committee reports to the Board the matters discussed and Bc the decisions taken in its meetings, in such manner that the Board has complete knowledge of the decisions of the Executive Committee.

In corporate 2002 the Executive Committee has met on two occasions.

48 Table 8.- Composition of the Executive Committee as at 31 January 2003:

Name Office held Nature on the Board of the office

Amancio Ortega Gaona Chairman Domanial-Executive

José María Castellano Ríos Deputy Chairman Executive

Juan Carlos Rodríguez Cebrián Ordinary member Executive

Carlos Espinosa de los Monteros Ordinary member Independent y Bernaldo de Quirós

Francisco Luzón López Ordinary member Independent

Juan Manuel Urgoiti Ordinary member Independent López de Ocaña

Antonio Abril Abadín Ordinary member and Secretary Executive

Consultative committees of the Board of sub-committees with powers pertaining to information, Directors advice and proposals in the matters determined by the Board. Under this provision, in July 2000, once the Board of Directors Regulations had been approved, the Audit In accordance with the provisions of article 29 of the and Compliance Committee and the Nomination and Articles of Association, the Board may create consultative Remuneration Committee were set up.

Audit and Compliance Committee

Table 9.- Composition of the Audit and Compliance Committee as at 31 January 2003:

Name Office Nature

Juan Manuel Urgoiti López de Ocaña Chairman Independent

José María Castellano Ríos Ordinary member Executive

Francisco Luzón López Ordinary member Independent

The new revised text of the Board of Directors’ Regulations, María Castellano Ríos, presented his resignation as mem- approved in its meeting on 20 March 2003, establishes ber of this Committee and the aforementioned Board of that the Audit and Compliance Committee must be made Directors resolved to cover the vacant position by appoin- up exclusively of independent directors. In order to ting the independent director, Irene R. Miller, as member comply with this provision, the executive director, José of the Audit and Compliance Committee.

49 Table 10.- Composition of the Audit and Compliance Committee as at 20 March 2003:

Name Office Nature

Juan Manuel Urgoiti Chairman Independent López de Ocaña

Francisco Luzón López Ordinary member Independent

Irene R. Miller Ordinary member Independent

Antonio Abril Abadín, director, General Counsel and cess of the new auditors of the accounts of INDITEX, sub- Secretary of the Board acts as the Secretary-non-member mitting the corresponding report to the Board. of the Audit and Compliance Committee. Other modifications made with respect to the Without prejudice to any other task that the Board of Audit and Compliance Committee in 2003 Directors may confer on it, the Audit and Compliance Committee has as its main functions: The Board of Directors’ meeting in March 2003 resolved to — To propose the appointment of the auditors and to modify the name of the Audit and Compliance Committee serve as a channel of communication between these and in order to adapt it to the new nomenclature given by the the Board. Ley de Medidas de Reforma del Sistema Financiero (Law on Measure of Reform of the Financial System), going on — To propose the appointment of external advisors to to be called “The Audit and Control Committee”. verify compliance with the Code of Conduct and to serve as a channel of communication between these and the The revised text of the Board of Directors Regulations Board. reinforces the authority of the Audit and Control Committee and introduces a mechanism to guarantee the indepen- — To review INDITEX’s accounts and to review the appro- dence of the Chairman of this body, by deciding that he priateness and integrity of the internal control systems. shall be replaced every four years, being able to be re- elected once a period of one year has elapsed since the — To review the periodic financial data that the Board must date of his ceasing in the post. supply to the markets and to their supervisory bodies. Amongst the most significant basic responsibilities of the — To examine the observance of the different internal new responsibilities conferred upon it, it is worth mentio- Regulations approved by INDITEX and to make the pro- ning the following: posals that are necessary for their improvement. — To report to the General Meeting on the matters that The Audit and Compliance Committee shall meet ordinarily the shareholders raise in the meeting on areas falling every three months and each time that it is convened by its under its authority. Chairman, who must do so whenever the Board of Directors or the Chairman thereof should request a report to be — To supervise the Internal Audit Department of INDI- issued or a proposal to be adopted, and whenever this TEX, approving the budget of the Department, the Internal should be advisable for the good discharge of its functions. Audit Plan and supervising the internal, external, material Likewise, it shall meet to review the information that the and human resources of that Department. Board has to include in the annual public documentation. — To prepare and submit to the Board of Directors for its In corporate 2002, the Audit and Compliance Committee approval an annual report on corporate governance. met on five occasions. Amongst other matters dealt with in that year, the Committee channelled the selection pro- — To prepare an annual report on its activities.

50 In compliance with the Ley Financiera, the Board has pro- General Meeting, in order to incorporate therein, among posed the modification of the Articles of Association to the other matters, the regulation of the Audit and Control Committee. Nomination and Remuneration Committee

Table 11.- Composition of the Nomination and Remuneration Committee as at 31 January 2003:

Name Office Nature

Carlos Espinosa de los Monteros Chairman Independent y Bernaldo de Quirós

Francisco Luzón López Ordinary member Independent

Juan Carlos Rodríguez Cebrián Ordinary member Executive

The new revised text of the Board of Directors Regulations Cebrián tendered his resignation as a member of that establishes, amongst other matters, that the Nomination Committee and in March 2003 the Board of Directors and Remuneration Committee must be made up exclusi- resolved to cover the vacant position, appointing the inde- vely of independent directors. In order to comply with this pendent director, Fred Horst Langhammer, as member of provision, the executive director Juan Carlos Rodríguez the Nomination and Remuneration Committee.

Table 12.- New composition of the Nomination and Remuneration Committee as at 20 March 2003:

Name Office Nature

Carlos Espinosa de los Monteros Chairman Independent y Bernaldo de Quirós

Fred Horst Langhammer Ordinary member Independent

Francisco Luzón López Ordinary member Independent

Antonio Abril Abadín, director, General Counsel and conflict of interests and, in general, on the matters related Secretary of the Board acts as the Secretary-non-member with the duties of the directors. of the Nomination and Remuneration Committee. The Nomination and Remuneration Committee shall meet Without prejudice to any other task that the Board of each time that it is convened by its Chairman, who must Directors may confer on it, the Nomination and do so whenever the Board or the Chairman thereof Remuneration Committee has as its main functions: requests a report to be issued or a proposal to be adop- ted, and whenever this should be advisable for the good — To report on the proposals for appointment of directors discharge of its functions. and members of the Committees, as well as of executives. In any case, it shall meet once a year to prepare the infor- — To report on the systems and amount of the remune- mation on the remuneration of the Directors that the ration of the directors and executives. Board has to include in the annual public documentation. In corporate 2002 the Nomination and Remuneration — To report in relation to the transactions which involve a Committee met on four occasions.

51 In order to reinforce the responsibilities of the Nomination regards Corporate Social Responsibility, and approved its and Remuneration Committee, the new revised text of the Regulations. Its principal function is to formalise and ins- Board of Directors Regulations has incorporated the follo- titutionalise the dialogue with those interlocutors who are wing new functions: considered to be key in the different civil societies in which INDITEX develops its business model, whether — To report annually to the Board on its assessment of through manufacturing, distribution or retail activities. Its the performance of the senior management of the com- Regulations govern the principles of operation of this pany, and especially the CEO and his remuneration. body, the basic rules of its organisation and working and the rules of conduct of its members. — To prepare the information to be included in the annual public information regarding the remuneration of the The Social Advisory Board is made up of people who are directors referred to in article 26.3. members of relevant Third Sector institutions with esta- blished prestige and experience in the field of social — To report in relation to related-party transactions or and/or environmental action. those which involve the use of company assets. The members of the Social Advisory Board are elected — To prepare and maintain up-to-date a contingency plan for a three-year period, at the end of which they may be for the covering of vacancies in key posts in INDITEX. re-elected just once for another period of equal or less duration. Social Advisory Board Table 13. Current composition of the Social Advisory In December 2002 the Board resolved to establish the Board: Social Advisory Board, the advisory body of INDITEX as

Members Organisation

Cecilia Planiol Lacalle President of the AECC

Susana Weyer U.N. Global Compact.-Responsible for Outreach

Salvador García-Atance Lafuente Co-President of the Fundación Lealtad

Ramón Pueyo Viñuelas Head of Research at the Fundación Ecología y Desarrollo

Alfredo Vernis Domenech Director of Teaching Staff at Esade

Social Advisory Board meetings shall also be attended, contributed to programs of awareness-raising and/or with the right to speak but not to vote, by the Director of development related to the production and retail chains the Corporate Responsibility Department and by the and, in general, to any other social development projects. General Counsel of INDITEX who shall occupy the posi- The position of member of the Social Advisory Board shall tion of Secretary of the Social Advisory Board in order to be unpaid but INDITEX shall bear the cost of the follo- aid the Chairman in his tasks and to provide for the good wing: travel costs, accommodation, board and any other working of the Social Advisory Board. duly justified costs related to the exercise of that function. Likewise, the Social Advisory Board may require the atten- dance at its meetings, with the right to speak but not to In corporate 2002, the Social Advisory Board of INDITEX vote, of representatives of the institutions receiving funds met on three occasions.

52 ARTICLE 39 OF THE BOARD OF DIRECTORS REGULATIONS regulates the relations of this body with the markets, establishing the obligation of informing the public immediately about:

— Relevant facts, being events capable of significantly affecting the formation of prices on the stock market.

— The changes in ownership structure, such as variations in significant holdings, trade union agre- ements and those of other forms of coalition, which it has become aware of.

— Substantial modifications in the company’s rules of governance.

— The treasury stock policy that, where appropriate, is proposed to be carried out under the autho- risation obtained in the General Meeting and modifications thereto.

Likewise, article 9 of the Internal Regulations of Conduct regarding Transactions in Securities inclu- des a policy as regards treasury stock, by virtue of which it is incumbent on the Board, within the scope of the authorisation granted by the General Meeting, to determine specific plans for the acqui- sition or disposal of its own securities.

Independently of the specific plans referred to in the previous paragraph, and always within the scope of the authorisation granted by the General Meeting, the transactions involving securities carried out by INDITEX shall have as their fundamental aim the providing to investors of adequate volumes of liquidity and depth of the securities and to minimise the possible temporary unbalances that could occur between the offer and demand in the market, but they must not be with the inten- c tion of interfering in the free process of the forming of market prices.

In addition to the channels of communication that are listed in the paragraph on Shareholder Relations, the information to the markets is supported and complemented by the relation also main- tained with the analysts representing some 40 securities firms, who regularly follow the share price of INDITEX. The reports published by those analysts, based on their knowledge of INDITEX and their estimations of future evolution, take as their starting point the visits made to the company and the forecasts of the management team. After the publication of the annual results, a presentation is carried out in Madrid and another in R London to the analysts of the different financial entities. channels for relations with the markets

53 DURING CORPORATE 2002, some directors contracted building work with the construction company of INDITEX which billed the work at market prices. The amount of the income received from transactions with the members of the Board or its related companies has been 4,395,405 euros.

Furthermore, several INDITEX companies have leased a total of 31 commercial premises which are owned by a company linked with two Directors of the parent Company. The majority of the lease contracts of those premises were signed previously to 1994 and they will expire bet- ween 2014 and 2016. The existence of the aforementioned contacts was revealed in INDITEX’s IPO prospectus registered with the Comisión Nacional del Mercado de Valores on 27 April 2001. The amount paid by INDITEX during corporate 2002 as rent for the mentioned premises, calculated at market prices, came to 5,264,231 euros.

As at 31 January 2003, the companies of INDITEX held debit balances and credit balances for respective amounts of approximately 161,863 and 5,856 euros with members of the Board, originating from the transactions described above.

Additionally, during corporate 2002 one of the companies of the INDI- TEX Group has made a contribution of the amount of 300,506 euros to c the Fundación Paideia, which is linked to one of the members of the Board, in virtue of a mutual collaboration agreement that ends in cor- porate 2003 (see page 79). Therefore, the total future commitments undertaken by INDITEX in relation to this contract amount only to the R aforementioned outstanding annual contribution.

related-party transactions and intra-group transactions

54 INDITEX HAS AMONG ITS PRINCIPLES OF ACTION the fulfilment of a policy of transparency and the maintaining of channels of communication that guarantee that the whole of its current and pros- pective shareholders have clear, complete, homogenous and simultaneous information, that is suf- ficient to evaluate the management of the company and its economic and financial results.

The relevant information for adequate knowledge of the evolution of the business is communicated quarterly – including the Balance Sheet, the Profit and Loss Account and the Management Report – as well as to the CNMV, to the Media as a whole in Spain and the most relevant Media worldwide, with special attention being paid to those specialising in financial information. This same procedure is followed with the information relating to rele- vant events that affect the evolution of the business. In addition, corporate information is available through the corporate web page, both in the Communication section and in that for Investor Relations and is distributed to a data base of investors and analysts containing more than 750 entries.

As regards institutional investors, the company comple- ments this information with conference calls, informative meetings in the main financial capitals and visits to the corporate facilities. On their part, individual investors have access to the Shareholder’s Office via post, telepho- ne or electronic mail.

Articles 37 and 38 of the Board of Directors Regulations establish a series of measures that regulate the relations of the Board with the shareholders, having amongst their aims the complete transparency of the mechanism of proxies. Sr shareholder relations 55 Institutional Investors their participation in the decision-making process of the supreme governing body. The management team carries out two roadshows each year in which it presents the results of the first Half (spring-summer season) and of the complete corporate The corporate Web site year (after the winter season), visiting the world’s principal financial capitals. Over two and a half weeks, the main In addition to the corporate web site (www.inditex.com) financial institutions have access, principally through indi- each of its retail formats has its own web page vidual meetings, to the strategic vision of the management team. Over these visits, direct contact is made with more than 150 investors. www.zara.com Another forum for meeting investors is that of the sector conferences organised by financial institutions, participa- ting in the main events that take place in Europe, with an www.pullandbear.com average of 50 of the main institutional investors attending each conference. www.massimodutti.com

In addition to programmed occasions, a great number of meetings with investors are carried out over the year. www.bershka.com Upon specific requests, visits are organised to the inves- tors from a certain country or geographic area. In the last www.e-stradivarius.com year, presentations have been given in the main financial capitals in Europe, America and Asia. www.oysho.com Furthermore, there are also numerous visits by investors to the company’s facilities, both in Galicia and in Catalunya, to gain more knowledge of INDITEX, its busi- ness model and its business strategy. Over corporate The corporate web site contains significant corporate 2002, some 125 meetings have been held with institutio- governance information and documents and its aim is to nal investors from all over the world. become a vehicle for communication with the sharehol- ders, providing them with up-to-date information about all Individual investors: the Shareholder´s Office the aspects that could be relevant as regards corporate governance.

Finally, the accessibility of INDITEX for any individual inves- Anybody who accesses the corporate web site can see, tor through its Shareholder’s Office must be pointed out, amongst other information, the daily and historical share where its more than 80,000 shareholders can find, via tra- price, the public annual reports of INDITEX since 1998, ditional post, electronic mail, fax or telephone, a channel the financial information provided to the Comisión of communication to obtain information about the current Nacional del Mercado de Valores (CNMV) via Información evolution of the business or its future strategy and to Pública Periódica [periodic public information]; the rele- transmit any requests for additional information that each vant information sent to the CNMV; the company’s mana- individual investor considers to be relevant for their kno- gement team; the financial calendar, etc. wledge of INDITEX’s performance. In corporate year 2002, more than 600,000 people visited The Shareholder’s Office gains special relevance at the the corporate web site (www.inditex.com). time of convening and holding of the General Meeting. The information and documentation must be made avai- The new Board of Directors Regulations includes express lable and sent in a precise manner, in order to give all the regulation of the corporate web site in which it establishes shareholders suitable knowledge of the time, place and the minimum levels of documentation and information content of the General Meeting, and to thus make easier that must be shown in it.

56 social dimension

57 59-90}

59 Road Map. 61 The INDITEX Corporate Responsibility Model. 63 The process of introduction of the Code in the supply chain. The results of the social audit. 75 Participation in international platforms of social responsibility. 77 Social Action through Dialogue.

58 road map 3

June 2001 Beginning of 2 the Social Audit Program

April 2001 Creation of the 1 Corporate 6 Responsibility February 2001 Department Code of Conduct and September 2002 the Code of Conduct Inclusion in the for External Dow Jones Workshops and Sustainability Manufacturers 5 Indexes

February 2002 Social Audit in 4 Morocco

August 2001 Adhesion to The Global Compact 8 Platform

December 2002 Prestige program 7

November 2002 Social Audit in Turkey and Portugal 9 March 2003 The first Sustainability Report

60 THE INDITEX

corporate responsibility model Ci

61 INDITEX’S CORPORATE RESPONSIBILITY MODEL seeks to go beyond the philanthropic schemes of the 20th century and to orient its strategy towards wider and sustainable considerations which reconcile, at the same time, the principles envisaged in the Code of Conduct with formulas of dia- logue with each of the stakeholders affected directly or indirectly by its acti- vities: employees, business partners, suppliers, customers and society.

The corporate responsibility strategy, strengthened in 2001 with the appro- val of the Code, seeks to govern the performance of INDITEX as a responsi- ble and socially committed company and with the desire to transmit its values through its production, distribution and retail chains.

The strategy of the introduction of the Model has gone through the following stages:

–– The obtaining of the first Map Of Social Risks in the production chain, based on the conclusions of the independent audit of External Manufacturers and Workshops and designed to determine the degree of compliance with the Code.

–– The design of the first Corrective Plans of Action, in order to correct the breaches detected in the previous stage.

–– The beginning of the first study of the needs of the employees of the sup- pliers of the production chain and the subsequent financing of development programs for them to be correctly attended to.

–– The creation of the Social Advisory Board, as a platform for dialogue bet- ween INDITEX and Society.

The work carried out during this second year is the following:

–– The process of the introduction of the Code in the production chain.

–– The Social Audit of External Manufacturers and Workshops. C –– The creation of the Social Advisory Board (see page 52). i –– Active participation in international Social Responsibility Platforms. –– Social Action through the Community Development Programs, the Programs for Strengthening the Production Chain, the Awareness Programs, Sponsorship and Philanthropic Programs and the Prestige Program.

62 the process

of the introduction of the Code in the supply chain Ip

63 The basic principles of Corporate Responsability at INDITEX

APPROVED BY THE BOARD OF DIRECTORS IN FEBRUARY 2001, the Code of Conduct is defined as an ethical commitment that includes basic principles and standards for the proper development of the relations between INDITEX and its principle stakeholders wherever it carries out its business activities.

The Code is organised through the following principles:

–– All the operations of INDITEX shall be developed under an ethical and responsible perspective.

–– All the people who maintain, directly or indirectly, any kind of labour, economic, social or industrial rela- tionship with INDITEX shall be treated in a fair and honourable manner. Ip –– All INDITEX’s activities shall be carried out in the manner that most respects the environment.

64 Code of Conduct

The Code is set down according to its five stakeholders:

Employees

INDITEX does not employ anyone who is below the legal age. No-one who is employed at INDITEX is discriminated against because of their race, physical disability, religion, age, nationality or sex. The employees of INDITEX have their right recognised to associate or organise themselves or to bargain collectively. At INDITEX no form of physical, sexual, psychological or verbal harassment or abuse is permitted. The salary received by INDITEX employees is in accordance with the function performed, always respecting the pacts of each sector. INDITEX guarantees that its employees perform their work in safe and healthy workplaces.

Business partners

INDITEX makes sure that each and every one of its business partners fulfils the contents of the paragraphs of this Code on customers and employees.

Suppliers

The External Manufacturers and Workshops of INDITEX are bound to comply with the contents of the employees and customers paragraphs of this Code. Likewise, they permit any monitoring by INDITEX, or authorised third parties, to verify their compliance.

Customers

INDITEX undertakes to offer to all its customers a standard of excellence in all its products; at the same time, it guarantees that its products do not entail a risk to their health or safety.

Society

INDITEX undertakes to collaborate with the local, national and international communities in which it operates.

65 The Code of Conduct for External Manufactures and Workshops

To guarantee adequate introduction and subsequent mamagement of the Code of Conduct in the chain of production, a second code of conduct was designed for External Manufacturers and Workshops.

Its conceptual framework contains the Human Rights Declarations, the UN Convention on Rights on Minors and the Conventions of the International Labor Organisation nos. 29, 87, 98, 100, 105, 111, 138, 182 and 190, with special emphasis on remuneration policies and hiring, health, safety, child labour and the environment.

This second Code is organised in 11 points, as is shown as follows:

Child labour

The External Manufacturers and Workshops shall not work with minors. We define as minors those people who are under the age of 16 or in exceptional cases 14, in those countries included in section 2.4 of Convention 138 of the International Labor Organisation. In the event that local legislation establishes a higher age limit, the provi- sions established in the same shall be respected.

Non-discrimination

The External Manufacturers and Workshops shall not apply any type of discriminatory practice with regard to sex, race, creed, age, nationality, sexual orientation, political opinion or physical or mental disability.

Freedom of association

The External Manufacturers and Workshops shall respect the rights of the employees to associate or organi- se themselves or to bargain collectively, in no case shall employees be subjected to any kind of sanction because of this.

Harassment and abuse

The employees of the External Manufacturers and Workshops shall be treated with dignity and respect. Under no circumstances shall physical punishment, harassment of any type or abuse of power be per- mitted.

Health and safety

The External Manufacturers and Workshops shall guarantee their employees a safe and healthy work- place in compliance with the provisions of law, ensuring reasonable minimum conditions of light, ven- tilation, hygiene, fire prevention safety measures, as well as access to a drinking water supply.

Likewise, the External Manufacturers and Workshops shall guarantee that these minimum condi- tions are met in any of the facilities that they could provide for their employees.

Remuneration policy

The External Manufacturers and Workshops shall comply with the local legislation in force with regard to labour matters. They shall pay their employees at least the minimum wage established by Law for each professional category.

66 Environment

The External Manufacturers and Workshops are obliged to comply with the provisions of the legislation in force on environmental matters.

Subcontracting policy

The External Manufacturers and Workshops, which subcontract work for INDITEX, shall be responsible for the subcontractors’ compliance with this Code.

Other applicable law

The External Manufacturers and Workshops shall comply with all the legislation in force (local, national and international).

Supervision and compliance

The External Manufacturers and Workshops authorise INDITEX itself or through third parties to carry out inspections, which guarantee the observance of this Code, providing these supervisors with access to the necessary documentation and means to ensure this process.

Publication of the Code

The managers of the External Manufacturers and Workshops shall inform their employees about the contents of this Code of Conduct. A copy of the same, drawn up in the local language, shall be placed in any place accessible to all employees.

67 The Corporate Responsibility Departament

The Corporate Responsibility Department is located at the headquarters of INDITEX in Arteixo, A Coruña and is made up of three professionals reporting directly to the Chairman.

This team works exclusively in areas related to social and environmental responsibility, awareness-raising and internal and external communication of the Code and, in addition, participates in the Patronage and Sponsorship Committee to chan- nel the investments of a social nature (see p 89).

Strategy of introduction of the Code

The strategy of the introduction of the Code and the transmittal of our values to our suppliers is based on association and dialogue. It considers that the External Manufacturers and Workshops are key stakeholders for INDITEX’s operations.

Development of the Social Audit Program

The Social Audit Program is based on the Code of Conduct for External Manufacturers and Workshops which defines the expectations and standards of reference.

The Program specifies the review procedures that guarantee the obtaining of the information and the evidence about the minimum working conditions that all the External Manufacturers and Workshops of INDITEX must fulfil. It has been designed by the Corporate Responsibility Department in collaboration with the Factory Managers and Production Managers at each of the seven formats of INDITEX.

The Program is made up of five phases:

Phase I Selection of geographical areas

Phase II Selection of independent social auditors

Phase III Independent verification of the degree of compliance with the Code of Conduct for External Manufacturers and Workshops

Phase IV Management of the results 5 Phase V Corrective Plans of Action 68 Phase I: Selection of geographical areas: INDITEX’s chain of production is extensive and complex. INDITEX has a structure of thirteen factories in Arteixo, one in Narón and another in Ferrol, A Coruña, its own eight distribution centres and more than 1,900 suppliers spread around 45 countries.

Graph 3.- Volume of production by geographical area (approximate figures) in 2002:

Asia 20/25%

Europe 70/80%

America and Africa 5/10%

69 Graph 4.- Based on the volume of production by geographical area, the following plan has been designed for the Social Audit:

2003 2002

EUROPEAN * UNION

NON-EUROPEAN- COMMUNITY EUROPE

* AFRICA

** AMERICA

ASIA

() Year of commencement of the Social Audit.

(*) Includes the new suppliers, monitoring of those that have already been checked and introduction of the Corrective Plans of Action (see page 74).

(**) The Social Audit is planned for 2004

70 Phase II: Selection of independent social auditors:

Since the beginning of the Program, INDITEX has been aware of the importance of guaranteeing independence in its execution and of ensuring adequate understanding of the local, economic and socio-labour reality in each of the countries in which it operates.

Therefore, from the start, and with the purpose of making the Program transparent and independent, INDITEX has carried out the aforementio- ned audits with teams of local independent professionals who master the legislation and language of the area.

Graph 5.- Social auditors by geographic area:

2002

EUROPEAN UNIÓN KPMG* and PwC

NON-EUROPEAN- COMMUNITY PwC** EUROPE

AFRICA PwC and GBCC

AMERICA N/A

ASIA N/A

(*) www.kpmg.es (**) www.pwcglobal.com

71 Phase III: Independent verification of the degree of compliance of the Code of Conduct for External Manufacturers and Workshops

Once having selected the geographic areas mentioned in Phase 1 above, it includes all those activities that go from the first contact with the management of the factory to the issuing of the audit report on the external factory or work- shop checked.

Below is a summary of the activities, procedures and documents that the audit is based on:

–– Presentation of the Social Audit Program. The verifi- cation program begins with a meeting with the manage- ment of the factory to confirm mutual understanding of the objectives and scope of the audit.

–– Visit to the factory and facilities. The auditors carry –– Social audit report. Once the field work has been out a complete visit to the factory including the different completed, the team of auditors prepares the Report areas of production, warehouses and other facilities used which shall include, among other things, a summary of by the employees. the conclusions on the visit to the facilities of the manu- facturer and the Corrective Plan of Action. –– Questionnaire from the Manager of the external fac- tory or workshop. In order to know the socio-labour envi- Phase IV: Management of the results ronment of the factory, the manager is interviewed and asked questions about labour, health and safety condi- –– Managing the Reports. After receiving the Social Audit tions of the facilities he or she is in charge of. Report, the Corporate Responsibility Department, taking into account the general conclusions of the auditors on –– Private interviews of the employees. An individual compliance with local legislation and with the Code, interview is carried out about health and safety working begins the internal assessment of the manufacturer. conditions with 15% of the employees, chosen at random. –– Breaches. The Report includes a definition of a fact –– Compilation of information. In order to compare considered as a breach. This description gives a break- documentarily the conclusions obtained in the procedu- down of at least the following information: res described in the two paragraphs above, the docu- ments proving the system of registration with the Social • Specific failure to comply with the section of the Code. Security are requested, amongst others, (for example, in • Place at the facilities where it was detected. Spain the TC1 and TC2), payments of corporate taxes and • Plan agreed with the management of the factory for sui- income tax for individuals and the pay slips. table correction.

–– Corrective Plan of Action. Once the audit has ended, –– Evaluation of the External Manufacturers and Work- the breaches of the Code, or incidents, are communica- shops. INDITEX has developed a methodology and an IT ted to the management of the manufacturer through a program that allows it to have an assessment of the degree Corrective Plan of Action, which includes: of compliance with the Code by its suppliers.

• The breaches identified This assessment is based on a system of indicators that • The corrective measures, agreed with the managers of objectively measure the degree of compliance with each the factories. of the 11 points of the Code.

72 These indicators are grouped in the FOLLOWING FAMILIES:

• Applicable minimum salary and/or agreement. • Payment of the payroll. • Remuneration of overtime. • Management of the labour documentation of the employees. • Forms of compensation. • Holidays. • Evacuation routes. • Protective equipment. • Environmental conditions. • Training in health and safety. • Fire extinction means. • Environmental policies. • Minimum age. • Discrimination. • Freedom of association. • Harassment and abuse. • Subcontracting. • Legislation in force. • Independent revision.

73 Scope of the Social Audit as at 31 January 2003

Below is given the number of external factories and workshops of our suppliers audited in this corporate year by geo- graphical area:

Table 14.-

European Non-European- North Asia America Total Union Community Africa

Auditor PwC and PwC PwC and N/A N/A - KPMG GBCC

Audited 929 23 61 - - 1,013

Phase V: Corrective Plans of Action

The Corrective Plans of Action have as their result the agrees with the commercial teams the termination of the continual improvement in the working conditions at the contractual relations. external factories and workshops. The objective for corporate 2003 will be to carry out six- If the breach is defined as serious, the Corporate Respon- monthly audits in those External Manufacturers and sibility Department itself can consider the temporary sus- Workshops where serious breaches have been detected pension of the contractual relations with the supplier until and, at the same time, to verify the introduction of the the correction of the breach can be proven. corrective measures. For the remainder, a periodic follow- If the serious breach persists once the period for its correc- up of the Corrective Plans of Action has been established, tion has run out, the Corporate Responsibility Department of a random nature.

74 Governments

Labour

Participating Companies

ILO L UNEP L o HCHR o c c Advisory a Council a l l

n n The Global Compact Office e e t t w w o o r r k UNDP k s s

Business Associations

Civil Society

participation in 75 IN AUGUST 2001, INDITEX JOINED THE GLOBAL COMPACT OF THE UNITED NATIONS to confirm its commitment to the defence of Human Rights in all its activities. Since the beginning of 2003, INDI- TEX has presided over the Global Compact in Spain.

Among the reasons that justified its adhesion to the Global Compact, the following stand out:

–– Sharing experiences and best practices with other companies.

–– Participating in working groups.

–– Establishing relations with other international institutions such as the Office of the High Commissioner for Human Rights, the United Nations Program for the Environment and the United Nations Program for Development.

As a company that has joined the Global Compact, INDITEX has undertaken to fulfil its nine principles. The first six refer to the protec- tion and promotion of human rights and the establishment of fair wor- king conditions.

Lastly, the Global Compact grants INDITEX the opportunity to find for- mulas of participation and dialogue with other interlocutors, from the perspective of International Civil Society, from a platform that groups together United Nations organisations, International Workers Associa- P tions and Non-Governmental Organisations. international platforms of social responsibility 76 sA social action Introduction

IN THE LAST TWO YEARS, INDITEX HAS BEGUN ITS PROGRAMS OF SOCIAL ACTION from a perspective characterised by:

–– Promoting the collaboration and dialogue with individuals and institutions who work for justice especially in those countries where INDITEX develops its produc- tion or distribution activities.

–– Boosting formulas of association and internal participation through its profes- sionals and with the diverse plural institutions with which it shares its objectives.

–– Supporting its strategy of social support through the work in connection with other institutions from the north and south.

–– Developing the programs with maximum transparency, maintaining a sincere attitude with each of the counterparts.

The aforementioned relations of association are based on collaboration and mutual respect, which implies:

–– Maintaining at all times relations of equality. –– Articulating them through stable relations that have a vocation of continuity. –– Sharing common strategies of action in the mid- and long term.

INDITEX considers that from social action it should respond to the needs and demands of the different social actors in four performance areas:

1 The community environment. The Programs of Community Development allow the addressing of social needs considered by the counterparts in the coun- tries where INDITEX is present.

2 The associative ambit. Through Programs of Institutional Strengthening INDI- TEX strengthens the development of the social and community fabric through technical and human support, the training of educators and community leaders and the provision of educational materials.

3 The environmental of the production chain. With the Programs for Strengthening the Chain of Production, INDITEX helps to improve the socio-labour conditions of the workers of the suppliers and their families and communities.

4 The ambit of the distribution chain. With the Awareness-Raising Programs, INDITEX favours, through its network of stores, the raising of society’s awareness towards the most disadvantaged sectors and countries. A In addition to these four areas, this year the commitment that INDITEX has wished to make to the Galician people due to the environmental, economic and social tra- gedy that the sinking of the Prestige oil tanker has meant, merits special mention. through dialogue 78 Programs for Community Development

In the last two years, INDITEX has begun to develop its 4 Financing of social and institutional strengthening strategy in the field of Cooperation for Development with programs that respond to the detected needs. the Programs for Community Development, with projects in Spain, Venezuela, Peru and Morocco. During 2002, the Programs for Community Development have focused on three main chapters: This strategy has been developed in the following stages: –– Strengthening programs for high social risk, disabled, 1 The identification of local and international NGOs childhood and youth sectors in Spain, Venezuela and with a solid track record and experience in the develop- Peru. ment of social projects in those countries where INDITEX develops its business model. –– Development of Community Centres for Basic Services in Morocco. 2 Establishment of collaboration agreements with those social organisations. –– Institutional Strengthening of Local Associations in Tangiers, Morocco. 3 Prioritization of the detected needs. Spain Projects targeting the favouring of socio-labour inclusion of vulnerable groups

INDITEX has contributed the amount of 300,506 euros to the Fundación Paideia for the funding of the following areas, amongst others:

–– Social exclusion and marginalisation. Covering problematic questions caused by marginalisation and exclusion. The Fundación proposes alternatives of redistribution and social inclusion of vulnerable groups.

–– Disability. Promoting, preparing and employing in ordinary and protected environments people with disabilities or mental illness, to help their integration into the world of work and the search for inclusive social environments.

–– International cooperation. Carrying out collaborations and projects that make possible and articulate action with dif- ferent social agents at various levels of involvement.

Table 15.- Budget for the Program: Total (euros)

Contribution from local organizations - Contribution from INDITEX 300,506 Total budget of the Program 300,506 79 Venezuela Program of Strengthening of High Social Risk Sectors This program is managed through the Entreculturas-Fe y Alegría Foundation (www.entreculturas.org) in collaboration with the Centro Gumilla Foundation from Venezuela (www.gumilla.org.ve), which is the Research and Social Action Centre of the Compañía de Jesús in that country.

Through the Centro Gumilla, other local institutions have been identified with whom alliances have been established to detect the main needs and the necessary resources that contribute to improve the quality of life of the communities with which they work.

This institutions are Centros Populares de Capacitación Laboral (Popular Centres for Labour Training), Comunidad Indigena S. José de Kañamá, Hogares Virgen de los Dolores (Virgen de los Dolores Homes) and the P.A. Hurtado University Communities.

The objective of this Program is to provide the infrastructures and educational mate- rials necessary to improve the training of the young people with strong human and leadership potential to be the authors and protagonists of the transition processes within their community.

Principal lines of action of this Program:

1 Creation of spaces for the integral training of children and young people.

–– Aid and support to the running of 12 libraries located in poor, outlying neighbour- hoods and areas of various Venezuelan cities.

–– Construction of 8 workshops for vocational training in the areas of carpentry, ironmongery and IT and another 7 in the Centros Populares de Capacitación Laboral.

80 –– Creation of the school of the Community of St. José de Kañamá in the Venezuelan Amazon.

2 Socio-economic support for the continuation of the academic studies and professional improvement of young people with great human and community lea- dership potential.

–– Support for students from the P. A. Hurtado and St. José de Kayamá University Communities with the neces- sary economic resources so that they continue their res- pective academic studies and in the future act as mana- gers of change in their communities.

–– Support of teachers from the Community of St. José de Kayamá, natives of the E`ñepá and Hotti ethnic groups, that after having achieved teacher training return to their community and contribute to improving the quality of life of their ethnic groups, providing basic bilingual education.

3 Training workshops for community leaders and prepa- ration of didactic materials.

–– The workshops are aimed at people who are devoted to the organization of their communities to improve their living conditions, offering them theoretical-practical tools that permit them to be the protagonists of the transforma- tion of their community.

–– The pedagogic materials prepared focus on the modu- les of organisational and community development, the legal area and the formulation and management of com- munity projects.

Beneficiaries of the Program:

5,550 young people 220 social leaders and teachers 5,800 family groups

Table 16.- Budget for the Program: Total (euros)

Contribution from local organizations 102,121 Contribution from INDITEX 434,768 Total budget of the Program 536,889

81 Peru Program of Strengthening of High Social Risk Sectors

This Program is managed through the Entreculturas-Fe y Alegría Foundation (www.entreculturas.org) in collaboration with the Development Office of the Compañía de Jesus in Peru (www.jesuitasperu.org), which is the platform of all the social and educational work of that institution in that country.

These organisations are Coordinadora Coraje, in Ilo and Tacna, the Escuela Superior Ruiz de Montoya school, in Lima, and the Fe y Alegría Network of Schools, in Cuzco, Ilo, Lima, Quispicanchi and Tacna.

The objective of the Program is to improve the living conditions of children and young people through the development of their study and leisure abilities and skills. The targeted beneficiaries are Working Children and Adolescents, who are street children.

82 The Program is structured on four pillars:

1 Construction of educational infrastructures.

–– 2 workshops for primary education in Quispicanchi. –– 6 new classrooms in Huarahuara. –– 2 sports facilities in Quispicanchi. –– 3 classrooms and an auditorium in the colegio Fe y Alegría 52 in Ilo. –– Auditorium in the Centro Loyola in Ilo.

2 Educational, preventative and training attention for Working Children and Adolescents.

–– Training and educational actions. –– Workshops on business management and health and safety in the workplace.

3 Fund for study grants to the training of community leaders.

–– Support for students from the Fe and Alegría network of schools for the continuation of their academic studies, preparing them as managers of change for their commu- nities.

4 Publication and spreading of educational materials.

–– Publication and spreading of didactic materials on rights of childhood. –– Systematization of the experience in reading-writing in 6 primary education centres in the province of Quispicanchi.

Beneficiaries of the Program:

20,654 children 1,877 Working Children and Adolescents 122 educators 1,550 family groups

Table 17.- Budget for the Program: Total (euros)

Contribution from local organizations 355,197 Contribution from INDITEX 494,118 Total budget of the Program 849,315

83 Morocco Program of Strengthening of Local Community Associations

This Program is managed in association with the Fundación Codespa (www.codes- pa.org). Through it, four local community associations have been identified with which a strategic alliance has been established to detect the main necessities and the resources needed to improve the quality of life in the communities where they work.

These organisations are:

– Ain Hayani Association, in the neighbourhood of Dradeb-Ain Hayani.

– Mesnana in the neighbourhood of Mesnana.

– Mouatina Association, in the neighbourhoods of Jerari and Beni Makada.

– Ben Kirane Association, in the neighbourhood of Charf.

84 The program has a double objective: the workers’ families and the preparation of future profes- sionals demanded by the textile sector. 1 Development of the Community Centres for Basic Services. In this context, and with the end of improving the current services offered by the Centres, INDITEX and Codespa are The Community Centres for Basic Services are located in developing a methodology of work and pilot programs that the aforementioned socio-economically depressed neigh- are given in more detail in the Program for Strengthening bourhoods of Tangiers and their characteristics are, of the Chain of Production (see pages 87 and 88). amongst others: 2 Institutional Strengthening of local associations. –– Their proximity to the communities and their social realities. Once having identified the four associations, the strategy of INDITEX and Codespa has been focused on the design –– The offering of a range of social services aimed at of a Program of Institutional Strengthening that is directed improving their living conditions. at preparing associations for improved management of the current development projects and/or the widening of –– The support of the insertion into the workplace of the range of basic social services in two of them: women and young people. Mouatina Association –– The offering of training programs in sectors likely to create employment and self-employment and advisory Set up in 2001, at the present time it operates in one of and socio-labour information services. the most populated and conflictive areas in Tangiers. It works basically with women and children and centres its Through these Centres, it is sought, principally, to respond offer of services on the teaching of basic literacy and to the needs of the families of the workers from the cen- industrial garment-making. tres of production of INDITEX’s suppliers. The Institutional Strengthening Program seeks to prepare At the present, the offer of social services of these Centres the Association in order for it to increase the range of ser- include, amongst others: vices offered to its community and manage the Com- munity Development Programs in the neighbouring com- • A kindergarten for the children of working women. munity of Jerari, Beni Makada, characterized by the high rates of domestic immigrants and by its proximity to the • Basic literacy. industrial area.

• Health.

• Non-formal education.

• Professional training in the field of garment-making.

• Assistance of a legal, administrative and labour nature.

• Programs for awareness-raising in matters related to health and primary hygiene.

These services vary according to the demands and needs of the community.

The possibility of interrelating the needs of the workers with the current offer of services of the Centres would allow, in the short term, the meeting of the basic needs of

85 Ben Kirane Association

This is the youngest Association. At the present time, Codespa is developing a Institutional Strengthening Program with the purpose of preparing it in the short term in order to direct new programs of social investment in Ben Kirane, one of the most depressed communities in Tangiers.

Although at the present time it only works with teaching basic literacy to adults, the objectives for the next year are focussed on increasing its educational offer with new courses for professional preparation in industrial garment- making and on supporting and improving its offer of ser- vices in the field of basic literacy. This will allow it to strengthen its capacities and, subsequently, to explore the possibility of creating a new Centre in the community.

Beneficiaries of the Program:

Total beneficiaries: 2,700 Non-formal education: 125 boys and girls Kindergartens: 130 boys and girls Health: 1,000 Social Assistance: 300 Basic Literacy: 400 women Professional training: 755 young people and unemployed heads of families, of which 250 in industrial garment-making People inserted into the labour force: 100

Table 18.- Budget for the Program: Total (euros)

Contribution from local organizations 100,000 Contribution from INDITEX 330,000 Total budget of the Program 430,000

86 The Programs for Strengthening the Chain At the same time, it is sought to strengthen the role of the of Production Community Centres for Basic Services as efficient training centres and worker search centres for the companies in The textile sector is of notable economic importance in the textile and garment-making sector, contributing, in countries such as Morocco, India, Indonesia, Thailand, this way, to improving the socioeconomic situation of their Vietnam and China, as it makes up one of the main sources communities. of employment, especially for women. Survey of the employees of the factories The employees of the factories generally live in very hum- ble areas that lack infrastructures and with a reduced The objective of the survey of the factory employees of the range of basic services. suppliers is to detect, measure and prioritize the basic needs deriving from the socio-economic conditions of the INDITEX’s Programs for Strengthening the Chain of employees, their families and their communities. Production have the following as their main objectives: The areas which it is sought to influence in the short and –– To improve the socio-labour conditions of the emplo- mid- term through the Centres are: yees of INDITEX’s suppliers. • Education. –– To train the supervisors of the chain of production and the managers of those suppliers in social, health and • Work training. safety matters. • Family and community environment. –– To set in place Awareness-Raising Programs for the workers in matters relating to health and nutrition. • Social assistance.

–– To guarantee adequate compliance with INDITEX’s Code • Leisure. of Conduct for External Manufacturers and Workshops through sufficient dialogue between workers, chain super- • Food and health. visors, factory managers and social actors. • Range of public services available and future options. In order to develop these Programs, formulas of associa- tion with the following social organisations have been esta- blished:

• Codespa, in Morocco.

• Global Alliance for Workers and The Communities (www.theglobalalliance.org) in China, Indonesia, India, Thailand and Vietnam.

The programs are structured in three phases:

Survey of the factory managers

The objective of these interviews is to know the opinions of the managers of the manufacturing centres as to the needs of their workers perceived from the business pers- pective, especially as regards training, which can be influenced directly or indirectly in order to improve the socio-labour situation.

87 Analysis of the conclusions –– The development of a tripartite dialogue between INDI- TEX-Suppliers-Society to strengthen programs ensuring In this year, two pilot survey groups have been prepared the specialization and quality of the vocational training and in the next year we foresee the drafting of a Plan of courses given at the Community Centres for Basic Services. Action in which the following stand out:

–– The reinforcement of the current offer of social contri- butions in the Community Centres for Basic Services loca- ted in the communities where the workers live.

–– The strengthening of the Centres as training centres and labour exchanges for the factories of the area, influencing, through the insertion of workers into the workforce, the improvement of the socio-labour fabric of each of the communities.

Table 19.- Budget for the Program: Total (euros)

Contribution from local organizations - Contribution from INDITEX 300,000 Total budget of the Program 300,000

Awareness-raising programs This amount, entirely transferred to the Fundación Entre- culturas Fe y Alegría, has served to finance to following It is a priority for INDITEX to contribute to the raising of development projects: awareness of society about the problems suffered in the most disadvantaged sectors and countries. –– Construction of classrooms in different towns in Colombia that will permit the schooling of 1,570 boys, girls From the end of 2001, and on the occasion of the with- and young people who are in situations of high social risk. drawal of the peseta, INDITEX carried out its first aware- ness-raising action directed at encouraging the active par- –– The construction of classrooms for the education of ticipation of its employees and, at the same time, causing 560 boys and girls from the poor neighbourhood of Ongay, reflection and solidarity in its customers. in Corrientes, Argentina.

All the INDITEX stores in France, Portugal and Spain joi- ned the Pesetas para el Mundo (Pesetas for the World) campaign so that the collection of the last notes and coins would permit the schooling of boys and girls, train tea- chers and provide classrooms with school materials in poor, outlying areas in Latin America.

For the more the four months that the campaign lasted, more than 11,000 collection boxes were set up in our sto- res, obtaining the collection of approximately 147,000 euros thanks to the generosity of all our customers and the collaboration of all the personnel of our stores.

88 Patronage and Sponsorship Programs Prestige Program

Over the last few years, INDITEX has been involved in a The catastrophe caused by the sinking of the Prestige oil process of rationalization of its investments in the patro- tanker in November 2002 has meant probably one of the nage and sponsorship in order to reconcile its policy of greatest environmental disasters in the history of Spain and investment in areas related with the promotion of culture its social and economic consequences for Galicia have and those priorities pertaining to its business Model. been and will be very serious.

A Patronage and Sponsorship Committee, made up of the The immediate reaction of INDITEX upon the catastrophe Director-General Manager, the General Counsel and Board was to allocate an initial donation of 270,000 euros to the member and the heads of the Corporate Responsibility Spanish Red Cross to deal with the urgent need for mate- and Communication Departments channelled the activities rial and equipment in the first few weeks after the disaster. in this area. Subsequently, the Board of Directors, in its meeting in In 2002, approximately 472,000 euros have been alloca- December 2002, in solidarity with all those affected by the ted to these kinds of activities, the following sponsorships consequences of the Prestige disaster, resolved to alloca- standing out from the total: te an additional 6 million euros (1,000 million pesetas) to collaborate in the solving of the problems caused by the — Orquesta Sinfónica de Galicia: spill. www.sinfonicadegalicia.com To apply these funds in the quickest and most effective — Fundación Serralves: www.serralvespt.com manner possible to environmental and economic recover, INDITEX and the Spanish Red Cross have designed the — The collection of contemporary art found in the Prestige program, which focuses on individualised atten- Valladolid Contemporary Art Museum, “Patio Herreriano”: tion to the most affected people, giving preference to the www.museopatioherreriano.com most vulnerable groups in the most harmed areas and especially to the Cofradías de Pescadores (Fishermen’s Guilds) affected by the accident.

89 The choice of the Spanish Red Cross as a counterpart in the Program is due to its universal, voluntary and selfless experience in its work of helping disadvantaged groups that have great difficulties for social reinsertion, joined to its establishment in the Galician Autonomous Community and to its proximity to the affected sectors in activities such as maritime rescue.

The objective of the Program is to set in motion socio- labour projects that benefit all the sectors of the affected population, and that subsequently will be sustainable and taken on by the beneficiaries, with a duration of four years from April 2003.

This Program is designed on the following strategic lines:

1 Concern towards maritime Galicia, acknowledging the role of the Cofradías de Pescadores as priority agents in the identification of the needs of the groups adversely affec- ted by the catastrophe.

2 Setting up of a Follow-up Committee made up of INDITEX, the Spanish Red Cross and the Cofradías de Pescadores, to guarantee dialogue and transparency in the execution of the Program.

3 Establishment of the Points of Inclusion to detect the needs of the population and to develop subsequent actions.

4 Creation of the Red Book of Needs to make known the social and environmental reality and the needs of the affected areas and, subsequently, to articulate the diffe- rent plans of action.

5 Attention for the most vulnerable people, by attemp- ting to improve the situation of the family environment of those most directly affected by the catastrophe.

6 A Flexible Program that manages a fund of 4 million euros to deal with the five strategic lines given above and another additional fund of 2 million euros to meet the needs that could arise out of new changes in the environ- ment, destined towards the improvement in the situation of the sea and the affected sailors.

90 our people

91 93-98}

94 Objectives. Workforce. Employment stability. Internal promotion and training policies. 95 Graphs.

92 our people Po

93 Objectives

The activities of human resources are oriented towards a double objecti- ve: to guarantee the sustained growth of the organization (recruitment, integration and training of new employees) and to optimize the processes of work to contribute to improving the competitiveness of our companies in the market.

Workforce

INDITEX has increased its workforce in absolute terms from 26,724 employees in 2001 to 32,535 in 2002 (22% more). The countries with the highest number of employees, after Spain, are Portugal, France, Mexico and Germany. 86% of the workforce works in-store and the rest is spread among the activities of manufacturing, distribution and centra- lised services.

Employment stability

INDITEX puts an emphasis on stable workforces. In the case of Spain, 75% of its employees have undefined-term contracts. Temporary con- tracts are associated with momentary situations of increases in produc- tion, for support personnel in workplaces. The proportion of part-time employees is increasing in the majority of European countries. In the sto- res in the main capitals, more than half of the workforce work part-time and combine their jobs with their studies, leisure activities or family lives. Our workforce is young (average age is 27 years) and mainly female. Four out of each five managers are women.

Internal promotion and training policies

Internal promotion is one of the channels that guarantee our growth. The P introduction of a new commercial format is carried out with the support of the others. All the countries and formats collaborate in the training of o new employees, for the stores of other subsidiaries or concepts. 80% of the investment in training is allocated to the store personnel: knowledge of our system of working, training in theory and practical training in other stores with personal tutors. The transfer of knowledge and especially of our culture and values are the cornerstones of the training programs.

94 Graph 6.- Details of the composition by age of the workforce in Spain:

Age over 42: 7%

Age 38/41: 4% Age 18/22: 15%

Age 33/37: 9% Age 23/27: 41%

Age 28/32: 24%

Graph 7.- Details of the contractual formulas and salary in Spain:

Contractual formulas: Salary:

Outside trade union Temporary: 25% agreement: 20,9%

Trade union agreement: 79,1% Permanent: 75%

95 Graph 8.- Details of the composition by gender of management positions in Spain:

Male managers: 208

Female managers: 776

Graph 9.- % of workers represented by Workers Committee and personnel representatives in Spain:

Unrepresented: 48%

Represented: 52%

96 Graph 10.- Occupational accidents and occupational diseases in Spain:

900 800 700 600 500 400 300 200 100 0 fatal serious diseases accidents accidents occupational 2001 minor accidents 2002

As can be seen in this graph, the ocurrence of accidents is low and, despite the increase in the size of the workforce, the rates are constant in both years.

97 Graph 11.- Lost working days due to accident and illness in Spain:

0.012 0.01 0.008 0.006 0.004 0.002 0 to accidents/ 1000 workers 1000 workers 1000 workers days lost due

2001 days lost due to common illness/ days lost due to 2002 occupational illness/

The number of working days lost due to common illnesses has increased in absolute terms due to the increase in the workforce. However, in relative terms, the ratio is lower than that of the sector and the countries of the environment.

98 environmental dimension

99 101-130}

101 Road Map. 103 INDITEX and the environment. 105 Environmental policy. 107 Structure and organisation. 109 Programs for environmental training. 111 Strategic plan 2002-2005. 113 Annual action plans 1995-2003. 115 Environmental criteria applied to facilities, chains and products. 119 The system of indicators. 121 Indicators of emissions to the atmosphere. 123 Indicators of waste manage- ment. 127 Indicators of energy and water.

100 road map 3

1999 Plan for control of emissions, spills 2 and waste

1995-1998 Improvements in efficiency in energy 6 1 systems. First co-generation December 2001 July 1995 plant ISO 14001 certification Environmental for the central commitment. headquarters and the Environmental logistics centres in officer 5 Arteixo, A Coruña

February/June 2001 Environmental Policy. 9 4 Training plan November 2002 ISO 14001 2000 certification Tri-cogeneration in 16 factories plant and change 8 from oil to natural gas October 2002 Plan for implantation of renewable 7 energies

August 2002 Inclusion in Dow Jones Sustainability Indexes 10 March 2003 First Sustainability Report

102 INDITEX and the environment Ei

103 THE COMMITMENT AND THE SEARCH FOR SUSTAINABLE BUSINESS DEVELOPMENT is not new at INDITEX. From the start, INDITEX has assumed its responsibility with the environment where it operates and the search for resources to fulfil this commitment.

So, from 1995 INDITEX has developed its business model through the control and legislative compliance in environmental matters of its workplaces and its activities, understanding that sustainable development must be built on a solid base of control and management.

In order to strengthen this commitment to control and management, the intro- duction and certification of the Systems of Environmental Management in accor- dance with ISO 14001 began in all the factories and logistics centres, with a plan of work that will finalize in 2003.

Likewise, in 2000 there was a qualitative jump towards the sustainability model, committed not only to control and management, but to models of efficiency in the process. This focus has allowed the achievement in 2002 of the introduction of self-produced renewable energies, a landmark that culminates many actions working towards reduction of and efficiency in consumption.

In the next few years we will continue our maxim of “building sustainability every day”, working both on the search for efficiency and on the guarantees of control and management.

To carry out this vision in the environmental field, to day-to-day work around the world, an Environmental Policy has been established, approved and spread by Management, which covers the whole of the activities of INDITEX, as well as an Environmental Strategic Plan with various lines of action. All of this is contained E in the following pages:

104 environmental

policy Pe

105 “AS A REFERENCE OF THE COMMITMENT OF INDITEX to Society and the environment, we have established and we guarantee the compliance of the following principles that make up our environmental policy:

1 We undertake to comply with the environmental legislation applicable to our activities, and with other commitments that may be established, striving to constantly improve with respect to environmental prevention. In this way, the minimisation of environmental impact becomes an integral part of the objec- tives and strategies of INDITEX.

2 In order to promote continual improvement, the Management of INDITEX shall annually set environmental targets, shall analyse at the end of each period fulfilment of those targets and shall review the suitability and efficiency of the Environmental Management System in place, providing the means necessary to guarantee efficiency.

3 Technical and scientific knowledge and suitable practices to prevent pollu- tion and minimise the impact on the environment in all processes and servi- ces will be applied in order to try to achieve continual improvement in the quality of the environment.

4 A policy of fluent communication with the authorities, local communities and the public in general has been established, thus permitting knowledge of the real effects of the operations and environmental policy and providing a positive response to legitimate requests for information.

5 The Management of INDITEX shall ensure that the environmental policy is known by all the members of the organisation, and that it be at the disposal of the public”.

These principles apply to all the companies and workplaces of INDITEX, being P included within the framework of an Environmental Management System in the headquarters, logistics centre and factories in Arteixo, and in the factories in Narón and Ferrol, all of these in the province of A Coruña, Spain.

106 structure

and organisation Os

107 THE STRUCTURE OF GOVERNMENT IN ENVIRONMENTAL MATTERS has been defined by the Managing Director and Board member. The Environmental Officer reports directly to the Managing Director’s Office and oversees to ensure, along with his team, compliance with the Environmental Policy and the development of the objectives, whilst at the same time designing and managing all the environmental practices, including the maintenance of the requirements of the environmental management system.

To reinforce the work of the Environmental Officer, there is a designated Environmental Delegate in each of INDITEX’s chains, manufacturing faci- lities and logistics centres who assumes responsibility in that area, as well O as the putting into practice and control of the action undertaken.

108 the environmental

training programs Te

109 THE ENVIRONMENTAL TRAINING PLAN allows all the employees and new recruits to know what the environmental problems of their activities are and how to correct them and control them. Its implementation has meant the development of three training modules: one in on-line format through the corporate Intranet, another in traditional course format and a third included in the new recruits’ reception course. In addition, specific modules have been developed for the team supporting the Environmental Officer who is in charge of monitoring environmental performance (waste and emis- sions, among other aspects).

Table 20.- Professionals at INDITEX who have attended the environmental training programs over the past two corporate years:

2002 2001 Forecast 2003

Personnel of INDITEX at the headquarters, factories and logistics centres 4,306 3,994 4,600

2002 2001 Forecast Environmental Training Program 2003

Courses for trained personnel (in person) 2,044 33 1,368

On-line courses for trained personnel 55 N/A 1,100 Te Total 2,132 33 4,600

110 strategic

plan 2002-2005 s

111 Strategies

A Assess, control and guarantee compliance of environmental legislation in all its workplaces.

B Introduce management practices that allow the improvement of environmental behaviour and eco-efficiency.

C Transmit both internally and externally the commitment and environmental effort of INDITEX involving all the personnel in that commitment.

D Incorporate the environmental variable into all strategies and actions.

Develop a plan for monitoring of environmental parameters 1 and monitoring indicators.

Plan of audits of compliance with environmental legislation 2 in all the workplaces.

Promote and facilitate awareness-raising and 1 internal training on sustainability.

Promote external communication 2 with interested parties.

P Evaluate alternatives of substitution of 1 raw materials and energy. Renewable energies.

Eco-efficiency studies in the 2 processes and workplaces.

Implementation of a system of 1 global sustainability indicators.

Integrate the economic, environmental and social variables 2 and develop environmental and sustainability reports.

Lines of action

112 annual plans of action 1995-2002

1995-2000

— Incorporation of the environmental commitment.

— Definition of responsibilities in the area of the Environment.

— Audits on compliance with legislation in factories.

— Plans for control of points of emissions into the atmosphere and waste products.

— Plans for control of waste generation points.

— Improvements in efficiency in energy systems.

2001

— Definition of the Environmental Policy.

— Audits on compliance with legislation in factories.

— Improvement in efficiency in energy systems.

— ISO 14001 certification at the headquarters and logistics centre in Arteixo, A Coruña.

— Training of maintenance personnel.

— Creation of the internal Environmental Report 2001.

2002

— Environmental management system certificate in accordance with UNE-EN-ISO 14001 at 16 factories.

— Design of environmental training courses at INDITEX.

— Training plan for factory and central office staff (via intranet and attendance courses).

— Audits on compliance with legislation at the headquarters and logistics centres of the retail formats.

— Incorporation of self-production of renewable energies.

— Drafting of the Sustainability Report 2002.

113 annual plans of action 2003

1 Certification of the environmental management system in keeping with ISO 14001 at the headquarters of the different formats and the logistics centres.

2 Minimize and optimize the management of waste.

3 Energy efficiency program.

4 Incorporation of self-produced renewable energies: solar.

1,500 m2 of solar panels have been installed at the headquarters in Arteixo, A Coruña. With this solar installation, a total of 565,060 kw/year will be saved, which represents 15% of the total energy needed, preventing the emission of 2,822.5 kg of CO2 and other polluting gases.

5 Code and manual of good environmental practices for the stores.

6 Incorporation of self-produced renewable energies: wind-powered.

A wind-powered generator located in Arteixo, A Coruña, will be set to work, with nominal power of 850 kW, and with 2,100 annual hours of working. With this it is hoped to obtain 1,588.65 MW annually. The energy saved supposes the substitution of 341.55 equivalent tons of oil.

7 Reduction of emissions and of greenhouse gases.

Foreseen reduction in pollutants: Sulphur dioxide (SO2): 19.76 t Nitrogen Oxides (NOx): 10.84 t Carbon Dioxide (CO2): 1,194.2 t Other particles: 1.18 t

114 environmental

criteria regarding facilities, chains and products Ce

115 Introduction ISO 14001

THE ENVIRONMENTAL STRATEGY OF INDITEX INCORPORA- TES the introduction and certification of the systems of manage- ment in the different factories and logistics centres corresponding to UNE-EN-ISO 14001:96. The scope of the environmental mana- gement system of INDITEX is defined for the following activities:

“The central services of INDITEX and the activities of design, manufacture and distribution of consumer goods within the textile sphere”, being implemented and certified by an independent external entity in 16 companies and facilities.

Table 21.- Types of Companies:

Company structure 2002 %

Total Companies INDITEX group 146 100

Parent Company 1 0.68%

Manufacturing and Logistics Companies 28 19.17%

Marketing and Retail Companies 78 53.4%

Other entities C (patrimonial and portfolio) 39 26.77%

Proportion of entities with ISO 14001 2002 %

Parent Company and Manufacturing and Logistics Companies 29 19.85%

116 Graph 12.- Degree of introduction of the Environmental Management System ISO 14001 in the 29 companies (parent, manufacturing and logistics companies):

Central services of INDITEX and logistics centre for Zara in Arteixo, A Coruña.

Central headquarters and logistics centres of the Pull and Bear, Bershka, Oysho, Massimo Dutti and Stradivarius formats. All the textile factories (including cutting, garment- making, ironing, labelling and packaging) and the knit- wear factories (including design, scaling, pattern- making, purchase of raw materials, weaving, washing, ironing, packing and dispatch) from Arteixo, Narón and Ferrol, A Coruña:

CONFECCIONES FIOS, S.A., CONFECCIONES GOA, S.A., SAMLOR, S.A., KENNER S.A., ZINTURA S.A., HAMPTON, S.A., TRISKO, S.A., CHOOLET S.A., NIKO- LE S.A., YEROLI, S.A., SIRCIO, S.A., STEAR, S.A., DENLLO, S.A., GLENCARE, S.A., INDIPUNT, S.L. and JEMA Creaciones Infantiles S.L. Entities with ISO 14001 in 2001 Entities with ISO 14001 in 2002 Forecast entities with ISO 14001 in 2003

117 Criteria applied to the products currently in force and following the recommendations of The Greenhouse Gas Protocol of the World Business Among the environmental objectives of INDITEX are not Council for Sustainable Development (WBCSD). only the control of direct activities but they also include those processes relating to the selection and the control of Criteria with subcontractors those products acquired from external suppliers such as fabrics and accessories, auxiliary materials and packing All those suppliers and subcontractors that operate within materials. in the framework of the established Environmental Mana- gement System have been assessed with respect to their At the present time there is a working group that is verif- environmental behaviour. Likewise, environmental criteria ying the purchasing of materials and assessing the harm- have been established for the development of their opera- ful or potentially dangerous substances, in accordance tions at the facilities, while at the same time they have with the legislation in force and the international good been asked for a commitment of compliance with envi- practices agreements. ronmental legislation, without which they cannot work with INDITEX. Criteria in packages and packaging

At the present time there is in place a system of re-use of packaging and hangers, which is applied to distribution between the different logistics centres and the stores in Spain. Thus, in each trip between the logistics centre and the stores, part of the products is carried in cardboard boxes that when they arrive at the stores are reused and returned to the logistics centre, returning to begin the cycle of distribution. This operation can occur up to five times, using the same cardboard box for 10 consecutive journeys.

This allows savings of 9 cardboard boxes in a cycle of 10 journeys between the logistics centre and a certain store, which means a global saving of 60% in consumption of boxes. Thus, in addition to the saving in packing, the return journeys of the trucks are optimised. With respect to the final packaging of our products, their optimisation is a continuous task of the various departments, this being carried out according to the availability of the materials on the market, and with the maxim of always satisfying cus- tomers’ expectations of quality. Criteria in transport

The product transport operations are in the majority by road and air, all these being managed by subcontractors and never through its own means.

Work is being done with these suppliers of transport ser- vices in two areas, a first area of evaluation of environ- mental impact and the measuring of the degree of eco- efficiency of their operations and a second area of com- mitment to reducing their environmental impact. This eva- luation being carried out in accordance with the legislation

118 the system of indicators Is

119 A SYSTEM OF INDICATORS HAS BEEN DEFINED FOR INDITEX whose structure and system allows an evaluation of efficiency and to adopt measures for improvement at corporate level, including all the workplaces.

The analysis of the annual evolution permits the assessment of the efficiency of the environmental management (in relative terms according to production) and the commitment of INDITEX to sustainability to the extent that these para- meters are controlled.

The data presented below have been obtained from the operations from the whole of the industrial, logistical and ser- vice facilities in Spain, including in some cases stores. At the present time, work is being carried out to obtain non- aggregate data for the chains of stores in Spain and internationally.

The starting up of the System in mid 2001 conditions that fact that for some there are no data for that period, showing only the data corresponding to 2002.

The indicators are presented in absolute values, for an annual period, and in relative values, according to the num- ber of garments put on the market for the formats as a whole. For some of those the relative indicator is given referring to 1000 garments, in order to obtain manageable and comprehensible data.

As a point of reference, the number of garments put on the market by INDITEX has been selected, as this means that all the corporate resources are activated: factories, logistics centres, stores, administration and auxiliary services.

The calculation of the Ratio has been carried out following the formula below: IRatio = (absolute value of the year/number of garments put on the market in the year) x 1000. The values used in the ratios are: • Number of garments put on the market 2001: 181,935,742 • Number of garments put on the market 2002: 236,201,643 }

120 indicators

emissions to the atmosphere

Scope: Combustion processes in boilers for industrial processes and heating, air-conditioning equipment and own cogeneration systems. This includes all E the INDITEX factories: Denllo, Fios, Goa, Indipunt, Jema, Nikole, Samlor, Sircio, Stear, Inditex Cogeneración and logistics centres of Zara, Pull and Bear, Bershka, Oysho, Massimo Dutti and Stradivarius. i

121 Table 22.-

SO2 Absolute data Polluting load 2002 Relative data CO (in tons/year) Polluting load 2002 (in tons/year)/no. of garments x 1000 NOx 10.887 0.00004 250.149

0.00105 441.895 0.00187

— All the emission points are subjected to periodic controls by an authorised ins- pection agency, finding each of these to be according to the parameters indicated in the legislation in force. The data collected here come from the analysis of the reports and reflect the parameters of control demanded by Spanish legislation.

— The stores do not figure in the data shown because all of them obtain their energy from the electricity network, and do not have their own combustion equipment.

Table 23. Annual evolution of emissions to the atmosphere in factories and logistics centres:

2002 2001 Ratio Ratio Relative (t/year) (t/year) 2002 2001 trend

SO2 10.887 14.46 0.00004 0.00007

ECO 250.149 131.51 0.00105 0.00072 NOx 441.895 208.48 0.00187 0.00114

Greenhouse gases

2002 (t/year)

tC02-e (equivalent tons of C02) 71,061.74

For the calculation, the data of the IPCC (Intergovernmental Panel for Climatic Change) have been taken as a reference.

122 indicators

of waste W management

Scope: Includes the headquarters, factories and logistics facilities of INDITEX from data of waste managers with whom the collection service has been contracted. Store data has not been included. i

123 Table 24.- Urban waste or assimilable waste generate 2002:

Type Quantity Management % on total Kg generated waste

Hazardous 18,500 Authorised agency 0.27% (treatment plant)

Textiles 2,373,420 Authorised agency 35.12% (recycling plant)

Other urban and 1,894,880 Authorised agency 28.03% assimilable waste (municipal agency)

Cardboard and paper 2,472,221 Authorised agency 36.58% (recycling plant) W TOTAL WASTE 6,759,021 100% INDITEX is committed to recycling of waste. 72% of the total of waste generated i is managed by authorised agents.

124 Management of urban waste

Table 25.- Annual evolution of urban or assimilable waste ( unit: KG per thousand garments manufactured):

TYPE 2002 2001 Ratio* Ratio* Relative

OF WASTE 2002 2001 trend

Textiles 2,373,420 1,635,200 10.04 8.98

Cardboard and paper 2,472,221 1,465,469 10.46 8.05

Plastics 189,400 41,307 0.80 0.22 Wood 192,050 124,356 0.81 0.68

Other urban waste 1,513,430 2,347,056 6.40 12.90

TOTAL (1) 6,740,521 5,613,388 28.53 30.85

* Ratio per thousand garments (kg/no. Garments annually) x 1000

(1) The increase in production of all the types of waste compared to the decrease of other urban waste is generated by the better segregation practices, which have cause a transfer of waste managed as urban to waste managed in a specific man- ner and transferred to be recycled (textile, cardboard, wood and plastic). The figures reflect greater efficiency in the global generation of urban waste, by diminishing their relative generation, in proportion to the number of garments put on the mar- ket. At the same time, it reflects an improvement in the selective collection management procedures.

Source: Waste Management Firm authorised by the Administration.

125 Management of hazardous waste

Table 26.- Annual evolution of hazardous waste (unit: kg per thousand manufactured garments):

TYPE 2002 2001 Ratio* Ratio* Relative OF WASTE (1) 2002 2001 trend

Batteries 150 160 0.0006 0.00087

Computer waste 7 No data 0.000029 No data No data

Fluorescent 781 450 0.0033 0.0024

Oil filters 4,285 500 0.018 0.0027 Contaminated metallic containers 1,004 600 0.0042 0.0032

Used mineral oil 10,157 14,528 0.043 0.079 Contaminated Absorb 1,780 700 0.0075 0.0038

Paints 186 152 0.0007 0.00083

Contaminated plastic containers 150 120 0.0006 0.00065

TOTAL HAZARDOUS WASTE (2) 18,500 17,210 0.078 0.094

* Ratio of one thousand garments (kg/no. of annual garments) x 1000. It indicates the amount of waste generated (from a spe- cific category) according to the number of garments put onto the market.

(1) The waste is catalogued in accordance with the European Waste Catalogue and its transfer to national and autonomous legis- lation.

(2) From the analysis of the data shown it is deduced that there has been improvement in environmental efficiency in the manu- facturing and distribution processes, as the amount of waste generated in relative terms (compared with the number of gar- ments put onto the market in 2001 and 2002) has decreased.

Includes the headquarters, the factories and logistics centres of INDITEX, from data from the waste management firms contracted for their collection services. The generation of hazardous waste by the stores themselves has not been identified, due to their characteristics. The control and management of hazardous waste of the stores is carried out by the maintenance subcontractors. Data obtained from the control and follow-up sheets on delivery to hazardous waste management firms prepared in accordance with the legislation in force in Spain.

126 indicators

of energy and water Ei

127 Energy

ENERGY IS ONE OF THE MOST RELEVANT RESOURCES that INDITEX consumes. For this reason, the environmental strategy places special stress on determining its origin and the end given to it in the development of the busi- ness model. In order to do this, consumption data on the different forms of energy are obtained for each of the workplaces. The data on supply of energy is shown in two scales in order for greater understanding, the commonly used E scale and its conversion to international scales.

128 Table 27.-

SUPPLY USE

Self-produced renewable energy

1,800 Kw 6 Headquarters and logistics centres (lighting 1.8 x 10 J/s and office computer equipment) 6% Public electricity network Electric energy Factories (lighting and industrial equipment) 4% 290 Gw/h Stores (lighting) 80% 12 3,6 x 10 J ( Cogeneration and boilers 5,684 Eto

12 237.93 x 10 J Heating and air-conditioning Oils Thermal energy (factories and logistics centres) 8% (Cogeneration and boilers) Steam for industrial processes 2% 5,936 T ( 6 570.5 x 10 J/m

Water from the Public network (Headquarters, factories and logistics centres)

Table 28.-

Sanitary and production 161,790 m3 processes in factories 94% ( Stores 6%

Water is used almost exclusively for sanitary consumption and for cleaning. The wastewater flows entirely to the municipal plumbing network and monitoring of consumption is carried out at each of the factories. The data from the measuring of the factories’ and logistics centres’ water consumption come from the invoices from suppliers. Those corresponding to stores are obtained by taking a sample of invoices from the total number of stores of INDITEX as at December 2002.

129 Table 29.- Annual evolution of energy consumption:

2002 2001 Forecast 2003

Renewable energies (in facility) N/A N/A 1,800 Kw

Electric (Public network) 295,574,280 Kw 233,007,223 Kw Forecast increase 15%

Gas consumption in co-generation 5,684 Eto 2,273 Eto No increase

Oil consumption in boilers 5,936 T 7,650 T No increase

The energy data come from own analysis of consumption data and invoicing. (eto: equivalent tons of oil; t: tons)

130 economic dimension

131 133-160}

133 Road Map. 135 Consolidated financial figures for the past six years. 137 Growing alone, with partners or with franchises. 141 Segmented information on INDITEX. 145 INDITEX format by format. 147 Social Cash Flow. 151 c Standard indicators of economic performance. 157 Additional indicators.

132 road map 3

March 2001 First presentation 2 to analysts

1998 First Report 1 published

1987 First external audit of INDITEX 5

June 2001 Listed in IBEX 35 4 6 August 2002 May 2001 Inclusion in the Dow First roadshow. Inclusion in the Jones Sustainability Stock Exchange Indexes

IN THIS SECTION ARE GIVEN THE INDICATORS of economic performance of INDITEX over the last few years and the bases of the agreements with partners in new geographical areas and for the first time a Company Cash-Flow or generation of added value is given.

The greater part of the data of this section has been extracted from the consolidated financial statements, from the Management Report of from other INDITEX accounting registers. INDITEX’s Annual Accounts corresponding to 2002 have been prepared in accordance with the generally accepted accounting principles and rules in Spain and have been audited by KPMG, which issued an unconditional report that has been published along with the Annual Accounts and the Management Report in a separa- te document.

134 consolidated c

financial figures for the past six years

135 Table 30.- Financial performance in the past few years (millions of euros):

CAGR* DESCRIPTIÓN 2002 2001 2000 1999 1998 1997 1996 02/96

Results

Sales 3,974.0 3,249.8 2,614.7 2,035.1 1,614.7 1,217.4 1,008.5 26% Year on year 22% 24% 28% 26% 33% 21% EBITDA 869.5 704.5 521.5 410.4 325.7 253.6 202.1 28% Year on year 23% 35% 27% 26% 28% 25% EBIT 659.6 517.5 379.9 296.2 241.5 192.6 150.3 28% Year on year 27% 36% 28% 23% 25% 28% Net income 438.1 340.4 259.2 204.7 153.1 117.4 72.7 35% Year on year 29% 31% 27% 34% 30% 61% Balance sheet

Shareholders’ equity 1,760.9 1,486.2 1,170.9 893.2 673.4 529.9 414.9 27% Year on year 18% 27% 31% 33% 27% 28% c Total balance sheet 3,008.9 2,588.6 2,107.6 1,772.9 1,326.3 977.2 820.3 24% Year on year 16% 23% 19% 34% 36% 19% Net finance position 243.8 57.5 (50.06) (149.9) (93.0) (38.3) (105.8)

Stores

No stores at FY end 1,558 1,284 1,080 922 748 622 541

Net openings 274 204 158 174 126 81 33

No countries with stores open 44 39 33 30 21 14 10

Other information

% international sales 54% 54% 52% 49% 46% 42% 36%

LFL 11% 9% 9% 5% 11% 7% 4%

ROE 27% 26% 25% 26% 25% 25% 20%

ROCE 41% 39% 34% 33% 36% 35% 29%

No of employees 32,535 26,724 24,004 18,200 15,576 10,891 8,412

* Compound Annual Growth Rate.

The story of INDITEX has always been associated with the concept of growth. All the organization corresponds to a busi- ness model that has proven its efficiency in 44 countries. In fact, in the past six corporate years, INDITEX has multiplied all its basic magnitudes by four, five and in certain cases six. The key to maintaining the structure of margins despite this growth has been the maintaining of a flexible business model, tailored to satisfying consumer tastes and to the circums- tances of each market.

136 growing

alone, with partners or with franchises Ag

137 ALMOST FIFTEEN YEARS AGO, ZARA OPENED ITS FIRST STORES outside Spain, commencing a process to which it has devoted ever more resources and effort. Today INDITEX is an international distributor with relevance in fashion, the industry, society and the communities where it operates. Its international growth is structured through the development of three types of strategies:

— Growth through Subsidiaries that are totally controlled or controlled by close to 100% in those markets where there are no particular difficulties for the development and control of the activity, which are of a minimum size to compensate the effort of organising its own structure, or that are considered to be global shop windows of the sector due to the internatio- nal projection stemming from being present in them.

— Joint Venture agreements in countries where, although they are suffi- ciently large, there are cultural difficulties or difficulties of another nature for the roll-out of the business, or where the participation of a local partner makes the development of a network of stores quicker, safer and more controlled. In this manner, the operations in Japan are shared with the Nipponese group Bigi, in Germany with Otto GMBH and in Italy with Grupo Percassi.

— Franchise agreements in those countries where a significant number of stores is not foreseeable, where the existence of a high risk in the country advises against a direct investment, or there are cultural differences which make difficult the control of a permanent establishment. A good example is shown with the Middle Eastern countries, where association with local Ag franchisees gives great effectiveness to the business model.

138 Table 31.- Details of the stores operated by each of these systems:

2002 2001

FORMAT Company- Joint- Franchises Total Company- Joint- Franchises Total managed Venture managed Venture

Zara 457 30 44 531 415 20 31 466

Kiddy´s Class 59 0 0 59 41 0 0 41

Pull and Bear 262 0 34 296 220 0 29 249

Massimo Dutti 159 3 88 250 134 1 88 223

Bershka 191 0 6 197 146 0 5 151

Stradivarius 118 0 35 153 86 0 34 120

Oysho 69 2 1 72 30 4 0 34

Total 1,315 35 208 1,558 1,072 25 187 1,284

In addition, INDITEX’s growth in the last few years has combined the three methods of shareholder control, as is shown in the following table which identifies the markets in which Zara recently began operating.

Table 32.- Countries in which Zara began operating in recent years:

2002 2001 2000 1999 1998

Company Company Company Company Company managed or JV Franchises managed or JV Franchises managed or JV Franchises managed or JV Franchises managed or JV Franchises

Italy Finland Holland Iceland Denmark Andorra Germany Poland Japan Kuwait Switzerland Malta Luxembourg Austria Qatar Canada Saudi Arabia UK Lebanon Singapore Czech Rep. Uruguay Barhain Argentina Domin.Rep. Chile UAE Venezuela El Salvador Brazil Turkey

7 new countries 4 new countries 4 new countries 9 new countries 7 new countries

139 Table 33. The 208 franchised stores as at 31 January 2003 were in the following countries:

COUNTRY Franchised Table 34.- Below is the distribution of in-stores sales between stores those occurring in company-managed or jointly managed stores and franchised stores: Spain 34 Portugal 33 Israel 25 2002 2001 UAE 18 Mexico 16 FORMAT Company- Franchises Company- Franchises Saudi Arabia 15 managed or managed or Belgium 12 shared shared Cyprus 10 management management Kuwait 8 Zara 92% 8% 92% 8% Ireland 5 Lebanon 5 Kiddy´s Class 100% 0% 100% 0% Malta 4 Pull and Bear 92% 8% 91% 9% Poland 4 Qatar 4 Massimo Dutti 60% 40% 58% 42% Bahrain 3 Jordan 3 Bershka 98% 2% 99% 1% Andorra 2 Stradivarius 79% 21% 74% 26% El Salvador 1 Finland 1 Oysho 99% 1% 100% 0% Holland 1 Total 90% 10% 89% 11% Iceland 1 Luxembourg 1 Dominicanan Rep. 1 Singapore 1 Graph 13. Sales in stores controlled by INDITEX or franchises:

Total 208

Franchises: 10%

Table 35- The 35 stores that are jointly managed with partners are in the following countries:

Germany 24

Japan 6

Italy 5 Own or shared management: 90%

140 segmented

de information on INDITEX s

141 Sales by format

Table 36.- Below is shown the specific weight of each of the seven formats that make up INDITEX in the consolidated sales of the last two fiscal years:

SALES BY FORMAT (millions of euros) SPECÍFIC WEIGHT (%)

FORMAT 2002 2001 Var% 02/01 2002 2001

Zara 2,913.4 2,435.1 20% 73.3% 74.9%

Kiddy´s Class 60.4 47.6 27% 1.5% 1.5%

Pull and Bear 266.2 225.7 18% 6.7% 6.9%

Massimo Dutti 287.3 241.4 19% 7.2% 7.4%

Bershka 299.3 202.0 48% 7.5% 6.2%

Stradivarius 124.1 93.5 33% 3.1% 2.9%

Oysho 23.4 4.5 n/a 0.6% 0.1% I Total 3,974.0 3,249.8 22% 100.0% 100.0%

142 Graph 14.- Importance of each format in the sales:

Pull and Bear: 6,7% Kiddy´s Class: 1,5%

Massimo Dutti: 7,2%

Bershka: 7,5%

Stradivarius: 3,1% Zara: 73,3%

0ysho: 0,6%

International sales

Table 37.- All the formats have a clear international vocation. The percentage of sales in Spanish stores and foreign stores of each format in the last two fiscal years is the following:

% OF SALES IN INTERNATIONAL STORES

FORMAT 2002 2001

Zara 62.5% 61.7%

Kiddy´s Class 14.7% 16.4%

Pull and Bear 29.6% 31.3%

Massimo Dutti 40.6% 38.8%

Bershka 32.0% 32.3%

Stradivarius 18.5% 20.5%

Oysho 46.5% 33.3%

Total 54.0% 54.0%

143 Seasonal nature of business in 2002

The weight of each calendar quarter in the sales and the results of the financial year is far from being equal. There is a marked seasonal influence, such that the greatest part of the year’s results occur in the third and fourth quarters (from 1 August to 31 January) coinciding with the autumn-winter season in the northern hemisphere, where the immense majo- rity of INDITEX’s sales take place:

Graph 15.- Sales 2002

1Q 21% 4Q 31%

2Q 20%

3Q 28%

Graph 16.- EBIT 2002

1Q 18%

4Q 32% 2Q 13%

3Q 37%

144 INDITEX format by format Fi

145 Table 38.- INDITEX format by format:

Var% Var% Var% Var% 2002 2001 02/01 2002 2001 02/01 2002 2001 02/01 2002 2001 02/01

Net sales 2,913.4 2,435.1 20% 60.4 47.6 27% 266.2 225.7 18% 287.3 241.4 19%

Gross profit 1,659.4 1,313.8 19% 28.8 21.9 31% 120.4 102.4 18% 116.8 95.0 23%

Gross Margin 53.9% 54% 47.6% 46.0% 45.2% 45.4% 40.7% 39.4%

Op. expenses, dpr. & amort. (1,029.0) (873.2) 18% (14,6) (11.1) 32% (85.5) (69.5) 23% (79.2) (69.7) 14%

Expenses on sales 35.3% 35.9% 24.3% 23.3% 32.1% 30.8% 27.6% 28.9%

Operating income (EBIT) (*) 540.4 440.6 23% 14.1 10.8 31% 34,9 32,9 6% 37.5 25.3 48%

EBIT Margin 18.5% 18.1% 23.4% 22.7% 13.1% 14.6% 13.1% 10.5%

Stores 531 466 59 41 296 249 250 223 ROCE 43% 42% 131% 166% 39% 51% 49% 46% (*) Pre goodwill

Var% Var% Var% Var% 2002 2001 02/01 2002 2001 02/01 2002 2001 02/01 2002 2001 02/01

Net sales 299.3 202.0 48% 124.1 93.5 33% 23.4 4.5 420% 3,974.0 3,249,8. 22% Gross profit 145.9 103.2 41% 58.6 48.0 22% 8.0 2.4 235% 2,047.8 1,686.7 21% FGross Margin 48.7% 51.1% 47.2% 51.3% 34.3% 53.3% 51.5% 51.9%

Op. expenses, i dpr. & amort. (97.7) (78.0) 25% (49.9) (41.8) 19% (22.9) (8.7) 163% (1,378.8) (1,169.2) 18% Expenses on sales 32.7% 38.6% 40.2% 44.8% 97.9% 193.3% 34.7% 36.0%

Operating income (EBIT) (*) 48.1 25.2 91% 8,7 6,2 42% (14.9) (6.3) n/a 669.0 517,5 29%

EBIT Margin 16.1% 12.5% 7.0% 6.6% -63.5% -140.0% 16.8% 15.9%

Stores 197 151 153 120 72 34 1,558 1,284 ROCE 49% 30% 12% 12% n/a n/a 41% 39% (*) Pre goodwill

146 social

cash flow c

147 BELOW IS A SUMMARY OF THE CASH FLOWS produced in the last two fiscal years in INDITEX. Unlike the financial focus, in which it is a question of classifying the flows paying attention to the economic-finan- cial nature that give rise to them (cash generated in operations and flows related to investment and financing), the Social Cash-Flow analyses the creation of the added value produced by INDITEX, bearing in mind the Cc targets (stakeholders) of said flows.

148 Table 39.-Added Value Flow (figures in millions of euros):

FY FY Var% 2002* 2001* 02/01

Net cash received for the sale of products and services 3,974.1 3,250.0 22%

Flow received from investments received 10.0 11.0 -9%

Cash received for sale of assets 18.7 17.3 8%

Total added value flow 4,002.8 3,278.3 22%

Distribution of added value flow

Remuneration of employees for their services 569.9 489.8 16%

Payment of taxes 180.6 140.4 29%

Return of financial debt 1.1 23.0 -95%

Dividends given to shareholders 71.8 6.0 1,097%

Corporate social investment 1.9 0.8 140%

Retained cash for future growth 207.0 105.2 97%

Payments made outside the Group for purchase of merchandise and raw materials 1,874.9 1,572.0 19%

Payments made outside the Group for services received and for investments 1,095.7 941.2 16%

4,002.8 3,278.3 22%

* Data in millions of euros

149 Graphs representing the destination of the flows of added value generated in the last two fiscal years are given below:

Graph 17.- Distribution of Graph 18.- Distribution of flow of added value 2002: flow of added value 2001:

0,1% 0,1% 0,2% 1,8% 0,1% 4,3% 4,5% 0,7% 3,2% 5,2%

14,9% 14,2%

28,7% 27,3% 47,8% 46,7%

Payments made outside the Group for Payments made outside the Group for purchase of merchandise and raw materials purchase of merchandise and raw materials Payments made outside the Group for Payments made outside the Group for services received and for investments services received and for investments Remuneration of employees for their services Remuneration of employees for their services Retained cash for future growth Retained cash for future growth Payment of taxes Payment of taxes Dividends given to shareholders Dividends given to shareholders Corporate social investment Corporate social investment Payment of financial debt Payment of financial debt

150 standard

indicators of economic performance s

151 Graph 19.- Sales

Years Amount

Growth 1996 1,008 21% 1997 1,217 33% 1998 1,615 26% 1999 2,035 28% 2000 2,615 24% 2001 3,250 Is 22% 2002 3,974

152 Sales by geographic area

Graph 20.- 2002 Graph 21.- 2001

Rest of the world: 7,3% Rest of the world: 6,8% America: 13,2% America: 15,9%

Spain: 46,0% Spain: 46,0% Rest of Europe: 34,1% Rest of Europe: 30,8%

Recurrently, the countries from the European area contain the greatest percentage of net sales, a fruit of the strategy of focusing a good part of growth on large European markets. On the other hand, the decrease in percentage terms of net sales of the American continent is due, almost exclusively, to the loss in value of some currencies during fiscal 2002.

Graph 22.- Cost of sales and gross margin

Note: in millions of euros % on consolidated net sales Year Amount

49.2% 1997 599 50.5% 1998 815 51.4% 1999 1,047 51.2% 2000 1,338 51.9% 2001 1,686.7 51.5% 2002 2,047.8

When analysing the historical evolution of INDITEX’s gross margin, its stability over time stands out. This is a measure of the flexibility of the business model, which permits a lack of very significant variations occurring when net sales la cifra de ventas increase or fall.

153 Collection periods and payment periods

The following tables show the average collection period from customers and periods of payment to suppliers.

Table 40.- Calculation of the average period of payment by customers:

Description 2002 2001 2000 1999 1998

Final balance of trade receivables 97.7 95.9 71.0 58.8 42.1

Net sales 3,974.0 3,249.8 2,614.7 2,035.1 1,614.7

Net sales on trade receivables 40.7 33.9 36.8 34.6 38.4

Average period of collection (days) 9 11 10 11 10

The reduced collection period is due to that fact that a good part of sales take place in company-managed stores, where customers give cash or credit cards.

Table 41.- Calculation of the average period of payment to suppliers:

Description 2002 2001 2000 1999 1998

Final balance of trade payables 506.2 426.3 322.9 276.1 215.6

Cost of sales of the FY 1,926.2 1,563.1 1,27.0 988.4 799.9

Operating expenses of the FY 1,179.7 982.3 816.2 636.2 489.2

Total expenses generated by trade payables 3,105.8 2,545.3 2,093.2 1,624.6 1,289.1

Expenses on trade payables 6.13 5.97 6.5 5.9 6.0

Average period of payment (days) 60 61 56 62 61

The payment periods are in accordance with the standards of the sector and have not undergone significant variations in the last few years.

154 Personnel costs

Table 42.- The breakdown of the personal costs of the last two fiscal years is the following:

Millions of euros 2002 2001 Var% 02/01

Fixed and variable salaries 448.6 385.6 16.4%

Contributions of INDITEX to social security systems 121.3 104.2 16.3%

Total personnel expenses 569.9 489.8 16.3%

Graph 23.- The geographic distribution of the personal costs in 2002 is the following: America: 8%

Rest of the world: 1%

Spain: 62%

Rest of Europe: 29%

Suppliers of capital

At the close of the two last fiscal years, INDITEX maintained a net financial cash position, i.e. the total sum of the balance in its favour in banks was greater than the debt contracted with financial entities. Nonetheless, INDITEX enjoys credit operations ranted by the financial system, although a part of the authorised limits were not disposed of.

Table 43.- Considering the total risk granted at 31 January 2003, the principles suppliers of capital of INDITEX are the following:

Entity Nacionality % of risk granted of the total Banco Bilbao Vizcaya Argentaria Spanish 23% Santander Central Hispano Spanish 20% Caixa Galicia Spanish 6% Fortis Belgian 6% Caixanova Spanish 6% Other entities with a participation equal to or under 5% Various 39%

155 Reserves variations

Table 44.- Below is a detailed table showing the variation in the reserves of INDITEX (consolidated Group) during fiscal 2002:

Item Balance Additions Diminutions Distribution Dividends Balance 01/02/2002 of results 2001 31/01/2003

Issue premium 20,379 0 0 0 0 20,379

Unrestricted reserves of the Controlling Company 567,563 0 0 186,436 0 753,999

Restricted reserves of the Controlling Company 19,303 0 0 0 0 19,303

Revaluation reserves 1,692 0 0 0 0 1,692

Reserves at comp. consolidated by the global or proportional integration method 434,242 16,268 (1,235) 107,296 0 556,571

Reserves of companies carried by the equity method 989 0 (24) (1,839) 0 (874)

Translation differences 8,112 418 (109,890) (20,047) 0 (121,407)

Income FY 2001 340,412 0 0 (271,846) (68,566) 0

Totals 1,392,692 16,686 (111,149) 0 (68,566) 1,229,663

Taxes paid

Graph 24.- Below is given a graph showing the volume of tax on income from 2002 due in Spain and in the other countries where INDITEX operates:

Spain: 55% Rest: 45%

156 additional indicators a

157 BELOW IS GIVEN THE EVOLUTION of the following economic indicators, representative of the activity of dis- tribution:

— Like-for-like sales.

— Turnover of stock.

— Working capital. Like-for-like sales

Its object is to identify the part of growth of a distribution company which is not due to the opening of new stores, but rather to the increase of sales in the stores (floor area) that are already open. It is calculated by comparing the sales occurring only in the stores that were open during the whole of the period being analysed and the whole of the same period in the previous year.

Graph 25.- This is the main indicator of the retail trade and its evolution over the past few fiscal years has been the following:

average: 8,5%

Year

1997 7% 1998 11% 1999 5% 2000 9% 2001 9% Ia 2002 10%

158 Sales Stock turnover

This indicator measures the number of times that the inventory of the company rotates over the year or, to put it another way, the time, on average, that a product takes from the moment it arrives at the warehouse until it is sold. The higher the turnover, the greater the agility that the company has to introduce new products and the financial effort required to support the inventory is less.

Table 45.- Below is shown both the results of the calculation and the variations used in it (millions of euros):

Description 2002 2001 2000 1999 1998

Cost of sales 1,926.2 1,563.1 1,277.0 988.4 799.9

Initial stock 353.8 245.0 188.5 157.6 102.2

Final stock 382.4 353.8 245.0 188.5 157.6

Average stock 368.1 299.4 216.7 173.1 129.9

Turnover (times) 5.2 5.2 5.9 5.7 6.2

Turnover (days) 70 70 62 64 59

159 Operating working capital

This measures the structure of the non-financial current assets of the company. When the working capital is negative (the case of INDITEX) there is a situation of financing of the inventory by the suppliers, so that the speed of selling and receipt of payment of the merchandise is greater than that of payment to suppliers.

Table 46.- Working capital (millions of euros):

Epigraph 2002 2001

Inventories 382.4 353.8

Receivables 260.8 184.2

Accruals 9.8 6.6

Other short term liabilities (899.9) (715.7)

Operating working capital (246.8) (171.1)

160

163-185}

163 independent validation

165 SAM assessment

169 GRI indicators

175 glossary of terms

181 contacts

162 independent validation Vi

The independent validation of AENOR and the Sustainability Report 2002 are available at the corporate web page www.inditex.com

163 V

164 SAM

assessment As

165 Sustainability Leader Member of DJSI World & DJSI STOXX

Inditex Retail

Company Description Sustainability Performance Company Inditex engages in the design, production and marketing of textiles Inditex has an overall sustainability performance that positions it Country Spain and shoes. Its main brands are Zara, Pull & Bear, Massimo Dutti, among the sustainability leaders of its industry. Its management Number of Employees Web www.inditex.com Bershka and Stradivarius. It incorporated a new brand, Oysho, in capabilities in the economic dimension are among the best, September 2001. The group has about 1,300 stores and is present on underlined by a particularly strong performance in codes of Share

Market cap (mil) 11556.54 39 countries. Sales from own stores accounted for 88% of fiscal conduct and compliance. The company is aware of the risks Currency EUR 2002 revenues; franchises sales 6%; other textile sales 5% and associated in working with approximately two thousand external High 52 week 23.95 services & other 1%. independent workshops in more than 30 countries, some of Low 52 week 15.15 which are facing negative issues such as oppressive regimes, Last Price 18.54 ethnic conflicts and limited labor rights. In response it has Key Data 2001 2002E developed a strictly enforced code of conduct to guide practices Sales (mil) 2614.7 N/A EPS 0.69 0.83 across the supply chain. In the environmental dimension, Inditex P/E Ratio 26.87 22.34 scores significantly above the average with a clear Source: Bloomberg, 15. August 2002 outperformance in eco-efficiency performance and transport and Sales in logistics. Moreover, Inditex performs among the best in the Alcohol No social dimension, particularly in management attention to human Tobacco No Gambling No resources. It also engages with non-governmental organizations Armaments No in countries of operation. Firearms No

Source: IRRC, SAM Research

Sustainability Scores

Total Score Economic Dimension

0% 50% 100% 0% 50% 100% Industry Average on a Global Basis Environmental Dimension Inditex Best Company on a Global Basis

0% 50% 100% Social Dimension As 0% 50% 100%

SAM Research Inc.

Analyst: Gabriela Grab Tel. +41 1 397 1048 [email protected]

© SAM Research Inc. / Oct 2002

Its inclusion in the Dow Jones Sustainability Index was published in September 2002 with the assessment carried out on the last corporate year closed at that date (31/1/2002). SAM autho- rises the companies included in its index to use its distintive sign for the entire following calen- dar year (2003).

166 Sustainability Leader Member of DJSI World & DJSI STOXX

Inditex Retail

Industry Driving Forces “Corporate Sustainability is a Consumers, fair trade organizations as well as non-governmental organizations demand transparency on product sourcing and production business approach to create long methods, thus requiring detailed codes of conduct for suppliers covering social and environmental aspects. For food products, ensuring term shareholder value by embracing opportunities and food safety along the supply chain is critical to restore consumer confidence. On the operational level, key issues to address are energy managing risks deriving from consumption of stores, efficiency of the transport systems, and the use and disposal of packaging and packaging waste. In addition, economic, environmental and social e-commerce and home delivery services are becoming an indispensable element in this competitive retail market. developments.”

Industry Group Overview: Retail

The relative positioning of components within each industry group on a global basis is illustrated below based on cluster scores of the economic, environmental and social dimensions. Companies with identical cluster scores are listed alphabetically, and the sector leader is listed first. Legend: p=poor a=average b=best

Economic Environmental Social pabpabpab Marks & Spencer Plc Inditex The Boots Company Plc Alliance UniChem Plc GUS plc Gehe AG KarstadtQuelle AG Office Depot Inc. Coles Myer Ltd. Hennes & Mauritz AB DJSI World Ito-Yokado Co. Ltd Matalan Metro AG Carrefour Debenhams Kingfisher Plc Wesfarmers Ltd. Dixons Group Travis Perkins Home Depot Inc.

Next company in line for selection should a company be deleted from the index:

JJB Sports

SAM Research Inc.

Rotfluhstrasse 91 CH 8702 Zollikon Zürich Tel. +41 1 397 10 30 Fax +41 1 397 10 50 [email protected] www.sam-group.com

© SAM Research Inc. / Oct 2002

167 Sustainability Leader Member of DJSI World & DJSI STOXX

Inditex Retail

Company Performance vs. Industry Average for Specific Criteria The following bar charts highlight the performance of Inditex compared to its industry average and best performing company for selected criteria. The criteria selected cover each of the corporate sustainability dimensions: economic, environmental and social.

Economic

Corporate Governance Risk & Crisis Management

0% 50% 100% 0% 50% 100% Codes of Conduct/Compliance Supply Chain Management

0% 50% 100% 0% 50% 100%

Environmental

Environmental Management Public Environmental Reporting

0% 50% 100% 0% 50% 100% Eco Efficiency Performance Advanced Environmental Management

0% 50% 100% 0% 50% 100%

Social

Labor Practices Indicators Tracking of Employee Satisfaction

0% 50% 100% 0% 50% 100% External Stakeholder Relations Sourcing in Developing Countries

0% 50% 100% 0% 50% 100%

Industry Average on a Global Basis Inditex Best Company on a Global Basis

SAM Research Inc.

Rotfluhstrasse 91 CH 8702 Zollikon Zürich Tel. +41 1 397 10 30 Disclaimer No Offer The information and opinions contained in this publication constitutes neither a solicitation, nor a recommendation, nor an offer to buy or sell investment instruments or other services, or to engage in any other kind of transaction. The information described in this publication is not directed to persons in any jurisdiction where the provision of such information would run counter to local laws and regulation. No warranty This Fax +41 1 397 10 50 publication is derived from sources believed to be accurate and reliable, but neither its accuracy nor completeness is guaranteed. The material and information in this publication are provided "as is" and without warranties of any kind, either expressed or implied. SAM Research AG and its related, affiliated and subsidiary companies disclaim all warranties, expressed or implied, including, but not limited to, implied warranties of [email protected] merchantability and fitness for a particular purpose. Any opinions and views in this publication reflect the current judgment of the authors and may change without notice. It is each reader's responsibility to evaluate the accuracy, completeness and usefulness of any opinions, advice, services or other information provided in this publication. Limitation of liability All information contained in this publication is distributed with the understanding that the authors, publishers and distributors are not rendering legal, accounting or other professional advice or opinions on specific facts or matters and accordingly assume no liability whatsoever in www.sam-group.com connection with its use. In no event shall SAM Research AG and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental or consequential damages arising out of the use of any opinion or information expressly or implicitly contained in this publication. Copyright Unless otherwise noted, text, images and layout of this publication are the exclusive property of SAM Research AG and/or its related, affiliated and subsidiary companies and may not be copied or distributed, in whole or in part, without the express written consent of SAM Research AG or its related, affiliated and subsidiary companies. © SAM Research Inc. / Oct 2002

168 GRI

indicators g

169 I Table 47.- GRI compliance indicators:

GRI chapter Indicator Pages Section

B.1. Vision and strategy 1.1 2 Chairman’s Statement 62 Social Dimension 104 Environmental Dimension 134 Economic Dimension

1.2 2 Chairman’s Statement

2.1 28 Corporate Governance 2.2 14 Who we are 2.3 20 and 22 Who we are 2.4 138 to 140 Economic Dimension 2.5 16 Who we are 2.6 28 and 32 Corporate Governance 2.7 16 Who we are 2.8 136 and 142 to 146 Economic Dimension 2.9 65 Social Dimension 2.10 181 Contacts B.2. Profile of the company 2.11 4 Scope 2.12 (1) 2.13 4 Scope 2.14 (1) 2.15 (1) 2.16 (1) 2.17 4 Scope 2.18 62 Social Dimension 104 Environmental Dimension 134 Economic Dimension 2.19 (1) 2.20 161 AENOR Report 2.21 161 AENOR Report 2.22 181 Contacts 4 Scope 14 Who we are

(1) This Sustainability Report is the first document with these characteristics published by INDITEX.

170 GRI chapter Indicator Pages Section

3.1 38 and 48 to 52 Corporate Governance 3.2 38, 39 and 40 Corporate Governance 3.3 52 Corporate Governance 3.4 50 Corporate Governance 3.5 41 and 42 Corporate Governance 3.6 48 to 52 Corporate Governance 3.7 2 Chairman’s Statement 65 to 67 Social Dimension 106 Environmental Dimension 3.8 55 and 56 Corporate Governance B.3. Systems og Management 3.9 64 to 74 Social Dimension 3.10 52 Corporate Governance 78 to 90 Social Dimension 3.11 52 Corporate Governance 78 to 90 Social Dimension 3.12 52 Corporate Governance 78 to 90 Social Dimension 3.13 50 Corporate Governance 3.14 78 to 90 Social Dimension 3.15 165 to 168 SAM Evaluation 3.16 68 to 74 Social Dimension 3.17 118 Environmental Dimension 3.18 (2) 3.19 50 Corporate Governance 62 and 68 to 74 Social Dimension 3.20 113 and 116 Environmental Dimension

(2) Apart from store openings, there have been no openings of new plants or facilities, shutting, increases or reductions.

171 GRI chapter Indicator Pages Section

EC1 136 Economic Dimension EC2 143, 146 and 153 Economic Dimension EC3 153 and 159 Economic Dimension EC4 154 Economic Dimension B.4. Economic indicators EC5 155 Economic Dimension EC6 155 Economic Dimension EC7 146 Economic Dimension EC8 156 Economic Dimension EC9 (3) Economic Dimension EC10 78 to 90 Social Dimension

(3) The subsidies and tax reductions received in the corporate year are not significant for the purposes of this report.

172 GRI chapter Indicator Pages Section

EN1 (4) EN2 (5) B.5. Environmental EN3 128 Environmental Dimension indicators EN4 (4) EN5 129 Environmental Dimension EN6 (6) EN7 (6) EN8 122 Environmental Dimension EN9 (7) EN10 122 Environmental Dimension EN11 124 to 126 Environmental Dimension EN12 (8) EN13 126 Environmental Dimension EN14 (9) EN15 (10) EN16 (11)

(4) Figure not available. (5) Materials used in the production process are not consumed. (6) The Group does not develop its activity in habitats rich in biodiversity. (7) Significant emissions that harm the ozone layer are not produced. (8) There are no spillages to water. (9) Not relevent information. (10) Information not quantifiable. (11) No breaches of legislation nor or international treaties have occurred.

173 GRI chapter Indicator Pages Section

LA1 94 to 96 Our people LA2 94 Our people LA3 96 Our people LA4 (12) LA5 97 and 98 Our people LA6 97 and 98 Our people B.6. Social indicators LA7 97 and 98 Our people LA8 (13) LA9* 94 Our people 110 Environmental Dimension LA10 66 and 67 Social Dimension LA11 96 Our people

(12) There has been no re-structuring or changes in the operations. (13) There are no policies or programs on AIDS. (*) Not available in 2002.

GRI chapter Indicator Pages Section

HR1 66, 67 and 76 Social Dimension HR2 66, 67 and 76 Social Dimension B.6. Social indicators HR3 66, 67 and 76 Social Dimension HR4 66, 67 and 76 Social Dimension HR5 66, 67 and 76 Social Dimension HR6 66, 67 and 76 Social Dimension HR7 66, 67 and 76 Social Dimension

GRI chapter Indicator Pages Section

SO1 84 to 88 Social Dimension B.6. Social indicators SO2 64 Social Dimension 30 Corporate Governance SO3 (14)

(14) No contributions are made to political parties.

GRI chapter Indicator Pages Section

PR1 65 Social Dimension B.6. Social indicators 106 Environmental Dimension PR2 (15) PR3 (16)

(15) Applicable legislation in each country is observed as regards the product information included on the labels (16) Customer data, in the event of having this information, is covered by the various laws of data protection in each of the countries

174 glossary of terms Tg

175 AENOR: Asociación Española de Normalización (Spanish Association for Nor- malization).

Assimilable or urban waste: Waste from industry or commerce with characte- ristics similar to those that occur in private households.

BOD (Biological Oxygen Demand): Oxygen consumed by organisms for the aerobic decomposition of the organic material present in fluids such as water. It determines its degree of contamination.

CAPs (Corrective Action Plans): Action taken to eliminate the causes of breach of the Code of Conduct for External Manufacturers and Workshops.

CFCs: Chlorofluocarbons, the family of halogen organ chemical compounds used as propellants in aerosols and sprays and as refrigerants in refrigerator cir- cuits and air conditioning installations.

CO: Carbon monoxide. Gas generated in combustion reactions.

COD (Chemical Oxygen Demand): Oxygen consumed in the chemical decom- position of organic and inorganic material. The COD test determines the degree T of contamination in a flow.

176 Contribution Margin: This is a financial concept that of activity, such as separating used paper from the rest of measure the contribution of a line of business to the total the rubbish for it to be recycled. earnings of the company. Greenhouse gases: Gas compounds of natural or anth- Corrective action: Performance of an action or activity to ropogenic origin causing the greenhouse effect. There eliminate the causes of non-compliance, of a fault or any are six gases: carbonic dioxide, methane, nitrous oxide, other undesirable situation in existence in order to prevent chlorofluorocarbon, perfluorocarbons and sulphur hexa- these being repeated. fluoride.

Dow Jones Sustainability Indexes: This is a family of GRI (Global Reporting Initiative): International agree- indexes that covers those companies around the world ment whose purpose is to establish a working structure with the best track records in the social, environmental that is widely accepted for the preparation of sustainabi- and economic fields, managed by the SAM company. lity reports containing the three following aspects: social, environmental and economic. It also takes care of the EBIT (Earnings before interest and taxation): Operating definition and publishing of a guide for the preparation of income less operating expenditure, contributions for the the aforementioned reports, that is applied voluntarily by depreciation of fixed assets, goodwill and provisions for organisations that want to get information on the econo- operating risks. mic, environmental and social aspects of their activities, products and services. EBITDA: Earnings before interest, taxation, depreciation and amortization. Gross Margin: This is a financial concept obtained from operating income minus the costs of goods sold. Eco-efficiency: Defined as the process of analysis of the lifecycle of a product, from the extraction of raw materials Hazardous waste: That waste which contains in its com- until they are subsequently recycled or destroyed after position substances catalogued as hazardous, in such use. This analysis allows economic and environmental quantities or concentration that it represents a risk for aspects to be considered and products and processes to human health, natural resources or the environment. be optimized, and helps in the choice of the most eco-effi- cient option from between all the possible alternatives. This Internal Code of Conduct: Standards and principles of process allows, in the last analysis, products at the best compliance which regulate the relations between INDITEX cost with the least environmental impact to be offered. and its five stakeholder groups (employees, business part- ners, customers, suppliers and society). Environmental Management System (EMS): The part of the general management system that includes the organi- ISO 14001: International rule applying to any organisa- zational structure, planning of activities, responsibilities, tion that voluntarily desires to: practices, the procedures, the processes and the resour- ces to develop, to introduce, carry out, review and keep — Introduce, keep up to date and improve an environ- up-to-date the environmental policy. mental management system.

Environmental Policy: Declaration by the organisation of — Obtain the certification of this system by an external its intentions and principles in relation to its general envi- and independent organisation. ronmental conduct that provides a framework for action and for the establishment of its environmental objectives LFL (Like For Like): Annual change in store sales that and goals. were open for the whole of the last two fiscal years with identical selling area, converted to a fixed exchange rate. External Factory or Workshop: A factory unit that is not part of INDITEX where all or part of the activities of manu- NOx: Nitrogen Oxides, chemical compounds that are facturing the product are carried out. generated in combustion reactions.

Good Environmental Practices: These consist of organi- PVC: Polyvinyl chloride. Polymer with multiple applica- sational measures that in many cases are valid in any type tions in industry and difficult to recycle.

177 Rating or evaluation: Degree of compliance by an External cal year. It expresses the number of times that the inven- Factory or Workshop with regard to the Code of Conduct tory is turned around over the course of one year. for External Manufacturers and Workshops. Working capital or current assets: The difference betwe- ROCE (Return on Capital Employed): A financial concept en current assets and current liabilities. that it is calculated as EBIT on average capital employed which includes shareholders’ equity and net financial debt. World Business Council for Sustainable Development: an organisation currently made up of 160 international ROE (Return on Equity): This is a calculated as operating companies belonging to 30 countries of the 20 largest profit on average equity. industrial sectors. Its mission is to provide business lea- dership as a catalyst for change towards sustainable deve- Social Audit: These are processes for systematic assess- lopment, and to promote eco-efficiency, innovation and ment of the social and/or environmental conduct of a fac- social responsibility. tory, facility or activity, carried out by independent third parties, in accordance with international standards.

Social Audit Program: Program for the review and intro- duction of the Code of Conduct that is carried out to assess its level of introduction in the chain of production.

Social Board: External advisory body reporting to the Board of Directors of INDITEX made up, among others, of institutions or individuals of recognised prestige in the field of International, Academic, Environmental and Social Awareness Cooperation.

Solid urban waste: that generated in private households, stores, offices and services, as well as all those that are not categorised as hazardous and that due to their nature or composition can be assimilated to those produced in the places or activities listed above.

SO2: Sulphur dioxide, a chemical compound resulting from combustion reactions when sulphur forms part of the fuel (for example, in coal and derivatives of oil).

Spills to ground: Accidental spillage of a pollutant pro- duct or substance to the ground. It can originate in a transfer of material or through leaks in a circuit or storage facility

The Global Compact: An initiative of the United Nations for the protection of human rights and observance of ack- nowledged standards on working conditions and environ- mental protection.

Turnover of Stock: This is defined as the quotient betwe- en the cost of goods sold of a fiscal year and the average inventory position. To this effect, the average inventory position is calculated as the arithmetic mean of the initial inventory position and final inventory position of each fis-

178 Index of tables

Table 1 Evolution of the most significant figures of the Table 25 Annual evolution of urban or assimilable waste last few fiscal years (kg per thousand garments manufactured) Table 2 The performance of each format Table 26 Annual evolution of hazardous waste Table 3 International Presence (kg per thousand manufactured garments) Table 4 The most significant holdings Table 27 Use of energy Table 5 Composition of the Board Table 28 Consumption of water from the public network Table 6 Remuneration of the Board of Directors Table 29 Annual evolution of energy consumption Table 7 The participation of the members of the Board Table 30 Financial evolution in the past few years in the share capital Table 31 Details of company-managed, JV and Table 8 Composition of the Executive Committee as at franchised stores 31/01/2003 Table 32 Opening of new markets Table 9 Composition of the Audit and Compliance Table 33 List of franchised stores Committee as at 31/01/2003 Table 34 Distribution of in-stores sales in own or jointly Table 10 Composition of the Audit and Compliance managed stores and franchised stores Committee as at 20/03/2003 Table 35 Jointly-managed stores Table 11 Composition of the Nomination and Table 36 Sales by format Remuneration Committee as at 31/01/03 Table 37 International sales Table 12 Composition of the Nomination and Table 38 Summary by format Remuneration Committee as at 20/03/03 Table 39 Company Cash-flow Table 13 Current composition of the Social Advisory Table 40 Periods of payment by customers Board Table 41 Periods of payment to suppliers Table 14 Scope of the Social Audit Table 42 Personal cost Table 15 Budget of the Program of Community Table 43 Suppliers of capital development program in Spain Table 44 Variations in reserves Table 16 Budget of the Program of Community Table 45 Turnover of stock development program in Venezuela Table 46 Working capital Table 17 Budget of the Program of Community Table 47 GRI compliance indicators development program in Peru Table 18 Budget of the Program of Community development program in Morocco Table 19 Budget of the Program of Production Chain Strengthening in Morocco and Asia Table 20 Professionals from INDITEX who have attended the programs for environmental training Table 21 Type of Companies Table 22 Absolute and relative data of pollutant load Table 23 Data on atmospheric emissions in factories and logistics centres Table 24 Urban waste or assimilable waste generated in 2002

179 Index of graphs

Graph 1 Specific weight of the formats of INDITEX in 2002 (%) Graph 2 Specific weight of the formats of INDITEX in 2001 (%) Graph 3 Volume of production by geographic area Graph 4 Planning of social audit by geographic area Graph 5 Selection of independent auditors Graph 6 Details of the composition by age of the workforce in Spain Graph 7 Details of the contractual formulas and salary in Spain Graph 8 Details of the composition by gender of management positions in Spain Graph 9 % of workers represented by Workers Committees and personnel representatives in Spain Graph 10 Occupational accidents and occupational diseases in Spain Graph 11 Lost working days due to accident and illness Graph 12 Introduction of the Environmental Management System ISO 14001 Graph 13 Sales in stores controlled by INDITEX or franchises Graph 14 Sales by format Graph 15 Sales 2002 Graph 16 EBIT 2002 Graph 17 Distribution of flow of added value 2002 Graph 18 Distribution of flow of added value 2001 Graph 19 Sales Graph 20 Sales by geographic area 2002 Graph 21 Sales by geographic area 2001 Graph 22 Cost of sales and gross margin Graph 23 Geographic distribution of the personal costs in 2002 Graph 24 Taxes paid Graph 25 LFL sales

180 contacts c

181 THE MANAGEMENT OF INDITEX TRUSTS that the information inclu- ded in the Sustainability Report 2002 has been useful for any of the stakeholders to whom it is addressed. The objective has not been other that that of developing new formulas of dialogue and to increase the transparency of the information in its triple dimension: social, environ- mental and economic.

INDITEX considers that the Sustainability Report is and shall be a key tool to demonstrate its commitment to transparency and, through this, to encourage all its stakeholders to give their opinion and suggestions Cc on the matters discussed in it.

182 Questionnaire

Please complete the questionnaire by crossing the answer or writing it in the space provided, and send it by fax to the following telephone number +34 981 18 53 65.

— How much have you read of the Sustainability Report 2002?

All A part Most of it

— What motivated you to read the Sustainability Report 2002?

— Now indicate your link with INDITEX:

• In which stakeholder do you fall?

Customers Employees Shareholders Suppliers Local community/society Institutional investors Administration

• Which dimension did you find most interesting?

Good Governance Social Dimension Economic Dimension Environmental Dimension

The Sustainability Report 2002 is designed to attend to the requests for information of each of the stakeholders of INDITEX and to offer an initial vision in social, environmental and financial terms of the impact of the activities of INDITEX.

— Indicate your level of agreement or disagreement of the opinion that the Report reflects your expectations in terms of commitment and information:

I totally agree I disagree quite a lot

I agree quite a lot I totally disagree

— Do you agree or disagree that the Sustainability Report 2002 answers the demands for information of each one of the stakeholders of INDITEX and offers an appropriate vision of the impact of the activities of INDITEX in its social, environ- mental and financial dimensions?

I totally agree I disagree quite a lot

I agree quite a lot I totally disagree

183 — After reading the Sustainability Report 2002, do you consider that INDITEX is on the right track for the development of a sustainable business model?

I totally agree I disagree quite a lot

I agree quite a lot I totally disagree

— Now think about the chapter on Good Governance. To what extent do you agree with the following statement?

I totally agree I agree I disagree I totally disagree quite a lot quite a lot

It was interesting

It was informative

— Now think of the chapter on the Social Dimension. To what extent do you agree with the following statement?

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It was interesting

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— Now think about the chapter on the Environmental Dimension. To what extent do you agree with the following statement?

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— Now think about the chapter on the Financial Dimension. To what extent do you agree with the following statement?

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184 — Show your degree of agreement with the following statements on the general content of the Sustainability Report 2002

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— In general, how would you assess the Sustainability Report 2002 in terms of:

Written content? Presentation and design?

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— Do you have any additional comments you would like to make?

— Finally, just a few details about yourself in order to help us to carry out the analysis (optional):

• In what capacity are you answering? Company/Organisation Individual

• You are : Male Female

• Your age: Under 25 25-44 Over 45

• What is your profession?

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