ANNUAL REPORT 2015 Inditex’s sustained growth is driven by a team of over 150,000 people worldwide who know that the Group’s progress has to go hand in hand with social progress and environmental sustainability ANNUAL REPORT 2015 ANNUAL REPORT Over 150,000 creative people, who also succesfully work in team, are part of Inditex. Zara employee at the store in Oxford Street, London. Massimo Dutti employees at the brand’s head office in Tordera (Barcelona). INDITEX ANNUAL REPORT 2015 Main indicators Turnover (in millions of euros) Financial and management ratios 2015 2014 2015 2014 Return on equity (ROE) 26% 25% Net sales 20,900 18,117 Return On Capital Employed (ROCE) 34% 33% Results (in millions of euros) Other relevant information 2015 2014 2015 2014 Operating profit (EBITDA) 4,699 4,103 Number of stores 7,013 6,683 Operating profit (EBIT) 3,677 3,198 Net openings 330 343 Net profit 2,882 2,510 Number of markets with commercial presence 88 88 Net profit attributable to the parent company 2,875 2,501 Number of markets with an online store 29 27 Number of employees 152,854 137,054 Percentage of women/men 76% / 24% 78% / 22% Relative energy consumption (MJ/garment) 5.56 6.24 Investment in social programmes (in millions of euros) 35 25 Number of suppliers with purchases 1,725 1,625 Sales (in millions of euros) Net income (in millions of euros) 20,900 2,882 18,117 2,510 2,367 2,382 15,946 16,724 13,793 1,946 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Sales by geographical area Number of employees 2015 152,854 44% Europe (excluding Spain) 2014 137,054 America 15% 2013 128,313 2012 120,314 Asia and rest of the world 23% 18% Spain 2011 109,512 - 2 -- - [G4-9, G4-13] INDITEX MAIN INDICatORS Meeting at Oysho head office in Tordera (Barcelona). - 3 -- 3 - INDITEX ANNUAL REPORT 2015 Table of contents YEAR SUSTAINABILITY OUR REVIEW STRATEGY PRIORITIES 6 22 30 Letter from the Chairman 8 Sustainable development Traceability of the supply chain 32 at Inditex 24 This year’s highlights 10 Integrity of the supply chain 36 Creating economic and Commercial presence 12 social value 28 The quality of our products 58 Retail formats 14 Efficient use of resources 70 Evolution of main indicators 20 Developing everybody’s talent 80 Innovation in customer services 94 Contribution to community welfare 98 Corporate governance 114 About this report International reporting initiatives Our Annual Report has been conceived as an Integrated Report, in subscribe by Inditex order to inform our stakeholders of how Inditex creates value in the short, mid and long-term. With the aim of conveying this information Global Reporting Initiative in a transparent, truthful, relevant and detailed way, we include the − The 2015 Annual Report is published in accordance with the best practices in reporting and complement this information in our guidelines set out in the new G4 Guide (Exhaustive option). corporate webpage: www.inditex.com − Inditex is member of the Gold Community. This Annual Report has been drafted based on the principles of the − Inditex has adhered to its criteria since 2002. United Nations Global Compaq and the guidelines and principles of the G4 Global Reporting Initiative and the International Framework as well as those principles standards included in AA1000 APS (2008) norm for Accountability. According to these criteria, the report presents all the issues that have an economic, social and environmental impact relevant to Inditex, since they can substantially influence the evaluation and decision making of stakeholders. These issues are identified and evaluated from a materiality process that involves the main stakeholders. For further information see Materiality matrix, page 161. - 4 -- - INDITEX TABLE OF CONTENTS SUSTAINABILITY ANNUAL GRI CONTENT BALANCE ACCOUNTS INDEX 142 162 290 Sustainability balance sheet 144 Investors and stock market indexes GRI content verification 292 164 Tax contribution 158 GRI content index 296 Economic and financial Balance of material issues 160 report 166 Consolidated director’s report 222 Systems for control of risks 236 Internal control and risk management systems for the process of financial reporting (SCIIF) 248 Audit and Control Committee 262 Report of the Nomination Committee 276 Report of the Remuneration Committee 284 Integrated Reporting External verification − In line with the principles established in the Framework, Inditex’s Inditex’s Annual Report has been verified by SGS ICS Ibérica, SA, in 2015 Annual Report is presented as an integrated report. accordance with ISO 19011 and in line with the principles established − Member of the Integrated Reporting Pilot Programme of the in the G4 Guide to Sustainability Reporting of the Global Reporting International Integrated Reporting Council (IIRC). Initiative, the principles established in the International Integrated Reporting Framework, and AA1000 Accountability Principles The Global Compact Standard 2008 (AA1000APS). Equally, a selection of relevant − The Communication on Progress for this Annual Report is indicators was reviewed by KPMG Asesores in accordance with included in the GRI index. standard ISAE 3000. This selection of indicators was produced based on Inditex’s annual materiality analysis, carried out in conjunction − Member of the Business Network of the International Integrated with stakeholders. The results of this verification demonstrate that Reporting Council (IIRC). the application level (In Accordance – Exhaustive) declared for the − Participant in the United Nations Global Compact since 2001. GRI Guide (G4) is appropriate. For further information see page 296 For further information see pages 292-295 [ G4-18, G4-32, G4-33 ] - 5 - year review INDITEX ANNUAL REPORT 2015 Letter from the Chairman Dear friends, Inditex’s 2015 results demonstrate the strength of our teamwork, an entrepreneurial spirit and a business model which focuses on offering products commitment to do business responsibly. that our customers want. Our sales and net profit increased by 15%, with growth across all geographic This commitment to social progress and the regions. Comparable store sales – stores opened endeavour for environmental sustainability forms the for more than two years – rose by 8.5%, and we ethical principles held by all of us at Inditex. Based created 15,800 new jobs. In light of these numbers, on these principles, we have championed and shared I commend the efforts of pioneering sustainable practices throughout our every individual at Inditex, business operations, as well as well as the Group’s “Inditex’s sustained as with our partners and continued innovation and suppliers. More specifically, commitment to ensuring growth is driven by a this year Inditex joined the that we create social value effort to achieve the 17 alongside economic growth. Sustainable Development team of over 150,000 Goals (SDG) set by the Inditex’s sustained growth United Nations in 2015 to is driven by a team of over people worldwide combat climate change, 150,000 people worldwide poverty and inequality with who are committed to who know that the concrete goals for 2030. We the principle that all our discuss our efforts to reach activities at the Group, be Group’s progress has the goals and aspirations of it teamwork, innovation this initiative in each chapter or management, are to go hand in hand of our 2015 Annual Report. conducted hand-in-hand with social progress with social progress Our commitment to and environmental the SDGs builds on our sustainability. This principle and environmental longstanding adherence to stems from the firm the United Nations Global conviction that people, and sustainability” Compact and its principles. respect for their dignity and It also compliments our integrity, should be our top priority. collaboration efforts with the International Labour Organization, as well as our active participation This conviction is behind our company’s commitment in organizations such as the Ethical Trading to create stable and quality jobs. The Group’s global Initiative and the Sustainable Apparel Coalition and growth led to the creation of 15,800 new jobs in 2015, agreements with international union organizations 4,120 of which were in Spain, where the company’s such as Uni Global and IndustriALL. headquarters, logistics facilities and design centres have become a hub of world-class creative, business Our collaboration since 2007 with the IndustriALL and industrial talent. These operational centres, Global Union, which represents more than combined with our global footprint, encapsulate 50 million workers worldwide, is especially the Group’s diversity, with a corporate culture that noteworthy. Recently, we significantly enhanced this is synonymous with a high level of self-discipline, collaboration through an agreement to establish - 8 -- - [ G4-1 ] INDITEX YEAR REVIEW - LETTER FROM THE CHAIRMAN with social enterprises globally to support the reuse or recycling of our customers’ unwanted clothes at the same time as adding social value. We remain committed to a high- quality supply chain made possible by our ethical principles as well as our investment in quality processes to ensure painstaking attention to every garment. Twenty eight laboratories worldwide ensure that the health and safety of our products measure up to the highest standards to deliver the quality fashion desired by our customers in the 88 markets in which we operate. In 2015, Inditex invested €1.5bn in its operations which helped to support its world-class logistics and export activities. The Group now has its logistics platforms all equipped with cutting-edge technology. The knock-on effect of this investment has generated business throughout our supply chain. In Spain alone, we now work with 7,500 suppliers in all industries, generating approximately €4.5bn in revenues and indirectly supporting more than 50,000 jobs. The Group’s business, which fully integrates online and store operations, has also expanded as a result of this ongoing investment.