Consolidated directors’ report

(at 31 January 2017)

1. Situation of the entity

Inditex is a global fashion group with a presence on five continents, 93 markets and in both the Northern and Southern hemispheres, which engages mainly in the retail of fashion, principally apparel, footwear, accessories and textile products for the home. Inditex carries out its activity through various commercial concepts such as Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe.

Each format’s commercial activity is carried out through a global, fully integrated store and online model managed directly by companies in which Inditex holds all or the majority of the share capital, with the exception of certain countries where, for various reasons, the retail selling activity is performed through franchises.

Inditex’s business model is a flexible, integrated and customer-orientated model with a clear multi-channel and multi-concept strategy.

The business model encompasses all the phases of the value chain: design, manufacturing and supply, distribution, logistics and retail sales. The offer of an attractive combination of fashion at competitive prices, the constant renewal of designs and delivery to stores between twice and six times a week place the customer at the center of the Group’s strategy. The reporting of information on a daily basis from the stores makes it possible to update collections on an ongoing basis.

The Group’s logistics system facilitates continuous deliveries from the distribution centers of the various commercial formats to stores throughout each season. This system essentially operates through centralized logistics centers for each concept in which inventory is stored and distributed to stores worldwide.

Organizational structure

Inditex’s corporate governance is articulated through the following institutional and operational bodies and mechanisms:

  • General Meeting
  • Board of Directors
  • Executive Committee
  • Audit and Control Committee
  • Nomination Committee
  • Remuneration Committee
  • Compliance Committee
  • Ethics Committee

2. Business performance and results

Key financial and non-financial indicators

Inditex continues to roll out its global, fully integrated store and online sales platform.

In FY2016, Inditex achieved a strong operating performance. Net sales reached €23.3 billion, with sales growth of 12%. Currency translation was -3%.

Like-for-like sales increased 10% in FY2016 (11% in first half and 9% in second half) on 8.5% in FY2015. The like-for-like calculation includes store sales (i.e. sales in stores opened for the whole of fiscal years 2016 and 2015) and online. This represents 80% of total sales.

In FY2016 Inditex new space in prime locations increased 8%. Total selling area at FYE reached 4,410,896 square metres:

Square metres 2016 2015 16/15
Zara 2,705,417 2,523,388 7%
Pull&Bear 387,023 351,799 10%
Massimo Dutti 251,157 233,084 8%
Bershka 485,966 456,914 6%
Stradivarius 299,391 271,386 10%
Oysho 101,960 92,891 10%
Zara Home 168,218 146,866 15%
Uterqüe 11,764 10,576 11%
Total 4,410,896 4,086,904 8%

Net store openings in FY2016 amounted to 279 reaching a total of 7,292 stores in 93 markets. In FY2016 Inditex opened stores in 56 markets.

A list of quarterly openings and stores opened as at FYE is included in the table below.

Net openings by quarter:

Concept 1Q 2Q 3Q 4Q Total 2016
Zara 18 1 30 16 65
Zara Kids (10) (1) (2) (1) (14)
Pull&Bear 15 2 24 (4) 37
Massimo Dutti 9 0 14 2 25
Bershka 6 3 20 8 37
Stradivarius 9 3 23 9 44
Oysho 8 0 13 8 29
Zara Home 18 4 19 9 50
Uterqüe (1) (1) 3 5 6
Total 72 11 144 52 279

Total stores at the end of each quarter:

Concept 1Q 2Q 3Q 4Q
Zara 2,020 2,021 2,051 2,067
Zara Kids 150 149 147 146
Pull&Bear 951 953 977 973
Massimo Dutti 749 749 763 765
Bershka 1,050 1,053 1,073 1,081
Stradivarius 959 962 985 994
Oysho 615 615 628 636
Zara Home 520 524 543 552
Uterqüe 71 70 73 78
Total 7,085 7,096 7,240 7,292

A list of company-managed stores and franchised stores as at FYE is included in the table below.

Company-managed stores and franchised stores at FYE 2016:

Concept Company Managed Franchised Total
Zara 1,831 236 2,067
Zara Kids 146 0 146
Pull&Bear 829 144 973
Massimo Dutti 657 108 765
Bershka 919 162 1,081
Stradivarius 812 182 994
Oysho 564 72 636
Zara Home 491 61 552
Uterqüe 65 13 78
Total 6,314 978 7,292

Sales in company-managed and franchised stores:

Concept Company Managed Franchised
Zara 87% 13%
Pull&Bear 83% 17%
Massimo Dutti 83% 17%
Bershka 82% 18%
Stradivarius 77% 23%
Oysho 86% 14%
Zara Home 86% 14%
Uterqüe 84% 16%
Total 86% 14%

A list of the stores’ locations by concept and by market at FYE is included in Annex II.

Net sales by concept are shown in the table below:

Million Euros 2016 2015 16/15
Zara 15,394 13,628 13%
Pull&Bear 1,566 1,417 10%
Massimo Dutti 1,630 1,498 9%
Bershka 2,012 1,875 7%
Stradivarius 1,343 1,289 4%
Oysho 509 452 13%
Zara Home 774 666 16%
Uterqüe 83 75 10%
Total 23,311 20,900 12%

The Group operates a global store and online model. Store & Online sales by geographical area are shown in the table below:

Area 2016 2015
Europe ex-Spain 43.9% 44.0%
Asia & RoW 23.9% 23.5%
Spain 16.9% 17.7%
Americas 15.3% 14.7%
Total 100.0% 100.0%

Inditex has continued to expand its global, fully integrated store and online model. In October 2016, Inditex launched online sales for all its concepts in Turkey, taking the total for Inditex to 41 markets. Annex III includes information regarding the markets and concepts with online sales.

Gross profit rose to €13.3 billion, 10% higher than the previous year. The Gross margin has reached 57.0% of sales (57.8% in FY2015).

Operating expenses have been tightly managed over the year and have grown by 11%, mainly as a result of the growth in sales and new retail space added. The special profit sharing plan for employees amounting to €28 million which equates to 10% of net income growth. Given the strong operating performance of Inditex in 2016 the Board of Directors has agreed a one-off additional award of €14 million to the plan. This amount is included in Other net operating income/losses.

Million Euros 2016 2015
Personnel expenses 3,643 3,335
Rental expenses 2,221 2,087
Other operating expenses 2,312 1,969
Total 8,176 7,392

At FYE 2016 the number of employees was 162,450 (152,854 at FYE 2015).

EBITDA rose to €5.1 billion, 8% higher than a year earlier. EBIT rose to €4 billion, 9% higher.

The breakdown of EBIT by concept is shown below:

EBIT by concept
Concept 2016 2015 2016 2016
Zara 2,764 2,452 18% 30%
Pull&Bear 231 206 15% 39%
Massimo Dutti 280 273 17% 42%
Bershka 333 299 17% 58%
Stradivarius 236 274 18% 51%
Oysho 79 70 16% 47%
Zara Home 94 100 12% 25%
Uterqüe 4 4 5% 11%
Total EBIT 4,021 3,677 17% 33%

The following chart shows the breakdown of financial results:

Million Euros 2016 2015
Net financial income (losses) 14 11
Foreign exchange gains (losses) (4) (1)
Total 10 10

Results from companies consolidated by the equity method came to €48 million.

Net income came to €3.2 billion, 10% higher than the previous year.

Return on Equity (ROE), defined as Net income on average Shareholder’s equity:

Million Euros 2016 2015
Net income 3,157 2,875
Shareholders equity - previous year 11,410 10,431
Shareholders equity - current year 12,713 11,410
Average equity 12,062 10,920
Return on Equity 26% 26%

Return on Capital Employed (ROCE), defined as EBIT on average capital employed (Shareholder’s equity plus net financial debt):

Million Euros 2016 2015
EBIT 4,021 3,677
Average capital employed
Average shareholders' equity 12,062 10,920
Average net financial debt (*) - -
Total average capital employed 12,062 10,920
Return on Capital employed 33% 34%

(*) Zero when net cash

Return on Capital Employed by concept:

Concept 2016 2015
Zara 30% 30%
Pull&Bear 39% 38%
Massimo Dutti 42% 43%
Bershka 58% 53%
Stradivarius 51% 65%
Oysho 47% 49%
Zara Home 25% 33%
Uterqüe 11% 12%
Total 33% 34%

To complement the financial statements included in the consolidated annual accounts of the Inditex Group, attached hereto is Annex I showing the 2016 results by quarter.

3. Issues relating to sustainability and employees

The business model of the Inditex Group is based on the premise that all its processes must be sustainable and responsible. Inditex views sustainability as a responsibility that covers all social and environmental aspects related to its environment, in which all the professional teams that make up the Group play a role.

This responsibility is reflected in a series of commitments including most notably the responsible manufacture of goods, the traceability and integrity of the supply chain, efficient use of resources, innovation and customer service and a commitment to its employees and the community. All of these processes are carried out within Inditex under the Right to Wear principle, which defines the ethical and sustainable commitment from the Company’s social and environmental point of view and which encompasses, inter alia, product health and safety processes (Clear To Wear and Safe To Wear), traceability and integrity of the supply chain (Tested To Wear), environmental processes (Green To Wear), corporate policies (Teams To Wear), and investment in the community (Social To Wear).

In this connection, Inditex’s commitment and duty to responsible management of its supply chain involve identifying the areas of work that contribute to improving the sector’s conditions in each of the countries in which the Group operates, thereby creating sustainable productive environments. The Manufacturer and Supplier Code of Conduct, and the Compliance Program that ensures its implementation, are the cornerstone on which Inditex bases its supply chain management and strengthening work.

Noteworthy among the projects in which Inditex has collaborated in order to meet the challenge posed by a sustainable manufacturing chain are the following:

Entre los proyectos que Inditex ha puesto en marcha para afrontar el reto de una cadena de producción sostenible se pueden destacar los siguientes:

  • The 2014 - 2018 Strategic Plan for a Stable and Sustainable Supply Chain.
  • Supply chain traceability system.
  • Manufacturer and Supplier Code of Conduct Compliance Program.
  • Establishment of supplier clusters as platforms for communication.
  • 2016-2020 Inditex Environmental Plan: Program for improved energy, water and waste management in the Green to Wear manufacturing chain.
  • Forest product policy to protect primary forests in danger of extinction.
  • Product health and safety standards compliance programs Clear to Wear and Safe to Wear.
  • Ready to Manufacture, program to evaluate the wet textile manufacturing processes, with the aim of implementing practices to guarantee product health and safety
  • The List, by Inditex, research and quality control program for the chemical products employed in textile manufacturing.

These projects are associated with several codes and commitments assumed by Inditex, including most notably the following:

The Framework Agreement with IndustriALL Global Union (formerly ITGLWF) ( To promote fundamental human and social rights in Inditex’s manufacturing chain, including the definition of intervention and joint-action mechanisms in the manufacturing chain for the implementation of the Manufacturer and Supplier Code of Conduct. Date of adherence: 4 October 2007. On 4 May 2012 Inditex and IndustriALL signed the “Protocol to specify trade union involvement in order to strengthen the Global Framework Agreement for the manufacturing chain of Inditex”. On 8 July 2014 the Framework Agreement between both parties was renewed at the headquarters of the International Labour Organization (ILO) in Geneva (Switzerland). In 2016 a new agreement was reached which allows the involvement of trade union experts in the clusters (local platforms to communicate with our stakeholders), in order to monitor, supervise and work alongside the suppliers throughout the entire supply chain.

The Accord on Fire and Building Safety in Bangladesh’s Textile Industry dated 13 May 2013 ( This is an agreement between global brands and retailers and local and international trade unions and NGOs, with the aim of ensuring lasting improvements in the working conditions of Bangladesh’s textile industry.

United Nations Global Compact ( A United Nations initiative to promote social dialogue between companies and the civil society. Date of adherence: 31 October 2001.

Ethical Trading Initiative (ETI) ( A platform for dialogue to improve the working conditions of workers in developing countries in the retail sector, comprising companies, international trade union organizations and non-governmental organizations. Date of adherence: 17 October 2005.

ACT (Action, Collaboration, Transformation) is a collaborative initiative between retail brands, suppliers and trade unions to promote living wages in the textile sector’s supply chain. To implement this initiative, the brands included in ACT and IndustriALL Global Union executed a Memorandum of Understanding to establish the principles of freedom of association, collective bargaining and living wages in the manufacturing chains. Date signed: 13 March 2015.

The ILO’s Better Work Program ( A platform to improve compliance with labor standards and the competiveness of global supply chains. Date of adherence: October 2007. In the course of this partnership, Inditex and Better Work executed on 9 October 2013 a specific collaboration agreement whereby Inditex became a direct buyer partner of the Better Work Program.

Zero Discharge of Hazardous Chemicals in 2020. Commitment to the restriction and elimination of certain chemicals in the product manufacturing process. Date of execution: 27 November 2012.

The CEO Water Mandate ( A United Nations initiative to support companies in the development, application and communication of its water strategies and policies. Date of adherence: 30 June 2011.

Sustainable Apparel Coalition ( A textile sector initiative to develop a common sustainability index in order to evaluate the environmental performance of suppliers during the production process. Date of adherence: 20 October 2011.

Textile Exchange ( A platform to promote the growing of organic cotton and global sustainability in the textile sector. Date of adherence: 8 September 2010.

Better Cotton Initiative ( An initiative that develops and promotes good practices in the traditional growing of cotton for the benefit of those who produce it, the environment and to ensure the future of the sector. Date of adherence: 1 July 2011.

Code of good tax practices. The code promotes a mutual cooperation between the tax authorities and companies. Date of adherence: 21 September 2010.

The Cotton Campaign is a global coalition of human rights, labor, investor and business organizations dedicated to improving the working conditions of the cotton sectors in Uzbekistan and Turkmenistan. Date of adherence: 26 October 2012.

Fur Free Alliance ( Inditex forms part of the Fur Free Alliance’s Fur Free Retailer Program. The Fur Free Alliance is an international coalition of organizations to protect animals, whose main objective is to end the exploitation and killing of animals for fur. Date of adherence: 1 January 2014.

Bangladesh Water PaCT (Partnership for Cleaner Textile). A four-year initiative to promote change in the Bangladesh textile sector by improving the environment of the so-called wet processes (dying, washing, printing and other finishes), thereby contributing to the sector’s long-term competiveness. Date of adherence: 20 June 2013.

UNI GLOBAL UNION ( Promotes respect and fundamental rights, and decent work in the commercial and retail network. Date of adherence: 2 October 2009.

Health and safety standards implemented by Inditex

Clear to Wear. Clear to Wear is the Inditex Group’s general and binding product health and safety standard that relates to all its items of clothing, footwear, accessories, knitwear and furniture. The aim of this standard is to eliminate or regulate the use of substances the use of which is limited by law.

Safe to Wear. Safe to Wear is the Inditex Group’s general and binding product safety standard that relates to all production processes. This standard has been prepared in accordance with the strictest and most up-to-date legislation on the subject and is designed to guarantee the safety of all products sold by Inditex

Other environmental initiatives are carried out at the Group’s facilities including most notably the implementation of ISO 14001 certified environmental management systems at head offices, central offices and all of Inditex’s logistics centers; the opening and refurbishing of stores based on the Ecoefficient Store Manual: LEED/BREEAM certification of flagship stores, logistics centers and offices; emission reduction programs; packaging and waste optimization programs; waste minimization plans at logistics centers and stores; design and buyer team awareness initiatives and programs for product recycling and end of product life programs.

Inditex understands that its relationships with its employees and with the community it forms part of must be based on the principles set forth in its Code of Conduct and Responsible Practices. The policies on equal opportunities and the balance between family and working life and the integration projects constitute essential instruments for creating a work environment that encourages the personal and professional growth of the workforce.

The detail, by category, of the headcount of the Group and its jointly controlled entities at 31 January 2017 is as follows:

Categorías: W M Total
Manufacturing and logistics 4,230 5,392 9,621
Central services 7,056 4,342 11,397
Stores 111,639 29,793 141,432
Total 122,924 39,526 162,450

4. Liquidity and capital resources

Inditex continued to show a strong financial position in FY2016.

Million Euros 31/01/17 31/01/16
Cash & cash equivalents 4,116 4,226
Short term investments 2,037 1,086
Current financial debt (62) (10)
Non current financial debt - (1)
Net financial cash (debt) 6,090 5,300

The operating working capital position remains negative as a result of the business model:

Million Euros 31/01/17 31/01/16
Inventories 2,549 2,195
Receivables 861 669
Payables (5,325) (4,591)
Operating working capital (1,915) (1,728)

Strong cash flow generation. Funds from Operations reached €4.4 billion in FY2016, 13% higher.

Ordinary capital expenditure for FY2016 amounted to €1.4 billion, 4% higher than the prior year.

The Group’s capital structure is characterized by the low debt/equity ratio as a result of the practically non-existent financing and the strength of its equity.

The Group’s organic growth and its CAPEX needs have been financed substantially in full with the funds generated by the business, which has enabled the Group to maintain its solid cash position.

The Group considers that no changes will arise with regard to the generation and management of liquidity in FY2017.

Additionally, the Group has available credit lines, against which no amounts have been drawn down (see Note 20 to the consolidated annual accounts), that guarantee access to such additional funds as might be required.

Inditex offices, New York (USA).

5. Analysis of contractual obligations and off balance sheet transactions

As detailed in Note 25 to the consolidated annual accounts, the most significant contractual obligations related to future minimum payments under non-cancellable operating leases.

Also, commitments exist in relation to investments envisaged in the opening of new stores in FY2017, the amount of which is included in the figure for capital expenditure detailed under Issues relating to sustainability and employees.

6. Main risks and uncertainties

In order to facilitate unified and comprehensive risk management, the Group has established a common definition of risk for the Organization as a whole. Accordingly, the Group defines a risk as “any potential event that may have a negative impact on the fulfilment of the business objectives”.

The risks reviewed are classified and grouped in the following categories:

6.1. Business environment

Risks arising from external factors relating to the Group’s business activities.

This category includes risks relating to difficulties in adapting to the environment or market in which the Group operates, as regards both the procurement processes and the product retailing and sale activities. These risks are inherent to the fashion retailing business and consist of the Group’s potential inability to continue operating and react to changes in its target market or to adapt to new situations in the countries from which it obtains its supplies or in which it performs retail activities.

In this regard, country-risk triggering geo-political, demographic and socio-economic changes in countries in which procurements or retail sales are made, the emergence of new means of communication and changes in consumer behavior or a downturn in demand in certain markets constitute, inter alia, factors that might have an adverse effect on the optimum achievement of the Group’s business objectives.

6.2. Legislative and regulatory

These are the risks to which the Group is exposed as a result of the legislation in force in the countries in which it carries on its business activities.

The risks included in this category include risks relating to tax, customs, labor law, commercial and consumption-related regulations, intellectual property regulations and risks relating to other types of legislation, in particular, regulations in relation to criminal risk, which determine the criminal liability of legal entities, and other risks of non-compliance with legislation.

The General Secretary’s department supervises and manages the Inditex Group’s regulatory compliance system in order to prevent legal (including criminal) and reputational risks arising from possible regulatory breaches, and to achieve the best ethical standards and monitor the corporate best practices.

6.3. Reputation

These are risks which have a direct influence on the perception of the Group held by its stakeholders (customers, employees, shareholders and suppliers) and society in general.

They arise from the possibility of the incorrect management of issues relating to corporate social responsibility and environmental sustainability, responsibility for product health and safety, the corporate image of the Group, as well as its image in social networks, and any other potential regulatory breach that might have an impact on the Organization’s reputation.

6.4. Human resources

The main risks relating to human resources are those arising from potential dependence on key employees and the difficulties involved in identifying and adequately retaining talent, and maintaining an adequate working environment in all the work centers.

6.5. Operational

The principal operational risks to which the Group is exposed arise from the possible difficulties involved in recognizing and taking on board the constant changes in fashion trends, and in manufacturing, buying and selling new items that meet customer expectations.

The risk arising from the interruption of operations is associated with the possible occurrence of extraordinary events not within the Group’s control (natural disasters, fires, transport or key supplier strikes, interruptions in energy and fuel supplies, withholding of goods in freight, etc.), which could have a significant effect on the normal functioning of the Group’s operations.

In view of the Group’s operating structure, the main operational risks are concentrated at logistics centers and at third party operators transporting goods. The clothing, footwear, accessories and household products of all the concepts are distributed from 14 logistics centers located throughout Spain. Logistics distribution is complemented by other smaller logistics centers located in other countries and with third party logistics operators which carry out small scale distribution operations.

Other risks included under this category would be those associated with property management, particularly in relation to the search for and selection of commercial premises and the return thereon.

6.6. Financial

The normal functioning of the Group’s operations exposes it to risks of a financial nature. This category includes foreign currency risk and counterparty credit risk. In addition, the increasingly international nature of the Group’s businesses exposes it to country risk in its various different markets.

The Euro is the Group’s functional currency. Its international transactions require the use of numerous non-euro currencies giving rise to foreign currency risk. The Group has investments overseas whose assets are exposed to the foreign currency risk. Given that the Group consolidates the annual accounts of all its companies in its functional currency, i.e. in the euro, it is exposed to foreign currency risk in the translation of the results of all its entities located outside the Economic and Monetary Union. The Group is also exposed to the risk arising from the payment and collection flows in currencies other than the euro in relation to the acquisition and provision of goods and services in both Group and non-Group transactions.

The Group is not exposed to significant concentrations of counterparty credit risk. The majority of its revenue relates to retail sales which are collected in cash or through credit or debit card payments. In any event, the Group is exposed to the risk that the (mainly financial) counterparties do not fulfil the obligations resulting from investing the Company’s liquidity, under the credit facilities or other funding and guarantee vehicles or the derivatives arranged to hedge financial risks.

6.7. Information for decision-making

The risks in this category relate to the availability of adequate information at all levels: transactional and operating information, financial and accounting information, management information and budgeting and control information.

The Group’s various departments and particularly the Management Planning and Control and the Administration departments, which report to the Corporate Finance Department, are directly responsible for producing and supervising the quality of this information.

6.8. Technology and information systems

These include the risks associated with the technological infrastructure, the effective management of information, IT and robotic networks and communications. They also include those relating to the physical and technological security of systems, in particular, the risk of cyberattacks on information systems, which could potentially affect the confidentiality, integrity and availability of critical data.

6.9. Corporate governance

This category includes the risk relating to the possibility of an inadequacy in the Group’s management leading to the failure to comply with corporate governance and transparency rules.

Risk management at the Group is a process promoted by the Board of Directors and senior management and is the responsibility of all members of the Organization, the purpose of which is to provide reasonable assurance that the objectives established by the Group will be achieved, furnishing shareholders, other stakeholders and the market in general with sufficient guarantees to ensure that the value generated will be protected.

In this context, the Group’s Risk Management and Control Policy establishes the basic principles, key risk factors and the general action guidelines for managing and controlling the risks that affect the Group. This Policy is applicable to the entire Group and forms the basis for an Integral Risk Management System.

The Risk Management and Control Policy is implemented and complemented by specific policies and internal regulations relating to certain units or areas of the Group. The policies and internal regulations developed and implemented by these areas for the management of the different types of risk include most notably:

  • Investment Policy.
  • External Financing Policy.
  • Payment Management Policy.
  • Financial Risk Management Policy.
  • Code of Conduct and of Responsible Practices.
  • Criminal Risk Prevention Policy.
  • Criminal Risk Prevention Proceedings.
  • Internal Code of Conduct for matters related to Securities Markets.
  • Corporate Social Responsibility Policy.
  • Manufacturer and Supplier Code of Conduct.
  • Occupational Risk Prevention Policy.
  • Environmental Sustainability Policy.
  • IT Security Policy.
  • Purchasing and Contracting Policy.
  • Shareholder, Institutional Investor and Proxy adviser communication and Relations policy.
  • Representation by Proxy and Authorised Representative Policy and Procedure.
  • Human Rights Policy.
  • Compliance Policy.
  • Tax Strategy and Policy.
  • Procedure to Engage Auditors for the Provision of Non-Audit Services.

For more details, see Section E-Risk control systems of the Annual Corporate Governance Report for 2016.

7. Significant events after the reporting period

No significant events have occurred since the reporting date.

8. Information on the outlook for the Group

Store and online sales in local currencies, adjusted for the calendar effect of an extra trading day in February 2016 due to the leap year, have increased by 13% from 1 February to 12 March 2017. The Spring/Summer season is influenced by the performance over the Easter period due to its significant sales volumes.

In FY2017 Inditex expects 450-500 gross openings and the selective absorption of 150-200 small units into neighbouring stores. Approximately 70% of the new contracts have been signed but in some cases openings may not take place in FY2017.

Online sales for Zara were launched in Singapore and Malaysia in March 2017, with Thailand and Vietnam to follow in the coming weeks. In 2017, Zara expects to launch online sales in India.

Ordinary capital expenditure in FY2017 will be approximately €1.5 billion driven mainly by the addition of new space in prime locations during the year. Ordinary capital expenditure is expected to grow below space growth in the coming years.

In view of the performance of Inditex over recent years, the Board of Directors has agreed to extend the existing special profit sharing plan for employees to FY2017 and FY2018.

Inditex sees strong growth opportunities and continues to expand its global, fully integrated store and online sales platform.

8.1. R&D+I activities

The Inditex Group generally does not carry out research and development projects, which are defined as projects, other than those involving the design of garments, accessories, household products or certain logistical activities, in which amounts are invested over several years to develop assets on which a return is expected over multi-year periods.

Since its inception, the Group has been run with the help of the technology available in all areas of activity in order to improve manufacturing and distribution processes, and by developing in-house or third-party tools to facilitate the management of the business. Some examples of this are point-of-sale terminals, inventory management systems, distribution center delivery systems, systems for communications with stores and in-store garment labeling systems.

8.2. Acquisition and sale of treasury shares

The annual general shareholders’ meeting held on 16 July 2013 approved the 2013-2017 Long-Term Share-Based Incentive Plan (“the 2013-2017 Plan”) aimed at management and other employees of the Inditex Group (see Note 27) and authorized the Board of Directors to derivatively acquire treasury shares to cater for this plan. Additionally, the annual general shareholders’ meeting held on 19 July 2016 approved the 2016-2020 Long-Term Incentive Plan (“the 2016-2020 Plan”) (see Note 27) and authorized the Board of Directors to acquire treasury shares to cater for this plan.

At 1 February 2016 the Company held 3,500,000 treasury shares. In 2016, settlement of the first cycle (2013-2016) of the 2013-2017 Plan took place, with the corresponding shares being delivered to the beneficiaries of the aforementioned first cycle of the Plan.

Also, in order for the Company to have the shares required for their delivery to the beneficiaries of the second cycle (2014-2017) of the 2013-2017 Plan, the Company acquired shares until it reached a total of 3,610,755, representing 0.116 % of the share capital at 31 January 2017.

9. Other salient information

9.1. Stock market information

Shares in Inditex saw growth of 1.5% during the financial year 2016, closing at 30.535 Euros per share on 31st January 2017, on top of a 15.5% growth during financial year 2015. The average transacted volume of shares in financial year 2016 was approximately 5.7 million per day. In the same period, the Dow Jones Stoxx 600 Retail fell by 5.3% and the Ibex 35 rose by 5.7%, following declines of 4.4% and 15.3%, respectively, in 2015.

Inditex’s market capitalization stood at 95,167 million Euros at FYE 2016, up 939% on its capitalization when its shares were admitted to trading on 23 May 2001, as compared with a 3% decrease in the Ibex 35 index in the same period.

The dividend for FY2015 totaling Euros 0.60 per issued share was paid in May and November 2016.

9.2. Dividend policy

The Group’s policy consists of the payment of dividends equivalent to 50% of the net profit generated in the year as an ordinary dividend and the possibility of a bonus dividend.

Inditex’s Board of Directors will propose at the General Shareholders Meeting a dividend increase of 13%, composed of an ordinary dividend of €0.50 per share and a bonus dividend of €0.18 per share, equating to a total dividend of €0.68 per share. €0.34 would be payable on 2 May 2017 as an interim ordinary dividend and €0.34 would be payable on 2 November 2017 as the final ordinary and bonus dividend.

Dividends paid to shareholders in 2016 reached €1.9 billion.

9.3. Other disclosures

Related party transactions

Transactions with related parties are described in Note 30 to the consolidated annual accounts. The Company did not carry out any transactions with related parties in FY2016 that substantially affected its financial position or results.

The following table shows the information on average payment periods required by Law 15/2012, of 5 July, amending Law 3/2004, of 29 December

The Group’s supplier payment policy complies with the periods for payment to suppliers set in the late payment legislation in force. The Group is developing measures to try to reduce the payment period in those rare cases in which the established maximum payment period is exceeded. The aforementioned measures will focus on reducing the length of the processes involved in the receipt, verification, acceptance and accounting of invoices (enhancing use of electronic and technological methods) and improving the procedure for incident resolution in this connection.

Annual Corporate Governance Report

The Annual Corporate Governance Report for 2016 is available and was published in the section on Relevant Event Communications of the CNMV (Spanish National Securities Market Commission) website ( on 15 March 2017.

9.4. Alternative performance measures

The gross profit, EBITDA, EBIT, ROCE and ROE are defined in the initial note to the consolidated annual accounts for 2016.

The information disclosed in this document may contain statements in relation to future intentions, expectations and projections. All such statements, except for those based on historical data, are forward-looking statements, including, inter alia, those that address our financial position, business strategy, management plans and objective for future transactions. The aforementioned intentions, expectations or projections are subject per se to risks and uncertainties which could cause actual results to differ from those anticipated.

These risks include, but are not limited to, competition within the sector, consumer preferences and spending trends, economic and legal conditions, restrictions on free trade and/or political instability in those markets where the Inditex Group has a presence or in those countries in which Group products are manufactured or distributed.

The risks and uncertainties that could potentially have an impact on the information disclosed are difficult to predict. The Group undertakes no obligation to publicly update or revise any of the forward-looking statements in the event that any unforeseen changes or events arise which might affect them.