2019 Annual Report

“People have been the absolute priority in our response to covid-19”

In spite of the current situation, this annual report must reflect on 2019. The truth is that, despite having been overshadowed by the events of 2020, 2019 provides a vital snapshot of the continued resilience of our business model. Our financial performance was better than ever, even as we continued to deliver on our community and environmental ambitions.

Sales revenue grew 8% from the year prior year as customers responded enthusiastically to the creations of our design teams.

Underlying net profit was 12%, reduced to 6% only due to the decision to recognise an impairment provision of €287 million at the onset of the crisis in anticipation of the impact of covid-19. We reinforced the rollout of our store and online integrated platform, which now spans 200 markets worldwide, following €1.2bn in capital expenditure. Meanwhile our global tax contribution reached €6.75 billion, €1.87 billion of which in Spain, implying an effective tax rate of 22%.

It is worth underscoring our robust financial position at year-end 2019, namely net cash of €8.06 billion (+20% year-on-year), further evidencing that we are on the right strategic track, corroborating the effectiveness of our integrated stock management approach and endorsing our financial discipline.

We remain firmly committed to ensuring our business activities add value for society and the environment. At the last Annual General Meeting it was agreed to set up a Sustainability Committee within the Board of Directors and a raft of new sustainability targets were announced. Those targets include the elimination of single-use plastic from customer interfaces by 2023; the recycling of all waste generated in our facilities, also by 2023; and the use of only sustainable man-made cellulosic fibres such as viscose by 2023, and the use of only sustainable, organic or recycled cotton, sustainable linen and recycled polyester all by 2025.

“2019 provides a vital snapshot of the continued resilience of our business model”

By the end of 2020, all of the company's stores will have used-clothing collection containers. The clothing collected is being donated for reuse or recycling in collaboration with 45 local NGOs in the various markets, including Caritas, the Red Cross and Oxfam.

All of the Group's brands have undertaken important strategic initiatives related to this sustainability strategy and the garments distinguished by the Join Life label will account for 25% of the total by end of this year.

We also boosted our research effort in 2019, most notably with a €3.5 million collaboration with MIT covering the promotion of research driven by global sustainability challenges, including new recycling and upcycling techniques, among other aspects.

Our community engagement drove us to make the full force of our logistics capabilities available to assist with the health emergency in 2020. We set up an air traffic corridor with China which was initially used to get aid to that nation, the first to suffer from the epidemic, and later facilitated the transportation of over 120 million items of health equipment to Europe during the peak of the crisis.

That sense of responsibility similarly materialised in our commitments to our suppliers, such that we did not cancel orders and upheld our payment terms. With them in mind, we also backed an initiative jointly with the International Organisation of Employers, the International Labour Organization, IndustriALL Global Union, nternational Trade Union Confederation and major international apparel brands in support of garment workers, particularly in markets with less robust social protection systems.

“We remain firmly committed to ensuring our business activities add value for society and the environment”

Our commitments encompass and are guided by the United Nations 17 Sustainable Development Goals to ensure we have a positive impact on the societies in which we operate. We say so at a time when it is vital to reassert the United Nations Global Compact, to which we are adhered, and the UN Guiding Principles on Business and Human Rights, fully embedded into our conduct as an enterprise.

The past few months, during which virtually all of our stores around the world - 7,469 as of year-end - were closed for weeks, have enabled us to observe how some of the trends that shaped our integrated stores and online platform strategy have accelerated.

For that reason we have decided to commit even more decisively to our plans for fully integrating our stores and online business over the next two years. We will reinforce and expand the online presence and RFID technology across all eight of our brands.

In line with the strategy pursued in recent years, we will continue to open larger, high-tech stores, extend and modernise existing stores and absorb smaller stores less well positioned to offer our customers these new integrated services.

This strategy is transforming our Group and preparing us for emerging opportunities that are bound to emerge, moving us closer to our goal of becoming a fully integrated, fully sustainable and fully digital Company.

Many thanks.