CSR Report Inditex 2002 by passion desire

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

IN THE COURSE OF THE LAST TWO YEARS INDITEX has given a decided 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 materializing 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 established in 2002 by the Global Reporting Initiative, and constitutes a balanced and reasonable presentation of the social, environmental and economic performance 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 relating to Corporate Governance, which contains information regarding compliance 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 sustainability 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 that each one of our stakeholders has at their disposal sufficient and precise 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 the quality of future editions but provide new approaches to INDITEX’s sustainability policy itself in the future.

Amancio Ortega Gaona Chairman 2

scope

s 3

AMONG THE OBJECTIVES DEFINED IN 2001 for the development of a Corporate Responsibility Model was included, among other aspects, the preparation 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 available 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

Transmission of the Code of Conduct

2001 & 2002

100% suppliers

Social audit of External Manufacturers and Workshops

2001 & 2002

80% suppliers and external workshops

Social Action

2002

Spain and international

Human Resources

2002

Spain and international

2002

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

Social

Environmental

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.

who we are

7-22} 7 Road Map. 9 Who we are. 11 Formats. 15 International Presence. 17 The business model. 21 The management team.

1 1963 Confecciones GOA

2 1975 First Zara store in A Coru単a

6 1991 Pull and Bear and acquisition of 65% of Massimo Dutti

7 1992-1994 Mexico (1992), Greece (1993), Belgium and Sweden (1994)

11 1999 Stradivarius. Holland, Germany, Poland, Saudi Arabia, Bahrain, Canada, Brazil, Chile and Uruguay

2000 Austria, Denmark, Qatar and Andorra. INDITEX headquarters in Arteixo, A Coru単a

road map

3 1985 Inditex S.A. as the head of the group

8 1995 100 % Massimo Dutti. Malta (1995) and Cyprus (1996)

4 1988 First international opening of Zara: Oporto (Portugal)

5 1989-1990 New York (1989) and Paris (1990)

9 1997 Norway and Israel

10 1998 Bershka. Argentina, Japan, UK, Venezuela, Lebanon, UAE, Kuwait and Turkey

13 2001 May 2001: IPO. Oysho. Puerto Rico, Jordan, Ireland, Iceland, Luxembourg, the Czech Republic and Italy

14 2002 El Salvador, Finland, the Dominican Republic, Singapore and Switzerland

who

we are

W Net sales** Net income** No of Stores No of Countries International Sales Employees

INDITEX, ONE OF THE LARGEST FASHION DISTRIBUTION GROUPS IN THE WORLD, had 1558 stores in 44 countries at the end of corporate 2002. In addition to its seven store formats –Zara, Kiddy’s Class, Pull and Bear, Massimo Dutti, Bershka, Stradivarius and Oysho– it brings together around one hundred companies 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 shares 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 consolidated 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 figures of the group over the last few fiscal years *:

2002

2001

2000

1999

1998

1997

1996

3,974

3,250

2,615

2,035

1,615

1,217

1,002

438

340

259

205

153

117

1,558

1,284

1,080

922

748

622

564

54%

52%

48%

46%

36%

32%

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

formats

WITH THE OBJECTIVE OF SEGMENTING ITS APPROACH to the market, INDITEX has seven fashion distribution formats. All these share the same commercial and management focus: to be the leaders in their segment through a flexible business model, as well as a vocation for international 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 administrate their resources. Nonetheless, the fact of belonging to a group spread over more than forty countries brings them a great number of organizational and knowledgemanagement synergies. Thus, each management team can concentrate on the roll-out of its business knowing that certain of the supporting elements are covered by INDITEXâ&#x20AC;&#x2122;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, the general HR policy, legal aspects and financial capacity, amongst others.

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

SALES PER FORMAT (millions of euros)

2002

2001

Var% 02/01

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%

23.4

4,5

n/a

3,974.0

3,249.8

22%

FORMAT Zara

Oysho Total sales

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

Stradivarius: 3,1%

0ysho: 0,6%

Bershka: 7,5%

Stradivarius: 2,9% 0ysho: 0,1% Bershka: 6,2% Massimo Dutti: 7,4%

Massimo Dutti: 7,2%

Pull and Bear: 6,9%

Pull and Bear: 6,7%

Kiddy´s Class: 1,5%

Zara: 73,3%

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

Zara: 74,9%

ZARA (www.zara.com)

BERSHKA (www.bershka.com)

Zara, whose first store opened in 1975 in A Coruña (Spain), is present in 40 countries with a network of more than 500 stores located at prime sites in principal cities. At Zara, design is conceived as a process that is very closely linked to the public. The information that arrives continuously from the stores allows a creative team made up of more than 200 professionals to transfer to the commercial offer the concerns and demands of its customers.

Bershka was born in April 1998 as a new store and fashion concept, focussing on the younger female public –and also the male public as from 2002– and has 197 stores in nine countries. Bershka stores are large, spacious and aesthetically avant-garde and aim to be meeting points between fashion, music and street art.

KIDDY´S CLASS This format, with some 59 outlets in Spain and Portugal, is the result of INDITEX’s decision to strengthen its presence in the children’s clothing segment. Its stores are present in towns where there is no Zara store or in those areas of big cities where the Zara stores lack sections dedicated to children’s wear.

PULL AND BEAR (www.pullandbear.com) Pull and Bear was created by INDITEX in 1991. Its fashion concept focuses on a public of young urban people 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.

STRADIVARIUS (www.e-stradivarius.com) Stradivarius, a format acquired by INDITEX in 1999, brings to its young female customers the latest trends in design, fabrics and accessories. Its 153 stores in 9 countries combine colour, light, large spaces and youthful music with the most up-to-date fashion design.

OYSHO (www.oysho.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, offering the latest fashion trends in good quality, reasonablypriced products. It has some 72 stores in seven countries.

MASSIMO DUTTI (www.massimodutti.com) Massimo Dutti was born in 1985 and acquired by INDITEX 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.

international

presence

Table 3.- International Presence: COUNTRY

TOTAL

SPAIN PORTUGAL FRANCE BELGIUM HOLLAND UK GERMANY SWEDEN NORWAY ANDORRA AUSTRIA DENMARK LUXEMBOURG ICELAND IRELAND FINLAND ITALY SWITZERLAND POLAND CZECH REPUBLIC GREECE MALTA CYPRUS ISRAEL LEBANON TURKEY KUWAIT UAE SAUDI ARABIA BAHRAIN QATAR JORDAN CANADA UNITES STATES DOMINICAN REP. MEXICO VENEZUELA EL SALVADOR BRAZIL ARGENTINA CHILE URUGUAY JAPAN SINGAPORE

200 35 71 15 4 17 21

TOTAL

531

52 7

200 38 1

1 4 2 2 1

155 32 1 13 1 2 3 2 1 1

135 20

128 14 1

48 9

1 5

1 3 2 4 1 23 1 3 11 2 8 3 4 8 1 1

8 9 1 29 7 1 10 5 3 2 6 1 59

7 3 2 14 1

2 4

1 2 3

1 1 1

1 4 4 1 1 1

10 6

16 2

19 6

296

250

197

2 1

1 1

9 2

153

918 155 73 33 5 19 24 2 1 2 4 2 3 1 5 1 5 6 4 1 39 4 10 25 5 8 8 18 15 3 4 3 8 9 1 83 23 1 10 5 3 2 6 1 1.558 16

the business

model

The key element of this organization is the store, a very carefully designed space, conceived to make the customers’ meeting with our fashion proposal comfortable, and where we obtain the information needed to modulate 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 factor to be considered, above and beyond production costs. Vertical integration allows delays to be shortened and greater flexibility, by reducing stock to a minimum and diminishing fashion risk to the greatest possible extent.

Manufacture and supply

Retail business

Design

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

Distribution and logistics

The cycle of the model starts with the designing of the garments, 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 suppliers. In the case of in-house production â&#x20AC;&#x201C;between 40 and 50 percent of the totalâ&#x20AC;&#x201C; INDITEX directly carries out the supply of fabrics, the marking and cutting and the final finishing of the garments, subcontracting the garment-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 INDITEX 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 feedback to the design teams and reports the trends demanded by the customers. The store is given priority in its interior and exterior design. Here the shop windows play a role of great importance, being authentic advertisements of the formats in the worldâ&#x20AC;&#x2122;s main shopping streets. As regards interior design, it is motivated by the aim of creating a space with plenty of light where the clothes take centre stage, eliminating any barrier between the garments and its customers.

Geographic distribution of

facilities Tordera (Barcelona):

The principal facilities of INDITEX (excluding the stores and the offices of the different subsidiary companies outside Spain) are located at six sites in the Communities of Galicia, Catalonia, Valencia and Aragon:

— Central Services of Massimo Dutti, Bershka and Oysho. — Logistics Centre of Massimo Dutti, Bershka and Oysho. Sallent de Llobregat (Barcelona):

Arteixo (A Coruña): — — — —

— Central Services of Stradivarius. — Logistics Centre of Stradivarius.

Central Services of INDITEX. Central Services of Zara. Logistics Centre for Zara and Kiddy’s Class. Manufacturing centres (13) for Zara.

Elche (Alicante): — Central Services of Tempe (footwear company). — Logistics Centre of Tempe.

Narón (A Coruña): — Central Services of Pull and Bear. — Logistics Centre of Pull and Bear. — Indipunt (knitwear manufacture).

Plataforma logística Plaza (Zaragoza): — Logistic Centre of Zara (opening date 2003).

A CORUÑA Arteixo Narón

ZARAGOZA

BARCELONA Sallent de Llobregat Tordera

ZARAGOZA

ALICANTE Elche

the management

team

CHAIRMAN Amancio Ortega

GENERAL COUNSEL, SECRETARY OF THE BOARD, BOARD MEMBER

DEPUTY CHAIRMAN AND CEO

Antonio Abril

José María Castellano

TAX

Ignacio Fernández FINANCE AND MANAGEMENT CONTROL

LEGAL ADVISORY SERVICE

Borja de la Cierva

Javier Monteoliva

CAPITAL MARKETS

CORPORATE RESPONSABILITY

Javier Chércoles

Marcos López MANAGING DIRECTOR AND BOARD MEMBER

CORPORATE 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

BERSHKA

Luis Blanc Luis Lara

Carlos Mato STRADIVARIUS

Jordi Triquell

America, Asia and Middle East: Iván Barberá Alfonso Vázquez

OYSHO

Carmen Sevillano

Corporate Departments Business Units Business Support Areas 22

corporate

governance

25-56} 25 Road Map. 27 Introduction. 29 Regulation. 31 Shareholding structure. 33 General Shareholdersâ&#x20AC;&#x2122; 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 Relatedparty transactions and intra-group transactions. 55 Shareholder relations.

road map

3 February/ May 1997 Incorporation of two new independent directors

2 February 1997 Creation of the Executive Committee of the Board of Directors. The appointment of a Deputy Chairman of the Board of Directors

1 January 1993 Incorporation of the first independent director

6 July 2000 Creation of Audit and Compliance Committee and Nomination and Remuneration Committee

5 4

June 2000 Approval of the Internal Regulations of Conduct regarding Transactions in Securities

June 2000 Approval of the Board of Directors Regulations

9 8

May 2002 First Corporate Governance Report

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

7 February 2001 Approval of the Code of Conduct

10 December 2002 Setting-up of the Social Advisory Board and approval of its Regulations 26

introduction

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 relating 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 transparency 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 modifications 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 addition to the proposals that shall be submitted to the General Meeting of Shareholders on this subject.

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

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.

shareholding

structure

S s

S Participant

Amancio Ortega Gaona

RosalĂa Mera Goyenechea

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:

Percentage

Total no of shares

Direct holding

Indirect holding

59.29%

369,600,063

369,600,000*

6.99%

43,590,000

43,590,000**

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

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 income 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 discussed therein.

general shareholders´ meeting 33

Rights of the

Shareholders

The shareholder’s right to information INDITEX’s Investor Relations Department and its Shareholder’s Office are at the disposal of the shareholders in order to supply all the information about the General Meeting that they may require. Before the General Meeting, those shareholders who have so requested shall be sent a copy of the annual report and the relevant documentation in relation to the items on the Agenda. Likewise, the shareholders have access to these documents, to the complete text of the resolutions proposed by the Board of Directors, as well as any doubts or questions that other shareholders may have submitted and that should be relevant for the matters on the Agenda at the General Meeting itself.

Passing of

resolutions

The resolutions shall be passed by a majority of votes of the shares present in person or by proxy at the General Meeting, unless there is any opposing legal or statutory provision. The Board of Directors’ meeting in March 2003 resolved to propose to the next General Shareholders’ Meeting the elimination of the requirement of the votes in favour of the qualified majority –two thirds of the share capital attending the General Meeting in person or by proxy– for the passing of resolutions supposing the increase or reduction of the share capital, the issuance of bonds, the transformation of the Company, merger by the creation of a new company or through the taking-over of the Company by another entity, total or partial split-off, the global assignment of the assets or liabilities, the replacement of the company object as well as any other modification of the Articles of Association.

Attendance at the General Meetings. Right to vote In order to attend the General Meeting, it shall be necessary for the shareholder to hold at least 50 shares, that they be registered in the name of that shareholder in the bookentry register at least five days prior to the date on which the meeting is to be held, and that shareholder is not in default in the payment of capital calls. The shareholders who possess a number of shares that is less that that number stated in the previous paragraph may group their shares, conferring proxy on one of the shareholders grouped thereby or on another shareholder who is entitled to attend, grouping thus their shares with the shares of this latter. Each share entitles the holder to one vote.

Right to attend To exercise the right to attend, the shareholder must beforehand have proof of shareholder status through the corresponding attendance card issued in the name of that shareholder, in which is stated the number and class of shares held, as well as the number of votes that can be cast by that shareholder.

Proxies at the General Meeting All shareholders who are entitled to attend the General Meeting may do so by proxy, even when the proxy holder is not a shareholder. The proxy shall be in writing and shall be specific for each meeting. All proxies are always revocable. A shareholder’s personal attendance at the meeting shall automatically revoke a proxy.

Holding of the first the IPO of INDITEX

General Meeting

after

The first General Meeting after the listing of INDITEX shares on the Stock Markets was held in July 2002 at the headquarters, in Arteixo, A Coruña. Shareholders representing a total of 80% of the share capital with the right to vote attended the meeting, between those shareholders present in person and by proxy. In addition to the examination and approval of the annual accounts and of the distribution of the income of the corporate year and the distribution of dividends, the most relevant items on the agenda were the appointment of new auditors of the accounts and the approval of the distribution to the personnel of INDITEX and some of its companies of the shares remaining after the execution of the Employee Stock Participation Plan. All the proposed resolutions prepared by the Board were approved, with an average of votes in favour of around 98.65%. The unabridged text of the resolutions has been available to the public since 19 July 2002, on the corporate web site (www.inditex.com) and through the web page of the Comisión Nacional del Mercado de Valores (CNMV) (www.cnmv.es).

administrative

structure

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 management team and concentrating its efforts on the general supervisory function, 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 strategies 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 propose 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 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 DirectorGeneral 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

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 on the Board

Nature 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 y Bernaldo de Quirós

Ordinary member

Independent

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 by Rosalía Mera Goyenechea

Domanial

Juan Manuel Urgoiti López de Ocaña

Ordinary member

Independent

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

Brief résumés of the members of the

Board

of Directors Chairman Amancio Ortega Gaona. Founding shareholder of INDITEX and Chairman of its Board and its Executive Committee since its incorporation in 1985. He began his textile manufacturing operations in 1963. In 1972 he founded Confecciones Goa, S.A., the first garment-making factory of INDITEX and three years later founded Zara España, S.A. the first distribution and retailing company. Deputy Chairman and CEO José María Castellano Ríos. He has held the office of member of the Board since 1985 and was appointed Deputy Chairman of the Board and of its Executive Committee and CEO in 1997. Before joining the company he was IT Manager of Aegon España, S.A. from 1968 to 1974 and General Manager and Financial Director of Conagra España, S.A. from 1974 to 1984. He is a Doctor of Economics and Business Studies and a Professor of Financial Economy and Accounting at the Faculty of Economics and Business Studies in A Coruña. He is a member of the Board of Directors of Fadesa, S.A. Ordinary members Managing Director and Board member: Juan Carlos Rodríguez Cebrián. Executive director since 1997, he has held the office of Managing Director since 2000. He has developed his entire career in INDITEX, where he began working in 1978. Since then, he has worked in several different departments including the Commercial, Production, Logistics, General Services, International Development and Business Management Departments. Carlos Espinosa de los Monteros y Bernaldo de Quirós. An independent director since 1997. A graduate in Law and Business Studies from ICADE, he is a Commercial Expert and State Economist and holds an MBA from the Northwestern University. He has been the Deputy Chairman of the Instituto Nacional de Industria, Chairman of the Board of Directors of Iberia and Aviaco, member of the Executive Committee of IATA and Chairman of the Circulo de Empresarios, of ANFAC and of OICA. At the present time he is the Chairman of the Board of Directors of Daimler Chrysler España Holding, Mercedes Benz España, and González Byass, S.A. and Board member of Acciona. Fred H. Langhammer. An independent director since April 2001, he began his career in Eatons, a Canadian operator of department stores, and later was appointed General 39

Manager of Dodwell Import, a Japanese subsidiary of the British firm, Inchcape. In 1975, he went on to join the Estée Lauder Companies Inc. as President of Estée Lauder Japan. In 1982, he was appointed Managing Director of Germany and in 1985, relocated to New York and promoted to President and Chief Operating Officer of the Estée Lauder Companies Inc. In 1999 he was again promoted to his present position as President and Chief Executive Officer. Francisco Luzón López. An independent director since 1997. He is a graduate in Business Studies and Economics from the University of Bilbao. He joined the Banco Vizcaya in 1972, gaining wide experience in that Group in different Units and functions, becoming General Manager and Director in 1986. In 1988 and after its merger with the Banco Bilbao, he went on to become a member of the Board of Directors of the BBV. At the end of the same year, he was appointed President of the Banco Exterior de España, office which he held from 1988 to 1996. In 1991 he was the impulse behind the creation of the new Grupo Bancario Argentaria of which he was the founder and Chairman until 1996. After that, he joined the Banco Santander Central Hispano as Director-General Manager, Deputy to the Chairman and in charge of Strategy, Communication and Institutional Relations. At the present time, he is responsible for the area of Latin America. Irene R. Miller. She has been an independent member of the Board since April 2001. She is a graduate of Cornell University with a Master of Science in chemistry and of the University of Toronto with a Bachelor of Science. She began her career in chemical research at General Foods Corporation and later worked as an investment banker for Rothschild Inc. and Morgan Stanley & Co. In 1991 she joined Barnes & Noble, Inc. as Senior Vice President of Corporate Finance and became Chief Financial Officer in 1993, in advanced of the company’s flotation. In 1995, she was appointed director and Vice-Chairman of the Board of Directors of Barnes & Noble. In 1997 she became CEO of Akim, Inc., a private investment management and consulting firm. In addition to INDITEX she is also a member of the Boards of Directors of Coach Inc., Barnes & Noble, Inc., Oakley, Inc. and The Body Shop International Plc. ROSP CORUNNA, S.L. is a company which is 99.9% owned by Rosalía Mera Goyenechea, founding shareholder of INDITEX, who has held the office of director in her capacity as the natural person representing Rosp Corunna, S.L. since December 2000. She was a director of INDITEX on her own account from 1991. She is a

member of the Boards of Directors of Zeltia, S.A. and Grupo Continental, S.L. representing Rosp Corunna, S.L. Juan Manuel Urgoiti López de Ocaña. He has been an independent director since 1993. He is a graduate in Law from the University of Madrid, beginning his career in the Banco de Vizcaya in 1962. After occupying many executive positions, he was named General Manager in 1978, director in 1984 and CEO in 1986. In 1988, after its merger with the Banco Bilbao he was appointed CEO of the Banco Bilbao Vizcaya. He has been President of Ahorrobank, Banco de Crédito Canario, Banco Occidental IBYS and Laboratorios Delagrange and Board member of Antibióticos, S.A. At the present time he is the Chairman of the Banco Gallego, Deputy Chairman of Acciona, member of the Board of Necso, S.A., and member of the European Advisory Board of Citigroup Global Markets. He is Chairman of the Reales Patronatos of the Reina Sofia National Museum and Art Centre and a member of the Reales Patronatos of the Prado Museum and of the Spanish National Library. He presides over the private foundation Fundación José Antonio de Castro and is a member of other foundations and institutions. He holds the Gran Cruz de Mérito Civil and the C.B.E. Secretary and Board member: Antonio Abril Abadín. Since 1993, he has been the Secretary of the Board of Directors and of its Executive Committee since its creation in 1997. He has been a director since December 2002. A graduate in Law from the University of Oviedo and a civil servant by competitive exam of the Treasury Counsel 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 regional office of the Treasury and Law Courts in Lugo and in the Governmental regional office in Galicia, in A Coruña. He is also the General Counsel of INDITEX.

Independent

directors

The number of independent directors, five, is much greater than would correspond proportionally to the Board taking into account the floating capital of the Company. In that respect, INDITEX was already ahead of the recommendations of the Olivencia Committee and of the Aldama Commission when the Company’s first independent director, Juan Manuel Urgoiti López de Ocaña, joined 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.

Continuing this criterion of introducing independent professionals of recognised prestige into the Board, the General Shareholders’ Meeting held in April 2001 appointed two new independent directors –Irene R. Miller and Fred Horst Langhammer– raising the total number of independent directors to five, fully complying with the recommendations of the Olivencia Committee and of the Aldama Commission, as the external directors form the majority on the Board, and half of the Board are independent directors.

Innovations introduced into the new Board of Directors’ Regulations with respect to the independent directors The recent modification of the Board of Directors’ Regulations has established a limit as regards the number of companies in which the independent directors may perform the role, establishing that they may not hold the office of administrator simultaneously in more than four listed companies which are other than INDITEX. In addition, the independent directors may hold a meeting before the Board is convened without the presence of the other directors. To this end, the independent directors must elect one from amongst their number to act as the coordinator of those meetings.

Modifications in the composition of the in corporate 2002

Board

In corporate 2002, Josefa Ortega Gaona, director of the Company since its incorporation, presented her resignation as director and member of the Executive Committee of INDITEX, upon her reaching the maximum age limit contemplated for the exercise of the function of director in the Board of Directors’ Regulations. In order to cover this vacancy until the date of the holding of the next General Meeting, which must resolve whether to ratify this appointment, the Board, in its meeting in December 2002 and after a report by the Nomination and Remuneration Committee, appointed Antonio Abril Abadín as new director and member of the Executive Committee, who will combine these positions with those of General Counsel and Secretary of the Board.

THE GENERAL MEETING IS THE BODY RESPONSIBLE FOR APPROVING THE SYSTEM AND AMOUNT OF THE REMUNERATION OF THE DIRECTORS. The Board of Directorsâ&#x20AC;&#x2122; 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 dedication, 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 following manner, the quantities stated in the sections below being totally independent and fully compatible 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; 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 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 likewise 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 increase 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, providing 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 directors

Domanial and independents directors

Total euros

Fixed and variable salaries

3,501,000

Remuneration of directors

414,698

625,654

1,040,352

Options over shares (*)

402,095

591,316

993,411

4,317,793

1,216,970

5,534,763

Total

(*) 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 members of the Board

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 procedure, 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 accordance 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 present, if the Board should consider it advisable, their resignation in the following 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 aforementioned 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. — 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 prohibition 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 INDITEX or when the reasons for which they were appointed disappear (e.g. when a domanial director disposes of his holding in INDITEX).

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 the shares

Number of shares

Percentage 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%

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 prepare 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 consultative 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 confidentiality 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 corresponding to INDITEX; the regulation of the directorâ&#x20AC;&#x2122;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 indirectly, 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 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

IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 29 of the Articles of Association, the Board of Directors set up three sub-committees, one with delegated powers (the Executive Committee) and two consultative committees with advisory functions (the Audit and Compliance Committee and the Nomination and Remuneration Committee). In addition, 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 exercise of the general supervisory function that is incumbent on the Board. The regulation of this Committee is found in the Board of Directorsâ&#x20AC;&#x2122; 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 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.

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

Consultative committees of the

Name

Office held on the Board

Nature 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 y Bernaldo de Quirós

Ordinary member

Independent

Francisco Luzón López

Ordinary member

Independent

Juan Manuel Urgoiti López de Ocaña

Ordinary member

Independent

Antonio Abril Abadín

Ordinary member and Secretary Executive

Board of

Directors In accordance with the provisions of article 29 of the Articles of Association, the Board may create consultative

sub-committees with powers pertaining to information, 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 and Compliance Committee and the Nomination and 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, approved in its meeting on 20 March 2003, establishes that the Audit and Compliance Committee must be made up exclusively of independent directors. In order to comply with this provision, the executive director, José

María Castellano Ríos, presented his resignation as member of this Committee and the aforementioned Board of Directors resolved to cover the vacant position by appointing the independent director, Irene R. Miller, as member of the Audit and Compliance Committee.

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

Name

Office

Nature

Juan Manuel Urgoiti López de Ocaña

Chairman

Independent

Francisco Luzón López

Ordinary member

Independent

Irene R. Miller

Ordinary member

Independent

Antonio Abril Abadín, director, General Counsel and Secretary of the Board acts as the Secretary-non-member of the Audit and Compliance Committee.

cess of the new auditors of the accounts of INDITEX, submitting the corresponding report to the Board.

Other modifications made with respect to the Without prejudice to any other task that the Board of Directors may confer on it, the Audit and Compliance Committee has as its main functions: — To propose the appointment of the auditors and to serve as a channel of communication between these and the Board. — To propose the appointment of external advisors to verify compliance with the Code of Conduct and to serve as a channel of communication between these and the Board. — To review INDITEX’s accounts and to review the appropriateness and integrity of the internal control systems. — To review the periodic financial data that the Board must supply to the markets and to their supervisory bodies. — To examine the observance of the different internal Regulations approved by INDITEX and to make the proposals that are necessary for their improvement. The Audit and Compliance Committee shall meet ordinarily every three months and each time that it is convened by its Chairman, who must do so whenever the Board of Directors or the Chairman thereof should request a report to be issued or a proposal to be adopted, and whenever this should be advisable for the good discharge of its functions. Likewise, it shall meet to review the information that the Board has to include in the annual public documentation. In corporate 2002, the Audit and Compliance Committee met on five occasions. Amongst other matters dealt with in that year, the Committee channelled the selection pro-

Audit and Compliance Committee in 2003 The Board of Directors’ meeting in March 2003 resolved to modify the name of the Audit and Compliance Committee in order to adapt it to the new nomenclature given by the Ley de Medidas de Reforma del Sistema Financiero (Law on Measure of Reform of the Financial System), going on to be called “The Audit and Control Committee”. The revised text of the Board of Directors Regulations reinforces the authority of the Audit and Control Committee and introduces a mechanism to guarantee the independence of the Chairman of this body, by deciding that he shall be replaced every four years, being able to be reelected once a period of one year has elapsed since the date of his ceasing in the post. Amongst the most significant basic responsibilities of the new responsibilities conferred upon it, it is worth mentioning the following: — To report to the General Meeting on the matters that the shareholders raise in the meeting on areas falling under its authority. — To supervise the Internal Audit Department of INDITEX, approving the budget of the Department, the Internal Audit Plan and supervising the internal, external, material and human resources of that Department. — To prepare and submit to the Board of Directors for its approval an annual report on corporate governance. — To prepare an annual report on its activities. 50

In compliance with the Ley Financiera, the Board has proposed the modification of the Articles of Association to the

General Meeting, in order to incorporate therein, among 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 y Bernaldo de Quirós

Chairman

Independent

Francisco Luzón López

Ordinary member

Independent

Juan Carlos Rodríguez Cebrián

Ordinary member

Executive

The new revised text of the Board of Directors Regulations establishes, amongst other matters, that the Nomination and Remuneration Committee must be made up exclusively of independent directors. In order to comply with this provision, the executive director Juan Carlos Rodríguez

Cebrián tendered his resignation as a member of that Committee and in March 2003 the Board of Directors resolved to cover the vacant position, appointing the independent director, Fred Horst Langhammer, as member of 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 y Bernaldo de Quirós

Chairman

Independent

Fred Horst Langhammer

Ordinary member

Independent

Francisco Luzón López

Ordinary member

Independent

Antonio Abril Abadín, director, General Counsel and Secretary of the Board acts as the Secretary-non-member of the Nomination and Remuneration Committee. Without prejudice to any other task that the Board of Directors may confer on it, the Nomination and Remuneration Committee has as its main functions: — To report on the proposals for appointment of directors and members of the Committees, as well as of executives. — To report on the systems and amount of the remuneration of the directors and executives. — To report in relation to the transactions which involve a 51

conflict of interests and, in general, on the matters related with the duties of the directors. The Nomination and Remuneration Committee shall meet each time that it is convened by its Chairman, who must do so whenever the Board or the Chairman thereof requests a report to be issued or a proposal to be adopted, and whenever this should be advisable for the good discharge of its functions. In any case, it shall meet once a year to prepare the information on the remuneration of the Directors that the Board has to include in the annual public documentation. In corporate 2002 the Nomination and Remuneration Committee met on four occasions.

In order to reinforce the responsibilities of the Nomination and Remuneration Committee, the new revised text of the Board of Directors Regulations has incorporated the following new functions: — To report annually to the Board on its assessment of the performance of the senior management of the company, and especially the CEO and his remuneration. — To prepare the information to be included in the annual public information regarding the remuneration of the directors referred to in article 26.3. — To report in relation to related-party transactions or those which involve the use of company assets. — To prepare and maintain up-to-date a contingency plan for the covering of vacancies in key posts in INDITEX.

Social

Advisory Board

In December 2002 the Board resolved to establish the Social Advisory Board, the advisory body of INDITEX as

regards Corporate Social Responsibility, and approved its Regulations. Its principal function is to formalise and institutionalise the dialogue with those interlocutors who are considered to be key in the different civil societies in which INDITEX develops its business model, whether through manufacturing, distribution or retail activities. Its Regulations govern the principles of operation of this body, the basic rules of its organisation and working and the rules of conduct of its members. The Social Advisory Board is made up of people who are members of relevant Third Sector institutions with established prestige and experience in the field of social and/or environmental action. The members of the Social Advisory Board are elected for a three-year period, at the end of which they may be re-elected just once for another period of equal or less duration. Table 13. Current composition of the Social Advisory Board:

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, with the right to speak but not to vote, by the Director of the Corporate Responsibility Department and by the General Counsel of INDITEX who shall occupy the position of Secretary of the Social Advisory Board in order to aid the Chairman in his tasks and to provide for the good working of the Social Advisory Board. Likewise, the Social Advisory Board may require the attendance at its meetings, with the right to speak but not to vote, of representatives of the institutions receiving funds

contributed to programs of awareness-raising and/or development related to the production and retail chains and, in general, to any other social development projects. The position of member of the Social Advisory Board shall be unpaid but INDITEX shall bear the cost of the following: travel costs, accommodation, board and any other duly justified costs related to the exercise of that function. In corporate 2002, the Social Advisory Board of INDITEX 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 agreements 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 authorisation obtained in the General Meeting and modifications thereto. Likewise, article 9 of the Internal Regulations of Conduct regarding Transactions in Securities includes 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 acquisition 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 intention 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 maintained 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 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 between 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 INDITEX Group has made a contribution of the amount of 300,506 euros to the Fundación Paideia, which is linked to one of the members of the Board, in virtue of a mutual collaboration agreement that ends in corporate 2003 (see page 79). Therefore, the total future commitments undertaken by INDITEX in relation to this contract amount only to the 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 prospective shareholders have clear, complete, homogenous and simultaneous information, that is sufficient 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 â&#x20AC;&#x201C; including the Balance Sheet, the Profit and Loss Account and the Management Report â&#x20AC;&#x201C; 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 relevant 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 complements 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 Shareholderâ&#x20AC;&#x2122;s Office via post, telephone 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.

shareholder

relations

Institutional

Investors

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 year (after the winter season), visiting the world’s principal financial capitals. Over two and a half weeks, the main financial institutions have access, principally through individual meetings, to the strategic vision of the management team. Over these visits, direct contact is made with more than 150 investors.

their participation in the decision-making process of the supreme governing body.

The corporate

Web site

In addition to the corporate web site (www.inditex.com) each of its retail formats has its own web page

www.zara.com Another forum for meeting investors is that of the sector conferences organised by financial institutions, participating in the main events that take place in Europe, with an average of 50 of the main institutional investors attending each conference. In addition to programmed occasions, a great number of meetings with investors are carried out over the year. Upon specific requests, visits are organised to the investors from a certain country or geographic area. In the last year, presentations have been given in the main financial capitals in Europe, America and Asia.

www.pullandbear.com www.massimodutti.com www.bershka.com www.e-stradivarius.com 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 business model and its business strategy. Over corporate 2002, some 125 meetings have been held with institutional investors from all over the world.

Individual investors: the Shareholder´s Office Finally, the accessibility of INDITEX for any individual investor through its Shareholder’s Office must be pointed out, where its more than 80,000 shareholders can find, via traditional post, electronic mail, fax or telephone, a channel of communication to obtain information about the current evolution of the business or its future strategy and to transmit any requests for additional information that each individual investor considers to be relevant for their knowledge of INDITEX’s performance. The Shareholder’s Office gains special relevance at the time of convening and holding of the General Meeting. The information and documentation must be made available and sent in a precise manner, in order to give all the shareholders suitable knowledge of the time, place and content of the General Meeting, and to thus make easier

The corporate web site contains significant corporate governance information and documents and its aim is to become a vehicle for communication with the shareholders, providing them with up-to-date information about all the aspects that could be relevant as regards corporate governance. Anybody who accesses the corporate web site can see, amongst other information, the daily and historical share price, the public annual reports of INDITEX since 1998, the financial information provided to the Comisión Nacional del Mercado de Valores (CNMV) via Información Pública Periódica [periodic public information]; the relevant information sent to the CNMV; the company’s management team; the financial calendar, etc. In corporate year 2002, more than 600,000 people visited the corporate web site (www.inditex.com). The new Board of Directors Regulations includes express regulation of the corporate web site in which it establishes the minimum levels of documentation and information 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.

road map

3 June 2001 Beginning of the Social Audit Program

2 April 2001 Creation of the Corporate Responsibility Department

1 February 2001 Code of Conduct and the Code of Conduct for External Workshops and Manufacturers

6 September 2002 Inclusion in the Dow Jones Sustainability Indexes

5 February 2002 Social Audit in Morocco

4 August 2001 Adhesion to The Global Compact Platform

8 December 2002 Prestige program

7 November 2002 Social Audit in Turkey and Portugal

9 March 2003 The first Sustainability Report

THE INDITEX

corporate responsibility model

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 dialogue with each of the stakeholders affected directly or indirectly by its activities: employees, business partners, suppliers, customers and society. The corporate responsibility strategy, strengthened in 2001 with the approval of the Code, seeks to govern the performance of INDITEX as a responsible 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 suppliers 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 between 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. –– The creation of the Social Advisory Board (see page 52). –– 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.

the process

of the introduction of the Code in the supply chain

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 relationship with INDITEX shall be treated in a fair and honourable manner. –– All INDITEX’s activities shall be carried out in the manner that most respects the environment.

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.

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 provisions 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 organise 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 permitted.

Health and safety The External Manufacturers and Workshops shall guarantee their employees a safe and healthy workplace in compliance with the provisions of law, ensuring reasonable minimum conditions of light, ventilation, 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 conditions 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.

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 subcontractorsâ&#x20AC;&#x2122; 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.

The

Corporate Responsibility

Departament

The Corporate Responsibility Department is located at the headquarters of INDITEX in Arteixo, A CoruĂąa 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 channel 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 INDITEXâ&#x20AC;&#x2122;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 Phase V

Corrective Plans of Action

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%

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-EUROPEANCOMMUNITY 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

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 aforementioned 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 UNIĂ&#x201C;N

NON-EUROPEANCOMMUNITY EUROPE

AFRICA

AMERICA

ASIA

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

KPMG* and PwC

PwC**

PwC and GBCC

N/A

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 workshop checked. Below is a summary of the activities, procedures and documents that the audit is based on: –– Presentation of the Social Audit Program. The verification program begins with a meeting with the management of the factory to confirm mutual understanding of the objectives and scope of the audit. –– Visit to the factory and facilities. The auditors carry out a complete visit to the factory including the different areas of production, warehouses and other facilities used by the employees. –– Questionnaire from the Manager of the external factory or workshop. In order to know the socio-labour environment of the factory, the manager is interviewed and asked questions about labour, health and safety conditions of the facilities he or she is in charge of. –– Private interviews of the employees. An individual interview is carried out about health and safety working conditions with 15% of the employees, chosen at random. –– Compilation of information. In order to compare documentarily the conclusions obtained in the procedures described in the two paragraphs above, the documents proving the system of registration with the Social Security are requested, amongst others, (for example, in Spain the TC1 and TC2), payments of corporate taxes and income tax for individuals and the pay slips.

–– Social audit report. Once the field work has been completed, the team of auditors prepares the Report which shall include, among other things, a summary of the conclusions on the visit to the facilities of the manufacturer and the Corrective Plan of Action.

Phase IV: Management of the results –– Managing the Reports. After receiving the Social Audit Report, the Corporate Responsibility Department, taking into account the general conclusions of the auditors on compliance with local legislation and with the Code, begins the internal assessment of the manufacturer. –– Breaches. The Report includes a definition of a fact considered as a breach. This description gives a breakdown of at least the following information: • Specific failure to comply with the section of the Code. • Place at the facilities where it was detected. • Plan agreed with the management of the factory for suitable correction.

–– Corrective Plan of Action. Once the audit has ended, the breaches of the Code, or incidents, are communicated to the management of the manufacturer through a Corrective Plan of Action, which includes:

–– Evaluation of the External Manufacturers and Workshops. INDITEX has developed a methodology and an IT program that allows it to have an assessment of the degree of compliance with the Code by its suppliers.

• The breaches identified • The corrective measures, agreed with the managers of the factories.

This assessment is based on a system of indicators that objectively measure the degree of compliance with each of the 11 points of the Code.

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.

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 geographical area: Table 14.European Union

Non-EuropeanCommunity

North Africa

Asia

America

Total

Auditor

PwC and KPMG

PwC

PwC and GBCC

N/A

Audited

929

1,013

Phase V: Corrective Plans of Action The Corrective Plans of Action have as their result the continual improvement in the working conditions at the external factories and workshops. If the breach is defined as serious, the Corporate Responsibility Department itself can consider the temporary suspension of the contractual relations with the supplier until the correction of the breach can be proven. If the serious breach persists once the period for its correction has run out, the Corporate Responsibility Department

agrees with the commercial teams the termination of the contractual relations. The objective for corporate 2003 will be to carry out sixmonthly audits in those External Manufacturers and Workshops where serious breaches have been detected and, at the same time, to verify the introduction of the corrective measures. For the remainder, a periodic followup of the Corrective Plans of Action has been established, of a random nature.

Governments

Labour

Participating Companies

ILO L o c a l n e t w o r k s

UNEP HCHR Advisory Council

The Global Compact Office

UNDP

Business Associations

Civil Society

participation in 75

L o c a l n e t w o r k s

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, INDITEX 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 protection and promotion of human rights and the establishment of fair working conditions. Lastly, the Global Compact grants INDITEX the opportunity to find formulas 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 Associations and Non-Governmental Organisations.

international platforms of social responsibility 76

A s 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 production or distribution activities. –– Boosting formulas of association and internal participation through its professionals 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 countries where INDITEX is present. 2 The associative ambit. Through Programs of Institutional Strengthening INDITEX 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. 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 tragedy 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 strategy in the field of Cooperation for Development with the Programs for Community Development, with projects in Spain, Venezuela, Peru and Morocco.

4 Financing of social and institutional strengthening programs that respond to the detected needs. During 2002, the Programs for Community Development have focused on three main chapters:

This strategy has been developed in the following stages: 1 The identification of local and international NGOs with a solid track record and experience in the development of social projects in those countries where INDITEX develops its business model. 2 Establishment of collaboration agreements with those social organisations.

–– Strengthening programs for high social risk, disabled, childhood and youth sectors in Spain, Venezuela and Peru. –– Development of Community Centres for Basic Services in Morocco. –– 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 different 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

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 materials 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 neighbourhoods 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 leadership potential. –– Support for students from the P. A. Hurtado and St. José de Kayamá University Communities with the necessary economic resources so that they continue their respective academic studies and in the future act as managers 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 preparation 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 transformation of their community. –– The pedagogic materials prepared focus on the modules of organisational and community development, the legal area and the formulation and management of community 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 81

536,889

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 communities. 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 83

849,315

Morocco Program of Strengthening of Local Community Associations This Program is managed in association with the Fundación Codespa (www.codespa.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.

The program has a double objective: 1 Development of the Community Centres for Basic Services. The Community Centres for Basic Services are located in the aforementioned socio-economically depressed neighbourhoods of Tangiers and their characteristics are, amongst others:

the workers’ families and the preparation of future professionals demanded by the textile sector. In this context, and with the end of improving the current services offered by the Centres, INDITEX and Codespa are developing a methodology of work and pilot programs that are given in more detail in the Program for Strengthening of the Chain of Production (see pages 87 and 88). 2 Institutional Strengthening of local associations.

–– Their proximity to the communities and their social realities. –– The offering of a range of social services aimed at improving their living conditions. –– The support of the insertion into the workplace of women and young people.

Once having identified the four associations, the strategy of INDITEX and Codespa has been focused on the design of a Program of Institutional Strengthening that is directed at preparing associations for improved management of the current development projects and/or the widening of the range of basic social services in two of them: Mouatina Association

–– The offering of training programs in sectors likely to create employment and self-employment and advisory and socio-labour information services. Through these Centres, it is sought, principally, to respond to the needs of the families of the workers from the centres of production of INDITEX’s suppliers. At the present, the offer of social services of these Centres include, amongst others: • A kindergarten for the children of working women. • Basic literacy. • 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

Set up in 2001, at the present time it operates in one of the most populated and conflictive areas in Tangiers. It works basically with women and children and centres its offer of services on the teaching of basic literacy and industrial garment-making. The Institutional Strengthening Program seeks to prepare the Association in order for it to increase the range of services offered to its community and manage the Community Development Programs in the neighbouring community of Jerari, Beni Makada, characterized by the high rates of domestic immigrants and by its proximity to the industrial area.

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 garmentmaking and on supporting and improving its offer of services 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 Contribution from INDITEX Total budget of the Program

100,000 330,000 430,000 86

The Programs for Strengthening

the Chain

of Production The textile sector is of notable economic importance in countries such as Morocco, India, Indonesia, Thailand, Vietnam and China, as it makes up one of the main sources of employment, especially for women.

At the same time, it is sought to strengthen the role of the Community Centres for Basic Services as efficient training centres and worker search centres for the companies in the textile and garment-making sector, contributing, in this way, to improving the socioeconomic situation of their communities. Survey of the employees of the factories

The employees of the factories generally live in very humble areas that lack infrastructures and with a reduced range of basic services. INDITEX’s Programs for Strengthening the Chain of Production have the following as their main objectives: –– To improve the socio-labour conditions of the employees of INDITEX’s suppliers.

The objective of the survey of the factory employees of the suppliers is to detect, measure and prioritize the basic needs deriving from the socio-economic conditions of the employees, their families and their communities. The areas which it is sought to influence in the short and mid- term through the Centres are: • Education.

–– To train the supervisors of the chain of production and the managers of those suppliers in social, health and safety matters.

• Work training. • Family and community environment.

–– To set in place Awareness-Raising Programs for the workers in matters relating to health and nutrition. –– To guarantee adequate compliance with INDITEX’s Code of Conduct for External Manufacturers and Workshops through sufficient dialogue between workers, chain supervisors, factory managers and social actors.

• Social assistance. • Leisure. • Food and health. • Range of public services available and future options.

In order to develop these Programs, formulas of association with the following social organisations have been established: • 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 perspective, especially as regards training, which can be influenced directly or indirectly in order to improve the socio-labour situation.

Analysis of the conclusions In this year, two pilot survey groups have been prepared and in the next year we foresee the drafting of a Plan of Action in which the following stand out:

–– The development of a tripartite dialogue between INDITEX-Suppliers-Society to strengthen programs ensuring the specialization and quality of the vocational training courses given at the Community Centres for Basic Services.

–– The reinforcement of the current offer of social contributions in the Community Centres for Basic Services located 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 Total budget of the Program

Awareness-raising

programs

It is a priority for INDITEX to contribute to the raising of awareness of society about the problems suffered in the most disadvantaged sectors and countries. From the end of 2001, and on the occasion of the withdrawal of the peseta, INDITEX carried out its first awareness-raising action directed at encouraging the active participation of its employees and, at the same time, causing reflection and solidarity in its customers.

300,000 300,000

This amount, entirely transferred to the Fundación Entreculturas Fe y Alegría, has served to finance to following development projects: –– Construction of classrooms in different towns in Colombia that will permit the schooling of 1,570 boys, girls and young people who are in situations of high social risk. –– The construction of classrooms for the education of 560 boys and girls from the poor neighbourhood of Ongay, in Corrientes, Argentina.

All the INDITEX stores in France, Portugal and Spain joined 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 teachers 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 stores, 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

Program

Over the last few years, INDITEX has been involved in a process of rationalization of its investments in the patronage and sponsorship in order to reconcile its policy of investment in areas related with the promotion of culture and those priorities pertaining to its business Model.

The catastrophe caused by the sinking of the Prestige oil tanker in November 2002 has meant probably one of the greatest environmental disasters in the history of Spain and its social and economic consequences for Galicia have been and will be very serious.

A Patronage and Sponsorship Committee, made up of the Director-General Manager, the General Counsel and Board member and the heads of the Corporate Responsibility and Communication Departments channelled the activities in this area.

The immediate reaction of INDITEX upon the catastrophe was to allocate an initial donation of 270,000 euros to the Spanish Red Cross to deal with the urgent need for material and equipment in the first few weeks after the disaster.

In 2002, approximately 472,000 euros have been allocated to these kinds of activities, the following sponsorships standing out from the total: — Orquesta Sinfónica de Galicia: www.sinfonicadegalicia.com — Fundación Serralves: www.serralvespt.com — The collection of contemporary art found in the Valladolid Contemporary Art Museum, “Patio Herreriano”: www.museopatioherreriano.com

Prestige

Subsequently, the Board of Directors, in its meeting in December 2002, in solidarity with all those affected by the consequences of the Prestige disaster, resolved to allocate an additional 6 million euros (1,000 million pesetas) to collaborate in the solving of the problems caused by the spill. To apply these funds in the quickest and most effective manner possible to environmental and economic recover, INDITEX and the Spanish Red Cross have designed the Prestige program, which focuses on individualised attention to the most affected people, giving preference to the most vulnerable groups in the most harmed areas and especially to the Cofradías de Pescadores (Fishermen’s Guilds) affected by the accident.

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 sociolabour 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 CofradĂas de Pescadores as priority agents in the identification of the needs of the groups adversely affected by the catastrophe. 2 Setting up of a Follow-up Committee made up of INDITEX, the Spanish Red Cross and the CofradĂas 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 different plans of action. 5 Attention for the most vulnerable people, by attempting 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 environment, destined towards the improvement in the situation of the sea and the affected sailors.

our people

93-98} 94 Objectives. Workforce. Employment stability. Internal promotion and training policies. 95 Graphs.

our

people

Objectives The activities of human resources are oriented towards a double objective: 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 centralised services.

Employment

stability

INDITEX puts an emphasis on stable workforces. In the case of Spain, 75% of its employees have undefined-term contracts. Temporary contracts are associated with momentary situations of increases in production, for support personnel in workplaces. The proportion of part-time employees is increasing in the majority of European countries. In the stores 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 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 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.

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

Age over 42: 7% Age 18/22: 15%

Age 38/41: 4% 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:

Outside trade union agreement: 20,9%

Temporary: 25%

Permanent: 75%

Salary:

Trade union agreement: 79,1%

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%

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

900 800 700 600 500 400 300 200 100 occupational diseases

minor accidents

2001

serious accidents

fatal 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.

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

0.012 0.01 0.008 0.006 0.004 0.002

2002

days lost due to common illness/ 1000 workers

2001

days lost due to occupational illness/ 1000 workers

days lost due to accidents/ 1000 workers

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.

environmental

dimension

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 management. 127 Indicators of energy and water.

100

road map

3 1999 Plan for control of emissions, spills and waste

2 1995-1998 Improvements in efficiency in energy systems. First co-generation plant

1 July 1995 Environmental commitment. Environmental officer

6 December 2001 ISO 14001 certification for the central headquarters and the logistics centres in Arteixo, A Coru単a

February/June 2001 Environmental Policy. Training plan

4 2000 Tri-cogeneration plant and change from oil to natural gas

8 7

August 2002 Inclusion in Dow Jones Sustainability Indexes

November 2002 ISO 14001 certification in 16 factories

October 2002 Plan for implantation of renewable energies

10 March 2003 First Sustainability Report

102

INDITEX

and the environment

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 introduction and certification of the Systems of Environmental Management in accordance 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 â&#x20AC;&#x153;building sustainability every dayâ&#x20AC;?, 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 in the following pages:

104

environmental

policy

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 objectives 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 pollution and minimise the impact on the environment in all processes and services 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 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

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 Directorâ&#x20AC;&#x2122;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 INDITEXâ&#x20AC;&#x2122;s chains, manufacturing facilities and logistics centres who assumes responsibility in that area, as well as the putting into practice and control of the action undertaken.

108

the environmental

training programs

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 recruitsâ&#x20AC;&#x2122; 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 emissions, among other aspects). Table 20.- Professionals at INDITEX who have attended the environmental training programs over the past two corporate years:

Personnel of INDITEX at the headquarters, factories and logistics centres

2002

2001

Forecast 2003

4,306

3,994

4,600

2002

2001

Forecast 2003

2,044

1,368

N/A

1,100

2,132

4,600

Environmental Training Program Courses for trained personnel (in person) On-line courses for trained personnel Total

110

strategic

plan 2002-2005

111

Strategies A

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

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

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

Incorporate the environmental variable into all strategies and actions.

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

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

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

Promote external communication with interested parties.

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

Eco-efficiency studies in the processes and workplaces.

Implementation of a system of global sustainability indicators.

Integrate the economic, environmental and social variables 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 Coru単a. 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 Coru単a, 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

115

Introduction

ISO 14001

THE ENVIRONMENTAL STRATEGY OF INDITEX INCORPORATES the introduction and certification of the systems of management in the different factories and logistics centres corresponding to UNE-EN-ISO 14001:96. The scope of the environmental management system of INDITEX is defined for the following activities: â&#x20AC;&#x153;The central services of INDITEX and the activities of design, manufacture and distribution of consumer goods within the textile sphereâ&#x20AC;?, being implemented and certified by an independent external entity in 16 companies and facilities. Table 21.- Types of Companies: Company structure

2002

146

100

0.68%

Manufacturing and Logistics Companies

19.17%

Marketing and Retail Companies

53.4%

Other entities (patrimonial and portfolio)

26.77%

2002

19.85%

Total Companies INDITEX group Parent Company

Proportion of entities with ISO 14001 Parent Company and Manufacturing and Logistics Companies

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, garmentmaking, ironing, labelling and packaging) and the knitwear factories (including design, scaling, patternmaking, 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., NIKOLE 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

Among the environmental objectives of INDITEX are not only the control of direct activities but they also include those processes relating to the selection and the control of those products acquired from external suppliers such as fabrics and accessories, auxiliary materials and packing materials. At the present time there is a working group that is verifying the purchasing of materials and assessing the harmful or potentially dangerous substances, in accordance with the legislation in force and the international good practices agreements.

Criteria

in packages and packaging

currently in force and following the recommendations of The Greenhouse Gas Protocol of the World Business Council for Sustainable Development (WBCSD).

Criteria

with subcontractors

All those suppliers and subcontractors that operate within in the framework of the established Environmental Management System have been assessed with respect to their environmental behaviour. Likewise, environmental criteria have been established for the development of their operations at the facilities, while at the same time they have been asked for a commitment of compliance with environmental legislation, without which they cannot work with INDITEX.

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 customersâ&#x20AC;&#x2122; 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 services in two areas, a first area of evaluation of environmental impact and the measuring of the degree of ecoefficiency of their operations and a second area of commitment to reducing their environmental impact. This evaluation being carried out in accordance with the legislation 118

the system

of indicators

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 parameters are controlled. The data presented below have been obtained from the operations from the whole of the industrial, logistical and service facilities in Spain, including in some cases stores. At the present time, work is being carried out to obtain nonaggregate 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 number 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: Ratio = (absolute value of the year/number of garments put on the market in the year) x 1000. The values used in the ratios are: â&#x20AC;˘ Number of garments put on the market 2001: 181,935,742 â&#x20AC;˘ 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 the INDITEX factories: Denllo, Fios, Goa, Indipunt, Jema, Nikole, Samlor, Sircio, Stear, Inditex Cogeneraci贸n and logistics centres of Zara, Pull and Bear, Bershka, Oysho, Massimo Dutti and Stradivarius.

121

Table 22.-

SO2

Absolute data Polluting load 2002 (in tons/year)

CO NOx

Relative data Polluting load 2002 (in tons/year)/no. of garments x 1000

10.887 0.00004 250.149

0.00187

â&#x20AC;&#x201D; All the emission points are subjected to periodic controls by an authorised inspection 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. â&#x20AC;&#x201D; 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 (t/year)

2001 (t/year)

Ratio 2002

Ratio 2001

SO2

10.887

14.46

0.00004

0.00007

250.149

131.51

0.00105

0.00072

NOx

441.895

208.48

0.00187

0.00114

Greenhouse

Relative trend

0.00105 441.895

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 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.

123

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

Quantity Kg

Management

% on total generated waste

18,500

Authorised agency (treatment plant)

0.27%

Textiles

2,373,420

Authorised agency (recycling plant)

35.12%

Other urban and assimilable waste

1,894,880

Authorised agency (municipal agency)

28.03%

Cardboard and paper

2,472,221

Authorised agency (recycling plant)

36.58%

Hazardous

TOTAL WASTE

6,759,021

100%

INDITEX is committed to recycling of waste. 72% of the total of waste generated 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): 2002

2001

Ratio* 2002

Ratio* 2001

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

1,513,430

2,347,056

6.40

12.90

6,740,521

5,613,388

28.53

30.85

Other urban waste TOTAL (1)

Relative trend

TYPE OF WASTE

* 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 manner 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 market. 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): 2002

2001

Ratio* 2002

Ratio* 2001

150

160

0.0006

0.00087

No data

0.000029

No data

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

10,157

14,528

0.043

0.079

1,780

700

0.0075

0.0038

Paints

186

152

0.0007

0.00083

Contaminated plastic containers

150

120

0.0006

0.00065

18,500

17,210

0.078

0.094

Fluorescent

Used mineral oil Contaminated Absorb

TOTAL HAZARDOUS WASTE (2)

Computer waste

Batteries

Relative trend

TYPE OF WASTE (1)

* Ratio of one thousand garments (kg/no. of annual garments) x 1000. It indicates the amount of waste generated (from a specific 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 legislation. (2) From the analysis of the data shown it is deduced that there has been improvement in environmental efficiency in the manufacturing and distribution processes, as the amount of waste generated in relative terms (compared with the number of garments 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

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 business 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 scale and its conversion to international scales.

128

Table 27.-

USE

SUPPLY

Self-produced renewable energy 1,800 Kw 6

1.8 x 10 J/s Electric energy

Public electricity network

3,6 x 10 J Cogeneration and boilers

290 Gw/h

(

Headquarters and logistics centres (lighting and office computer equipment)

Factories (lighting and industrial equipment)

Stores (lighting)

80%

5,684 Eto 12

237.93 x 10 J Thermal energy

Oils (Cogeneration and boilers) 5,936 T

(

Heating and air-conditioning (factories and logistics centres)

Steam for industrial processes

570.5 x 10 J/m

Water from the

Public network (Headquarters, factories and logistics centres)

161,790 m3

Table 28.-

(

Sanitary and production processes in factories

94%

Stores

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 factoriesâ&#x20AC;&#x2122; and logistics centresâ&#x20AC;&#x2122; 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

N/A

1,800 Kw

295,574,280 Kw

233,007,223 Kw

Forecast increase 15%

5,684 Eto

2,273 Eto

No increase

5,936 T

7,650 T

No increase

Renewable energies (in facility) Electric (Public network)

Gas consumption in co-generation Oil consumption in boilers

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 Standard indicators of economic performance. 157 Additional indicators.

132

road map

3 2

March 2001 First presentation to analysts

1998 First Report published

1 1987 First external audit of INDITEX

5 June 2001 Listed in IBEX 35

4 May 2001 First roadshow. Inclusion in the Stock Exchange

6 August 2002 Inclusion in the Dow Jones Sustainability 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. INDITEXâ&#x20AC;&#x2122;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 separate document. 134

consolidated

financial figures for the past six years

135

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

DESCRIPTIĂ&#x201C;N

2002

2001

2000

1999

1998

1997

1996

CAGR* 02/96

1,614.7

1,217.4

1,008.5

26%

202.1

28%

150.3

28%

72.7

35%

414.9

27%

820.3

24%

Results Sales

3,974.0

3,249.8

2,614.7

2,035.1

Year on year

22%

24%

28%

26%

33%

869.5

704.5

521.5

410.4

325.7

Year on year

23%

35%

27%

26%

28%

659.6

517.5

379.9

296.2

241.5

Year on year

27%

36%

28%

23%

25%

438.1

340.4

259.2

204.7

153.1

Year on year

29%

31%

27%

34%

30%

1,760.9

1,486.2

1,170.9

893.2

673.4

18%

27%

31%

33%

27%

3,008.9

2,588.6

2,107.6

1,772.9

16%

23%

19%

34%

36%

EBITDA EBIT Net income

21%

253.6 25%

192.6 28%

117.4 61%

Balance sheet Shareholdersâ&#x20AC;&#x2122; equity Year on year

Total balance sheet Year on year

Net finance position

1,326.3

529.9 28%

977.2 19%

243.8

57.5

(50.06)

(149.9)

(93.0)

(38.3)

(105.8)

1,558

1,284

1,080

922

748

622

541

274

204

158

174

126

% international sales

54%

52%

49%

46%

42%

36%

LFL

11%

ROE

27%

26%

25%

26%

25%

20%

ROCE

41%

39%

34%

33%

36%

35%

29%

32,535

26,724

24,004

18,200

15,576

10,891

8,412

Stores No stores at FY end Net openings No countries with stores open

Other information

No of employees

* Compound Annual Growth Rate.

The story of INDITEX has always been associated with the concept of growth. All the organization corresponds to a business 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 circumstances of each market. 136

growing

alone, with partners or with franchises

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 international projection stemming from being present in them. — Joint Venture agreements in countries where, although they are sufficiently 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 franchisees gives great effectiveness to the business model.

138

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

2001

2002

FORMAT

Companymanaged

JointVenture

Franchises

Total

Companymanaged

JointVenture

Franchises

Total

457

531

415

466

KiddyÂ´s Class

Pull and Bear

262

296

220

249

Massimo Dutti

159

250

134

223

Bershka

191

197

146

151

Stradivarius

118

153

120

1,315

208

1,558

1,072

187

1,284

Zara

Oysho Total

In addition, INDITEXâ&#x20AC;&#x2122;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:

2001

2002 Company managed or JV Italy Switzerland

Company Franchises managed or JV Finland

Holland

Malta

Luxembourg

Singapore

Czech Rep.

Franchises Iceland

1999

1998

Company Company managed or JV Franchises managed or JV Franchises Denmark

Andorra

Austria

Qatar

Germany

Poland

Company managed or JV Franchises Japan

Kuwait Lebanon

Canada

Saudi Arabia

Uruguay

Barhain

Argentina

Domin.Rep.

Chile

UAE

Venezuela

El Salvador

Brazil

7 new countries

139

2000

4 new countries

9 new countries

Turkey

7 new countries

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

COUNTRY

Spain Portugal Israel UAE Mexico Saudi Arabia Belgium Cyprus Kuwait Ireland Lebanon Malta Poland Qatar Bahrain Jordan Andorra El Salvador Finland Holland Iceland Luxembourg Dominicanan Rep. Singapore Total

Franchised stores 34 33 25 18 16 15 12 10 8 5 5 4 4 4 3 3 2 1 1 1 1 1 1 1

Table 34.- Below is the distribution of in-stores sales between those occurring in company-managed or jointly managed stores and franchised stores:

2002 FORMAT

Zara

2001

Company- Franchises managed or shared management

92%

KiddyÂ´s Class

100%

Pull and Bear

92%

91%

Massimo Dutti

60%

40%

58%

42%

Bershka

98%

99%

Stradivarius

79%

21%

74%

26%

Oysho

99%

100%

Total

90%

10%

89%

11%

Graph 13. Sales in stores controlled by INDITEX or franchises:

208 Franchises: 10%

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

Germany

Japan

Italy

Own or shared management: 90%

140

segmented

de information on INDITEX

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) FORMAT

SPECÍFIC WEIGHT (%)

2002

2001

Var% 02/01

2002

2001

2,913.4

2,435.1

20%

73.3%

74.9%

Kiddy´s Class

60.4

47.6

27%

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%

23.4

4.5

n/a

0.6%

0.1%

3,974.0

3,249.8

22%

Zara

Oysho Total

100.0%

142

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

Pull and Bear: 6,7%

KiddyÂ´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

143

2002

2001

Zara

62.5%

61.7%

KiddyÂ´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%

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 yearâ&#x20AC;&#x2122;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 majority of INDITEXâ&#x20AC;&#x2122;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

145

Table 38.- INDITEX format by format:

Var%

Var% 2002

2001

02/01

2002

2001

02/01

Var% 2002

2001

02/01

Var% 2002

2001

02/01

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%

(1,029.0)

(873.2)

(14,6)

(11.1)

(85.5)

(69.5)

(79.2)

(69.7)

35.3%

35.9%

24.3%

23.3%

32.1%

30.8%

27.6%

28.9%

540.4

440.6

18.5%

18.1%

Net sales

Op. expenses, dpr. & amort. Expenses on sales

Operating income (EBIT) (*) EBIT Margin

18%

23%

14.1

10.8

23.4%

22.7%

32%

31%

34,9

32,9

13.1%

14.6%

23%

37.5

25.3

13.1%

10.5%

14%

48%

Stores

531

466

296

249

250

223

ROCE

43%

42%

131%

166%

39%

51%

49%

46%

2002

2001

02/01

2002

2001

02/01

2002

2001

02/01

2002

2001

02/01

(*) Pre goodwill

Var%

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%

Gross Margin

48.7%

51.1%

47.2%

51.3%

34.3%

53.3%

51.5%

51.9%

(97.7)

(78.0)

(49.9)

(41.8)

(1,378.8)

(1,169.2)

32.7%

38.6%

40.2%

44.8%

34.7%

36.0%

Net sales

Op. expenses, dpr. & amort. Expenses on sales

25%

19%

(8.7)

97.9%

193.3%

163%

48.1

25.2

8,7

6,2

(14.9)

(6.3)

669.0

517,5

EBIT Margin

16.1%

12.5%

7.0%

6.6%

-63.5%

-140.0%

16.8%

15.9%

Stores

197

151

153

120

1,558

1,284

ROCE

49%

30%

12%

n/a

41%

39%

Operating income (EBIT) (*)

91%

42%

(22.9)

n/a

18%

29%

(*) Pre goodwill

146

social

cash flow

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-financial 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 targets (stakeholders) of said flows.

148

Table 39.-Added Value Flow (figures in millions of euros): FY 2002*

FY 2001*

Var% 02/01

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

4,002.8

3,278.3

22%

Remuneration of employees for their services

569.9

489.8

16%

Payment of taxes

180.6

140.4

29%

1.1

23.0

-95%

71.8

6.0

1,097%

1.9

0.8

140%

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%

Net cash received for the sale of products and services

Total added value flow

Distribution of added value flow

Return of financial debt Dividends given to shareholders Corporate social investment Retained cash for future growth

* 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 flow of added value 2002:

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

0,1%

0,1% 1,8% 4,5%

0,2% 4,3%

0,1%

0,7%

3,2% 5,2% 14,9% 14,2%

28,7%

27,3%

47,8%

46,7%

Payments made outside the Group for

purchase of merchandise and raw materials

Payments made outside the Group for

services received and for investments

Remuneration of employees for their services

Retained cash for future growth

Payment of taxes

Dividends given to shareholders

Corporate social investment

Payment of financial debt

150

standard

indicators of economic performance

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

22%

2002

3,974

152

Sales by

geographic area Graph 21.- 2001

Graph 20.- 2002

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 INDITEXâ&#x20AC;&#x2122;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 Final balance of trade receivables Net sales Net sales on trade receivables Average period of collection (days)

2002

2001

2000

1999

1998

97.7

95.9

71.0

58.8

42.1

3,974.0

3,249.8

2,614.7

2,035.1

1,614.7

40.7

33.9

36.8

34.6

38.4

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

3,105.8

2,545.3

2,093.2

1,624.6

1,289.1

6.13

5.97

6.5

5.9

6.0

Total expenses generated by trade payables Expenses on trade payables Average period of payment (days)

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

155

Nacionality

% of risk granted of the total

Banco Bilbao Vizcaya Argentaria

Spanish

23%

Santander Central Hispano

Spanish

20%

Caixa Galicia

Spanish

Fortis

Belgian

Caixanova

Spanish

Other entities with a participation equal to or under 5%

Various

39%

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

Issue premium

Distribution

Dividends

of results 2001

01/02/2002

Balance 31/01/2003

20,379

Unrestricted reserves of the Controlling Company

567,563

186,436

753,999

Restricted reserves of the Controlling Company

19,303

1,692

Reserves at comp. consolidated by the global or proportional integration method 434,242

16,268

(1,235)

107,296

556,571

989

(24)

(1,839)

(874)

8,112

418

(109,890)

(20,047)

(121,407)

340,412

(271,846)

(68,566)

1,392,692

16,686

(111,149)

(68,566)

1,229,663

Revaluation reserves

Reserves of companies carried by the equity method Translation differences Income FY 2001 Totals

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

157

BELOW IS GIVEN THE EVOLUTION of the following economic indicators, representative of the activity of distribution: — 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

1998

11%

1999

2000

2001

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

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

5.9

5.7

6.2

Turnover (days)

Cost of sales

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

9.8

6.6

(899.9)

(715.7)

(246.8)

(171.1)

Accruals Other short term liabilities Operating working capital

160

163-185} 163

independent validation SAM assessment

165

169 175

GRI indicators

glossary of terms 181

contacts

162

independent

validation

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

165

Sustainability Leader Member of DJSI World & DJSI STOXX

Inditex Retail

Company Description Inditex engages in the design, production and marketing of textiles

Sustainability Performance Inditex has an overall sustainability performance that positions it

and shoes. Its main brands are Zara, Pull & Bear, Massimo Dutti,

among the sustainability leaders of its industry. Its management

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

11556.54

39 countries. Sales from own stores accounted for 88% of fiscal

conduct and compliance. The company is aware of the risks

EUR

2002 revenues; franchises sales 6%; other textile sales 5% and

associated in working with approximately two thousand external

services & other 1%.

independent workshops in more than 30 countries, some of

Company Country

Spain

Number of Employees Web

www.inditex.com

Share Market cap (mil) Currency High 52 week

23.95

Low 52 week

15.15

Last Price

18.54

which are facing negative issues such as oppressive regimes, ethnic conflicts and limited labor rights. In response it has

Key Data Sales (mil)

2001

2002E

2614.7

N/A

0.69

0.83

26.87

22.34

EPS P/E Ratio

developed a strictly enforced code of conduct to guide practices across the supply chain. In the environmental dimension, Inditex scores

Source: Bloomberg, 15. August 2002

significantly

above

the

average

with

clear

outperformance in eco-efficiency performance and transport and

Sales in

logistics. Moreover, Inditex performs among the best in the

Alcohol

Tobacco

Gambling

resources. It also engages with non-governmental organizations

Armaments

in countries of operation.

Firearms

social dimension, particularly in management attention to human

Source: IRRC, SAM Research

Sustainability Scores Total Score

Economic Dimension

50%

Industry Average on a Global Basis

100%

50%

100%

50%

100%

50%

100%

Environmental Dimension

Inditex Best Company on a Global Basis 0%

Social Dimension

SAM Research Inc. Analyst: Gabriela Grab Tel. +41 1 397 1048 gabriela@sam-group.com ÂŠ 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 authorises the companies included in its index to use its distintive sign for the entire following calendar year (2003).

166

Sustainability Leader Member of DJSI World & DJSI STOXX

Inditex Retail

“Corporate Sustainability is a business approach to create long term shareholder value by

Industry Driving Forces Consumers, fair trade organizations as well as non-governmental organizations demand transparency on product sourcing and production methods, thus requiring detailed codes of conduct for suppliers covering social and environmental aspects. For food products, ensuring

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

DJSI World

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 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 info@sam-group.com www.sam-group.com © SAM Research Inc. / Oct 2002

167

Economic a

p=poor

Environmental a b

a=average p

Social a

b=best b

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

50%

100%

Codes of Conduct/Compliance

50%

100%

50%

100%

Supply Chain Management

100%

Environmental Environmental Management

50%

Public Environmental Reporting

100%

Eco Efficiency Performance

50%

100%

Advanced Environmental Management

100%

50%

100%

Social Tracking of Employee Satisfaction

Labor Practices Indicators

50%

100%

External Stakeholder Relations

50%

100%

Sourcing in Developing Countries

100%

50%

100%

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

SAM Research Inc. Rotfluhstrasse 91 CH 8702 Zollikon ZĂźrich Tel. +41 1 397 10 30 Fax +41 1 397 10 50 info@sam-group.com www.sam-group.com ÂŠ SAM Research Inc. / Oct 2002

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 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 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 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.

168

GRI

indicators

169

Table 47.- GRI compliance indicators:

GRI chapter

Indicator

Pages

Section

B.1. Vision and strategy

1.1

2 62 104 134

Chairmanâ&#x20AC;&#x2122;s Statement Social Dimension Environmental Dimension Economic Dimension

1.2

Chairmanâ&#x20AC;&#x2122;s Statement

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 2.18

28 14 20 and 22 138 to 140 16 28 and 32 16

B.2. Profile of the company

2.19 2.20 2.21 2.22

Corporate Governance Who we are Who we are Economic Dimension Who we are Corporate Governance Who we are 136 and 142 to 146 Economic Dimension 65 Social Dimension 181 Contacts 4 Scope (1) 4 Scope (1) (1) (1) 4 Scope 62 Social Dimension 104 Environmental Dimension 134 Economic Dimension (1) 161 AENOR Report 161 AENOR Report 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

B.3. Systems og Management

Indicator

Pages

Section

3.1 3.2 3.3 3.4 3.5 3.6 3.7

38 and 48 to 52 38, 39 and 40 52 50 41 and 42 48 to 52 2 65 to 67 106 55 and 56 64 to 74 52 78 to 90 52 78 to 90 52 78 to 90 50 78 to 90 165 to 168 68 to 74 118 (2) 50 62 and 68 to 74 113 and 116

Corporate Governance Corporate Governance Corporate Governance Corporate Governance Corporate Governance Corporate Governance Chairmanâ&#x20AC;&#x2122;s Statement Social Dimension Environmental Dimension Corporate Governance Social Dimension Corporate Governance Social Dimension Corporate Governance Social Dimension Corporate Governance Social Dimension Corporate Governance Social Dimension SAM Evaluation Social Dimension Environmental Dimension

3.8 3.9 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20

Corporate Governance Social Dimension Environmental Dimension

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

171

GRI chapter

B.4. Economic indicators

Indicator

Pages

Section

EC1 EC2 EC3 EC4 EC5 EC6 EC7 EC8 EC9 EC10

136 143, 146 and 153 153 and 159 154 155 155 146 156 (3) 78 to 90

Economic Dimension Economic Dimension Economic Dimension Economic Dimension Economic Dimension Economic Dimension Economic Dimension Economic Dimension Economic Dimension 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

B.5. Environmental indicators

Indicator

Pages

EN1 EN2 EN3 EN4 EN5 EN6 EN7 EN8 EN9 EN10 EN11 EN12 EN13 EN14 EN15 EN16

(4) (5) 128 (4) 129 (6) (6) 122 (7) 122 124 to 126 (8) 126 (9) (10) (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

Section

Environmental Dimension Environmental Dimension

Environmental Dimension Environmental Dimension Environmental Dimension Environmental Dimension

GRI chapter

B.6. Social indicators

Indicator

Pages

Section

LA1 LA2 LA3 LA4 LA5 LA6 LA7 LA8 LA9*

94 to 96 94 96 (12) 97 and 98 97 and 98 97 and 98 (13) 94 110 66 and 67 96

Our people Our people Our people

LA10 LA11

Our people Our people Our people Our people Environmental Dimension Social Dimension 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

HR1 HR2 HR3 HR4 HR5 HR6 HR7

66, 66, 66, 66, 66, 66, 66,

GRI chapter

Indicator

Pages

Section

B.6. Social indicators

SO1 SO2

84 to 88 64 30 (14)

Social Dimension Social Dimension Corporate Governance

Indicator

Pages

Section

PR1

65 106 (15) (16)

Social Dimension Environmental Dimension

B.6. Social indicators

SO3

67 67 67 67 67 67 67

Section and and and and and and and

76 76 76 76 76 76 76

Social Social Social Social Social Social Social

Dimension Dimension Dimension Dimension Dimension Dimension Dimension

(14) No contributions are made to political parties.

GRI chapter

B.6. Social indicators PR2 PR3

(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

175

AENOR: Asociaci贸n Espa帽ola de Normalizaci贸n (Spanish Association for Normalization). Assimilable or urban waste: Waste from industry or commerce with characteristics 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 circuits and air conditioning installations. CO: Carbon monoxide. Gas generated in combustion reactions. COD (Chemical Oxygen Demand): Oxygen consumed in the chemical decomposition of organic and inorganic material. The COD test determines the degree of contamination in a flow.

176

Contribution Margin: This is a financial concept that measure the contribution of a line of business to the total earnings of the company. Corrective action: Performance of an action or activity to eliminate the causes of non-compliance, of a fault or any other undesirable situation in existence in order to prevent these being repeated. Dow Jones Sustainability Indexes: This is a family of indexes that covers those companies around the world with the best track records in the social, environmental and economic fields, managed by the SAM company. EBIT (Earnings before interest and taxation): Operating income less operating expenditure, contributions for the depreciation of fixed assets, goodwill and provisions for operating risks. EBITDA: Earnings before interest, taxation, depreciation and amortization. Eco-efficiency: Defined as the process of analysis of the lifecycle of a product, from the extraction of raw materials until they are subsequently recycled or destroyed after use. This analysis allows economic and environmental aspects to be considered and products and processes to be optimized, and helps in the choice of the most eco-efficient option from between all the possible alternatives. This process allows, in the last analysis, products at the best cost with the least environmental impact to be offered. Environmental Management System (EMS): The part of the general management system that includes the organizational structure, planning of activities, responsibilities, practices, the procedures, the processes and the resources to develop, to introduce, carry out, review and keep up-to-date the environmental policy. Environmental Policy: Declaration by the organisation of its intentions and principles in relation to its general environmental conduct that provides a framework for action and for the establishment of its environmental objectives and goals.

177

of activity, such as separating used paper from the rest of the rubbish for it to be recycled. Greenhouse gases: Gas compounds of natural or anthropogenic origin causing the greenhouse effect. There are six gases: carbonic dioxide, methane, nitrous oxide, chlorofluorocarbon, perfluorocarbons and sulphur hexafluoride. GRI (Global Reporting Initiative): International agreement whose purpose is to establish a working structure that is widely accepted for the preparation of sustainability reports containing the three following aspects: social, environmental and economic. It also takes care of the definition and publishing of a guide for the preparation of the aforementioned reports, that is applied voluntarily by organisations that want to get information on the economic, environmental and social aspects of their activities, products and services. Gross Margin: This is a financial concept obtained from operating income minus the costs of goods sold. Hazardous waste: That waste which contains in its composition substances catalogued as hazardous, in such quantities or concentration that it represents a risk for human health, natural resources or the environment. Internal Code of Conduct: Standards and principles of compliance which regulate the relations between INDITEX and its five stakeholder groups (employees, business partners, customers, suppliers and society). ISO 14001: International rule applying to any organisation that voluntarily desires to: â&#x20AC;&#x201D; Introduce, keep up to date and improve an environmental management system. â&#x20AC;&#x201D; Obtain the certification of this system by an external and independent organisation. LFL (Like For Like): Annual change in store sales that 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 manufacturing the product are carried out.

NOx: Nitrogen Oxides, chemical compounds that are generated in combustion reactions.

Good Environmental Practices: These consist of organisational measures that in many cases are valid in any type

PVC: Polyvinyl chloride. Polymer with multiple applications in industry and difficult to recycle.

Rating or evaluation: Degree of compliance by an External Factory or Workshop with regard to the Code of Conduct for External Manufacturers and Workshops. ROCE (Return on Capital Employed): A financial concept that it is calculated as EBIT on average capital employed which includes shareholdersâ&#x20AC;&#x2122; equity and net financial debt. ROE (Return on Equity): This is a calculated as operating profit on average equity. Social Audit: These are processes for systematic assessment of the social and/or environmental conduct of a factory, facility or activity, carried out by independent third parties, in accordance with international standards.

cal year. It expresses the number of times that the inventory is turned around over the course of one year. Working capital or current assets: The difference between current assets and current liabilities. World Business Council for Sustainable Development: an organisation currently made up of 160 international companies belonging to 30 countries of the 20 largest industrial sectors. Its mission is to provide business leadership as a catalyst for change towards sustainable development, and to promote eco-efficiency, innovation and social responsibility.

Social Audit Program: Program for the review and introduction 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 product 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 acknowledged standards on working conditions and environmental protection. Turnover of Stock: This is defined as the quotient between 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 fis178

Index of Table 1 Table Table Table Table Table Table

2 3 4 5 6 7

Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 Table 14 Table 15 Table 16 Table 17 Table 18 Table 19 Table 20 Table 21 Table 22 Table 23 Table 24

179

tables

Evolution of the most significant figures of the last few fiscal years The performance of each format International Presence The most significant holdings Composition of the Board Remuneration of the Board of Directors The participation of the members of the Board in the share capital Composition of the Executive Committee as at 31/01/2003 Composition of the Audit and Compliance Committee as at 31/01/2003 Composition of the Audit and Compliance Committee as at 20/03/2003 Composition of the Nomination and Remuneration Committee as at 31/01/03 Composition of the Nomination and Remuneration Committee as at 20/03/03 Current composition of the Social Advisory Board Scope of the Social Audit Budget of the Program of Community development program in Spain Budget of the Program of Community development program in Venezuela Budget of the Program of Community development program in Peru Budget of the Program of Community development program in Morocco Budget of the Program of Production Chain Strengthening in Morocco and Asia Professionals from INDITEX who have attended the programs for environmental training Type of Companies Absolute and relative data of pollutant load Data on atmospheric emissions in factories and logistics centres Urban waste or assimilable waste generated in 2002

Table 25 Annual evolution of urban or assimilable waste (kg per thousand garments manufactured) Table 26 Annual evolution of hazardous waste (kg per thousand manufactured garments) Table 27 Use of energy Table 28 Consumption of water from the public network Table 29 Annual evolution of energy consumption Table 30 Financial evolution in the past few years Table 31 Details of company-managed, JV and franchised stores Table 32 Opening of new markets Table 33 List of franchised stores Table 34 Distribution of in-stores sales in own or jointly managed stores and franchised stores Table 35 Jointly-managed stores Table 36 Sales by format Table 37 International sales Table 38 Summary by format Table 39 Company Cash-flow Table 40 Periods of payment by customers Table 41 Periods of payment to suppliers Table 42 Personal cost Table 43 Suppliers of capital Table 44 Variations in reserves Table 45 Turnover of stock Table 46 Working capital Table 47 GRI compliance indicators

Index of

graphs

Graph 1

Specific weight of the formats of INDITEX in 2002 (%) Specific weight of the formats of INDITEX in 2001 (%) Volume of production by geographic area Planning of social audit by geographic area Selection of independent auditors Details of the composition by age of the workforce in Spain Details of the contractual formulas and salary in Spain Details of the composition by gender of management positions in Spain % of workers represented by Workers Committees and personnel representatives in Spain Occupational accidents and occupational diseases in Spain Lost working days due to accident and illness Introduction of the Environmental Management System ISO 14001 Sales in stores controlled by INDITEX or franchises Sales by format Sales 2002 EBIT 2002 Distribution of flow of added value 2002 Distribution of flow of added value 2001 Sales Sales by geographic area 2002 Sales by geographic area 2001 Cost of sales and gross margin Geographic distribution of the personal costs in 2002 Taxes paid LFL sales

Graph 2 Graph Graph Graph Graph

3 4 5 6

Graph 7 Graph 8 Graph 9

Graph 10 Graph 11 Graph 12 Graph 13 Graph Graph Graph Graph Graph Graph Graph Graph Graph Graph

14 15 16 17 18 19 20 21 22 23

Graph 24 Graph 25

180

contacts

181

THE MANAGEMENT OF INDITEX TRUSTS that the information included 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, environmental 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 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, environmental and financial dimensions?

183

I totally agree

I disagree quite a lot

I agree quite a lot

I totally disagree

— 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 quite a lot

I disagree quite a lot

I totally disagree

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?

I totally agree

I agree quite a lot

I disagree quite a lot

I totally disagree

It was interesting It was informative

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

I agree quite a lot

I disagree quite a lot

I totally disagree

It was interesting It was informative

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

I totally agree

I agree quite a lot

I disagree quite a lot

I totally disagree

It was interesting It was informative

184

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

I agree quite a lot

I disagree quite a lot

I totally disagree

It was interesting It was informative

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

Presentation and design?

Very good Good Poor Very poor — 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

Employee

Unemployed

Retired

• What is your profession? Executive

Expert

We may get in touch with you further ahead in order to find out your point of view about the Sustainability Report 2002. If you want us to contact you, please fill in your details: Name Address Telephone

185