Spanish retail giant, Inditex - owner of Zara, Pull & Bear & Massimo Dutti chains posted impressive Q1 profits - proving that Spanish industry, innovation and manufacturing are possible, and profitable. Inditex posted a 17% rise in fourth-quarter profit on a 13% rise in revenue as the Spanish retailer saw strong growth in international markets and opened its fiscal year with rapid sales growth. For the quarter ended Jan. 31, the owner (ES:ITX 48.99, +2.08, +4.42%) of the Zara, Pull & Bear and Massimo Dutti chains posted profit of 483 million euros ($666 million), against 410 million euros in the year-earlier period. For 2009 as a whole, the company’s profit rose 5% to 1.31 billion euros, topping analyst estimates of 1.27 billion euros. Sales rose to 1.9 billion euros from 1.68 billion euros during the quarter, and grew 7% for the year to 11.08 billion euros, outstripping those of U.S. apparel giant Gap (GPS 23.30, +0.23, +1.00%) , on an annual basis. Sales outside its home market of Spain, currently enmeshed in a deep economic recession, accounted for 68% of total sales in 2009, versus 66% in 2008. Europe ex-Spain accounted for a 46% chunk of sales, against 45% in 2008, while Asian sales accounted for 12.2% of the total versus 10.5%. Pablo Isla, chief executive of Inditex, said in a conference call that 2009 was a year of stability for Spain, with levels of sales maintained, but space growth had not increased. Spanish sales accounted for a 31.8% portion of the overall total, down slightly from 34% in 2009. The company’s same-store sales in local currencies rose 14% from Feb. 1 to March 14. The spring and summer season will be influenced by the performance over the Easter period, owing to heavy sales volumes during the period. The company opened 343 stores in 2009. Inditex plans to open 365 to 425 new stores in 2010, with 95% of this new retail space to be located in international markets. Within these plans, 40% of the increase in stores will take place in Asia, with two stores to be opened in India starting in May. “Our priority is to focus growth in Europe and Asia,” said Isla. “We see significant opportunities in Eastern Europe [and] the Russian Federation, and there is a great potential to expand profitably in Europe for many years, as our market share is below 1% in most countries.” He said the main areas of growth for Asia are China, Japan and South Korea. “We see huge long-term potential for Inditex in Asia markets,” he said. Over the next three years, the company expects to see space growth of between 8% and 10%. Owing to strong cash-flow generation by the group, with funds from operations up 11% in 2009, Inditex’s said its board will propose a dividend of 1.20 euros per share, an increase of 14% on the previous year. Isla was asked by analysts why they aren’t paying out an even bigger portion of net income, given the group’s huge cash balance. “Our main priority is to invest in the future growth of the business. We always want a high level of flexibility … we always wanted more steady growth in the dividend, rather than big jumps,” he said. He also said that the company expected costs to grow along with its plans to open more stores. Inditex’s success has been a boon for founder and Chairman Amancio Ortega, who ranked the ninth richest man in the world in Forbes magazine’s annual list of billionaires, which was released last week. He moved up one spot from No. 10. Shares of Inditex rose nearly 3.3% to 48.49 euros in Madrid, as many analysts appeared pleased with the results, given the tough time retailers across the globe have been enduring owing to the recession. Analysts at Standard & Poor’s said good news for shareholders was the rise in the dividend and also the fact that Inditex is relying less on Spanish markets for revenue. Cost containment, they said, helped Inditex beat expectations. Gross-profit margin for Inditex in 2009 widened to 57.1% from 56.8%. In a note to investors, S&P raised its target price on Inditex to 50 euros from 42 euros, but kept its hold recommendation on the group. Analysts at Bank of America/Merrill Lynch rate the stock a buy. They see a 3% to 5% upward risk to consensus earnings estimates owing to “strong results and a good start to the first quarter.” They said shares are valued at 20 times 2010 price/earnings, which is reasonable given the “sustainable mid-teens growth in earnings per share.” “We are more relaxed than most on the Spanish consumer outlook and we think Inditex’s expansion into Asia and of its non-Zara formats should put upwards pressure on margins and returns over time,” they said in a note to investors. Story from Market Watch

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Inditex Profit Jumps 17% Q1 2010

Spanish property price fell by an average of just 4.3% last year, according to the official house price index prepared by the National Institute of Statistics (INE). Everyone in the business knows that average prices fell much more than that, so why is the INE publishing figures that invite ridicule and risk making foreign observers suspect that the official figures in Spain can’t be trusted? It’s an important question, but one I can’t confidently answer. The INE gets its data from the Notaries, so either the data is flawed, or someone is manipulating it, or I’m completely wrong, along with everyone else in the business I have talked to. According to the admittedly anecdotal information I get from talking to lots of different people in the property business all over Spain, average prices are down something in the region of 40% since the peak around 2006 to 2007, and fell at least 10% last year, perhaps as much as 20%, which would be hardly surprising in a year marked by a massive property crisis and credit drought. So how come the Notaries are saying prices fell just 4.3% last year, and by just 10% since the peak? Even more difficult to believe, they say resale property prices fell just 3.5% last year, and actually rose by 0.1% on a quarterly basis in the last 3 months of the year, all this at a time when mortgages were hard to get and credit conditions tightened dramatically. It doesn’t make any sense. If the data is to be believed, 2009 was a much better year on a quarterly basis than 2008. The data would have us believe that prices fell by less than 1% in 3 out of 4 quarters last year, and by just 0.4% in 2 of them. How likely is that during a credit crunch, with a monumental property glut, dramatically falling property sales, 20% unemployment, and a shrinking economy? If you are still not convinced then have a look at Murcia, a region devastated by the property crash. According to the INE’s index, prices didn’t fall at all in Murcia last year, having fallen a paltry 0.8% the previous year. But you try selling a new property on one of Murcia’s many golf developments and see how far you have to drop your pants to find a buyer. To make matters worse, leading papers like El Pais accept the INE’s figures without doubt, despite the obvious questions they raise. Having first warned everyone waiting for prices to drop that they will be disappointed today’s El Pais goes on to say: It is true that, according to the INE, prices fell 4.3% last year. It is also true that quarterly price falls are getting smaller (-0.4% between October and December). And it’s now possible to find the first positive change: resales increased in price by 0.1% in the last quarter. That’s the first rise in 2 years. The article does not at any point question the figures. With figures like these I wouldn’t blame foreign observers from wondering if Spain is doing a bit of a Greece with its figures. In my opinion, these figures won’t fool anyone who counts. Story from Mark Stucklin

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It’s Official: Spanish House Price Index is Ridiculous

The Spanish property market is in too much of a mess for a real BMV market to exist, according to agents specialising in distressed property in the country. Struggling developers, desperate homeowners and banks stocked with repossessions are all setting their prices according to how badly they want to sell, meaning a benchmark price is virtually impossible in many of the tourist hotspots. And without a standard to measure against, agents are left to secure whatever price they can for each situation. “Something is worth what someone else is prepared to pay for it and that’s that,” says Inez Rix, owner of Direct Auctions. “You have an open market price (not value), a bank valuation (upon which they base their lending), the offer price and the declared price at notary! No wonder there is no benchmarking for Spanish property .” The problem is so severe that one unit might be on sale for 50% less than the identical unit next door, says Darren Carter, owner of distressed agent Goldberg & Partners. “It all depends on the seller, the buyer and even the weather or what week it is as to what price will be agreed. A developer or bank might have sold three units at one price last week and not want to sell at the same price this week.” The ability to sell at a below market value is also hampered by the banks’ mortgage regulations. In Portugal, developers are offering units with 100% LTV mortgages by fixing prices at 80% of the lending bank’s valuation, effectively removing the need for a deposit. “In Spain this isn’t legal as the Bank of Spain ensures their normal lending criteria is adhered to,” says Rix. “In order to achieve a percentage of borrowing against the higher bank valuation, one now has to obtain a doctored purchase contract.” Carter says there are now better finance deals for buying bank product in Spain, “even 90 or 100% LTV on the price of the property but not including closing costs”, but the mortgage market has become too dynamic. “It feels like banks will offer one LTV one week and a different one next week once they’ve got their quota for the month.” Story from OPP (subscription)

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The Myth of BMV Spanish Property

King Juan Carlos and Queen Sofia officially opened the new Terminal 3 at Malaga Airport on Monday 15th March. The new terminal doubles the capacity of the airport from being able to handle 4,500 passengers to 9,000 passengers per hour. The new terminal has 180 check-in desks, 48 boarding gates, 11,000 m2 of shops, 3,700 parking spaces, and is capable of handling 14,000 suitcases per hour.The opening took place in the presence of 500 local and national dignitaries, including the President of the Junta de Andalucia , Juan Antonio Griñan. The first flight to use the new facilities left Malaga at 06.50 on Tuesday morning, bound for Barcelona . Unfortunately, most visitors from the UK won´t get to use the new terminal, as most of the low-cost carriers will continue to operate from Terminal 2. Related Posts The Ideal House in Spain… Malaga Cruises Booming Travelling by Train in Spain

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King of Spain Opens New Terminal at Malaga Airport

A Foreign Office minister warned Spain on Sunday that knocking down British expatriates’ houses was hurting its economy. Chris Bryant, Minister for Europe, said that the country was undermining efforts to create a recovery in its beleaguered housing market. He was speaking yesterday during a visit to south-eastern Spain to meet British expatriates who have been told that their homes will be bulldozed after Spanish authorities declared their construction illegal. The authorities there have been waging a campaign against former officials accused of allowing overdevelopment of coastal regions. Local governments issued building licences for the properties, but these were later nullified following court action instigated by a higher regional government. Mr Bryant cautioned: “The Spanish property market is not going to recover quickly if pictures of bulldozers knocking down expats’ homes are appearing in British newspapers. Everyone I’ve spoken to in Spain says they want to find a solution but wanting a solution and getting one are two different things. He said: “Obviously it’s not for the British Government to tell the Spanish what to do. But I’m pushing the message hard at all government levels that I meet here that they have got to put political willpower into these problems, whether it’s an amnesty, whether it’s a change in the law, whatever the solution is that is needed. That is the point I am pushing. I have to say also that there is an enormous difference between the Britons who just make a cursory legal deal – that is always ill advised – and those who have done everything they should or could have done but still find themselves in deep trouble. Mr Bryant spent the weekend advising expatriates in Andalucia on issues ranging from property rights to health care. He visited Torrevieja, the fastest-growing town on the Costa Blanca, Malaga, the capital of the Costa del Sol, and the town of Albox, where eight British families are fighting demolition orders issued at the end of last year. John and Muriel Burns were among the first to receive the demolition orders in Albox. The pensioners emigrated to Spain in 2001. “They did everything to dot the ‘I’s and cross the ‘T’s that they possibly could have to obtain the permission they required” to build their dream house, Mr Bryant said. But it turns out that the permission should not have been given. That was no fault of theirs whatsoever – but now they face the prospect of having their home demolished. After hearing that his home would be bulldozed, Mr Burns declared that he and his wife would chain themselves to the house. “If this building comes down, then we will be underneath it,” he said. Mr Bryant said he was able to tell worried Britons that the Andalusian regional government was appointing a full-time official to deal with the concerns of British expatriates. The official will provide advice on property regulations, health care and residence requirements. Mr Bryant warned: People buying property anywhere abroad, not just in Spain, have to take at least twice as much trouble as they do at home to make sure everything is legal. It is so easy to go to a lawyer because he’s cheaper. Then later you find out that he wasn’t an independent lawyer at all, but was working all the time on behalf of the land developer and you are really stuffed. Story from The Telegraph

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Bulldozing Expat Homes is Hurting Spanish Economy

I was involved in a bizarre situation last week. A client of mine, let´s call her Mrs. Smith, responded to a property advertisement on the internet for a 3 bed property for sale in Marbella , priced at €195,000. Another Costa del Sol property agent had advised me that he was dealing directly (and exclusively) with a local bank that had repossessed the property and that he had been asked by the bank to find a buyer within an agreed timescale of 3 weeks, of which there were 7 days remaining when my client took a look at the property.Of course, my client feel in love with this distressed property in Marbella , and a deal was agreed at the asking price. We faxed through all the necessary paperwork to the bank and advised them that we had taken a reservation deposit……..and heard precisely nothing back from them. We followed up with several phone calls over the next 48 hours, but nobody within the bank with any power to sign off the paperwork was ever available to talk to us or ever returned our calls. After the weekend we then made further efforts to make contact with the bank, and all the while Mrs. Smith was becoming increasingly frustrated and concerned that she may be in danger of losing her bargain property in Spain . But how could she lose it? The agent was operating under an exclusive agreement with the bank, so nobody else could surely arrange viewings or reservations to beat our client to the sale. But the silence continued past the expiry of the period of exclusivity, and we then received a call from one of the administrators within the bank to ensure us that the property had actually been sold. There was no explanation, no apology, no nothing. My client was distraught and very, very angry. We have since discovered exactly what happened. It seems that the details of the distressed property in Marbella were circulated to the staff of the bank as part of a regular newsletter, and at fairly late notice, a bank employee decided that he wanted to take a look at the property for himself. So during the same weekend when my client was panicking about losing the property that she had reserved in good faith, the guy from the bank was inspecting the property and securing the deal. And the reason for the delay? The buyer from the bank had to arrange his flights to Spain and was struggling to get the time off to make the trip. You see, this wasn´t a bank in Spain messing everyone around. No, no – this was a highly reputable British banking institution with an offshore division here on the Iberian peninsula. It seems that bad manners can be found everywhere. Related Posts Repossessions in Spain – worth the fuss?? Repossessions in the Spanish property market Telefonica – What´s the Problem?

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Spanish Property Buyers Lose Out to Bank Staff!

Positive economic signs from the UK economy allow a near-miraculous recovery for sterling after a sharp fall. Investors are more relaxed about the Greek budget problems. Sterling fell sharply last Monday, losing nearly two cents before lunch. The remainder of the week was devoted to the slow and tedious process of recovery. Although it seemed an impossible ambition last Monday afternoon sterling opened in London this morning at €1.11, unchanged on the week. At the beginning of the week the non-domiciled tax status of Baron Ashcroft dominated the media. Allegedly, the noble lord had bought his way into a peerage by making large donations to the Conservative party. For some reason this old tradition had become suddenly improper. It would be an exaggeration to blame sterling’s sharp fall on Lord Ashcroft alone but the story will certainly have unnerved investors who were already nervous about the Tories failing to win a majority at the forthcoming general election. From there it was uphill all the way but at least sterling managed to make it up the hill with the assistance of some positive news. On Tuesday the government held a successful auction of 30-year gilts which attracted bids for nearly twice that much. The last five auctions of 30-year stock have achieved an average of 1.63 times cover so, whatever misgivings they may have about sterling’s short-term future, there is a degree of confidence among investors the current problems will be short-lived. Having ignored Monday’s manufacturing purchasing managers’ index (their minds were on other things) investors took a great deal of interest in Wednesday’s services sector PMI. At 58.4 the services PMI was more than three points better than predicted, scoring a three-year high. It blew America’s 53.0 and Euroland’s 51.8 into the weeds. Coming hard on the heels of a ten-point jump in consumer confidence it was another reminder to the market that not everything to do with Britain’s economy is in a state of collapse. There was more reassurance from the Bank of England when the Monetary Policy Committee voted to keep interest rates unchanged for a 13th month and to leave quantitative easing on hold. A rash of data provided no coherent picture of the euro zone economy. The manufacturing and services PMIs were both a little softer on the month but not far adrift from what the analysts had forecast. Consumer and producer price inflation were roughly in line with the market’s expectations but had no immediate implications for euro interest rates. A -0.3% monthly fall for retail sales was better than the expected -0.5% decline but still not exactly positive. The revision to fourth quarter GDP showed the Euroland economy growing by +0.1%. The European Central Bank tightened monetary policy on Thursday with an end to the cheap three-month loans it had been offering to commercial banks. They will still be able to borrow one-week money at 1% but the three-month rate will depend in future on market rates. The ECB had nothing to offer the Athens government and said it would oppose any attempt to approach the IMF for assistance. Nevertheless, Greece did manage to find buyers for a €5 billion bond issue. By the end of the weekend it had become clear that, although Germany would not put its hand in its pocket for a Greek bailout, the EU had an emergency plan if push came to shove. At least for the moment investors are comfortable, if not deliriously happy, about the situation but their next question will be whether France and Germany will be able to carry the euro zone economy ahead on their own if the economies of Greece, Spain, Portugal, Ireland and Italy are to be weighed down by austerity measures of one sort or another. Whilst sterling’s recovery last week might be seen as a sign that there is life in the old dog yet, it is still hard to see the British currency as anything other than a dog. Opinion polls continue to indicate a hung parliament and investors fear that even after the general election Britain’s government will be paralysed by indecision, unable or unwilling to tackle the budget gap. Buyers of the euro should hedge 50% of what they will need. If the money is required in the near future they should consider covering the whole amount. Get the best foreign exchange rates with no bank fees or commission charges using your Moneycorp Privilege Card

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Lucky Escape for Sterling

Spanish Banks are slowly relaxing their lending criteria with one or two offering more attractive deals and higher LTV’s. However, banks are still being cautious when it comes to assessing a client’s affordability. Most banks use a debt / income ratio of either 35% or 40%, although we work with one bank that uses 50%. This really helps those clients who struggle to get mortgages elsewhere due to having a higher ratio of regular outgoings on mortgages, loans, credit cards etc. to net disposable income (the “debt / income ratio”). The eurozone base rate has remained at 1% for some time now, meaning that borrowing in Spain is still cheap. With the recovery in Germany faltering and ongoing problems in the so-called PIIGS group of countries (Portugal, Italy, Ireland, Greece and Spain), it is very unlikely that there will be a sudden hike in rates. With regards to the exchange rate, this is more or less the same as last month. Dual-currency mortgages are available, which allows clients to pay the mortgage in pounds sterling and avoid any currency fluctuations. If you are buying a property for your main residence, we can offer 80% of the bank valuation. This means that if the valuation is higher than the purchase price, it is possible to borrow up to 100% of the purchase price, which is something that has been impossible during the recession. The interest rate is as low as Euribor (annual) + 0,66% (the lowest we have come across to date), with 0,5% bank opening commission and 0% redemption penalty for partial redemption. Another attractive option is that you can have up to 2 years’ interest-only. This bank also offers remortgage products. Terms are available up to age 75 with a maximum 45-year duration. The only disadvantages with this product appear to be the compulsory insurances and that the client’s income needs to be paid into an account with the bank. More information from Mortgage Direct

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Spanish Mortgage News

German magazine Bild (equivalent to The Sun in the UK) has ruffled Greek diplomatic feathers this week. In an open letter to the Greek PM during his trip to Germany, Bild pointed out some of the differences between the two countries: “Here, people work until they are 67 and there is no 14th-month salary for civil servants. Farmers don’t swindle EU subsidies with millions of non-existent olive trees.” Bild makes its point with characteristic Sun subtlety, but news of protests in Spain , Portugal and Greece against raising the retirement age to 67 reminded me how some citizens of those countries have yet to accept responsibility for their own futures. Spanish civil servants enjoy employment for life - it’s virtually impossible to get fired. They also enjoy a 13th month extra salary - (not performance-related) . Meanwhile, tax evasion is a national pastime and the tax-office (staffed by civil-servants, remember) only go after the easy targets - individuals and businesses who are already paying tax. Spain needs pension reform, employment reform and tax reform - but I doubt whether Zapatero has the stomach or backbone for very much of that. (Steps down from soapbox) Mark Stucklin reports on how the Spanish property market grew at the end of 2009 . It’s not a massive uptick, but it’s better than a further decline. Looking at the number of estate agents advertising on Kyero.com, we reached ‘bottom’ during September last year. Since then the number of advertisers has steadily increased - and we’re now back to the same number as this time last year. Regarding traffic to Kyero.com, we’re now over 50% up - a doubling of traffic in January and February this year compared to the same period last year. If what’s happening with Kyero is an early indicator of what’s happening in the Spanish property market (and I think it is), we can expect Q4 2009 to have marked the bottom of the Spanish property market - in terms of volume of transactions at least. The rest of this week’s news centred around the fragility of the Spanish economy and I’ve included the most enlightening articles this week. The best, I think is from the NY Times - a well reasoned and comprehensive explanation of the challenges facing Mr Zapatero. Martin Dell, Kyero.com

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We’re Past the Bottom of the Spanish Property Market

There was a small uptick in Spanish housing sales during the fourth quarter of last year, according to data released today by the Ministry of Housing. Small, maybe, but enough for the Government to get excited about. “The transactions in the fourth quarter represent a rise of 4.1% with respect to the same period last year, this being the first year-on-year rise since the fourth quarter of 2006,” goes the first sentence, in bold, of the Ministry’s press release. In fact, if you just look at the ordinary housing market, the uptick was even better. Excluding social housing there were 116,664 house sales in Q4, a rise of 5.5%. Regrettably, that’s where the good news ends. Take the year as a whole, there 413,112 transactions last year, a fall of 19% compared to the previous year, and a whopping 46% down on 2007. Even the Q4 was down 33% compared to 2 years ago. Some regions did better than others. Looking at a selection of regions popular with holiday home buyers, the inland province of Teruel suffered the most in 2009, down 36%, followed by Las Palmas in The Canaries, down 32%. At the other end of the scale, Spain’s two big cities did the best, down just 1.7% in Madrid and 3.9% in Barcelona. The small national uptick in Q4 that got the Ministry excited was almost entirely driven by big increases in Catalonia and Madrid (Barcelona +35%, Madrid +41%). Why the big surge in home sales in those two cities in the last quarter of 2009? I don’t know. But I wouldn’t be surprised if it had more to do with banks shifting Spanish property around their balance sheets than families buying homes to live in. Story from Mark Stucklin

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Spanish Property Market Grew Q4 2009