Zalando SE — Call Transcript 2021

Mar 16, 2021

Zalando FY/2020 Earnings Call

David Schröder, CFO March 16th, 2021

In 2020 we made significant progress towards our vision to become the Starting Point for Fashion, combined with an outstanding financial and operational performance

Becoming the Starting Point for Fashion in Europe: Accelerated new customer growth of 33% YoY, lifting our active customer base to 38.7m

Accelerated Platform Transition: 24% Partner Program share¹ (+9pp) in Q4, ZFS surpassing 50% share in Q4 and ZMS with strong recovery in HY2/2020

Outstanding Performance: GMV growth of 30.4%, revenue growth of 23.1% and adjusted EBIT margin of 5.3% in FY/20, exceeding our initial 2020 guidance

Strong Balance Sheet: Successful placement of 1bn EUR in Convertible Bonds to further accelerate our growth strategy and to invest with even more conviction

We are taking decisive and transformative steps to enable our future growth

We strongly delivered against our strategic priority to grow our active customer base

• 1) Based on the change in consent management following the GDPR introduction, part of the data is estimated on a statistical method
• 2) Defined as GMV divided by the number of orders
• 3) Defined as GMV divided by the number of active customers

The consistently positive long term development of our customer cohorts demonstrates our ability to build deeper and healthier customer relationships over time

1) Cohort refers to customers grouped by the calendar year in which they first placed an order with Zalando.

2

We were able to significantly accelerate our journey to become a platform business

1) Partner Program share of 40% refers to our business model mix ambition for 2023/24. In our long-term target model, we aim for a 50% Partner Program share

2) Refers to our long-term target model ambition

Financial Update FY and Q4 2020

Despite a challenging start, 2020 saw a significant acceleration in GMV growth with an outstanding finish in Q4

1) FY/20 (FY/19) contains -€449.8m (-€394.1m) reconciliation; Q4/20 (Q4/19) contains -€114.2m (-€103.3m) reconciliation

2) Other segments including various emerging businesses; private label offering zLabels no longer presented as separate unit since Q1/19

Significant YoY profitability increase across all regions

1) FY/20 (FY/19) contains €0.2m (€0.6m) reconciliation; Q4/20 (Q4/19) contains -€3.9m (€0.0m) reconciliation

2) Excluding equity-settled share-based compensation (SBC) in FY/20 of -53.8€m, FY/19 of -46.0 €m, Q4/20 of -12.7 €m, Q4/19 of -11.3€m; and non-operating one-off effects in FY/19 of -13.0€m

3) All other segments including various emerging businesses; private label offering zLabels no longer presented as separate unit since Q1/19

Profitability improvements driven by temporary benefits from lower return rates and structurally increasing operating leverage

Costs and margins (in % of revenue)	FY		Q4
	2019	2020	Delta	2019	2020	Delta
Cost of sales	(57.5%)	(57.5%)	0.0pp	(57.0%)	(56.0%)	(1.0pp)	Less price investments offset
Gross profit	42.5%	42.5%	0.0pp	43.0%	44.0%	1.0pp	by category mix
Fulfillment costs	(27.3%)	(25.7%)	(1.6pp)	(25.3%)	(22.9%)	(2.5pp)	Higher utilization & lower return rate
Marketing costs	(8.1%)	(8.3%)	0.2pp	(8.7%)	(11.1%)	2.5pp	Increased marketing to capture full demand potential
Administrative expenses & Other	(4.6%)	(3.9%)	(0.7pp)	(4.0%)	(3.1%)	(0.9pp)
EBIT	2.6%	4.6%	2.0pp	5.0%	6.9%	1.9pp	FY/20 pro-forma
Adj. EBIT1	3.5%	5.3%	1.8pp	5.6%	7.4%	1.8pp	margin: 3.8%

1) Excluding equity-settled share-based payment expense ("SBC"), restructuring costs and non-operating one-time effects

Negative net working capital and lower level of capex in line with guidance

11

Outlook

Since 2019 we have consistently delivered on the mid-term targets

	Guidance Transition Phase 2019 – 2021	2019	2020
		23.6%	30.4%
Growth	GMV growth of 20-25%
		3.5%	Actual: 5.3% Pro-forma: 3.8%1
Profitability	Adj. EBIT margin between 2-4%
	Cash flow negative ● NWC neutral ●	FCF: +42m EUR NWC negative Capex: 4.7%	FCF: +285m EUR NWC negative Capex: 3.1%
Cash	Capex of 4-5% of revenue ●

1) Excluding positive impact from temporary Covid-19 related lower Return Rate in 2020.

For 2021, we aim to continue to grow at an accelerated pace while investing to further elevate our customer experience and to drive our platform transition

GMV growth of 27 – 32%, and Revenue growth of 24 – 29%

Adj. EBIT¹of €350 – 425m

Negative net working capital and €350 – 400m in Capex²

1) Excluding equity-settled share-based payment expense ("SBC") of ~€57m, restructuring costs and non-operating one-time effects for FY/21

2) Excludes M&A transactions

Liquidity position

(in €m)

(1) "Start of Q4/20" liquidity include short-term deposits of 25€m with maturity of more than 3 and less than 12 months, which were withdrawn in Q4

(2) Includes sales and investments in fixed and intangible assets (-€127.1m), payments for acquisitions (-€31.5m) and change in restricted cash (+€0.0m)

(3) Includes financing cash flow (-€11.9m) and effect of exchange rate on cash and cash equivalents (+€3.6m)

FY/20 GMV to merchandise revenue bridge

GMV to revenue bridge FY/20	(in €m)	Comment
Group GMV	10,700	Net1 B2C merchandise value incl. VAT
Partner Program GMV	-1,998	20.8% of Fashion Store GMV (incl. Connected Retail)
Group GMV ex Partner Program	8,702
VAT (excl. Partner Program VAT)	-1,358	~ 16% of GMV
Group NMV ex Partner Program	7,347	Net1 B2C merchandise value excl. VAT
Other merchandise revenue	+	e.g. B2B bulk sales revenue (offprice), dunning fees
Revenue recognition	-/+…	Point of order (GMV) vs. customer receipt (revenue)
Revenue from the sale of merchandise	7,322	IFRS standards, Zalando annual report 2020
Partner Program commission	+	Incl. Connected Retail commissions
B2B service revenue	+	Zalando Fulfillment Solutions, Zalando Marketing Services, Tradebyte and Anatwine
Other B2C revenue	+	e.g. shipping fees, express delivery charges, Zalando Plus
Group revenue	7,982	IFRS standards, Zalando annual report 2020

1) After returns and cancellations, dynamically reported

Merchandise and service revenue – Segment view FY/20

1) Incl. dunning fees

Merchandise revenue in €m Service revenue in €m

Overview on Kinnevik's share distribution

Issued share capital

	Issued Share Capital	€255,253,304
	Total Number of Shares Outstanding	255,253,304
	Index Listings	MDAX
	Market Segment	Regulated Market (Prime Standard)
(AS OF DEC 31, 2020)	Stock Exchange	Frankfurt Stock Exchange
SHARE INFORMATION	Type of Shares	Ordinary bearer shares with no-par value (Stückaktien)

STOCK OPTION PROGRAMS MGMT BOARD (AS OF DEC 31, 2020) STOCK OPTION PROGRAMS SENIOR MGMT (AS OF DEC 31, 2020)

Program	# Options outstanding	Weighted average exercise price (EUR)
SOP 20111	74,800	5.65
SOP 20131	6,779,835	1.00
LTI 2018²	5,223,983	47.44
VSOP 2018	245,974	29.84
LTI 2019	682,533	17.79
Total	13,007,125	21.10

Program	# Options outstanding	Weighted average exercise price (EUR)
SOP 20141	806,649	23.12
EIP1	3,163,195	36.88
VSOP 2017	215,000	50.00
ZOP	914,900	23.84
Total	5,099,744	32.92

1) Settled with new shares

2) Only to 43% dilutive / to be settled with new shares, remaining backed by treasury shares

Zalando Investor Relations Team

Patrick Kofler Head of IR

Patrick.Kofler@zalando.de

Dorothee Schultz Junior Manager IR

Dorothee.Schultz@zalando.de

Nils Pöppinghaus Senior Manager IR

Nils.Poeppinghaus@zalando.de

Jan Edelmann Manager IR

Jan.Edelmann@zalando.de

Team Contact

T: +49 3020 9681 584 Zalando Tamara-Danz-Straße 1 10243 Berlin

investor.relations@zalando.de https://corporate.zalando.com/en

Disclaimer

Certain statements in this communication may constitute forward looking statements. These statements are based on assumptions that are believed to be reasonable at the time they are made, and are subject to significant risks and uncertainties.

You should not rely on these forward-looking statements as predictions of future events and we undertake no obligation to update or revise these statements.

Our actual results may differ materially and adversely from any forward-looking statements discussed on this call due to a number of factors, including without limitation, risks from macroeconomic developments, external fraud, inefficient processes at fulfillment centers, inaccurate personnel and capacity forecasts for fulfillment centers, hazardous material / conditions in production with regard to private labels, lack of innovation capabilities, inadequate data security, lack of market knowledge, risk of strike and changes in competition levels.