Seminar work

Analysis of Jerónimo Martins

ISAG Leila Inštitorisová

Contents

1 IDENTIFICATION AND CHARACTERIZATION

1.1 Jerónimo Martins in general1.2 History and origins1.3 The role1.4 What the group represents1.5 Mission and strategy

1.5.1 Mission1.5.2 Strategy

1.6 The management structure2 THE FINANCIAL STATEMENTS

1 IDENTIFICATION AND CHARACTERIZATION

1.1 JERÓNIMO MARTINS IN GENEREAL

Jerónimo Martins is a Portugal-based international Group operating in Food Distribution,

Food Manufacturing, and Services sectors. It operates around 2,800 stores in Portugal,

Poland, and Colombia. The group is the majority owner of Jerónimo Martins Retail, which

operates the Pingo Doce super- and hypermarket chain in Portugal. Jerónimo Martins is

listed on Euronext Lisbon, under the code JMT, and is part of the PSI-20 index.

1.2 HISTORY AND ORIGINS

Throughout the years 1792-1918 a young Galician, Jerónimo Martins, came to Lisbon in

search of better times, opening his small store in the Chiado. In 7 years from 1792 he

became the main supplier of the Royal Household, of most of the embassies in Lisbon and of

the ships sailing into the Tagus. A new product was to enhance the store's shelves: olive oil

produced in Vale de Lobos by the writer, historian and politician Alexandre Herculano.

In the last year of World War I, the cost of living in Portugal increased, the food supply was

disrupted and unemployment increased. Jerónimo Martins also experienced difficult times.

During the World War II years, margarine becomes an essential product and it will be the

protagonist of a strategic turning point in the Group's business. The entry of the Group into

manufacturing was confirmed by the joint venture with the multinational Unilever, whose

products had been marketing since 1926. Unilever Jerónimo Martins entered the business of

manufacturing and distributing ice creams.

The current Chairman of the Board of Directors, Alexandre Soares dos Santos, took charge

of the family business after the death of his father in 1968. In 1978 Setting up of the Pingo

Doce company, which began to operate in 1980, and the definition of a clear strategy to

explore the supermarket segment.

The year marked the return of Jerónimo Martins to its original activity: distribution. This

operation was achieved by the creation of an extensive network of large supermarkets that

was rapidly developed. In a few years Jerónimo Martins became a holding company and

established a strategic partnership with the Delhaize Group "Le Lion" for the development of

Pingo Doce.

In 1992 the Group celebrates its 200th birthday and repositions itself strategically.

The strategic repositioning of Jerónimo Martins was revealed by the acquisition from

Delhaize "Le Lion" of its stake in the Group's retail business.

In 1995 was international expansion of the Group into Poland.

Expansion into Poland started with the acquisition of the Polish cash & carry network

Eurocash, once again in a joint action between Recheio and the British Booker company.

The Biedronka project was launched. Two years later and the Group expanded in Brasil. Just

one year later after the Group expanded in Brasil, it strenghtened its positions in the

wholesale market and launched the first online supermarket in Portugal.

Since 2007 there is an agreement for the purchase of the Plus chain in Portugal and Poland.

Opening of the thousandth Biedronka store.

2007 confirmed Jerónimo Martins's leading position in the Portuguese business landscape.

With sales growing to more than 5.3 billion euros, the Group demonstrated the success of

the strategies defined and of a balanced management of its resources.

Since 2013 In Colombia, the first Ara stores and the first Distribution Centre were

inaugurated on 13th March. The Group's new tiendas de barrio banner ended the year with

36 stores.

1.3 THE ROLE

The Jerónimo Martins Group is a food specialist that operates in three different areas:

Distribution, Manufacturing and Services. The Group operates in Distribution, through Pingo

Doce, Recheio, Biedronka and Ara, and in Manufacturing, through its holdings in Unilever

Jerónimo Martins and in Gallo Worldwide. Its business portfolio also includes an area that

covers marketing, representation and restaurant services.

1.4 WHAT THE GROUP REPRESENTS

The Group has a business portfolio focused on food in Portugal, Poland, and recently in

Colombia. This portfolio also comibines the retail (Portugal, Poland, Colombia) and

Wholesale (Portugal) operations with manufcturing assets of Unilever Jerónimo Martins

(Portugal).

1.5 MISSION AND STRATEGY1.5.1 MISSION

The mission of the Jerónimo Martins Group is to satisfy the legitimate interests of

Shareholders through a strategy focused on value creation and sustainable development.

Jerónimo Martins is a Portugal-based international Group operating in Food Distribution and

Food Manufacturing, with a view to satisfying the needs and expectations of its stakeholders

and the legitimate interests of its Shareholders in the short, medium and long term, while

simultaneously contributing towards the sustainable development of the regions in which it

operates.

1.5.2 STATEGY

The Group's strategic guidelines for value creation are based on four aspects:

1. Continuous reinforcement of the balance sheet strength

2. Risk management in asset value preservation

3. Maximization of economies of scale and synergies

4. Promotion of innovation and a pioneering spirit as factors of development of competitive

advantages 

These four aspects aim to achieve the following strategic objectives:

To achieve and consolidate a leading position in the markets in which it operates

To build and develop strong and responsible chains and brands

To ensure the balanced growth of its business units in terms of both sales and profitability 

In the pursuit of these objectives, the activities of the Group Companies are oriented towards

the following lines of action:

Increasing price competitiveness and the value proposition

Improving operational efficiency

Incorporating technology updates

Identifying opportunities for profitable growth

The Group's strategic orientation is also based on the incorporation of environmental and

social concerns in the management of the value chain, in order to promote the sustainable

development of the regions in which it operates and of surrounding communities.

In this context, we assume five priority commitments that form a framework for the pursuit of

our activities:

Promoting Health through Food

Respecting the Environment

Buying Responsibly

Supporting Surrounding Communities

Being a Benchmark Employer

 

In pursuing these commitments, the Group seeks to integrate cross-cutting guidelines for its

activities into the processes and culture of its Companies, at various levels and with its

various stakeholders:

Developing Private Brand product ranges of great nutritional quality and flavour and with a

high level of food safety

Minimising negative environmental impacts resulting from its activities

Preferring, whenever possible and on equal terms, to buy on a local/national level and to

develop lasting commercial relationships

Supporting the fight against hunger, malnutrition and social exclusion in 2 priority target

groups: children/young people and the elderly

Promoting fair and competitive salary policies, the development of capital human and

improvements in working conditions

1.6 THE MANAGEMENT STRUCTUREThe management structure is led by the Board of Directors, comprising its Chairman and

Chief Executive Officer and ten Directors. The Managing Committee supports the CEO in the

day-to-day management of the Company's business.

The Structure also includes Functional Departments, which provide support and advice to the

Board of Directors, to the Managing Committee, to the Audit Committee and other

specialized Committees and to the other group companies, on issues specific to each area.

2 Financial statements analysis

Financial statements represent a formal record of the financial activities of an entity. These are written reports that quantify the financial strength, performance and liquidity of a company. Financial statements reflect the financial effects of business transactions and events on the entity. The three main statements are Balance sheet, Income statement and Cash flow statement. Further are described financial statements of Jerónimo Martins.

2.1 Balance sheet

In 2015, Jerónimo Martins Group’s Net goodwill was in amount of 640 million euro, which is the same amount as in 2014. Net fixed assets were in 2015 in amount of 3,060 million euro, which means they declined from the previous year, in which the amount of net fixed assets was 2,940 million euro. The total working capital raised from -1,778 million euro to -2,001 million euro. The total wotking capital has been rising since 2011.

The invested capital is 1,780 million euros, which means it has declined since 2014, from 1,912 euros. The net debt is now 187 million euro, which diclined from 2014, when it was 273 million euro. The net debt contains totall borrowings, leasings, accured interest and marketable secuirities and bank deposits.The total borrowings also declined from 273 million euro in 2014 to 187 million euro in 2015 as well as accrued interest from 4 million euro in 2014 to 0 euro in 2015.The non controlling interest are in amount of 187 million euro in 2015. It declined from 243 million euro in 2014.The equilty also declined from 1,396 to 1,342 million euro, in 2014 to 2015. The share capital maintained the same in comparison of 2015 and 2014. Reserves and retained earnings declined in difference of 55 million euro and shareholders funds declined in difference of 46 million euro.

In the chart below, we can see more details about the balance sheet.

Share Capital 629 629Reserves and Retained Earnings 712 767Shareholders Funds 1 593 1 639

2.2 Income statement

The total consolidated sales raised by 8.3%, from 12,680 million euro to 13,728 million euro in 2015. In 2014 the total margin was 2,692 million euro; in 2015 the total margin was 2,937 million euro. It raised by 9.1%. EBITDA in 2014 was in amount of 733 million euro and in 2015 it raised by 9.1% to 800 million euro. The EBIT in 2014 was 457 million euro and it rose by 10.7% to 505 million euro. EBIT contains financial results, profit in associated companies and non recurrent items (which include the exceptional operating losses and others

investments). The financial results raised by -22.8% from -34 million euro to -26 million euro and the profit in associated companies rose by 2 million euro from 2014 to 2015 by 9.4%.

The EBT rose by 10.7% from 429 million euro to 475 million euro. The total net income in 2015 was 358 million euro; in 2014 it was 325 million euro, which means the total net income raised by 10.2%.

The operating costs declined from -1,958 million euro to -2,138 million euro, which means by 9.2%.

In the chart below, we can see more details about the income statement.

2.3 Cash flow statement

Cash flow is the net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, pay expenses and provide a buffer against future financial challenges. Negative cash flow indicates that a company's liquid assets are decreasing.

Cash flow generated in 2015 reached 482.2 million euro, 215 million euro more than the previous year.

The positive cash flow performance can be a result of the solid sales performance, very strict execution of the improvements to Biedronka’s assortment, capex efficiency in Poland and Colombia or strong working capital management.

In the view of the cash flow generated, and on the proposal of the Group’s board of directors, the distribution of free reserves in the sum of 235.7 million euro was approved at the extraordinary general shareholders‘ meeting that was held in December 2015.