Jerónimo Martins, SGPS, S.A.
Public Company
Consolidated Financial Statements
At 31 December, years 2003 and 2002 (With Report of the Statutory Auditors)
Registered with the Lisbon registrar of Companies under 8.122 Share Capital: 479.293.220 Euros - Corporate Tax No. 500 100 144 Rua Tierno Galvan, Torre 3, 9º , Letra J - 1099-008 Lisboa Jerónimo Martins, SGPS, S.A.
Table of Contents
Chairman’s Message Page 5
I. Jerónimo Martins Group Page 7 1. Group Profile and Positioning Page 7 2. Corporate Bodies Page 8 3. Business and Ownership Structure Page 10 4. Management Structure Page 11 5. Operational and Financial Highlights Page 12 6. Key Relevant Facts Page 17
II. Corporate Governance Page 19 Chapter 0. Declaration of Compliance Page 19 Chapter 1. Disclosure of Information Page 19 1.1. Organizational Structure and Sharing of Powers Page 19 1.2. Specific Company Committees Page 21 1.3. Risk Control System Page 22 1.4. Share Price Performance Page 23 1.5. Dividend Distribution Policy Page 27 1.6. Stock Option Plan Page 27 1.7. Business between Members of the Board and the Company Page 28 1.8. Investor Relations Office Page 28 1.9. Remuneration Committee Page 29 1.10. Amount of Annual Remuneration Paid to External Auditor Page 29 Chapter 2. Exercise of Shareholder Voting and Representation Rights Page 29 2.1. Statutory Rules on the Exercise of Voting Rights Page 29 2.2. Postal Voting Page 29 2.3. Electronic Voting Page 29 2.4. Requirements in terms of Deadline for the Deposit or Blocking of Shares Page 30 2.5. Required Deadline for Receiving Votes sent by Post Page 30 2.6. Number of Shares Corresponding to One Vote Page 30 Chapter 3. Company Rules Page 30 3.1. Code of Conduct and Internal Regulations Page 30 3.2. Measures Likely to Interfere with Public Tender Offers Page 30 Chapter 4. Board of Directors Page 30 4.1. Description of Board of Directors Page 30 4.2. Executive Committee Page 32 4.3. Structure and Role of Board of Directors Page 32 4.4. Remuneration Policy of Board of Directors Page 33 4.5. Remuneration of Members of the Board of Directors Page 33
2 Jerónimo Martins, SGPS, S.A.
III. Consolidated Management Report Page 34 1. Macro Economic Environment Page 34 1.1. World Economy Page 34 1.2. Portugal Page 34 1.3. Poland Page 34 2. Industry Outlook Page 35 2.1. International Food Distribution Market Page 35 2.2. Food Retail Market – Portugal Page 35 2.3. Wholesale Food Market – Portugal Page 36 2.4. Food Retail Market – Poland Page 36 3. Overview of Group’s Consolidated Activity Page 37 3.1. Consolidated Sales Page 37 3.2. Operational Results Page 38 3.3. Debt and Financial Results Page 40 3.4. Net Results and Cash Flow Page 41 3.5. Return Analysis Page 43 4. Operating Activity Page 44 4.1. Functional Areas of the Holding Page 44 4.2. Food Distribution - Portugal Page 50 4.2.1. Operating Divisions Page 50 4.2.2. Functional Areas of the Operation Page 53 4.3. Food Distribution - Poland Page 57 4.4. Manufacturing Page 58 4.5. Services Page 61 5. Group’s Investment Programme Page 62 5.1. Investment Page 62 5.2. Divestment Page 63 6. Outlook for 2004 Page 64 7. Events after Balance Sheet Date Page 65 8. Proposed Application of Results Page 65
Consolidated Management Report Annex Page 66 • Information concerning the shares held in the Company by Members of the Board of Directors and Statutory Auditor as at December 31st 2003 Page 66 • List of shareholders with qualifying shares as at December 31st 2003 Page 67 • Financial Glossary Page 68
3 Jerónimo Martins, SGPS, S.A.
IV. Social Responsibility Page 69 1. Code of Conduct Page 69 2. Human Resources Page 69 2.1. Recruitment Page 70 2.2. Working Conditions, Remuneration and Social Benefits Page 71 2.3. Training and Personnel Development Page 73 3. Food Quality and Safety Page 75 3.1. Distribution Page 75 3.1.1 Strict Control of Stores and Distribution Centres Page 75 3.1.2 Supporting Rigour in Production Page 76 3.1.3 Monitoring Rigour in Private Labels Page 76 3.1.4 Investing in Knowledge Sharing Page 77 3.2. Manufacturing Page 77 3.2.1. Investing in a Rigorous Quality System Page 77 3.2.2. Quality System Stages and Processes Page 78 4. Environmental Management Page 78 4.1. Environmental Policy Page 78 4.2. Main Environmental Impacts Page 79 4.2.1. Distribution Page 79 4.2.2. Manufacturing Page 79 4.3. Environmental Management Programmes Page 79 4.3.1. Distribution Page 79 4.3.2. Manufacturing Page 81 5. Patronage Page 84 5.1. Social Patronage Page 84 5.2. Cultural Patronage Page 87
V. Consolidated Financial Statements Page 88 1. Consolidated Financial Statements Page 89 2. Auditors’ Report Page 129
4 Jerónimo Martins, SGPS, S.A.
Chairman’s Message
Dear Shareholder,
It is with great pleasure that I begin by saying that 2003 brought back the success that for so long has characterised Jerónimo Martins. The decisions taken to solve the problems that had affected the Group over the last decade have proved to be the right ones and we can now look to the future with renewed optimism, strengthened by experience and by a common vision as to what we want and where we are going. This is the beginning of a new era for the whole Group and we wanted to mark it by renewing the corporate identity. The new Jerónimo Martins image, launched in 2004, is a symbol of a unified, dynamic Group governed by strict ethical principles of professionalism and transparency and one that implements socially responsible practices. A Group that relies on the capitalisation of its extensive experience and is fully aware that its place in the future can only be guaranteed by continuous improvement based on solid, clear values.
In 2003, Jerónimo Martins consolidated sales totalled 3,4 billion euros, with a net profit of 58,2 million euros, attaining an all-time peak in terms of cash flow. Operating cash flow totalled 289,6 million euros, corresponding to a 1.7 p.p. rise in the EBITDA margin. The decline in the total margin of the comparable portfolio by 0.5 p.p. was the result of the higher weight of Distribution in the sales mix, particularly of the Discount format, and also the huge competitive pressure in both Portugal and Poland.
This performance reflects the intense work developed and carried out at the operational level, in all Group Divisions and its functional support areas, an effort that clearly constituted the strategic focus.
In Food Distribution, the retail business in Portugal remained steady in a very negative economic environment, through continuing commercial aggressiveness and cost containment that was carried out for the second year running.
Pingo Doce increased sales by 2%, while Feira Nova, notwithstanding market contraction and the temporary closing down of a significant number of its stores for refurbishment, was able to contain the decline in sales at 0.1%. In terms of store sales, retail business in Portugal increased by 1.1%, the market position being maintained despite the reduced number of openings. An EBITDA margin of 10.1% was posted in spite of adverse market conditions.
The Recheio performance was quite remarkable, with substantial gains in the retail and “HoReCa” channels, strengthening its medium-term target to attain leadership in these markets in Portugal. By paying constant attention to cost management, and carrying out projects aimed at increasing growth in geographical areas of greater potential in the “HoReCa” channel, levels of efficiency rose again and operating cash flow (EBITDA) reached a new record high, with an increase of 1 p.p. (percentage of sales).
In Poland, Biedronka progressed at the aggressive pace set by the Group. In a year marked by the implementation of a new organisational structure, business fully responded to decision levels coming closer to the market, having achieved substantial market share gains with a growth in sales of 14% in local currency (12% in a like-for-like basis). Due to the continuous improvement in operational efficiency levels, the operating cash flow margin (EBITDA) advanced by 0.8 p.p., despite a drop in the total margin caused by the aggressive behaviour of the market.
Manufacturing and Services were favourably affected by the recovery of key markets such as olive oil, favourable weather conditions increased sales of ice cream and beverages, while constant attention was paid to the renewal of the personal and homecare product range. Catering performed excellently and all these facets combined to increase operating cash flow, showing an improvement of over 3% year-on-the year.
Having come this far, the important thing is not to forget the lessons learned over the last 15 years, a period during which Jerónimo Martins simultaneously underwent the biggest growth phase in its history and also its most severe restructuring process.
The decision to invest in the Food Market as a key area for the Group proved to be a complete success. After attaining leadership in Portugal, both in Manufacturing and Distribution, thanks to an ideal conjunction of activities in the wholesale and retail markets, Jerónimo Martins is today a top reference in this key sector of the national economy. The ability to build long-lasting relationships with international partners, conducted in an atmosphere of mutual respect and through a strategic rationale specific to the businesses in question, has always been one of our greatest strengths.
In 1995, the reasons that led us to move into external markets appear even stronger today than they did at the time. The natural limitations of the domestic market have, in fact, now been further exacerbated by restrictions to growth imposed by years of government-led market administration. Poland, however, has confirmed our option for the largest Central European economy, possibly the driving force in the entire European Union enlargement process, whether for political or economic reasons
The validity of our options was also revealed at the time of decisions in the disposal process that we had to undertake in 2001 and 2002, and it is further confirmed on a daily basis by the performance of Biedronka.
The Group has gained invaluable experience in eight years of intense international activity. We are now a stronger organisation, and one that places great emphasis on keeping control over its various operations. The mistakes made
5 Jerónimo Martins, SGPS, S.A.
during the growth and internationalisation process have also made us more resolute as regards decision making, both at the present time and in the future. We strongly believe in the need to build flexible structures, combining speed of reaction to market proximity. Our decisions are now more strongly founded on known areas, with a management team that combines older members with vast experience with a younger middle management generation that has had close contact with international business realities and intense competitive pressure.
Our track record in the discount format will enable us to face with confidence the challenge to deliver strong value- content proposals to the consumer. To this end, every necessary decision will be made to guarantee the highest levels of efficiency in any operating areas in our portfolio.
Poland is a firm, definitive investment. The position achieved in this market will be a fundamental growth driver for the Group as a food distributor. Every effort will be put into strengthening business conditions in the East and Southeast of Europe, where we believe there are opportunities to develop operations in areas where Group know- how and, in particular, skills developed in Poland will provide an important competitive advantage.
No medium-term growth strategy will be viable, however, unless business stability in Portugal is ensured. The strengthening of the Group position in this market will involve both Distribution and Manufacturing, aimed at addressing the changes in patterns of consumption in today's society.
Wherever we are, we will concentrate on the food market. We are now very confident as regards risk and opportunity assessment and clearly want to further optimise our capacities as food operators.
Finally, I would like to refer to the important progress made by Jerónimo Martins in 2003 in developing a policy of Social Responsibility as a continuance of work done over the past few years.
The Board of Directors is committed to Social Responsibility, for the Company must assume its role in society by becoming a pillar of reference for all its shareholders in these times of uncertainty and rapid social change, where we all have to modify our attitudes not only towards environmental problems, but also to the promotion of the entire development plan.
Today, we are more than ever aware that sustainable development is not an option, but the only way to ensure a promising Future, a course of action that entails strict responsible conduct at economic, environmental and social levels. Increasing concerns in the Social Responsibility area plus activities that have been developed over the last three years have led us to organise and formally adopt principles and policies to build focus, concentrate resources and lead the entire Organisation in this matter. The willingness and involvement of all our employees have been key factors in the success of some of the initiatives undertaken, reflecting the importance given to interaction with the community and reiterating Group philosophy, culture and values.
Last year, the Board of Directors formally approved the Jerónimo Martins Code of Conduct and Sustainable Development was established as the strategic driver for the food industry, thus reinforcing our earlier decision to join the World Business Council for Sustainable Development. We also joined COTEC Portugal, the Corporate Association for Innovation, as a founder member, and RSE, the Association for Social Responsibility in Corporations.
Our concern with Sustainable Development will increasingly be at the core of Group management decisions. It is our sincere belief that in the future there will only be a place for companies that, while delivering economic prosperity and generating value for consumers and shareholders, also integrate sustainability in their management practices and provide an ethically, socially and environmentally responsible attitude that generates value for the whole community.
This attitude will govern our business in interactions with various agents and in assessing the satisfaction of customers, shareholders, suppliers and employees, not forgetting supporting underprivileged groups, respecting environmental protection and guaranteeing food quality and safety.
As Chairman of the Board of Directors, I must say a word about the particular significance of this year. The position we hold at present resulted solely from the strength of the decisions taken, a strength shared both during the growth and during the restructuring phases. On one hand, this strength stems from the support given by all our shareholders, and, on the other, it comes from the exemplary effort of tens of thousands of Group employees. It is this strength that enables us to face the future with the same determination that led us to build all that we are today.
To all those who trusted us and in any way made it possible for us to implement our vision, I wish to express my personal esteem and thanks, and give you our assurance that Jerónimo Martins is committed to the intransigent defence of shareholder interests, and to the construction of a socially responsible economic Group.
E. A. Soares dos Santos
6 Jerónimo Martins, SGPS, S.A.
I. Jerónimo Martins Group
1. Group Profile and Positioning
Business The Jerónimo Martins Group has a balanced portfolio, combining the strength of the market positions held by the retail and wholesale operations in Portugal with the potential for growth of the Biedronka operation in Poland and the stability and ability to release cash flow from industrial assets held in partnership with Unilever. In Portugal, the Group operates retail and wholesale formats, leading the market of fast moving consumer goods distribution through Pingo Doce (Supermarket’s leader), Feira Nova (third Hypermarket operator) and Recheio (second Cash & Carry operator). In Poland, Biedronka is market leader in its format, clearly ahead of the competition both in the number of stores and brand awareness. Jerónimo Martins is also the largest industrial Group in Portugal manufacturing fast moving consumer goods, through its joint-venture with Unilever in FimaVG (food products), LeverElida (personal and home care) and IgloOlá (ice cream and frozen food) and retains leadership positions in olive oil, margarine, ice tea, ice cream and laundry detergents, among others. The Group portfolio also includes Jerónimo Martins Distribuição de Produtos de Consumo, a marketing and distribution services company representing, in Portugal, international brands of fast moving food products and cosmetics, some of which are leaders of their segment, Hussel (specialised retail of chocolates and confectionery) and Jeronymo (pilot-projects in specialised retail).
Mission Jerónimo Martins is an international group operating in food industry in the distribution, manufacturing and services sectors. Its aims are sustained development of its companies, operational efficiency and generation of value, acting on principles of integrity and social responsibility.
Strategic Focus To guarantee the sustainability of its current and future business and the return on its capitals, the Group relies on two factors: (1) offering strong value-content proposals and (2) building a solid relationship of trust with consumers, employees, business partners and institutions in general. Priority is given to consumer needs in conducting business to guarantee the consistent and systematic delivery of strong value-content proposals in each business, country and point in time in terms of price, quality and innovation. The conduction of business relies on dynamic and flexible organisations with the human resources to ensure the continuity of accumulated know-how and permanent adaptation to change. To this end, the Group has introduced management tools (strategic scorecard) and performance measures (EVA)1 to ensure that the organisation is focused on the strategic challenges, whether financial, market or efficiency related, and on the activities that truly add value. In the conducting of business, the Group upholds a rigorous, responsible behaviour at the economic, environmental and social level. Social responsibility is a sine-qua-non condition for the sustainability of its companies, namely in terms of Human Resources, Food Quality and Safety, Environmental Protection2 and Patronage. Jerónimo Martins has always been a standard reference in its sector and in the market in general, and believes that the pursuance of its strategic focus will ensure the delivery of strong value-content proposals to its Shareholders in the short, medium and long term. Jerónimo Martins’ shares have been listed on the stock exchange since 1989 and are included in the PSI 20 index. On 31st December 2003 there were 95,858,644 listed shares, with a free float of 26.14%.
Identity The eventful history of Jerónimo Martins dates back to 1792. In more than 210 years, the last decade has been particularly rich in experiences and learning. Today Jerónimo Martins is an international group, with a clear vision of its strategic focus. It is a cohesive, dynamic group, with modern, strict, ethical and transparent management practices aimed at a sustainable growth strategy. The strength and vitality of the Group is most clearly expressed in its capacity for renewal, and the renewal of the Jerónimo Martins corporate identity is yet another proof of the profound changes that are taking place. The new
1 EVA = Economic Value Added 2 Jerónimo Martins is member of the Portuguese Chapter of the World Business Council for Sustainable Development
7 Jerónimo Martins, SGPS, S.A.
corporate identity of the Group, introduced in 2004, reflects a new reality and embodies its solidity, rigour, professional excellence, ethics and transparency to reveal a cohesive, innovative Group. This identity reflects a Group that is prepared for a new phase in its history, ready and able to guarantee a stable, solid and lasting future.
Strategy The strategic focus of the Group is to consolidate its food business in Portugal within its profitability standards, to uphold the growth dynamics in Poland to top level efficiency standards, and to carefully and in due time assess new business opportunities directed at the sustainable growth of the Group.
2. Corporate Bodies
Election Date: 29th June 2001
Composition of the Board of Directors in 2003
Executive Members: Chairman and Managing Director Elísio Alexandre Soares dos Santos - Aged 69; - Chairman of the Group since February 1996; - In 1957 joined Unilever; From 1964 to 1967 worked as Marketing Manager at Unilever Brazil; In 1968 joined the Board of Directors of Jerónimo Martins as Managing Director, combining this position with that of Jerónimo Martins representative in a joint venture with Unilever.
Responsible for Food Distribution Operations Pedro Manuel de Castro Soares dos Santos - Aged 44; - Executive Member of Jerónimo Martins’ Board of Directors since 1995; - In 1983 joined the Pingo Doce Operations Division; In 1985 started working in the Sales and Marketing Department of Iglo/Unilever; In 1990 was appointed Assistant Manager of Recheio Operations; In 1995 was appointed General Manager of Recheio; Between 1999 and 2000 was responsible for operations in Poland and Brazil; In 2001 assumed responsibility for food distribution operations in Portugal.
Responsible for Financial Area Luís Maria Viana Palha da Silva - Aged 48; - Business Management Degree – Universidade Católica Portuguesa; Degree in Economics – Instituto Superior de Economia e Gestão; - Executive Member of Jerónimo Martins’ Board of Directors since 2001; - Assistant Professor at the Universidade Católica Portuguesa from 1985 to 1992; From 1987 onwards appointed to board of directors of several companies, namely Covina, SEFIS, EGF, CELBI, SOGEFI and IPE; Secretary of State for Trade from 1992 to 1995; Member of the Board of Directors of Cimpor from 1998 to 2001.
Non-Executive Members: António Mendo Castel-Branco Borges - Aged 55; - Degree in Economics – Universidade Técnica de Lisboa; PhD in Economics – Standford University; - Non-Executive Member of Jerónimo Martins’ Board of Directors since 2001; - In 1980 joins the INSEAD; Appointed Vice-Governor of the Bank of Portugal in 1990 and INSEAD Dean in 1995; Taught at Universidade Católica de Lisboa and Stanford University; Advisor to the USA Department of Treasury, the OECD and the Portuguese Government; Held various positions on the Board of Citibank Portugal, Petrogal, Vista Alegre Group, Paribas and SONAE, among others; Vice Chairman of Goldman Sachs since 2000.
Hans Eggerstedt - Aged 65; - Degree in Economics – University of Hamburg; - Non-Executive Member of Jerónimo Martins’ Board of Directors since 2001; - In 1964 joined and remained with Unilever; Among other positions, was Manager of Retail Operations and Ice Cream and Frozen Products in Germany, Chairman and CEO of Unilever Turkey, Regional Manager for Central and Eastern Europe, and Financial and Information and Technology Manager at Unilever; In 1985 was appointed member of the Board of Directors of Unilever N.V. and Unilever PLC, remaining in this post until 1999.
8 Jerónimo Martins, SGPS, S.A.
José Luís Nogueira de Brito - Aged 65; - Degree in Law – Faculdade de Direito da Universidade de Coimbra; - Non-Executive Member of the Board of Jerónimo Martins since 2001; - Appointed Under-Secretary of State for Labour and Social Security in 1969, and Secretary of State for Urban Development and Housing in 1972; Executive member of Jerónimo Martins’ Board of Directors from 1980 to 2001; Legal Consultant of Fima/Lever/Iglo from 1980 to 1998; Member of the Board of Directors of the Bank of Portugal in 1981 and Member of the Assembly of the Republic from 1983 to 1989; Elected Vice Chairman of the Portuguese Manufacturing Confederation in 1989; Chairman of the Portuguese Red Cross since 2003.
Rui de Medeiros d`Espiney Patrício - Aged 71; - Degree in Law – Faculdade de Direito da Universidade de Lisboa; - Non-Executive Member of the Board of Jerónimo Martins since 2001; - Assistant Professor in Faculdade de Direito da Universidade de Lisboa from 1958 to 1963; Appointed Under- Secretary of State for Overseas Development in 1970; Vice Chairman of Monteiro Aranha Group from 1976 to 1991; Subsequently has been on Board of Directors of several Brazilian companies, namely Monteiro Aranha, Masa-Alsthom, Hochtief, Ericson, Telesp Celular, Axa Seguros, and worked as advisor to Group Espírito Santo.
Substitute Member: Álvaro Troncoso
Single Auditor and External Auditor: Bernardes, Sismeiro & Associados, S.R.O.C., Lda. Represented by: José Manuel de Oliveira Vitorino, R.O.C.
Corporate Secretary: Henrique Soares dos Santos
Chairman of Shareholders’ General Meeting: Artur Santos Silva
Secretary of Shareholders’ General Meeting: António Neto Alves
9 Jerónimo Martins, SGPS, S.A.
3. Businesses and Ownership Structure
10 Jerónimo Martins, SGPS, S.A.
4. Management Structure Jerónimo Martins, SGPS, SA is the Group’s Holding Company. A number of functional areas are part of the Holding Company which is responsible for supporting and assisting the Executive Committee, the Board of Directors and all Group Societies on matters specific to each area – Human Resources, Development and Strategy, Planning and Control, Consolidation and Accounting, Internal Audit and Risk Management, Financial Operations, Fiscal Affairs, Legal Affairs, Communication and Security. There is also an area responsible for Special Projects and another responsible for the Board of Directors’ Assistance. Group business is divided in three key areas – Distribution, Manufacturing and Services. Distribution is divided into geographical areas – Poland and Portugal. The management structure in Portugal is organised under a “near-matrix”, with Business Divisions and Functional Divisions designed to maximise Group synergies in terms of scale, resources and know-how, and to ensure the requisite focus on the consumer and on business formats. The Business Divisions – Pingo Doce, Feira Nova, Madeira and Recheio, are responsible for category management, operations, marketing and technical areas and are supported by management control and human resources managers, who report to the head of the business division and functionally to the respective areas in the Holding Company. The Functional Divisions – Sourcing, Logistics, Quality Control, Financial and Information Systems – are grouped under Gestiretalho, a company that provides services to the Business Divisions in their respective areas of activity. The Business Divisions and the Functional Divisions are represented in the Executive Management Committee of Distribution, a body that coordinates strategic decisions for Distribution in Portugal and Poland.
11 Jerónimo Martins, SGPS, S.A.
In the Polish market, management structure is organised under an in-line model, with the head of the Business Division responsible for category management, marketing, operations, technical, human resources, logistics, financial, quality control and information systems. Manufacturing management structure also follows a “near-matrix”, being organised into Business Divisions and Functional Divisions, so as to maximise synergies in terms of resources and know-how and ensure the requisite focus on the consumer. The Business Divisions – FimaVG, LeverElida and IgloOlá – are responsible for sales, marketing, production and quality assurance and are supported by management control and human resources managers, who report in line to the head of the business area and functionally to the respective functional areas. The Functional Divisions – Human Resources, Supply Chain (which includes purchases, planning and logistics), Financial and Information Systems – provide services to the business divisions in their respective areas of activity. The General Managers of the Business Divisions and the General Managers of the Functional Divisions are members of the National Conference, the body that is entitled to coordinate the strategic decisions for the various manufacturing businesses. Services’ management structure is organised by business areas – JMD (which comprises the Food, Cosmetics and Caterplus divisions), Hussel and Jeronymo – all of which are under the same General Management. Each business area is responsible for sales, customer service and marketing in the case of JMD, and for operations, marketing and purchases in the case of Hussel and Jeronymo. Logistics, Financial and Information Systems are functional areas that provide services to JMD, Hussel and Jeronymo and all report to the same General Management. General Management accumulates responsibility for human resources, along with the functional area of Human Resources in the Holding.
5. Operating and Financial Highlights Group Operating Indicators Store Network Evolution
1999 2000 2001 2002 2003
Pingo Doce 173 189 190 192 190
Feira Nova 21 23 23 24 25
Recheio 29 30 32 34 33
Biedronka 579 589 621 638 672
Key Figures in Distribution
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EBITA Margin 2003 YE % sales
7,0% 6,4% 6,0%
6,0% 4,7% 5,0%
4,0%
3,0%
2,0% 1, 3 %
1,0%
0,0% Ret ail Port ugal * Cash & Carry M adeira B iedronka * % store sales
€' 000.000
Invested Capital 2003 YE
799 800 700 600 500 400 300 12 5 15 2 200 42 100 0 Retail P ortugal Cash & Carry M adeira B iedronka
PreTax ROIC
28,6% 30,0%
25,0%
20,0%
15,0% 11,0 % 10,8% 7,1% 10,0%
5,0%
0,0% Retail Portugal Cash & Carry M adeira Biedronka
Group Financial Indicators Sales and Services
€' 000.000
4.500 4.000 367 360 270 3.500 282 331 3.000 1.701 1.4 8 5 1.509 982 2.500 1.058 2.000 1.500 1.8 9 1 2.046 2.132 2.153 1.000 2.106 500 0 1999 2000 2001 2002 2003
Distribution Portugal Distribution other Countries M anufacturing & Services
13 Jerónimo Martins, SGPS, S.A.
EBITDA Margin
€' 000.000 % sales
4.500 3.915 4.200 9,0% 4.000 3.861 3.417 7,5% 3.500 3.280 3.000 6,0% 2.500 4,5% 2.000 1.500 3,0% 1.000 1,5% 500 0 0,0% 1999 2000 2001 2002 2003
Sales & Services EBITDA Margin
Pre-Tax ROIC
€' 000.000 %
2.000 18,0% 1.869 1.828 1.800 16,0% 1.627
1.600 1. 4 53 14,0% 1.400 12,0% 1. 18 0 1.200 10,0% 1.000 8,0% 800 6,0% 600 400 4,0%
200 2,0% 0 0,0% 1999 2000 2001 2002 2003
Average OIC EBITA Margin ROIC
Comparable* EBITDA Margin
14 Jerónimo Martins, SGPS, S.A.
Comparable* Pre-tax ROIC
€' 000.000 %
Comparable* Pre tax ROIC
1.300 1. 2 8 6 18,0% 1.280 1.262 16,0% 1.260 14,0% 1.240 12,0% 1.220 1. 2 0 7 10,0% 1. 19 0 1.200 1. 16 9 8,0% 1.180 1.160 6,0% 1.140 4,0% 1.120 2,0% 1.100 0,0% 1999 2000 2001 2002 2003
Avg. OIC EBITA Margin ROIC
* excluding Sé, Águas, Turismo, Lillywhites, Jumbo, JM &M and Eurocash but including Bakery and Diversey disposed in 2002.
Net Result and Cash Flow €' 000.000
245 223
195 16 7 16 8 13 9 145 13 3
95 58 45 25 -5 1999 2000 2001 2002 2003 -55 -64 -105 -87 -155 -205 -204 Net Result to JM Cash Flow *
* before Minority Interests
15 Jerónimo Martins, SGPS, S.A.
Balance Sheet
Associates
25.000
20.000
15.000
10.000
5.000
0 1999 2000 2001 2002 2003
Portugal Poland Brazil U.K.
16 Jerónimo Martins, SGPS, S.A.
6. Key Relevant Facts
Operations
January - Transfer of Leiria Recheio store to new location. - Refurbishing of Feira Nova store in Rio Tinto (closed 2 weeks). - Start of the operational restructure of Biedronka – division into four integrated geographical regions. February - Refurbishing of Feira Nova store in Valongo (closed 6 weeks). - Sale of Eurocash effective as of March 1st (Poland). April - Opening of new warehouse for fresh fish in Portugal (Azambuja). - Opening of Feira Nova Hypermarket in Odivelas (first store with graphic interface POS and with the new ElectricCo concept). - Opening of two Hussel stores (Odivelas Parque and Forum Montijo). - Closing of two Pingo Doce stores (Central de Francos and D. João V) to be transferred to new location. May - Launching of Pingo Doce campaign “More than 1,000 prices lowered” in Madeira. - Visit of financial analysts and journalists to Biedronka (stores and warehouses). June - JMR issues euro 115,000,000 bond loan. - Process of transfer to net price is concluded in Portugal. July - Opening of first Hussel-Olá store, at Forum Aveiro in partnership with IgloOlá. - Anniversary Campaign “30 years of Recheio”. - Launch of Pingo Doce private label TV campaign. - Signing of property transfer promissory contract for 4 stores operated by Irmãos Costa Pais, SA, under the Monteverde brand. - Closing of Pingo Doce Online (press release). August - Feira Nova innovates on textile management, through a joint venture. - Closing of two Pingo Doce stores (Estrada da Falagueira and Passos de Ferreira), to be transferred to new locations. - Refurbishing of Pingo Doce at Linda-a-Velha. September - JM, SGPS, S.A. places euro 25,000,000, 5 years commercial paper programme. - Launch of “100% Feira Nova” promotional campaign. - Refurbishing of Feira Nova in Caldas da Rainha (closed two months). - Launch of Pingo Doce’s advertising campaign “This is not a promotion; PD has really lowered its prices…”. - New Biedronka advertising campaign “Half of Poland buys at Biedronka. Come and see why”. October - JM, SGPS, S.A. issues euro 40,000,000 bond loan. - Opening of two Pingo Doce stores (Póvoa de Santa Iria and Damaia). - Refurbishing of Feira Nova in Loures (closed for one month). - Pingo Doce concludes introduction of the automatic restocking planning system (MRP) in all stores and all product areas. November - Biedronka consolidates position in Warsaw with 10 new stores. December - Pingo Doce campaign – accepting payments in escudos. - Closing of Pingo Doce store in Alcântara, for two years, to be re-opened in a new residential complex.
Social Responsibility
January - Introduction of environmental management approach, which includes the requirements, defined in Accounting Standard no. 29 “Environmental Matters”. - Introduction of productivity bonus in the distribution warehouses. - Performance appraisal system is extended to all non-management staff in FimaVG, LeverElida and IgloOlá.
17 Jerónimo Martins, SGPS, S.A.
March - Environmental awareness campaign on energy consumption. April - Introduction of productivity bonus in Recheio operations (Mainland and Madeira). - Implementation of water quality monitoring plan in the Stores and Distribution Centres. - Jerónimo Martins sponsors refurbishing of pediatric surgery ward Hospital Santa Maria. - Pingo Doce give financial support to Oceanário de Lisboa for 3 years. August - Renewal of NP EN - ISO 14001:1999 Vítor Guedes certification. September - Pingo Doce gets certification for its free-range chicken. - Start of Skip “Mão Amiga” fund-raising campaign to open a new home “Associação Novo Futuro”. October - Publication of Jerónimo Martins Code of Conduct. - Víctor Guedes plant obtains approval in Japan Institute of Plant Maintenance (JIPM), level I audit, and is awarded with respective prize for excellence. - Environmental awareness campaign on waste management. November - LeverElida launches environmental initiative under the motto “Lever – an open plant”. December - Accident Rate in Feira Nova falls by 20%. - Increase of 113% in audits and visits to suppliers of Perishables and Private Label and rate of returned articles in the warehouses dropping by 28%.
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II. Corporate Governance
Following the entry into force of the changes introduced by the Securities and Exchange Commission Regulation no. 11/2003 to Regulations no. 7/2000 and no. 07/2001 on the governance of listed companies, the Board of Directors of Jerónimo Martins SGPS, S.A. hereby presents the main guidelines followed by the Company on this matter following the reports of previous years.
In full compliance with the requirements of legislation regarding the disclosure of information, this chapter is organised into the following sections: (Chapter 0) Declaration of Compliance, (Chapter 1) Disclosure of Information, (Chapter 2) Exercise of Shareholder Voting and Representation Rights, (Chapter 3) Company Rules and (Chapter 4) Board of Directors.
Chapter 0. Declaration of Compliance
The Company fully complies with the Securities and Exchange Commission’s recommendations on the governance of listed companies.
However, it is our understanding that, in the light of the text in question, some of the recommendations are not fully respected in Company practice, namely as regards: