Jeronimo Martins improves, but remains in the red

Related tags Jeronimo martins Portugal

Disposal of various loss-making businesses has helped Portuguese
retailer Jeronimo Martins to reduce its debts in the first half,
but exposure to volatile economic conditions means a return to the
black could take some time yet.

Portuguese retail group Jeronimo Martins has ended the first half of 2002 with debts of just under €1 million, in line with its own programme of debt reduction but still leaving the company in a precarious position.

The frustration for the company is that its efforts to streamline the business and generate higher sales are paying off, but the level of its debts was so high that it is yet to really reap the benefit. The loss-making businesses such as the Lillywhites sports and leisure retailer in the UK, the Se supermarket chain in Brazil and Jumbo hypermarkets in Poland have all been sold, and the group's remaining businesses are performing in line with expectations.

Total group revenues for the half reached €1.97 billion, down 3.5 per cent in euro terms on the previous year. Most of this decline came from the Portuguese operations, which saw sales slide 5.5 per cent to €1.1 billion, while the international businesses registered just a 0.7 per cent slide to €841 million.

Biedronka, the Polish discount chain registered an excellent performance, with like-for-like growth reaching 18.1 per cent in the first half of the year and overall revenues increasing by 22.7 per cent, helped by a remodelling of the stores and price reductions. The Polish wholesale business, Eurocash, still has some way to go before it reaches optimal performance levels, but there was nonetheless a marked improvement during the half, particularly in terms of EBITDA margin.

Overall Poland would have played a more significant part in the financial performance of the company if not for the devaluation of the zloty, and the economic situation in Jeronimo Martins' domestic market also took their toll. Consumer confidence fell to the lowest ever level in the first half, the company said, but the various store formats operated by the group performed well in light of the difficult context.

Recheio, the group's cash & carry business, posted an excellent performance, with like-for-like sales up by 2.6 percent and EBITDA margin unchanged at around 6 per cent. For the Portuguese operations as a whole, which include Feira Nova hypermarkets and Pingo Doce supermarkets, EBITDA margin was 9.4 per cent of sales during the half, and the company said it was pleased with the recovery in turnover in the second quarter, especially in light of the moves towards eliminating low profit sales and reducing selling prices.

Net losses for the second half reached €177 million, due mainly to exceptional items relating to the sale of Jeronimo Martins Distribuicao Brasil (€80 million) and theSe business (€62 million). There was also a €30 million charge relating to investment in the Jumbo chain in Poland recently sold to Ahold.

Debt reduction remains the chief priority at the company in the second half, especially now that Se, the biggest loss maker, has been sold. While its remaining business looks decidedly more streamlined, the group's exposure to difficult economic conditions in Portugal and Poland will mean that the second half is likely to be as much of a struggle as the first.

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