Times have been hard for Portuguese retailer Jeronimo Martins in recent years, but the company's latest set of results indicate that its strategy of withdrawing from loss-making markets such as Brazil appears to be paying off.
Profits for the first half of 2003 were more than double those in the previous year at €17.1 million, despite a 15.9 per cent drop in sales to €1.64 billion, due mainly to disposals over the past 12 months.
But the group's ongoing businesses all posted healthy improvements in sales during the half, with the exception of the Polish unit, Biedronka, where sales were slightly lower than in 2002. Excluding the disposed units, sales were up 2.4 per cent for the half.
In JM's home market, total retail turnover increased by 6.3 per cent to €730 million, a good performance in light of the weak economic conditions there. At the Pingo Doce supermarket chain, turnover was up 7 per cent during the half, or 4 per cent on a like-for-like basis, with the repositioning of the chain over the last year clearly showing benefits.
At the Feira Nova hypermarket chain, sales were down 1.2 per cent in the half, despite a strong rally in the second quarter boosted by the late Easter and the opening of a new store. The company blamed intense competition, the slowdown in consumer spending and deflation for the decline.
The Recheio cash & carry business also registered sales growth during the half, up 4.8 per cent to €277 million, on the back of a 6.5 per cent gain in sales to the horeca sector.
JM also operates as a food manufacturer and distributor, and sales from this business were up 4.3 per cent to €160 million, helped by a good second quarter from the Iglo/Ola ice cream business (boosted by the heat wave which led to numerous fires across Portugal).
In Poland, Biedronka sales were 0.9 per cent lower at €454 million, although this was mostly due to exchange rate losses. Local currency sales were up 15.2 per cent on the back of a 12.5 per cent like-for-like improvement.
Jeronimo Martins main battle in recent years has been to reduce it high debt levels, although the seasonal nature of the group's business meant that first half debts were slightly higher than in December at €900 million. However, the disposal of numerous businesses over the last year has helped the company reduce its indebtedness considerably - interest expense in the first half was 43 per cent lower than the previous year as a result.
JM sold most of its underperforming businesses in 2001/02. The Jumbo hypermarket business in Poland was sold to Ahold, while the Eurocash business there went to a management buyout. In South America, the company sold its Se and Apoio stores in Brazil, and in the UK disposed of its Lillywhites business.
The second half will be key to determining whether JM's recovery can be sustained. With no improvement expected in the Polish and Portuguese economies, a good performance in the all important Christmas selling period is vital for JM, which said it remained confident that its efforts to improve efficiency and productivity would see it through.