JM confirms profit rebound

Related tags Cent Portugal

Jeronimo Martins, the Portuguese supermarket group, ended 2003 with
a return to profitability as the results of its restructuring
programme begin to be seen. But with market conditions still
expected to be tough in 2004, sustaining this growth could be hard,
writes Chris Jones.

JM has sold off a number of its least-profitable businesses over the last few years, and this has taken an inevitable toll on sales at the company. Turnover for the year was down 13 per cent at €3.4 billion, but the company stressed that like-for-like sales showed a solid 2.5 per cent gain - a performance which it classified as "remarkable"​ given the poor economic conditions

But while sales declined, there was significant improvement at the profit level. A 40 per cent drop in interest payments due to further reductions in the group's debt levels - a perennial cause for concern - combined with tighter cost control and improved margins, helped lift operating profits by 9.6 per cent to €289.6 million.

But the biggest gain came in net profits, which rose by a massive 128.5 per cent from losses of €204 million in 2002 to €58.2 million, mainly due to far lower exceptional charges in 2003 and the significant losses on disposals made in the previous year.

The Portuguese retail environment remained highly competitive in 2003, but JM's three fascias there all put in good performances, allowing the group to lift total sales there by 2.7 per cent year-on-year to €3.7 billion. The Pingo Doce chain focused primarily on keeping prices competitive and this paid off with a 2 per cent rise in sales, while the Recheio cash & carry unit saw its turnover grow 4.7 per cent, driven by increased sales to the horeca channel.

The Feira Nova chain saw flat sales in 2003, but JM said that this was a better-than -expected performance from the unit given the competitive pressures in the market and the loss of business while four stores were closed for refitting.

JM's Polish performance was even more impressive, given the tough market conditions, with sales ahead 14 per cent in local currency terms to €925.3 million, although this was only 0.1 per cent higher in euro terms as a result of the weakness of the zloty against the European currency.

Maintaining the growth in profitability in 2004 will not be an easy task, however, despite a predicted upturn in the Portuguese economy. The company said it expected an increase in unemployment and restrictive wage policies to have a major impact on consumer spending power, making price competitiveness more vital than ever.

With this in mind, the group said it would take further efforts to reduce costs in 2004, as well as stepping up the pace of expansion and store remodelling, helped by a relaxation of the planning laws which it said should make it easier to build new stores in Portugal. The company said it also hoped to raise further cash for expansion via a capital increase of €150 million.

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