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The Year in Review

Message from the Chairman

Read the message of Pedro Soares dos Santos, Chairman of the Jerónimo Martins Group.
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"In a highly demanding landscape of global uncertainty, I believe it is important to highlight the performance of all our banners, which managed to increase their market shares in 2019."

Dear Stakeholders,

2019 was a year of global uncertainty, deepened by the crisis of multilateralism and intensification of the trend in social polarisation.

Escalation over the past two years of the trade war between the world’s two largest economies – US and China – has involved back-and-forth negotiations, but the constant uncertainly saw China post its slowest economic growth in nearly three decades. The global economy has also slowed down, with companies postponing investments. At the end of the year, the World Bank estimated that, if trade relations between the US and China deteriorate, supply chains could break, not only blocking the development of the most vulnerable countries, but also, in the worst-case scenario, pushing more than 30 million people into poverty worldwide.

The phase-one trade deal requires China to ease some of its tariffs and significantly increase purchases from the US, by buying more than 200 billion US dollars’ worth of industrial and agricultural products, energy and services by 2021. The deal also seeks to ensure greater protection for American technology and national security, in particular through greater scrutiny of Chinese technology and investments. This is a natural cause for concern in Europe, which also experienced economic slowdown.

On the other hand, the agreement keeps in place the tariffs the American Administration levies on Chinese goods, in the amount of 360 billion US dollars, threatening China with additional tariffs in the event of non-compliance. This international context, marked by tension and the imposition of unilateral decisions, limits free trade arrangements and, as such, hurts mostly low-income households, which are particularly affected by global economic threats.

Europe, where Jerónimo Martins has its two main markets, also faced growing concern around the uncertainty of Brexit, which was always front-of-mind. Elections held at the end of the year helped ease concerns, although the real impact of Britain’s withdrawal from the European Union remains unclear.

This withdrawal is expected to reinforce Poland’s political and economic importance, homeland of our Biedronka, in the heart of the European Union. Although in 2019 the country posted a slowdown in the economy compared to 2018, the pace of growth stood above 4%, with the weakness of the German economy partially offset by increased private consumption and an expansionary fiscal policy.

"Europe, where Jerónimo Martins has its two main markets, also faced growing concern around the uncertainty of Brexit."

In Portugal, whose economy is very open to the outside world, the slowdown is undeniable, and the country appears to be preparing for economic growth below 2% in the coming years. Not to mention the delay in structural reforms to reduce the burden of the State on the economy, ensure swift justice and prepare the country for the digital revolution underway.

In South America, another important market for Jerónimo Martins, 2019 was a year of political and social unrest. Tensions, which sometimes led to violent confrontations in the streets, affected several countries, from Chile – which is known to the world as being the most stable Latin American country and a prosperous economic nation –, to Bolivia, Ecuador, Peru, Paraguay and, to some extent, Mexico, which is battling a serious drug trafficking problem.

In Venezuela, where opposition leader Juan Guaidó declared himself interim president, Nicolás Maduro remained in power, fuelling uncertainty about the political direction of a country whose economy continues to deteriorate, driving millions of citizens from their homeland. It is estimated that some two million Venezuelans had fled to Colombia by the end of 2019, welcomed by the Government and the Colombian people. In the challenging climate in Latin America, and despite facing its own difficulties, Colombia today is one of the few countries in the region where the Rule of Law prevails.

In this highly demanding landscape of global uncertainty, I believe it is important to highlight the performance of all our banners, which managed to increase their market shares in 2019, demonstrating that following a precise strategy in the various markets where we operate is effective with consumers.

The Group’s total sales increased 7.5% to 18.6 billion euros, reflecting our ability to, once again, add more than a billion euros, 1.3 billion to be precise, to sales in the previous year.

In a year that marked the 30th anniversary of our listing on the Lisbon Stock Exchange and celebration of the significant value we have generated over these past three decades, we broke the billion-euro EBITDA barrier for the first time, which I believe is a major achievement. Indeed, consolidated EBITDA amounted to 1,045 million euros, up 8.9% year-on-year and above sales growth.

Net profit attributable to Jerónimo Martins increased 7.9% compared to 2018, which allowed us to deliver a pre-tax ROIC of more than 28%.

"In the year in which we celebrated the 30th anniversary of our listing on the Lisbon Stock Exchange, we broke the billion-euro EBITDA barrier for the first time."

These results are even more significant given that they were achieved in a year in which we increased the wages and benefits of our employees in the three countries.

In 2019, we invested 678 million euros, maintaining our position as an important investor in all of the countries where we operate. Of those, 32% were used for expansion, with the remainder channelled towards refurbishment projects and maintaining operations of our store networks and Distribution Centres.

In Poland, Biedronka implemented an investment plan of 388 million euros, adding 102 stores to its chain, thereby exceeding the target of 3,000 stores and ending 2019 with 3,002 locations, over 50% of which were opened or refurbished in the past five years.

In a country where the consumer landscape remained positive, with food inflation standing at 4.9%, Biedronka grew its total sales by 7.9% to 12.6 billion euros. This growth was driven by strong price leadership, intense and attractive promotions and a 5.8% increase in like-for-like (LFL) sales, which, together with focused management of the margin mix, allowed the Company to keep its EBITDA margin steady at 7.3%. With a contribution of 918 million euros to consolidated EBITDA, Biedronka remains the Group’s main profitability driver in a year which saw remarkable performance across the board, despite having an additional 13 fewer trading days, on top of the 21 days enforced in 2018.

For Hebe, 2019 will go down in history as the year in which it reached EBITDA breakeven point. Even with the impact of 13 fewer trading days, the Company increased sales significantly by 24.9% to 259 million euros, also as a result of having opened 46 new stores in 2019 and its e-commerce operation, rolled out in July, which contributed positively to boosting the banner’s popularity and competitiveness in the Polish market.

Pingo Doce and Recheio both increased their market share, with excellent performance in an economy with a low inflation rate, which is always a challenge for a business with very reduced margins, requiring continuous focus on its ability to be competitive and to offer innovative solutions to consumers.

For Pingo Doce, which posted 2.5% growth in LFL sales, it was a historic year in terms of EBITDA, which reached 200 million euros, 6.4% more than in the previous year and with the respective margin standing at 5.1%. Total sales increased 2.9% to 3.9 billion euros, reflecting the contribution of the nine stores opened in the year (four in the Pingo Doce & Go convenience format), which absorbed a portion of the 143 million euros invested by the Company in 2019.

Recheio exceeded the billion-euro barrier in total sales for the first time in 2019 (+2.7% compared to 2018), with a LFL growth of 3.2%. Part of the 25 million euros invested in the year was allocated to comprehensive refurbishment of the Aveiro store. The Company posted an EBITDA of 55 million euros, 4.6% more than in 2018, increasing the respective margin to 5.5%.

In Colombia, in a highly competitive market, Ara confirmed reversal of the downward trend in EBITDA losses, which totalled 62 million euros in the year, corresponding to a reduction, in euros, of 15% compared to 2018. This reduction in losses was achieved in spite of the investment of 98 million euros in 85 new stores and two Distribution Centres, and a reinforced focus on pricing to accelerate LFL growth, which, in 2019, stood at 17.6%. Total sales grew 37.9% in local currency, to which implementation of the new organisational model contributed very positively, giving the regions greater autonomy, flexibility and competitiveness.

The Group also continued to invest in Agribusiness, which increased production in the three business areas: dairy, aquaculture and Angus beef. With regard to the latter, I would like to highlight the animal welfare certifications obtained by our farms and the fact that we have implemented the highest standards for animal feed and management of animal health in all stages of their life cycles.

The results in the countries where we operate were achieved in an extremely competitive environment, in which we pushed ourselves to be better every day, focusing especially on sustainability issues insofar as we are well aware that the significant social and environmental challenges we face are a race against time.

Already in 2020, at the World Economic Forum in Davos, the global risk matrix was literally dominated by environmental risks, the top 5 risks in terms of likelihood and three in the terms of impact (natural disasters, biodiversity loss and climate action failure). Disclosure of the latest edition of the Global Risks Report coincided with publication of scientific data that indicates that the past decade was the hottest ever recorded on Earth.

This must drive us to act decisively and committedly. And it is what our Companies have been doing, as demonstrated by Jerónimo Martins being included in more than 60 international sustainability indexes, which recognise the companies with the best sustainability practices.

As I write this, we have just been told that we have entered the Top 50 of the 2020 Global Powers of Retailing ranking for the first time, a study conducted by international consulting firm Deloitte which lists the 250 largest retailers in the world. We rank 33rd among the food retailers and, if we consider only Europe, we come in 16th.

We have also received from the Carbon Disclosure Project an assessment that lists us as the only food retailer in the world to achieve a Leadership (A-) score in management of the four commodities associated with deforestation risk (palm oil, soy, wood and paper, and beef). This demonstrates that we take our commitment to reach “Zero Net Deforestation” by 2020, a goal set by the Consumer Goods Forum (CGF), seriously. With regard to climate change, less than one-third of the global retailers achieved the same level we did: A-.

"We are included in more than 60 international sustainability indexes, which recognise the companies with the best sustainability practices."

I, therefore, believe that we have every reason to be satisfied with what we achieved in 2019 on all fronts, and that we will face 2020 with the confidence needed to continue to do more and better.

I am sure that my father, who passed away last year, would be very proud of what we have accomplished together for this Group, the growth and leadership of which he devoted his life to.

To the employees of the Jerónimo Martins Group, I thank you for the competence, dedication and loyalty that helped us achieve another year of success, and the inner strength you showed in what was also an emotionally difficult year.

On a personal note, I would like to thank the shareholders for placing their trust in management, in particular the majority shareholder, the family that I represent and whose support, which we will always endeavour to earn, has been truly fundamental.

Finally, I would like to express my appreciation for my colleagues on the Board of Directors, Specialised Committees and the Managing Committee of the Group. Their knowledge, experience and commitment have allowed me to make better decisions and add significant value to the collective work that is the secret behind the successful results disclosed in following pages of this report.

Pedro Soares dos Santos

Chairman and Chief Executive Officer

Note: To ensure direct comparison, references to the results of the Group and its subsidiaries do not incorporate the effect of the adoption of IFRS16.

2019 in review

This was a year of growth, in which we achieved record sales and strengthened market shares.

What we did

Know the main indicators that demonstrate the Group’s performance over the last year.

How we make a difference

Get to know our 2019 initiatives in the sustainability area.

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For more detailed information, you can download the Group's Annual Report, in full or by chapter.