ANNUAL REPORT 2004web3.cmvm.pt/sdi2004/emitentes/docs/PC5710.pdf · Annual Report’04 – Introduction 6 Jerónimo Martins is a Portuguese Group of relevant size with turnover in

ANNUAL REPORT 2004

Jerónimo Martins, SGPS, S.A. Public Trade Company

Registered with the Lisbon registrar of Companies under 8.122 Share Capital: EUR 629.293.220 Corporate Tax No. 500 100 144

Rua Tierno Galvan, Torre 3, 9º, Letra J 1099 - 008 LISBOA

Table of Contents

3 Chairman’s Message

I. Introduction 6 1. The Group’s Strategic Profile

10 2. Operating and Financial Highlights

14 3. Corporate Bodies

17 4. Businesses and Ownership Structure

19 5. Management Structure

II. Corporate Governance 22 0. Declaration of Compliance 23 1. Disclosure of Information 46 2. Exercise of Shareholder Voting and Representation Rights 48 3. Company Rules 49 4. Board of Directors

III. Consolidated Management Report 56 0. Relevant Facts to 2004 58 1. Macroeconomic Environment 61 2. Sectorial Environment 64 3. Overview of the Group’s Consolidated Activity

75 4. Food Distribution - Portugal 87 5. Food Distribution - Poland 90 6. Manufacturing 96 7. Representation and Marketing Services 100 8. Human Resources 101 9. Simplification of Internal Management Processes 105 10. Group Investment Programme 108 11. 2005 Outlook 111 12. Events after Balance Sheet Date 112 13. Proposed Application of Results 113 14. Consolidated Management Report Annex 115 15. Financial Glossary 116 16. Contacts

IV. Social Responsability 119 0. Relevant Facts to 2004 121 1. What does Corporate Social Responsibility Mean for Jerónimo Martins? 122 2. Corporate Ethics 123 3. Human Resources 140 4. Quality and Food Safety 149 5. Environmental Management 162 6. Patronage 169 7. Frequently Asked Questions

V. Consolidated Financial Statements 175 1. Consolidated Financial Statements 218 2. Auditor’s Report

VI. Individual Financial Statements 223 1. Management Report 231 2. Financial Statements 264 3. Auditor’s Report 268 Excerpt of The Annual General Meeting Draft Minute

Annual Report’04

3

Dear Shareholder, In 2004 another step was taken in the construction of an increasingly strong Jerónimo Martins, prepared to face the future with confidence and determination. Following the restructuring process initiated in 2001, and remaining true to the guidelines then established, Jerónimo Martins pressed forward with the improvement of its governance structure: the number of members of the Board of Directors was increased to nine with the inclusion of two non-executive members and the segmentation of functions of Chairman of the Board of Directors and Chief Executive Officer. I would like to share with you my satisfaction regarding the smoothness and total absence of conflict or friction in the implementation of this new structure, the way it was naturally accepted by all the Group’s senior executive, and also the excellent institutional relations between the Board and the Executive Committee. The segregation of the functions of Chairman of the Board and Chief Executive Officer requires a clear and objective definition of each one’s responsibilities, in order to avoid misunderstandings arising from potential overlaps. I firmly believe that the function of Chairman of the Board should lie in the definition of strategy and the outlining of medium and long term plans and not in their implementation, which should be the exclusive responsibility of the Executive Committee. Jointly with this organisational restructuring and the accomplishment of the plan established in mid-2001 to strengthen Jerónimo Martins balance sheet, a share capital increase by 150 million euros was successfully carried out at the end of the first half of 2004, with demand more than doubling supply. This capital increase was fully subscribed by our reference shareholders, who have thus shown their commitment to the Company and their confidence in the outlined strategy and in the way it has been implemented. This operation allowed the Group to reinforce its equity and hence improve its investment capacity, making it possible to embark on a new investment cycle both in national and international markets, accelerating the expansion programme in Poland and exploring new opportunities for growth in Eastern European markets. The result of this restructuring and the best evidence that the steps taken were the right ones, despite the unfavourable economic conditions, is the 59% increase, to 92.5 million euros, in the consolidated net profit attributable to Jerónimo Martins and the fact that debt was reduced by more than 100 million euros, placing gearing at 108%. These results could not have been achieved without the active participation of all our stakeholders and, above all, our employees, who understood the challenge, faced by Jerónimo Martins and knew how to accept and overcome it. In my own name and on behalf of the Board of Directors, I would like to express my profound thanks and recognition of a job well done. From the operations standpoint, 2004 was equally rich in meaningful events for the Group’s future development. This was the year that confirmed the winning strategy adopted by Pingo Doce in order to adapt to the new requirements of consumers and increasingly competitive markets. The enlargement of the European Union to 25 countries and the large number of Eastern European countries among new members, namely Poland, opened up new prospects of

CHAIRMAN’S MESSAGE

Annual Report’04

4

development for the region, in particular for the Biedronka retail stores chain. Being the leader of its segment in the Polish market, Biedronka has gained positive ground in the past eight years and continues to grow at a good but safe pace. In the manufacturing area, despite a performance that did not quite reach the levels to which we were accustomed, namely in detergents, I would like to stress the integration of BestFoods in the joint venture, a move that will propel the growth of the Jerónimo Martins Group in a major business area and reinforce its position as one of the largest companies in the Portuguese food manufacturing market. This moment was taken advantaged of by the Group to restructure its position in the joint venture that will adjust from a 60% stake in FimaVG business to a 51% interest in the entire business of FimaVG/BestFoods. The participations held in LeverElida and IgloOlá remain unchanged. For the next year we anticipate a return to the pace of growth we were used to seeing in this group of companies. For all that happened in 2004 and although signs of an economic recovery are still weak, the Jerónimo Martins Group again has everything in place to initiate a new growth cycle, having already proven in the past it has the capacity and the financial and human resources to do so. The new licenses shortly to be granted in Portugal and the consolidation of the European Union’s enlargement, while requiring the Group’s close attention to new opportunities so as to take all possible advantages, also open up encouraging prospects for resuming the growth cycle in 2005. To achieve this goal, we rely on the support of our Shareholders and all our employees.

I. Introduction

6 1. The Group’s Strategic Profile

10 2. Operating and Financial Highlights

14 3. Corporate Bodies

17 4. Businesses and Ownership Structure

19 5. Management Structure

Annual Report’04 – Introduction

6

Jerónimo Martins is a Portuguese Group of relevant size with turnover in 2004 of euro 3.5 billion, employing some 29 thousand people. Its international business accounts for 30% of sales and 41% of the workforce. The Group has a balanced business portfolio that combines 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 maturity and ability to release cash flow from industrial assets held in partnership with Unilever. In Portugal, the Group operates three different formats, having a prominent position in Food Retail under the brands Pingo Doce (190 stores, and national leader in the supermarket format), Feira Nova (28 hypermarkets, with a strong nationwide presence) and Recheio (32 stores and 2 Food Service platforms, being the top cash & carry player in the country). In Poland, Biedronka is the undisputed leader in its format, with a clear advantage over the competition, both in number of stores and in brand awareness. In 2004 the chain reached 320 million purchasing acts and invoiced sales of one billion euros, closing the year with 725 stores. 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), holding leadership positions in olive oil, margarine, ice tea, ice cream and fabrics cleaners, 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 selective cosmetics, some of which are leaders of their segment; the specialised retail chain Hussel, with 17 chocolate and confectionery stores; and Jeronymo, with 14 specialised coffee retail shops.

1. THE GROUP’S STRATEGIC PROFILE


7

HISTORICAL LANDMARKS

1792 1944

1949

1970

1980

1995

Jerónimo Martins is listed on the Stock Exchange and its shares enter a decade of

consistent and considerable appreciation.

2000

2001

2002

2003

Return to profits, pursuing management dynamics.

1989

Establishment of a joint venture with Unilever, in Portugal, to develop industrial know-how and enter the market of fast moving consumer goods. Initially including only Fima,the joint venture was subsequently extended to Lever (soap and detergents), Olá (icecream) and Iglo (frozen products).

Strong bet on the Food Distribution sector, with fast moving consumer goods (Pingo Docesupermarkets; Feira Nova hypermarkets; Recheio cash & carry; expansion ofsupermarkets to Madeira with Lidosol; and representation and marketing services, withJMD) and on Specialised Retail (Hussel – chocolates and confectionery stores). Expansionachieved through organic growth and acquisitions, backed by strategic partnerships(Delhaize, for Pingo Doce; Ahold, succeeding Delhaize in Pingo Doce partnership andsiding with Jerónimo Martins in the hypermarkets business; Booker, for Recheio; andDouglas, for Hussel).

Financial restructuring: the Group sells the businesses outside its core activity andreduces the level of indebtedness. Operating restructuring to capitalise on scale andsynergies group-wide, simplify processes and cut costs, while simultaneously focusing theoperating units on the commercial dynamics of their specific market segments.

International expansion to Poland (hypermarkets, retail stores and cash & carry), Brazil(supermarkets) and the UK (sportswear chain).

Jerónimo Martins opens a fine grocery store in Chiado, in downtown Lisbon.

Start-up of Fima plant (manufacturing table oils).

Diversification of the business portfolio into retail banking, under a joint venture withBCP, and participation in TMT (Oniway). Entry in to the Water and Tourism business.


8

The Jerónimo Martins Group has been a pioneer in Portuguese corporate life at various levels: among other achievements, it was the first company in Food Distribution in Portugal to: adopt the International Accounting Standards/International Financial Reporting Standards (IAS/IFRS); implement a Business To Business (B2B) platform in supplier relations; initiate a certification process in Food Safety; and launch a Food Service platform. On the market side, the Group also came forward with innovative initiatives: it launched private labels to be carried throughout is various Food Retail companies – maximising scale and supply – and considerably increased the assortment of selected perishables, which are controlled at source and identified with each company’s brand as a guarantee of Quality and Food Safety. Mission Jerónimo Martins is a Group with international projection that operates in food distribution and manufacturing with a view to satisfying the legitimate interests of its shareholders, as well as contributing to economic growth and to the sustained development of the regions where it operates. Within the scope of its mission, these are the Group’s objectives:

• To promote maximum operating efficiency across all business areas so as to optimise the results generated through its financial, material and human resources;

• To guarantee customer loyalty and maximum satisfaction and to improve

the quality of life of its customers through a firm commitment to innovation and the offer of the best quality/price ratio in its products and services;

• To ensure that the entire Organisation acts to the highest standards of

conduct and of social responsibility, building relationships of trust with all the Group’s stakeholders;

• To conduct the business through dynamic and flexible organisations endowed

with strong human capital, capable of allying accumulated experience and know-how to the permanent need for change, and promoting continuous training and modern management practices to guarantee that the whole organisation is aligned to the strategic challenges and the activities that are true generators of value.

Identity A long-standing benchmark in its sector of activity and in the market in general, Jerónimo Martins has a history that dates back more than 210 years, built upon a huge diversity of events, experiences and learning. This gives the Group its solidity and capacity for change that are mirrored in the strength and vitality for which it is renowned. The renewal of Jerónimo Martins corporate identity carried out in 2004 demonstrates and symbolises the deep change that has been instigated in the Group. This renewed corporate identity embodies the new reality of Jerónimo Martins and the three core values that are key to its corporate culture and positioning vis-à-vis the market:


9

1. Rigour of Management, which ensures...

● an adequate analysis of macroeconomic, sector and market trends; ● the definition of strategic priorities and strategic course of action; ● that clear and demanding objectives are established and conveyed; ● an adequate control and correct critical assessment of results.

2. Permanent Innovation, which stimulates...

● a pioneering role in management processes and practices; ● dynamism and leadership in the market.

3. Transparent Policies, which promote.....

● priority in the defence of shareholders’ interests; ● the Organisation’s ethical conduct vis-à-vis all stakeholders; ● an objective assessment of the employees with regard to their performance

and professional development; ● social responsibility as a strategic option; ● a bet on strategic partnerships in the markets and regions where it operates.

Jerónimo Martins is, today, a solid and cohesive group, with a clear vision and an organisation focused on professional excellence, prepared to build another stage in its already long history, towards a stable, solid and long-lasting future.


10

2. OPERATING AND FINANCIAL HIGHLIGHTS

% €' 000.000

3.9154.200

3.861

3.417 3.495

5,3%

6,2%6,8%

8,5% 8,7%

2,3%2,8%

3,6%

5,5%5,9%

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

2000 2001 2002 2003 20040,0%1,0%2,0%3,0%4,0%5,0%

6,0%7,0%8,0%9,0%10,0%

Sales & Services EBITDA Margin EBITA Margin

EBITDA and EBITA Margin

1.869 1.828

1.453

1.180 1.160

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

2000 2001 2002 2003 20040,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

Average OIC EBITA Margin ROIC

€' 000.000 %

Pre-Tax ROIC

% €' 000.000

* excluding Sé, Águas, Turismo, Lillywhites, Jumbo, JM &M and Eurocash but including Bakery and Diversey disposed in 2002

1.2861.190 1.169 1.1601.262

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

2000 2001 2002 2003 20040,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

Average OIC EBITA Margin ROIC

Comparable* Pre-Tax ROIC

2.046 2.1702.1532.1062.132

1.509 1.701 1.065982

1.485

360367

259282

270

0500

1.0001.5002.0002.5003.0003.5004.0004.500

2000 2001 2002 2003 2004

Distribution Portugal Distribution other Countries M anufacturing, Services and Others

Sales & Services


11

-59-73

-184

82

131139 133

168

223247

-205

-155

-105

-55

-5

45

95

145

195

245

2000 2001 2002 2003 2004

Net Results Cash Flow *

€' 000.000

Net Results and Cash Flow

* Before minority interests

1.212

837715

612

1.536

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2000 2001 2002 2003 20040,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

Debt Debt/EBITDA Debt/Equity

Debt


12


13


14

Election date: 15 April 2004 Composition of the Board of Directors elected for the 2004-2006 mandate

Chairman of the Board of Directors Elísio Alexandre Soares dos Santos

• aged 70; • 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 the joint venture with Unilever until 2000.

Executive Members of the Board of Directors:

CEO and Responsible for Financial Area (CFO) Luís Maria Viana Palha da Silva

• aged 49; • Business Management Degree – Universidade Católica Portuguesa.

Degree in Economics – Instituto Superior de Economia e Gestão; • Chief Executive Officer since 2004; • 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.

Responsible for Food Distribution Operations Pedro Manuel de Castro Soares dos Santos

• aged 45; • Member of the Executive Committee; • 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. 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.

3. CORPORATE BODIES


15

Responsible for Industry and for Representation and Marketing Services José Manuel da Silveira e Castro Soares dos Santos

• aged 42; • Member of the Executive Committee; • Executive Member of Jerónimo Martins’ Board of Directors

since 2004; • Joined Unilever in 1987, where he held the following positions, among

others: Head of Product (1990), Senior Brand Manager (1992), Member of the Board of Directors of Fima/Lever/Iglo (from 1995 to 2000, and again since 2002). While with Jerónimo Martins (1995 to 2001), he was Member of the Board of VMPS, JMDPC and Sé Supermercados.

Non-Executive Members of the Board of Directors:

António Mendo Castel-Branco Borges • aged 56; • Degree in Economics – Universidade Técnica de Lisboa. PhD in

Economics – Stanford 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, Paribas and SONAE, among others. Vice Chairman of Goldman Sachs since 2000.

Hans Eggerstedt

• aged 66; • 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, 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.

Rui de Medeiros dÈspiney Patrício

• aged 72; • Degree in Law – Faculdade de Direito da Universidade de Lisboa; • Non-Executive Member of Jerónimo Martins’ Board of Directors

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. Minister of Foreign Affairs between 1970 and 1974. Vice Chairman of Monteiro Aranha Group from 1976 to 1991. Subsequently has been on Board of Directors of several Brazilian


16

Companies, namely Monteiro Aranha, Masa-Alsthom, Hochtief, Ericson, Telesp Celular, Axa Seguros, and worked as advisor to Group Espírito Santo.

Artur Eduardo Brochado dos Santos Silva

• aged 63; • Non-Executive Member of Jerónimo Martins’ Board of Directors

since 2004; • Degree in Law - Universidade de Coimbra; • Manager of Banco Português do Atlântico from 1963 to 1975.

Secretary of State of the Treasury from 1975 to 1976. Vice Governor of the Bank of Portugal from 1977 to 1978. Joined BPI in 1981, as Chairman until 1998 and as Chairman of the Board of Directors until 2004.

Manuel Fernando Macedo de Alves Monteiro

• aged 47; • Non-Executive Member of Jerónimo Martins’ Board of Directors

since 2004; • Degree in Law - Universidade de Coimbra; • Among the positions held during the nineties, was Managing Director

of the Porto Stock Exchange and Derivatives Exchange; Member of the Board of Directors of Interbolsa; member of the Advisory Board of the Securities and Exchange Commission; Member of the National Council of the Securities and Exchange Market. From 2002 to 2003 was Chairman of the Board of Directors of Euronext Lisboa.

Substitute Member of the Board of Directors:

Álvaro Carlos Gonzalez Troncoso

Single Auditor and External Auditor: Bernardes, Sismeiro & Associados, S.R.O.C., Lda. Palácio Sottomayor, Rua Sousa Martins, nº 1, 3, Lisboa Represented by: José Manuel de Oliveira Vitorino, R.O.C.

Substitute Auditor:

PricewaterhouseCoopers, S.R.O.C., Lda. Represented by: Jorge Manuel Santos Costa, R.O.C.

Corporate Secretary:

Henrique Soares dos Santos

Substitute Secretary: Margarida Martins Ramalho

Chairman of Shareholders’ General Meeting:

José Manuel Dias Loureiro

Secretary of Shareholders’ General Meeting: António Neto Alves


17

4. BUSINESSES AND OWNERSHIP STRUCTURE

Supermarkets

Hypermarkets

Cash & Carry

Retail Stores

Margarine, Olive Oil, Seed Oil, Ready to Drink T

Home & Personal Care

Ice Cream & Frozen Food

Agency & Marketing Services

Food Service

Coffee specialised retail

Specialised retail - sweets & chocolates

MANUFACTURING

SERVICES

DISTRIBUTION

BUSINESS STRUCTURE

PORTUGAL

PORTUGAL

PORTUGAL

POLAND


18

Feira Nova

Gestiretalho

Pingo Doce JMR

JG Camacho

Funchalgest

Lidosol II

DISTRIBUTION

Recheio C&C

Recheio

Tand B.V. JMD (Biedronka)

FimaVG Fima Victor Guedes

LeverElida Lever

MANUFACTURINGIgloOlá Iglo &

SERVICES

JMDPC Caterplus

Jeronymo

Hussel

JERÓNIMO MARTINS SGPS, S.A.

51%

100%

50%

35% 35%

100%

65%

58,5%

100%

41,5%

100%

60%

40%

100%

26%

100% 100%

100%

100%

49%

100%

100% 100%

50%

100%

51%

Feira Nova

Gestiretalho

Pingo Doce JMR

JG Camacho

Funchalgest

Lidosol II

DISTRIBUTION

Recheio C&C

Recheio

Tand B.V. JMD (Biedronka)

FimaVG Fima Victor Guedes

LeverElida Lever

MANUFACTURINGIgloOlá Iglo &

SERVICES

JMDPC Caterplus

Jeronymo

Hussel

JERÓNIMO MARTINS SGPS, S.A.

51%

100%

50%

35% 35%

100%

65%

58,5%

100%

41,5%

100%

60%

40%

100%

26%

100% 100%

100%

100%

49%

100%

100% 100%

50%

100%

51%


19

Jerónimo Martins, SGPS, S.A. is the Group’s Holding Company, integrating three separate business areas: Food Distribution, Manufacturing and Representation and Marketing Services. Food Distribution is divided by geographical areas of operation in Portugal and in Poland. In Portugal, the Business Divisions - Pingo Doce, Feira Nova, Madeira and Recheio – are responsible for operations, category management, 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 management structure 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. Complementing this, 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 Distribution Executive Management Committee, a body that coordinates strategic decisions for Distribution in Portugal. In Poland, the head of the Business Division is responsible for category management, marketing, operations, technical, human resources, logistics, financial, quality control and information systems. In 2004 the organisation was decentralised, with some services being transferred to the regional business units. This permitted the productivity and efficiency of these services to be boosted while rationalising the organisation. The 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 control 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 Divisions 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. The Representation and Marketing Services’ management structure is organised by business areas - JMD (which comprises the Food, Cosmetics and Caterplus divisions), Hussel and Jeronymo - all of which under the same General Management. Each business area is

5. MANAGEMENT STRUCTURE


20

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. That accumulates responsibility for Human Resources, along with the Functional Management of Human Resources in the Holding. Jerónimo Martins, SGPS, S.A. also includes a number of Functional Areas responsible for supporting and assisting the Executive Committee, the Board of Directors and all Group Companies on matters specific to each area - Human Resources, Development and Strategy, Planning and Control, Consolidation and Accounting, Internal Audit, Financial Operations and Risk Management, Fiscal Affairs, Legal Affairs, Communication and Security. Each of these Functional Management groups of the Holding is responsible for ensuring that there is consistency among the various objectives established. Their activity is described in a specific section in the chapter dedicated to Corporate Governance.

II. Corporate Governance

22 0. Declaration of Compliance 23 1. Disclosure of Information 23 1.1. Organisational Structure and Distribution of Responsibilities

28 1.2. Specific Committees

30 1.3. Risk Control System

36 1.4. Share Price Performance

40 1.5. Dividend Distribution Policy

41 1.6. Stock Options Plan

42 1.7. Business between Members of the Board and the Company

42 1.8. Investor Relations Office

44 1.9. Remuneration Committee

45 1.10. Amount of Annual Remuneration Paid to the External Auditor

46 2. Exercise of Shareholder Voting and Representation Rights 46 2.1. Statutory Rules on Exercising the Right to Vote

46 2.2. Postal Voting

46 2.3. Electronic Voting

47 2.4. Required Deadline for Depositing or Blocking Shares

47 2.5. Deadline for Receiving Postal Votes

47 2.6. Number of Shares Corresponding to One Vote

48 3. Company Rules 48 3.1. Code of Conduct and Internal Regulations

48 3.2. Internal Procedures for Risk Control in Company Activity 48 3.3. Measures Likely to Interfere with Public Tender Offers

49 4. Board of Directors 49 4.1. Description of the Board of Directors

52 4.2. Executive Committee

52 4.3. Structure and Role of the Board of Directors

53 4.4. Remuneration Policy of Board of Directors

54 4.5 Remuneration of the Members of the Board

Annual Report’04 – Corporate Governance

22

The Company fully complies with the recommendations of the Securities and Exchange Commission on the Governance of Listed Companies. In 2004, it adapted its by-laws to comply with the recommendation concerning the deadline for blocking shares for shareholder participation in General Meetings and also introduced the use of ballot papers for submitting votes by mail at the last General Meeting. The Company admits that, in the light of the text in question, it may be understood that there has not been an adequate response to the recommendation concerning the individual discrimination of remuneration paid to the Members of the Board of Directors. In this respect, the Company maintains the view that there are other options for verifying the internal distribution of remuneration and assessing the relationship between the performance of each Company sector and the level of remuneration of the Members of the Board of Directors who are responsible for supervising these sectors. Such a requirement can be obtained by indicating the overall remuneration paid to the Executive Members, on the one hand, and the Non-Executive Members, on the other. In addition, the Board of Directors believes that the internal and external sensitivity that such a disclosure could cause in no way contributes towards improving the performance of the Board Members. Therefore, the recommendation has been adopted as far as remunerations in collective terms are concerned, and by discriminating the amounts paid to Executive Members and Non-Executive Members, with reference to both the fixed and variable parts.

0. DECLARATION OF COMPLIANCE


23

1.1. Organisational Structure and Distribution of Responsibilities The Jerónimo Martins Group is organised into three Business Areas – (1) Food Distribution, (2) Manufacturing and (3) Representation and Marketing Services. The former, in its turn, is organised into two geographic areas and Operating Divisions.

1.1.1. Operating Divisions The organisational model of the Jerónimo Martins Group is aimed mainly at ensuring specialisation in the various Group businesses by creating geographical areas and Operating Divisions that guarantee necessary proximity to the different markets. The Food Distribution business is divided into geographical areas and currently has four Operating Divisions in Portugal – Pingo Doce (supermarkets), Feira Nova (hypermarkets), Recheio (cash & carry) and Madeira (supermarkets and cash & carry) – and an Operating Division in Poland - Biedronka (food stores).

1. DISCLOSURE OF INFORMATION

Jeronimo Martins, SGPS, S.A.

Functional Directions Corporate Center

Services Manufacturing Food Distribution

Portugal

Functional Directions

Opearational Support

Poland

Executive Officer of the Board

JMD

Biedronka Food Stores

Jeronymo Caterplus Hussel PGJM

LeverElida IgloOla FimaVG

Pingo Doce Supermarkets

Madeira Supermarkets Cash & Carry

Feira Nova Hipermarkets

Recheio Cash & Carry


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The Manufacturing business comprises a joint venture between Unilever in the companies FimaVG (food products), LeverElida (personal and domestic hygiene) and IgloOlá (ice-cream and frozen products). The Representation and Marketing Services business includes Jerónimo Martins Distribuição de Produtos de Consumo (representation of fast-moving products and cosmetics), Caterplus (food service), Hussel (retail specialised in chocolates and confectionery), Jeronymo (retail specialised in coffee) and PGJM (mass market cosmetics). 1.1.2. Functional Divisions of Operational Support The Functional Divisions at operational level ensure that Group synergies are maximised through the sharing of resources and functions across the relevant markets. In this way, organisational efficiency and the sharing of relevant skills and know-how are optimised. The Functional Divisions of Operational Support are: Sourcing, Logistics, Quality and Environmental Control, Financial and Information Systems. The Functional Divisions are responsible for providing services for the various operating divisions for distribution in Portugal, in accordance with the guidelines given by the Group’s Holding Company. They are also responsible for ensuring uniformity of policies and procedures. 1.1.3. Functional Divisions of the Holding

As the Holding Company of the Group, Jerónimo Martins SGPS, S.A. is responsible for ensuring consistency between the established objectives and the available resources.

Legal Affairs António Neto Alves

Internal Audit Nuno Sereno

Communication Ana Vidal

Consolidation and Accounts António Pereira

Development and Strategy Margarida Martins Ramalho

Financial Operations Conceição Tavares

Planning and Control Ana Luísa Virginia

Special Projects Francisco Martins

Human Resources Inês Cavalleri

Security Eduardo Dias Costa

Fiscal Affairs Rita Marques

GRUPO JERÓNIMO MARTINS Functional Divisions of Corporate Support


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The Holding Company is responsible for: defining and implementing the development strategy of the Group’s portfolio; strategic planning and control of the various businesses and maintaining their consistency with global objectives; defining financial policies and their respective control; defining Human Resources policies and taking direct responsibility for implementing the Management Development Policy. The Functional Divisions of the Holding give support to the corporate centre while simultaneously providing services to the Group’s operating and functional divisions. They are organised in the following way:

Legal Affairs – Supervises the Group’s corporate affairs and ensures the companies’ compliance with legal obligations. It assists the Board of Directors in preparing and negotiating contracts in which Jerónimo Martins is a party as well as leading the development and implementation of strategies aimed at protecting the Group’s interests in the case of legal disputes and managing external counselling.

In 2004, the Division focused its activities on monitoring the companies’ compliance with their obligations, in particular assisting in the operation of capital increase, as well as in the alteration of the by-laws decided at the last General Meeting. A significant part of its activity also involves supervising the Group’s restructuring and expansion operations.

Internal Audit – Assesses the quality and efficiency of the internal control and risk control systems (operational and non-operational) established by the Board of Directors and ensures their compliance with the Group’s Manuals of Procedures. It also guarantees full compliance with the procedures set out in the Operations Manual of each business unit and oversees compliance with the legislation and regulations applicable to the respective operations. The activities carried out by this Functional Division can be found in detail in point 1.3 of this Report. Communication – Proposes and implements strategies for external and internal communication and for Social Responsibility. It is also responsible for developing internal and external marketing activity and actions that involve the Jerónimo Martins image, and for coordinating media projects for marketing initiatives undertaken by the business units. In 2004, its activity included the implementation of Jerónimo Martins’ new corporate identity and its respective internal and external disclosure. It also developed initiatives with a view to creating more generalised awareness among workers of the Group’s Social Responsibility policy and the practices that have been implemented.

Consolidation and Accounts – Prepares consolidated financial information to comply with legal obligations and to assist the Board of Directors, as well as implementing and monitoring the accounting principles and policies adopted by the Board and common to all the Group’s Companies. It also verifies compliance with the respective statutory obligations.


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In 2004, a special effort was made to adopt all the new international accounting standards, which form the stable platform of standards that must be applied in 2005 by Companies listed in the European Union. As a result of this, the Consolidated Financial Statements, which are an integral part of this Report, comply with the International Standards that must be applied from January 2005, so no restatement of the financial information presented in 2004 is anticipated. Development and Strategy – Guarantees the on-going assessment and updating of the Group’s strategic priorities, the alignment of the medium and long-term plans of the various business areas with the Group’s strategic priorities, and their disclosure within the Organisation so that they are generally understood. It ensures the coordination and monitoring of the Balanced Scorecard, with the fundamental objectives of alignment in terms of implementing the strategic projects that arise from the Group’s medium and long-term plans and providing incentives for the assessment of new business opportunities.

In 2004, the Board focused on implementing the Balanced Scorecard, guaranteeing its integration into the Group’s existing strategic planning. The Board’s priorities were directed towards promoting debate in terms of the initiatives that allow management to focus increasingly on creating value, and to analyse alternatives for growth and new business opportunities. Fiscal Affairs – Provides all the Group’s Companies with assistance in fiscal matters, ensuring compliance with the current legislation as well as optimising the business units’ management activities from a fiscal point of view. It also manages the Group’s tax disputes and its relations with external consultants and tax authorities. In the course of its work in 2004, the Fiscal Affairs Department provided assistance in the companies’ large acquisition transactions by analysing the tax implications associated with them. In addition, it also provided fiscal advice on increasing the Company’s capital as well as the different financial transactions performed on the markets, especially those carried out in the USA. Financial Operations – Has responsibilities in the area of Risk Management, which is described in detail in point 1.3 of this chapter, as well as conducting activity on the financial markets. As regards the latter, one of its main functions is to find the most suitable sources of financing for a given investment profile. This is done by analysing deadlines, type of financing, cost, contractual conditions and the entities involved, and assessing whether all these parameters match the policies defined by the Executive Committee. This Functional Division is also responsible for handling contacts with the financial entities with which the Group has dealings, or with those that could potentially have dealings with the Jerónimo Martins Group.


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The cash management of all the Companies in the Jerónimo Martins Group in Portugal is handled by this Department, which performs the cash planning of the individual Companies and the Group, and manages the financial resources according to this planning. In September 2004, the cash services of the Operating Divisions of the Area of Distribution in Portugal were also taken on. Apart from savings at cost level, this centralisation also led to savings resulting from synergies in the prossecing of payments’ to suppliers by the various Companies in the Group.

Planning and Control – Apart from the definition and implementation of processes, policies and procedures within the Planning and Control Division, this team is also responsible for coordinating and supporting the activities of acquisitions, conveyance and company restructuring (Mergers & Acquisitions) and for relations with the Capital Market. The activities in this area, namely in terms of the Investor Relations Office, are developed in point 1.8 of this chapter. In terms of the processes of Planning and Control, bases have been created to ensure increasingly better monitoring of the performance of the different businesses, detecting trends, making comparisons with competitors, constantly supervising the factors that enable value creation and the key performance indicators (KPIs) associated with them. Another area that required special attention was the analysis and control of investment projects submitted by the different Business Areas, both in terms of expansion and remodelling and maintenance. As for the Area of Mergers & Acquisitions, the year 2004 marked the return of the Group’s acquisition activities. These included the transfer of assets regarding the four stores that operated under the Monteverde brand and the conclusion of a deal with Unilever, with a view to integrating Bestfoods Portugal into FimaVG. Also in this area of activity, negotiations were held on bringing forward the conclusion of the sale of the cash and carry chain, Eurocash, with a view to releasing the Polish company that holds Biedronka from other commitments with buyers, as well as liquidating some of the Group’s companies that were inactive. Special Projects – In collaboration with the various Operating Divisions of Food Distribution in Portugal, its main objectives are to identify and establish priorities and to optimise existing processes within the Companies, as well as to recognise new opportunities that may add value for customers, increase business profitability, increase productivity and improve competition in the markets in which they perform. It also aims to provide innovative processes, promote responsibility in those involved and integrate businesses and new information technologies. The activities performed by this Functional Division can be found in detail in chapter 3 of this Report Human Resources – Proposes and implements strategies and global Human Resources policies to be applied to the whole Group, in particular to management. It is therefore responsible for drawing up Human Resources strategies, policies, standards and procedures, namely in the areas of recruitment, training, performance management, career management and the salaries and benefits of the Group’s Management


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staff. It is also responsible for coordinating new projects and for compliance with good Human Resources practices.

The activities developed by this Functional Division are detailed in chapter 3 and 4.

Security – Defines and controls procedures aimed at preserving the safety of personnel and assets within the Group and monitors any matters involving the police or legal authorities, when justified. It is also responsible for supporting the auditing of the safety systems and risk prevention. In 2004, the Security Department paid special attention to assessing the practices used in the various Operating Divisions, with a view to optimising the security procedures adopted.

1.2. Specific Committees 1.2.1. Ethics Committee An Ethics Committee was appointed by the Board of Directors in 2003, which succeeded the so-called “Working Group for Rules of Conduct” and which presently comprises Ms. Ana Vidal (Communication Director), as chairperson, Mr. Hugo Cunha (Human Resources Director for JMR) and Mr. António Neto Alves (Director of the Division of Legal Affairs). The mission of the Ethics Committee is to provide independent supervision of the disclosure of, and compliance with, the Code of Conduct of the Jerónimo Martins Group in all its companies.

In performing its duties, the Ethics Committee must: (i) establish channels of communication with the addressees of the Code of Conduct of the Jerónimo Martins Group and gather information sent on this purpose; (ii) supervise the setting up of a suitable system of internal control of compliance with the Code of Conduct and assess the recommendations resulting from these controls; (iii) evaluate the questions which, in terms of the compliance with the Code of Conduct of the Jerónimo Martins Group, may be submitted to it by the Board of Directors and by the Audit Committee, as well as making an abstract analysis of those questions that may be raised by any employee, customer or business partner; and (iv) submit to the Company’s Board of Directors any measures it considers appropriate for adoption in this area, including the review of internal procedures, as well as proposals for changing the Code of Conduct of the Jerónimo Martins Group. Throughout 2004, the Ethics Committee met regularly and worked in collaboration with the Executive Committee. It also supervised disclosure of the Ethics Code to all the Group’s employees, through clarification sessions, and prepared the system for communicating with the addressees of the Code. It is hoped that this system will prove to be quick and efficient.


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1.2.2. Internal Control Committee The Internal Control Committee, appointed by the Board of Directors, succeeded what was formerly known as the Audit Committee. It has the specific responsibilities of assessing the quality and reliability of the internal control system and the process of preparing financial statements, as well as assessing the quality of the monitoring process being used in the Companies of the Jerónimo Martins Group, with a view to assuring compliance with the laws and regulations to which they are subject.

In performing its tasks of assessing the quality of the monitoring process being used in the Companies of the Group, which aims to ensure compliance with the laws and regulations to which they are subject, the Internal Control Committee must obtain regular information on the legal and fiscal contingencies that affect the Group’s Companies. The Internal Control Committee meets once a month and consists of a Chairperson (Mr. David Duarte) and three non-executive members (Mr. José Gomes Miguel, Mr. Nuno Sereno and Mr. Henrique Santos), none of whom is a Board Member. In 2004, the Internal Control Committee met ten times to carry out its activities of supervision and assessment of risks and critical processes and to review the reports prepared by the Internal Audit Department. Since a representative of the External Auditor is invited to attend these meetings, the Committee is informed of the conclusions of the external auditing work that takes place over the year. Using this information, it is therefore possible to constantly assess the practicality of the Internal Audit Department’s plan of activities. 1.2.3. Audit Committee An Audit Committee was decided to form in 2004, within the scope of the Board of Directors, which is responsible for assessing corporate structure and governance and supervising risk management processes. In particular, in performing its duties of assessing the corporate structure and governance of the Jerónimo Martins Group, the Audit Committee has to submit to the Board of Directors the policy and measures of corporate governance to be adopted by the Group. In supervising the risk management process, it is responsible for approving activity plans in this field, supervising the implementation of these plans and creating a suitable system of internal risk management control with a view to meeting its objectives effectively. The Audit Committee convened in October 2004 and consists of three non-executive members - Mr. Alexandre Soares dos Santos (Chairman), Mr. Artur Santos Silva and Prof. António Borges.


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1.3. Risk Control System 1.3.1. Risk Management Process Risk Control System The Company, and in particular, the Board of Directors regards the risks underlying its business as a very important issue. Given their relevance to the internal decision- making process and to market agents in general, the Group is committed to the quality and transparency of the information provided on all issues that may have a positive or negative impact on its future. It thus aims to clearly identify value-creating mechanisms as well as the potential causes of value destruction, while preparing information that enables highly reliable performance assessment. In this way, the Company aims to give its shareholders a view as clear as possible of all the factors, both interior and exterior, that may significantly influence its profitability. Risk Management Objectives Risk Management in the Jerónimo Martins Group aims to meet the following objectives:

• Identify and assess business and process risks; • Identify key value drivers and regularly assess their strong and weak

points; • Develop and implement risk hedging and prevention programmes; • Integrate Risk Management into business planning; • Adopt a methodology common to the whole Group to identify, manage and

monitor risks; • Promote awareness among employees of the risks and the positive and

negative effects of all the processes that influence operations and constitute value creation sources;

• Improve the process of decision-making and priority-defining through the structured understanding of the Group’s business processes, its volatility and its opportunities and threats;

The Risk Management Process Risk Management in the Group is based on an approach that uses the concept of Economic Value Added (EVA) applied to two universes – Consolidated and Operational. The aim is to carry out a bottom-up analysis, assessing first the basic elements of both the NOPLAT (net operating profit less adjusted tax) and the capital cost, so as to obtain an objective idea of how they interact and, ultimately, identifying the main risks in the value creation process, as a core management objective. The business processes of the different activities developed in the Jerónimo Martins Group form a chain of value that incorporates a strategic nucleus of key value drivers. Risk Management thus stems from the identification of these key value drivers and from the analysis of the underlying risks. This approach provides a systematic and interconnected perspective of risks inherent in the processes, functions and organisational divisions. The Risk


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Management process is cyclical in nature and addresses: (1) risk identification and assessment; (2) definition of management strategies; (3) implementation of control processes; and (4) monitoring of the Risk Management process. Those responsible for the critical business processes are also in charge of the design and implementation of risk control mechanisms, together with those responsible for the Risk Management of the Holding’s Financial Operations. The efficiency of the risk control mechanisms is, in its turn, assessed by the Group’s Internal Audit Department. The risk control processes in force in the Jerónimo Martins Group include insurance coverage, assets and financial risk management. 1.3.2. Assessment of Internal Control The Internal Audit Department’s plan of activities, approved annually by the Internal Control Committee, establishes the scope of the audits to be performed in order to assess the quality of those control processes aimed at compliance with the objectives of the internal control system. These objectives are to ensure: the efficiency of operations, the reliability of the financial and operational reports and compliance with the laws and regulations. For this purpose, process and compliance audits were performed as well as financial audits and validations of the IT systems, whose associated risks indicated a possibility of occurrence and/or potential impact of high relevance to operations. Following the audits performed on the existing controls in these critical processes, 45 audit reports were prepared, in which opportunities for improving internal control procedures were identified. In addition, situations of non-compliance with approved procedures were identified, which were immediately communicated to the Executive Committee whenever they involved high risk situations. In order to ensure that the recommendations made by the Internal Audit Department are implemented by those responsible for the audited critical processes, a quarterly assessment is made, for the one’s classified as medium or low risk as to the extent of implementation of the recommendations resulting from the auditing work. Recommendations made in the auditing reports and classified as high risk must be implemented immediately. This approach makes the internal audit of the Group more efficient and obliges those responsible to implement the recommendations in due time. The results of these assessments and those of operational risks are submitted by the Internal Audit Department to the Group’s Executive Committee and Internal Control Committee by means of a quarterly Audit Letter. 1.3.3. Monitoring the Risk Management Process The following bodies are involved in monitoring the Risk Management process: the Board of Directors, the Operating and Functional Divisions, the Audit Committee and those in charge of Risk Management and Internal Audit.


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In particular, the Board of Directors, as the body responsible for the Group’s strategy, has the following objectives and responsibilities:

• Be aware of the most significant risks affecting the Group; • Ensure that there are appropriate levels of knowledge within the Group of

the risks that affect operations and of how to manage them; • Ensure that the Group’s Risk Management strategy is conveyed to all

hierarchical levels; • Ensure that the Group has the capacity to minimise the possibility and the

impact of risks on the business; • Ensure that the Group knows how to react to crisis situations; • Ensure that the Risk Management process is adequate and that those

responsible for it maintain strict monitoring of the most likely risks and of the risks with more impact on the Group’s operations.

1.3.4. Risks Asset and Financial Risks

• Management of Non-financial Risks and Insurance:

In 2004, the Department of Risk Management took direct full control of the management of the insurance portfolio of all the subsidiaries of the Jerónimo Martins Group in Portugal, except the Companies involved in the joint venture with Unilever. The centralisation of insurance functions was a gradual process. By the end of the year, a single department for all the Companies was able to handle tasks related to: i) management and control of accidents; ii) management of capital and risk locations; iii) control of insurance premiums; iv) application for insurance certificates; v) occasional taking out of insurance contracts. By specialising tasks, resources can be freed for performing other tasks, practices and procedures can be harmonised among the different companies and information can be systemised for analysis. The knowledge acquired also allowed the role of insurance broker to be approached in an entirely different way. From now on, the services of a specialised consultant will only be hired on an occasional basis to support the development of specific projects in the area of Risk Management. The results of these changes have already proved beneficial in the process of renewing the insurance portfolio for the year 2005. In 2004, the project of attributing ratings to different places of risk was continued. For 2005, various projects are under study with a view to improving asset risks, namely the phased introduction of fire-fighting systems in the stores and warehouses, which will contribute significantly to concluding the rating notations project. In 2004, Jerónimo Martins joined the launch of APOGERIS, a non-profit making association, whose aim is “to promote and develop risk administration and management as a scientific and research activity at the service of its members and society in general”.


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• Financial Risk Management

In this class of risks, the Jerónimo Martins Group is exposed mainly to interest rate and exchange rate risks. The management of these risks is guided by principles defined at the level of the Executive Committee. As a result of their potential size and impact on financial statements, it is of great importance to control them. There are two financial risk management projects from the Strategic Scorecard whose objectives are: 1) 75% hedging of the financial debt issued at a variable interest rate and due after December 31 2006; 2) 75% hedging of the value of the investment in Poland.

In order to manage these risks, specific software is used to assess the financial instruments. This not only enables the accounting records to be validated but also enables analysis of the proposals and quotes sent by the financial institutions with which it negotiates.

i) Interest Rate Risk The interest rate risk associated with the financial debt is controlled by means of transactions contracted at zero cost. At the end of the year the Jerónimo Martins Group had EUR 177.5 million in notional amount of interest rate derivatives. The fair value of these instruments was minus EUR 1.6 million, a reflection of the flattening of the interest rate curves in the Euro Zone and the USD:

Summary of interest rate performance

Maturity 1-Jan-04 High Low 31-Dec-04 �

EUR 2y IRS 2,78 3,01 2,23 2,63 -0,16

EUR 5y IRS 3,69 3,89 3,01 3,17 -0,53

EUR 10y IRS 4,41 4,55 3,62 3,76 -0,65

5y-2y 0,91 - - 0,54 -0,37

10y-2y 1,62 - - 1,13 -0,49

10y-5y 0,71 - - 0,59 -0,12

Maturity 1-Jan-04 High Low 31-Dec-04 �

USD 2y IRS 2,16 3,48 1,79 3,44 1,28

USD 5y IRS 3,65 4,52 2,99 4,03 0,39

USD 10y IRS 4,66 5,37 4,03 4,65 -0,01

5y-2y 1,48 - - 0,59 -0,89

10y-2y 2,50 - - 1,21 -1,29

10y-5y 1,01 - - 0,61 -0,40

As these transactions were contracted with the aim of protecting against interest rate rises, and in view of the interest rate scenario shown above, they had a negative impact of EUR 112.1 thousand on the interest paid in 2004. In relation to the goal inserted in the Strategic Scorecard concerning the 75% hedging of the debt due after December 2006, and bearing in mind interest rate performance, it was decided that


34

the objective would not be reached in 2004. Compared to the total amount of required protection – EUR 282.5 million – there was still EUR 105.0 million to be covered. Even so, eight new swaps were contracted to add to the seven instruments of cover that came from 2003. As these are instruments contracted at zero cost, the performance of the portfolio will be quite efficient provided that the rates do not swing more than 100 base points in the face of the forward levels implicit at the end of the year. Assuming shifts parallel to the interest rate curves to which the Group is exposed (EUR, USD and CHF) the impacts on financial costs (in millions of euros) would be, in comparative terms, the following:

Shift With Hedge Without Hedge Difference

-0,25% - 2,9 € - 4,4 € 1,5 €

0,25% 2,9 € 4,5 € - 1,5 €

0,50% 6,1 € 9,0 € - 2,8 €

0,75% 9,0 € 13,4 € - 4,5 €

1,00% 13,2 € 17,9 € - 4,7 €

1,25% 17,5 € 22,2 € - 4,7 €

1,50% 22,3 € 26,6 € - 4,4 €

ii) Exchange Rate Risk

Whenever possible, exposure to exchange rate risks is managed through natural hedge transactions, namely by contracting financial debt in the local currency in Poland. When this is not possible, more or less structured transactions are contracted at zero cost. To the positions of hedging the risk of depreciation of the Polish currency were joined in 2004 the contracting of two exchange swaps with a view to eliminating exposure to the dollar generated with the contracting of debt issues in this currency. These swaps function as the perfect mirror of the issued debt. In relation to exposure to the risk of investment in Poland, from the end of the first quarter, 2004 was marked by a notable recovery in the Polish currency. From the medium and long-term point of view, the levels at the close of the year are considered interesting and new hedging operations are under analysis. Even so, the annual costs resulting from the differential in interest rates are rather high. In 2004, the costs of contracted hedgings rose to EUR 3.0 million. The fair value of these costs, recorded in the accounts, is EUR 178 thousand.

Operating Risks The process of Operating Risk Management includes a model of operating risks and a model of critical business processes in the phases of (i) identification and


35

assessment of risks, (ii) implementation of control processes and (iii) monitoring of the Risk Management process. The use of these two instruments aims to ensure a structured and the widest possible approach to risks that can affect whether the Group’s Companies meet their objectives.

• Operating Risks Model In this model, the following classes of risk are considered: process risks, human resources risks, information systems risks and information risks for decision-making. The class of process risks includes risks related to sourcing, supply chain, transport, inventory losses, obsolescence, rupture, level of service, customer satisfaction, pricing, cash collection, investment, safeguarding of assets, efficiency, health and safety, quality environment, business interruption and fraud. The human resources risks considered in this model include those associated with salary processing, levels of authorisation, communication and training, ethics, labour accidents and labour legislation.

The information systems risks considered include the risks of access, communications, information integrity, infrastructure and disaster recovery. Risks of information for decision-making comprise accounting, fiscal and legal risks.

• Critical business processes model

The model of critical business processes is adapted to each Company in the Group and enables the flow of information and respective support systems to be visualised. It is structured into four main areas, grouping the critical processes related to (i) business support; (ii) sourcing and supply chain management; (iii) operations and (iv) sales and supply management. In 2004, the activity of the Internal Audit Department aimed to assess to what extent the internal control system of the Group’s Companies covers the effect of the risks identified, both in terms of the probability of their occurrence and in terms of their impact on transactions. This assessment of the control processes (which aim to reduce the effects of the risks) enabled the database of risks that affect or may affect the Group’s Companies to be updated. In accordance with the plan of activities and also in the light of the updating of the models of operating risks and critical business processes applicable to each Company in the Group, audits were taken of the processes related to the risks of stock losses and obsolescence, cash collection, supply chain and level of service, transport, investments and assets safety. In the area of Human Resources, the risks related to the processing of salaries and labour accident management were audited. The assessment of the procedures that aim to reduce the risks related to Quality is done by the Companies’ Quality


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Control Departments whose activity is detailed in point 4 of the chapter concerning Social Responsibility. In the area of information systems, audits were performed to assess risks of access, communications and information integrity, as well as the updating of the conclusions drawn from the previous year concerning the general control of information systems, particularly in the area of disaster recovery. Among the information risks for decision-making, a set of audits of an accounting nature was performed so as to evaluate compliance with the accounting principles. Monitoring of the contingencies of a legal and fiscal nature was also performed, which is detailed in the Appendix to the Consolidated Accounts.

1.4. Share Price Performance The main Portuguese stock index, the PSI-20, showed an annual rise of around 12%, which corresponds to a recovery of almost five thousand million euros in the market value of the companies that form the national index. This performance was greater than the gains of the indices of the main European Stock Exchanges and that of New York, and also exceeded the increases of around 10% of most of the pan-European indices such as Stoxx 50 and Next 100. It was only outdone by the rises of 17%, at the Madrid Stock Exchange and the Milan market or the Scandinavian exchanges, with rises in the region of 30%. During 2004, stock markets around the world were influenced by factors such as the terrorist attacks in Madrid, the political and military instability in Iraq, the record oil prices in London and the USA and the evolution of the euro compared to the dollar, among others, which, to some extent, affected their performance over the year. In particular, the Portuguese Stock Exchange was marked by share capital increase, namely that of EDP and Jerónimo Martins, by the successful listing of Media Capital on the stock market and by the public tender offer of Semapa over Portucel, which contributed towards a positive year. It was also characterised by a significant increase in the market capitalisation of the main national securities. After a relatively timid start to the year, the performance of the Lisbon Stock Exchange in 2004 was marked essentially by two distinct periods:

• From March to May, with various securities capitalising on the attention caused by Euro 2004, the PSI-20 index reached the high point of the year at almost 8,000 points – its highest value in two years – and an average business volume unseen since 2000;

• The end of the year, when various securities reached annual highs once

again and many show a return to the levels of summer 2002 and, in some cases, 2001. It is interesting that this behaviour occurred at a time dominated by governmental instability and when many policies that directly affect some listed companies continue to be dependent on the elections in February 2005.


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1.4.1. Performance of Jerónimo Martins Share

During the first five months of the year, the Jerónimo Martins share maintained the downward trend seen at the end of 2003, contrary to the strong increase of around 11.8% seen on the PSI-20 in the first quarter, dropping to a minimum value of EUR 7.71 on May 18th. The largest drops in the share coincided with the week in which information was published on the preliminary sales of 2003, in the second week of January, and with the publication of the annual profits concerning 2003, on March 10 2004. At the end of May, Jerónimo Martins shares rose and maintained this level until the middle of July, systematically above EUR 9.50, in contrast to the less positive period of the national stock market. In June, the Company successfully raised its capital by 30 million shares. The operation was well accepted by the market and the share reached its highest value of the year on July 6th – EUR 9.98. The Company’s share capital increase of EUR 150,000,000 took place on 30th June 2004, through the issue, with a Public Offer for Subscription, of 30,000,000 ordinary shares, registered and to the holder, with a nominal value of 5 euros each. The shares were offered directly for shareholder subscription in exercising their respective rights of preference. The number of new shares was a result of the application of the factor 0.3135227242 (considering the 171,800 own shares) to the number of rights to subscription held at the time of subscription, rounded by default.

JM shares description

Jerónimo Martins, SGPS, SA

Shares Trade: Euronext Lisboa

Stock market admission: November 1989

Euronext Codes:

Description Type ISIN Codes Symbol J. Martins - Out/03 Bonds PTJMTEOE0008 JMTEOE Jerónimo Martins- SGPS Shares PTJMT0AE0001 JMT Codes:

Reuters RIC JRMN.IN Bloomberg JMAR PL Shares

Share Capital: 629.293.220 Euro Shares nominal value: 5,00 Euro Number of shares: 125.858.644


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The initially unsubscribed shares were proportionately distributed among the holders of rights to subscription who showed an interest in subscribing a number of shares greater than the number to which they would proportionately have the right. During the fourth quarter of the year, the Jerónimo Martins share accompanied the positive trend of the PSI-20 and remained stable between 9 and 10 euros. Its closing value on 31st December of EUR 9.70 corresponded to an increase of about 5% over the year. 2005 also began with a significant rise and, at the end of January, the Jerónimo Martins share reached a value of EUR 10.41 (an increase of 6.2% over the month). In terms of liquidity, during the year the share had an average daily business volume of 112 thousand shares, about 25% more than the volume registered in 2003.

JM Shares Price & Index Performance

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-040

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

JM PSI-20 Volume

Preliminary Sales 2003

Results2003 Results

1st Quarter 04

Results1st Quarter04

Results3rd Quarter 04

Share CapitalIncrease

Investor Day


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JM SHARES DESCRIPTION

1.4.2. Results Release Throughout the year, the Investor Relations Office continued to ensure the publication and updating of the performance indicators of the various businesses. It also disclosed the Group’s quarter results so as to keep analysts and investors informed as to the development of the Jerónimo Martins operational and financial activity over the course of 2004. Information was given to all financial analysts and investors that contacted the Office by telephone or e-mail at [email protected]. The financial statements were released to the market on the following dates:

08-01-2004

09-03-2004

28-04-2004

04-08-2004

28-10-2004

09-01-2005


FY 03 Results

1st Quarter 04 Results

1st Half 04 Results

3rd Quarter 04 Results



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1.4.3. Shareholder Structure

1.4.4. Plan for Own Share Acquisition During 2004, there were no acquisitions of own shares and Jerónimo Martins SGPS, S.A. maintained 171,800 own shares in its portfolio, acquired in 1999 at an average price of EUR 35.28, representing 0.14% of its share capital. 1.5. Dividend Distribution Policy The Board of Directors of Jerónimo Martins SGPS, S.A. established a policy of dividend distribution based on the following assumptions:

• Value of the dividend distributed should be between 40% and 50% of ordinary consolidated earnings.

• If, as a result of the application of this criterion, there is a drop in the dividend of a certain year compared to that of the previous year and the Board of Directors considers that this decrease is a result of abnormal and merely circumstantial situations, it may propose that the value from the previous year should be maintained. It may even resort to existing free reserves, providing that the use of these reserves does not jeopardise the principles adopted in terms of balance sheet management.

The financial year 1999 was the last in relation to which dividends were distributed, with shareholders receiving a gross dividend of PTE 60.00 (EUR 0.3) per share, established in accordance with the aforementioned criteria. As a result of the consolidated losses over the last few financial years, and the need to strengthen the balance, no dividends were distributed in relation to the years 2000 to 2003. In view of the net results of this financial year and of the established policy, the Board of Directors will propose, at the General Shareholders Meeting, the distribution of a gross dividend of 0.36 euros per share, excluding own shares,

Shareholder Structure

15.9%

26.5%

57.7%

Soc. Francisco Manuel dos Santos

BPP (Strand Ventures+Multiplus+FitronManagement)

Floating and Own Shares


41

The correspondent dividend yield reaches 4.1% versus the average share price in 2004 – 8.81 euros. 1.6. Stock Options Plan At its General Meeting held on 9 August 1996, Shareholders of the Company gave the Board of Directors full powers to establish the terms and conditions of a stock options plan and suppressed the shareholders right of preference to subscribe to the 337,098 ordinary shares, which were consequently reserved for subscription by the Group’s board members and senior management. Under the terms of the plan, the capital increase was thus fully subscribed by the Jerónimo Martins Stock Option Plan Trust, a Fund that is entirely independent of the Company and is run autonomously. The introduction of this plan is therefore linked to the implementation, in the whole Group, of a target-led management system based on indicators of profitability analysis, business growth and value generation for shareholders, which guarantees that the Group’s Management remains highly committed to meeting the established strategic objectives. In accordance with the rules of the plan, its participants are given the option of acquiring Share Units from the Jerónimo Martins Stock Options Plan Trust, where the number of Share Units and the yearly price are based on the Group’s consolidated performance and the individual performances of the Companies and the participants. The attributed options rest three years after the date of attribution and cannot be exercised partially. In the event of the shareholder’s retirement, permanent disability or death, the options expire on the date on which one of these exceptional situations occurs. There is also immediate expiration of the attributed options in cases in which the participant ceases his labour contract with any of the Group’s subsidiaries before the respective due date or does not exercise the options within the 90 days following their resting date. Only half of the Share Units of the Trust whose option has been exercised on the resting date can be redeemed, while the rest of the Share Units remain in the Trust until the time when the contract between the participant and the Jerónimo Martins Group ends, or one of the aforementioned exceptional situations occurs; retirement, incapacity/permanent disability or death of the participant. In 2004, no options were attributed to the Group’s collaborators and only a total of 31,448 options remain to be exercised in the year 2006. According to information provided by the managing entity of the Trust, the present assets are enough to fully assume this future responsibility. 1.7. Business between Members of the Board and the Company In 2004, no business or transactions were carried out between, on the one hand, the Company and, on the other, the members of its Board of Directors and Supervisory Board, holders of Qualified Stakes or Companies in a parent-


42

subsidiary or Group relationship, except for transactions in the area of the Company’s current activity, which were performed in normal market conditions. 1.8. Investor Relations Office The Investor Relations Office of the Jerónimo Martins Group is the best source of information for all investors – institutional and private, national and foreign – as well as of the analysts that prepare statements and recommendations on Jerónimo Martins securities. Apart from information that may affect stock prices, which is also available through institutional channels, in particular the Securities and Exchange Commission site, it also answers queries on the various business areas and provides information of a more general nature. With the aim of providing the market with an updated view of the different business areas of the Jerónimo Martins Group, in terms of operational performance and perspectives, the Office prepares an annual Financial Market Communication Plan. This Communication Plan is part of the Group’s global communication strategy, which involves a series of organised events aimed at publicising the Group’s various businesses, its strategies and future perspectives. At the same time, it monitors the development of the year’s activities and answers any queries. The activities performed by the Office in 2004 can be found in the following table:


43

8 January

9 March

28 March

15 April

27 April

28 April

2 May

5-6 May

7-8 June

9 June

10-11 June

4 August

16 September

18-26 October

28 October

19 November

1-3 December

15 December

Release – Preliminary Sales 2003

Release – FY03 Results

Notice – Annual General Meeting

Release – Corporate Bodies election for 2004-2006

Release – Appointment of the Executive Committee Members for

2004-2006 Release – 1st Quarter 04 Results

ESN Small & Mid Cap Conference – London

Roadshow - London

Global Food Retail Conference – Paris

Meeting with institutional Investors

Iberian Mid & Small Cap Conference – Penha Longa

Release – 1st Half 04 Results

Release – Conclusion of the transaction of Eurocash

Roadshow Madrid – Edinburgh – London - New York – Boston

Stockholm – Copenhagen – Frankfurt - Paris Release – 3rd Quarter 04 Results

Investor’s Day - Lisbon

Roadshow London-Boston-New York

Release – Incorporation of Bestfoods Portugal into Fima VG

Apart from these events, the Office also promotes more personalised contact through:

• Meetings with analysts/investors; • Response to the questions raised via e-mail and addressed to the Office; • Telephone assistance/clarification; • Disclosure of information onto the market by means of the following:

• Insertion on the Securities and Exchange Commission extranet; • Insertion on the Jerónimo Martins site; • Sending to Euronext Lisbon; • Sending to all the investors/analysts on the database created and

updated by the Office.

• Preparation of presentations for the financial community: • Presentation of results; • Roadshows; • General Meeting; • Conferences.


44

The Office can be contacted through the Market Relations Representative, Ms. Ana Luísa Virgínia, and the Head of Investor Relations, Ms. Cláudia Falcão, and also through the Group’s institutional site on the Internet at: www.jeronimomartins.com. The communications issued regularly by the Office are fully available on the institutional site, which aims to facilitate access to information for all those interested. The site not only provides the information required by Article 3-A of Regulations no. 11/2003, but also contains general information on the Jerónimo Martins Group and its Companies, as well as other data considered relevant, namely:

• Communications to the market concerning relevant facts; • The Group’s annual, six-monthly and quarterly accounts; • Economic and financial indicators and statistical data updated once or

twice a year, depending on the Company or business area; • Annual Report of the Group’s listed Companies; • Information on share price performance; • Annual calendar of company events, made public at the beginning of each

year, including, among others, Shareholders’ General Meeting, publication of annual, six-monthly and, if applicable, quarterly accounts;

• Information concerning the Shareholders’ General Meeting; • Information on corporate governance; • The Jerónimo Martins Group Code of Conduct.

The site also provides a contact/information request form to enable fast contact with the Company via e-mail subscription to a mailing list. The main contacts for the Investor Relations Office are:

Address: Rua Actor António Silva, n.º 7, 14.º andar, 1600-404, Lisboa Telephone: +351 21 752 61 05 Fax: +351 21 752 61 65 E-mail: [email protected]

In recognition of the importance of the consolidated Annual Report as a privileged instrument of communication with the financial market, among others, the Office was involved in validating the qualitative and quantitative information included in the Annual Report of 2003, focusing on its transparency and scope in relation to the reality of the Group’s various business areas. The efforts of the Jerónimo Martins team in preparing this document earned the Group the Best Annual Report 2003 award, in the category of Non-Financial Companies, presented at the ceremony of Investor Relations Awards ’04, organised by Deloitte and by the Semanário Económico and Diário Económico newspapers. 1.9. Remuneration Committee On 15 April 2004, the General Meeting elected a Remuneration Committee comprising the shareholders Mr. António Sousa Gomes, Mr. José Queirós Lopes


45

Raimundo and Mr. Arlindo do Amaral, none of whom is a Member of the Company’s Board of Directors or has a spouse, family member or relative in these circumstances. As provided by law, the establishment of remuneration payable to the Members of the Board of Directors was delegated to this Committee. In 2004, the Remuneration Committee convened twice. 1.10. Amount of Annual Remuneration Paid to the External Auditor The total remuneration paid to the External Auditor in the reporting year was EUR 685,222, excluding travel expenses and other costs borne directly by the Group’s Companies. In percentage terms, this amount can be broken down as follows:

1) Statutory audit services: 90%; 2) Other non-statutory audit services and external audits: 10%.

The other non-statutory audit services, to the sum of EUR 66,750, refer to: (i) a training course on IAS; (ii) consideration paid for access to a fiscal database; (iii) maintenance and user licensing of the CLIME consolidation tool; (iv) certification of subsidiary accounts, in the area of commercial relations with third parties; (v) statement of procedures agreed for the Monteverde stores, acquired through conveyance; and (vi) statement on the prospective financial information in the area of the Company’s capital increase. All these services are entirely separate from the work of the auditors and were provided by employees that did not participate in any of the Group’s auditing work.


46

2.1. Statutory Rules on Exercising the Right to Vote The right to vote by representation and the way in which this right is exercised are fully ensured in accordance with the law and Company by-laws, under the terms set down in the respective notices convening General Meetings. Moreover, the Company is actively committed to promoting the shareholders’ exercise of voting rights, namely through votes submitted by mail. The Company provides adequate information to enable the represented Shareholders to give voting instructions, namely by providing them with the proposals to be submitted at the General Meeting within the legally established time limits. Since 2003, the preparatory information for the General Meetings has also been made available on the Group’s institutional site. In accordance with the Company’s by-laws, shareholders with the right to vote may participate in the General Meeting provided that their shares are registered under their name in a securities account, or deposited in the Company’s safes or those of a credit institution at least five working days prior to the meeting. In the latter case, there must be proof of this deposit by means of a letter issued by the respective credit institution, which must also reach the Company’s Head Office within the same deadline of five working days. Shareholders owning a small number of shares may form a group to complete the minimum number of one hundred shares equivalent to one vote and may be represented by one of the members of the group. Shareholders may also be represented at the General Meeting by a Member of the Company’s Board of Directors or other shareholder. In the case of an individual, he/she may be represented by a spouse, ascendant or descendant, or, in the case of a company, by the person appointed for the effect. The instruments of shareholder representation must be addressed to the Chairperson of the General Meeting, indicating name, address and date of the meeting, and delivered before the start of the proceedings. 2.2. Postal Voting The Company has established the right to vote by mail in accordance with the form provided in the latest convening notices. This form aims to facilitate voting in this manner and make it secure. Since 2004, the Company has provided the shareholders with ballot papers so as to facilitate this procedure. 2.3. Electronic Voting Although the Company recognises that the use of new technologies promotes the exercise of voting rights, especially in the case of electronic voting, it has yet to implement this mechanism as it considers that the underlying information

2. EXERCISE OF SHAREHOLDER VOTING ANDREPRESENTATION RIGHTS


47

systems do not guarantee reliability, particularly when it comes to receiving votes. 2.4. Required Deadline for Depositing or Blocking Shares In accordance with the Company’s by-laws, shareholders with the right to vote may participate in the General Meeting provided that their shares are registered under their name in a securities account, or deposited in the Company’s safes or those of a credit institution, at least five working days prior to the meeting. 2.5. Deadline for Receiving Postal Votes As the Company by-laws fail to provide an indication in this matter, the Company has established a deadline of 48 hours prior to the General Meeting for the reception of postal votes, thus complying with and, to a certain extent, surpassing the recommendations of the Securities and Exchange Commission in this respect. 2.6. Number of Shares Corresponding to One Vote In accordance with Company by-laws, each block of one hundred shares corresponds to one vote.


48

3.1. Code of Conduct and Internal Regulations The Company must comply with current legislation and the rules of conduct appropriate to its activity, adopting codes of conduct and internal regulations whenever the issues involved so call for them. The Jerónimo Martins Group has always acted upon principles of absolute respect for the rules of good conduct in the management of conflict of interests, incompatibilities and confidentiality and in ensuring that inside information is not used by Members of the Board of Directors. Although the existing instruments and practices have proved adequate in regulating these matters, it was decided that a code should be drawn up for the existing rules concerning the aforementioned issues, as well as others that are specifically related to the activities of the companies in the Jerónimo Martins Group. The aim of this code is to formalise commitments that require a high standard of conduct from everyone within the Group and provide a tool for optimising management. Thus, in 2002, the Board of Directors appointed a “Working Group for Rules of Conduct”, which, after an internal consultation process, submitted the conclusions of its study to the Board of Directors at the end of the first half of 2003. The final version of the Code of Conduct was approved by the Board of Directors on 30th July 2003 and was made available to all the Group’s employees through a process that ended with the sending of the document and several information sessions, on February 29 2004. At the same time, the Board of Directors appointed an Ethics Committee to supervise the disclosure of and compliance with the Code of Conduct. The Code of Conduct may be consulted on the Group’s institutional site, at www.jeronimomartins.com, or requested from the Investor Relations Office. 3.2. Internal Procedures for Risk Control in Company Activity This matter is developed in point 1.3 of this chapter. 3.3. Measures Likely to Interfere with Public Tender Offers No special rights or restraints on the exercise of voting rights are provided for in the Company by-laws. The Board of Directors knows of no agreements or any other means that could interfere with public tender offers. It also feels that clear information must be provided in this matter and recognises that such limitations may not be in the interest of shareholders.

3. COMPANY RULES


49

4.1. Description of the Board of Directors Since its election at the General Meeting on 15th April 2004, the Board of Directors of the Company has consisted of nine Members, of which three are Executive - Mr. Luís Palha da Silva, Mr. Pedro Soares dos Santos and Mr. José Soares dos Santos – and six are Non-Executive – Mr. Elísio Alexandre Soares dos Santos (Chairman of the Board of Directors), Mr. António Borges, Mr. Rui Patrício, Mr. Hans Eggerstedt, Mr. Artur Santos Silva and Mr. Manuel Alves Monteiro. Mr Álvaro Troncoso was also elected as a substitute. In accordance with the principles by which the Company is run, all Board Members are accountable to all shareholders equally. However, the independence of the Board of Directors in relation to shareholders is further reinforced by the existence of Independent Board Members. In light of the new amendment to Article 1, paragraph 2 of Regulations 07/2001, the Board Members Mr. Luís Palha da Silva, Mr. António Borges, Mr. Rui Patrício, Mr. Artur Santos Silva and Mr. Manuel Alves Monteiro are regarded as Independent Members. The Members of the Board of Directors also hold positions in other companies, namely: Elísio Alexandre Soares dos Santos

Member of the Supervisory Board of Banco Comercial Português, S.A. Director of Sindcom, SGPS, S.A.

Luís Palha da Silva

Director of Jerónimo Martins Serviços, S.A.* Director of JMR - Gestão de Empresas de Retalho, SGPS, S.A.* Director of Lidosol II - Distribuição de Produtos Alimentares, S.A.* Director of Funchalgest - Sociedade Gestora de Participações Sociais, S.A.* Director of Lidinvest - Gestão de Imóveis, S.A.* Director of João Gomes Camacho, S.A.* Manager of Desimo - Desenvolvimento e Gestão Imobiliária, Lda.* Manager of EVA - Sociedade de Investimentos Mobiliários e Imobiliários, Lda.* Manager of Friedman - Consultoria e Serviços, Lda.* Manager of Hermes - Sociedade de Investimentos Mobiliários e Imobiliários, Lda.* Manager of Idole - Utilidades, Equipamentos e Investimentos Imobiliários, Lda.* Manager of PSQ - Sociedade de Investimentos Mobiliários e Imobiliários, Lda.*

* Companies that are part of the Jerónimo Martins Group.

4. BOARD OF DIRECTORS


50

Pedro Soares dos Santos Director of Jerónimo Martins Serviços, S.A.* Director of Imocash - Imobiliário de Distribuição, S.A.* Director of Recheio Cash & Carry, S.A.* Director of Recheio, SGPS, S.A.* Director of Lidosol II - Distribuição de Produtos Alimentares, S.A.* Director of Funchalgest - Sociedade Gestora de Participações Sociais, S.A.* Director of Lidinvest - Gestão de Imóveis, S.A.* Director of Larantigo - Sociedade de Construções, S.A.* Manager of Idole - Utilidades, Equipamentos e Investimentos Imobiliários, Lda.* Director of João Gomes Camacho, S.A.* Director of JMR - Gestão de Empresas de Retalho, SGPS, S.A.* Director of Feira Nova - Hipermercados, S.A.* Director of Comespa - Gestão de Espaços Comerciais, S.A.* Director of Gestiretalho - Gestão e Consultoria para a Distribuição a Retalho, S.A.* Director of Supertur - Imobiliária, Comércio e Turismo, S.A.* Director of Imoretalho - Gestão de Imóveis, S.A.* Director of Cunha & Branco - Distribuição Alimentar, S.A.* Director of Moser & Branco - Distribuição Alimentar, S.A.* Director of Dantas & Vale, S.A.* Director of Pingo Doce - Distribuição Alimentar, S.A.* Director of Casal de S. Pedro - Administração de Bens, S.A.* Manager of Friedman - Consultoria e Serviços, Lda.* Manager of Hermes - Soc. de Investimentos Mobiliários e Imobiliários, Lda.* Manager of Servicompra - Consultores de Aprovisionamento, Lda.*

José Soares dos Santos

Manager of Fima/VG - Distribuição de Produtos Alimentares, Lda. * Director of Fima - Produtos Alimentares, S.A. * Director of Victor Guedes Indústria e Comércio, S.A. * Manager of LeverElida - Distribuição de Produtos de Limpeza e Higiene Pessoal, Lda. * Director of Indústrias Lever Portuguesa, S.A. * Manager of IgloOlá - Distribuição de Gelados e de Ultracongelados, Lda. * Director of Iglo - Indústrias de Gelados, S.A. * Director of Gelcasa - Comercialização de Gelados e Ultracongelados, S.A. * Manager of Transportadora Central do Infante, Lda.

* Companies that are part of the Jerónimo Martins Group.


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António Borges Vice-chairman of Goldman Sachs International Member of the Board of Directors of Sonae.com Chairman of the Supervisory Board of Banco Santander de Negócios Portugal Member of the Board of Directors of Heidrick & Struggles (USA) Member of the Board of Directors of CNP Assurances (France) Member of the Board of Directors of SCOR (France) Member of the Board of Directors of Caixa Seguros (Brazil)

Rui Patrício

Member of the Board of Directors of Monteiro Aranha, S.A. Member of the Board of Directors of Monteiro Aranha Participações, S.A. Member of the Board of Directors of Companhia Industrial São Paulo and Rio Member of the Board of Directors of Portugal Telecom in Brazil Member of the Board of Directors of Espírito Santo International Holding

Hans Eggerstedt

Member of the Supervisory Board of Rodamco Europe N.V. Member of the Supervisory Board of Unilever Deutschland Gmbh Non-Executive Director of Colt Telecom Group, Plc. Member of the Advisory Board of ING Group Member of the Advisory Board of the Amsterdam Institute of Finance

Artur Santos Silva

Chairman of the Board of Directors of Banco BPI, S.A. and of the Banco Português de Investimento, Chairman of the Board of Directors of Banco de Fomento Angola Chairman of the Board of Directors of Banco BPI Cayman Member of the Board of Directors of the Calouste Gulbenkian Foundation Member of the Board of Cotec Portugal – Business Association for Innovation

Manuel Alves Monteiro

Chairperson of the Board of Directors of the Portuguese Association of Financial Analysts - APAF Chairperson of the Board of the Portuguese Institute of Corporate Governance Non-Executive Director of Sociedade Douro Azul, S.G.P.S., S.A. Member of the Committee of Admission and Discipline of the Forum of Company Directors – FAE; Member of the Board of 24 of the Commercial Association of Oporto – ACP;

Álvaro Troncoso Does not hold any other company post.


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4.2. Executive Committee The main role of the Company’s Executive Committee is to assist the Board of Directors in its management functions. As a delegate body of the Board of Directors the Executive Committee is responsible for the following functions:

• Monitoring the implementation by the Group’s Companies of the strategic guidelines and policies outlined by the Board of Directors; • Financial and accounting control of the Group and its Companies; • Top-level coordination of the operational activities under the responsibility of the various Group Companies, whether or not integrated into business areas; • Supervision of new business, during its launch phase and while the respective Companies are not integrated into a business area; • Implementation of the Human Resources management policy outlined for the entire Group’s executive staff.

The Executive Committee meets at the Company’s Head Office, or at any other location. The Chairperson is responsible for convening and running the meetings, setting the respective date and time and establishing an agenda. In 2004, the Executive Committee met 39 times. Although the Members of the Executive Committee exercise their functions in a corporate way, they also have supervisory responsibilities over specific areas, namely: Luís Palha da Silva (President): Development and Strategy, Internal Audit, Financial Area, Reporting and Operational Control, Investor Relations, Legal Affairs and Communication; Pedro Soares dos Santos: Operations in the area of Food Distribution, including Sourcing, Logistics, Quality Control, Human Resources, and Information Systems. José Soares dos Santos: Operations in the area of Manufacturing and Representation and Marketing Services. Of the Members of the Executive Committee, Mr. Luís Palha da Silva is considered Independent under the terms of the amendment to Article 1, paragraph 2 of Regulations 07/2001. 4.3. Structure and Role of the Board of Directors Under the terms of the by-laws, the Board of Directors consists of an odd number of effective Members, with a minimum of seven and a maximum of twenty-one, and for one to three reserves. At present, the Board of Directors consists of nine Members, of which three are Executive and six Non-Executives. Since the Board of Directors has Independent Members and Non-Executive Members, it is endowed with a range of skills that enriches Company management. It brings together a wide range of technical skills, contact networks and connections with national and international entities, which optimises the Board’s contribution to the governance of the Jerónimo Martins Group from the standpoint of creating value for shareholders and defending their interests. For


53

this same purpose, since the election of the Board of Directors for the three-year period 2004-2006, there has been an increase in the number of Independent Members, at present totalling five of the nine Members. Furthermore, the practices of Corporate Governance have been reinforced and the Chair of the Board of Directors (under the responsibility of Mr. Soares dos Santos) has been separated from the Chair of the Executive Committee (under the responsibility of Mr. Luís Palha da Silva). The Board of Directors meets at least four times a year and any Member may be represented at the Board meetings by another Member, by means of a letter addressed to the Chairman. Except when otherwise provided, decisions are carried by majority vote. In the event of a tie, the Chairperson has the casting vote. The duties of the Board of Directors are described in article 12 of the Company Articles. The matters referred to in article 407, paragraph 4 of the Commercial Companies Code are denied to the Executive Committee. The Board of Directors has delegated several duties to the Executive Committee, such as management of corporate business within the ambit of the day-to-day management of the Company. This includes approving expansion plans, representing the Company and financial management of the Group, among others. However, the Board of Directors has effective control over the company’s orientation, always seeking to be duly informed and ensuring supervision of Company management. For this purpose, it meets at regular intervals and held five meetings in 2004. To this end, the Board of Directors has at its disposal the minutes of the Executive Committee meetings, in which the matters discussed and the decisions taken are recorded. At each Board meeting, the Executive Committee reports on Company activity since the last meeting, and is ready to provide any further clarification that the Non-Executive Members may require. 4.4. Remuneration Policy of Board of Directors Under the terms of its obligations, the Remuneration Committee, which met on 12th May 2004, established the parameters of the aforementioned payment. This will have a fixed component and a variable one, with the aim of making it more competitive in market terms. It will also serve as a motivating element for high individual and collective performance, allowing aggressive objectives of fast growth to be established and obtained. The Remuneration Committee thus decided that global remuneration should include a fixed component, a variable component and fringe benefits.


54

The variable component is approved annually by the Remuneration Committee, according to the proposal submitted by the Chairperson of the Board of Directors, who will take into account business evolution and assessment of the performance of the Executive Committee during the previous financial year.

4.5. Remuneration of the Members of the Board The remuneration paid to the Members of the Board during the financial year of 2004 totalled EUR 2,280,849.50, with the Executive Members earning EUR 1,683,246.93 (EUR 1,040,396.22 relative to the fixed part and EUR 642,850.71 relative to the variable part) and the Non-Executive Members EUR 597,602.57.

III. Consolidated Management Report

56 0. Relevant Facts to 2004 58 1. Macroeconomic Environment 58 1.1. The World Economy

59 1.2. Portugal 59 1.3. Poland

61 2. Sectorial Environment 61 2.1. The International Food Retail Market 61 2.2. Food Retail Market – Portugal 62 2.3. Wholesale Food Market – Portugal 63 2.4. Food Retail Market – Poland

64 3. Overview of the Group’s Consolidated Activity

64 3.1. Consolidated Sales 66 3.2 Operating Results 68 3.3. Net Results 69 3.4. Balance Sheet 72 3.5. Return on Invested Capital 72 3.6. Jerónimo Martins in the Capital Market

74 3.7. Financial Performance 2000-2004

75 4. Food Distribution - Portugal

75 4.1. Pingo Doce 76 4.2. Feira Nova 79 4.3. Recheio

81 4.4. Madeira 82 4.5. Functional Operations Management

87 5. Food Distribution - Poland

87 5.1. Biedronka 90 6. Manufacturing

90 6.1. FimaVG 91 6.2. LeverElida 94 6.3. IgloOlá

96 7. Representation and Marketing Services

96 7.1. Jerónimo Martins Distribution 97 7.2. Caterplus 98 7.3. Hussel 98 7.4. Jeronymo 98 7.5. PGJM

100 8. Human Resources

101 9. Simplification of Internal Management Processes

101 9.1. Distribution Portugal 102 9.2. Distribution Poland 103 9.3. Manufacturing

105 10. Group Investment Programme

105 10.1. Investments 107 10.2. Disinvestments

108 11. 2005 Outlook

111 12. Events after Balance Sheet Date

112 13. Proposed Application of Results

113 14. Consolidated Management Report Annex

115 15. Financial Glossary

117 16. Contacts

Annual Report’04 – Consolidated Management Report

56

Operational Activity January

• Refurbishment of Velasques Pingo Doce store (store closed for 25 days)

February • Refurbishment of textile areas at Évora and Santarém Feira Nova stores,

with the launch of the New Code brand • EUR 50 million bond loan placed by Recheio SGPS, S.A.

March • Approval of new Commercial Licensing Law • Opening of a new Pingo Doce store at Cancela, in Madeira Island • Joint venture agreement between JMDpc and Puig, with the aim of

developing distribution activity for perfume products

April • Refurbishment of ElectricCo (household appliances and leisure) at Évora

and Santarém Feira Nova stores • Election of the Board of Directors and Executive Committee members for

the three-year period 2004-06

May • Opening of the 2nd Food Service platform of Recheio, in MARL, Lisbon • Opening of the Pingo Doce store at Sertã (acquired from the Costa Pais

group), after refurbishment • Begininig of the TV adds under the slogan “This is not a promotion! These

are the everyday low prices at Pingo Doce”, with the participation of the Pingo Doce’s own category managers.

• JM Dystrybucja awarded the excellence prize at the Polish Logistics Congress LOGISTICS 2004

June

• Feira Nova advertising campaign launched during Euro 2004, with the slogan “Support Portugal”

• B2B project launched, through the JMDirect Portal • Rights issue of 30 million Jerónimo Martins SGPS, S.A shares at nominal

value, resulting in a EUR 150 million share capital increase • Private Placement debt issue in USA, for 7 and 10 years, with a total of

EUR 151 million July

• Biedronka awarded the first ever Super Brands diploma for a retail chain in Poland

• Opening of 3 Feira Nova stores purchased from the Costa Pais Group (Covilhã, Fundão and Ponte de Sôr), after refurbishment.

• Jerónimo Martins awarded the 2003 Best Annual Report award for non-financial companies at the “Investor Relations Awards 04”, organized by

0. RELEVANT FACTS TO 2004


57

Deloitte in collaboration with the Semanário Económico and Diário Económico newspapers

August

• Biedronka central head offices transferred from Poznan to Warsaw • Refurbishment of the Sassoeiros Pingo Doce store (store closed for 15

days)

September • 700th Biedronka store opens in Poland • Wyszkow Distribution Centre extended in area, with a new, more efficient

layout concept • New frontoffice cash sheet control system introduced in Pingo Doce and

Feira Nova stores • JMDpc awarded the "Sales Force Automation" prize in “ Category IV –

Process Mobilization” at an event dedicated to “Business Mobility Solutions 2004”, promoted by Optimus

October

• Refurbishment of the Feira Nova store at Venda Nova, converted to the new medium-size store concept, incorporating mini-hypermarket + Eletric Co store + NewCode store (store closed for 1 ½ months)

• Opening of Hussel-Olá store at Maia Shopping shopping centre • Opening of first Feira Nova petrol station, in Ponte de Sôr

November • Opening of Pingo Doce store in Queijas • Refurbishment of Pingo Doce store in Gaia (store closed for 15 days) • Launch of the “Feira Nova Car” project (new and used car sales), at the

hypermarket in Sintra

December • Biedronka achieves 300 million customers • Opening of Pingo Doce store at São Bento, in Lisbon • Pilot test of the “In store TV” project, at Feira Nova in Sintra • Agreement with the Unilever Group to incorporate Bestfoods Portugal into

FimaVG


58

1.1. The World Economy 2004 saw a strengthening in economic activity, based on solid growth in international commerce and a recovery in business investment. World GDP growth is estimated at around 5%, which is the highest rate for almost three decades, influenced greatly by the behaviour of Asian economies. It seems, then, that important events of the year in terms of geo-political tensions and high oil prices had a lower-than-expected effect on overall global economic growth in 2004, although there was also a widespread tendency for economic slow-down throughout the year. The main geographical economic regions differed in terms of growth rates, although differences were less sharp than those seen in 2003. Both the USA and Japan should show growth rates above 4% for 2004. While robust growth in the US was based largely on a strong increase in business investment, Japan’s growth was due both to a marked increase in exports and to favourable investment by companies, helped by structural adjustments in the financial and business sectors. China will in all probability maintain the growth rate of 2003, at around 9%. The Euro Zone performed worst of all the developed economies, but a growth rate of around 2% still represents an improvement on 2003. This was largely due to a more dynamic export market and to the strengthening economies of its main economic partners. Among the Euro Zone countries, Ireland is worth highlighting, with its growth rate expected to be around 5%. Oil prices hit record highs, surpassing 50 dollars a barrel, higher than those of February 2003 when military conflict in Iraq was imminent, and even those of 1990, when Iraq invaded Kuwait. The main reasons for such highs are: (i) higher than expected global demand for oil (influenced by the increased integration of China and India in global commerce), (ii) on the supply side, political instability in some oil-producing states (The Middle East countries, Venezuela, Nigeria), giving rise to sustained doubts about the reliability of future supplies, and (iii) reduced oil stocks for commercial ends in industrialized economies, with subsequent fears of production difficulties at refineries. Despite favourable economic growth, the principal stock markets increased by less than 10%, substantially lower than the figures for 2003. Although they were boosted by positive profit figures and consolidated company balance sheets, share prices were hit by uncertainty about the impact of oil price rises on business, and consequently on future company results. Long-term interest rates on bond markets remained at historical lows. Official interest rates of the main economies also remained low, notwithstanding the fact that some monetary institutions increased their rates (the USA and UK), as a result of their accelerating economies and inflationary pressures. The Euro hit consecutive record highs against the dollar (over 1.36 dollars to the Euro), 60% up on 2001 figures, with obvious effects on the competitiveness of European exporters.

1. MACROECONOMIC ENVIRONMENT


59

In 2004 overall inflation in the developed economies never rose much above 2%, with increased oil prices having little effect on prices in general, because of the moderating effects of secondary factors. With regard to budget policy, the main economies behaved differently. While the health of public finances in the US and the Euro Zone deteriorated, the situation in the UK and Japan remained relatively stable. US budget policy continued to be clearly expansionist, which contributed to a worsening of foreign debt, with budget and trade deficits reaching historic highs. In the Euro Zone, the budget deficit continued its negative trend, reaching nearly 3% of GDP in 2004. 1.2. Portugal The Portuguese economy was characterized by moderate product growth, supported by strong expansion in internal demand and imports, and thus inverting the recessionary trend that began in mid-2002 and continued throughout 2003. The Portuguese GDP probably rose around 1 percentage point, which compares to -1% in 2003. The unemployment rate is among the highest recorded in recent years, and debt, which was already high, increased on 2003 figures, probably catalysed by attractively low interest rates. Savings probably fell in 2004, with estimates of domestic consumption (The Central Bank of Portugal estimates a rise of 2.2%) being higher than private available income. Inflation continued to fall, reaching a low of 2.4%, despite increases in energy prices. The dynamism of the economy was affected in part by successive changes in the political sphere throughout the year. In terms of budgetary policy, it has only been through extraordinary measures since 2002, involving extremely high sums that the ratio of budget deficit to GDP has been kept below the 3% ceiling imposed by the EU treaty. This tendency was maintained in 2004. The Portuguese stock market achieved significant gains in 2004, with the PSI-20 – the Euronest Lisbon index – increasing more than 12%, with small caps giving the best returns over the year. After a first quarter characterized by strong gains, the PSI-20 index hit its highest point in March; there followed a fall, mainly influenced by the Madrid terrorist bombing on 11th March, and by the increase in oil prices. The final months of the year saw new gains, helped in large part by company results. 1.3. Poland Having joined the EU in May 2004, Poland achieved one of the highest levels of economic growth in Europe, mainly sustained by a dynamic export market and domestic demand. Although after the first half of the year Poland’s GDP was showing an increase of around 6.5%, annual rates for GDP growth are now expected to be slightly above 5.5%, with the fall due mainly to a slow down in exports (rising Zloty), to lower investment and to a fall in industrial production.


60

At various times the Zloty hit record highs against the principal currencies, thereby reversing the downward trend seen in 2003. Its best relative performance in 2004 was against the Euro (with an increase of 15.1% on 2003). Dollar values were the lowest for several years against the Zloty. While inflation rose considerably in the first half year, it was at approximately 4% by the end of the year, influenced by low food prices and the rise of the Zloty. Unemployment fell from 2003 levels, but remains high (close to 19%). The Central Bank of Poland kept its interest rate unchanged from August 2004, at 6.5%.


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2.1. The International Food Retail Market The Food Retail Sector kept up a notable pace in 2004, with intense competition. With a focus on high profit levels, the main players in the sector put expansion plans to new geographical and new business areas on hold. 2004 saw decisions on the part of some of the largest global retailers to abandon countries they had been operating in, in order to concentrate their efforts on less risk-sensitive markets and those where they hold better market share. Geographical expansion was also held back by efforts on the part of companies to reduce their debts, incurred through aggressive expansion policies in recent years. Despite this, China was still a favourite for those companies that continue to adopt geographical expansion policies. The Chinese government’s decision at the end of the year to abandon restrictions on foreign investment, coupled with the enormous potential for growth in the market, help sustain its attractiveness. Central and East European countries created a great deal of interest in the sector. This was particularly the case for Russia, and does not include Poland, which has had all the main international retail operators for a number of years now. Given the fact that the modern Distribution sector is still at an early stage in these economies, and that many of them joined the EU in 2004, the potential for growth is considerable. The German chains have in general been the most active in these countries. Bearing in mind the increasing saturation of the main markets and the broad economic and consumer trends, there was continued pressure on prices. This fact, along with market positioning, meant that the discount format continued to be internationally dynamic. 2.2. Food Retail Market – Portugal At the end of 2004, the Retail Sector1 showed growth rates of 2.7%, corresponding to a sales volume of approximately EUR 7 thousand million. Bank of Portugal estimates for private consumption vary between 1.5 percentage points and 2.5 percentage points. The biggest change in the Retail Sector in 2004 came with the law for commercial licencing. In the previous three years, no licences to open new shopping spaces had been issued because the quotas of the Commercial Units of Relevant Size, enshrined in decree-law nº 258/97 had been exhausted. The law brings new perspectives to the sector, although there have been some criticisms that local government will have too much control over the issuing of new licences, with the European Commission launching a formal investigation into the law. The various market sector players presented 504 applications under the new law: 283 related to food units, 193 for specialized retail, two for wholesale businesses

1 Figures based on members of APED (Associação Portuguesa de Empresas de Distribuição)

2. SECTORIAL ENVIRONMENT


62

and the rest for shopping centres. Lisbon and the Tagus Valley was the region with the greatest number of applications (200), followed by the North and Centre (170 and 72, respectively). Alentejo region (with 36) and Algarve (with 26) made up the rest. The approval process for these applications was still underway at the beginning of 2005, so there is still no clear idea as to the effective results of the new legislation. In 2004 30 new stores from the Organized Distribution, were opened under licences issued within the previous licensing law. In comparison with the previous year, the discount sector was less dynamic in terms of new stores, representing less than 20% of the total number of new stores. In the hypermarket sector, one new store was opened in October, already licensed under the new legislation. The year was chiefly characterized by continued aggressive price strategies, both as a means of attracting customers during a less-than-favourable socio-economic period, and also because of increased pressure from the discount sector. One relevant development in the sector was the recommendation of the Competition Authority for the opening up of the vehicle fuel market to Distribution companies, in order to intensify competition in the sector and to benefit the consumer. Food Distribution companies have therefore entered this new market, and deals between food distributors and fuel distributors have intensified. 2004 also saw increased investment on behalf of Food Distribution companies in the clothing, electrical appliances and IT & DIY sectors, through new, specialized private labels to complement Food Retail brands. This has especially been the case in smaller cities. 2.3. Wholesale Food Market – Portugal After a period of growth in 2003, the Portuguese wholesale market contracted in 2004 by around 1.5 percentage points2. This was in large part due to factors such as greater pressure from the Modern Retail sector on the Traditional Food Retail sector, a fall in the tourism sector and some shrinkage in food consumption. Euro 2004 and the Rock in Rio festival seem to have had a below-expected result on profits in the hotel industry, with Euro 2004 probably having affected the number of non-football-fan tourists visiting the country and having had positive effects only in those areas near the stadiums or the areas where fans were concentrated. The main channels of the wholesale market, Traditional Food Distribution and the Hotel Industry continued to show different results3. The Hotel Industry channel propably kept its value on the previous year, while the Traditional Retail channel continued its downward trend. The hotel industry sector has shown appreciable gains in recent years, with market penetration of cash & carry remaining insignificant.

2 Company Estimates 3 Company Estimates


63

2.4. Food Retail Market – Poland The Polish Distribution market continues to show significant dynamism, with new shopping spaces continuing to open and private consumption growth of around 3.7%. With almost all of the main international Retail players operating in Poland, it is the most aggressively competitive market in Central Europe. As a consequence, a number of companies abandoned their operations there in 2004, and others reduced their store numbers. There was also a move to transfer Traditional Retail stores to Organized Retail operators. Despite this fact, Traditional Retail continues to represent over 50% of the Polish market. In 2004, 220 new stores opened. The discount format was the most dynamic, with the opening of around 150 new stores. While saturation is high in the hypermarket sector, over 30 new stores opened, mainly due to expansion on the part of the German chain Lidl/Kaufland. Also worth noting is the purchase by Carrefour of 13 Ahold hypermarkets, as part of the latter’s restructuring programme. Despite high levels of dynamism and aggressive competition in the market, Poland’s entry to the EU in May 2004 will surely attract more investment still in the Retail Sector.


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The various Operating Divisions expected 2004 to be a year full of challenges. This called for the definition of a very strict action plan in terms of the strategic positioning established for each Company. Despite the competitive environment deterioration during the year and the fact that the recovery of consumption lagged behind expectations, the performance of Jerónimo Martins shows that the strategic options taken during the last years were the right ones. 3.1. Consolidated Sales Jerónimo Martins consolidated sales grew by 3.6% on a comparable basis, driven by the good performance of the Distribution Companies throughout the year, which culminated in an excellent fourth quarter, particularly for Pingo Doce and Biedronka.

3. OVERVIEW OF THE GROUP’S CONSOLIDATEDACTIVITY


65

The Pingo Doce supermarket chain pursued in 2004 the strategy initiated two years ago: commitment to a competitive and stable price policy; differentiation through a comprehensive and high quality assortment of Perishables; and investment in the Private Label as an instrument of competitiveness and innovation. Throughout the chain’s performance confirmed the success of its repositioning. The effectiveness of the communication policy in conveying to the public a policy of competitive prices, allied to the consistency of the strategy itself over the last few years, led to a 2.3% increase in like-for-like sales (5.3% in the last quarter of 2004), despite an average deflation of 3%. The investment made in the Pingo Doce Private Label, with a number of products of various categories being launched, yielded a 28.9% year-on-year increase in the respective sales. Feira Nova, operating in the hypermarkets format, was the most affected by the deterioration in the competitive environment. Still, the chain pursued in 2004 its refurbishing plan and introduced new Non-Food concepts under the Electric Co and New Code brands, putting into practice the repositioning of its stores. Total sales remained at last year’s level. Three new stores were opened in July, and six were temporarily closed for refurbishing works, some of them fully and some only partially closed. The Recheio cash & carry chain performed well in the HoReCa channel, with sales in this channel rising by 3.4% over the previous year. The events held in Portugal in 2004 such as the Euro 2004 and the Rock in Rio festival ended up having a short-lived impact and did not have the anticipated effect of perking up consumption. The Traditional Retail channel was badly hit by the competitive climate surrounding the whole Food Retail Market, its retraction reflecting on Recheio’s performance. Still Recheio reinforced its lead in the cash & carry segment and increased its market share. By pursuing a competitive price policy, as demonstrated by a deflation figure of 2% in 2004, and adequately working its communication startegy, the supermarkets operation in Madeira registered a significant sales, posting like-for-like growth of 1.2%. The Retail in Madeira now has a new store, opened in March 2004 under the Pingo Doce brand. The Madeira cash & carry operation was able to sustain sales at the previous year’s level despite the decline in the island’s tourism activity. In Poland, Biedronka maintained its commercial aggressiveness, closing the year with an excellent sales performance, an increase of 9.4% on a comparable basis. The chain’s capacity to grow from the same group of stores and the opening of 55 new units resulted in a rise in total sales of 17.5% in local currency.


66

The rise of the zloty as from the second half of the year was not yet enough for the rise in sales in local currency to have a corresponding impact when translated into euros. The sales of the Companies in the Manufacturing area, affected by various different factors, registered a drop of 10.1% when compared to the previous year. FimaVG, while making good progress in most of the categories in which it operates, suffered a considerable loss in the sale of soft drinks as a result of the rainy weather in the summer of 2004 (particularly as it came after an excellent summer in 2003). LeverElida’s sales were penalised by increased competitiveness from the Distribution operators, which were particularly aggressive in detergents and personal care products, mainly through Private Labels. IgloOlá’s sales were likewise affected by the above mentioned weather conditions, which were not the best for selling impulse ice creams. As to the Marketing and Representation Services, the year was marked by the end of representation of three important brands of the portfolio, and resulting negative impact on sales. If this effect is excluded, sales grew by 2.2%.

The breakdown of sales by the Group’s different business areas remained quite stable. The only change worth noting was the increase in the relative weight of sales by the Biedronka chain in Poland which came as a result of the aggressive expansion plan outlined for the area, as well as the performance of the chain’s sales on a comparable basis. 3.2. Operating Results In 2003 the Group identified an area in the market in which it operates where immediate action was required, which was the need to be competitive in prices. This diagnosis called for internal work on the permanent identification of potential

Sales 2003*

M anufacturig and Services

10%

B iedro nka27%

M adeira3% C ash & C arry

17%

R etail P o rtugal

43%

*excluding disposals

Sales 2004

B iedro nka30%

M adeira3% C ash &

C arry17%

R etail P o rtugal

41%

M anufacturing & Services

9%


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opportunities for efficiency gains as a condition for strengthening the competitiveness of the businesses and guaranteeing their profitability. The improvements obtained through a number of projects that were put into practice made it possible to invest in prices while simultaneously guaranteeing business profitability.

In 2004, the decrease in operating costs combined with the reduction in the value of inventory losses made for an important gain in terms of the EBITDA margin, also adding to the various businesses’ capacity to compete in a market whose aggressiveness is not expected to relent. The good progress of operating results (EBITA), up by 10.5% on the previous year, confirms the Group’s capacity to grow without sacrificing the margin, and testifies to the determination of all Business Areas to raise the efficiency of their operations. The increased competitiveness of the Retail operations in Portugal and Madeira, as demonstrated by the sales performance, came as a result of the restructuring and simplification of store processes which, besides yielding immediate gains, prepared the Companies for an increasingly competitive market.

EBITDA Margin

8,6%8,7%

5,2%

7,5%

10,1%

7,8%

4,4%

15,7%

4,4%

17,4%

4,9%

8,5%7,5%

10,4%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

2003 2004

* excluding disposals


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Likewise, the focus In Poland was also placed on maximum efficiency, greatly contributing to a reinforcement of the chain’s competitive capacity: Biedronka, which continued to stand as the cheapest operator in the Polish market, raised the operating cash flow margin by 0.5 percentage points. Also very important was the work done in 2004 at the level of logistics, a fundamental concern given the scope and geographical dispersion of Biedronka’s group of stores. In the Manufacturing area, a timely diagnosis of the problems affecting sales during the whole year allowed the Companies to make a quick readjustment of processes so as to sustain profitability at the 2003 level. The operating cash flow margin (EBITDA) reached 17.4% of sales, staying at the previous year’s level in absolute terms. In comparative terms, operating results (EBIT) are affected by Jerónimo Martins’ decision to adopt as from 1 January 2004 the latest changes introduced in the International Accounting Standards/International Financial Reporting Standards (IAS/IFRS), namely to suspend the amortisation of goodwill and other intangible assets whose useful life cannot be determined, which are now subject to impairment tests. If we exclude the effect of this change of criterion, operating results (EBIT) grew by 9.7% on a comparable basis, or by 0.4 percentage points as a percentage of sales. The growth of Biedronka’s sales, combined with the business’s rising profitability, led to an increase in the weight of the international area in the cash flow generated by the Group.

3.3. Net Results The net consolidated results of Jerónimo Martins reached EUR 92.5 million, reflecting the good operating performance of the businesses that make up the Group’s portfolio.

EBITDA 2004

R etail P o rtugal

49%

Others1%

B iedro nka17%

M adeira3%

C ash & C arry15%


15%

EBITDA 2003*

C ash & C arry15%

M adeira3%

B iedro nka14%

Others2%

R etail P o rtugal

50%


16%


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This net profit is still affected by negative non-recurrent items to the amount of EUR 7.3 million. The most significant were the loss determined on the conclusion of the sale of Eurocash (EUR 8.5 million) and the provision set up by the Manufacturing area (EUR 5.4 milion) for the implementation of a restructuring plan in the three Companies included in the joint venture. The purpose of this restruturing is to achieve a simplification at corporate and operating level that in the medium term will have a significant impact on costs. On the positive side in terms of their contribution to net profit, the main items were the proceeds of the sale of three LeverElida and IgloOlá brands, the compensation received by the Marketing and Representation Services for the termination of the contract of one of the represented brands, and the dividends received from BCP.

3.4. Balance Sheet Having concluded the restructuring plan, the Group initiated 2004 with a stable business portfolio but with a capital structure that was not yet compatible with the development projects for the various Business Areas. Strengthening the balance sheet was thus a clear management priority in 2004. Hence during the year an important effort was made to balance the capital structure, not only at the level of the debt, but also through the capital increase carried out on June 30th.


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3.4.1. Debt The Jerónimo Martins Group closed the year with a consolidated debt of EUR 612 million, which includes the net disbursement of approximately EUR 80 million corresponding to advances on financial investments linked to the integration of BestFoods into FimaVG. In the development of its activities, the maturity of the debt, financial efficiency and the stability of the balance sheet of the various Business units have deserved close attention and work.

At the beginning of February the Group placed a 5-year bond loan to the amount of EUR 50 million issued by Recheio SGPS, S.A., with semi-annual coupon payments at 6-months Euribor. JMR opted for the United State’s private placement market, where at the end of June it placed a total of 180 million dollars. The investors reacted positively to


71

demand for long-term issues totalling 150 million dollars, requesting 84 million dollars maturing in 7 years and 96 million dollars maturing in 10 years. Banking on the positive evolution and financial health of the Polish operation, Jerónimo Martins Dystrybucja contracted loans with local banks for a total of 350 million zlotys. These funds were used to repay previous loans contracted in Portugal in euros, allowing the Group to make the natural coverage of its investment in Poland. 3.4.2. Capital Increase On 30 June the Group carried out a capital increase through a rights issue, which had been approved by the General Shareholders’ Meeting. The issue of 30 million new shares at the price of 5 euros each was entirely subscribed, with additional requests exceeding the amount of the issue itself, raising proceeds of EUR 150 million. The funding achieved throughout the year allowed the reimbursement of JMH/97 bond loan, for a total of EUR 193 million, with only a limited use of short-term credit lines. The financial entities’ perception of the Group’s evolution was quite positive: negotiated spreads on short-term credit lines were consistently reduced, financial entities increased their involvement with Jerónimo Martins, and the Group was approached by new banks wishing to establish a financial relationship. 3.4.3. Investment As a result of the work carried out during the year, the consolidated balance sheet was reinforced, enabling the Group to pursue the expansion plan that has been outlined and to take the growth options it considers will be value creative. The Group’s capital expenditure in 2004, excluding the disbursement for BestFoods’ integration, totalled EUR 103 million, of which 47% was spent on the expansion of the Retail chains in Portugal.

Investment 2004

Cash & Carry

7%

Madeira2%

Biedronka40%

Others4%

Retail Portugal

47%


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3.5. Return on Invested Capital Return on Capital Invested considerably improved across most of the Business Areas, either through productivity gains or through higher capital turnover.

Biedronka’s performance was particularly noteworthy, with return on capital invested rising by 6.9 percentage points. This result came about not only on the back of the EBITA margin, which as a percentage of sales advanced by 0.9 percentage points, but chiefly due to the significant increase on the previous year in capital turnover. The overall performance of the businesses comprising the Group’s portfolio led to a year-on-year increase of nearly 1 percentage point in Jerónimo Martins’ Pre-Tax ROIC, which reached 17.9% in 2004. 3.6. Jerónimo Martins in the Capital Market 2004 witnessed an increase in the confidence of the analysts that monitored the performance of the Jerónimo Martins share in the stock market with regard to the strategy announced by the Group. Over the year, the operating performance of the various businesses and the decisions taken in the context of the financial strategy clarified and underlined the possibilities and determination of the message that the Group was sending to the market.

PreTax ROIC

11,0%

28,6%

7,1%

14,0%10,8%

14,1%

29,3%

12,3%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

Retail Portugal Cash & Carry Madeira Biedronka

2003 2004


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0

1

2

3

4

5

6

7

8

2001 2002 2003 2004

Sell/Reduce/Underperform Hold/Neutral Buy/Accumulate/Add

ANALYSTS RECOMENDATIONS

0

1

2

3

4

5

6

7

8

2001 2002 2003 2004

Sell/Reduce/Underperform Hold/Neutral Buy/Accumulate/Add

ANALYSTS RECOMENDATIONS


74

3.7. Financial Performance 2000-2004


75

4.1. Pingo Doce Eduardo Cid Correia –General Manager “2005 will see a continued commitment to the principles of persistence and consistency on the part of Pingo Doce. The contribution of the whole Pingo Doce team, as well as that of our suppliers, will be decisive in ensuring success in the competitive scenario we find ourselves in." Mission Statement To be the best supermarket chain selling fresh products in Portugal, able to provide consumers with high quality food solutions for the whole family, thereby maintaining with them a long-term relationship of trust. In 2004 the success of the chain’s positioning policy was reflected in sales growth of 2.3%, with the same network of stores, with sales volume at EUR 810.4 million, 1.6% up on the previous year, largely due to an increase in customer numbers of 3.2%. These results were achieved in a difficult competitive and macro-economic environment, with strong downward pressure on prices, namely due to discount stores. In 2004 prices in Pingo Doce stores fell around 3% in relation to 2003, which compares to average consumer price rises in the year (to November) in Portugal of +2.5%. Investment in advertising over the year aimed to consolidate perceptions of Pingo Doce as being competitively priced, with managers bearing witness to the work done to this end in television ads. The television campaign beginning in May with the slogan “They’re not special offers! They’re the everyday low prices of Pingo Doce” - remained on air until the end of 2004. In the last quarter of the year, advertising was essentially for the launching of important private label products, in particular the new-formula washing powder and the new Activ Pet line of pet food. Private label products capitalizing on the strength of the Pingo Doce brand, which are a strategic priority of the group, showed growth of 28.9% on 2003. In Perishables, Pingo Doce continued to bank on Quality as a differentiation factor, with a selection of prime products, combined with innovation in storage techniques. Results obtained in some categories justify such differentiation in relation to the competition. In this area, the role of the private label was also fundamental, with the launch of new products in the delicatessen, dairy and frozen food areas. The creation of a centralized fish warehouse allowed Pingo Doce innovation in this area, with the introduction of different types of fresh fish.

4. FOOD DISTRIBUTION - PORTUGAL


76

The take away area was also developed, with a number of high quality ready meals introduced. In all, fresh products sales increased 1.9%, with the prices falling more than 3.5% on 2003. Pingo Doce ended the year with a assortment that satisfies customers and with improved efficiency in operational terms. New products were introduced in areas where Pingo Doce traditionally stocked regular, less attractive items, such as the bazaar, and in&out strategies were intensified, to enable new products to attract customers to the stores, and where, due to the high rotation of a product, interesting results may be obtained. 2004 saw a reduction of 1.15 days in average store inventories, mainly as a result of improvements in turnover rates. Efforts to cut sales prices resulted in a decrease in margins of 1.5 percentage points, which was offset by a reduction in operational costs, thereby maintaining net operating results at 2003 levels. The increased efficiency and productivity of the Company can be explained by process simplification strategies in various areas. Three stores were opened in 2004: Sertã, in May; Queijas, in November; and São Bento, in December. The Tivoli store was closed down and three large-scale refurbishments took place: Velasques, Sassoeiros and Gaia. With the introduction of the new commercial licensing legislation, Pingo Doce applied for a number of licences for new premises during both application phases, in June and October. In 2005, with the prevailing highly competitive environment as well as predicted difficulties in the macro-economic outlook, Pingo Doce will continue the strategic plan mapped out in 2002: to reinforce the conversion of regular peripheral customers to nuclear customers through reducing obstacles to the purchase of a higher volume of merchandise purchased, namely in categories with lower market penetration. This, coupled with increased experience in the fields of category and operational management, continue to be the key vectors of the company’s operations. 4.2. Feira Nova João Queimado – General Manager “Faithful to its mission statement and to its commitment to its customers, Feira Nova worked hard to continue offering the lowest prices to our customers, who in turn continued to see us as the cheapest in the regions where we are present. The optimization of processes and practices and the continued refurbishment of stores in the Feira Nova, ElectricCo and New Code chain were priorities projects for 2004, and will remain so for 2005. We have improved productivity in our stores and have prepared the company for a new year that we predict to be full of competitive challenges. We have a clear


77

strategy which is understood by all who work in the company, so there are good reasons to look to the future with optimism and enthusiasm.” Mission statement: To be a brand the Portuguese consumer can rely on to be the cheapest for food products, with high quality fresh produce and sufficient variety for them to be able to do both daily shopping and one-stop shopping. Feira Nova is highly involved with the local community. 2004 saw the consolidation by Feira Nova of the concept of middle-size stores, as the format with the highest potential for future development, sustained by heavy investment in refurbishments of the store network and the development of non-food stores as complements to Feira Nova. At the same time, and in the face of increasingly competitive pressure in the hypermarket sector, the brand made efforts to reinforce the competitive stance of the hypermarkets, with localized campaigns to increase its market aggressiveness. This was seen as the formula to resist the heavy investment in price cutting seen all over the market, as well as the introduction of new formats and players, namely discount stores. Besides the above, and despite the adverse economic environment, Feira Nova was able to maintain focus on keeping the Company profitability level. In terms of refurbishment, priority was given to the medium-sized stores of the Feira Nova network, with the aim of presenting a uniform image for all the brand’s units and also consolidate the specialized formats of electrical appliances and leisure (with the brand Electric Co) and clothing (with the launch of the New Code brand for specialized clothing stores). Work was carried out in the following stores: Póvoa de Santo Adrião (Feira Nova), Venda Nova (Feira Nova, Electric Co and New Code), Santarém (Electric Co and New Code) and Évora (Electric Co and New Code). In the hypermarket format, in Braga and Santa Maria da Feira, Electric Co stores were refurbished in line with the new concept, and the Barreiro store underwent complete refurbishment of all sections and infrastructures, without closing. Besides this investment in refurbishment, three new medium-sized stores were opened in July, in the cities of Ponte de Sôr, Fundão and Covilhã. These stores were refurbished in record time, and results have borne out the attraction of this format to the consumer. The Ponte de Sôr store also had an ElectricCo store incorporated. At the end of 2004, the Feira Nova network included 19 medium-sized stores, 9 hypermarkets, 17 Electric Co and 11 New Code stores. With innovation being the driving force behind the Company philosophy for growth, new businesses were introduced in some Feira Nova stores. After a test phase, dedicated to evaluate the attractiveness and growth potential of these businesses, the scheme will be extended to the remaining Feira Nova units. Examples of these schemes are the first Feira Nova petrol station in Ponte de Sôr, and the sale of new and used cars (Feira Nova Car) in Sintra.


78

Equally innovative was the launch of the first in-store TV channel, the first for retail outlets in Portugal. Feira Nova In-store Vision allows the Company to promote special offers and services in a dynamic, modern format, which also allows advertisers to be able to push their products in the store, where most customer purchasing decisions are made. It is also important to mention the innovative advertising and publicity campaigns carried out over the year:

• In partnership with BP, customers were given cross-discounts: In Feira Nova stores, they were given discount vouchers for BP petrol stations, and at BP, they received Feira Nova shopping vouchers;

• During Euro 2004 a mega-campaign was launched under the slogan “Support Portugal”;

• Tickets were given to customers for the Rock in Rio rock festival. Despite the recessionary environment seen in 2004, it is worth noting that the number of transactions increased by 6.1% in medium-sized stores, and 1.7% in the hypermarkets. This increase in the number of transactions is a result of the customer base loyalty-building strategy, as well as constant investment in the Perishables area and in advertising, through the daily campaign entitled “Great Selections”, shown intensively in the mass media, and particularly in television. The Perishables area has been, and will continue to be, one of the main strategic pillars of Feira Nova, and is borne of a commitment to quality, supported by the know-how and history of the Jerónimo Martins Group in this area. This investment was rewarded by customer recognition in market research surveys throughout the year, conducted in areas near Feira Nova stores, where customers gave the highest scores in the Quality of Perishable products category to Feira Nova. This area continues to be one of the main thenghs for the growth of the chain, and a reason for further investment in future years. In the Bazaar area, with the brand Electric Co, the main focus of attention was on the refurbishment of the above mentioned stores, which generated post-refurbishment growth figures of 5.5%, clearly surpassing those of the company as a whole. After the 2003 launch, in Odivelas, of the new store concept, 9 other stores have followed suit, which means the chain is beginning to take on a national, customer-recognized dimension. In the clothing area, with the 2003 start of a partnership with a specialist in the sector, and after a transition period, 2004 results were very positive, with sales growth of 11.2%. The New Code brand was created for the specialized stores located in medium-sized stores, and a scheme of refurbishment was also carried out, with a new concept and layout applied in four stores. Over the course of 2005, the remaining stores should be refurbished and should adopt the New Code brand.


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Given the difficulties of the market, it was important for the Company to keep its customers without losing profitability. This entailed continuing the efficiency drive and a continous reduction in operational costs. It was through this cost control and the conclusion of the transfer process to a net price system that allowed more efficient management of the Company’s operating margins, allowing to increase net operating profits on 2003. For 2005, the Company’s target is to sustain the positioning of the brand, which will require a good deal of focus on the following strategic goals:

• To reinforce its position in the price segment; • To reinforce and lever up perceptions of Quality in perishable products; • To carry out a thorough review of assortment, to simplify the business

while maintaining the variety expected by consumers. The efficiency drive and operational cost cutting programme will be continued, to investing in the competitive capacity of the chain. The Company will also invest further in the refurbishment of stores, and will give priority to medium-sized stores, with the aim of bringing productivity levels into line with the rest of the brand, and boosting the specialized non-food stores Electric Co and New Code. 4.3. Recheio Jorge Santos Dias –General Manager “Achieving market leader status in the wholesale market at the end of 2003 was a historical moment in the life of Recheio. It was the result of a strategy mapped out over 10 years ago, which was carried out, step-by-step, with unwavering determination and a passion for the business on the part of all our employees, and transmitted with enthusiasm on a daily basis to our customers. While it is true that our market leader status gives us enormous pride, it is also true that this position brings with it increased responsibilities. Being market leader means being number one... being in the vanguard... being a benchmark. Being in the vanguard in terms of innovation…! Being a benchmark in terms of product quality and customer service…! Being number one in terms of Food Safety norms. Anyone operating in the food area knows that middle terms solutions do not work. Recheio guarantees its customers that we will continue to strive to deserve their selection, and the trust shown by all the food business professionals it has been our honour to serve down the years.” Mission Statement To respond to the customers’ needs in the traditional retail area and the HoReCa channel. We give our customers value for money, and we therefore believe in long-term relationships, enabling us to offer each segment the best value possible while meeting their needs. Recheio’s employees, through their motivation, competence and dedication, are the best means to build such relationships with both customers and suppliers. If everyone focuses on the customer and on the efficient running of the company, we believe this is the best way to guarantee profitability and a return on Shareholders’ investments.


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2004 was a particularly difficult year, with dificulties in private consumption and an increase in competitive aggression in all formats of modern Distribution. Recheio managed, though, to strengthen its market leader status in the wholesale market, affirming its position among food business professionals in the hotel and Traditional Retail industries as the benchmark supplier. Despite net sales having fallen 0.5% on the previous year (flat in the same network of stores), Recheio managed to increase its market share by around 0.3 percentage point, with the wholesale market having lost approximately 1.5% between 2003 and 20044. A brief analysis of the performance of each business channel shows the following:

• Sales in the Retail channel fell around 2.5% on 2003, as a result of increased competitive pressure exerted by modern retailers (discount stores, hypermarkets and supermarkets) over traditional retailers;

• The HoReCa channel grew 3.4% on the previous year, in a particularly unfavourable year marked by a fall in overall tourism, offsetting expected gains from the holding of international events. The growth obtained under such difficult circumstances shows the success of the strategy adopted by Recheio for the HoReCa channel, consolidated by a different value proposal for each customer segment of the channel.

Still on the subject of the HoReCa channel, in June 2004 the second Food Service MasterChef platform was opened. With its headquarters in MARL – the supply market for the Lisbon Region, it aims to serve all Hotel Industry professionals in the Greater Lisbon region. The 36% growth rate in sales made to the Food Service Customers in the Lisbon area, obtained in the last seven months of the year, justifies once again the decision taken by the Company to provide services to this customer segment through autonomous units. 2004 also saw the refurbishment of 6 Recheio/Masterchef stores. This restructuring enabled a substantial increase in the areas of fresh products, with special emphasis on Perishables, the areas having been equipped with the most up-to-date refrigeration and product display equipment available on the market. It also allowed a review of the product assortment in each store and hence supplied better solutions to meet the needs of the HoReCa channel’s customers. Net operating profit (EBITDA) rose in 2004 to EUR 44.5 million, corresponding to 7.5% of sales, which together with strict management of working capital once again made for positive liquidity levels in the Company. In 2005, Recheio plans to continue its expansion policy, with the broadening of its Food Service business with a new MasterChef platform in the Algarve.

4 Company Etimates


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4.4. Madeira José António Nogueira de Brito – General Manager “It is with enormous pride and satisfaction that the whole Jerónimo Martins Madeira team play a part in the development of the autonomous region of Madeira, sharing the difficulties common to all island businesses, and participating with enthusiasm and determination in the implementation of our strategic plan. The best way forward in Madeira is to capitalize on the experience of Pingo Doce and Recheio, adapting policies and practices to the realities of the region. Living in Madeira, besides being a pleasure, is an important aspect of this mindset.” Mission Statement Providing Madeira families with the best solutions for food consumption, both inside and outside the home. To this end, the main priority is to build long-term relationships of trust with final consumers, through the Pingo Doce chain, and also with professional customers in Food Retail and the HoReCa channel, through Recheio, providing both groups with quality food solutions, at competitive prices. 2004 saw the continuation of the strategy adopted in the previous year for Pingo Doce stores in Madeira, with price controls on an ever-increasing number of referencees to guarantee a highly competitive positioning in the region. The objective was, and continues to be, to ease customer choice, encouraging customers to increase the quantity of purchases. Over the year, approximately 1500 reference products were controlled per month, representing over 30% of total sales. Prices were lowered consistently over 12 months, resulting in price deflation of 2% (against the average price increase to consumers of 2.9%). In parallel, all other promotional price activity was ended, in order to guarantee in a consistent and sustainable way the new positioning in terms of prices: stable (“This is not a promotion!”) and very competitive (“These are the everyday low prices at Pingo Doce”). Pingo Doce sales in Madeira were EUR 73.7 million, with like-for-like growth of 1.2%, despite the opening in December, 2003 of a new competitor store. Total sales growth was 6.1%, mainly due to the opening of a new store in Cancela, in March 2004. Priority in all areas of the Company was given to operational efficiency, under the umbrella of the Simplification of Internal Management Processes. These involved consolidation of assortment rationalization, started in the previous year; the implementation of a semi-automatic system of MRP restocking in all stores (with approval rates for suggested orders at 90%); the introduction of WPMS logistics software in the Non-Perishables warehouse; and the introduction of the Manpower Planning tool to manage front office schedules. These changes contributed simultaneously to an improvement in operational efficiency levels and to lower operational costs, through the following factors: a reduction in complexity, the optimization of shelf space, minimizing the impact of order errors, better planning and control of logistical production, a reduction in the number of out-of-stock occurrences and more efficient readjustments to the resources necessary for each task.


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For Recheio Madeira, with sales of EUR 28.6 million (0.3% over 2003), 2004 was above all a year of maintaining its market leadership, with the opening of a competitor forcing down margins (this reduction in sales margins was, however, offset by increased cost efficiency). The positive trend in operational costs for both brands, together with a recovery of total margins to normal Pingo Doce levels, made possible by price stabilization and by the reduction in the promotional impact on average margins, explain an increase in EBITDA margin of 0.7 percentage points. In the areas of quality and product differentiation, a range of foreign specialities was developed in those Pingo Doce stores with the largest tourist customer flow, as well as 4th range of vegetables (selected, prepared, washed and packed) and training in customer care, with a programme beginning in May which has already trained over 50% of employees. In parallel with the opening of the Cancela store, whose initial results have been very positive, the Penteada store was refurbished, and work was begun in the last quarter of the year on the future Fórum Madeira store. This store, predicted to open in May 2005, with a sales area of 1,900m2, is located in what will become the largest shopping centre in Madeira. In 2005 we intend to reinforce the competitive positioning of the chain, allied to continued efforts to improve operational efficiency, so that an ever larger number of peripheral customers choose Pingo Doce as their principal shopping place of choice. 4.5. Functional Operations Management Gestiretalho is the Company within the group that brings together the management of the different operation service sectors for Distribution in Portugal, and works transversally for the various Food Distribution Brands. The Functional Management Divisions which make up Gestiretalho are Sourcing, Logistics, Quality and Environmental Control, Finance and IT Systems. Their mission is to maximize synergies across the group through the sharing of resources and know-how in relevant markets, in order to optimize the efficiency of the Organization and the scale of the Group. Description of the role of the Functional Management Divisions and their activities during 2004 4.5.1. Sourcing Mission Statement To generate added value for the Group and for its Operational Divisions: (1) creating know-how in the key areas of competitive differentiation – Fresh Products and Private Labels; (2) providing leverage for the negotiational strength of the Group through the establishment of deals with the main manufacturers; and (3) developing a programme of commercial synergies with selected partners.


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The forging of strategic development options for Jerónimo Martins Private Labels was a key priority for 2004 in the Functional Management Division for Sourcing. The launch of the first transversal Jerónimo Martins retail brands was supported by a permanent search for economies of scale (within the context of the increasing impact of sourcing initiatives at European level). This allowed a sustained strengthening of the brands, which registered an appreciable increase in sales and in market share. The number of new reference products introduced to the Food Service retail channel, at around 350, is a clear reflection of the intention to position Private Label products as a credible and forward-thinking alternative for consumers and customers. Another focal area of the Functional Management Division for Sourcing was that of Perishable products, with a continuation of the buying-at-source programmes. Purchasing wherever possible through Portuguese producers was also a priority, and some of these producers also began to have their products placed in the Polish chain of Jerónimo Martins. Initiatives were developed to meet the demands of new consumer trends – with an increasing emphasis on quality and reliability. Some initiatives were pioneering, as was the case with the vacuum packing of fowl, as well as organic fruit and vegetables and meat products. 4.5.2. Logistics Mission Statement To support the buying, transportation and storage activities of the Group’s Brands, while respecting the individual business needs and decisions of each. Gestiretalho, as a logistics company, operates at low cost, according to the standard and level of service required of it holding dear the principles of operational discipline and of respect for people. The management operates within the following physical platform: Area (sqm) Description

Azambuja Distribution Centre 48.000

Non-Pereshible products, fruit & vegetables, meat, dairy products and fish.

Guardeiras Distribution Centre 12.500

Non-Pereshible products.

Modivas - Vila do Conde Distribution Centre 18.000

Fruits & vegetables, frozen food and fish.

Modivas - Vila do Conde Distribution Centre 2.900

Fresh products, meat and dairy products.

Heavy Bazaar Distribution Centre 2.000

Heavy bazaar products.

Gestiretalho, in its capacity as logistical operator for the group, continued in 2004 to work towards the established plans, goals and objectives in this area, both in terms of efficiency and the quality of service provided.


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It is a permanent goal of the Management to maintain competitive standards for logistical operations. This resulted in 2004 in an increase of 12% in operational productivity. Costs per unit dispatched fell 5.9% on 2003. Despite a strong upward price trend for some factors (especially fuel), costs were kept at very acceptable levels, through a serious of tight control regulations, an increase in productivity and the simplification of logistical processes. In the area of Quality, important preparatory, documental and analytical efforts were made. This allowed starting implementing compulsory norms for the obtention in 2005 of the Operators Quality Certificate, awarded to companies who meet all necessary requirements in the area of Food Safety (Norm DS 3027E) and Environmental Safety (Norm NP EN ISO14001). The opening of the new warehouse for Fresh Products, Meat and Dairy Products, in Vila do Conde, also provided an additional guarantee of quality for product handling. With a view to integrating the various processes of the business, through the automatic exchange of information with suppliers, the JM Direct Portal began to be systematized and used, with 72 suppliers having signed up by the end of the year. With continued use and increased membership, the portal will provide short-term improvements to enable simplified communication and supply chain processes. The guidelines followed until now in the logistics area will continue to be followed in 2005. Obtaining the Environmental and Food Safety Certificate and continuing to respect its norms, investment in the JM Direct Portal, increasing operational productivity, improving levels of service and the strict control of costs will continue to be the daily concern of the Functional Management Divison for Logistics. 4.5.3. Quality and Environmental Control Mission Statement To guarantee the Food Quality and Safety of the products sold in the stores of the Group and their inherent operational procedures, in order to satisfy the needs and expectations of the customer, through fully respecting the rules of environmental protection. In order to increase the importance of Food Safety and Environmental protection in the group as a whole, 2004 saw a strengthening of the Jerónimo Martins policy to instil in its employees, the notions of ‘Quality, Food Safety and Environmental Management’ during their day to day work. With this aim in mind, preparatory work was carried out for the certification of Recheio stores (HACCP according to the Codex Alimentarius), of the Distribution Centres (HACCP according to DS 3027 and Environmental Management ISO 14001) and for a service Certification of the Food Service platforms. With a focus on this aim, the Quality and Environmental Control Division, together with other areas of the Companies, took preventive measures along the


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production and distribution chains, from the sources of raw materials right through to the end customer. In working towards Quality, Food Safety and environmental protection for the Group’s Companies in the Distribution area, the Quality Control Division was active in areas as diverse as the choice of suppliers, product checking at point of entry to the Distribution Centres, and in-store displays and sales. To the same end, efforts were made to ensure that existing and new facilities and equipment (both storage and transport) were adequate. Policies and procedures in these areas are also evaluated, checked, implemented and communicated to employees, allowing improvements to be made in environmental protection and in Food Distribution practices. This work aims to protect consumer health and to consolidate the position of the Group’s brands in the Portuguese market. In chapter 4, Social Responsibility, the year’s work of the Quality and Environmental Control Division is detailed. 4.5.4. Finance Mission Statement To record with precision and efficiency the accounting records of all JMR’s operational Companies, according to the accounting and reporting principles laid down by the Jerónimo Martins Group, and to the tax and statutory rules of Portugal (GAAP). Financial Management Division of Gestiretalho (DAF) is made up of the following areas: Operational Control, Accounting, Reporting, Taxation and Litigation. DAF controls and monitors on a daily basis all transactions and operations related to total margins, store profits versus sales, gross margins and revaluations, inventory losses and stocks. The Financial Management Division is responsible for all accounting documentation of the operational Companies of JMR, which are reported monthly and consolidated for both shareholders – Jerónimo Martins and Ahold. The financial management information produced by DAF is also vital for the Operational Divisions, being the principal source of information for decision-making on the part of the respective Brands. During the third quarter of 2004, the process of centralizing the Financial Operations of Distribution Portugal was completed. Thus, the Treasury division of Gestiretalho – responsible for paying suppliers, staff and other bodies and for the daily treasury planning and control of the Operational Divisions of JMR – was actively integrated into the Financial Operations Division of the Holding Group. 4.5.5. IT Systems Mission Statement To develop and provide information processing systems to the Operational Divisions, according to their business objectives, and to use the most secure and efficient technology, thereby contributing to operational improvements.


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2004 was marked by a concentration of resources on priority solutions, with the aim of exploiting their maximum potential and developing internal competencies. Continued efforts were made to promote better use of IT systems on the part of their users. A new system was put into place to support the entire maintenance and technical support areas of Pingo Doce stores. The system is based on the SAP Plant Maintenance module, and brought improvements in terms of in-store service and cost control. The Simplification of Internal Management Processes brought the development of new cashsheet, direct-buying and centralized treasury processes. The technological and functional alignment of operations in Madeira (through the integration of a central radio-frequency platform and a new Warehouse Management System), also brought improvements in operational efficiency and cost reductions. Main management objectives for 2005 are to ensure the introduction of the SAP R/3 system upgrade and to carry out the plan decided upon at the end of the year, to establish an outsourcing programme for IT systems infrastructures.


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5.1. Biedronka Pedro Silva – General Manager "2004 brought an end to the cycle, begun in 2000, of profound changes and adjustments to the Biedronka business model. We can now look to the future with confidence, based on a culture of success and a solid structure, which is permanently being developed in the continual search for the highest levels of excellence. Everyone within the structure is clear about the inherent responsibility of our market leader status, but above all there exists the will to consolidate our market leader position in one of the most competitive markets in the world.” Mission Statement To offer a limited range of carefully selected, high quality products, in order to satisfy the daily requirements of our customers, at an everyday low price. All employees should guarantee that the company operates with great efficiency and low costs. 2004 was marked by new challenges and opportunities for Biedronka, both in terms of its constant adaptation to the dynamic evolution of the Polish market, and to the consolidation of the organizational structure of the Company, which aimed to increase its competitive advantage through the generation of operational efficiencies and cost rationalization. The market maintained the dynamism of an economy that has enjoyed one of the highest growth rates in Europe. It was marked by several factors, such as Poland’s membership of the EU and an increase in competitiveness in the Food Retail sector, as a result of the significant number of new shopping spaces of various formats. Biedronka reacted to this economic situation by reinforcing its strategic positioning as a low price leader, enshrined in its commitment to “Quality every day at low prices”. In addition, innovations were made in terms of assortment, through the development of new, more attractive packaging and an increase in the quality of its exclusive brand products. The introduction of 98 new products and the relaunching of 147 private label products reflect the desire to constantly accompany customer needs. At the same time, the Brand worked to improve the image of the stores, developing the non-food assortment and Perishable display. With an eye on the competitive dynamism of the market, Biedronka speeded up the rhythm of its organic growth, with the opening of 55 new stores. In parallel to this, it maintained its store refurbishment policy (64 stores), ensuring increased homogeneity in quality standards across the chain.

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This programme was consolidated by the preparation of expansion support infrastructures, with the building of its 5th Distribution Centre, opened in January, 2005. The Company also invested in the creation of a new organizational structure, purely devoted to expansion. With Poland’s membership of the EU, international sourcing solutions were developed over the year to ensure permanent monitoring of cost prices in the European market. Nevertheless, no significant changes were made to the Biedronka supplier network, given the excellent competitive status and quality standards of its Polish business partners. The results of this work can be seen in the Company sales growth figures and in the consolidation of its market leader status in the Polish food market. Total sales grew 17.5% in 2004, which corresponds to like-for-like growth of 9.4%. Customer visits grew 12.5%, reaching a figure of 320 million. The awareness of Biedronka continues to be extremely good, as was shown when The Company was awarded the prestigious Super Brands diploma, atributed for the first time to a Polish retail chain. Expansion of store refrigeration infrastructures, improvements in displays for the non-food range and improved flexibility in restocking processes, together with investments made to increase sales areas and car parks in the refurbished stores, were some of the aspects that led to the chain sales growth. Another strategic priority of the chain was the rationalization of costing structures, through continual reworking of its business processes. An upgrade to new versions of the SAP transactional system and the decentralization and simplification of administrative processes had significant impacts on the central restructuring programme. Improved dynamism in the Regional Structures implemented in 2003 also brought about improved operational control and efficiency. Logistical efficiency was of equal importance, with the implementation of standard EAN128 together with business partners, with the development of on-time delivery monitoring systems and with the restructuring of warehouse and distribution management processes. Investment was also made in a new layout prototype at the Wyszkov Distribution Centre, entirely focussed on just-in-time operations. This ensured improved knowledge, which in turn led to an increase in warehouse operational productivity and to the minimization of stock levels. The prize awarded to Biedronka in May 2004 by the Polish Logistics Association, at the Poznan Logistics Congress, for its projects in the area of logistical labelling, are testament to the dynamism and competence developed by the Company. Last, but not least were the training initiatives taken at all levels of the hierarchy. With Biedronka in continual growth, a strategic cornerstone of the Company has been the development and preparation of employees for the constant challenges they face and will face in the future.


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As a complement to this plan, the “Managers’ Academy” was reinforced. An Executive MBA was introduced for employees and was tailored to the specific demands of the market. It also continued to develop our co-operation with local Universities. Careers development and promotion plans were also reinforced. In 2004 18 management trainees were selected and recruited for several functional and operational areas. This was one of the decisions taken with a view to preparing future workers for the challenges of a Company in constant expansion.


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Mission Statement TO GIVE LIFE MORE VITALITY. Every day we satisfy our customers’ needs with brands that help them to feel good and attractive, and to make the most of life. 6.1. FimaVG Fátima Aveiro – General Manager “FimaVG always strives to lead the markets in which it operates. 2004 reminded us that a leader need to be humble and to be attentive to the markets where it does business, respecting consumers and business partners. The difficulties faced in 2004, however, boosted our confidence in the ability of FimaVG’s brands to innovate and create value. As market leaders in the vast majority of the markets where we are present, it is our duty to transform this humility and confidence into renewed growth.” Despite the adverse economic climate, FimaVG managed to maintain, in essence, its position in the markets where it is present, as well as entering new markets. With the exception of the soft drinks market, where FimaVG is second in the market, it maintained leadership status in all of the main markets (Margarine and Spreads, Olive Oil, Sauces and Condiments), as well as strengthening its olive oil export business to Brazil and its Food Service market. Despite these positive points, pressure on prices brought about through an increasingly competitive market, in addition to unfavourable weather conditions– particularly the rainy summer of 2004 – were undoubtedly decisive influences in bringing down annual sales by 5%, with total sales revenues of EUR 226.6 million. In a response to increasing market competition, FimaVG pursued a policy of sustained reductions in its cost structures, resulting in a fixed costs decrease of 9% in 2004. This cost rationalization was essential in order for the Company to maintain:

• Advertising and promotional support for its brands, in a bid to reinforce confidence in the FimaVG brands, a fundamental prerequisite for growth in the coming years;

• The profitability of the business. While all profitable, the performance of the different FimaVG brands was very different in terms of sales. The Becel brand continued its high growth rate, propelled by the success of the sub-brand “Pro-Activ”, which broadened its range in 2004 to include new product categories (milk and drinking yoghurts). With total sales growth of 9.6%, Becel kept its market share overall, and its market leader status in Spreads, as well as gaining clear market leader status in cholesterol-controlling foods. Owing to the

6. MANUFACTURING


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increased share of butter in the market as a whole, the other FimaVG brands lost ground, which meant that its share in the total market for spreads fell slightly. In the Olive Oil market, the Gallo brand showed total growth of 2%. In Portugal, Gallo’s performance was adversely affected by extremely strong competitive price pressure on the part of its direct industry competitors, as well as the big Food Distribution Companies’ private labels. In the export market, sales showed excellent rates of growth, mainly based on the strengthened position of Gallo in Brazil. The soft drinks market was adversely affected by bad weather in the spring and summer of 2004, especially when compared to the previous year. Sales of Lipton “Ice Tea” fell slightly, but the brand did manage to strengthen its status as the second highest market performer, and was thus the best performer of the main brands for the year. This result was helped greatly by sales performance in the HoReCa channel. Also important was the launch of “Aquaé”, which was the first for the brand in the flavoured mineral waters market. Despite strong pressure from the Food Distribution brands, the Calvé brand continued on the up, maintaining its market leader status in the sauces and condiments market, with a share of 43%. The year was also marked by the excellent performance of the Food Service business, with growth of 7.3% on 2003, based on the innovative 3- and 5- litre Gallo Olive Oil flagons and Calvé sauce dispensers, as well as Vaqueiro vegetable-based cream. In the production area, the Santa Iria and Abrantes units showed accelerated productivity and efficiency gains during 2004, through programmes designed to optimize resources and reduce staffing levels, resulting in cost reductions of around 14%. Santa Iria also managed to achieve the ISO 14001 Quality Certificate, and to maintain its ISO 9001/2000 certificate. Abrantes, meanwhile, saw the confirmation of the Certificate of Quality and the Environment by APCER. 6.2. LeverElida Javier Roza - General Manager “Our vision is to be the uncontested number one in the market, the most successful Company in the Domestic Hygiene and Personal Care market. We measure our success by our talent in making our stakeholders feel good every day: our consumers, our customers, our shareholders and our community.” 2004 was the most difficult in the recent memory for the Domestic Detergent and Personal Care industry in general, and for LeverElida in particular. Net sales were of EUR 165 million, a decrease of 17% on 2003. That being said, the Company was able to lauch several measures to reduce costs and thereby safeguarding investment levels in its main brands and hence assuring their long term value increasing competitiveness. 2004’s performance was greatly influenced by the unexpected and dramatic shrinking of the markets in which LeverElida operates, which according to Nielsen, decreased around 4%. This scenario was due to decreases in both sales


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volume and prices. In terms of the price variable, it is largely due to intensification of competition in the Organized Retail sector, where volume is maintained through sell-out strategies. In the case of LeverElida, this tendency was particularly harmful because it was in the main categories in which the Company operates that downward price pressure was most intense. This clearly price-orientated consumer environment is a new reality which must be understood, as even in the most materially prosperous societies, low-priced products are becoming ever more attractive as consumer literacy increases. This phenomenon is not unique to the Portuguese market, but is rather gaining a hold to a greater or lesser extent in the whole of Europe. This scenario means that producers operating in the mass consumption goods market in general, and LeverElida in particular, need to strengthen consumer confidence in their brands. LeverElida will readjust, if and when necessary, its value/price binomial, while maintaining solid Brand Equity, through innovation and ensuring high relevance to the consumer. At the same time as these changes in consumption patterns, there is also constant innovation from the Food Distribution companies, (which are attempting to become brands in their own right), and the increased dynamism of the discount stores. Despite the market environment described above, LeverElida remains committed to that fundamental key to long-term success–strengthening the market leader status of its brands. After reflecting on the activities of its main brands in 2004, the Company remains confident about the strength of the main pillars of its business, and believes that its policies for building a solid base for future performance were correct and adequate. 2004 saw a number of large-scale events in Portugal, in which LeverElida were involved in several ways: Skip was the first of any brand to become an official sponsor for the Portuguese National team in Euro 2004 year. Skip created a platform for a dynamic nationwide promotional campaign, with extensive point-of-sale activities and an innovative television campaign involving the mothers of some of the most famous National players. The brand also continued to be innovative at product level, with its “Aloe Vera” variety, which is in its second year of existence and is aimed at consumers who require a milder, more clothes-friendly detergent, reaching and sustaining a 7% market share. This makes Portugal the most successful country in Europe regarding this concept. Later on in the year, Skip launched its “Natural Laundry Soap”, with the aim of cashing in on nostalgia in the market for such laundry soap bars, which are aimed at the more price-sensitive customer. The product was developed from scratch, with the concept, design, product and publicity all achieved within a mere two and a half months. For a pioneer product, this was a record for a Unilever brand. Skip also managed to gain market leader status in washing liquids, which is the fastest-growing sector in the fabrics’ category.


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Axe deodorant was sponsor of the 1st edition of Rock in Rio Lisbon – a big music festival that attracted half a million spectators over five days. The brand’s omnipresence at the event was mentioned several times by the media. In the Garment Care category, there was success for Comfort, which in its 25th year achieved market leader status for the first time, dethroning the historical market leader. This achievement was the culmination of a three-year strategy in which were launched the successful Comfort dolls, as well as new, relevant varieties, and which saw a refinement of the existing Comfort portfolio. The Sun brand was active in the area of Social Responsibility, in a highly visible campaign in conjunction with the Acreditar Association and a vast group of partners who are all market leaders in their respective segments (Whirpool, AEG, Zanussi, Cutipol, Vista Alegre, etc.). The campaign was run at point-of-sale, and promotional activity was adapted to the profile of each partner’s customers. This, along with other qualitative initiatives, helped the brand to regain market share in Dishwasher Detergents, adding value in a market with growing levels of penetration. The CIF brand exploited new growth opportunities through the successful launching of three new kitchen products: Cream, Spray and Moist Wipes. Via a high impact campaign that avoided traditional advertising methods (using below the line marketing). Within three months, CIF managed to gain market leader retail status in this segment (23% in hypermarkets), by focussing all its marketing activity on point-of-sale initiatives. The Dove brand took great steps towards becoming a benchmark in the Personal Care market, with the launch of a new female beauty concept, based on the conception most women have and wish for – beauty without artifice. Its share in the Skin Care market grew 1.2 percentage points. Dove also pursued its objective of gaining mass market share, carrying out a number of initiatives which successfully achieved gains in the traditional channel, outside the large metropolitan areas. The Lux brand, making use of its original image in the Soap segment, widened its range to include Bath Gel and Body Lotions, which were extremely attractive to the price-sensitive consumer. The total LeverElida share in these segments grew substantially with the effects of the new Lux range. The Organics brand continued to perform strongly in the Hair Conditioner segment, where it showed growth of two digits. Finally, the Vasenol brand, which plays an important role in the Company’s brand portfolio, produced at local level an anti-ageing range (Retardine) which is available on the mass consumption market in the Bath Gel and Body Lotion segment, and which it is hoped to have a high impact in 2005. As regards national production, the Sacavém plant was able to accommodate the reductions in volume, with a permanently active philosophy of cost competitiveness and increasing flexibility, with a significant reduction in its changeover times. Evidence of the speed to market was seen with the launch in record time of the new Skip Natural Laundry Soap product referred to above.


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Efficiency levels increased, with significant reductions in energy consumption of 6%. New projects were implemented with the aim of saving EUR 700,000 a year and continuing reductions in staff costs. Finally, the integrated Quality, Environmental and Safety management system was again awarded the ISO standards certificate by an international Auditing firm. This re-certification was based on improvements in the management of the mentioned areas. 6.3. IgloOlá Carlos Vicente - General Manager “Our vision relies on sales growth for the Company, based on the sustained strength and daily relevance of our Olá and Iglo brands. Although 2004 was a year in which our sales growth was below expectations, it is important to mention that the Company managed to maintain its profitable Level. Therefore, the conditions are in place for a return to sustained growth in 2005, with continued support for our brands. Our plan for 2005 is to focus on our core business, in order to maximize our strength. In Ice creams, this will be achieved through excellence in brand activation, with the aim of heightening visibility, as well as a programme of innovation. In Frozen Food, we will strengthen our competitiveness through a wide-ranging marketing programme and the carefully-planned launch of new products by Capitão Iglo and 4Salti.” 2004 saw IgloOlá sales pressured by difficult macroeconomic conditions, by the volatile retail market and by adverse weather conditions. This all led to a sales volume of EUR 132.8 million, 12% below 2003. On diagnosing this difficult environment during the first few months of the year, IgloOlá put into practice the necessary policies to reduce costs and maintain profits. This demonstrates the importance at difficult times of reactive ability, permanent vigilance of cost competitiveness levels and the flexibility of the Company. Other important events were the growth of Olá stores, the extremely high visibility of the brand, the success of the new product Carte D’Or Light and the relaunch of the Iglo brand. In the Out of Home segment, the year began with slight growth, which intensified expectations for future sales growth during June’s Euro 2004 event. Not only was this not the case, but in fact there was a fall in Tourism Industry results during the high season. August was also the rainiest for the past 94 years, which had a negative impact on IgloOlá sales. Strong marketing campaigns were not enough to compensate the negative impact of these factors. As a result, sales volume for Impulse Singles fell 20% on the previous year. In terms of innovation, the Cornetto Love-Potions concept, while successful, showed less potential than Magnum “7 Pecados” (7 sins), which was launched the year before. On the positive side, there was strong growth for scooping Carte D’Or and expansion of Olá stores, which guaranteed business growth.


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On the Branding side, this was the second year of the relaunch of the Powerbrand concept. Investment continued at significant levels with the objectives of increasing the visibility of the Olá brand, as well as activating the brand, through an extensive programme. Investments in product visibility, namely on the beaches, were the biggest of recent years, and the Olá Love2Dance event is now well known among dance festivals. In the In Home segment, the frozen foods market fell 1.1% in sales volume, but remained stable in terms of value. The Capitão Iglo and 4 Salti concepts performed well. During 2004, the Iglo brand was relaunched with the aid of tactical promotional campaigns that defended market position in the most strategic segments, allowing the brand to strengthen its current position and creating the conditions for reinforcement of innovation and the return to growth. In the In Home Ice-cream market, Iglo has also remained true to a strategy of growth based on the elimination of seasonal factors regarding consumption habits of ice creams, supported by strong marketing campaigns. The Company firmly believes in the growth opportunities of this segment, and will therefore pursue its Media and Innovation campaigns in 2005, as well as adopting a defensive stance in the market positions already gained, in particular faced with strong competition from the Distribution brands, and with an aggressive growth objective. The Santa Iria ice-cream plant, the first in Portugal to be awarded level II of the Total Productive Maintenance (TPM) programme, maintained its quality level A status within the production units of Unilever. Through the TPM programme productivity was increased and wastage costs reduced (indirect costs cover by 9% on 2003). This plant unit confirmed its role as a source of innovation, having produced some of the biggest ice cream launches in Europe like for example, the Shrek ice cream. It has also developed the new Cornetto Yoghurt & Fruit, to meet the increasing consumer demand for Health and Vitality products. www.novaideia.com again assumed an important role as a platform for the incubation and generation of ideas, innovation and communication within the Company. It was also extended beyond the Organisation, to some of the business partners, where it was recognised as being good practice and extended to other Unilever Companies. Finally, in the area of working capital management, a wide range of measures was put into practice to allow a reduction in average invested capital. This, together with cost reduction schemes, allowed us to achieve a higer efficiency level.


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Pedro Veloso – General Manager “While 2003 and 2004 were years of internal restructuring with great emphasis on the operational area, in 2005 will begin a new cycle of innovation. We hope to be able to present the market with new and innovating ideas, which entirely satisfy our target customers and, at the same time, actively contribute towards creating value in the Jerónimo Martins Group.” Mission: To create positions of leadership in the Portuguese market for the represented brands, sustained by a first-class provision of services at a highly competitive cost. To identify, develop and implement specialised retail concepts whose value proposals meet the profitability criteria of the Jerónimo Martins Group. 7.1. Jerónimo Martins Distribution At a complex economic conjuncture and in a changing food market, the performance of Jerónimo Martins Distribuição de Produtos de Consumo (JMD) must undeniably be considered positive for the financial year 2004. One of the company’s priorities was, once again, to rationalise operating costs and this made a highly significant contribution towards the profits obtained. The modernisation and innovation project that has been underway over the last few years at JMD was recognised with a prestigious award in 2004 in the area of information technology – the Optimus/Diário Económico Mobility Award – which distinguished the solution found for computerising the sales force. In 2005, JMD’s priority is to find new representations for both food and cosmetics products. The challenge it faces is going through an initial stage of ensuring rapid replacement, through new joint ventures, of sales related to Nestlé snacks, representation ended in 2004. The Company will also continue to focus on strengthening its commercial structure, particularly in terms of increasing its direct cover of sales structures, in the hope that this increase will lead to a marked improvement in the service it provides to its business partners. It will also continue with the programme of optimising the back office areas, particularly logistics, where increased efficiency will improve competitiveness and maintain levels of profitability. 7.1.1. Food Division When analysing sales in the food division in 2004, it is fundamental to refer to an event that was outside the Company’s control, but had great impact: the JMD portfolio lost some of the main Nestlé products (KitKat, Lion and Smarties), which, through international decision, moved to direct management by this

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comapany’s local structure. These three products represented almost 14% of the JMD turnover. Comparatively, sales registered a growth of 2.2%. At the level of represented food brands, the performance of Kellogg’s (growth of over 13% compared to 2003) is notable, as is that of Perfetti, which doubled its sales volume, and Coppenrath&Wiese, which increased over 60%. These three represented brands were the Company’s main source of growth in this year. 7.1.2. Cosmetics Division At circumstantially difficult times, Cosmetics is one of the first business areas to be affected, which was true in 2004. The Division of Selective Cosmetics had an adverse year in terms of sales, ending below the figures recorded for 2003. It is important to note, however, that Calvin Klein’s most recent launch, the perfume Eternity Moments, placed on the market at the end of the year, was well accepted and is seen as one of the most important foundations, together with the already organised innovation, for the recovery that we anticipate for 2005. 7.2. Caterplus The delay in the expected economic upturn had a heavy impact on the catering sector, and not even Euro 2004 had the expected effect, with only a timid revitalisation of sales during the time of the Championship itself. In this hostile context, the Company decided to guarantee the quality of sales through a promotional policy that aimed to ensure the sales objective. This strategy was not easy to implement since the other operators opted for price as the main weapon of competitive differentiation. However, an excellent sales performance, with a growth of 3.2% in relation to the previous year, proved that the Company had been justified in choosing this option. As for products, growth engines continued to be the focus categories, that is to say, cheese, sauces and condiments. The containment of operating costs, correct charging policy management and rationalisation of structural costs, along with this sales performance, explain the increase in net operating profit seen in 2004. It is also important to highlight the discipline and motivation shown by the sales management that, despite being young, not only understood but also implemented the difficult commercial strategy followed in the year under analysis. In 2005, the commercial programme of 2004 will be continued. This commercial strategy assumes growing specialisation in the main categories in which the Company operates and an increasingly closer relationship with its partner - Heinz Food Service.


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7.3. Hussel The quality of the work done over the year by the operations structure in the stores enabled Hussel to work around consumer behaviour and register a sales growth of 8.5% (4.3% in the same stores). The increase in sales was fairly uniform throughout the year, indicating that the fight against the seasonal nature of business has begun to pay off. The positive performance of the chain of chocolate stores was also reflected at the level of operating profit. Efficiency of the operation was given priority, which led to improvements in practically all aspects of the stores cost structure, giving the chain increased competitiveness on the Portuguese market. In 2004, a new store was opened at Maia Shopping, bringing the total number of units operating in the chain to 17. The store inaugurated in 2004 is the second resulting from the innovative joint venture with Olá that began in 2003. Following the success achieved at Fórum Aveiro, both Companies agreed to continue the expansion of the new store concept. This kind of mixed store, possibly not only with Olá, may be a way of accelerating expansion of the chain to locations with less traffic. As a strategic priority, it is important not only to broaden the scale of the joint venture with Olá, but also to assess whether there are any other opportunities for joint ventures with mixed stores, since it is clear that this format is extremely interesting for the expansion of the Hussel concept in Portugal. 7.4. Jeronymo 2004 was a year of consolidation for the project of coffee kiosks. With six new units, Jeronymo ended the year with 14 stores in activity. During the year, certain adjustments were made in relation to the initial model, tests were run with various types of promotional activities and different forms of loyalty programmes were tried out. After trying Jeronymo coffee, the consumer showed high loyalty to the concept. The validity of the project has been demonstrated and the quality of the value proposal is clear. The great challenge for 2005 will therefore be to find a business model that allows the Company to use this concept successfully in stores with less traffic. This is certainly the last step before expanding it to most of the stores in the Jerónimo Martins universe. 7.5. PGJM In March 2004, a new company began operating in the JMD universe. PGJM is the result of a 50%-50% joint venture between the Jerónimo Martins Group and the Spanish group, Puig.


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The main aim of this joint venture is to exploit the business opportunities on the high consumption cosmetics market. This joint venture thus became solely responsible for marketing the entire high consumption range of the Puig Group in Portugal. Sales exceeded initial expectations and the relationship between the two business partners could not be more effective, showing great symbiosis between the two organisations and with profits that demonstrate the quality and effectiveness of this relationship. This first year boosted confidence in the project and cemented the certainty of the validity of this proposal on the Portuguese market, confirming the enormous potential of the brands in the joint venture.


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In a bid to promote and guarantee the high standards of competence of its Human Resources Department, the Jerónimo Martins Group has attempted to promote closer links between its business and individual objectives on the one hand, and the strategic objectives of the Group on the other, with service excellence to customers and consumers in mind.

The work of the Human Resources Management team is closely interlinked with that of the Human Resources Departments of the Operational Divisions, with the aim of assuring the implementation and overseeing of the strategies, policies, norms and procedures applied horizontally to all employees, as well as the coordination of new projects.

A continual strengthening of, and innovation in, Human Resources policies marked 2004. In the Distribution Area (Portugal), a plan for the recruitment of recent graduates was reinstated, with the idea of renewing and reinforcing the current employee pool with professionals of high potential. In addition, the JM Portugal Training School was created, with the aim of providing the Group’s employees with the necessary knowledge and skills to be able to carry out their work, with increased efficiency and the achievement of our business objectives ever in mind. In a bid to stimulate higher performance levels in a fair, equitable way, the department also conceived, optimized and implemented variable remuneration policies for the different Companies of the Group. Considered a vital and strategic area for the Group, high priority was given to Health and Safety at Work, an area that saw its organizational structure strengthened in 2004. The aim of these measures is to ensure healthy, safe working conditions and practices. This work was supported by increased investment in training, equipment and facilities. Also worthy of note in this area was the conception and development of a common Health Policy for the Jerónimo Martins Group. In the area of Distribution (Poland), a key project was the restructuring process of the Polish Operations Area, which because of the expansion plan required structural optimization in order to guarantee an adequate level of service. The Human Resources area is described in more detail in point 3 of the chapter on Social Responsibility. Total Employees of Jerónimo Martins Group on 31 December 2004

Holding Company 62 Distribution Portugal 15.731 Distribution Poland 11.883 Manufacturing and Services 1.238 TOTAL 28.914

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Two aspects of value creation are clear to Jerónimo Martins – an increase in the current portfolio and the preservation of profitability. The Business Areas are responsible for presenting growth proposals, within a perfectly clear and defined strategic course. In terms of maintaining profitability, and within a context in which all of the Group’s businesses have strategies aligned for maximum competitiveness, cost reduction plays a fundamental role. Bearing in mind the importance of this area, in the second half of 2003, Jerónimo Martins developed a project across the entire Organisation – the Simplification of Internal Management Processes (SIMP) – with the aim of identifying inefficiencies and potential savings. Multidisciplinary teams were formed, and involved in sub-projects of business process analysis, in order to identify opportunities for simplification and for consequently promoting efficiency. 9.1. Distribution Portugal Following the identification phase of areas in which to improve efficiency and reduce costs, which took place at the end of 2003, the SIMP Project, duly integrated into the Group’s Strategic Scorecard, devoted itself in 2004 to implementing most of the solutions outlined for simplification and optimisation. The methodology adopted was based on the following stages:

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At the strategic level, the SIMP project identified the main issues that needed clarification, which was one of the catalysts for some of the decisions made during 2004:

• Change and simplification of the purchasing processes in the Group’s retail Operating Divisions; • Logistical centralisation of the different Business Areas; • Analysis of outsourcing viability in some non-strategic areas.

At the operational level, and focusing mainly on the processes of value creation for the business, the solutions implemented were divided into two main areas: Profit Control and Product/Service Control. Simplifying the cycle of Revenue Control was successfully completed during 2004 and further steps were taken, including:

• Centralisation of the Group’s Financial Operations; • Outsourcing and/or elimination of activities with no added value; • New process of revenue control implemented in the Pingo Doce and Feira Nova chains, with integration and automation of all the procedures of reception, collection, transport, handling and value counting.

During 2004, some significant steps were taken towards optimising and simplifying the control of the Product/Service cycles, which are to be continued in 2005, namely:

• Rationalisation of assortment and suppliers; • Simplification of the processes for merchandise checking; • Optimisation of the processes of direct purchase (Store-Supplier) and respective invoices validation.

9.2. Distribution Poland In Poland, during 2004, focus was placed on projects of organisational restructuring and consequent processes re-engineering. One of the main activities in this area was to complete the concept of regionalisation implemented in 2003. For this purpose, the Central Structure Services for the Regional Business units were decentralised. The financial, legal and marketing departments concluded this process of decentralisation during 2004. These services were able to increase productivity and efficiency and rationalise their structure. At the same time, an identical process was begun in the Human Resources Area, which should be decentralised in the first quarter of 2005, associated with the implementation of the SAP HR module, developed during 2004. All these processes were supported by developments at the level of transactional systems (SAP) and, in this way, business processes were optimised, enabling the established organisational impact to be reached. For this purpose, the upgrading of the SAP System to the 4.7 version was completed.


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Considering that the system had initially been developed to support business units that have since been conveyed (Jumbo and Eurocash), it was possible to rationalise and focus the system for single support of Biedronka’s specific processes. This allowed the existing configurations to be simplified and standardised, with a positive impact on rationalisation in the area of information systems. The aforementioned upgrading process was preceded by a technical project of System Landscape Optimisation, which created the appropriate conditions. In addition, special attention was given to boosting the efficiency of all the supply chain processes in terms of increased productivity and level of consumer service. The following optimisations were thus achieved:

• Implementation of a new layout in the Wyszkow Distribution Centre, associating operations performed entirely just in time with a direct process of transferring pallets from the reception docks to those of dispatch. This project led to a significant increase in productivity by minimising the number of internal transactions in the warehouse. During 2005, this concept will begin to be gradually implemented in the other Distribution Centres in Biedronka;

• Adoption and standardisation of the EAN128 protocol for the main suppliers, with simplification of the warehouse control processes;

• Development of warehouse reception processes with the concept of determining the time of “delivery windows” by supplier and consequent control of levels of service;

• Optimisation of the cooperation processes with suppliers in backloading;

• Development of store systems with increased efficiency in the processes of stock-taking and work planning.

9.3. Manufacturing 2004 was a year of consolidation and reinforcement of the existing organisational structure, with Companies focused entirely on the market and Functional Divisions (Finance, Supply Chain, IT) operating as skills centres in their areas of activity. The setting up of the Supply Chain Process Board is a good example of how to ensure transversal and integrated management of the supply chain process in optimisation of the chain of value, with a view to making it more flexible and improving Customer Service. The benefits at the level of working capital are also important, as are the synergies immediately obtained from integrating the areas of Iglo’s Customer Service, Out of Home and Outbound into the Supply Chain Management. The efforts of the plants in the process of on-going TPM improvement, previously mentioned in point 6.3, regarding the IgloOlá Company, led to the award of certificates for two of the plants in this area. In terms of improvements in efficiency, 2004 was also marked by the beginning of new projects at the level of transactional finance, which included the start of


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the project of digitalisation, OCR and workflow, enabling significant gains in efficiency and productivity. We should also mention the projects that enabled automation of inter-company transactions, the receipt of supplier’s electronic invoices and payments by electronic methods, in as much as they created conditions for improved productivity, for excellence at the level of service and for a level of cost competitiveness that placed the Operation among the best in Europe. In the area of Customer Management, a Customer Relationship Management (CRM) tool was launched - project Noki@ - which aims not only to optimise contact between the reality of the point of sale and the Organisation, but also to share all the information at the level of the various structures that comprise this functional area. The Starlight Project was launched, aimed at the total integration of the Demand and Supply Planning process, that is to say, from predicted sales to production line planning. In this process, real time information systems allow a flow of transparent information between all those involved in the process, enabling permanent and proactive intervention. All the aforementioned projects stemmed from joint developments between the functional areas and the IT Department. As a fundamental element of business, this department enabled full symbiosis of latest generation technological solutions with functional solutions of an innovative nature, allowing it to do more with fewer resources.


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10.1. Investments The Group’s management has been marked by the systematic presentation of growth strategies that enable the various businesses to gain leading positions in the markets in which they operate, providing maximisation of the value invested by shareholders.

In order to achieve these targets, growth investments play an important role and the Group is constantly concerned with strengthening areas of expansion with the necessary means and, at the same time, providing the Organisation with the control mechanisms that will ensure high levels of requirements in the analysis of the proposed investments and those made.

In 2004, various measures were taken that proved Jerónimo Martins’ determination to meet the proposed objectives, such as:

• Recruitment of a Director of Expansion for the Poland operations, with greater autonomy and responsibility;

• Submission of a significant number of licensing requests by Pingo Doce and Feira Nova stores in two phases that were concluded in 2004;

• Increase in the requirement level in relation to the analyses requested for main investments;

• Training sessions for the Group’s Management on the standards and procedures in the Investments Manual;

• The Manual was available to all users by internal electronic mail.

Both the required analyses and the levels of approval vary according to the value of the investment and its strategic importance.

The higher value investment projects are presented to the Department of Planning and Control (DPC) through a detailed capital spending proposal, justified by the Company and/or business area responsible. The DPC reviews the proposal and performs consistency tests and sensitivity analyses that enable it to issue a report on the project. Finally, the proposal is submitted to the Executive Committee for approval.

During 2004, the DPC analysed 206 capital spending proposals, to the sum of EUR 137 million, 8 of them received a negative statement of opinion.

Jerónimo Martins channelled a significant part of the operational cash flow generated in 2004 into investment activities. The amount of investment represented 59.3% of the operating profit (EBITDA), compared to 27.9% in 2003.

Integration of the Bestfoods business represented expenditure of EUR 78 million. Through this deal, which strengthened the more than 50-year-old partnership between Jerónimo Martins and Unilever, FimaVG began to integrate a business

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with products and brands that complement its vast range of products, including Knorr soups, Maizena flour and Alsa desserts.

In the Distribution area, at the same time that work was done prospecting for new locations and submitting licensing requests for the opening of new stores, which will be the basis of future expansion, the opening of 63 new stores is proof of the Group’s efforts to ensure significant levels of growth. Thus, 55 new Biedronka stores were opened, 4 Pingo Doce stores (one in Madeira), 3 medium-size Feira Nova stores and a Recheio Food Service platform.

As mentioned in previous chapters, the Group was also concerned with ensuring the maintenance and modernisation of its stores to allow a homogenous group of stores, which would comply not only with the established legal requirements, but also with the standard determined by the operations for each of the formats. Some of the investments made in retail in Portugal aimed to provide the stores, particularly those of Feira Nova, with conditions for offering non-food sales.


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Brand No. New Stores No. Refurbished Stores No. Closed Stores

2004 2003 2004 2003 2004 2003

Pingo Doce 4 2 3 11 4 4

Feira Nova 3 1 4 6 0 0

Recheio 1 1 2 1 0 1

Biedronka 55 38 64 62 2 4

10.2. Disinvestments Apart from the anticipatied completion of the sale of the cash & carry chain Eurocash in Poland, no materially relevant disinvestment occurred in 2004. As in previous years, the policy of monitoring the operational contribution of each production unit was maintained, deciding upon closure whenever it appears impossible to invert the trend of value destruction or when replacement seems to be the best way of defending the strategy.

This was the case with 2 Biedronka stores and 4 Pingo Doce stores (3 of which operated until 31st December 2003, two in Madeira). A new one that is expected to open in 2006 will replace the Pingo Doce store in Alcântara.


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International institutions predict a general, but slight, slowing down in growth of the world economic activity in 2005. The USA will continue to grow at a faster rate than the average rate of the advanced economies and it is estimated that China will maintain significant dynamism. Growth in the Euro Zone will be above that of 2004, benefiting particularly from the contribution of the new member states’ performance because of the strong external demand aimed at them.

In fact, it is predicted that economic policies will take on a progressively more neutral orientation, particularly with the USA’s correction of real negative interest rates and expansionist budget policy. It is also expected that the Chinese authorities will slow down the pace of economic expansion by raising interest rates and controlling public investment. The Central European Bank, which has been persistently indicating the risks for price stability in the medium term, is also expected to raise interest rates, between 25 and 50 base points.

The dollar is also expected to continue with a weak exchange rate against the euro. The price of oil may, in its turn, undergo new pressures, in as much as there are still imbalances between supply and demand (at least in terms of certain types of crude oil). This is in part due to the growing integration of China and India into world commerce and also to the continued political tension in several oil-producing countries, which increases insecurity as to the level of future supply.

Although the perspectives for world growth are relatively favourable, there is a level of relevant uncertainty associated with possible international conflicts, with the threat of terrorism or unexpected economic developments, which lead businesspeople and investors to adjust their confidence indices.

In relation to the Portuguese and Polish markets, in which the Jerónimo Martins Group is currently operating, there are some specific situations worthy of mention.

Opinion studies performed within the Portuguese business community reveal that, despite the political instability and the general elections set for February 2005, company investment may rise, sales may go up, but the pressure on prices will continue. However, it is also believed that there will still be obstacles to the country’s economic growth as a result of the lack of fundamental structural reforms. The economy in 2005 will behave in a similar way to that of 2004, though the Portuguese stock market may slow down and exports increase.

In its turn, the Bank of Portugal foresees 1.6% growth in GDP, a sum that exceeds that of 2004 and is based essentially on the strong expansion of external demand. It also foresees a drop in the inflation index and a slowing down of internal demand compared to 2004. However, these expectations may be affected by factors of an international nature - such as higher changes in interest rates and/or exchange rates, or lower international growth – and by factors of a national nature, due to lower budget consolidation. In 2005, in the Food

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Distribution sector, the results of the new Commercial Licensing Law are expected to enable consolidation of growth perspectives for the sector over the next few years.

In Poland, although there is no doubt about the expected effects of EU membership and the potential for economic growth and the concomitant development of its infrastructures, the question is how fast growth will actually occur in the short and medium term. This naturally affects the nature and extent of ambition of the activity strategy of companies in this market.

Estimates indicate a 4.7% increase in GDP in 2005, with significant expansion in domestic demand. There should also be a strong rise in the level of investment, due mainly to two factors: (i) the favourable climate of transfer of business units from other European Union countries with a view to benefiting from the highly-qualified Polish labour force, as well as the rather competitive costs; and (ii) the impact of community funding aimed at development of infrastructures and company competitiveness. Consequently, there is an optimistic atmosphere as regards a drop in the unemployment rate and positive evolution of private consumption, though spending capacity will still be rather low.

The zloty will remain strong in 2005, with the consequent impact on the level of exports, and the Polish authorities are expected to lower interest rates.

Nevertheless, the country faces some risks in terms of the criteria to be met for EU membership, namely in the public deficit limit of 3%. Several analysts consider that more daring measures than those foreseen will have to be taken in order to meet this goal.

The General Elections set for 2005 may also be responsible for a slowing down in economic growth.

In the Food Distribution sector in Poland, an aggressively competitive enviroment is expected to continue, with a trend towards consolidation of operators in Organised Retail and the continued transference to this from Traditional Retail (which still represents more than 50% of the total food market).

The strategic priorities of the Jerónimo Martins Group in the three years from 2005-2007 focus on the management activity of the current portfolio of assets, ensuring sustainability of value creation in Portugal and in Poland and maintaining high financial solidity within a context of preparing the basis for the Group’s future expansion and growth. The Group considers that, in the aforementioned context, value creation care means:

• Sustaining cash-flow margins; • Increasing the capital turnover ratio; • Maintaining the cost of capital.

Considering the international macro-economic framework, the Jerónimo Martins Group continues to focus on profitable growth and consolidation of the Food


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Distribution business. It is certain that in 2005, Poland will prove to be the main driver for the Group’s growth and it is hoped that, from 2005, conditions will exist to reopen retail stores in Portugal. The Group will also assess the perspectives that the so-called “out of home food market” can effectively offer, not only through continued investment in Food Service but also through the development of other business alternatives. Assessment of a potential expansion to other geographical locations in Eastern Europe and assessment of the Group’s business portfolio in terms of new business alternatives are also on the agenda for 2005.

Both in Portugal and Poland, it is expected that consumers will continue to be sensitive to the price factor. In line with what has already been seen, the market strategy of the various Business Areas will thus be based on clear, different and innovative positioning, and on the reduction of sale prices. What is certain is that profitability must continue to be financed by effective gains in competitiveness. The Organisation, in its various areas, will be substantially involved in projects of this nature, intentionally considered in the 2005 Balanced Scorecard.

Pingo Doce will continue to strengthen its position of leadership among the supermarkets, consolidating its price repositioning strategy in 2005 and continuing to focus on developing Perishable and Private Label products, as differentiating factors.

Feira Nova will also continue to consolidate its competitive price positioning strategy, focusing on Electric Co and New Code, and investing in Perishables and Private Label products, as factors of attraction and loyalty, respectively.

Recheio will continue consolidation of its position as cash & carry leader during 2005, continuing its operating strategy and assessing growth alternatives in a segment that has significant growth difficulties. For HoReCa, consolidation of the operating strategy and the consequent increase penetration in channel are the great priorities, especially through the Food Service platforms.

On the Polish market, Biedronka will continue to secure its success strategy, ensuring that it maintains its market advantage and focusing the entire Organisation on continuous, fast and sustained growth. The Operation continues to present aggressive expansion plans (60 to 80 stores/year) and refurbishment (40 to 60 stores/year) and intends to create another logistical and operating region to ensure an adequate structure for the existing growth potential.

In the Manufacturing area, an inversion of the trends registered in 2004 is expected, with a prediction of sales growth in all Business Areas, through investment in price repositioning, particularly in the category of detergents, in advertising, innovation and in points of sale. The integration of the Bestfoods business is expected to have a positive impact on sales and profitability.

Although the Group anticipates yet another difficult year ahead, it has what it considers workable, but rather demanding, targets for the whole.


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On 1 February 2005, the Competition Authority in Portugal decided not to oppose the incorporation of Unilever Bestfoods Portugal - Produtos Alimentares, S.A. (Bestfoods Portugal) in FimaVG - Distribuição de Produtos Alimentares, Lda (FimaVG), and the transaction is expected to be completed during March 2005. In these terms, and due to the agreement celebrated with our partner Unilever, from 1 January, 2005 the Jerónimo Martins Group will begin to book in its consolidated accounts 51% of the financial statements of FimaVG and Bestfoods Portugal.

12. EVENTS AFTER BALANCE SHEET DATE


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In the financial year 2004, Jerónimo Martins, SGPS, S.A. declared consolidated profits of EUR 92,515,031.00 and a profit in individual accounts of EUR 32,386,645.79. The Board of Directors proposes that the net profits be applied in the following manner:

• Legal Reserve = EUR 1,619,332.29 • Retained Earnings = EUR 30.767.313,50

In accordance with the policy of dividend distribution announced several years ago, and described in chapter 1.5 of the Corporate Governance, the Board of Directors proposes a distribution to the Shareholders of EUR 45,247,263.84, an amount which corresponds to 48.9% of consolidated net profit, and which is to be taken from the free reserves available for distribution. This proposal represents a dividend payment of EUR 0.36 per share, excluding own shares in the portfolio. It is also proposed to cover retained loss, through the transfer of EUR 77,465,397.11 from free reserves.

13. PROPOSED APPLICATION OF RESULTS


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Information concerning the stakes held in the Company by Members of the Board of Directors and Statutory Auditor as at 31st December 2004 (As provided in article no 447 of the Commercial Companies Code and under the terms of sub-paragraph b), paragraph no 1 of article no. 7 of the Securities and Exchange Commission Regulation no. 24/2000)

BOARD OF DIRECTORS

Shares Bonds Shares Bonds Shares Bonds Shares Bonds

15,281 2,500,000 4,790 2,500,000 20,071 -

n.a. n.a. - -

- - - -

18,014 434,952 5,647 434,952 23,661 -

- - - -

n.a. n.a. 389 1,536 -

3,000 - 940 3,940 -

n.a. n.a. - -

- - - -

- - - -

1 - Board Members apointed at the 15th 2004 April General Meeting. n.a. – não aplicável2 - At the dated he was nomenated he onwned 1.147 Jerónimo Martins shares.3 - Increases during the year are due to the EUR 150 million rights issue subscription of shares that started to trade at the stock exchange at 14 July at 2004.4 - The zero cupon bond loan was fully reimbursed at December 2004.

Decreases during the year Held on 31.12.04

Hans Eggerstedt

Members of the Board of DirectorsHeld on 31.12.03 Increases during the year

Elísio Alexandre Soares dos Santos

António Mendo Castel-Branco Borges

José Manuel da Silveira e Castro Soares dos Santos 1

Álvaro Carlos Gonzalez Troncoso

Luís Maria Viana Palha da Silva

Pedro Manuel de Castro Soares dos Santos

Rui Manuel de Medeiros dÈspiney Patrício

Artur Eduardo Brochado dos Santos Silva 1 2

Manuel Fernando Macedo de Alves Monteiro 1

STATUTORY AUDITOR

As at December 31st 2004, the Statutory Auditor Bernardes Sismeiro & Associados, SROC, Lda., did not hold any shares and bonds of Jerónimo Martins, SGPS, S.A. and had not made any transactions with Jerónimo Martins, SGPS, S.A. securities.

14. CONSOLIDATED MANAGEMENT REPORT ANNEX


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List of Shareholders with Qualifying Shares as at December 31st 2004 (Under the terms of articles no. 447 and 448 of the Portuguese Commercial Companies Code and for the purpose of section e), paragraph no. 1 of article no. 6 of the Portuguese Securities Market Commission Regulation no. 11/2000 and in the terms of the Portuguese Securities Code).

Shareholder No of Shares Held

% of Capital

% of Voting Rights*

Sociedade Francisco Manuel dos Santos, SGPS, S.A.

Directly 72,583,985 57.671% 57.750%

Strand Ventures Inc.**

Directly 10,454,615 8.307% 8.318%

Through Fitron Management Ltd. (Held 100% by Strand Ventures, Inc.)

4,234, 159 3.364% 3.369%

Through Sociedade Multiplus Investments Ltd. (Held 100% by Strand Ventures, Inc.)

5,266,256 4.184% 4.190%

Total Attributable 19,955,030 15.855% 15.877%

* (% Voting rights = No Shares held / (Total No JM Shares - Own shares))

** Under the terms and for the purpose of paragraph 3, article no. 16 of Portuguese Securities Code (CVM), the stakes held directly and indirectly by Strand Ventures Inc must be imputed, according to paragraph 1, article 20 of CVM to the following Companies:

- Banco Privado Português (Cayman) Ltd., under a portfolio management contract for the entire stake in Jerónimo Martins, SGPS, S.A.;

- Banco Privado Português, SA, under an agreement with several shareholders of Strand Ventures allowing it to elect the majority of the Members of the Board of Directors.


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FINANCIAL GLOSSARY* EBITDA Margin =

(+ Operating Results + Depreciation + Goodwill Amortisation - Non Recurrent Operating Results)

/ Net Sales & Services

EBITA Margin =

(+ Operating Results + Depreciation - Non Recurrent Operating Results)

/ Net Sales & Services

OIC (Operating Invested Capital) =

+ Gross Goodwill + Net Fixed Assets + Working Capital

NOIC (Non Operating Invested Capital) =

+ Goodwill Accumulated Amortisation + Net Financial Investments + Deferred Taxes Provision + Income Tax Provision PreTax ROIC (Return, before taxes, on Invested Capital) =

[Sales & Services / ((OIC + NOIC – Deferred Taxes provision + Goodwill Acc. Amortisation) average] x EBITA Margin

Cash Flow =

+ Net Results + Amortisation, Depreciation e Provisions - Deferred Taxes - Non Recurrent Items (operating, disposals and financial)

Net Debt =

+ Bonds + Bank Loans + Other loans - Marketable securities and bank deposits

+ Leasings + Accrued interest Gearing =

+ Net Debt / + Shareholders funds

15. FINANCIAL GLOSSARY


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Interest Cover Ratio

+ EBITA / (+ Financial Results (excluding non recurrent items) - Partners loans interest)

* This financial glossary is based on the income statement by functions


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Aiming to facilitate the direct acess to some of Jerónimo Martins Group entities the following e-mail adress are disclosed: Elísio Alexandre Soares dos Santos (Chairman of the Group) [email protected] Luís Palha (Chief Executive Officer) [email protected] Pedro Soares dos Santos (Member of the Executive Commitee - Responsable for Food Distribution Operations) [email protected] José Soares dos Santos (Member of the Executive Commitee - Responsable for Industry and Representations and Marketing Services) [email protected] Henrique Soares dos Santos (Company Secretary) [email protected] Cláudia Falcão (Head of Investor Relations) [email protected] Ana Luísa Virgínia (Market Relations Representative) [email protected] Ethics Commitee [email protected]

16. CONTACTS

IV. Social Responsability

119 0. Relevant Facts to 2004

121 1. What does Corporate Social Responsibility Mean for Jerónimo Martins? 122 2. Corporate Ethics

123 3. Human Resources 123 3.1. Human Resources Policy 123 3.2. Description of Human Resources 125 3.3. Recruitment 127 3.4. Training and Personal Development 132 3.5. Career Management 133 3.6. Remuneration Policy 134 3.7. Working Conditions 137 3.8. Occupational Medicine 138 3.9. Social Agreements and Benefits 138 3.10. Partners in the Area of Human Resources 140 4. Quality and Food Safety

140 4.1. Food Quality and Safety Policies 141 4.2. Main Projects of the Year

144 4.3. Quality and Food Safety Indicators 147 4.4. Partners in the Area of Quality and Food Safety 149 5. Environmental Management 149 5.1. Environmental Policy 149 5.2. Main Environmental Impacts 150 5.3. Environmental Management Programmes 161 5.4. Partners in the Area of the Environment 162 6. Patronage 162 6.1. Social Patronage 167 6.2. Cultural Patronage 169 7. Frequently Asked Questions

Annual Report’04 – Social Responsibility

119

February

• Recheio starts to prepare for the Food Safety certification of its stores and Food Service platforms

• Cascade training on the Code of Conduct and respective communication

March

• Start-up of Recheio’s project to prepare for Environmental and Food Safety Certification

• Victor Guedes sets up joint teams with suppliers to identify areas of improvement

• FimaVG obtains Environmental Certification under the requisites of NP EN ISO 14001:1999 standard

April

• Fima/VG launches “Planta” brand campaign viewing the reforestation of the Tapada Nacional de Mafra under the motto “a Gesture that Plants”

June

• Manufacturing Companies’ voluntary social work initiative in the Sacavém Social Centre

• Summer Campaign – internal collection of products to aid the “Crianças Sem Fronteiras” institution take children and young people to the beach

• “A Trip to the World of Theatre” for the children and young people of “Obra do Ardina” and Bicesse SOS Village.

July

• Beginning of the process of creation of the Jerónimo Martins Training School for the Distribution area in Portugal – the school was inaugurated in January 2005

• Beginning of awareness raising internal meetings on Social Responsibility

August

• Introduction of productivity bonus in 18 Electric Co stores (Feira Nova)

• Inauguration of “Casa do Vale” of the “Crescer - Ser – APDMF” association, supported by Jerónimo Martins Group

September

• Job-induction and integration of 20 new graduates into the Distribution area in Portugal

October

• Participation in Lisbon’s 5th Employment Fair

• Victor Guedes first Technical Seminar on Olive Oil

0. RELEVANT FACTS TO 2004


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• Restructuring and reinforcement of the environmental area in Distribution Portugal

• Support to the Museum of the Presidency is formally established

November

• “Safety Week”, promoted by the Companies of the Manufacturing area

• Pingo Doce, Feira Nova and Recheio launch “Environmental Calendar for 2005” campaign

• Blood collection campaign in the Group’s central offices, under a joint initiative with the Portuguese Institute of blood

December

• Internal campaign to collect toys for underprivileged children


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Corporate Social Responsibility is a relatively recent concept in the Portuguese business world, although many of its tenets and philosophies regarding how to act in the market are not new.

From among the various different definitions and interpretations of the concept, Jerónimo Martins has adopted the definition found in the European Commission’s Green Paper, published in 2001 with the title “Promoting a European Framework for Corporate Social Responsibility” – “Corporate social responsibility is essentially a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment… This responsibility is expressed towards its employees and more generally towards all the stakeholders affected by business and which in turn can influence its success.”

For Jerónimo Martins, then, Social Responsibility constitutes a way of managing business through sustainable development. In other words, we aim to achieve our objectives, but in a way that generates value for all our stakeholders, not just in the short term, but also on a sustained medium- and long-term basis. The assumption of a socially responsible posture has, then, implications on working methods at all levels of the Group and its Companies. These involve the defining of objectives, strategies and policies to ensure management practices which simultaneously consider three variables: Profit, People and Planet. Profit is an indispensable condition for a company’s sustainability and the wealth creation of an economy. People are vital because sustainable success depends on satisfying the needs not just of consumers but also of shareholders, workers, suppliers, institutional partners, and also socially disadvantaged groups. The Planet is important to us because Jerónimo Martins is constantly striving towards the correct use of natural resources, through the study, analysis and research of management practices. Thus, we aim for the continual improvement of the environmental performance of our business activities, products and services, and the prevention of pollution, with a view to eco-efficiency. With a 200-year history, the Jerónimo Martins Group is proud to say that it has always been active in terms of Social Responsibility, with a firm belief that this management model is the only way for companies to guarantee their future positions.

In this chapter, information is given about the policies and business activity of the Group in the areas of Business Ethics, Human Resources, Quality and Food Safety, Environmental Management and Patronage in 2004.

1. WHAT DOES CORPORATE SOCIAL RESPONSIBILITY MEANFOR JERÓNIMO MARTINS?


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The Jerónimo Martins Group believes that its workers should behave in a manner compatible with the principles of integrity and loyalty that are so integral to the Group’s culture. It also believes that all in a clear, unequivocal way should know these values.

It was with this aim in mind that Jerónimo Martins developed a Code of Conduct, which it is determined to see adhered to.

The Code of Conduct was formally instituted and made available on the Group’s website in 2003. It aims to clarify guidelines on various fundamental questions related to the Jerónimo Martins mission- obeying current legislation; respect for the principles of non-discrimination and equality of opportunity; environmental concern; business transparency; and integrity in relations with co-workers, suppliers, customers and official entities. In 2004 a massive information programme was carried out, involving all Distribution workers, both in Portugal and in Poland, with a copy of the Code being sent to every worker. In parallel, cascade-training sessions were given to increase employee sensitivity to the importance of adhering to the Code, and to clear up doubts. These sessions threw up several points that had not at first been fully understood by the employees, and which were referred to the Ethics Committee, as the body responsible for divulging the Code and ensuring that it is adhered to, for clarification. The Jerónimo Martins Group continues to ensure complete adherence to the ethical principles it has always espoused. This involves an efficient system of bilateral communication. At all levels of the Organization, there exists confidential access to the Ethics Committee for comments, suggestions and clarification of doubts.

In 2004, in obeyance of current legal precepts and of the principles of the Code of Conduct, notices were posted in all the stores of the various brands of the Group in the Distribution area (Portugal), as well as in the training programmes of the Labour Relations department, with information relating to the rights and duties of employees in terms of equality and non-discrimination and of maternity and paternity rights.

2. CORPORATE ETHICS


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To guarantee the highest competence of the Human Resources Team of the Jerónimo Martins Group is a key requisite for pursuing the strategic objectives of excellence of service to customers and consumers.

The strategies and mechanisms for the development of Human Resources, as well as their alignment to business targets are increasingly important factors of differentiation.

Human Capital is the most valuable resource in any business. It is essential to attract, recruit, train and retain talented professionals in the various fields, as well as to offer them good opportunities for development that will contribute to their personal and professional achievement, working as team members in a stimulating environment.

The aim is to have an Organisation where the working teams are motivated, focused and committed to the objectives of the organisation.

3.1. Human Resources Policy

So that each person does their best for business,

for the Company and for themself

To offer a motivating and healthy working environment, fair and adequate pay and good opportunities for development with a view to optimum performance but also the personal and professional fulfilment of each person.

3.2. Description of Human Resources 3.2.1. Total Employees of Jerónimo Martins Group on 31 December 2004

Holding Company 62 Distribution Portugal 15.731 Distribution Poland 11.883 Manufacturing and Services 1.238 TOTAL 28.914

3. HUMAN RESOURCES


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3.2.2. Staff Description

• Jerónimo Martins, SGPS, S.A.

Manager Non-Managers

Total no. of Employees 52% 48%

Sex 53% Men 86% Women

Age 82% >25 and < 34 years 53 % >25 and <39 years

Academic Degree 93,8% graduated 78% non-graduated

Education 53% >2 and <5 years 33% >5 and <10 years

Contractual Situation 100% permanent 98% permanent

• Distribution



Sex 67,5% Men 71% Women

Age 54% >30 and < 39 years 53 % > 18 and <29 years

Academic Degree 68% graduated and bachelor

3% graduated and bachelor

Education 43% >5 and <10 years 34% >1

22% >2 and <5 years


• Manufacturing and Representation and Marketing Services



Sex 64% Men 54% Men

Age 52% >25 and < 34 years 17% >25 and <39 years

17% >50 and <54 years

Academic Degree 82% graduated and bachelor

47% basic education and secondary

Education 28% >5 and <10 years

26% >2 and <5 years

40% >15 years

18% >2 and <5 years



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3.3. Recruitment

The Jerónimo Martins Group has kept pace with the evolution and growth of the global market, seeking to attract the best professionals in the different fields in order to provide a fast and effective response to the challenges faced by the Organisation. Recruitment is viewed as a key instrument for furthering growth and strengthening Jerónimo Martins’ position in the market.

The main criteria are to ensure equal opportunities and to assess whether the profile of the applicant (internal and/or external) suits the requirements of the job with no discriminatory policies or measures.

As a referential business Group and within the scope of its recruitment policy, Jerónimo Martins has been reinforcing its links to the academic world with a view to attracting and retaining talent.

3.3.1 Distribution

Internal Recruitment

Jerónimo Martins seeks to offer its employees different opportunities for growth and development, promoting mobility among the various functional and business areas.

Driven by a constant need for renewal and investment and to meet the operations’ growing level of requirements, there were 167 internal recruitment moves (involving non-managerial) staff in Portugal. Of these, 107 were intra-company transfers, 19 were inter-company transfers and 41 were promotions.

In terms of middle managers and senior staff relocation in Portugal, there were 40 intra-company transfers, 20 inter-company transfers and 17 promotions, and 1 expatriate returned to Poland. The purpose of these transfers was to fill the needs of different functional divisions, to carry out staff development plans and to meet the expectations of the Group employees in terms of career evolution.

In Poland, the business expansion plan called for a total of 1,298 relocations, namely promotions and inter-departmental transfers, of which 1,260 were non-management employees and 38 were middle management and senior staff.

The transfer of the head office from Poznan to Warsaw involved a number of actions, namely, to prepare the relocation of staff, to recruit new employees and to acquaint the employees with a new region.

External Recruitment

In terms of centrally managed recruitment, in 2004 the Group recruited around 200 employees for the new Feira Nova stores, of which 49 were for Fundão, 81 for Covilhã


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and 70 for Ponte de Sôr. It also recruited 19 recently graduated applicants for managerial positions in Pingo Doce.

At Recheio the sales force was reinforced with 6 new salespersons.

In Madeira, 40 employees were admitted to open the Pingo Doce store at Cancela, and 5 recently graduated applicants to manager positions.

Considering the Group’s commitment to Hygiene, Health and Safety in the Workplace, and to ensure compliance with good practices and the legislation in force in this field, 5 specialised technicians were hired, 4 to work in Pingo Doce and 1 in Feira Nova.

In Portugal, the year was also marked by the resumption of the Recent Graduate Recruitment Programme, which seeks to address the Group’s medium to long-term needs in terms of management staff. Under this programme, 20 new graduates were hired in September 2004: 10 from management school and 10 from food engineering. Most of them were allocated to the stores operational areas.

In Poland, 18 recent graduates were recruited to the Logistics, Commercial, Financial, Human Resources and Operations areas. At the end of 2004 the recruitment process of new graduates was restarted with the objective of filling 20 positions in Operations up to March 2005, when they are due to initiate a job induction, integration and trainee plan.

For its external recruitment, Jerónimo Martins banked on the active cooperation of other partners in the surrounding community. For the purpose, and in addition to advertisements and on-line recruitment, the Group’s various chains resorted to Employment Centres, to the UNIVA’s (Offices for Integration in Active Life), to Universities’ Trainee Offices, Student Associations, the Life Job Programme, local council associations and parish councils.

Also in 2004, the Group participated for the first time in the Employment Fair, an event that promotes employment in Portugal and serves as a meeting place for recruiters and job seekers. Jerónimo Martins, through its operating Companies, had the opportunity to consolidate its position in the market as a strong employer, as well as to convey its specific recruitment needs.

Traineeships and Other Actions

In 2004, the various Group Companies in Portugal provided 88 traineeships in Human Resources, Supply Chain, Marketing, Finance and Store Operations. Most of these traineeships took place in the area of Operations, namely at Feira Nova.

At the same time Jerónimo Martins’ middle management and senior staff have been helping students with curricular essays, and also taking part in University seminars and curricular subjects. These seminars were for example corporate communication (Universidade Católica), Group internationalisation (Universidade Nova), Food Quality and Safety (Universidade Técnica de Lisboa), and, in the financial area, the specific case of Jerónimo Martins’ adoption of the International Accounting Standards (Universidade Católica, AESE).


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In Poland, Biedronka maintained its links to the academic world, cooperating and sharing experiences and case studies with the Poznan University of Economics and with other professional entities.

3.3.2. Representation and Marketing Services

In 2004 Jerónimo Martins Distribuição de Produtos de Consumo (JMD) recruited 84 new employees - 49 for Jeronymo and 29 for Hussel – filling the needs created by the expansion of the two businesses. In terms of middle management and senior staff, JMD admitted two Key Account Managers and one Product Manager.

3.3.3. Manufacturing

In 2004, the following movements took place in the context of the internal recruitment and development policy for middle management and senior staff: 3 intra-company transfers, 18 inter-company transfers and 3 expatriations. Within the scope of joint programmes with Unilever, at the end of the year there were 15 expatriates, with 2 in top management positions in Europe and Africa.

In 2004, 3 newly graduated management trainees were recruited, both through recruitment presentations in several universities (Católica, ISCTE and Nova) and through the corporate site www.unilever-jm.com.

Finally, during the year the Group of Companies also provided 71 traineeships in Marketing, Sales, Customer Service, Quality Control and Finance.

3.4. Training and Personal Development The Human Resources policy aims to give the staff of Jerónimo Martins Group the necessary skills and competences to enable them to respond to the Organisation’s present and future needs. For Jerónimo Martins, the investment made in training has a visible impact on efficiency and productivity levels – which are critical factors of differentiation.


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3.4.1. Distribution

Training Indicators

Training Guidelines in 2004

From the various training projects undertaken in the Group Companies, those addressing Customer Service, Safety, and Hygiene in the Workplace deserved particular attention.

Jerónimo Martins continues to invest in the development of the management skills of its executives, having signed a protocol with Novaforum – Training of Executives (Universidade Nova) for the purpose. Under this protocol, a total of 10 executives (7 Portuguese and 3 Polish) from the Operations, Commercial and Human Resources areas of Distribution will attend this university’s General Management Course.

Training Course

Companies

Total no. of Employees

Trained

Total of Training Hours

Costumer Service

Pingo Doce, Feira Nova, Lidosol

3.993

105.632

SHT – First Aid Portugal Distribution 26 546

SHT - Fire Fighting and Evacuation from Buildings

Portugal Distribution 295 4.802

SHT – Movement of Cargoes Distribution Centres 688 2.752

SHT – Low Lift Pallet Truck Driver’s Distribution Centres 563 2.252

SHT – Forklift Driver’s Feira Nova, Recheio, Distribution Centres

428 3.924

Safety and hygiene in the workplace Recheio 490 3.920

Safety and hygiene in the workplace Biedronka 362 17.162

SHT – Preliminary Official Analysis Biedronka 2.738 1.544

SHT – Powered Pallet Truck Driver’s Biedronka 7.279 29.713

SAP (Finance and Human Resources) Pingo Doce, Feira Nova, Gestiretalho, Recheio, Holding

427

13.184

Environmental and Food Safety Integrated Management Process

Distribution Centres and Gestiretalho

733

2.452

Food Safety Wariness Feira Nova, Recheio 838 5.268

Operations Pingo Doce, Lidosol 1.622 34.026

HR Standards and Procedures Feira Nova, Lidosol 44 496

Compartmental Area Pingo Doce, Feira Nova, Recheio

Lidosol

109

3.597

English Classes Gestiretalho 14 672

IAS Standard and Manuals All Companies 73 445

Personal Effectiveness in Lotus Notes Biedronka 26 32

Professional Negotiation Biedronka 28 96


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The Company also gave 21 middle management and senior executives the opportunity to participate in Seminars on Labour Legislation, Human Resources, Marketing, Finance and Behavioural areas, while another 12 were given the possibility of attending events, seminars and congresses abroad (IMD –2, CIES – 8, PWC – 1, Expo Management - 1).

At the same time the Group continued to grant time off for attendance of post-graduate and MBA courses in several areas.

In Poland, 86 middle management and senior executives attended training courses on various subjects and 1 participated in the Development Programme for Executives.

The Management Academy project, implemented in the last quarter of 2003, had a 16-hour follow-up session in 2004 that was attended by 34 executives. In 2004, 657 employees, for a total of 548 hours, attended the Management Academy programme and another 26 were given the opportunity to attend MBAs (96 hours).

To encourage the development and progress of its staff in Poland, Jerónimo Martins partly subsidises those who wish to pursue their studies at university level or take English language courses.

Job Integration Programme for Recent Graduates

In Portugal, a five and a half-month job integration programme was implemented to introduce 20 newly graduated employees to their job. The purpose was to provide them with the tools, knowledge and experience required to carry out their future functions. The programme was divided into three phases:

1. Introduction to the reality of the Distribution Companies – the trainees spent one week in each.

2. In-room training on the following issues:

Issues Training Hours

Occupational Medicine 4 hours

Food Hygiene and Safety 4 hours

Costumer Service 28 hours

Health, Hygiene and Safety in the workplace 16 hours

SAP 76 hours

TOTAL 128 hours /Trainee

3. In-store training, allowing the trainees to gain a deeper insight into the Company

where they would be placed.

In January 2005 these trainees attended another series of in-room training sessions (on perishables, good environmental practices, labour legislation, the performance


130

development program (PDP), inventory losses, and store operations, etc) and started their jobs in February.

This plan - at both integration and in-room training level - was for the most part developed and implemented internally by executives of the various Companies. The training sessions on Customer Service were given by an external specialised entity.

Creation of the Jerónimo Martins Training School

A project to create a Jerónimo Martins Training School was launched in the second half of 2004. In January 2005 the school was inaugurated.

This initiative aims for the creation of a single training unit shared by all the Group Companies capable of providing staff with the competences and skills required to carry out their functions and enabling them to improve their performance.

The Training School also seeks to enhance and promote the dissemination of the capital of knowledge that exists internally in all the Business Areas, encouraging the sharing of experiences and building in everyone a sense of involvement and belonging.

In a first phase, the project entailed two fundamental steps:

1º - Outlining and implementing a standard training plan for Pingo Doce, Feira Nova and Recheio store managers, following identified needs;

2º - Determining and promoting training initiatives to be prepared and given by internal and external trainers

Whenever possible, internal training initiatives were favoured. Those developed at internal level addressed the following issues: occupational medicine, health, safety and hygiene in the workplace, food safety and hygiene, good environmental practices, merchandising, marketing, store operations, labour legislation, preparation of staff timetables, Finances for non-financial professionals, inventory losses, job integration, human resources, team management and time management.

To give training on customer service, leadership, training of trainers, perishables and SAP Jerónimo Martins contracted external entities.

A large proportion of the training initiatives that were planned during 2004 are only being carried out in 2005, after the opening of the Jerónimo Martins Training School

Sharing of Experiences

Jerónimo Martins has three internal magazines that promote the sharing of information and a spirit of belonging to a Group:

- “A Nossa Gente”, addressed to all the staff employed by Distribution and Services in Portugal, carries quarterly news about Group Companies to the nearly 20,000 Employees in this area;

- “Nasza Biedronka”, addressed to all the staff of the Biedronka chain in Poland;


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- “WorkOut”, a bilingual bi-annual magazine, is designed for middle-management and senior staff in all business areas in the Group, both in Portugal and Poland, to promote the sharing of knowledge and experiences.

Also in 2004, a trip to Poland was organised for 100 middle management and senior executives, who had the opportunity not only to visit the Group’s operations in that country but also to share experiences with their Polish colleagues. 3.4.2. Representation and Marketing Services

In 2004 Jeronymo gave internal 16-hour training courses for a total of 784 hours to 49 employees, hired for the 6 coffee kiosks opened during the year and others for other kiosks that were already in operation.

Hussel invested in training in Customer Service and Sales. The training sessions, given by an external entity, were attended by 50 people (14 managers and 36 assistants) and had a total duration of 512 hours.

In 2004, 4 JMD middle management and senior executives were given the opportunity to participate in the following courses of the Management Centre Europe, in Brussels, for a total of 126 training hours: Strategic Marketing Management (1), Developing and Launching Products (1) and Essential of Sales (2). JMD also subsidised one of its executives who took an MBA.


In 2004 the training plan included courses given by both external entities and by Group middle management and senior executives. Some of these courses were specifically directed to the Group’s manufacturing unit employees and others were organised abroad.

The national training plan consisted of 23 initiatives (9 internal and 14 external), which were attended by 362 participants, for a total of 5,593 hours. Among others, the courses dealt with the following themes: Managing Change, Managing Conflict, Leadership, Team Work, Marketing, Psychology of Persuasion and Finance.

In addition, micro training plans were also implemented, on a regular basis for the plants’ employees, and on a case-by-case basis for those of the other business units. These included 231 training actions, dealing in matters such as Safety, Environment, Hygiene, Quality, Financial, IT, Production and Maintenance. The micro plans were attended by 1,789 employees for a total of 19.099 training hours.

Overall, 2,151 employees received training in 2004 for a total of 24,692 hours.

With regard to international training, 78 middle management and senior executives attended 83 courses abroad, for a total of 2,208 hours.


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Integration Programme for New Graduates

The Companies in the Manufacturing area have put together several initiatives with a view to the effective integration of newly graduated employees, including the development of the skills and competences required for a first job with management responsibilities.

This Programme consisted of:

1. an initial two week training course providing a first systematic approach to the various companies and functional areas;

2. an extended period of training in the Companies, with 2 months spent in each company;

3. ten months of on-the-job training with predefined functions allowing the trainees to gain an insight into the customers and the markets where the companies operate;

4. the trainees are assigned to specific functions to complement their training and also to allow them to develop skills in at least two different management areas during the first two years;

5. Starting an actual career.

3.5. Career Management The Jerónimo Martins Group continues to view career development as a keystone in the sustainable success of its Companies.

3.5.1. Distribution

Following the restructuring process carried out in 2002 in Portugal, a Group priority was the revision and updating of all job dictionaries and profiles, with a view to resuming in 2004 the individual skills and competences appraisal process supported by the Performance Development Plan (PDP).

To this end, the Group continued to invest in providing PDP training to newly recruited middle management and senior executives (72 this year) so as to ensure that the entire universe of Jerónimo Martins management staff has the necessary knowledge to enable them to effectively use this Human Resources management tool.

During the year, 15 employees were promoted to middle management and senior positions within Jerónimo Martins.

In 2004 Pingo Doce developed a number of initiatives at both structural and cultural level, which, among others, included the creation of a model set of skills to be shared by the entire operational team and translating the Organisation’s strategy with regard to practices and behaviours, and also the standardisation of the Company’s criteria in terms of assessment and requirements. This model allowed the Company to consolidate leadership practices and to develop a language common to the various hierarchical levels, particularly reinforcing the role of District Manager.


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In Poland, succession plans for all middle management and senior positions were prepared and middle management and senior executives started to receive training with a view to their integration into the organisation of the new regions (regional offices and Distribution Centres).


In 2004, 5 employees were promoted to management positions. Overall it was a very active year in terms of staff mobility and transfers between Companies and business areas. In terms of staff development, the various Companies also continued to provide their employees with working experiences abroad.

3.6. Remuneration Policy Based on a fair and adequate salary policy that encourages excellence of performance, the various Group Companies continued to create and/or to optimise variable remuneration policies that reward the attainment of individual and team objectives and ultimately lead to the improvement of the results of the companies themselves.

3.6.1. Distribution

Pingo Doce, Feira Nova, Recheio and the Distribution Centres increased their minimum starting salary so as to become more competitive in the market.

In addition, with regard to the variable component of non-management staff remunerations, the following measures were taken

• Feira Nova implemented a variable remuneration scheme in the 17 Electric Co. stores;

• Recheio developed a productivity bonus system for the Logistics Platforms along the lines of model already used in the stores, implementing it in January 2005;

• Pingo Doce awarded performance bonuses to store and section managers.

In Poland salary increases used as a reference the results of surveys carried out at national level and another survey carried out by Biedronka of its direct competitors Proposals to change the system of bonuses for the staff in Operations and Logistics were analysed and later implemented in 2005.

2004 was also marked by the development and remodelling of one of the Human Resources management tools, the “Grading Grid”. It consists of a matrix where the various job functions existing in the Jerónimo Martins Group are listed by levels of content and responsibilities, showing for each function its position and relation to the respective Functional Area, Company and the Organisation as a whole. The Grading Grid also allows the establishment of the amount of fixed remuneration of each function and serves as a basis for career planning and management.


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The Jerónimo Martins remuneration policy seeks to ensure that remuneration levels are adjusted to market conditions, ensuring the Group’s competitiveness while guaranteeing a variable wage component tied to merit and to individual and business performance.

The remuneration includes two components:

• Fixed Component - based on the new Grading Grid, it should be stable and determined according to the business area, function and level of responsibility;

• Variable Component - based on the fulfilment of business and individual objectives, it is a vital tool for promoting and rewarding excellence of performance;

This remuneration policy also aligns individual targets to the business strategy, the overall performance outcome being taken as the key factor for differentiating the wages earned by the middle management and senior executives of Jerónimo Martins.


The remuneration policy for non-management staff adopted by the Companies in the last few years was broadly maintained in 2004. The average wage increase was 2.5% since January, which is in line with the forecast inflation rate.

The variable remuneration, based on the “Employee Performance Evaluation” and “Production Employee Performance Evaluation” systems (EPE/PEPE) that have applied to all the employees since 2003, registered a significant increase (12%).

Considering the two components of remuneration, there was an overall salary increase in 2004 of 3.2%. At the Unilever joint venture companies, international management remuneration policies continued to be applied in 2004. The average wage increase was around 3%, with high performers seeing their salary rise by between 3.5% and 7%.

The “Reward for Growth” system used to determine the variable remuneration of middle management and senior executives suffered some adjustments. At present it is based on three main factors: business results at European level (growth and profitability); business results by company; and individual performance. In all other aspects the former policy was maintained.

3.7. Working Conditions “Zero tolerance” with regard to Safety and Hygiene in the Workplace definitely constitutes the critical guideline for all the work developed in this area. As an employer, the Jerónimo Martins Group is responsible for ensuring healthy and safe working conditions for all its employees.


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Therefore, and to ensure that internal practices and processes are in compliance with legal requirements, the Group invests in continuous training with a view to the development of a culture of safety and an awareness of safety issues that ultimately allow to reduce accident rates to the targeted levels.

3.7.1. Distribution

In Portugal, the 4 higher level technicians in Safety and Hygiene in the Workplace recruited by Pingo Doce were each allocated to one of the Regional Operations Divisions, reporting functionally to the Manager of Safety and Hygiene in the Workplace.

The same occurred at Feira Nova, with 2 higher level technicians in Safety and Hygiene in the Workplace being assigned to the Operations Divisions.

These were the main actions taken in the area of Safety and Hygiene in the Workplace (SHW) during 2004:

• SHW audits of the stores and preparation of reports (with particular emphasis on factors such as professional risk, prevention and protection measures, safety in the workplace and assessment of installations and equipment);

• Inquiries into work accidents, determining the respective causes and taking corrective measures;

• Reports on accident occurrence;

• Assessing needs in terms of individual protection equipment;

• Testing the equipment and its compliance to legal requirements;

• Training and information sessions for the staff, mainly in the butcher, fish, bakery and delicatessen sections;

• Revision of the Job-integration Manual (chapter on SHW);

• Preparation of slides to use in training sessions for new heads of SHW;

• Setting up SHW files in the stores;

• Assessment of exposure to physical, chemical and biological agents (Feira Nova – North Area).

The main training initiatives on Safety and Hygiene in the Workplace concerned themes such as First Aid, Fire Fighting/Evacuation from Buildings and Movement of Cargoes.

In Poland, all the Distribution Centres where technical conditions allowed were equipped with electric pallet trucks, corresponding to an investment of 8 million zlotys, and electronic time recording and control systems were also installed.

Accident rates: seriousness, frequency and comparative evolution

However, despite the effort, commitment and attention put into the area of Safety and Hygiene in the Workplace, there was a small increase in the accident rate in Distribution in Portugal, the frequency and seriousness ratios having increased from 38.00 and 0.76 in 2003 to 40.6 (+6.8%) and 0.83 (+7.9%) respectively in 2004.


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This corresponds to an increase in the number of accidents with sick leave from 1,020 to 1,046 and in the number of days with temporary disablement from 20,363 to 21,275.

On the positive side, there is the following:

• At Recheio the accident frequency rate dropped from 42.2 to 38.6, which means that in 2004 there were 7 accidents fewer than in 2003; however, the seriousness ratio remained flat at 0.80;

• At Pingo Doce the accident frequency rate declined from 0.90 to 0.88, corresponding to a reduction of 1,026 days in temporary disablement for work. Curiously enough the number of accidents with sick leave was exactly the same as in 2003, which in overall terms means that their seriousness declined in 2004;

• At J.G. Camacho, in Madeira, the accident frequency and seriousness rates dropped from 10.5 and 0.11 to 7.20 and 0.058 respectively.

Both Feira Nova and Lidosol saw a reduction in the number of accidents – by 9 and 4, respectively – although the number of days of disablement caused by the accidents increased, by 854 in the former and 365 in the latter.


During the year the LeverElida plant developed various activities within the scope of the Safety component of the Integrated Management System, certified under standard OHSAS 18001:1999.

Several improvement projects were implemented, namely in the areas of Accesses and Machinery Safety, and 160 Safety initiatives were carried out. On average, the number of safety initiatives taken exceeded 1 per each 2 working days.

All new employees received instruction in Safety, and a number of training sessions addressing specific job descriptions were carried out.

In addition to the Safety and Hygiene Committee meetings, the 24 sector meetings on Safety held during the year were fundamental to reinforce communication and information.

The Internal Emergency Plan was tested in December 2004, counting with the participation of the Santarém Voluntary Fire Brigade and Civil Protection officers.

The IgloOlá plant obtained the certification of its Safety Management System under the OHSAS 18001:1999 specifications.

The creation of a Safety Management System in compliance of OHSAS 18001:1999 specifications led to the definition of a Safety Policy and to the creation of Safety Management Programmes, as required by those specifications. In addition, the teams involved in the Total Productive Maintenance (TPM) programme were active in identifying hazards and assessing risks.


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FimaVG organised 3 training programmes in the area of Safety, for a total of 420 hours, and also held a “Safety’s Week” as a joint event with the other plants, and annual awareness-raising activities involving the entire staff.

Victor Guedes held 8 training initiatives on Safety and Hygiene, with a total duration of 667 hours. This plant received the top classification (“A”) in the Safety, Hygiene and Health in the Workplace audit performed by Unilever auditors.

The employees who ensured the implementation of the Safety measures in their respective areas of activity were elected “Champions of Safety”.

Other measures taken included improving roads, implementing a Lockout/Tagout system, a fall protection system for drivers of tank vehicles and carrying out 4 internal Safety inspections.

Accident rates: seriousness, frequency and comparative evolution

The LeverElida plant reached a record in the number of days without accidents with sick leave – 586. The frequency rate of accidents with sick leave restricted work and medical treatment for each 100,000 hours worked was 1.12, which represents an increase on the previous year, explained by the higher number of accidents occurring in the second half of the year.

At the IgloOlá plant, the accident seriousness rate increased when compared to 2003 due to the large number of days of sick leave of just one employee who suffered accidents.

The accident rate of the FimaVG plant declined, as did the frequency rate: from 0.41 in 2003 it dropped to 0.19 in 2004. On the other hand, the seriousness rate doubled, rising from 0.03 to 0.06.

At Victor Guedes, a single accident caused 80 hours of lost time. The accident frequency rate fell by 49.3% versus 2002, from 0.83 to 0.42 in 2004.

3.8. Occupational Medicine

A Health Policy for all the Group Companies was outlined and prepared in 2004, with the ain of compliance with the legislation in force, a reduction in the number of accidents and control/reduction of absenteeism levels.

The following measures were taken in order to achieve these objectives, and will be further enhanced in 2005: ensuring compliance with the legislation in force, namely through the readjustment of contracts; signing new contracts (medicine/nursing) and adjusting geographical locations (urban areas => centrally located health services, served by public transport; establishing and releasing health services working hours; and communicating rapid forms of contact in case of emergencies).


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Admition Exams

Periodic Exams

Occasional Exams

Distribution Portugal 2.549 5.205 7.683

Manufacturing and Services 329 563 3.524

TOTAL 2.878 5.768 11.207

At Pingo Doce, there were 169 environmental supervision visits to the stores. Gestiretalho organised 15 individual Sanitary Education initiatives. At Feira Nova there were 277 environmental supervision visits to the stores and 52 individual and collective Sanitary Education initiatives. Finally, Recheio organised 56 individual and collective Sanitary Education initiatives and had 74 environmental supervision visits to the stores. 3.9. Social Agreements and Benefits 3.9.1. Distribution

In Portugal and in 2004, Jerónimo Martins invested in enlarging the capacity of the day nursery and kindergarten of the Azambuja Distribution Centre.

Several agreements and benefits were also renegotiated or signed with companies in various sectors (Banking, Insurance, Leisure, Mobile Phone Operators, Car Companies), with a view to providing privileged conditions to the employees of the Jerónimo Martins Group and to contributing to improving their quality of life.

In Poland, employee benefits include receiving Biedronka purchase vouchers for Christmas, social fund allowances, and also loans and subsidies, which are analysed and granted on a case-by-case basis.


In 2004 the Social Benefits package for middle management and senior executives did not undergo significant changes.

3.10. Partners in the Area of Human Resources 3.10.1. Distribution

The Group’s Labour Relations services have maintained close links with the Portuguese Association of Distribution Companies (APED), namely by participating in the preparation of salary surveys, and by having representatives in the Human Resources Committee,


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which has played a very important role in analysing labour legislation and in the revision of Collective Wage Agreements for the retail trade sector (mass Distribution).

In addition, the relations established with trade union associations, based on a spirit of mutual respect and trust, allowed a climate of understanding and social peace.


The close links that have long existed between the Companies and the workers’ representatives contribute to the stability of working conditions and a pleasant atmosphere in the workplace.

In each Company there exists an open and permanent dialogue between the Workers’ Committees and the Board of Directors, General Management and the General Management of Human Resources.

Collective salary negotiations continue to be conducted by the Employer Bargaining Committee, which is a member of the Business Federation, an association of manufacturing companies.


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Food Quality and Safety, from Source to Consumer.

Consumers and customers expect to buy safe products, complying with legal requirements and high standards of quality. The Jerónimo Martins Group has always been committed to responsible and proactive behaviour and has established “Food Quality and Safety” policies that guide the running of its businesses.

4.1. Food Quality and Safety Policies

The Jerónimo Martins Group recognises that a solid Food Quality and Safety Policy is a fundamental instrument of its strategy and, as such, a key factor of success for its operations.

To this end, the Group is set on satisfying the needs and present and future expectations of its customers, creating value for its shareholders and motivating its human resources.

Because technology, science and customer expectations evolve, the Jerónimo Martins Group also undertakes to continuously improve its performance in terms of Quality, Food Safety and the Environment.

In order to meet these objectives, the commitment and contribution of all the employees of the Organisation is required, so that the highest level of Food Safety, from primary production to delivery to the final client may be guaranteed to every consumer.

The implementation of this policy relies on values of business integrity and loyalty and on high ethical standards: honesty, trust and transparency vis-à-vis the people and the legislation.

The practice at the Jerónimo Martins Groups follows a formula that associates prevention, vigilance and training, and is implemented through:

1. The permanent assessment of all processes and flows influencing Food Safety and the relation between costs and quality. Maintaining HACCP (Hazard Analysis and Critical Control Points) systems;

2. Strict control of the quality of products from source to final delivery to the consumer;

3. Continuous training of human resources as a way of motivating them and raising efficiency;

4. Adequate facilities and equipment;

5. A relationship of partnership with the suppliers;

6. Cooperation, dialogue and exchange of information with the authorities and the scientific community;

7. Knowing the needs of the customers, at all times;

4. QUALITY AND FOOD SAFETY


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8. Developing customer information programmes.

It is part of the policy of the Jerónimo Martins Group through its Companies to, inform consumers above and beyond what is mandatory by law, namely to advise them on the most appropriate uses to give to products, and to provide nutritional information on products intended for final consumers. This also includes providing information on the possible presence in foods of Allergenic ingredients, GMOs (genetically modified organisms) or others, as appropriate.

In principle, the Distribution’s private label products and those of the manufacturing area do not contain GMOs. When there is no other alternative, the Group alerts consumers to the fact, by providing information on the package in accordance with European Union regulations.

4.2. Main Projects of the Year

4.2.1. Distribution

Three separate projects viewing external recognition of our Quality, Food Safety and Environmental Management Systems were initiated in Portugal in 2004:

• Certification of the Recheio stores (Hazard Analysis and Critical Control Points - HACCP – according to the Codex Alimentarius) – this project is near completion; it seeks to increase the level of Food Safety;

• Certification of service in Recheio’s Food Service platforms – project in an advanced stage of completion. The purpose is to guarantee to the customers (hotel and catering industry professionals) a set of service quality features (Food Service is one of the characteristics to be certified) that ensure consistency and add value to the business itself, namely Food Quality and the Safety of the products;

• Certification of the Gestiretalho Distribution Centres (HACCP, under DS 3027, And Environmental Management, under ISO 14001) – this project is in its last stage; it integrates the Food Safety System and the Environmental Management System.

In order to carry out these objectives, it was necessary to train and coordinate project teams including managers from all the operating sectors involved in the processes in question (technicians from the Quality and Environmental Control, Logistics, Maintenance, Human Resources, Internal Audit, Operations, Marketing, Commercial and Sourcing areas). The various teams were responsible for developing a set of tasks (sub-projects), namely:

• Assessment of all internal and external processes related to Food Safety and the Environment;

• Identification of opportunities for improving already existing systems for compliance with the requisites of the selected standards;

• Revision of the existing systems;

• Identification of necessary renovation/adaptation works in store, platform and warehouse infrastructures;

• Preparing new documentation and adjusting that which already exists:

• Preparing management manuals for the systems to certify;


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• Redefining the methodology for auditing and assessing suppliers, making it more demanding in terms of Food Safety and environmental protection;

• Standardising the specifications of perishable products and preparing the respective terms and conditions;

• Producing/redefining all of the support documentation to the systems to be certified (working instructions, inspection plans, code of good practices and system register models;

• Supporting the implementation of the newly developed procedures;

• Training the entire staff of the Companies involved in these processes (Recheio and Gestiretalho);

• Carried out the necessary internal audits to assess the stage of implementation of the new systems;

The figures below illustrate the scope of these three projects:

• 120 hours of training given to the teams responsible for the project – 80 hours for Gestiretalho and 40 for Recheio;

• 1,090 of direct work of the project teams – 600 hours for Gestiretalho and 490 hours for Recheio;

• 1,033 employees were trained to guarantee implementation – 733 at Gestiretalho and 300 at Recheio;

• 36 internal audits to verify/validate the implementation of the systems to certify.

During 2004 the Distribution Centres in Poland revised all the procedures implemented, using HACCP methodology to identify all hazards and assess the associated risks. Once the critical control points had been determined, monitoring plans were developed for each of those points so as to eliminate or lessen the level of risk to Food Safety.

The Distribution area of the Jerónimo Martins Group, both in Portugal and in Poland, was involved in a number of sub-projects viewing the development of increasingly automated tractability systems for the whole food sector. Using an overall horizontal approach (Fruit & Vegetables, Fish, Meat), some of these sub-projects were carried out with external entities, namely farmers and manufacturers using the EAN (European Article Number) system.


In 2004 the FimaVG plant consolidated the process of transition to NP EN ISO 9001:2000, reaching level II in the TPM (Total Productive Maintenance) programme. The plant received from the Japan Institute of Plant Maintenance (JIPM) an “Award for Excellence in Consistent TPM Commitment 2004 - First Category”, which rewards teamwork and the consistency of the practices and methods adopted to TPM tools (where quality and improvement are paramount).

The Victor Guedes plant has been certified under ISO 9001:2000 standard since May 2002. Every year all the production processes are subject to a detailed analysis to optimise and update them with the latest technologies. In September 2004 the plant was audited by Unilever in the areas of Quality and Safety, obtaining an “A” grade (the highest) in both, which places it on a level with the best plants of our international partner.


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The certification of the LeverElida plant’s Integrated Management System (IMS), which includes processes for compliance with ISO 9001:2000 (Quality), ISO 14001:1999 (Environment) and OHSAS 18001:1999 (Occupational Health and Safety) was renewed for another three years by the SGS. A revision of the Integrated Management System’s alignment to each of these processes was started in 2004, and should be concluded by March 2005.

In 2004 the LeverElida plant was subject to an audit on the microbiological conditions in the plant by the Quality and Hygiene Centre of Unilever’s Home & Personal Care Europe Business Group, with very positive results.

As for the IgloOlá plant, in 2004 its Integrated Management System was certified under ISO 9001:2000 (Quality), ISO 14001:1999 (Environment) and OHSAS 18001:1999 (Occupational Health and Safety), and it was also certified in the area of Safety.

Like the FimaVG plant, the IgloOlá plant also reached level II of the TPM programme, and earned an "Award for Excellence in Consistent TPM Commitment 2004 - First Category" from the JIPM, as recognition for the work done by the plant’s whole team, which included that developed on the themes of “Maintaining Quality” and “Environment and Safety”.

Unilever, the Jerónimo Martins Group’s partner in the manufacturing area also audited the IgloOlá plant, which received level “A” approval, confirming the standard of quality of the work done in this plant.

Concerns with building a range of products that increasingly meet with the customers’ approval led IgloOlá to launch a project viewing the definition of the quality standards that are perceived by consumers as being the most important. This project will be fully developed in 2005.

Responding to an invitation of the TPM Club Portugal, Victor Guedes and LeverElida gave a presentation at the national meetings on TPM of two case studies concerning the best practices applied in their respective plants. Victor Guedes’ presentation - “PM Analysis” - and Lever’s – “Changeover improvement in the cleaning of piping” were ranked in 1st and 2nd place respectively by the 21 companies that participated in the meetings. Finally, and to verify compliance with all the established practices, the processes were subject to various internal audits, not only on issues related with Quality, but also with Food Safety, Environmental Management and/or Safety and Health in the Workplace

• FimaVG - 14 internal audits;

• LeverElida – 10 internal audits;

• IgloOlá – 11 internal audits;

• Victor Guedes – 9 internal audits.


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4.3. Quality and Food Safety Indicators 4.3.1. The Stores

In addition to the continuous training of the staff, specialised technicians carried ot internal audits to measure the quality index of Group Stores in Portugal. This index is obtained not only by assessment of facilities and equipment, but also by evaluating the store operations themselves (the degree of general and personal hygiene, the quality and freshness of the products on display, and how they are handled, conditioned and labelled). During these audits, the various operators are always reminded of food safety procedures.

The following initiatives were carried out in 2004:

• 827 audits to the stores of the various Group Companies in Portugal;

• 425 specific support visits to the stores to provide various explanations and solve complaints;

Still in the area of Food Quality and Safety, and following the training of managers carried out in 2003, an in-room training plan for operators in the area of Perishables was jointly prepared with the Human Resources Division of Feira Nova and implemented by the Quality and Environment Control Division’ team.

During the year the following laboratory analyses were performed in the area of Distribution in Portugal:

Laboratory Analyses to: 2003 2004 %

03/04

Working Surfaces 760 2.226 193%

Handlers (hands) 384 877 128%

Pastry Products 772 200 -74%

Take-away Products 84 126 50%

Meats, Fish and Others - 441 -

These initiatives and analyses found an overall average increase of 1.5% in the stores’ performance indicators in terms of Hygiene, Good Practices and Quality, with rises of 1.9% and 2.8% in Recheio and Feira Nova and a slight drop of 0.3% in Pingo Doce.

In Poland, 2,738 workers employed in the stores and Distribution Centres received training on Hygiene and Food Quality.


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4.3.2. Suppliers

4.3.2.1. Distribution

Any Food Safety system, to be reliable and effective, should not be restricted to the interior of the facilities of the company in question, but be designed bearing in mind the entire universe of the supply chain – from source to final consumer.

This is why for the Jerónimo Martins Group it is increasingly important to establish relationships of partnership with its suppliers, not only of Private Labels and Perishables but also in other areas, so that it may know the manufacturing technologies employed, the Quality and Food Safety systems implemented, the control exercised by each manufacturer over its own suppliers, and also the internal controls applied to products and processes. This knowledge is obtained through audits and monitoring visits and constitutes a fundamental pillar of the Group’s Food Safety systems.

Several audits were carried out in the course of 2004. It is worth mentioning that the criteria for assessing the suppliers in 2003 have been subject to a strict revision, and a number of new aspects of Food Safety and the Environment that audits must evaluate were included in these criteria.

In Portugal, 866 such audits were performed, of which 521 were full audits to facilities, Food Quality and Safety Systems and the processes involved. The remaining 345 were monitoring visits to control products at source.

These audits are performed based on the main requisites established in the “Global Food Safety Initiative (GFSI) Guidance Document – 4th edition”, by the Task Force of the GFSI, a project facilitated by CIES – The Food Business Forum, or by any of the regulations recognised by this entity – BRC, SQF2000, EFIS, FTS, EUREPGAP.

4.3.2.2. Manufacturing

Plants in the Manufacturing area worked together with suppliers, through an annual auditing plan and visits to suppliers, to improve and guarantee the safety and quality of the products.

In 2004 there were 16 audits to suppliers. Whenever necessary, and in a spirit of sharing and mutual involvement, mixed working groups were set up. One such example is FimaVG’s cooperation with the suppliers of packaging material with a view to improving processes, in which joint teams including employees from the Production, Quality and Maintenance areas were involved.

Still in the area of supplier relations, Victor Guedes organised the “1st Technical Seminar on Olive Oil” which brought together the most representative suppliers and served to raise awareness of Food Safety issues, namely in terms of good practices, traceability and potential contaminants.


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IgloOlá has equally worked in partnership with its suppliers. During the July TPM audit, one of the suppliers presented a “Kaizen” (Japanese word that in TPM terminology stands for project of improvement) developed as a result of this joint action. The outcome of all this work was a 39% reduction in blocked products (from 0.9% in 2003 to 0.55% in 2004) and a decline of 34% in microbiologically unacceptable products (from 0.73% in 2003 to 0.48% in 2004).

LeverElida achieved a reduction in the quantity of defects in detergents, of 40% in powders and of 64% in liquids (measured in accordance with the Quality Demerit Index which relates the number and seriousness of defects on the quantities produced).

The FimaVG plant organised awareness rising sessions on the theme of Safety, Hygiene and the Environment that were attended by 45 operators.

With regard to finished products, a pre-established plan of analysis guarantees that when the product is delivered to the customer it complies with the respective specifications. As an example, in 2004 FimaVG performed 59,599 analyses on raw materials and finished products. 4.3.3. Distribution’s Private Labels

In Portugal, 2004 was marked by the development of Private Labels shared by the retail companies in Portugal - Pingo Doce and Feira Nova.

Through its image as a specialist in Perishables, and the innovation which it has brought into this area, Pingo Doce proved to be a driver of development in the food and Perishables categories.

In the non-food area, some new Group-wide brands were introduced, namely Ultra Pró (drugstore), Home7 (products for the home), Auto7 (car products), Office7 (office stationery), Active Pet (animal food) and Electric Co (Bazaar).

The MasterChef brand, for professionals of the Hotel Industry and Traditional Retail, continues to be used for food and non-food products. The Euroshopper brand, carried by the Group’s three chains in Portugal, remains associated to low price, standard quality products.

Quality and Food Safety are a clear imperative in the development of all these products. Developing a product is a multi-stage process, involving various steps such as the sensory and/or laboratory evaluation of the proposed product, the evaluation of supplier specifications and terms and conditions, supplier audits and approval of packaging and labelling.

Based on strict specifications, the Jerónimo Martins Group chooses to work with suppliers who have implemented Quality and Food Safety systems. Likewise, the Group only accepts suppliers that comply with predefined environmental requisites. From all suppliers of animal food and non-food Private Label products, 60% are certified under ISO 9001 (a prime factor in the selection of suppliers).


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Whenever possible we use Integrated Protection products such as the “Alcobaça” apple and the “Rocha” pear.

Small regional suppliers of delicatessen products, Cheese and Fruits & Vegetables are given full technical support to diagnose Food Safety systems and environmental conditions, for subsequent implementation of the appropriate solutions.

In 2004 there were 657 product development processes, between launches and relaunches.

Throughout the year, 288 audits and monitoring visits were made to Private Label suppliers in Portugal.

All products are subject to a strict analytical control of the supplier and the origin of the raw materials, which is planned according to the level of risk. This routine control is carried out by:

• Internal teams – sensory analysis of 1,251 products in 2004 and 1,241 in 2003;

• Recognised independent laboratories – analyses (microbiologic, chemical and physical) of 1,310 products in 2004 and 1,295 in 2003.

Biedronka works with some 400 suppliers, small and medium-sized Polish companies. All Biedronka’s suppliers are compelled to follow the Codes of Good Manufacturing Practices and the Codes of Good Hygienic Practices.

The audits performed on these suppliers use a checklist drawn from the Food Safety Standards of the British Retail Consortium, as is the case in Portugal. In this way small suppliers can grow and develop being permanently adapted to the market and Biedronka’s standards.

97 audits and monitoring visits were made during the year to suppliers of Exclusive Brands. Other activities during the year included developing 70 new product launches and 147 relaunches of Biedronka Exclusive Brand products.

Finally, the following evaluations were made:

• 366 sensory evaluations comparing Biedronka’s products to the main competing products on the market;

• 503 sensory evaluations of new product candidates.

In all there were 2,184 routine control determinations on Biedronka products.

4.4. Partners in the Area of Quality and Food Safety

4.4.1. Distribution

In the area of Distribution, the Jerónimo Martins Group is a member of various organisations, namely:


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• APED – (Portuguese Association of Distribution Companies) – Quality and Food Products Committee;

• CIES – The Food Business Forum (GFSI) – member of the Task Force;

• Royal Ahold – member of the Food Safety Steering Committee;

• AMS – Associated Marketing Service – member of the Quality Committee.


The Companies in the manufacturing area have representatives, are members of or take part in working groups within the scope of the following organisations:

• AIMGA – Association of Manufacturers of Margarines and Edible Fats • AISDPCL- Association of Manufacturers of Soaps, Detergents and Maintenance and

Cleaning Products • ANIGA – National Association of Ice Cream Manufacturers • ANIRSF – National Association of Manufacturers of Soft Drinks and Fruit Juices • APA – Portuguese Association of Aerosols • Casa do Azeite – Association of Portuguese Olive Oil • Embopar – an institution of national producers with 54% of the share capital of

Sociedade Ponto Verde • FIPA – Federation of the Agro-Food Portuguese Industries • TPM Club Portugal


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The future is for those who promote

the sustainable development of the community

The Companies of the Jerónimo Martins Group are committed to responsible, proactive behaviour, regarding the preservation of the environment as an indispensable factor in the way in which businesses are conducted and in their economic growth.

In line with these principles, this report includes the requirements set out in Accounting Standard no. 29 - Environmental Matters. Also stated are environmental indicators that help evaluate Company behaviour with regard to environmental matters, specifically Water and Energy Consumption and Waste Management.

5.1. Environmental Policy The environmental policy of the Jerónimo Martins Group aims to achieve the following objectives:

• continuous improvement of the environmental performance of its activities, products and services, and prevention of pollution;

• compliance with applicable environmental legislation and other relevant requirements and preparation for compliance with future legislation;

• adoption by its staff of good environmental practices;

• responding to and satisfying Consumers’ environmental concerns.

The Jerónimo Martins Group plays an active role in the communities where it carries out its activities, by cooperating with business partners, authorities and institutions in the preservation of the environment, and assuming its responsibilities from the standpoint of sustainable development.

The Environmental Management Systems of the Companies in the Distribution and Manufacturing areas are based on NP EN - ISO 14001:1999. The Manufacturing Companies of Jerónimo Martins Group have already had their Environmental Management Systems certified under that standard.

5.2. Main Environmental Impacts 5.2.1. Distribution

These are the most important environmental issues at the Distribution level:

• the energy consumed in distribution units, mainly electrical energy, used in the preservation of food products, lighting, and the climatisation of the equipment in general;

• the production of solid waste, mainly organic solid waste, paper/cardboard and plastic;

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• emissions to the atmosphere (mainly CO2);

• the burning of fossil fuels (diesel) in the transportation of goods;


Under the Environmental Management System implemented in conformity with the requirements of the NP EN - ISO 14001:1999 Standard, environmental issues associated with activities in the Manufacturing sector are revised and evaluated on an annual basis. In 2004 the following main environmental-related issues were identified:

• water consumption in heating and cooling systems, cleaning/sanitation and personal hygiene;

• energy consumption, mainly electricity and natural gas;

• solid waste arising from the manufacturing process, namely packaging;

• manufacturing and domestic liquid effluents.

5.3. Environmental Management Programmes 5.3.1. Distribution

The Environmental Management Programme implemented in 2004 in the Distribution area (stores and Distribution Centres) was systematised into the various actions described below:

Water Quality and Consumption Control

The Water Quality Monitoring Plan prepared in 2004 was implemented in all the Distribution units in Portugal, with a view to the optimum control of the quality of water consumed, this notwithstanding the fact that most of the units use water from the public supply.

From a total of 323 analyses carried out in Portugal, 93% found that for all the analysed characteristics of water there was full compliance with the limits defined by law (decree-law no. 243/2001 in force since December 2003).

2003 2004

Units

Number of Units Covered

% of Total Number of

Units

Number of Units

Covered

% of Total Number of

Units Stores 96 40% 250 100%

Distribution Centres 5 100% 5 100%

In 2004, the water consumption of 59% of the stores in Portugal and 19% of the Polish stores was measured through water meter readings made by the units’ employees. No comparative analysis with previous years was made because this was the first year a full assessment was made. In 2005 Jerónimo Martins will be in a position to present the evolution of water consumption indicators.


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Environmental Indicators:

2004 PORTUGAL POLAND

STORES Water consumption per sales area (m3/spm)

1.68

0.85

DISTRIBUTION CENTRES Water consumption per boxes carried (m3 / UMC'000)

0.32

0.08

Rationalisation of Energy Consumption

Several measures were taken in 2004 with a view to the rational use of energy resources in the stores and Distribution Centres:

• fitting some of the manufacturing refrigeration equipment with the “Adap-kool” system, which permits reduction in total energy consumption by up to 20%;

• using more efficient light bulbs, namely those equipped with electronic ballast;

• purchasing and installing more efficient equipment;

• installing a Centralised Technical Management System in some of the larger units;

Also in 2004, and within the scope of the European Green Light Project, a voluntary programme aimed at rationalising energy consumption and hence reducing the emission of greenhouse gases and other pollutants, 7 units started remodelling the lighting applications of their sales areas (3 Feira Nova stores, 3 Recheio stores and the Azambuja Distribution Centre).

To allow better control of electricity consumption, the Distribution units recorded the readings of the respective electricity meters. Because available data for 2003 was scarce, no indicators are shown for that year, but the objective for the future is to map and present the evolution of electricity consumption indicators.

In Poland, coal boilers were replaced by other equipment using natural gas or by community heating schemes, thus minimising emissions to the atmosphere. In the few cases where this was not technically feasible, coal was replaced by oil.


2004 PORTUGAL POLAND

STORES

Electricity consumption per sales area (kWh / m2)

620,5

298,6

DISTRIBUTION CENTRES Electricity consumption per thousand of boxes (kWh / UMC'000)

135,1

54,0


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Waste Management

A number of measures were taken to optimise cardboard and plastic waste segregation in the Feira Nova and Recheio units: replacement of some collection equipment, rescheduling collection times, and training store staff. The result was a 12.8% increase in the separation of that waste.

In addition, in the 4th quarter of 2004 a pilot-project conducted by Lipor was launched in 5 Feira Nova units with the objective of assessing the technical and economic viability of separating the organic component of waste (namely solid food products unfit for human consumption, and residues from the preparation and processing of meals) for composting.

Finally, 102 cardboard presses were installed in several units in Poland (Distribution Centres and stores), whose aim was the rationalisation of waste management operations. Also, the separation of recyclable waste, including organic waste, has been a constant concern.


Total residues forwarded for reuse (tons)

2002 2003 2004

∆% 04/03

Portugal 11.162 12.129 13.677 12,8%

Poland 9.283 11.780 15.025 27,5%

Total 20.445 23.909 28.702 20,0%

The visible increase in the quantity of residue forwarded for recycling is largely due to strong commitment and awareness on the part of Jerónimo Martins’s employees.

Environmental Criteria in Unit Construction and Refurbishing Works

In 2004 14 projects for the construction or refurbishment of units in Portugal took into account environmental criteria, and several measures for improvement were implemented. The chart below shows some of the measures taken:


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Environmental issue Examples of measures taken

Mains Water Installation of timed taps and flushing systems/lavatories equipped with flow meters in the toilets for customers and in shower rooms.

Installation of sub-meters to measure water consumption in the most relevant sectors.

Installation of efficient watering.

Energy Consumption Installation of sub-meters to measure electricity consumption in the more relevant sectors.

Installation of a centralised technical management system (in the units with highest consumption).

Installation of a Manufacturing refrigeration management system (Adap-Kool).

Fitting light fittings with electronic ballast.

Installation of luminosity/movement sensors for the store, the outdoor advertising and the parking illumination, in order to reduce energy consumption.

Management of Residues Optimisation of the waste collection system.

Installation of presses for cardboard and plastic.

Cooling the compartments for the storage of residue containers.

Liquid Effluents Installation of solid waste retention boxes in the sections of perishables (specifically in the Butchery and Fish section).

Installation of fat retention boxes.

Noise Reduction of noise propagation through the selection of alternative building materials.

Sound proofing potentially noisy places (i.e. cold compressor compartments).

Selection of less noisy equipment.

Emissions to the Atmosphere

Installation of electrostatic filters in take-away sections to retain odours and fat.

Replacing the Manufacturing refrigeration system’s gases with other, less polluting gases (i.e. glycol).

Employee Adoption of Good Practices

Several training initiatives were carried out in the context of the implementation of the Environmental Management System in the Distribution Centres in Portugal (see Human Resources indicators in this chapter). These training sessions concerned aspects such as the principles of the system, Environmental Policy, main environmental issues and procedures to be followed by the employees in the performance of their activities to optimise water, energy and material consumption and improve waste and effluent management. A leaflet containing information on the system was also produced, and distributed to all the employees of Gestiretalho and the Holding, to the senior executives of Distribution Portugal (Executive Committees of Pingo Doce, Feira Nova and Recheio), to District Managers, Trainers in the area of Perishables, Managers, Pingo Doce Store Deputies and Secretaries, Recheio Managers and Assistant Managers, and to the Store Managers and Heads of Department and Section of Feira Nova.


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Environmental Criteria to Select Suppliers

The environmental criteria established in 2004 to select suppliers of perishables and private label products have the following objectives:

• to ensure compliance with the environmental legislation applicable to their activity;

• to ensure that the main requisites of an environmental management system are observed;

• to promote the adoption of good environmental practices in the performance of their activity.

During the year there were 414 audits of to suppliers using the criteria referred to, which, on the whole, found greater awareness of environmental issues.

Logistics and Environment

The system of reusable plastic boxes continued to be used in the Fruit & Vegetables and Meat areas, allowing minimisation of residue from non-reusable packaging, optimisation of space in transportation vehicles, reduce fuel consumption and minimisation of polluting gases emissions. An identical project has also been initiated this year with our suppliers of dairy products.

Environmental Campaigns

Being conscious that companies should play an active role in raising the awareness of the surrounding communities of sustainable development, the Distribution Companies of the Jerónimo Martins Group in Portugal launched a campaign in 2004 with the purpose of alerting staff and consumers to the need to adopt a responsible behaviour and promote the preservation of the Environment.

The main thrust of the campaign was the free distribution of a desktop Environment Calendar in the Pingo Doce, Feira Nova and Recheio stores in mainland Portugal and Madeira, marking the main dates and events linked to environmental themes, such as the World Day of the Environment, the World Day of the Oceans or the World Day of the Tree, and including a short explanation for each.

In addition to this initiative, which focused directly on raising consumers’ awareness of environmental issues, the Companies also supported the campaign “Together for the forests, together against fire” launched within the ambit of the “Young Volunteers for the Forests” programme. This pilot-project, jointly organised by the State Departments for the Forests, Youth, and Regional Planning, and the Portuguese Institute, was put into practice in two districts, Coimbra and Castelo Branco between July 15th and September 30th, and involved the participation of young people, mainly students, aged between 18 and 25. These voluntary teams of young people were mainly involved in awareness-raising initiatives and forest vigilance, although the mission also included marking, inventorying and cleaning forest paths. The project was considered a success. Jerónimo Martins’ contribution consisted, among others, in offering milk for distribution among the young volunteers.


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Control of Water Consumption

With the aim of the effective control of water consumption, the Companies in the Manufacturing area have been taking steps to rationalise water consumption and minimise waste. To attain these objectives, the following initiatives among others, were taken in 2004:

• to reduce water consumption, the FimaVG, Victor Guedes, IgloOlá and LeverElida

plants continued to monitor consumption, alerting their staff throughout the year to the need to rationalise of water use;

• IgloOlá equipped showers and lavatories with timed taps, and redefined its automatic washing programmes of maturing tanks and piping, reducing water and energy consumption in certain circumstances.

• At LeverElida, improvement projects based on the above mentioned Kaizen methodology were drawn up with a view to reducing water consumption and the production of liquid effluents. Also, several steps were taken with regard to the use and simplification of the Liquid Detergents facility.


2002

2003

2004

∆% 04/03

Global water consumption (thousand m3) 515,1 461,5 427,6 -7,4%

Water consumption per unit of produced product (m3/t)

3,094 2,658 2,866 7,9%

Energy Consumption Rationalisation

To rationalise energy consumption and contribute to the preservation of energy resources, the Manufacturing area has carried out several initiatives within the scope of energy consumption rationalisation plans, namely:

• LeverElida reduced total energy consumption per ton of product by 2%, by taking several steps to minimise the dedicated evaporation process;

• Victor Guedes installed timers in all its warehouses, resulting in a reduction in energy consumption;

• IgloOlá’s above mentioned redefinition of automatic washing programmes of maturing tanks and piping led to a reduction in energy consumption.


2002

2003

2004

∆% 04/03

Global electricity consumption (thousand MWh) 27.029 28.324 24.793 -12,0%

Global natural gas consumption (thousand Nm3) 23.044 23.332 19.991 -14,3%

Global electricity consumption per unit of produced product (GJ/t)

1,09 1,13 1,13 0%


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Waste Management

The Companies in the Manufacturing area carried out several staff awareness-raising campaigns so that they use only what they require; recognise and use the adequate places for waste separation; separate waste as much as possible and ensure that each residue is given an adequate destination. Whenever possible, waste is reused and forwarded for recycling.

To minimise the production and impact of residues, the Group plants put a number of measures into place in 2004.

Victor Guedes continued to take steps to promote the reduction of residues, as well as the sharing of waste disposal, namely by:

• incorporating filtration residues in ceramic materials and burning non-recyclable cloth and paper in a steam generator;

• collaborating with suppliers in the development of packages, which permitted reduction in the quantity of waste generated in the Company (see section on “Logistics and Environment” further down in this report).

At IgloOlá the existing conditions for the segregation of plastic residues were improved, which permitted an increase in the share of recyclable waste. Another important step was the conclusion of the project of recuperation of lubricating oil from ammonia compressors, and resulting in the reduction of spent oil.

In the 4th quarter of 2004 FimaVG started to send all organic residues produced at its premises for incineration. As regards the processing of landfill residues, the best alternatives are being analysed together with several specialised external entities viewing their reuse in energy production.


2002

2003

2004

∆% 04/03

Quantity of waste per unit of produced product (t/t)

0,029 0,026 0,027 +3,8%

Total Waste forwarded for valorisation (t)

3.029 2.961 3.070 +3,7%

Waste valorisation rate 61,7% 64,7% 75,9% +11,2 pp

Management of Liquid Effluents

Liquid effluents from the Manufacturing sector represent one of the areas with the heaviest environmental impact. To reduce such impact and ensure compliance with legal limits, FimaVG and IgloOlá have a System for the Pre-Treatment of effluents generated, which are subsequently drained into the municipal collector. The main objective is to optimise operating conditions of EPTARI (Manufacturing waste water pre-treatment plant), using a specialised company, in order to lower the pollution burden of liquid effluents.


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Victor Guedes also continued to carefully monitor and control effluents, which are subsequently drained into the municipal wastewater treatment plant, to comply with legal limits.

At the LeverElida plant, the measures to reduce the production of liquid effluents were taken in an integrated way, covering water consumption, the generation of liquid effluents and the manufacturing processes. The industrial liquid effluents are reintegrated in the production process.


2002

2003

2004 ∆%

04/03

Total quantity of industry liquid effluents per unit of produced product (thousand m3)

164,1 149,9 130,9 -12,7%

Management of Atmospheric Emissions

The Manufacturing Companies with fixed-source atmospheric emissions monitor relevant emission parameters with the objective of ensuring compliance with the legislation.

In order to minimise impact on the environment, FimaVG has in place a treatment system that neutralises fixed-source atmospheric emissions. Vehicles and refrigeration equipment use only non-ozone depleting fuels and gases.

Finally, LeverElida monitored the various sources of atmospheric emissions and took steps to optimise pollutant-retention devices.

Noise Control

The Companies of the Manufacturing area guarantee compliance with limits on noise emission to the environment.

LeverElida registered an overall reduction in environmental noise following the successful implementation in 2004 of noise reduction measures (adapting silencers and installing sound shields).

Environmental Criteria in the Construction and Remodelling of Units

The projects and/or changes in production processes entail previous evaluation of environmental issues to ensure that aspects such as the segregation of residues or the management of liquid effluents are taken care of, both during the execution of work and in the start-up and operation of the “new facilities”. The type and quantity of gases are defined and measured for all facilities requiring refrigeration gases, and taken into account when planning the construction or refurbishing of units.

Employee Adoption of Good Practices

In all the Companies, the initial training given to new employees includes a section on environmental issues, to ensure overall adoption of Good Practices in this area.


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Environmental training/awareness-raising sessions addressed to the entire staff also take place on a regular basis. In 2004, these included the following:

• FimaVG organised training and awareness-raising sessions on themes related to the environmental impacts of production activities, namely on correct segregation of residues, how to reduce waste and the rational use of water;

• Also at FimaVG good environmental practices were communicated via posters placed at strategic points in the facilities, and small simulation exercises were organised permitting correction of reactions in emergency situations and assessment of the effectiveness of the action taken;

• LeverElida consolidated its environmental training policy, carrying out 17 training initiatives subject to the job description of its various employees and service providers;

• LeverElida issued a pocket book containing detailed information on measures aimed at minimising/controlling environmental impacts arising from plant activities and viewing the effective adoption of good environmental practices;

• Victor Guedes held on its premises two awareness raising initiatives of a broad nature addressed to the entire staff, and also organised specific training sessions according to the functions involved, namely on how to contain leaks, handle chemical substances and segregate waste;

• The dissemination of good practices was promoted through TPM improvement proposals, also at the Victor Guedes plant;

• IgloOlá organised awareness raising sessions to improve staff segregation of waste.

TPM Methodology (Total Productive Maintenance)

The Companies in the manufacturing area are currently implementing TPM methodology, which has as its core concerns the Environment and Safety: TPM aims at process optimisation and its main objectives are:

• zero losses (aimed at the increasingly disciplined use of natural resources and the reduction in/reuse of residues generated);

• zero defects;

• zero accidents.

To achieve these objectives the Companies increasingly invested in training, qualifying and motivating their employees.

As mentioned above in this report, in 2004 FimaVG and IgloOlá reached level II in the TPM programme, earning an “Award for Excellence in Consistent TPM Commitment 2004 First Category”, which rewards teamwork and the consistency of the practices and methods adopted with TPM tools.

Whenever possible, TPM was included in the LeverElida plant’s IMS manuals and procedures, becoming an integral part of the day-to-day running of operations. The re-launch of the Organics product line (involving steps from the purchase of bottle moulds to the modification of packaging machines) and the installation of a new machine to assemble powder detergent packages, all were managed in accordance with the methodology of the management pillar for new TPM projects.


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Environmental Criteria in the Selection of Suppliers and Service Providers

The selection criteria of the Manufacturing Companies’ suppliers have an environmental component materialised through the sharing of concerns and policies in this area, the offer of support in the implementation of measures, and the audit tool. The suppliers to be selected are evaluated based on the same criteria as are applied in the Group’s plants, and invited to adopt environmental management programmes. LeverElida applies in Portugal the same procedures for regional suppliers used in all other European countries, which include planning evaluation criteria, implementation and control of environmental management activities.

The Companies in the manufacturing area use selection criteria and perform audits on suppliers and other service providers in order to guarantee that they act in an environmentally correct way. These were the environmental audits to suppliers carried out in 2004:

• 12 by FimaVG, 4 of which to service providers;

• 8 by Victor Guedes.

The usual audits made on suppliers by IgloOlá started to take into account environmental issues.

To integrate workers employed by contractors and other service providers when work is being carried out in the various Manufacturing facilities, the Companies in question are provided in advance with a paper setting out the rules that workers must follow while in the plants. This helps to ensure that work is carried out without accidents, damage to equipment or environmental hazards.

To hold the suppliers co-accountable for Quality, the Safety of consumers, environmental management and Safety and Health in the Workplace and increase their level of commitment, the LeverElida plant has in place a management programme based on a service agreement that includes its 6 most important local suppliers. This programme, which includes plans for improvement, is revised every six months at the Company’s top level. In 2004, thanks to new technologies adopted by the respective supplier, corrugated cardboard boxes were 100% recycled and also lighter.

Logistics and Environment

To achieve optimum transportation costs of final products, optimising both the weight and size of packages, the Companies in the manufacturing area have developed a number of studies and actions, namely:

• whenever possible, FimaVG cooperates with the suppliers of packaged goods so

that they take back the primary packages, thus reducing the quantity of residues produced;

• Victor Guedes cooperated with its suppliers in order to find the most environmentally adequate packaging solutions. This involved resizing primary packages (increasing the number of packages per pallet and therefore reducing conditioning material, leading to an overall reduction of 214 pallets/ year, or 5.3 cars/year) and redesigning secondary packages (reducing the weight of packaging material in the distribution chain);


160

• LeverElida developed important work on deodorant packaging, replacing cardboard boxes with cardboard trays and achieving an average reduction of over 60% in packaging material; in addition, the design of the packages of the new range of power detergents also resulted in a considerable reduction in the quantity of packaging material per dose of detergent;

• LeverElida contributed to the specifications of Embopar through several successful cases of reduction in packaging material compared to previous years. These cases were actually used as examples to be followed in a documentary prepared by Sociedade Ponto Verde on the “Prevention of Packaging Residues”.

• IgloOlá installed a new pallet-wrapping machine that permitted a reduction in the consumption of packaging materials: stretch film, cardboard angles and cardboard separators.

Environmental Campaigns

LeverElida continued to develop close and solid links with the community living in the neighbourhood of its plant. On the environmental side it is important to highlight the voluntary work done by its employees at the Sacavém Welfare Centre in 2004. The “Conversations with ….” events, involving visits to the plant of local administration agents and community representatives, was another initiative that was developed throughout the year. The annual simulation testing of the internal emergency plan took place in December, with the collaboration of the Voluntary Fire Brigades of Santarém.

In 2004 FimaVG and the Tapada Nacional de Mafra natural park launched a campaign under the motto “A Gesture that Plants” where for each 500 g package of Planta margarine purchased a tree would be planted in the park, which had seen 70% of its total area ravaged by the forest fires of 2003. Olá once again endorsed the Clean Beach, Safe Beach” Operation. This initiative, started by Olá in 1995, was designed to highlight proper behaviour with regard to refuse on beaches. In 2004, 2,338 children took part in the Olá "Clean Beach, Safe Beach" campaign and collected 1,645 Kg of refuse from 12 beaches.

It is also important to highlight the Eco-Schools and Green Brigade programmes sponsored by the companies in the manufacturing area. The Eco-Schools Programme, a Europe-wide initiative launched by the European Blue Flag Association/Foundation for Environmental Education (FEE) is designed to encourage young people to participate in decision-making processes, and to make them aware of the importance of the environment in their every day lives. This was the second year that the manufacturing companies sponsored this programme. In the ambit of this joint cooperation, the Companies once again launched a National Green Brigade Competition where students were asked to submit projects on school involvement in environmental aspects of the community. Each Green Brigade had to assess the needs and deficiencies of the respective school and to submit a specific project with solutions to improve or minimise the existing problem. 61 schools grouped under two categories – nursery and infant schools and junior cycle and secondary schools – participated in the competition, submitting a total of 75 projects.


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5.4. Partners in the Area of the Environment 5.4.1. Distribution

The Distribution area has representatives in the following organisations:

• Portuguese Chapter of the World Business Council for Sustainable Development (WBCSD)

• Committee for the Environment of the APED (the Portuguese Association of Distribution Companies),

• DISPAR – an institution of national producers with 20% of the share capital of Sociedade Ponto Verde

5.4.2 Manufacturing

The Companies in the manufacturing area have representatives, are members of or take part in working groups within the scope of the following organisations:

• European Blue Flag Association/Foundation for Environmental Education (FEE) AIMGA - Association of Manufacturers of Margarines and Edible Fats

• AISDPCL- Association of Manufacturers of Soaps, Detergents and Maintenance and Cleaning Products

• ANIGA - National Association of Ice Cream Manufacturers • ANIRSF - National Association of Manufacturers of Soft Drinks and Fruit Juices • APA - Portuguese Association of Aerosols • Casa do Azeite – Association of Portuguese Olive Oil • Embopar – an institution of national producers with 54% of the share capital of

Sociedade Ponto Verde • FIPA – Federation of the Agro-Food Portuguese Industries • TPM Club de Portugal.


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Commitment to the Community

The Jerónimo Martins Group has long supported projects and institutions that help the community and underprivileged groups, either at the institutional and corporate level, or through its employees’ voluntary contributions in internally organised campaigns.

All these activities follow defined Patronage Policy directives based on three key guidelines that demonstrate the positioning of the Jerónimo Martins Group: the Food World, the Portuguese Character and Innovation as a business stance.

The Group has also instituted two major Patronage programmes:

- “Jerónimo Martins Feeds Smiling Futures”: a programme of a social nature essentially addressed at providing support to children and young people;

- “Jerónimo Martins Supports National Culture”: a programme specifically addressing cultural issues, in particular the preservation and dissemination of Portuguese historical and cultural heritage. 6.1. Social Patronage The Jerónimo Martins Group actively co-operates with institutions and projects supporting the underprivileged, having chosen as target priority groups children and young people. To this end, every year the Group offers funds, time and food to several social solidarity causes that work in favour of these groups.

6.1.1. Jerónimo Martins Group’s Institutional Support Continued Support Bicesse SOS Village

Jerónimo Martins started providing support to the Bicesse SOS Village in 2002. In 2004 the Group part financed the meals of the children and young people in the care of this institution.

“Obra do Ardina”

The “Obra do Ardina” is a one hundred year old institution that provides support for boys at risk. It has several homes, education and recreation centres, nursery schools, and vocational training courses, assisting around 550 underprivileged children and young people. The Jerónimo Martins Group continued to provide support to this institution, and in 2004 helped it solve one of its main problems, part financing the meals provided to the 52 children and young people who live in the Institution.

6. PATRONAGE


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“Acreditar" Home

“Acreditar” is an institution devoted to assisting children with cancer and their families. The Jerónimo Martins Group, through Its Distribution and Manufacturing Companies in Portugal, has since 2003 supported part of the costs of this institution, paying for two of the rooms of the “Acreditar” home and offering two welcome packages containing articles for personal care and food to families accommodated in the home. Supporting the “Crescer – SER - APDMF” Home

In 2004 the Jerónimo Martins Group started to provide support to the “Casa do Vale”, in Porto, one of the most recently established centres of the “APDMF” (Portuguese Association for the Rights of Minors and the Family). This institution is devoted to the interdisciplinary study of issues related to the legal and administrative protection of minors and their families, also organising and promoting community services supporting children, young people and the family structure.

The “Casa do Vale” has the capacity to shelter 16 young people aged between 12 and 16 for temporary periods of time. The “APDMF” has another 5 of these centres in operation, all of them intended for children and young people deprived of a family environment, victims of violence, some of them having committed small offences, or who are subject to educational support measures or who come from families with health or economic problems requiring temporary support.

Social Centre of the Torredeita Parish

The Jerónimo Martins Group began in 2004 to provide assistance to this centre, which helps children and young people from poorer backgrounds in Torredeita, a parish in the district of Viseu.

Special Actions developed in 2004 Along with the continued support provided to several institutions, Jerónimo Martins also promotes a number of special actions and campaigns. In 2004 the following initiatives were taken at institutional level:

“Crianças Sem Fronteiras” – Summer Campaign

“Crianças Sem Fronteiras” (Children without Frontiers) is an institution helping children and families with financial difficulties and who are in danger of being split up, by acting at the prevention level with the children’s biological families.

The Jerónimo Martins Group has helped this institution to offer their children a month of holidays on the beach, through a financial contribution to their summer camp “Adventures without Frontiers”.

In June the Group launched an appeal to the staff of its central offices in Portugal in order to collect contributions to help this project. In August, the children had already been given plenty of toys, sun creams, beach towels, slippers, bathing suits and even non-perishable food products for snacks and picnics.


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“A Trip to the World of Theatre”

Because there are many children who have never seen a play or felt the magic of “make believe”, at the end of June 2004 the Jerónimo Martins Group organised a “Trip to the World of Theatre” for the children and young people of “Obra do Ardina” and Bicesse SOS Village.

Promoting Blood Donation

Together with the Portuguese Blood Institute, the Group once again organised a campaign to collect blood in its central offices. This campaign took place in November of 2004, a period when blood requirements are particularly acute.

Christmas Action

Under a joint initiative with the “Governo Civil” of Lisbon, a department of central government, the Jerónimo Martins Group launched an internal Christmas Campaign addressed at helping the children of two social solidarity institutions (“Casa do Gaiato” and “Instituto Condessa de Cuba”). The purpose was to give these children the presents they had asked for, and thus help fulfil their Christmas dreams.

These Christmas presents were gathered by the employees of the Campo Grande and Amoreiras offices and of Jerónimo Martins Distribuição de Produtos de Consumo.

“Associação de Ajuda ao Recém Nascido”

To help the “Associação de Ajuda ao Recém Nascido”, an association for new-born babies linked to the Alfredo da Costa Maternity Hospital, the Jerónimo Martins Group sponsored 3 shows of the Portuguese Contemporary Ballet Company. This initiative allowed the association to buy layettes for 10 newborns.

6.1.2. Pingo Doce

With more than 190 stores all over the country and in Madeira, Pingo Doce is particularly committed to providing support to local communities. In 2004 the chain offered cash support – Pingo Doce shopping vouchers or food products – to several institutions caring for underprivileged children and young people.

The Company also maintained the support it has been providing for several years to a handicapped student who lives abroad, fully subsidising her education.

The Pingo Doce contribution to Food Bank initiatives has also been important, as the retail food chain collects the largest amount of food. In 2004 the relationship established between the Company and Non Governmental Organization was further reinforced, and the result was an increase of 39% in the Pingo Doce contribution. More than 500 tons of food products were collected.

6.1.3. Feira Nova

One of the pillars of Feira Nova’s positioning is its strong involvement with the local community and the links established with those living in the neighbourhood of its stores. As such, the partnerships established with local institutions are of particular importance.


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The great event of the year in this area was the campaign named “A Ton of Smiles” in which the Company challenged every citizen, from the North to the South of the country, to contribute with new or second-hand toys to be distributed to more than one thousand children from poor backgrounds. Although launched at national level, the campaign had a regional scope, with each store being linked to one local childcare institution. The response to this initiative could not have been better: in little more than one month more than 5 tons of dolls, car toys, games and many other presents were collected, contributing to give a happier Christmas to all those children.

Every year Feira Nova joins the Food Bank initiatives by setting aside a space in its stores for the collection of food products. In 2004 around 100 tons of food were collected in 21 of the chain’s 28 stores.

The Feira Nova stores also organise local patronage events, namely an annual tea party organised during the summer holidays by the Braga store in collaboration with the town’s municipal council for the underprivileged children of institutions chosen by that local authority, and the offer of Christmas baskets to patients with limited resources of the Portuguese Association for Paramiloidosis.

Noteworthy for their social solidarity initiatives were the Telheiras store, which hosted several institutions – namely the “Legião Boa Vontade”, “Caçulinhas”, AMI and “Associação Sol” - for fund collection purposes, and the Vendas Novas store, which donated food and bazaar products to the Portuguese League for the Motor Disabled.

6.1.4. Recheio

Recheio Cash & Carry believes that it is essential to support the economic and therefore the social development of the community in which it operates.

Such support is even more imperative if one takes into account the Company’s specific characteristics: it is a Portuguese chain which, although operating at national level, has strong local and even regional links.

Therefore the aid it provides is essentially directed to institutions that care for underprivileged children and young people. It is important to stress that most of these institutions have received uninterrupted support from the Company for the last three years.

6.1.5. Biedronka

Biedronka targets its support essentially to underprivileged children and young people. In 2004 the aid provided covered several institutions, from Support Centres to orphanages and primary schools. The donations were mostly food and purchase vouchers but also included monetary contributions in cases of extremely acute financial needs.

Biedronka also collaborated with the Food Bank against hunger in the initiative “Share your meal” and with the SOS Children’s Villages, from which it purchased Christmas cards.


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Finally, the chain helped underprivileged children – orphans, abandoned children or children from dysfunctional homes – by participating in the campaign “Advertising for the Children”. This was an initiative by Polish public television, where advertising insertions were charged well above their usual value and the resulting proceeds donated to these children.


The social patronage initiatives taken by the Companies in the Manufacturing area are always targeted at the more vulnerable groups of the population, namely children, the disabled and the old. In 2004 the aid provided by these Companies – donations or offers of products – reached more than 50 social solidarity institutions.

In particular, close collaboration links were established with the following institutions:

• Camarate Social Centre – through a fund-raising campaign addressed at all the employees, with a view to the purchase of industrial laundry machines and furniture needed by the Centre;

• Sacavém Social Centre

• Through an initiative integrated in Unilever Europe’s “Community Involvement Week” – a social work initiative launched simultaneously in 20 European countries and involving a total of 3,500 people - the employees of FimaVG, LeverElida and IgloOlá developed a voluntary social work programme in Sacavém Social Centre with the purpose of improving the centre’s conditions;

• In a single day, 80 employees of the Manufacturing Companies built a recreational centre for children aged 5 to 10 (a facility almost inexistent in Sacavém), doubled the playground area by installing a protection net, set up a recreation park, and worked on the decoration of walls and furniture;

• “Novo Futuro” Association – as happened in 2003, this year Fima/VG, LeverElida and IgloOlá also purchased their Christmas cards from the “Novo Futuro” Association, contributing to fostering the projects of the 60 children and young people at risk sheltered in the association’s 7 homes;

• Sun/Acreditar – during the months of February and March 2004 the Sun brand launched a campaign intended to contribute to the construction of another home for the “Acreditar” institution, this time in Coimbra; for this campaign, entitled “Believe in the Future”, the brand prepared special Sun packages containing a gift mug specifically designed for the purpose;

• Olá/Terry Fox – Olá continued to support the fund-raising Terry Fox Race in favour of the Portuguese League against Cancer.

The involvement with educational institutions in the Companies’ areas of influence has become current practice in the last few years, namely with Open days for schools and universities to visit their plants. In 2004, 3,102 students from 86 schools visited the FimaVG plant, 5,500 students visited the IgloOlá plant and 969 students from 38 schools visited the LeverElida plant.


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6.2. Cultural Patronage

In the cultural area, various Companies in the Jerónimo Martins Group have provided support to preservation projects and the divulgation of the Portuguese historical and cultural heritage.

6.2.1. The Jerónimo Martins Group’s Institutional Support Support to Orquestra Sinfónica Juvenil

For several years now the Group has sponsored the Orquestra Sinfónica Juvenil New Year Concert. This Orchestra was chosen for its role in the education of young musicians and also for the professionalism of their performances.

Museum of the Presidency of the Republic

At the invitation of the President of the Republic, Mr. Jorge Sampaio, the Jerónimo Martins Group, together with other companies, sponsored the installation of the Museum of the Presidency of the Republic during the year of 2004, as Official Sponsors.

The Museum of the Presidency of the Republic, an initiative promoted by President Sampaio, has two major objectives: to educate the public and to spread cultural and scientific information. Intended for a broad public, the Museum seeks to bring the Presidency closer to the citizens, and to expand knowledge about the History of the Portuguese Republic and its various Chiefs of State, and of course about the history of the Belém Palace, the official residence of the Presidents of the Portuguese Republic since the foundation of the Republic in 1910. The Museum not intended to be a space of static contemplation but a centre where study, research and cultural initiatives are carried out.

6.2.2. Pingo Doce Since March 2003 and for a three year period, Pingo Doce has been the official sponsor of the Lisbon Oceanarium. The Oceanarium is a Portuguese achievement of a scientific, educational and cultural nature, which seeks to expand knowledge of the Oceans.

Within the ambit of this sponsorship, several initiatives were organised in 2004 to divulge this project to the young public, namely, on June 1st, to celebrate International Children’s Day, Pingo Doce offered tickets to the Oceanarium to all the children who visited its stores.

In 2004 Pingo Doce was the main sponsor of the “Portugal from Land to Sea” exhibition, an event organised by the Ministry for Agriculture to promote the products and culture of rural Portugal. The first exhibition, dedicated to Portuguese gastronomy, wine, arts and crafts, fisheries, rural tourism, music and dance, was held in June, coinciding with the Euro 2004 football championship.

6.2.3. Manufacturing The Staff Club, an independent entity funded by the Companies in the Manufacturing area, promotes leisure time activities of a cultural, sporting and recreational nature.


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In 2004 the Staff Club obtained special prices and conditions for 13 plays, 13 shows, 9 cultural visits and 1 exhibition, and also organised the already traditional Christmas event for the children of the Company’s employees – a visit to the circus. In addition to cultural activities, the Club organised many sports events, namely tennis matches, walks, indoor football tournaments, rally papers, and mountain biking, in which a total of 342 people participated.


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The Jerónimo Martins Group is increasingly requested to answer questionnaires whose main points focus on Social Responsibility issues. For this reason we will list in this chapter the most frequently asked questions and respective answers. For further details, the chapter of this report on Social Responsibility may also be consulted, as well as the Group’s institutional site on the internet, at www.jeronimomartins.com.

CORPORATE ETHICS

1. Does the Jerónimo Martins Group have a Code of Conduct?

Yes No

1. 1. If yes, what areas does it cover and what has been done to divulge them?

Areas covered

Social Responsibility Respect for the Law Co-operation with Official Entities Independence vis-à-vis Political Parties

Integrity Measures against Corruption Patronage Environmental Protection Thorough and Transparent Information Quality Fair Trade Practices Selection of Partners/Suppliers Workers and Employees Equal Opportunities Health, Safety and Hygiene in the Workplace

The Code of Conduct was divulged internally to all the Group employees in Portugal and Poland, and externally on the Group’s site on the internet.

2. Is there a specific body that coordinates the application of the Code of Conduct and to which the employees can resort?

Yes, there is. The Ethics Committee is the body responsible for divulging, clarifying doubts about and ensuring compliance with the Code. In addition, the objective is that the Group’s management be prepared to clarify doubts and steer procedures in order to guarantee full compliance with the established principles. Finally, all employees are responsible for strict compliance with the Code of Conduct.

7. FREQUENTLY ASKED QUESTIONS


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SOCIAL PERFORMANCE

3. Does the Jerónimo Martins Group report externally on its Social Responsibility policy and performance?

Yes No

3.1 If yes, where and when?

Every year the Jerónimo Martins Group’s Annual Report includes a chapter on Social Responsibility.

4. Does the Group have a written policy that contains measures for upholding and promoting human rights?

Yes No

If yes, specify.

The Jerónimo Martins Group respects Human Rights within the framework of the Universal Declaration of Human Rights, assuming its responsibility in this area, and seeking to promote the improvement of the quality of life of all those with whom it has relations, as it believes that this is a mission that falls to every one and in particular to economic entities. These principles are enshrined in the Group’s Code of Conduct and Human Resources policy.

5. Does the Jerónimo Martins have policies or take measures intended to ensure...

... freedom from discrimination? Yes No

... freedom from slavery? Yes No

... freedom of association and the right to collective bargaining? Yes No

... the prohibition of child labour? Yes No

... the health and safety of employees? Yes No

6. Does Jerónimo Martins Group have a written Human Resources Policy?

Yes No

(see reference under Human Resources’ chapter of this report on Social Responsibility).

7. Does the Group have programs/instruments of professional development (internal promotion schemes, assessment talks, job rotation, individual career plans, training, etc.)? Yes, the Group has in place instruments of professional and personal development. For more information see on the section of Human Resources in the chapter of this report on Social Responsibility, and the Group’s institutional site, under Human Resources.

8. Is there any form of employee representation in the company?

The employees of the Group are represented, among others, by trade unions with which the Group maintains an open relationship and dialogue that seeks to maintain a climate of understanding and social peace.

9. In the area of Health, Safety & Hygiene in the Workplace, does Jerónimo Martins...


171

... have a formal policy? Yes No

If yes, specify principles

Our policy is based on the principle of “Zero Tolerance”.

... do you have specific technicians in this area? Yes No

... do you have Manuals? Yes No

... do you organise training sessions? Yes No

... do you make reporting and audits? Yes No

10. Is the company involved in local community development programmes?

The Jerónimo Martins Group has long supported and developed projects with a strong community component where the community plays an important role, either at the institutional and corporate level, or through Employees’ voluntary contributions in specially organised campaigns.

All these activities follow defined Patronage Policy directives based on three key guidelines: the Food World, the Portuguese Character and Innovation as a business stance.

These guidelines characterise the positioning of the Jerónimo Martins Group, and are a constant feature of every action developed within the scope of the two major areas of involvement of the sponsorship programmes:

- “Jerónimo Martins Feeds Smiling Futures”: a programme of a markedly social nature essentially addressed at providing support to children;

- “Jerónimo Martins Supports National Culture”: a programme specifically addressing cultural issues, in particular the preservation and dissemination of the Portuguese historical and cultural heritage.

11. Is the Jerónimo Martins Group a member of any organisation in this ambit?

In the field of Social Responsibility the Jerónimo Martins Group is a member of RSE Portugal, a Portuguese Social Responsibility organisation that brings together companies with a highly responsible stance and concerns in this area, and also of the Portuguese chapter of the World Business Council for Sustainable Development (WBCSD).

FOOD QUALITY AND SAFETY

12. Does the Jerónimo Martins Group have a written Safety and Food Quality Policy?

Yes No

(See Food Quality and Safety in the chapter of this report on Social Responsibility).

13. Has the Jerónimo Martins Group implemented food safety prevention schemes?

Yes No


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1. If yes, specify.

All food manufacturing and distribution units are equipped with Hazard Analysis and Critical Control Points (HACCP) and auto-control systems.

14. How do you guarantee the suitability of systems?

Permanent assessment of risks Maintaining hazard analysis and critical control points

systems Adequate equipment and installations Staff training

Suppliers’ qualifications Management of customer complaints

Use of suitable, scientifically proven models Consumer/customer information

15. How do you guarantee the Quality and Safety of the products throughout the supply chain?

Rigorous technical conditions and specifications Audits to suppliers

Inspection of products at source (in the suppliers) Inspection of products in the warehouses (*)

The existence of HACCP/auto-control systems implemented in the warehouses

Product inspections in the stores (*) The existence of HACCP/auto-control systems implemented

in the stores (*) (*) Associated to laboratory controls

16. How do you measure the implementation and performance of Food Quality and Safety Systems? Through internal audits of the systems and audits of the stores in order to assess, among others aspects, good practices, maintenance, infra-structures and hygiene.

17. Has the Jerónimo Martins Group signed any national/international

charter/agreement on Food Safety? Yes, the Jerónimo Martins Group actively participates in the Global Food Safety Initiative (GFSI) facilitated by CIES – The Food Business Forum, which established a benchmark model to assess Supplier Standards and Certification under the principle “certified by one, accepted by all”.

18. Do you have a policy regarding the sale of products containing genetically modified organisms (GMOs)?

Yes, we have an established policy in this area. In principle, the Jerónimo Martins Group does not use GMOs in its Private Labels, in the Distribution Area and in all the products of the Manufacturing area. When there is no other alternative, the Group alerts consumers to the fact, by providing information on the package in accordance with European Community regulations.

19. Do you conduct tests on animals at any stage of the development of Group products?

The Jerónimo Martins Group understands and shares the concerns of consumers with respect to this important and complex issue. Consumers are the first priority


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of the Group Companies. When health or safety reasons so demand, the Companies in the Manufacturing area may carry out tests on animals. However we only admit that such testing be carried out when there is no other solution, either through alternative tests or by resorting to available safety information. Today, the vast majority of our products reach the consumers without having undergone any animal testing, and this will continue to be so.

THE ENVIRONMENT

20. Does the Jerónimo Martins Group have a written environmental policy?

Yes No

(see Environmental Management’s chapter of this report on Social Responsibility)

21. Does the Group have programs to implement its environmental policy?

Yes, the Group has environmental management programs which are revised on an annual basis. These programs aim for the materialisation of the Group’s environmental policy principles, ensuring the adoption of good environmental practices by suppliers, employees and even consumers, as well as the improvement of the environmental performance of its activities. (see Environmental Management’ in the chapter of this report on Social Responsibility).

22. Has the Jerónimo Martins Group signed an environmental charter or is it a member of an environmental charter/council, and/or does it use a specific environmental management system? The Group is a member of the Portuguese chapter of the World Business Council for Sustainable Development (WBCSD). With regard to management systems, the manufacturing area’s plants are certified under ISO 14001:1999 standard, and the Distribution area is awaiting certification under the same standard. In 2004 the Distribution area initiated the project viewing preparation for the Environmental and Food Safety certification of Gestiretalho (Distribution Centres).

23. With regard to Environmental Management, does the Group...

... have environmental standards concerning

the choice of suppliers? Yes No

... assess specific environmental aspects and include environmental criteria in the

construction or refurbishing plans of its facilities? Yes No

24. Does the Jerónimo Martins Group seek to raise consumer awareness of environmental issues?

Yes, the Group has launched campaigns addressed at the consumer, namely on issues related to Energy, Water and Residues. The “Environmental Calendar for 2005” campaign was a recent initiative in this area.

(see Environmental Campaigns, in the chapter of this report on Social Responsibility).

V. Consolidated Financial Statements

175

JERÓNIMO MARTINS, SGPS, S,A,

CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2004 AND 2003

Euros thousand

ASSETS 2004 2003

Gross Assets Depr/Prov Net Assets Net Assets FIXED ASSETS

INTANGIBLE ASSETS Research and development expenses 29,824 27,277 2,547 8,181 Industrial property and other rights 21,920 6,607 15,313 16,900 Key money 27,118 16,546 10,572 12,353 Work in progress 2,647 - 2,647 - Goodwill 301,349 - 301,349 277,381

382,858 50,430 332,428 314,815TANGIBLE ASSETS Land and natural resources 271,005 - 271,005 273,439 Buildings and other constructions 740,582 185,124 555,458 531,502 Plants and machinery 498,317 340,582 157,735 164,853 Transport equipment 31,910 24,587 7,323 7,314 Tools and utensils 33,042 22,272 10,770 9,005 Office equipment 80,353 63,966 16,387 20,689 Other tangible assets 6,937 4,689 2,248 1,969 Work in progress 11,892 - 11,892 11,883 Advances on account of tangible assets 1,938 - 1,938 8,326

1,675,976 641,220 1,034,756 1,028,980FINANCIAL INVESTMENTS Investments in associated Companies 387 - 387 14 Investments in other Companies - - - 14,941 Investment properties and securities 113,201 2,084 111,117 111,384 Advances on account of investments 106,131 - 106,131 4,988 219,719 2,084 217,635 131,327

CURRENT ASSETS INVENTORIES Raw materials and consumables 3,670 17 3,653 4,403 Goods and work in progress 571 - 571 703 Finished and semi-finished goods 105 - 105 279 Goods 212,228 8,350 203,878 192,068 216,574 8,367 208,207 197,453ACCOUNT RECEIVABLE – medium & long – term Other debtors 60,081 60,081 59,980

60,081 - 60,081 59,980ACCOUNT RECEIVABLE – short- term Trade debtors 70,342 5,640 64,702 69,118 Notes receivable 39 39 - Doubtful debts 25,048 24,223 825 629 Subsidiaries and associated Companies 43 43 50 Advances to Suppliers 1,440 1,440 1,683 Advances to Suppliers of fixed assets 1,742 1,742 1,505 State and other public entities 11,947 11,947 10,261 Other debtors 43,633 18,056 25,577 27,336

154,234 47,919 106,315 110,582TRADING SECURITIES Other trading securities 74 57 17 17 Other cash investments 50,424 50,424 46,416 50,498 57 50,441 46,433CASH AND CASH EQUIVALENTS Bank deposits 108,545 108,545 101,639 Cash 2,027 2,027 1,803

110,572 - 110,572 103,442ACCRUALS AND DEFERRALS Deferred taxes 92,357 92,357 87,227 Accrued income 8,898 8,898 24,814 Deferred costs 11,958 11,958 12,601

113,213 - 113,213 124,642 Total depreciation 691,714

Total provisions 58,363 Total assets 2,983,725 750,077 2,233,648 2,117,654

To be read with the attached notes to the consolidated financial statements.

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JERÓNIMO MARTINS, SGPS, S.A.

CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2004 AND 2003

Euros thousand

SHAREHOLDERS’ EQUITY AND LIABILITIES 2004 2003

SHAREHOLDERS’ EQUITY Share Capital 629,293 479,293Own shares- nominal value (859) (859)Own shares- discounts and premiums (5,201) (5,201)Share premium 22,452 22,452Consolidation differences - (261,456)IAS Reserves 811 -Fair value reserves 66,170 66,163Legal reserves 27,636 22,054Reserves for own shares 6,060 6,060Currency translation differences (1,076) (23,136)Retained earnings/ losses (496,172) (286,924)Net profit for the year 92,515 58,246

Total Shareholder’s equity 341,629 76,692

MINORITY INTERESTS 227,581 205,073

LIABILITIES

PROVISIONS FOR RISKS AND CONTINGENCIES 36,031 47,318

ACCOUNTS PAYABLE – medium & long – term Non-convertible bond loans 341,804 254,760 Bank debt 92,986 353,000 Subsidiaries and parent Companies 15,407 - Other loans payable 397 661 Suppliers of fixed assets- trade creditors 13,717 13,488

464,311 621,910ACCOUNTS PAYABLE – Short term Bond loans 99,760 180,760 Bank debt 180,230 66,637 Suppliers- trade creditors 625,607 634,578 Suppliers- invoices pending 22,304 32,597 Subsidiaries and parent Companies 2 2 Other Shareholders 7 7 Customers prepayments 250 172 Suppliers of fixed assets- trade creditors 35,763 32,967 State and other public entities 28,433 27,041 Other creditors 10,436 54,115

1,002,792 1,028,876ACCRUALS AND DEFERRALS Deferred taxes 44,031 42,584 Accrued costs 113,596 91,198 Deferred income 3,677 4,004

161,304 137,786

Total liabilities 1,664,438 1,835,889

Total Shareholder’s equity, minority interests and liabilities 2,233,648 2,117,654To be read with the attached notes to the consolidated financial statements.

177


CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEARS ENDED 31 DECEMBER 2004 AND 2003

Euro thousand

2004 2003

COSTS & LOSSES Cost of goods sold and materials consumed: Goods 2,642,836 2,581,494 Material 95,936 2,738,772 101,160 2,682,654Supplies and external services 313,598 317,607Staff Costs: Salaries and wages 221,408 216,150 Social securities charges: Pensions 213 4,160 Others 65,701 287,322 66,699 287,009Depreciation and amortisation 97,130 124,480 Provisions 8,718 105,848 8,599 133,079Taxes 6,319 8,961 Other operating costs and losses 1,256 7,575 1,597 10,558(A) 3,453,115 3,430,907Amortisation and provisions for financial investments 9,532 7,074 Interest and similar costs: Others 70,919 80,451 78,977 86,051(C) 3,533,566 3,516,958Extraordinary costs and losses 6,341 18,952(E) 3,539,907 3,535,910Tax on income for the year: Income tax 15,580 17,285 Deferred taxes 3,271 18,851 3,148 20,433(G) 3,558,758 3,556,343Minority interests 38,412 23,647Consolidated profit for the year 92,515 58,246

3,689,685 3,638,236

INCOME & GAINS Sales: Goods 3,471,603 3,392,527 Products 9,786 12,226 Services rendered 13,211 3,494,600 12,538 3,417,291Production variation 23,790 20,971 Own work capitalised 11 33 Supplementary income 106,584 128,428 Subsidies to the operation 599 691 Other operating income and gains 10,339 141,323 7,994 158,117(B) 3,635,923 3,575,408Income from group and associated companies 123 - Income from equity holdings: From other companies 1,174 608 Income from trading securities and other financial investments: Others 491 283 Other interest and similar income: Others 37,276 39,064 44,820 45,711(D) 3,674,987 3,621,119Extraordinary income and gains 14,698 17,117(F) 3,689,685 3,638,236

Summary: Operating results: (B) - (A) = 182,808 144,501Financial results: (D - B) - (C- A) = (41,387) (40,340)Current profit: (D) - (C) = 141,421 104,161Profit before taxes: (F) - (E) = 149,778 102,326Consolidated profit with minority interest: (F) - (G) 130,927 81,893


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CONSOLIDATED INCOME STATEMENT BY FUNCTIONS

FOR THE YEARS ENDED 31 DECEMBER 2004 AND 2003

Euro thousand

Notes 2004 2003

Sales and services rendered 4 3,494,600 3,417,291Cost of sales (2,746,461) (2,732,017)Supplementary income and costs 7 127,881 185,048

Gross profit 876,020 870,322

Distribution costs 8 (551,636) (559,945)Administrative costs 8 (116,192) (121,920)Other operating costs 9 (473) (23,299)Exceptional operating losses 14 (266) (3,995)

Operating profit 3 207,453 161,163

Net financial costs 11 (57,814) (57,053)Profit in associated companies 19 123 -Losses on disposal of discontinued operations - (1,466) Profit before taxes 149,762 102,644

Income taxes 13 (18,835) (20,751)

Profit before minority interests 130,927 81,893

Attributable to: Minority interests 38,412 23,647 Jerónimo Martins Shareholders 92,515 58,246 Basic earnings per share- Euros 29 0.8346 0.6087 Diluted earnings per share- Euros 29 0.8346 0.6037 To be read with the attached notes to the consolidated financial statements.

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CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2004 AND 2003

Euro thousand

Notes 2004 2003

Assets Tangible assets 15 1,034,756 1,028,980Investment properties 17 55,584 88,585Intangible assets 16 332,428 314,815Investments in associated Companies 19 387 14Advanced for financial investments 20 101,144 -Available-for-sale financial investments 21 60,520 42,728Non-current debtors 22 60,081 59,980Derivative financial instruments 18 1,826 12,490Deferred tax assets 24.1 92,357 87,227

Total non-current assets 1,739,083 1,634,819

Inventories 23 208,207 197,453Taxes receivable 24.3 11,947 10,261Trade debtors, accrued income and deferred costs 25 113,398 125,246Available-for-sale financial investments 21 - 17,117Cash and cash equivalents 26 161,013 132,758

Total current assets 494,565 482,835

Total assets 2,233,648 2,117,654

Shareholders’ equity and liabilities

Share capital 28.2 629,293 479,293Share premium 22,452 22,452Own shares (6,060) (6,060)Consolidation differences - (261,456)Fair value and other reserves 28.1 65,905 43,027Retained earnings (369,961) (200,564)

341,629 76,692

Minority interests 227,581 205,073

Total Shareholders’ equity 569,210 281,765

Borrowings 30 448,507 621,248Derivative financial instruments 18 16,673 748Employee benefits 32 19,856 20,426Deferred profits- state grants 1,694 1,792Provisions for risks and contingencies 33 16,175 26,892Deferred tax liabilities 24.1 44,031 42,584

Total non-current liabilities 546,936 713,690

Trade creditors, accrued costs and deferred income 34 782,130 838,037Derivative financial instruments 18 126 -Borrowings 30 306,813 257,122Taxes payable 24.3 28,433 27,041

Total current liabilities 1,117,502 1,122,200

Total Shareholders’ equity and liabilities 2,233,648 2,117,654To be read with the attached notes to the consolidated financial statements.

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Euro thousand

Shareholders’ equity attributable to Shareholders of Jerónimo Martins, SGPS, S.A.

Notes Share Capital

Share Premium

Own Shares

Consolidation Differences

Fair value and other reserves

Retained Earnings

Total Minority Interests

Shareholders’ Equity

Balance Sheet at 1 January 2003 479,293 24,262 (6,060) (261,537) 71,510 (267,055) 40,413 229,063 269,476

Equity changes in 2003 Currency translation differences in 2003 28.1 (25,949) (25,949) (25,949)

Revaluation of fixed assets: 28.1

- from 2003 2,700 2,700 (65) 2,635

- land transfer to investment property (1,617) 1,617 - - -

Measurement of financial instruments at fair value (IAS 39) 28.1 1,179 1,179 - 1,179

Warrants premium matured 28.1 (4,796) 4,796 - - -

Shared premium matured (1,810) 1,810 - - -

Minority interest adjustments 81 81 (81) -

Other changes in retained earnings 22 22 304 326

Gains/losses directly recognised in equity - (1,810) - 81 (28,483) 8,245 (21,967) 158 (21,809)

Net profit in 2003 58,246 58,246 23,647 81,893

Total gains/losses recognised during the year - (1,810) - 81 (28,483) 66,491 36,279 23,805 60,084

Dividends - (47,795) (47,795)

Balance Sheet at 31 December 2003 479,293 22,452 (6,060) (261,456) 43,027 (200,564) 76,692 205,073 281,765

Equity changes in 2004

Currency translation differences in 2004 28.1 22,060 22,060 22,060

Revaluation of fixed assets: 28.1

- from 2004 420 420 285 705

- land transfer to investment property (413) 413 - - -

Consolidation differences derecognised (IFRS 3) 261,456 (261,456) - - -

Fair value gains/losses of available-for-sale financial assets 28.1 735 735 735

JM stock options plan trust residual value (SIC 12) 1,403 1,403 - 1,403

Gains/losses directly recognised in equity - - - 261,456 22,802 (259,640) 24,617 285 24,903

Net profit in 2004 92,515 92,515 38,412 130,927

Total gains/losses recognised during the year - - - 261,456 22,802 (167,125) 117,132 38,697 155,830

Capital increase 28.2 150,000 150,000 150,000

Costs with capital increase 28.4 (2,272) (2,272) - (2,272)

Fair value of services rendered - stock options plan 28.1 76 76 76

Dividends 28.5 - (16,189) (16,189)

Balance Sheet at 31 December 2004 629,293 22,452 (6,060) - 65,905 (369,961) 341,629 227,581 569,210


181


CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEARS ENDED 31 DECEMBER 2004 AND 2003

Euro thousand

Notes 2004 2003

Operating Activities

Cash received from Customers 3,908,224 3,804,235Cash paid to Suppliers and Employees (3,633,036) (3,448,975)

Cash generated from operations 27 275,188 355,260Interest paid (39,342) (45,743)Income taxes paid (16,832) (20,954)

Cash Flow from operating activities 219,014 288,563

Investment activities Disposals of tangible assets 15 1,399 5,546Disposals of available-for-sale financial assets and investment property 35,725 6,618Interest received 4,301 5,161Dividends received 1,174 608Acquisition of group and associated Companies (101,394) -Acquisition of tangible assets 15 (90,738) (74,149)Acquisition of available-for-sale financial assets and investment property (49,967) (28,534)Acquisition of intangible assets 16 (8,552) (1,144) Cash flow from investment activities (208,052) (85,894)

Financing activities Received from issuance of ordinary shares 147,728 -Received from other non-current loans 402,965 208,001Reimbursement of loans (525,569) (335,502)Dividends paid 28.5 (16,189) (47,795) Cash Flow from financing activities 8,935 (175,296)

Net increase in cash and cash equivalents 19,897 27,373 Cash and cash equivalents changes Cash and cash equivalents at the beginning of the year 132,758 130,236Net increase in cash and cash equivalents 19,897 27,373Disposal of subsidiaries - (17,010)Effect of currency translation differences 8,358 (7,841) Cash and cash equivalents at the end of the year 26 161,013 132,758

To be read with the attached notes to the consolidated financial statements

Notes to the Consolidated Financial Statements

31 December 2004 and 2003

182

Index to the Notes to the Consolidated Financial Statements Page

1 Activity ................................................................................................................................................ 183 2 Accounting policies ................................................................................................................................ 183 3 Reconciliation of operating profit between statutory profit and loss account and consolidated income statement by

functions .................................................................................................................................................... 192 4 Segments reporting ............................................................................................................................... 192 5 Discontinued operations ......................................................................................................................... 193 6 Businesses Acquisitions.......................................................................................................................... 194 7 Supplementary income and costs ............................................................................................................ 194 8 Distribution and administrative costs ....................................................................................................... 194 9 Other operating costs ............................................................................................................................ 194 10 Staff costs ............................................................................................................................................ 195 11 Net financial costs ................................................................................................................................. 195 12 Financial instruments............................................................................................................................. 196 13 Income tax recognised in the income statement........................................................................................ 196 14 Exceptional operating losses ................................................................................................................... 197 15 Tangible Assets..................................................................................................................................... 197 16 Intangible Assets................................................................................................................................... 199 17 Investment Property.............................................................................................................................. 200 18 Derivative financial instruments .............................................................................................................. 200 19 Investments in associated companies ...................................................................................................... 200 20 Advanced for financial investments.......................................................................................................... 201 21 Available-for-sale financial investments.................................................................................................... 201 22 Non-current Debtors.............................................................................................................................. 201 23 Inventories........................................................................................................................................... 201 24 Taxes .................................................................................................................................................. 201 25 Trade debtors, accrued income and deferred costs .................................................................................... 203 26 Cash and cash equivalents ..................................................................................................................... 203 27 Cash generated from operations ............................................................................................................. 203 28 Capital and reserves .............................................................................................................................. 204 29 Earnings per share ................................................................................................................................ 205 30 Borrowings ........................................................................................................................................... 206 31 Financial debt ....................................................................................................................................... 207 32 Employee benefits ................................................................................................................................. 207 33 Provisions............................................................................................................................................. 209 34 Trade creditors, accrued costs and deferred income................................................................................... 210 35 Guarantees........................................................................................................................................... 210 36 Operational lease .................................................................................................................................. 210 37 Capital commitments ............................................................................................................................. 211 38 Contingencies ....................................................................................................................................... 211 39 Related parties...................................................................................................................................... 212 40 Group companies .................................................................................................................................. 212 41 Interest in joint ventures........................................................................................................................ 214 42 Events after the balance sheet date......................................................................................................... 214 43 Reconciliation between Portuguese GAAP and IAS ..................................................................................... 215 44 Information on environmental matters..................................................................................................... 216



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1 Activity

Jerónimo Martins, SGPS, S.A. (JMH), is the parent Company of Jerónimo Martins Group (Group) and has its head office in Lisbon.

Jerónimo Martins Group is essentially devoted to the production, distribution and sale of food and other fast moving consumer goods products. The Group operates in Portugal and Poland, and employs 28,914 people (27,868 in 2003).

Head Office: Rua Tierno Galvan, Torre 3, 9º, J- 1099-008 Lisbon

Share Capital: 629,293,220 euros

Corporate Tax Number: 500100144

Registered with the Lisbon registrar of Companies under 8,122.

JMH has been listed on Euronext Lisbon (ex-Lisbon and Oporto Stock Exchange) since 1989.

As referred to in the Report of the first half of 2004, in June a share capital increase took place, through the issuing of 30,000,000 new ordinary shares at a nominal price of 5 Euros each, with admission to the stock market taking place on 14th July 2004.

The new share capital is composed of 125,858,644 ordinary shares (2003: 95,858,644), with all shares having a nominal value of 5 Euros.

The Board of Directors approved these consolidated financial statements on 8th March 2005.

2 Accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are as follows:

2.1. Basis for preparation

All amounts are shown in thousand euros (EUR) unless otherwise stated.

The consolidated financial statements of JMH were prepared in accordance with generally accepted accounting principles in Portugal, with the derogation required to make them conform to the International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB) and with the interpretations of the International Financial Reporting Interpretation Committee (IFRIC).

The JMH consolidated financial statements were prepared in accordance with the historical cost principle, except for land recorded in tangible assets, investment property, derivative financial instruments and available-for-sale financial investments and equity holdings referred in note 2.8, which were stated at their market value.

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates.

It is, however, firmly believed by the management that the estimates and assumptions adopted do not involve significant risks that may, over the course of the coming financial year, cause material adjustments in the value of the assets and liabilities.

Change in Accounting Policy and Bases for Presentation

With a view to ensure the best means of comparison possible of financial information, the Group decided to adopt all the recent changes introduced by the IASB, effective from 1st January. These constitute the stable platform of standards applicable by all companies listed on European stock markets in 2005.

In this way, the financial information relative to the financial year 2005, the year in which the IAS/IFRS will be compulsory, will have a perfectly comparable basis, avoiding the effects of constant changes in accounting standards.

Change/improvement of IAS 13 (Improvements Project)

In 2003, the Group adopted the standards revised by this project. The most significant changes were as a result of the review of IAS 1 – Presentation of financial statements, namely the presentation of the minority interests as part of the equity. The other revised standards (IAS 2, 8, 10, 16, 17, 21, 24, 27, 28, 31, 33 e 40) had no material impact on the Group financial statements.



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IFRS 3 / IAS 36 / IAS 38

The main impacts resulting from the adoption of the new IFRS 3 – Business Combinations, and from the revisions to IAS 36 – Impairment of Assets and IAS 38 – Intangible Assets, are the suspension of Goodwill amortisation and all intangible assets with indefinite useful life, which will now be subject to frequent Impairment tests.

In accordance with the referred standards, the Group made the following changes to its balance sheet on 1st January 2004:

• The deduction from the gross value of Goodwill of the total accumulated amortisation to this date;

• The suspension of Goodwill amortisations and of all intangible assets with indefinite useful life;

• The transfer of the component named Consolidation Differences to retained earnings;

• The revision of estimated useful life for all other intangible assets.

In accordance with the referred standards, these changes should be made prospectively; thus, the comparative Financial Statements for 2003 were not changed.

IFRS 2 (Share-Based Payments)

The new standard IFRS 2 Share-Based Payments is designed to regulate the accounting procedures for all payments based on shares or share options of the company.

This being the case, and bearing in mind that the Group has a benefits plan for its senior staff based on Jerónimo Martins shares, the group decided to adopt the standards in this financial year.

The current benefits plan is managed by an entity that is totally independent of the Group, with a trust having been set up for the purpose, to which were transferred 337,098 Jerónimo Martins shares, in accordance with the deliberations of the Company’s General Meeting on 9th August, 1996.

Although the rules of the plan establishes that participants receive participation units equivalent to Jerónimo Martins shares, the plan can be categorized as equity settled, taking in consideration that the issued shares transferred to the trust have the purpose of meeting these responsibilities.

The standard stipulates retrospective application for those share options attributed after 7th November 2002 and had not yet vested at 31st December 2004. As the impact of the application of the standard to the financial year 2003 would be around EUR 30 thousand, JMH decided not to make any changes to the financial year 2003, with the impact referred to being jointly recognized in the costs relative to 2004.

SIC 12 (Special Purpose Entities)

In 2004 IFRIC revised its interpretation of SIC 12 Consolidation – Special Purpose Entities, removing the exemption to equity compensation plans. Thus, all benefit plans for employees in the form of shares or share options, even when attributed through autonomous trusts, must be consolidated by the entity that controls the Trusts.

The Jerónimo Martins Stock Options Plan Trust is managed entirely autonomously and independently of any Jerónimo Martins Company, with the management of all its assets assured by the Trustees, independent entities that are not ruled or controlled in any way by the Group. For these reasons, the assets and liabilities of the Trust are not consolidated, as the Group cannot be responsible for their management or control.

On the other hand, being the Group the final beneficiary of any hypothetical liquidation, dependent on acceptance of the conditions of liquidation by all holders of share units, the Group decided to recognise as assets in the consolidated accounts the surplus net assets that could be attributed in the event of liquidation.

The recognised value in 2004 of the surplus net assets of the Trust were EUR 1,403 thousand, corresponding to the residual value of those assets and liabilities not captive to match the share units held by the Participants. This amount was recognised as available-for-sale investment against retained earnings. (Note 21)

IAS 32 / IAS 39

Based on what was proclaimed in IAS 39, the Group could recognise gains and losses on fair value adjustments of financial investments available for sale, either in the income statement or directly in equity. The Group decided to include them in the income statement.

However, due to the changes introduced to this standard, this option was eliminated, with the variation being just recognised in the equity, which means that the changes in the fair value of those financial instruments available for sale are shown directly in equity, specifically in reserves.

Also related to IAS 39, the Group decided to separate within the Balance sheet derivative financial instruments, with the balance sheet for 2003 adjusting accordingly.



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IFRS 4 / IFRS 5 / IFRS 6

Besides the standards referred to above, the IASB also adopted IFRS 4 – Insurance Contracts, IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations and IFRS 6 – Exploration For and Evaluation of Mineral Resources, none of which had material effects on the financial statements of the Jerónimo Martins Group, and some of which are not applicable to any of the Group Companies.

2.2. Basis of consolidation

Reference dates

The consolidated financial statements include, as of 31 December 2004, assets, liabilities and results of Group companies, i.e., the ensemble consisting of JMH and its subsidiaries and associated companies, which are presented in notes 40 and 19, respectively.

Investments in Group companies

Group companies (subsidiaries) are those controlled by JMH. There is control when JMH, directly or indirectly, holds more than half of the voting rights, or has the power to conduct the company’s financial and operating policy with the purpose of deriving benefits from its activity. It is assumed that there is control when the percentage of the holding exceeds 50%.

Group companies are included in the consolidation by the full consolidation method, from the date when control was acquired to the date when it effectively ends. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of the acquisition is measured as the fair value of the assets given up, shares issued and liabilities undertaken at the date of the acquisition plus costs attributable to the acquisition.

In cases where the share capital of subsidiaries is not held at 100%, a minority interest is recognised relative to the portion of results and net value of assets attributable to third parties.

Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

Investments in associated companies

Associated companies are those over whose financial and operating policy JMH exercises significant influence. Such influence is presumed to exist when the percentage of participation exceeds 20%.

These investments are consolidated by the equity method, i.e., the consolidated financial statements include the Group’s interest in the associated company’s total recognised gains and losses from the date when significant influence starts to the date when it effectively ends.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates.

Investments in companies subject to joint control

Companies subject to joint control are those over which the Group exercises joint control as established in shareholder agreements.

These companies are consolidated by proportional method, i.e., the consolidated financial statements include the share attributable to the Group in these company’s assets, liabilities and accumulated earnings and losses from the date when joint control starts to the date when it effectively ends.

Consolidation differences

Positive consolidation differences (goodwill) represent the surplus of acquisition cost over the fair value of identifiable assets and liabilities at the date of acquisition or first consolidation.

If the cost of acquisition is lower than the fair value of the net assets of the acquired subsidiary, the difference is recognised directly in the income statement.

At the balance sheet date the Group makes an assessment for goodwill impairment indicators. If those indicators exist, an evaluation of the recoverable amount is made, and the respective impairment losses recognised whenever goodwill exceeds its recoverable amount (Note 2.13).

The gain or loss on disposal of an entity includes the carrying amount of goodwill related to the entity sold, unless the business to which that goodwill is related is maintained generating benefits to the Group.

Foreign currency translation

The financial statements of foreign entities are translated into Euros based on the closing exchange rate for assets and liabilities and historical exchange rates for equity. Costs and income are translated at the average monthly exchange rate, which basically corresponds to the exchange rate on the date of the respective



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transaction. Exchange differences arising are entered directly in equity net of the effect generated by the respective hedging instrument (see accounting policy described in note 2.5).

When a foreign entity is sold, accumulated exchange differences are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Balances and transactions between Group companies

Balances and transactions as well as unrealised gains between Group companies and between these and the parent company are eliminated in the consolidation. Unrealised losses are also eliminated unless the cost cannot be recovered.

Unrealised gains arising from transactions with associated companies or companies subject to joint control are eliminated in the consolidation proportionally to the share attributable to the Group. Unrealised losses are also eliminated except when providing proof of impairment of the asset transferred.

2.3 Transactions in foreign currencies

Transactions in foreign currencies are translated into Euros at the exchange rate prevailing on the transaction date.

On the balance sheet date, assets and liabilities expressed in foreign currencies are translated at the exchange rate prevailing on that date and exchange differences arising from this conversion are recognised in the income statement. When qualifying as hedges on investments in foreign subsidiaries the exchange differences are deferred in equity.

The main exchange rates applied on the balance sheet date are those listed below:

Rate on 31 December 2004

Average rate for the year

Polish Zloty € 0.2448 € 0.2220 Sterling Pound € 1.4183 - US Dollar € 0.7342 -

2.4 Derivatives

The Group uses derivatives with the sole intention of managing any financial risks to which it is subject. In accordance with its financial policies, the Group does not enter into speculative positions.

Although derivatives carried currently in its books correspond to effective economic hedges against risks to be hedged, not all of them qualify as hedge instruments for accounting purposes, according to IAS 39 rules. Those that do not qualify as hedge instruments are booked on the Balance sheet at fair value and changes to that amount are recognized in the Profit and Loss statements.

Whenever available, fair values are estimated based on quoted instruments. In absence of quotes, fair values are estimated through discounted cash flow methods and option valuation models, in accordance with generally accepted assumptions.

2.5 Hedging operations

Interest rate risk (cash flow hedge)

Whenever expectations surrounding movements in interest rates so justify, the Group tries to anticipate any adverse impact through the use of derivatives, such as, interest rates swaps, caps and floors, forward rates agreements, etc. The selection process that each instrument is subject to, praises economic contribution more than anything else. The implications of adding any new instrument to a portfolio of derivatives are also taken into account, namely, in terms of volatility reduction it brings to the earnings.

The instruments that qualify as cash flow hedging instruments, in accordance with IAS regulation, are booked at fair value on the Balance sheet. To the degree that they are considered effective, changes to their fair value are initially booked against equity and afterwards reclassified as financial expenses. This way, in net terms, all costs associated to the underlying exposure are carried at the interest rate fixed by the derivative instruments.

The profits or losses incurred with the unwinding of any of these interest rate swaps are recognised, through the income statement, on the unwinding date.



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Foreign exchange risk

With respect to foreign exchange risks, the Group follows a natural hedge policy, raising debt in local currency whenever market conditions are judged to be convenient (namely, taking into consideration the level of interest rates).

Investments in foreign operations

Exchange rate fluctuations in loans contracted in foreign currencies for the purpose of funding investments in foreign operations are taken directly to currency translation reserve (Note 2.2).

Any cross currency swaps that are entered into with the purpose of hedging investments in foreign holdings that qualify as hedging instruments are booked at fair value on the Balance sheet. To the degree that they are considered effective, changes to their fair value are recognized directly in currency translation reserve (Note 2.2).

2.6 Tangible assets

Assets other than land are recorded at acquisition cost net of accumulated depreciation and impairment losses (Note 2.13).

Assets classified as land are stated as per the respective revaluation carried out by independent agents.

Increases in the carrying amount arising from revaluation of land are credited to fair value reserves in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against fair value reserves. All other decreases are charged to the income statement.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the operating profit (extraordinary results in statutory income statement). When revalued assets are sold, the amounts included in fair value and other reserves are transferred to retained earnings.

Repairs and maintenance costs that do not extend the useful life of these assets are charged directly to the income statement during the financial period in which they are incurred. The cost of major store renovation is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group.

Financial lease agreements

Assets used under financial lease contracts relative to which the Group substantially assumes all the risks and rewards of ownership of the leased asset are classified as tangible assets.

Financial lease contracts are recorded at the time they are entered into as assets and liabilities for the lower of fair value of leased assets or present value of outstanding lease payments.

The depreciation of leased assets is based on the policy established by the Group for tangible assets.

Rental payments are split into a financial charge and a reduction of liability. Financial charges are recognised as costs over the lease period, so as to produce a constant periodic rate of return on the lessor’s remaining net investment.

Depreciation

Depreciation is calculated by the straight-line method, on a duodecimal basis on acquisition cost according to the useful life estimated for each class of asset. The most important annual depreciation rates are as follows (in %):

%

Land Not depreciated

Buildings and other constructions 2-4 Plants and machinery 10-20 Transport equipment 12.5-25 Office equipment 10-25

2.7 Intangible assets

Intangible assets are stated at acquisition cost net of accumulated amortisation and impairment losses (Note 2.13).

Costs with internally generated goodwill and own brands are taken to the income statement as they are incurred.

Research and development expenditure

Research expenditure incurred in the search for new technical or scientific knowledge or alternative solutions are recognised in the income statement as incurred.



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Development expenditure is recognised as intangible assets when the technical feasibility of the product or process being developed can be demonstrated and the Group has the intention and capacity to complete their development and start trading or using them.

Capitalised development expenditure includes the cost of materials used, direct labour costs and a share of general expenditure.

Computer software

Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. If those costs are directly associated with development projects that will probably generate future economic benefits (reliably measured), they are recognised as research and development in intangible assets.

Other intangible assets

Expenses to acquire key money, trademarks, patents and licences are capitalised when expect to be used by the Group.

The trademarks Pingo Doce and Feira Nova are, besides Goodwill, the only intangible assets with indefinite useful life, where there is no foreseeable limit to the period over which these assets are expected to generate economic benefits for the Group.

Depreciation

Depreciations are recognized in the income statement on a linear basis over the estimated useful life of the intangible assets, except if that life is considered indefinite. Goodwill and the intangible assets with indefinite useful life are tested for impairment at balance sheet date.

Depreciation of the other intangible assets is calculated by the straight-line method, on a duodecimal basis on acquisition cost. The most important annual depreciation rates are as follows (in %):

%

Development expenditure 20-33.33 Key money and trademarks 5-6.66

2.8 Investments

The Group classifies its investments into the following categories: financial assets held for trading, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired.

Financial assets held for trading

An asset is classified in this category if it was acquired with the principal intention of being sold in the short term. This category also includes those Derivatives that do not qualify for hedge accounting. Changes to their fair value are recognised directly in the income statement.

Loans and receivables

These correspond to non-derivative financial assets, with fixed or determined payments, that are not quoted in an active market. The assets are those that result from the normal operational activities of the Group, such as the supply of goods or services, and that the group has no intention of selling.

Held-to-maturity investments

These correspond to non-derivative financial assets, with fixed or determined payments and with fixed maturity, for which there is, the intention and the capacity to hold them until maturity. The Group does not own any asset that falls into this category.

Available-for-sale financial assets

In this category are included all the remaining financial assets not included in the above categories. They are recognised as non-current assets, except if there is the intention to sell them within 12 months of the balance sheet date.

Equity holdings

Equity holdings other than Group’s companies, joint ventures or associates, are classified as available-for-sale financial investments and recognised in the accounts as non-current assets.

These financial investments are marked to market, i.e., they are stated at the respective listed value as at balance sheet date. When there is medium term expectation of significant decrease of the value below the listed value, provisions are set up to reflect permanent losses.



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If the investments are unlisted, they are stated at cost. When so justified, provisions are set up for loss of value.

Unrealised capital gains and losses are recognised directly in equity, until the financial asset is de-recognised, at which time the accumulated gain or loss previously recognised in equity is included in net gains or losses for the period.

Whenever potential losses represent more than 20% of the acquisition cost of available for sale investments, those losses are transferred from reserves to the income statement.

2.9 Investment Property

Investment property are registered at fair value, determined by specialised independent entities.

Changes to fair value of investment property are recognised in the income statement, in net financial costs, in accordance with IAS 40.

Whenever, as a result of changes in their expected use, tangible assets are transferred to investment property, the transfer value corresponds to their carrying amount, which should correspond to the respective market value on the date of transfer.

2.10 Customers and debtors

Customers and debtor balances are recorded at nominal value net of the provision required to restate their expected recoverable amount.

2.11 Inventories

Inventories are valued at the lower of cost or net realisable value. The net realisable value corresponds to the selling price net of provisions corresponding to estimate losses.

Inventories are usually valued at the last acquisition cost, which, considering the high rotation of Inventories corresponds approximately to the actual cost that would be determined based on the FIFO method.

The cost of finished goods and work in progress comprises raw materials, direct labour, and other direct costs.

2.12 Cash and cash equivalents

The cash and cash equivalents heading includes cash, deposits on hand and short-term investments.

2.13 Impairment

Except for investment property (Note 2.9), inventories (Note 2.11) and deferred tax assets (Note 2.22), all other Group assets are considered at each balance sheet date in order to assess for indicators of possible impairment losses.

Regarding cash-generating units in operation for less than a certain time period (2 to 3 years, depending on the business segment), the Group decided not to make impairment tests as the respective businesses have not yet reached sufficient maturity, for revaluation to be proved credible.

It is determined the recoverable amount of assets with indication of potential impairment loss. Whenever the carrying value of an asset, or the cash-generating unit to which the same belongs, exceeds its recoverable amount, its value is reduced to the recoverable amount and the impairment loss recognised in the income statement.

Determining the recoverable amount of assets

The recoverable amount of medium and long-term receivables corresponds to the present value of estimated future receipts, using as discount rate the actual interest rate implicit in the original operation. For all other assets, the recoverable amount is the higher of net selling price and value in use.

The value in use of an asset is calculated as the present value of estimated future cash flows. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and the specific risks of the asset in question.

The recoverable amount of assets that by them do not generate independent cash inflow is determined together with the cash-generating unit to which these assets belong.

Reversal of impairment losses

An impairment loss recognised in a medium and long-term receivable is only reversed if justification for the increase in the respective recoverable amount is based on an event-taking place after the date the impairment loss was recognised.



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An impairment loss recognised as related to positive consolidation differences (goodwill) is not reversed.

Impairment losses for other assets are reversed whenever there are changes in the estimates used to determine the respective recoverable amount. Impairment losses are reversed to the extent of the amount (net of amortisation or depreciation) that would have been determined for the asset if no impairment loss was recognised.

2.14 Own shares (treasury shares)

Own shares purchased are shown at cost as a deduction in equity.

2.15 Dividends

Dividends are recognised as liabilities when they are declared.

2.16 Bond loans

Zero-coupon bonds convertible into shares

Zero-coupon bonds convertible into shares issued by the Group are stated as liabilities at the respective value at issue and accrued every year of interest on outstanding principal. Issuance costs are recognised in the income statement during the loan’s life.

Other bond loans

Bond loans are registered as liabilities at their nominal value. Issuance costs are recognised in the income statement during the loan’s life. This procedure, without material differences, corresponds to the application of amortised cost method. In other words, the costs recorded reflect the application of the effective interest rate on the loans.

2.17 Employees benefit

Post-employment benefits (Retirement)

Defined contribution plans

Defined contribution plans are pension plans for which the Group makes defined contributions to independent entities (funds), and for which it has no legal or constructive obligation to pay any additional contribution at the time when the employees come into said benefits.

Group contributions to defined contribution plans are recognised as expenses at the time they are incurred.

Defined benefit plans

Defined benefit plans are pension plans where the Group guarantees the attribution of a certain benefit to the employees included in the plan at the time such employees retire.

The Group’s obligation for defined benefit plans is estimated, for each plan separately, every semester at the accounts closing date by a specialised independent agent.

Actuarial valuation is made using the projected unit credit method. The discount rate is the interest rate on medium and long-term risk-free bonds. The obligation thus determined is shown in the balance sheet net of plan assets.

The year’s current service costs, interest, return on plan assets and actuarial gains or losses are recognised as costs or income for the year.

Stock Options

The Group has a compensation plan based on shares, which assumes the characteristics of an equity-settled, in other words, where equity instruments are attributed to its senior staff.

The fair value of services provided by employees in compensation for the granting of options are recognised as a staff cost against a Stock Options reserve within equity, during the vesting period.

The value recognised as a cost corresponds to the fair value of the options at grant date.

At the balance sheet date, the Group reviews the estimated number of options it expects to become exercised, with the impact of this review recognised in the income statement.



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2.18 Provisions

Provisions are booked in the balance sheet whenever the Group has a present obligation (legal or implicit) as a result of a past event and it is probable that a rationally estimated outflow of resources embodying economic benefits will be required to settle the obligation.

Restructuring provision

Provisions for restructuring costs are set up whenever a formal restructuring plan has been approved by the Group and the restructuring has started to be implemented or has been publicly announced.

2.19 Suppliers and other creditors

Suppliers and other creditors’ balances are stated at their nominal value.

2.20 Recognition of revenue

Sales and services rendered

Revenues from sales are recognised in the income statement when significant risks and rewards of ownership are transferred to the buyer. Revenues from the services rendered are recognised as income in accordance with their stage of completion as of the balance sheet date. Revenues relating to the purchase of goods for resale are recognised when these are sold.

Government grants

Government grants are only recognised after it has been safely established that the Group will comply with the inherent conditions and that the grants will be received.

Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate.

Government grants related to the purchase of fixed assets are included in non-current liabilities and are recognised in the income statement during the estimated useful life of the respective subsidised asset, for a maximum of 10 years.

Rents

Rents received for the lease of investment property are recognised as financial revenues in the income statement in the period to which they relate.

Dividends

Dividends are recognised as revenues at the time they are declared.

2.21 Costs

Operational Leasing

Payments made for operational leasing contracts are recognised in the income statement on a linear basis for the duration of same contracts.

Net financial costs

Net financial costs represent the interest on borrowings, the interest on investment made, dividends, foreign exchange gains and losses, gains and losses in financial instruments that do not qualify for hedging accounting, gains and losses in the valuation of investment property, costs and income with financing operations.

Net financial costs are accrued in the income statement in the period in which they are incurred.

2.22 Income tax

Income tax includes current and deferred taxes. Income tax is recognised in the income statement except when relating to gains or losses directly recognised in equity, in which case it is also stated directly in equity.

Tax on current income is calculated in accordance with tax criteria prevailing as of the balance sheet date.

Deferred tax is calculated in accordance with the balance sheet liability method on temporary differences between the book value of assets and liabilities and the respective tax base. No deferred tax is calculated on consolidation differences and initial recognition differences of an asset and liability if the same does not affect book or tax results.



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The measurement of deferred tax assets and liabilities should reflect the tax consequences that would follow from the manner in which the Group expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities.

The rate used to determine deferred tax is that in force during the period when temporary differences are reversed.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which temporary differences can be utilised. Deferred tax assets are revised on an annual basis and reduced when it is no longer probable that they may be used.

2.23 Segment information

Business segment

Business segment is a distinguishable component of the Group committed to supplying an individual product or service and subject to different risks and returns from those of other business segments. Two business segments were identified:

• Distribution of consumption products in self-service stores; and

• Manufacturing industry of food and personal hygiene and home consumption products, and product distribution services through representations.

Geographical segment

Geographical segment is an individual unit of the Group committed to provide products or services within a specific economic environment and subject to different risks and returns from those of other units operating in other economic environments. The following geographical segments were identified: Portugal and Poland.

3 Reconciliation of operating profit between statutory profit and loss account and consolidated income

statement by functions

2004 2003

EBITDA 304,849 289,638

Depreciation (97,130) (101,653) Goodwill Amortisation - (22,827) EBIT 207,719 165,158 Exceptional gains/losses (Statutory Operating Profit) - (2,056) Exceptional gains/losses (Statutory Extraordinary Profit) (266) (1,939) Operating Profit Statement by Functions 207,453 161,163 Cash discounts and credit card commissions (Statutory Financial Results) (16,303) (16,716) Exceptional gains/losses (Statutory Extraordinary Profit) 266 1,939 Other operating gains/losses (Statutory Extraordinary Profit) (8,609) (1,885) Statutory Operating Profit 182,808 144,501

4 Segments reporting

Information by segments is reported relative to the Group’s geographical and business segments.

The results, assets and liabilities of each segment correspond to those directly attributable to them as well as those that may reasonably be attributed to them. The results, assets and liabilities not directly attributable to segments and included in the “not allocated” column refer essentially to financial operations, also including consolidation adjustments.



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Detailed Information by Segment

DISTRIBUTION MANUFACTURING AND SERVICES NOT

Portugal Poland Portugal ALLOCATED TOTAL

2004 2003 2004 2003 2004 2003 2004 2003 2004 2003

Revenues from external customers

Sales 2,165,622 2,150,803 1,055,744 974,474 255,617 278,888 4,406 588 3,481,389 3,404,753

Services rendered 3,422 2,343 9,713 7,695 1 0 75 2,500 13,211 12,538

2,169,044 2,153,146 1,065,457 982,169 255,618 278,888 4,481 3,088 3,494,600 3,417,291

Inter-segments revenues 1,052 554 59,514 65,387 (60,566) (65,941) - -

TOTAL REVENUES 2,170,096 2,153,700 1,065,457 982,169 315,132 344,275 (56,085) (62,853) 3,494,600 3,417,291

SEGMENT RESULTS 142,440 107,475 21,298 6,519 40,567 43,045 3,147 4,124 207,453 161,163

Net financial costs (57,814) (57,053)

Profit in associated Companies 123 -

Losses on disposal of discontinued operations - (1,466)

PROFIT BEFORE TAXES 149,762 102,644

Income taxes (18,835) (20,751)

Minority interest (38,412) (23,647)

NET PROFIT 92,515 58,246

TOTAL ASSETS 1,518,065 1,546,508 446,339 403,741 223,980 139,034 45,264 28,371 2,233,648 2,117,654

TOTAL LIABILITIES 1,072,890 1,172,268 280,855 286,168 225,245 114,174 85,448 263,279 1,664,438 1,835,889

Cash flow from operating activities 219,014 288,563

Cash flow from investment activities (208,052) (85,894)

Cash flow from financing activities 8,935 (175,296)

Investment in tangible and intangible assets 61,461 55,490 36,886 24,823 3,652 3,097 67 190 102,066 83,600

Amortisation and depreciation 63,346 83,621 29,424 37,839 4,112 4,327 248 (1,307) 97,130 124,480

5 Discontinued operations

During 2004 no material relevant operation was discontinued.

In 2003 the Group disposed of its business in Eurocash, a company that holds a cash and carry business in Poland.

The net assets of this business, on the date of disposal, were as follows:

2004 2003

Non-current assets - 26,619 Current assets - 39,211

Total assets - 65,830

Shareholders’ equity - 28,525 Current liabilities - 37,305

Total liabilities and shareholders’ equity - 65,830

In terms of results, the summarised amounts recognised in the consolidated income statement were as follows:

2004 2003

Sales and services rendered - 45,125

Operating profit/loss - (1,918)

Profit/loss before taxes - (1,883)

Net profit/loss - (1,883)

In 2004, the companies Bento & Martins, Lda and Noredis – Sociedade de Representações e Distribuição do Norte, S.A. were wound up, with no impact on the consolidated financial statement once their respective assets remained in the Group.



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6 Businesses Acquisitions

On 16th March 2004 a partnership contract was signed between the company JMD – Distribuição de Produtos de Consumo, Lda. and the Spanish company PUIG, S.A. for the importation and distribution of perfumes, with the resulting company being PGJM – Importação e Distribuição de Perfumes e Cosméticos, S.A. The Group owns 50% of this new company that is consolidated through the equity method. The amount invested in the capital of the company was EUR 250 thousand.

In April 2004 Pingo Doce - Distribuição Alimentar, S.A. and Feira Nova - Hipermercados, S.A. on one hand, and the Costa Pais Group on the other signed key-money contracts for 4 stores owned by the latter in the regions of Beira Baixa and Alto Alentejo. After a period of refurbishment the stores were reopened under the Feira Nova (3 stores) and Pingo Doce (1 store) trademarks. The total amount of the operation was EUR 9,072 thousand, with a generated Goodwill value of EUR 7,803 thousand.

On 14th December 2004 a deal was reached with the Unilever Group for the integration of the company Unilever Bestfoods Portugal - Produtos Alimentares, S.A. (BestFoods Portugal) into the company FimaVG - Distribuição de Produtos Alimentares, Lda (FimaVG), owned in partnership by the two groups.

This operation, whose conclusion was subject to approval by the Competition Authority in Portugal, implied a financial outgoing by JM and several restructuring operations which represented in total, at balance sheet date, an investment of EUR 101,144 thousand. (See note 42)

7 Supplementary income and costs

2004 2003

Supplementary gains 113,958 173,646

Cash discount received 30,886 31,569

Cash discount paid (3,505) (4,196)

Credit card commissions (11,078) (10,657)

Other supplementary costs (4,341) (4,665)

Provisions for debtors suppliers 1,961 (649)

127,881 185,048

The supplementary gains concern profits obtained by the Group through the distribution of goods, namely, rental of spaces, participation in birthday events, rental of shelf’s, etc. Supplementary costs concern to the same nature of supplementary gains mentioned, paid by subsidiaries operating in the manufacturing and services segments.

The reduction of the supplementary gains is the result of the distribution companies’ effort to include all the discounts in the invoices (net price). Therefore only the total margin is comparable.

8 Distribution and administrative costs

2004 2003

Supplies and services 152,135 154,479

Advertising costs 48,637 52,203

Rents 61,187 57,340

Staff costs 275,044 273,400

Depreciations, amortisations and assets profit/loss 94,392 99,155

Transportation 40,033 39,801

Other operational profit/loss (3,600) 5,487 667,828 681,865

9 Other operating costs

2004 2003

Goodwill amortisation - 22,827

Direct/indirect taxes not related to operational activity 473 472

473 23,299



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10 Staff costs

2004 2003

Wages and salaries 221,332 216,150

Social security 44,740 44,008

Employee benefits (note 32) 294 4,160

Other staff costs 20,956 22,691

287,322 287,009

Other staff costs include, namely, labour accident insurance, social action costs, training costs and indemnities. The amount of EUR 1,824 thousand, related to indeminities, was considered exceptional operating loss (in Restructuring provisions- note 14).

Of total staff costs EUR 23,734 thousand corresponds to staff costs of subsidiaries and associated companies consolidated by the proportional method, the total amount of which was EUR 54,701 thousand.

In 2004 staff costs related to the productive activity of EUR 10,454 thousands (EUR 13,609 thousand in 2003) were attributable to the cost of the goods sold.

The average number of Group employees during the year was 27,848, distributed as follows:

2004 2003

Portugal 17,210 17,929

Poland 10,638 10,256

Total number of employees 27,848 28,185

Of the total number of employees 1,140 are employed by subsidiaries and associated companies consolidated by the proportional method.

The number of employees at the end of 2004 was 28,914, in 2003 it was 27,868, distributed as follows:

2004 2003

Portugal 17,031 17,823

Poland 11,883 10,045

Total number of employees 28,914 27,868

Of the total number of employees 998 are employed by subsidiaries and associated companies consolidated by the proportional method.

11 Net financial costs

2004 2003

Interest expense (45,875) (45,917)

Interest received 3,794 2,966

Dividends 1,174 608

Net foreign exchange 660 (601)

Investment property:

Profit/loss on disposal (391) (1,411)

Changes to fair value (note 17) (168) 1,477

Available-for-sale financial investments:

Profit/loss on disposal (1,822) 429

Changes to fair value (6,689) (4,322)

Other financial costs and gains (6,522) (10,167)

Changes to fair value in financial instruments that do not qualify for hedge accounting (note 12.3)

(1,975) (115)

(57,814) (57,053)

Other financial costs and gains include borrowings costs and the reduction of the provision for potential loss in put options.



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12 Financial instruments

12.1 Interest rate risk

The Group uses derivatives, such as swaps and options, to manage its exposures to interest rate risks. Derivatives are efficient tools to hedge against adverse effects on cash flows associated with debt service payments.

All changes to fair values are recognised in results, as the existing derivatives do not qualify for hedging accounting.

12.2 Foreign Exchange Risks

On 31st December 2004 the Group had contracted seven operations totalling EUR 254,038 thousand to hedge its exchange rate risk exposures.

In July 2004, three non-deliverable forwards were contracted totalling EUR 3,031 thousand, destined as a hedge for a part of the Group’s investment in Poland, totalling 15 million PLN. For accounting purposes, these operations do not count as hedge accounting, and variations in their fair value are instead registered in the income statement.

In June 2004, the Group contracted two cross currency swaps totalling EUR 151,007 thousand, with the objective of transforming the 180-million US dollar fixed-rate loans obtained by JMR on the US market into a Euro debt of EUR 151,007 thousand at a variable rate, indexed to Euribor 6M. The contracted instrument counts for accounting purposes as a fair value hedge, so that the variations to fair value are registered in the income statement. Variations in the USD loan are also recognised in the income statement at a symmetrical value.

In 2002 the Group contracted two cross currency swaps totalling EUR 100,000 thousand, destined as hedges for the Group’s investment in Poland, equivalent to 398.5 million PLN. For 85% of this amount, the contracted instrument counts for accounting purposes as a cash flow hedge, with variations to fair value being registered in equity, reserves and retained earnings, in currency exchange reserves. The remaining 15% correspond to a structured operation which does not count as hedge accounting, with variations to fair value being registered in the income statement.

12.3 Fair value of financial instruments

The impact in reserves (net of taxes and minority interests), is as follows:

2004 2003

Currency swaps (383) (268)

Interest rates swaps (1,592) 153

(1,975) (115)

Deferred taxes 442 (18)

Minority interests 232 (118)

Value recognised in profit/loss (1,301) (251)

The value recognised in currency translation reserve referred to hedging of investment in Poland is EUR (7,640) thousand (net of tax).

13 Income tax recognised in the income statement

13.1 Income taxes

2004 2003

Current income tax

Current tax of the year (15,580) (17,285)

Adjustment to prior year estimation 16 (317)

(15,564) (17,602)

Deferred tax Temporary differences created and reversed (14,671) 761

Reduction in tax rate - (21,011) Change to the recoverable amount of tax losses and temporary differencesfrom previous years 11,400 17,102 (3,271) (3,148)

Total income taxes (18,835) (20,751)



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13.2 Reconciliation of effective tax rate

2004 2003

Profit before tax 149,762 102,644 Income tax using the Portuguese corporation tax rate 27.5% (41,185) 33.0% (33,873) Fiscal effect due to:

Different tax rates in foreign jurisdictions 1.2% 1,872 3.1% 3,189

Non taxable or non recoverable results 8.2% 12,352 16.1% 16,553

Non-deductible expenses (1.6)% (2,413) (2.0)% (2,097)

Reduction in tax rate 0.0% - (20.5)% (21,011)

Adjustment to prior year estimation 0.0% 16 (0.3)% (317)

Change to the recoverable amount of tax losses and temporary differences of prior years 7.6% 11,400 16.7% 17,102

Results subject to special taxation (0.6%) (877) (0.3)% (297)

Income tax 12.6% (18,835) 20.2% (20,751)

The reduction in the income tax is due, essentially, to the corrections made to the recoverable losses estimated for some businesses. If this effect was excluded the income tax of the year would be 20.2%.

14 Exceptional operating losses

2004 2003

Losses with closing down stores - (6,646) Gains/losses on lands disposal - (352)

Extraordinary stock losses - (1,068)

Reduction of provisions - 3,884 Restructuring provisions Commercial brands disposals Received indemnities

(5,443) 2,462 2,720

- - -

Others (5) 187

(266) (3,995)

15 Tangible Assets

15.1 Changes occurred during the year

Land and natural

resources

Buildings and other

constructions

Plants, machinery and tools

Transport equipment and

others

Work in progress and

advances

Total

Cost:

Opening balance 273,439 692,221 500,791 117,609 20,209 1,604,269 Foreign exchange differences 29 20,417 8,462 5,424 754 35,086Increases 1,833 22,367 32,797 7,072 29,445 93,514Disposals 0 (173) (3,977) (3,313) (143) (7,606)Transfers and write off’s 4,172 6,447 (6,714) (7,592) (33,447) (37,134)Transfers to investment property (8,164) (697) - - (2,857) (11,718)Impairment losses (304) - - - (131) (435)

Closing balance 271,005 740,582 531,359 119,200 13,830 1,675,976

Depreciation and impairment losses:

Opening balance - 160,719 326,933 87,637 - 575,289 Foreign exchange differences - 7,166 4,861 4,031 - 16,058Increases - 28,233 46,141 13,320 - 87,694Disposals - (66) (3,709) (3,114) - (6,889)Transfers and write off’s - (10,906) (11,372) (8,632) - (30,910)Transfers to investment property - (22) - - - (22)

Closing balance - 185,124 362,854 93,242 - 641,220

Net value:

As at 1 January 2004 273,439 531,502 173,858 29,972 20,209 1,028,980

As at 31 December 2004 271,005 555,458 168,505 25,958 13,830 1,034,756



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An impairment loss of EUR 304 thousand was recorded in 2004, related to a land in Madeira and of EUR 131 thousand of abandon projects.

15.2 Equipment under financial lease

The Group has a variety of equipment under financial lease or other equivalent contract conditions. Although the Group will not exercise the lease-purchase option on transport equipment, the terms of the contracts require that they be registered as fixed assets. Financial lease payments do not include values relative to contingent rentals. Unsettled liabilities on financial lease contracts are referred in note 30.4.

The value of assets under financial lease are shown below:

2004 2003

Land and natural resources Tangible assets 903 1,123

903 1,123

Buildings and other constructions Tangible assets 2,780 1,765 Accumulated depreciation (244) (227)

2,536 1,538 IT and office equipment and tools and utensils Tangible assets 22,936 22,702 Accumulated depreciation (13,025) (10,173)

9,911 12,529

Transport equipment Tangible assets 6,377 5,249 Accumulated depreciation (3,043) (1,723)

3,334 3,526

Work in progress 119 -

15.3 Guarantees

No assets have been pledged as security for the fulfilment of bank or other obligations.

15.4 Tangible assets in progress

Tangible assets in progress as at 31 December 2004 refer to the building and refurbishment of stores.

15.5 Revaluation

The Group records land allocated to its operating activity at market value, determined by specialist and independent entities. In 2004 no changes were made in the land value registered.

Revaluation values under fixed assets amount to EUR 139,333 thousand (EUR 139,950 thousand in 2003), with the following impact on shareholders’ equity:

2004 2003

Revaluation of land 139,333 139,950

Deferred taxes (31,907) (32,418)

Minority interests (41,256) (41,369)

Net revaluation (Note 28.1) 66,170 66,163



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16 Intangible Assets

16.1 Changes occurring during the year

Goodwill

Start-up expenses

R&D expenses

Software, ind property and other rights

Key money

Work in progress

Total

Cost:

Opening balance 428,758 153 28,610 42,377 27,184 - 527,082

Increases 7,803 - 29 263 8 449 8,552

Transfers and write off's (152,453) (153) (1,374) (20,987) (74) 2,198 (172,843)

Foreign exchange differences 17,241 - 2,559 267 - - 20,067

Closing balance 301,349 - 29,824 21,920 27,118 2,647 382,858

Amortisation and impairment losses:

Opening balance 151,377 153 20,429 25,477 14,831 - 212,267

Increases and impairment losses - - 6,015 1,632 1,789 - 9,436

Transfers and write off's (152,453) (153) (1,369) (20,704) (74) - (174,753)

Foreign exchange differences 1,076 - 2,202 202 - - 3,480

Closing balance - - 27,277 6,607 16,546 - 50,430

Net value:

As at 1 January 2004 277,381 - 8,181 16,900 12,353 - 314,815

A at 31 December 2004 301,349 - 2,547 15,313 10,572 2,647 332,428

With the adoption of IFRS 3 and the changes made to IAS 38, as mentioned in note 2, the Group identified as intangible assets of indefinite useful life the trademarks Pingo Doce and Feira Nova, for which there is no time limit for how long they will continue to create economic benefits to the Group. Their net value is EUR 13,717 thousand, which has stopped being amortized and will be subject to impairment tests on a regular basis.

16.2 Guarantees

No assets have been pledged as security for the fulfilment of bank or other obligations.

16.3 Intangible assets in progress

The implementation of the projects Business-to-Business (B2B) and Logistic Management (WPMS) are considered in intangible assets- work in progress.

16.4 Impairment tests for Goodwill

Goodwill is allocated to the Groups’ business areas as presented bellow:

Business Areas 2004 2003

Retail Portugal 97,298 89,495 Cash & Carry Portugal 72,433 72,433

Madeira 8,509 8,509

Poland 123,109 106,944

301,349 277,381

The increases registered refers to the acquisition by the Retalho Portugal area of 4 stores from the Costa Pais Group, as mentioned in note 6, whose generated Goodwill value rose to EUR 7,803 thousand.

In addition, and as a consequence of the currency translation of assets in the Group’s business in Poland, the Goodwill value related to this business, totalling 502,818 million PLN, increased by EUR 16,165 thousand.

In 2004 evaluations were made according to the Discounted Cash Flows (DCF) evaluation models, thereby sustaining the recoverability of Goodwill value.



200

The values of these evaluations are reached through past performances and through expectations for market development, with future cash-flow projections being drawn up for each of the businesses, based on medium/long term plans approved by the Board of Directors.

These estimates were made considering a discount rate of between 8.6% and 9% for Portugal and 13% for Poland, and a perpetual growth rate between 0% and 1% for the various businesses.

17 Investment Property

2004 2003

Opening balance 88,585 48,756

Increases due to acquisitions 68 26,285

Transfers from tangible assets (note 15.1) 11,696 18,324

Other transfers (taxes) (9) -

Foreign exchange differences 840 -

Changes to fair value (note 11) (168) 1,477

Disposals (45,428) (6,257)

Closing balance 55,584 88,585

The investment property relates to plots of land initially acquired for use in Group operations, and others actually used for that purpose for a period of time but which became redundant, either because they could not be used to build cash-generating units or because they became superfluous as a result of the restructuring of operations carried out in them.

This category also includes recently acquired land, whose use has still not been determined, being, therefore, considered has investment expecting for a market value increase.

As it is not likely that these assets will be sold within a period below 12 months, they are presented in the accounts as non-current assets.

18 Derivative financial instruments

2004 2003

Assets Liabilities Assets Liabilities

Non-current Interest rates Swap 204 1,642 333 179

Currency Swap 1,622 828 12,158 569

USD loan hedging - 14,203 - -

1,826 16,673 12,490 748

Current

Currency Swap 126

- 126 - -

The payable and receivable interests related to these financial instruments were detached to Trade Creditors, Accrued Costs and Deferred Income.

19 Investments in associated companies

In 2004 and 2003 the movement under this heading was as follows: 2004 2003

Net value as at 1 January 14 24 Acquisitions (note 6) Equity method application

250 123

- -

Disposals - (10) Net value as at 31 December 387 14



201

20 Advanced for financial investments

The amount in Advanced for financial investments, at 31 December 2004, is related to the project to integrate Bestfoods Portugal in Jerónimo Martins Group, as described in notes 6 and 42.

21 Available-for-sale financial investments

Non-Currents 2004 2003

BCP shares 30,451 17,602 Eurocash - 26,149 Advances on account of financial investments 4,988 4,988 Treasury Bonds 22,514 - JM stock options trust plan 1,403 - Others 3,184 2,268

62,540 51,007 Provision for realisable value (note 33) (2,020) (8,279)

60,520 42,728

Currents

The short-term available for sale investments, in 2003, in the amount of EUR 17,117 thousand, respected to treasury bonds that had their maturity in August 2004.

22 Non-current Debtors

Non-current debtors balance in 31 December 2004 includes EUR 60,072 thousand related to tax liquidation. The Group has already contested the amount paid and made a legal claim for reimbursement (note 38).

23 Inventories

2004 2003

Raw and subsidiary materials and consumables 3,670 4,406

Goods and work in progress 571 703

Finished and semi-finished goods 105 279

Goods 212,228 199,263

216,574 204,651

Provisions for inventories (note 33) (8,367) (7,198)

Net inventories 208,207 197,453

No inventories have been pledged as guarantee for the fulfilment of contractual obligations.

24 Taxes

24.1 Deferred tax assets and liabilities

Change in deferred tax accounts

2004 2003

At the beginning of period 44,643 54,809 Currency translation difference 6,248 (6,474)

Revaluation and reserves 705 (544)

On results of the year (3,271) (3,148)

At the end of period 48,326 44,643

Deferred taxes are presented in balance sheet as follows:

2004 2003

Deferred tax assets 92,357 87,227

Deferred tax liabilities (44,031) (42,584)

48,326 44,643



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Movement in deferred taxes during the year

01/01 2004

Impact on results

Impact on equity

Currency translation differences

31/12 2004

Deferred tax liabilities

Revaluation of assets 33,696 97 (340) - 33,453Deferred income for fiscal purposes 1,512 (995) - 126 643Differences on accounting policies in other countries 5,055 1,213 - 889 7,157Other temporary differences (including IAS impact) 2,321 457 - - 2,778

42,584 772 (340) 1,015 44,031

Deferred tax assets

Excess over legal provisions 5,387 1,812 269 7,468Revaluation of assets 599 (175) 365 789Pension costs 546 106 652Costs with foreign exchange risk hedging operations (3,097) 396 2,898 197 Recoverable losses 65,653 (16,672) 1,106 50,087Profit in inventories 563 (82) 481Provisions for inventories 1,335 329 73 1,737Other deferred costs for fiscal purposes 10,301 11,835 2,774 24,910Differences on accounting policies in other countries 845 145 143 1,133Other temporary differences 5,095 (192) 4,903

87,227 (2,498) 365 7,263 92,357

Net change in deferred tax 44,643 (3,271) 705 6,248 48,326

Deferred tax assets arising from recoverable losses are as follows:

2004 2003

Consolidated tax Group Recheio, SGPS, S.A. 32,247 38,791 Consolidated tax Group JMR, SGPS, S.A. 12,440 14,483 Jerónimo Martins Dystrybucja, S.A. 5,357 12,333 Others 43 46 50,087 65,653

The Group recognised these deferred tax assets on tax losses based on projections for the respective businesses that show that tax profits will be realised in the future ensuring their recoverability.

24.2 Unrecognised deferred taxes on tax losses

The Group did not recognise deferred tax assets relative to tax losses in respect of which no sufficient tax profits are expected to guarantee the recovery of deferred tax assets. Total unrecognised tax assets amount to EUR 37,215 thousand (2003: EUR 43,002 thousand). No deferred tax assets were recognised relative to losses generated in Jerónimo Martins Dystrybucja S.A., Jerónimo Martins, SGPS, S.A. and Jerónimo Martins Finance Company (1) Limited.

24.3 Receivable and payable taxes

Taxes receivable 2004 2003

Income tax receivable 712 219 VAT receivable 11,114 10,024 Others 121 18 11,947 10,261

Taxes payable Income tax payable - 735 VAT payable 13,601 12,305 Income tax withheld 3,242 2,736 Social security 5,287 5,118 Other taxes 6,304 6,147 28,433 27,041



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25 Trade debtors, accrued income and deferred costs

Accrued income essentially respects to the recognition of supplementary gains contracted with suppliers, in the amount of EUR 5,626 thousand.

The deferred costs heading includes EUR 3,669 thousand of pre-paid rents, EUR 4,794 thousand of bond issue and credit opening costs, EUR 3,291 thousand relative to other costs attributable to future years and paid in 2004, or, when not paid, were already charged by the competent entities.

The debtor’s amount is registered by the recoverable value, i.e., the Group constitutes provisions whenever there are signs of uncollectible amounts (note 33).

26 Cash and cash equivalents

2004 2003

Bank deposits 108,545 101,639 Short-term investments 50,441 29,316 Cash and cash equivalents 2,027 1,803

161,013 132,758

The short-term investments include short-term bank deposits and other negotiable funds for which provisions were booked to reduce it to the realizable value (note 33).

27 Cash generated from operations

2004 2003

Net results 92,515 58,246

Adjustments for: Minority interests 38,412 23,647 Taxes 18,835 20,751 Amortisations and depreciations 97,130 124,480 Provisions 8,718 8,599 Profit/loss from stock options plan 76 - Net financial costs 57,814 57,053 Profit/loss in associated companies (123) - Impairment of assets 435 1,768 Profit/ Losses on financial investment disposals 1 47 Profit/ Losses on tangible assets disposals (227) 3,493 Profit/ Losses on intangible assets disposals - 306 Extraordinary results 279 -

313,865 298,390 Changes in working capital: Inventories (4,278) 30,560 Trade debtors, accrued income and deferred costs 10,098 (6,702) Trade creditors, accrued costs and deferred income (44,497) 33,012

275,188 355,260

2004 2003

Commercial customers 65,566 69,747Associated companies and subsidiaries 43 50Suppliers debt balances 4,147 6,857Staff 577 603Other debtors 24,036 23,064Accrued income 7,275 12,324Deferred costs 11,754 12,601

113,398 125,246



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28 Capital and reserves

28.1 Fair value and other reserves

Land and buildings

Hedging reserve

Available-for-sale financial instruments

Stock

options

Currency translation

reserve

Warrants and other reserves

Total

Balance as at 1 January 2003 65,080 (1,179) - - 2,813 4,796 71,510

Land transferred to investment property: - Gross value (4,124) (4,124) - Deferred tax 953 953 - Minority interests 1,554 1,554 Revaluation: - Gross value 2,808 2,808 - Deferred tax (173) (173) - Minority interests 65 65 Fair value adjustment of available-for-sale financial instruments:

- Gross value 1,550 1,550 - Deferred tax (371) (371) Warrants premium matured (4,796) (4,796)

Currency translation differences: - In the year (19,475) (19,475) - Deferred tax (6,474) (6,474)

Balance as at 1 January 2004 66,163 - - - (23,136) - 43,027

Land transferred to investment property: - Gross value (617) (617) - Deferred tax (194) (194) - Minority interests 398 398

Revaluation: - Deferred tax 705 705 - Minority interests (285) (285)

Fair value adjustment of available-for-sale financial instruments:

- Gross value 735 735

Stock options 76 76 Currency translation differences: - In the year 15,812 15,812 - Deferred tax 6,248 6,248

Balance as at 31 December 2004 66,170 - 735 76 (1,076) - 65,905

28.2 Share capital and share premium

Authorised share capital is represented by 125,858,644 ordinary shares (2003: 95,858,644), at a nominal value of EUR 5 (five Euros) each.

Jerónimo Martins SGPS, SA., as referred before, carried out a capital increase, fully subscribed, by 150 million euros, corresponding to 30 million new shares with a nominal value of 5 euros.

The holders of ordinary shares have the right to received dividends as established in the General Meeting and have one vote for each 100 held shares. There are no preferential shares and the own shares’ rights are suspended until these shares are back in the market.



205

28.3 Own shares

The reserve for own shares reflects the cost of shares held by the Group in portfolio. As of 31 December 2004, the Group held 171,800 own shares (2003: 171,800). As defined by law the own shares are not entitled to dividends.

28.4 Capital increase costs

The costs related to the capital increase, in the amount of EUR 2,272 thousand, were accounted directly in equity reserves.

28.5 Dividends

Taking into consideration Group results in 2004, the Board of Directors of Jerónimo Martins SGPS, S.A. will propose in the General Meeting the distribution of EUR 45,247,263.84, which corresponds to a dividend per share of EUR 0.36.

The dividends distributed in 2004 of EUR 16,189 thousand were paid to minority interest in the Group companies.

29 Earnings per share

29.1 Basic earnings per share

Basic net results per share are calculated based on the net profit of EUR 92,515 thousand (2003: profit of EUR 58,246 thousand) attributable to ordinary shareholders and on weighted average outstanding ordinary shares, numbering 110,850,778 (2003: 95,686,844).

29.2 Weighted average outstanding shares

2004 2003

Ordinary shares issued at the beginning of the year 95,858,644 95,858,644 Own shares at the beginning of the year 171,800 171,800 Shares issued during the year (30/06/2004) 30,000,000 -

Weighted average number of ordinary shares 110,850,778 95,686,844

29.3 Diluted net results attributable to ordinary shareholders

2004 2003

Net profit of the year attributable to ordinary shareholders 92,515 58,246 Effect (net of tax) of interest on warrants (until September 15) - 1,289

Diluted net profit of the year attributable to ordinary shareholders 92,515 59,535

29.4 Diluted weighted average ordinary shares

2004 2003

Weighted average ordinary shares 110,850,778 95,686,844 Warrants conversion effect (until September 15) - 2,927,314 Diluted weighted average ordinary shares 110,850,778 98,614,158

Basic earnings per share – Euros 0.8346 0.6087 Diluted earnings per share – Euros 0.8346 0.6037



206

30 Borrowings

This note provides information on the terms of Group loan contracts and other forms of financing. For further details regarding the Group’s exposure to interest and foreign exchange rates see note 12.

30.1 Current and non-current loans

2004 2003

Non-current loans Bank loans 92,986 353,000Bond loans 341,804 254,760Financial lease liabilities 13,717 13,488

448,507 621,248

Current loans Bond loans 99,760 180,760Bank overdrafts 112,165 58,637Bank loans – short term 68,065 8,000Loans from subsidiaries and parent companies 15,409 2Financial lease liabilities - short-term 11,414 9,723

306,813 257,122

30.2 Loan terms and maturities

Average

rate Total

Less than 1 year

More than 1 year

Bank loans

Commercial paper 3.71% 25,000 - 25,000

Loans in EUR 3.94% 50,000 30,000 20,000

Loans in PLN 7.29% 86,051 38,065 47,986

Bond Loans

Loans 4.48% 455,767 99,760 356,007

Fair value adjustment (14,203) (14,203)

Bank overdrafts 3.50% 112,165 112,165 -

Subsidiaries and parent companies 15,409 15,409 -

Financial lease liabilities 5.23% 25,131 11,414 13,717

755,320 306,813 448,507

The amount of EUR 14,203 thousand, adjusted to the total of bond loans, refers to the updating of the bond loan for 180 million USD (see note 12.2), for which the Group contracted a hedging instrument, presented in note 18, with a symmetrical value.

30.3 Bond loans

2004 2003

Zero-coupon bonds with share redemption option - 180,760 Non-convertible bonds 455,767 254,760

455,767 435,520

In December 1997, the Company issued 25 million JMH zero coupon bonds, which, when translated into Euros were transformed into 12,469,947,419 bonds, per value EUR 0.01 each. The interest rate was fixed, at 6.38%. This issue came to maturity on 30th December 2004, and was amortized in its entirety in cash, as the issuer did not exercise the option for reimbursement in shares.

The non-convertible bonds were divided as follows:

In August 1998, 20 million bonds were emitted in Recheio, SGPS, SA, at the nominal value of 1000$, which when translated into euros were transformed into 9,975,957,941 bonds, with a nominal value of 0.01 Euros. These bonds mature in August 2005 and the interest rate is variable.



207

In June 2003, 23 million JMR Gestão de Empresas de Retalho, SGPS, S.A. bonds were issued at the nominal value of 5 Euros. These bonds mature in June 2008, and the interest rate is variable.

In October 2003, 8 million Jerónimo Martins bonds were issued, at a nominal value of 5 Euros. These bonds mature in October 2008, and the interest rate is variable.

In February 2004 Recheio, SGPS, issued 1 million bonds at a nominal value of 50 Euros, totalling 50 million Euros. This is a 5-year issue, which matures in February 2009 and the interest rate is variable and indexed to Euribor 6M.

In June 2004 a Private Placement was carried out by JMR on the US market (USPP), in the amount of 180 million USD, at a fixed rate. These “Notes” issued by JMR are equivalent to Bond Loans in Portuguese law. The total amount was divided between a 7-year issue of 84 million USD and a 10-year one of 96 million USD. Immediately after this operation, a Cross Currency Swap (EUR/USD) was contracted for the same maturities. In net terms, JMR obtained a loan of EUR 151,007 thousand at a variable rate indexed to Euribor 6M.

The redemption dates of the bond loans are as follows:

2005 99,760 2008 155,000 2009 50,000 2011 70,470 2014 80,537

Total 455,767

30.4 Financial lease liabilities

2004 2003

Payments in less than 1 year 12,413 10,660 Payments between 1 and 5 years 14,076 13,460 Payments in more than 5 years - 738

26,489 24,858 Payment of future interest (1,358) (1,647)

Present value of liabilities 25,131 23,211

31 Financial debt

As the Group contracted several foreign exchange risk and interest risk hedging operations, as well as short-term investments, the net consolidated financial debt as at 31 December is:

2004 2003

Non-current loans (note 30) 448,507 621,248 Current loans (note 30) 306,813 257,122 Derivative financial instruments (note 18) 14,973 (11,743) Accruals and deferrals (notes 25 and 34) 859 (3,191) Bank deposits (note 26) (108,545) (101,639) Short-term investments (note 26) (50,441) (29,316) Current available-for-sale financial investments (note 21) - (17,117)

612,166 715,364

32 Employee benefits

Amounts of Employee benefits in the balance sheet:

2004 2003

Retirement benefits 19,534 20,426 Seniority premium 322 0

Total 19,856 20,426



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Amounts reflected in the income statement – staff costs (note 10)

2004

Retirement benefits 200 Seniority premium 18 Stock options 76 Total 294

A brief description of the plans and each one’s impacts follows:

32.1 Defined contribution plans for employees, with funds managed by a third party

The Group has defined contribution pension plans in the companies Jerónimo Martins, SGPS, S.A., Jerónimo Martins Serviços, S.A., Jerónimo Martins Distribuição de Produtos de Consumo, Lda. and in the companies of Fima, Lever, and Iglo.

These plans cover all of the employees in these companies who have permanent contract status, and they allow cost control related to the attribution of benefits, while simultaneously creating an incentive for the employees to participate in their own pension scheme.

Movements in the year:

2004 2003

Liabilities value at 1 January 441 685

Staff costs 654 941

Contributions of the year 1,095 1,185

Liabilities (not covered) in 31 December - 441

32.2 Defined contribution plans for former employees

Defined benefit plans paid for by the group

The Group has direct responsibility for these plans. Independent actuaries evaluate them twice a year. According to the actuarial calculation reported on 31st December 2004, the responsibility totals EUR 19,402 thousand, and is totally included in the heading employee benefits.

Movement in the year:

2004 2003

Balance on 1 January 20,426 18,096 Initial balance adjustments (*) 514 - Staff costs (586) 3,224 Retirement pensions paid in (952) (894) Balance on 31 December 19,402 20,426

(*) Until the end of 2003, the liabilities related with retirements for the companies of Fima, Lever and Iglo Group, were accounted in Trade creditors, accrued costs and deferred income. From the 1st of January 2004 were registered as employee benefits.

Defined Benefit plans with a fund managed by a third party

The companies of Fima, Lever and Iglo group have a defined benefit plan limited to a range of pensioners. The responsibilities entailed by this plan are met by an autonomous pension fund managed by an independent entity.

Amounts in the balance sheet:

2004

Liabilities actual amount 2,061

Fund market value 1,929

Liability in employee benefits 132

The amount of EUR 132 thousands is registered in the income statement in Staff Costs.



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Actuarial assumptions used:

Mortality table TV – 73/77

Fund income rate 5.4%

Difference between rate of return and pension growth rate 3.0%

32.3 Other long-term benefits granted to employees

The companies of Fima, Lever and Iglo group have an incentive plan which involves the attribution of a payment when employees complete 15, 25 and 40 years of service. The companies pay for this plan and an independent actuary evaluates the implied responsibilities each year. According to the actuarial study carried out, on 31st December the responsibility was for EUR 322 thousand, which is accounted for in the liabilities, in employee benefits.

Movement in the year:

2004

Balance on 1 January 0 Initial balance adjustments (*) 327 Cost of the year 18 Benefits paid in the year (23) Balance on 31 December 322

(*)Until the end of 2003, the liabilities related with seniority premium for the companies of Fima, Lever and Iglo Group, were accounted in Trade creditors, accrued costs and deferred income. From the 1st of January 2004 on were registered as employee benefits.

Liability calculation assumptions:

Salaries growth rate 3.25%

Actuarial technical rate 5.40%

32.4 Compensation based on JM shares

Current options on JM shares are options for the acquisition of participation units in the Jerónimo Martins Stock Options Plan Trust.

The price, as well as the number of options attributed to each Participant, are defined based on the performance of the Group, of the Companies, and of the individual.

The options become due 3 years after attribution date, becoming void if they are not taken up within 90 days of this date, or before this time if the Participant ceases to work for the Group.

On 31st December 2004, a total of 31,448 options had not been exercised, these options become due in 2006, and their fair value at the time of attribution was of EUR 137 thousand, a value calculated by the Black-Scholes evaluation model.

The Group recognised in staff costs (note 10) EUR 76 thousand in 2004, related to non-exercised share options.

33 Provisions

Balance on

1/01/2004

Provisions set up

Provisions used

Foreign exchange difference

Transfers Balance

on 31/12/2004

Doubtful debtors (note 25) 49,695 192 (2,506) 538 - 47,919 Inventories (note 23) 7,198 2,231 (1,516) 455 - 8,367 Financial investments (note 21) 8,279 6,875 (13,541) 407 - 2,020 Other securities (note 26) 57 - - - - 57 Employee benefits (note 32) 20,426 150 (1,561) - 841- 19,856 Other risks and contingencies 26,892 4,281 (15,183) 185 - 16,175

Total 112,547 13,729 (34,307) 1,585 841 94,394



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Provision for risks and contingencies includes:

An amount of EUR 3,836 thousand relating to provisions for Manufacturing restructuring, for which there is a formal plan which has been divulged to the relevant entities. It is expected that this responsibility will be liquidated within 12 months;

An amount of EUR 1,503 thousand relating to possible future compensation to be paid by the Group in respect of guarantees on sales deals carried out in recent years.

An amount of EUR 10,836 thousand relating to litigious cases, which are not expected to be resolved within the year.

34 Trade creditors, accrued costs and deferred income

2004 2003

Payables to associated companies 7 7

Other commercial creditors 672,907 691,253

Other non-commercial creditors 10,436 54,115

Accrued costs 96,797 90,450

Deferred income 1,983 2,212

782,130 838,037

The heading “accrued costs” is composed essentially of salaries and wages to be paid to the employees, in the amount of EUR 36,542 thousand, interest payable in the amount of EUR 9,085 thousand and advertising costs in the amount of EUR 23,417 thousand. The remaining EUR 27,753 thousand respects to sundry costs (utilities, insurance, consultants, rents, etc), for 2004, which had not been invoiced by the respective entities prior to the end of the year.

The heading “deferred income” comprises essentially supplementary revenues in the amount of EUR 999 thousand, which are deferred until the respective goods are sold.

35 Guarantees

The bank guarantees are as follows:

Guarantees provided to EDP (Electricity company) 199 Guarantees provided to suppliers 673 Guarantees for D.G.C.I. (Portuguese tax authorities) 10,379 Other guarantees provided 12,142

36 Operational lease

The amounts of liabilities related to medium and long-term contracts which have penalty clauses if broken, are the following:

2004 2003

Payments in less than 1 year 48,779 39,070 Payments between 1 and 5 years 130,559 111,477 Payments in more than 5 years 62,695 55,178

242,033 205,725

These amounts respect to stores and warehouses rent contracts, with initial term between 5 and 20 years, with an option to renegotiate after that period. The payments are annually updated, reflecting inflation and market valuation.



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Operational lease contracts were recognised as costs during the year in the amount of EUR 61,389 thousand. The amounts in 2003 were EUR 57,476 thousand.

The distribution is as follows:

2004 2003

Buildings and other const. 53,518 50,397 Plants & tools 966 1,388 Transport equipment 4,061 3,474

IT equipment 350 132 Others 2,494 2,085

61,389 57,476

The difference from the “rents” sated in note 8 are costs with occasional renting in the amount of EUR 159 thousand (2003: EUR 243 thousand) and rents costs that were attributable to the cost of goods sold in the amount of EUR 361 thousand (2003: EUR 379 thousand).

37 Capital commitments

Capital expenditure contracted for at the balance sheet date amount EUR 909 thousand, and referred essentially to work in progress.

38 Contingencies

• An amount of EUR 60,072 thousand is recognised in the financial statements under non-current debtors

(Note 22) relative to tax liquidations claimed by the Tax Administration. In 2004 were paid EUR 101 thousand and the rest in the previous years settled under the arrangement for the exceptional regularisation of tax debts (see note 34 to the 2003 accounts).

The Group’s Board of Directors, supported by its tax and legal advisers, believes it has acted entirely within the law and maintains the claims filed against such settlements, without waiving its legitimate right to appeal against them and expecting their full recovery.

In this context the Group, immediately, demanded total reimbursement of the amounts paid, as well as indemnity interest at the legal rate for the period between the payment date and its effective restitution date.

According to the principle of prudence, the Group has not recognised the amount of indemnity interest over this credit.

• Besides several claims related to normal Group activities, the following situations are pending:

a) In 1999, as a result of the acquisition of two companies that held establishments previously owned by exfranchised of ITMI – Norte-Sul Portugal – Sociedade de Desenvolvimento e Investimento, SA, this company, together with Regional de Mercadorias – Sociedade Central de Aprovisionamento, SA, has brought an action against several subsidiaries of the Group, holding them responsible for the alleged non fulfilment, by those exfranchised, of the contract they had set up with ITMI, already solved at the date of the acquisitions, demanding an indemnity of EUR 14,600 thousand. This procedure is still pending a court date. Considering both the complexity of the process and the fact that no prove has yet been produced, it is not possible, with assurance, to determine its outcome. Nevertheless, it is the belief of the Board of Directors that the amount requested will probably not be granted, thus, as referred to in the Groups’ affiliates annual reports of previous years, no provision has been set up.

b) The company Seguraspresso, Lda claims EUR 546 thousand to Gestiretalho – Gestão e Consultoria para a Distribuição a Retalho, SA, as a consequence of the termination, by the latter, of the contract for services rendered, without the prior notice as laid down in the settlement. It is Gestiretalho’s conviction that there is no basis for the amount claimed.

c) The Company Leirimundo - Construção Civil, Lda claims an indemnity of EUR 8,196 thousand from Gestiretalho, as a result of the termination of the rental contract entered into by the parties. Gestiretalho refutes the claim filed by Leirimundo, having filed its own claim for an indemnity of EUR 31,441 thousand for losses and lost revenues. Gestiretalho claims non-fulfilment by Leirimundo as basis for terminating the contract. At the moment the process is in the arbitral court.

d) The company Águas do Marão, Lda. claims payment of EUR 501 thousand from Gestiretalho concerning bills due under a supply contract terminated by the latter with good cause. Gestiretalho contests part of the bills and claims an indemnity for the facts that led to the terminating of the contract.



212

e) The Tax Authorities claim from Recheio, SGPS, SA the amount of EUR 2,244 thousand concerning VAT officious liquidations, the reasons for which are the application of the method of VAT deduction from the actual affectation. The Board of Directors of Recheio, with the support of its tax advisers, considers that, in this situation, right is on their side. The liquidations have already been contested, therefore no provision has been set up.

f) The Tax Authorities informed Recheio, SGPS, SA, that it should carry out tax requalification on received dividends, to a total of EUR 65,825 thousand, relating to an undertaking in the Free Trade Zone of Madeira during the years 2000 to 2002. In the opinion of the Tax Authorities, this should have been subject to corporate tax deducted at headquarters, as opposed to dividends, which are exempt. The Administration of Recheio, with the support of its tax and legal advisors, does not consider the report of the Tax Authorities to have any foundation or validity, and will use all the resources at its disposal to fight the moves. Bearing in mind the accumulated losses incurred in the Tax Group to which Recheio belongs (approx. 117 million euros), any correction which may be made by the DGCI will not result in payment on the part of Recheio, SGPS, SA. Because of its certainty that it is entirely in the right on this issue, the company will not make any change to its financial statements.

39 Related parties

57.671% of the Group is owned by the Sociedade Francisco Manuel dos Santos, and no transactions occurred between this Company and any other company of the Group in 2004. Neither were there any amounts payable or receivable between them on December 31st, 2004.

39.1 Benefits attributed to directors

Directors of Jerónimo Martins, SGPS, S.A. board are entitled to complementary retirement benefits, providing they have been board members for at least 10 years, and retire from the post at 65 years old of age.

This benefit corresponds to a complementary pension so as to receive an amount equivalent to the net salary earned as of retirement date.

39.2 Remuneration paid to directors

The members of the board of directors received the following remuneration:

2004 2003

Executive directors 1,683 907

Non-executive directors 598 90

2,281 997

In April of 2004 the new Corporate Body of the society was elected in General Meeting, and the Board of Directors has now 9 elements (3 executive and 6 non-executive), as stated in this Annual Report- Corporate Governance.

40 Group companies

Group control is ensured by the parent company, Jerónimo Martins, SGPS, S.A..

The tables below list the companies that form part of Jerónimo Martins Group. These tables were organised according to the consolidation method used, and where there are exclusions, the relevant reasons are given.

a) Full consolidation method

Company

Business area

Head office

% Owned

Jerónimo Martins, SGPS, S.A. Business portfolio management Lisbon

Jerónimo Martins – Serviços, S.A. Human resources top management Lisbon 100.00

JMR – Gestão de Empresas de Retalho, SGPS, S.A. Business portfolio management in the area of retail distribution

Lisbon 51.00

Pingo Doce – Distribuição Alimentar, S.A. Retail sales in supermarkets Lisbon 51.00

Supertur – Imobiliária, Comércio e Turismo, S.A. Real estate purchase and sale Lisbon 51.00

Feira Nova – Hipermercados, S.A. Retail sales in hypermarkets Lisbon 51.00

Bazar Novo – Distribuição de Produtos Não Alimentares, Lda Retail sales of durable consumer goods Lisbon 51.00



213

Company

Business area

Head office

% Owned

Gestiretalho – Gestão e Consultoria para a Distribuição a Retalho, S.A.

Retail management, consultancy and logistics Lisbon 51.00

Imoretalho – Gestão de Imóveis, S.A. Real estate management and administration Lisbon 51.00

Casal de São Pedro – Administração de Bens, S.A. Real estate management and administration Lisbon 51.00

Jerónimo Martins Finance Company (2), Limited Financial services Dublin

(Ireland)

51.00

EVA – Sociedade de Investimentos Mobiliários e Imobiliários, Lda Provision of services in the economic and financial areas and investment management

Funchal 51.00

Moser & Branco – Distribuição Alimentar, S.A. Retail sales in supermarkets Carregal do

Sal

51.00

Cunha & Branco – Distribuição Alimentar, S.A. Retail sales in supermarkets Águeda 51.00

Electric Co – Distribuição de Produtos não Alimentares, Lda. Distribution of non-food and consumer goods Lisbon 51.00

Dantas & Vale, S.A. Distribution of food products Lisbon 51.00

Recheio, SGPS, S.A. Business portfolio management in wholesale and retail distribution

Lisbon 100.00

Recheio-Cash & Carry, S.A. Wholesale of food and consumer goods Porto 100.00

Imocash – Imobiliário de Distribuição, S.A. Real estate management and administration Lisbon 100.00

Larantigo – Sociedade de Construções, S.A. Real estate purchase and sale Lisbon 100.00

PSQ – Sociedade de Investimentos Mobiliários e Imobiliários, Lda Provision of services in the economic and financial areas and investment management

Funchal 100.00

Funchalgest– Sociedade Gestora de Participações Sociais, S.A. Business portfolio management Funchal 75.50

João Gomes Camacho, S.A. Wholesale of food and consumer goods Funchal 75.50

Lidosol II – Distribuição de Produtos Alimentares, S.A. Retail sales in supermarkets Funchal 75.50

Idole–Utilidades, Equipamentos e Investimentos Imobiliários, Lda Real estate purchase and sale Lisbon 75.50

Lidinvest – Gestão de Imóveis, S.A. Real estate management and administration Funchal 75.50

Belegginsmaatschappij Tand B.V. Financial services Rotterdam

(Holland)

100.00

Jerónimo Martins Dystrybucja,S.A. Retail and wholesale of food and consumer goods Poznan (Poland)

100.00

Tip Marken – Discount Handelsgesellschaft mbh Business portfolio management Sarstedt

(Germany)

100.00

PITT Sp. Zo.o Retail sale of food and consumer goods Poznan (Poland)

100.00

Sklepy Spozywece Sp. Zo.o. Retail and wholesale of food and consumer goods Poznan (Poland)

100.00

Twoje Sklepy Spozywece Sp. Zo.o Retail and wholesale of food and consumer goods Warsaw (Poland)

100.00

Optimum Mark Sp. Z.o.o. Exploration of trade marks Warsaw (Poland)

100.00

JM Holdings UK, Ltd Business portfolio management London (U,K,)

100.00

Jerónimo Martins – Distribuição de Produtos de Consumo, Lda Wholesale of food products Lisbon 100.00

Caterplus – Comercialização e Distribuição de Produtos de Consumo, Lda

Wholesale of other food products Lisbon 49.00

Jerónimo Martins – Restauração e Serviços, S.A. Coffees Lisbon 100.00

Hermes–Sociedade Investimentos Mobiliários e Imobiliários, Lda Provision of services in the economic and financial areas and investment management

Funchal 100.00

Friedman - Sociedade Investimentos Mobiliários e Imobiliários ,Lda Provision of services in the economic and accounting area Funchal 100.00

Jerónimo Martins Finance Company (1), Limited Financial services Dublin (Ireland)

100.00

Servicompra – Consultores de Aprovisionamento, Lda Provision of services in the areas of market research, procurement and marketing and bargaining techniques

Lisbon – Portugal

100.00

Jerónimo Martins Retail Services, S.A. Exploration of trade marks Klosters Switzerland

51.00

Desimo – Desenvolvimento e Gestão Imobiliária, Lda Real estate management and administration Lisbon 100.00

Comespa - Gestão de Espaços Comerciais, S.A. Management and administration of retail outlets Lisbon 51.00

Hussel Ibéria – Chocolates e Confeitaria, S.A. Retail sale of chocolates, confectionery and similar products Lisbon 51.00

b) Proportional consolidation method

Company

Business area

Head Office

% Owned

Fima/VG Distribuição de Produtos Alimentares, Lda Distribution of food products Lisbon 60.00

Fima - Produtos Alimentares, S.A. Production of margarines and similar products Lisbon 60.00

Victor Guedes – Indústria e Comércio, S.A. Production of olive oil Lisbon 60.00

LeverElida – Distribuição de Produtos de Limpeza e Higiene Pessoal, Lda

Distribution of beauty and personal hygiene products Lisbon 40.00

Indústrias Lever Portuguesa, S.A. Detergent manufacturing Lisbon 40.00

IgloOlá – Distribuição de Gelados e Ultracongelados, Lda Distribution of ice-cream and deep-frozen products Lisbon 26.00

Iglo – Indústria de Gelados, S.A. Manufacturing of ice-cream and sorbet Lisbon 26.00

Gelcasa – Comercialização de Gelados e Ultracongelados, S.A. Retail sale of ice-cream and deep-frozen products Lisbon 26.00



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c) Equity method

Company

Business area Head Office

% Owned

PGJM – Importação e Distribuição de Perfumes e Cosméticos, S.A. Wholesale of perfumes and cosmetics Lisbon 50.00

d) Companies excluded from the consolidation

The following companies were not included in the consolidation, as they were not considered as materially relevant:

Company % Owned

Transportadora Central do Infante, Lda 25.48

Empal – Empresa Industrial de Produtos Alimentares, S.A. 60.00

Socorel – Sociedade Comercial de Representações, Lda 90.00

e) Companies dissolved and wound up in 2004 whose results contributed to the Group’s consolidated results

Company

Business area

Head Office

% Owned

Bento & Martins, Lda Wholesale of consumer goods Lisbon 51.00

Noredis – Sociedade de Representações e Distribuição do Norte, S.A.

Wholesale of food products Lisbon 100.00

41 Interest in joint ventures

The Group has interests in the following joint ventures:

● Fima Group – this group of companies manufactures and sells food products, specifically edible fats and drinks, and private labels as well as Unilever Group brands. The group Jerónimo Martins held 60% of Fima Group share capital (note 42);

● Lever Group - this group of companies manufactures and sells personal, home and industrial hygiene products for the hotel and food sectors. The brands marketed are the property of the Unilever Group. The Group Jerónimo Martins has a 40% stake in Lever Group;

● Iglo Group – this group of companies manufactures and markets ice cream and frozen and deep frozen food products under Unilever Group brands. The Group Jerónimo Martins has a 26% stake in these companies.

The consolidated financial statements include the following amounts relative to assets and liabilities appropriated as a result of participation in the above-mentioned joint ventures, consolidated by the proportional method:

2004 2003

Non-current assets 123,368 123,112 Current assets 65,714 78,987 Non-current liabilities (180,956) (176,526) Current liabilities (93,892) (83,467)

Net assets (85,766) (57,894)

Income and gains 274,539 294,390 Costs and losses (254,165) (274,432)

20,374 19,958

The Group holds 50% capital share in the company PGJM- Importação e Distribuição de Perfumes e Cosméticos, S.A. that distributes perfume and cosmetic products.

The assets and liabilities as well and the generated results by this company are not materially relevant.

42 Events after the balance sheet date

On 1st February 2005, the Competition Authority in Portugal decided not to oppose the incorporation of Unilever Bestfoods Portugal- Produtos Alimentares, S.A. (Bestfoods Portugal) into FimaVG- Distribuição de Produtos Alimentares, Lda (Fima VG), being the conclusion of this operation now predicted to March.

In the light of this, and as a result of the deal reached with our partner Unilever (note 6), as from 1st January 2005, the Jerónimo Martins Group will show in its consolidated accounts, 51% of the financial statements of the FimaVG and Bestfoods Portugal businesses.



215

As the contracts predict, some price adjustment mechanisms will come into play regarding the price of the transaction in terms of the equity to be integrated. Because of this, it is not possible at present to quantify the exact value of the operation, nor the effective amount of assets and liabilities to be included in the consolidated balance sheet of the Group.

COMPLEMENTARY INFORMATION

43 Reconciliation between Portuguese GAAP and IAS

The differences between accounting principles adopted by the Group and the Portuguese GAAP are as follows:

• Revaluation of investment property are accounted in profit and loss accounts (IAS 40), while, according to Portuguese GAAP, are accounted in reserves, in shareholders’ equity;

• The Group has financial instruments such as interest rate swaps and currency swaps, recognised in the financial statements at fair value, in accordance with IAS 39. Portuguese GAAP does not cover this subject;

• Detachable warrants in bond issued by the Group are recognised in shareholders’ equity. Portuguese GAAP does not cover this subject (applicable to 2003 results).

• As a result of the introduction of IFRS 3 and the changes to IAS 38, the Group ceased as of 1st January 2004 its amortization of Goodwill and its intangible assets of indefinite life. In accordance with its recommendations the Portuguese standard advises the capitalization and amortization of these assets.

• The Group incorporated directly into its reserves the costs associated with the increase in capital of JMH. Generally accepted standards in Portugal are for the capitalization of these amounts.

• The Group registers variations to fair value of available-for-sale financial investments directly in equity (IAS 39). In accordance with generally accepted accounting principles in Portugal, these amounts should be recognised in the income statement, because they are related to variations in previously recognised provisions.

The information presented below, reflects the reconciliation between the principles adopted by the Group, and the general accepted accounting principles in Portugal:



216

Balance sheet on 31 December 2004 Consolidated Financial

Statement Adjustments to Portuguese

GAAP Consolidated Financial

Statement in accordance with Portuguese GAAP

ASSETS Intangible assets 332,428 (23,216) 309,212

Tangible assets 1,034,756 1,034,756 Financial investments 217,635 217,635 Inventories 208,207 208,207 Accounts receivable – medium & long-term 60,081 60,081 Accounts receivable – short-term 106,315 106,315 Trading securities 50,441 50,441 Cash and cash equivalents 110,572 110,572 Accruals and deferrals 113,213 257 113,470

Total assets 2,233,648 (22,959) 2,210,689 SHAREHOLDER’S EQUITY

Share capital 629,293 629,293 Reserves and retained earnings (380,179) 1,369 (378,810) Net profit/loss for the year 92,515 (13,086) 79,429

Total shareholder’s equity 341,629 (11,717) 329,912 Minority interests 227,581 (6,124) 221,457

LIABILITIES

Provisions for risks and contingencies 36,031 36,031 Accounts payable – medium & long-term 464,311 14,203 478,514 Accounts payable – short-term 1,002,792 1,002,792 Accruals and deferrals 161,304 (19,321) 141,983

Total liabilities 1,664,438 (5,118) 1,659,320 Total shareholder’s equity, minority interests and

liabilities 2,233,648 (22,959) 2,210,689 Balance sheet on 31 December 2003

Consolidated Financial Statement

Adjustments to Portuguese GAAP

Consolidated Financial Statement in accordance with Portuguese GAAP

Assets Intangible assets 314,815 - 314,815 Tangible assets 1,028,980 - 1,028,980 Financial investments 131,327 - 131,327 Inventories 197,453 - 197,453 Accounts receivable – medium & long-term 59,980 - 59,980 Accounts receivable – short-term 110,582 - 110,582 Trading securities 46,433 - 46,433 Cash and cash equivalents 103,442 - 103,442 Accruals and deferrals 124,642 (798) 123,844

Total assets 2,117,654 (798) 2,116,856

SHAREHOLDER’S EQUITY

Share capital 479,293 - 479,293 Reserves and retained earnings (460,847) 1,864 (458,983) Net profit/loss for the year 58,246 (696) 57,550

Total shareholder’s equity 76,692 1,168 77,860 Minority interests 205,073 - 205,073

LIABILITIES

Provisions for risks and contingencies 47,318 - 47,318 Accounts payable – medium & long-term 621,910 (1,036) 620,874 Accounts payable – short-term 1,028,876 - 1,028,876 Accruals and deferrals 137,785 (930) 136,855

Total liabilities 1,835,889 (1,966) 1,833,923 Total shareholder’s equity, minority interests and

liabilities 2,117,654 (798) 2,116,856

44 Information on environmental matters

Environment expenses intended for durable use in Group activity to avoid or reduce future damage or preserve resources while providing future economic benefits, are capitalised, otherwise they are recognised as costs for the year in which they are incurred.

No public grants were obtained directly related to environmental protection and fitting the concept of environment expenses.



217

As far as the Group is aware, there is no contingent liability or present obligation arising from past events concerning environmental matters, therefore no provisions were set up for environmental matters nor does the balance sheet include any relevant environment liabilities.

Environment expenses

• WATER- Investments made and costs incurred by the Group in the domain of water concerns the monitoring of water quality through frequent testing, water treatment systems and the rationalisation of consumption.

• LIQUID EFFLUENTS- The investments made by the Group related to liquid effluents concern effluent treatment and separation plants in its industrial units and distribution warehouses, as well as the costs incurred with the maintenance of this equipment, removal of effluents and municipal taxes.

• ENERGY- As referred in the management report, investments made by the Distribution companies concerned the installation of equipment for managing and reducing energy consumption and for managing cold. In the industrial area investments made concerned the rationalisation of consumption.

• RESIDUES- Investments made in this area concerned residue treatment and conditioning equipment. The costs incurred concerned mainly the collection of residues for recovery.

• NOISE- Investments made in this area concerned acoustic isolation and noise reduction equipment. The costs incurred in the year resulted from noise tests carried out by external entities.

• GAS EMISSIONS- Investments in this area mainly concerned filters, dust removal lines and air treatment equipment.

• BIODIVERSITY AND LANDSCAPE PROTECTION- Investments made concerned the landscape recovery of expansion areas.

• ENVIRONMENTAL MANAGEMENT- As referred to in the management report, several environment preservation initiatives were undertaken in the course of 2004, either at Group internal level or intended for the community.

Lisbon, 8 of March 2005

The Certified Accountant The Board of directors

Bernardes, Sismeiro & Associados, S.R.O.C., Lda. Inscrita na lista dos Revisores Oficiais de Contas sob o nº25 Sede: Palácio Sottomayor, Rua Sousa Martins, 1 - 3º, 1050 - 217 Lisboa Inscrita na Comissão de Valores Mobiliários sob o nº 219 NIPC 501 255 958 Capital Social Euros 11.200 Correspondente da PricewaterhouseCoopers Matriculada na Conservatória do Registo Comercial sob o nº10675

Bernardes, Sismeiro & Associados, SROC, Lda. Palácio Sottomayor Rua Sousa Martins, 1 - 3º 1050-217 Lisboa Portugal Tel +351 213 599 000 Fax +351 213 599 999

Sociedade de Revisores Oficiais de Contas

Report of the Auditors for Statutory and Stock Exchange Regulatory Purposes in respect of the Consolidated Financial Information

(Free translation from the original version in Portuguese)

Introduction

1 As required by law, we present the Report of the Statutory Auditors for Stock Exchange Regulatory Purposes in respect of the Consolidated Financial Information included in the consolidated Directors’ Report and the consolidated financial statements of Jerónimo Martins, SGPS, SA., comprising the consolidated balance sheet as at 31 December 2004, (which shows total assets of Euros 2.233.648 thousand and a total of shareholder's equity of Euros 569.210 thousand, including a net profit of Euros 92.515 thousand and a total of minority interests of Euros 227.581 thousand), the consolidated statements of income by nature and by functions and the consolidated cash flow statement for the year then ended and the corresponding notes to the accounts.

Responsibilities

2 It is the responsibility of the Company’s Board of Directors (i) to prepare consolidated financial statements which present fairly, in all material respects, the financial position of the company and its subsidiaries, the consolidated results of their operations and their cash flows; (ii) to prepare the historic financial information in accordance with generally accepted accounting principles in Portugal while also meeting the principles of completeness, truthfulness, accuracy, clarity, objectivity and lawfulness, as required by the Portuguese Securities Market Code; (iii) to adopt appropriate accounting policies and criteria; (iv) to maintain adequate systems of internal accounting controls; and (v) the disclosure of any relevant matters which have influenced the activity, the financial position or results of the company and its subsidiaries.

3 Our responsibility is to verify the consolidated financial information included in the consolidated financial statements referred to above, particularly as to whether it is complete, truthful, accurate, clear, objective and lawful, as required by the Portuguese Securities Market Code, for the purpose of expressing an independent and professional opinion on that financial information, based on our audit.

Jerónimo Martins, SGPS, SA. 9 March 2005

(2)


Scope 4 We conducted our audit in accordance with the Standards and Technical Recommendations approved by the Institute of Statutory Auditors which require that we plan and perform the examination to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Accordingly, our examination included: (i) verification that the subsidiary’s financial statements have been examined and for the cases where such an examination was not carried out, verification, on a test basis, of the evidence supporting the amounts and disclosures in the consolidated financial statements, and assessing the reasonableness of the estimates, based on the judgements and criteria of Management used in the preparation of the consolidated financial statements; (ii) verification of the consolidation operations; (iii) assessing the appropriateness and consistency of the accounting principles used and their disclosure, as applicable; (iv) assessing the applicability of the going concern basis of accounting; (v) assessing the overall presentation of the consolidated financial statements; and (vi) assessing the completeness, truthfulness, accuracy, clarity, objectivity and lawfulness of the financial information.

5 Our audit also covered the Consolidated Directors’ Report, having included the verification of its conformity with the financial information disclosed.

6 We believe that our examination provides a reasonable basis for our opinion.

Opinion

7 In our opinion, the consolidated financial statements referred to above, present fairly in all material respects, the consolidated financial position of Jerónimo Martins, SGPS, SA. as at 31 December 2004, the consolidated results of their operations and their cash flows for the year then ended in conformity with the generally accepted accounting principles in Portugal, modified to bring the accounts in line with the International Accounting Standards, as mentioned in note 2.1, and duly comply with principles of completeness, truthfulness, accuracy, clarity, objectivity and lawfulness.

Lisbon, 9 March 2005 Bernardes, Sismeiro & Associados, S.R.O.C., Lda. represented by: José Manuel Oliveira Vitorino, R.OC.




Report and Opinion of the Statutory Auditors

(Free Translation from the original in Portuguese)

To the Shareholders 1 In accordance with the law and our mandate, we herewith present the report on our supervisory activity and our opinion on the Consolidated Directors’ Report and the corresponding Consolidate Financial Statements presented by the Board of Directors of Jerónimo Martins, SGPS, SA. with respect to the year ended 31 December 2004. 2 During the course of the year, we have accompanied the evolution of the company’s activities and of its most significant subsidiaries, as and when deemed necessary, and have verified the timeliness and adequacy of the accounting records and supporting documentation. We have also ensured that the law and the company’s statutes have been complied with. 3 As a consequence of our work, we have issued the attached Report of the Auditors for Statutory and Stock Exchange Regulatory Purposes in respect of the Consolidated Financial Information. Furthermore we have considered the Statutory Auditors’ Report sent to the Board of Directors in which the audit procedures undertaken are described, as required by Article 451º of the Commercial Companies Code. 4 Within the scope of our mandate, we have verified that: i) the Consolidated Balance Sheet, the Consolidated Statements of Income by nature

and by functions, the Consolidated Cash Flow Statement and corresponding Notes, prepared in conformity with the generally accepted accounting principles in Portugal, modified to bring the accounts in line with the International Accounting Standards, as mentioned in note 2.1, present adequately the financial position and the results of the company;

ii) the accounting policies and valuation methods applied are appropriate; iii) the Consolidated Directors’ Report is sufficiently clear as to the evolution of the

business and the position of the company and its subsidiaries and highlights the most significant aspects.


(2)


5 On this basis, and taking into account the information obtained from the Board of Directors and the company’s employees, together with the conclusions in the Report of the Auditors for Statutory and Stock Exchange Regulatory Purposes in respect of the Consolidated Financial Information, we are of the opinion that: i) the Consolidated Director’ Report be approved; ii) the Consolidated Financial Statements be approved. Lisbon, 9 March 2005 The Statutory Auditor Bernardes, Sismeiro & Associados, S.R.O.C., Lda. represented by: José Manuel de Oliveira Vitorino, R.O.C.

VI. Individual Financial Statements

Jerónimo Martins, SGPS, S.A. Public Trade Company

Registered with the Lisbon registrar of Companies under 8.122 Share Capital: EUR 629.293.220 Corporate Tax No. 500 100 144

Rua Tierno Galvan, Torre 3, 9º, Letra J 1099 - 008 LISBOA

R&C’04 – Management Report

223


PUBLIC COMPANY

MANAGEMENT REPORT

Financial year 2004

As a manager of equity holdings, Jerónimo Martins has a portfolio of investments characterized by a strong presence in food retail in Portugal (Pingo Doce, Feira Nova and Recheio) and in Poland (Biedronka), in the industrial sector, where it maintains a long-standing partnership with Unilever (Fima, Lever and Iglo), and also in specialized retail (Hussel and Jeronymo) and in marketing and distribution services (JMD). As the Group’s holding company, Jerónimo Martins co-ordinates and provides consultancy services to its subsidiaries. The functional areas of support to the Group, range from administration to institutional relations, development and strategy, planning and control, legal and fiscal affairs, risk control, internal audit, human resources, financial operations, consolidation and accounting, security and communication. Services provided reached 11.9 million euros.

Portugal The Portuguese economy was characterized by moderate product growth, supported by strong expansion in internal demand and imports, and thus inverting the recessional trend, which began in mid-2002 and continued throughout 2003. The Portuguese GDP probably rose around 1 percentage point, which compares to -1% in 2003. The unemployment rate is among the highest recorded in recent years, and debt, which was already high, increased on 2003 figures, probably catalysed by attractively low interest rates. Savings probably fell in 2004, with estimates of domestic consumption (The Portuguese Central Bank estimates a rise of 2.2%) being higher than private available income. Inflation continued to fall, reaching a low of 2.4%, despite increases in energy prices. The dynamism of the economy was affected in part by successive alterations in the political sphere throughout the year. In terms of budgetary policy, it has only been through extraordinary measures since 2002 involving extremely high amounts that the ratio of budget deficit to GDP has been kept below the 3% ceiling imposed by the EU treaty. This tendency was maintained in 2004.

The Group’s operating performance in Portugal

Pingo Doce

The Pingo Doce supermarkets chain pursued in 2004 the strategy initiated two years ago: commitment to a competitive and stable price policy; differentiation through a comprehensive and high quality assortment of Perishables; investment in the Private Label as an instrument of competitiveness and innovation; and an effective communication policy in conveying to the public a policy of competitive prices (“They’re not special offers! They’re the everyday low prices of Pingo Doce”).

In 2004 the success of the chain’s positioning policy was seen in sales growth of 2.3% (5.3% in the last quarter of 2004), with the same network of stores, with sales volume at EUR 810.4 million, 1.6% up on the previous year, largely due to an increase in customer numbers of 3.2%, despite an average deflation of 3%.

The investment made in the Pingo Doce Private Label, with a number of products of various categories


224

being launched, yielded a 28.9% year-on-year increase in the respective sales.

Feira Nova

Feira Nova, operating in the hypermarkets format, was the worst affected by the deterioration in the competitive environment. Still, the chain pursued in 2004 its refurbishing plan and introduced new Non-Food concepts under the Electric Co and New Code brands, putting into practice the repositioning of its stores.

Total sales remained on a level with last year’s. Three new stores were opened in July, and six were temporarily closed for refurbishing works, some of them fully and some only partially closed. Given the difficulties of the market, it was important for the Company to keep its customers without losing profitability. This entailed continuing the efficiency drive and a continuous reduction in operational costs. It was through this cost control and the conclusion of the transfer process to a net price system that allowed more efficient management of the Company’s operating margins, allowing an increase in the operating profits on 2003.

Recheio

2004 was a particularly difficult year, with difficulties in private consumption and an increase in competitive aggression in all formats of modern Distribution. Recheio managed, though, to strengthen its market leader status in the wholesale market, affirming its position among food business professionals in the hotel and Traditional Retail industries as the benchmark supplier. Despite net sales having fallen 0.5% on the previous year (0.0% in the same network of stores), Recheio managed to increase its market share by around 0.3 percentage point, with the wholesale market having lost approximately 1.5% between 2003 and 2004. Net operating profit (EBITDA) rose in 2004 to EUR 44.5 million, corresponding to 7.5% of sales, which together with strict management of working capital once again made for positive liquidity levels in the Company.

Madeira

Pingo Doce sales in Madeira were EUR 73.7 million, with growth in the same network of stores of 1.2%, despite the opening in December, 2003 of a new competitor store. Total sales growth was 6.1%, mainly due to the opening of a new store in Cancela, in March 2004. For Recheio Madeira, with sales of EUR 28.6 million (0.3% over 2003), 2004 was above all a year of maintaining its market leadership, with the opening of a competitor forcing down margins (this reduction in sales margins was, however, offset by increased cost efficiency). The positive trend in operational costs for both brands, together with a recovery of total margins to normal Pingo Doce levels, made possible by price stabilization and by the reduction in the promotional impact on average margins, explain a final net operating profit of 0.7 percentage points.

JMD

As to the Marketing and Representation Services, the year was marked by the termination of the contract with one of the represented brands, and resulting negative impact on sales. If we exclude this effect, sales grew by 2.2%. One of the company’s priorities was, once again, to rationalise operating costs and this made a highly


225

significant contribution towards the profits obtained.

Industry

The sales of the Companies in the Manufacturing area, affected by various different factors, registered a drop of 10.1% when compared to the previous year. However, a timely diagnosis of the problems affecting sales during the whole year allowed the Companies to make a quick readjustment of processes so as to sustain profitability at the 2003 level. The operating cash flow margin (EBITDA) reached 17.4% of sales, staying at the previous year’s level in absolute terms.

Poland

Having joined the EU in May 2004, Poland achieved one of the highest levels of economic growth in Europe, mainly sustained by a dynamic export market and domestic demand. Although after the first half of the year Poland’s GDP was showing an increase of around 6.5%, annual rates for GDP growth are now expected to be slightly above 5.5%, with the fall due mainly to a slow down in exports (rising Zloty), to lower investment and to a fall in industrial production. At various times the Zloty hit record highs against the principal currencies, thereby reversing the downward trend seen in 2003. Its best relative performance in 2004 was against the Euro (with an increase of 15.1% on 2003). Dollar values were the lowest for several years against the Zloty. While inflation rose considerably in the first half year, it was at approximately 4% by the end of the year, influenced by low food prices and the rise of the Zloty. Unemployment fell from 2003 levels, but remains high (close to 19%). The Central Bank of Poland kept its interest rate unchanged from August 2004, at 6.5%.

The Group’s operating performance in Poland

2004 was marked by new challenges and opportunities for Biedronka, both in terms of its constant adaptation to the dynamic evolution of the Polish market, and to the consolidation of the organizational structure of the Company, which aimed to increase its competitive advantage through the generation of operational efficiencies and cost rationalization. With an eye on the competitive dynamism of the market, Biedronka speeded up the rhythm of its organic growth, with the opening of 55 new stores. In parallel to this, it maintained its store refurbishment policy (64 stores), ensuring increased homogeneity in quality standards across the chain. Total sales grew 17.5% in 2004 (in local currency), which corresponds to growth of 9.4% for the same network of stores. Customer visits grew 12.5%, reaching a figure of 320 million. Likewise, the focus in Poland was also put on maximum efficiency, greatly contributing to reinforce the chain’s competitive capacity: Biedronka, which continued to stand as the cheapest operator in the Polish market, raised the operating cash flow margin by 0.5 percentage points. Also very important was the work done in 2004 at the level of logistics, a fundamental concern given the scope and geographical dispersion of Biedronka’s park of stores.


226

The Group’s business activities are analysed in more detail in the Consolidated Management Report that accompanies the 2004 Consolidated Financial Statements.

Company’s performance as a Holding of investments

The company as a Holding presented operational profits for 2004 of 3.9 Million Euros, which represents an increase on 2003 of 14%.

In financial terms, the Group continued throughout 2004 its policy of debt reduction, with the impact at the level of the Holding being a reduction of 99.9 Million Euros (a 41% reduction), leaving a total value of 143.8 million Euros at the end of 2004. The reduction in debt was helped considerably by June’s increase in capital of 150 million Euros.

This debt reduction allowed net financing costs to be reduced to 15.1 million Euros in 2004, an 18% decrease on 2003.

The bond loan issued in 1997 (JMH Zero Coupon) was reimbursed at a total of 192.3 million Euros. The Commercial Paper Programme for 25 million Euros, contracted in 2003 together with the company Recheio SGPS SA, was being used by Recheio at the end of 2004.

Non-usual/non-frequent profits for 2004 were of 2.6 million Euros, the majority of which was due to the reduction in provisions, associated with the increase in realisable value of some of the financial investments provisioned in previous financial years.

Events after the balance sheet date

On 1 February 2005, the Competition Authority in Portugal decided not to oppose the incorporation of Unilever Bestfoods Portugal - Produtos Alimentares, S.A. (Bestfoods Portugal) in FimaVG - Distribuição de Produtos Alimentares, Lda (FimaVG), and the transaction is predicted to be concluded during March. In these terms, and due to the agreement celebrated with our partner Unilever, from 1 January, 2005 the Jerónimo Martins Group will begin to reveal in its consolidated accounts 51% of the financial statements of FimaVG and Bestfoods Portugal.

2005 Perspectives

The strategic priorities of the Jerónimo Martins Group in the three years from 2005-2007 focus on the management activity of the current portfolio of assets, ensuring sustainability of value creation in Portugal and in Poland and maintaining high financial solidity within a context of preparing the basis for the Group’s future expansion and growth.

The Group considers that, in the aforementioned context, value creation can:

· Sustain cash-flow margins;

· Increase the sales/invested capital ratio;

· Maintain the cost of capital.

In terms of the international macro-economic framework, the Jerónimo Martins Group continues to focus on profitable growth and consolidation of the Food Distribution business. It is certain that in 2005, Poland will prove to be the main drive for the Group’s growth and it is hoped that, from 2005, conditions


227

will exist to reopen retail stores in Portugal. The Group will also assess the perspectives that the so-called “out of home food market” can effectively offer, not only through continued investment in Food Service but also through the development of other business alternatives. Assessment of a potential expansion to other geographic locations in the East and assessment of the Group’s business portfolio in terms of new business alternatives are also on the agenda for 2005.

Both in Portugal and Poland, it is hoped that consumers will continue to be sensitive to the price factor. In line with what has already been seen, the market strategy of the various Business Areas will thus be based on clear, different and innovative positioning, and on the reduction of sales prices. What is certain is that profitability must continue to be financed by effective gains in competitiveness. The Organisation, on its various fronts, will be substantially involved in projects of this nature, intentionally considered in the 2005 Balanced Scorecard.

In 2005, in the Food Distribution sector in Portugal, the results of the new Commercial Premises Licensing Law are expected to enable consolidation of perspectives for the sector over the next few years. In Poland, an aggressively competitive picture is expected to continue, with a trend towards consolidation of operators in Organized Retail and the continued transference to this from Traditional Retail (which still represents around 60% of the total food market).

Pingo Doce will continue to strengthen its position of leadership among the supermarkets, consolidating its price repositioning strategy in 2005 and continuing to focus on developing Perishable and Own Brand goods, with differentiating factors.

Feira Nova will also continue to consolidate its competitive price positioning strategy, focusing on Electric Co and New Code, and investing in Perishables and Own Brand goods, as factors of attraction and loyalty, respectively.

Recheio will continue consolidation of its position as leader in traditional Retail during 2005, continuing its operating strategy and assessing growth alternatives in a segment that has significant growth difficulties. For HoReCa, consolidation of the operating strategy and the consequent increase in channel penetration are the great priorities, especially through the Food Service platforms.

On the Polish market, Biedronka will continue to secure its success strategy, ensuring that it maintains its market advantage and focusing the entire Organisation on continuous, fast and sustained growth. The Operation continues to present aggressive expansion plans (60 to 80 stores/year) and remodelling (40 to 60 stores/year) and intends to create another logistical and operating region so as to ensure an adequate structure for the existing growth potential.

In the area of Manufacturing, an inversion of the trends recorded in 2004 is expected, with a prediction of sales growth in all Business Areas, through investment in price repositioning, particularly in the category of domestic hygiene, advertising, innovation and points of sale. The integration of the Bestfoods business is expected to have a positive impact on sales and profitability.

Although the Group anticipates yet another difficult year ahead, it has what it considers executable, but rather demanding, objectives for the Organization.

Information on environmental matters

There are no environmental matters likely to affect the company’s financial performance and situation.


228

Proposed application of results

In the financial year 2004, Jerónimo Martins, SGPS, S.A. declared consolidated profits of EUR 92,515,031.00 and a profit in individual accounts of EUR 32,386,645.79.

The Board of Directors proposes that the net profits be applied in the following manner:

• Legal Reserve = EUR 1,619,332.29 • Retained Earnings = EUR 30,767,313.50

In accordance with the policy of dividend distribution announced several years ago, and described in chapter 1.5 of the Corporate Governance, included in the Consolidated Management Report, the Board of Directors proposes a distribution to the Shareholders of EUR 45,247,263.84, an amount which corresponds to 48.9% of consolidated net profit, and which is to be taken from the free reserves available for distribution.

This proposal represents a dividend payment of EUR 0.36 per share, excluding own shares in the portfolio.

It is also proposed to cover retained loss, through the transfer of EUR 77,465,397.11 from free reserves.

Statements for legal purposes

Under the Law, the Board of Directors is required to provide the following information:

a) In addition to the facts referred above, and those that, in greater detail, are given in the Report that accompanies the Group’s Consolidated Financial Statements for 2004, no other situation has come to the Board of Director’s knowledge after the end of the year whose relevance warrants a special mention;

b) Under the terms of Article 21 of Decree-Law nº 411/91, from 17 October, there are no debts for arrears of payments to the Social Security;

c) Under the terms of the paragraph 2, article 324 of the Portuguese Commercial Companies Code, there were no purchases or sales of Own Shares, and therefore the number of Own Shares held at the end of 2004 was the same as on 31 December 2003: 171,800 Own Shares.

Lisbon, 8 March 2005 The board of Directors

2004 Management Report Annex

229

INFORMATION CONCERNING THE STAKES HELD IN THE COMPANY BY MEMBERS OF THE BOARD OF DIRECTORS AND STATUTORY AUDITOR AS AT 31 DECEMBER 2004

(As provided in article 447 of the Portuguese Commercial Companies Code and under the terms of sub-paragraph b), paragraph 1 of article 7 of the Portuguese Securities Market Commission (CMVM) Regulation nº 24/2000)

BOARD OF DIRECTORS

Members of the Board of Directors

Held on 31.12.03 Increases during the year 3 Decreases during the year 4

Held on 31.12.04

Shares Bonds Shares Bonds Shares Bonds Shares Bonds

Elísio Alexandre Soares dos Santos 15,281 2,500,000 4,790 2,500,000 20,071 -

José Manuel da Silveira e Castro Soares dos Santos 1 n.a. n.a. - -

Luís Maria Viana Palha da Silva - - - -

Pedro Manuel de Castro Soares dos Santos 18,014 434,952 5,647 434,952 23,661 -

António Mendo Castel-Branco Borges - - - -

Artur Eduardo Brochado dos Santos Silva 1 2 n.a. n.a. 389 1,536 -

Hans Eggerstedt 3,000 - 940 3,940 -

Manuel Fernando Macedo de Alves Monteiro 1 n.a. n.a. - -

Rui Manuel de Medeiros dÈspiney Patrício - - - -

Álvaro Carlos Gonzalez Troncoso - - - -

n.a. – non-applicable 1 - Appointed Directors at the General Meeting of 15th April 2004; 2 - When appointed, held 1,147 shares; 3 - Increases are due to the subscription of shares regarding the increase in capital of 150 million euros, through new cash contributions, by the issuing of 30,000,000 new ordinary shares at a nominal value of 5 euros each, with subscription reserved to shareholders exercising their preferential rights. The new shares were admitted for trading on 14th July 2004; 4 - JM/97 zero coupon bond loan was fully reimbursed on December 2004.

STATUTORY AUDITOR

As at 31 December 2004, the Statutory Auditor Bernardes Sismeiro & Associados, SROC, Lda., did not hold any shares and bonds of Jerónimo Martins, SGPS, S.A. and had not made any transactions with Jerónimo Martins, SGPS, S.A. securities.

2004 Management Report Annex

230

LIST OF SHAREHOLDERS WITH QUALIFYING STAKES AS AT 31 DECEMBER 2004

(Under the terms of articles 447 and 448 of the Portuguese Commercial Companies Code and for the purposes of section e), paragraph 1 of article 6 of the Portuguese Securities Market Commission (CMVM) Regulation nº 11/2000 and in the terms of the Portuguese Securities Code)

Shareholder Nº of shares held

% Capital % of Voting Rights*

Sociedade Francisco Manuel dos Santos, SGPS, S.A.

Directly 72,583,985 57.671% 57.750%

Strand Ventures Inc.**

Directly 10,454,615 8.307% 8.318%

Through Fitron Management Ltd. (Held at 100% by Strand Ventures, Inc.)

4,234,159 3.364% 3.369%

Through Multiplus Investments Ltd. (Held at 100% by Strand Ventures, Inc.)

5,266,256 4.184% 4.190%

Total Attributable 19,955,030 15.855% 15.877%

* (% Voting rights = Nº shares held / (Total Nº JM shares – Own shares))

** Under the terms and for the purposes of paragraph 3, article 16 of Portuguese Securities Code (CVM), the stakes held directly and indirectly by Strand Ventures Inc must be imputed, according to paragraph 1, article 20 of the CVM to the following companies:

- Banco Privado Português (Cayman) Ltd., under a portfolio management contract for the entire stake in Jerónimo Martins, SGPS, SA;

- Banco Privado Português, SA, under an agreement with several shareholders of Strand Ventures allowing it to elect the majority of the members of the board of directors.

2004 2003

Assets Gross assetsDepreciations and provisions

Net assets Net assets

Fixed assets

Intangible assets

Research and development expenses 247 247 - 26247 247 - 26

Tangible assets

Land and natural resources

Buildings and other constructions 130 33 97 110 Transport equipment 121 121 - - Tools and utensils 2 2 - - Office equipment 1,675 1,482 193 241 Other tangible assets 389 260 129 162

2,317 1,898 419 513 Financial investments

Investments in group companies 506,184 271,243 234,941 233,905 Loans to group companies 784,341 26,111 758,230 793,810 Investments in associated companies - - - - Investments in property and securities 34,787 2,470 32,317 17,356

1,325,312 299,824 1,025,488 1,045,071Current assets

Accounts receivable - short term

Trade debtors 312 - 312 373 Subsidiaries and associated companies 100,469 - 100,469 1,010 State and other public entities 73 - 73 220 Other debtors 1,813 187 1,626 2,680

102,667 187 102,480 4,283 Cash and cash equivalents

Bank deposits 20 20 6,354 Cash 8 8 10

28 28 6,364 Accruals and deferrals

Accrued income 1,552 1,552 2,228 Deferred costs 567 567 926

2,119 2,119 3,154Total depreciations 2,145

Total provisions 300,011Total assets 1,432,690 302,156 1,130,534 1,059,411

To be read with the attached notes to the Individual Financial Statements

BALANCE SHEET AS AT 31 DECEMBER 2004 AND 2003

(euro thousand)

231

Shareholders' equity and liabilities 2004 2003

Shareholders' equity

Share capital 629,293 479,293 Own shares - nominal value (859) (859) Own shares - discounts and premiums (5,201) (5,201) Share premium 22,452 22,452 Adjustments on investments in subsidiaries and associates 1 1 Reserves:

Legal Reserves 27,636 22,054 Reserves for own shares 6,060 6,060 IAS reserves 734 Other reserves 364,234 366,429 Retained earnings/losses (108,232) (215,716)

936,118 674,513 Net profit/loss for the year 32,387 111,665

Total shareholders's equity 968,505 786,178

Liabilities

Provisions for risks and contingencies

Pension provisions 15,560 17,055 Other provisions 20 4,205

15,580 21,260 Accounts payable - medium and long term

Bank debt - 25,000 Bond loans:

Non convertible bond loans 40,000 40,000 Suppliers of fixed assets 34 56

40,034 65,056 Accounts payable - short term

Bond loans:

Bond loans with share redemption option - 180,760 Bank debt 103,329 3,472 Suppliers - trade creditors 449 385 Subsidiaries and associated companies 86 371 Shareholders 7 7 Suppliers of fixed assets 63 59 State and other public entities 362 327 Other creditors 16 6

104,312 185,387 Accruals and deferrals

Accrued costs 2,103 1,530 2,103 1,530

Total liabilities 162,029 273,233 Total shareholders' equity and liabilities 1,130,534 1,059,411

To be read together with the attached notes to the Individual Financial Statements

The Certified Accountant Board of Directors


(euro thousand)

232

Costs and losses 2004 2003 Income and gains 2004 2003

Cost of goods sold and materials consumed Sales: Goods - - Goods - - Materials - - Products - -Supplies and external services 4,438 4,166 Services rendered 10,585 12,507Staff Costs: Production variation - - Salaries and wages 3,408 2,094 Own work capitalised - - Social security charges: Supplementary income 101 77 Pensions (856) 2,652 Subsidies to the operation - - Others 499 484 Other operating income and gains - -Depreciation and amortisation 177 243 (B) 10,686 12,584Provisions - 275 Taxes 108 130 Income from financial investments 40,838 98,137Other operating costs and losses 54 52 Income from trading securities and other financial

(A) 7,828 10,096 investments: Related to group and associated companies - - Others 287 192

Losses in group and associated companies - - Other interest and similar income:Amortisation and provisions for financial investments - 11 Related to group and associated companies 1,529 2,483Interest and similar costs: Others 61 2,298 Related to group and associated companies 56 319 (D) 53,401 115,694 Others 15,394 18,406

(C) 23,278 28,832 Extraordinary income and gains 5,258 35,500

Extraordinary costs and losses 2,940 10,650 (E) 26,218 39,482

Income tax 54 47 Deferred taxes - -

(G) 26,272 39,529

Profit/loss for the year 32,387 111,665 58,659 151,194 (F) Total income 58,659 151,194

Operating profit (B) - (A) = Financial earnings/losses (D-B) - (C-A) = Current profit/loss (D) - (C) = Profit/loss before taxes (F) - (E) = Profit/loss for the year (F) - (G) =


Board of Directors

2,48884,37486,86230,123

111,712

The Certified Accountant

PROFIT AND LOSS ACCOUNT BY NATURE FOR THE YEARS ENDED 31 DECEMBER 2004 AND 2003

(euro thousand)

2,858

32,44132,387 111,665

27,265

233

Notes 2004 2003

Services rendered 11,907 13,758 Cost of services rendered (6,048) (8,016)

Gross profit 5,859 5,742

Other operating revenues 271 296 Administrative costs (1,267) (938) Other operating costs (1,011) (1,732)

Operating profit 3,852 3,368

Net financial costs 5 (15,075) (18,344) Profit/loss in subsidiaries and associated companies 39,889 98,359 Profit/loss in other investments 1,134 4,662 Non-recurrent profit/loss 8 2,641 23,667

Profit/loss before taxes 32,441 111,712

Income taxes 7 (54) (47)

Net profit/loss 32,387 111,665

Basic earnings per share - Euros 19 0.292 1.167

Diluted earnings per share - Euros 19 0.292 1.145



INCOME STATEMENT BY FUNCTIONS FOR THE YEARS

ENDED 31 DECEMBER 2004 AND 2003

(euro thousand)

234

Notes 2004 2003 Assets

Tangible assets 9 419 513 Investment property 11 2,459 2,459 Intangible assets 10 - 26 Investments in subsidiaries 12 228,656 227,620 Investments in joint-ventures 12 6,285 6,285 Loans to subsidiaires 13.1 600,948 793,815 Loans to joint-ventures 13.2 157,699 - Available for sale investments 14 29,858 14,897

Total non-current assets 1,026,324 1,045,615

Taxes receivable 15 73 220 Loans to subsidiaires 13.1 100,000 1,005 Trade debtors, accrued income and deferred costs 16 4,109 6,207 Cash and cash equivalents 17 28 6,364

Total current assets 104,210 13,796

Total assets 1,130,534 1,059,411

Shareholders' equity and liabilities

Share capital 18.1 629,293 479,293 Share premium 18.1 22,452 22,452 Own shares 18.2 (6,060) (6,060) Other reserves 18.4 810 394,543 Retained earnings 18.5 322,010 (104,050)

Total shareholders' equity 968,505 786,178

Borrowings 20 40,034 65,056 Employee beneficts 24 15,560 17,055 Provisions 21 20 4,205

Total non-current liabilities 55,614 86,316

Trade creditors and accrued costs 22 2,125 1,856 Derivative financial instruments 23 539 179 Borrowings 20 103,389 184,555 Taxes payable 15 362 327

Total current liabilities 106,415 186,917

Total shareholders' equity and liabilities 1,130,534 1,059,411




(euro thousand)

235

Notes Share Capital Share Premium

Own shares Other reserves Retained earnings

Shareholders' equity

Balance sheet at 1st January 2003 479,293 22,452 (6,060) 394,543 (215,715) 674,513

Net profit in 2003 111,665 111,665

Total gains/losses recognised during the year - - - - 111,665 111,665

Balance sheet at 31st December 2003 479,293 22,452 (6,060) 394,543 (104,050) 786,178

Balance sheet at 1st January 2004 479,293 22,452 (6,060) 394,543 (104,050) 786,178

Reclassification 18 (394,543) 394,543 -

Total reclassifications - - - (394,543) 394,543 -

Fair value gains/losses of available-for-sale financial assets 18.4 734 734

Fair value of services rendered - stock options plan 18.4 76 76

Costs with capital increase 18.3 (2,272) (2,272)

JM stock options plan trust residual value (SIC 12) 2.1 1,402 1,402

Gains/losses directly recognised in equity - - - 810 (870) (60)

Net profit in 2004 32,387 32,387

Total gains/losses recognised during the year - - - - 32,387 32,387

Capital increase 18.1 150,000 150,000

Balance sheet at 31st December 2004 629,293 22,452 (6,060) 810 322,010 968,505


STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(euro thousand)

236

Notes 2004 2003

Operating activities

Cash received from customers 15,539 20,637Cash paid to suppliers (4,477) (8,281)Cash paid to employees (4,275) (3,248)

Cash generated from operations 6,787 9,108

Interest paid (3,332) (8,991)Income taxes paid 121 397Other payments/receivings related to the operating activities (2,095) 700

Cash flow from operating activities (1) 1,481 1,214

Investment activities

Disposals of subsidiaries - 2,346Disposals of available for sale investments 14 3 2,695Reimbursement of loans and capital contributions from subsidiaries 13 195,696 71,432Disposals of tangible assets 9 6 58Interest received 18 1,755Dividends received 40,838 98,229Acquisition and capital increase of subsidiaries - (37,106)Acquisition of available for sale investments 14 (12,849) (10,343)Loans and capital contributions given to subsidiaries 13 (261,828) (62,832)Acquisition of tangible assets 9;20 (84) (128)

Cash flow from investment activities (2) (38,200) 66,106

Financing activities

Received from loans 20 99,857 65,000Received from issuance of ordinary shares 18 147,728 -Interest and similar income received 351 372Reimbursement of loans 20 (217,553) (132,688)

Cash flow from financing activities (3) 30,383 (67,316)

Net increase in cash and cash equivalents (4) (6,336) 5Cash and cash equivalents at the beginning of period 6,364 6,359Cash and cash equivalents at the end of period 17 28 6,364


CASH FLOW STATEMENT FOR THE YEARSENDED 31 DECEMBER 2004 AND 2003

(euro thousand)

237

Notes to individual financial statements 31 December 2004 and 2003

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1. Activity Jerónimo Martins, SGPS, S.A. (JMH) is the parent company of Jerónimo Martins Group (Group) and has its head office in Lisbon, Rua Tierno Galvan, Torre 3, Piso 9, Letra J, 1099-008 Lisboa. The activity of JMH results mostly in the management of investments in Group companies. JMH employs 62 people (47 in 2003). Jerónimo Martins Group is essentially devoted to the production, distribution and sale of food and other fast moving consumer goods products. The Group operates in Portugal and Poland, and employs 28,914 people (27,868 in 2003). JMH has been listed on Euronext Lisbon (ex-Lisbon and Oporto Stock Exchange) since 1989. The Board of Directors approved these individual financial statements on 8th March 2005.

2. Accounting policies The principal accounting policies adopted in the preparation of these financial statements are as follows:

2.1 Basis of preparation All amounts are shown in thousand euros (EUR) unless otherwise stated. The consolidated financial statements of JMH were prepared in accordance with generally accepted accounting principles in Portugal, with the derogation required to make them conform to the International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB) and with the interpretations of the International Financial Reporting Interpretation Committee (IFRIC). JMH has been applying the same accounting principles for the preparation of individual financial statements since 2003. The financial statements were prepared in accordance with the historical cost convention, except for investment property, derivative financial instruments and available-for-sale financial investments referred in note 2.8, which were stated at their market value. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates. It is, however, firmly believed by the management that the estimates and assumptions adopted do not involve significant risks that may, over the course of the coming financial year, cause material adjustments in the value of the assets and liabilities.

Change in accounting policy and Basis for Presentation

With a view to ensuring the best means of comparison possible of financial information, the Group decided to adopt all the recent changes introduced by the IASB, effective from 1st January. These constitute a stable platform of standards applicable by all companies listed on European stock markets in 2005. The same procedure was taken for the preparation and presentation of individual JMH financial statements.

In this way, the financial information relative to the financial year 2005, the year in which the IAS/IFRS will be compulsory, will have a perfectly comparable basis, avoiding the effects of constant changes in accounting standards.

IFRS 2 (Share-Based Payments) The new standard IFRS 2 - Share-Based Payments is designed to regulate the accounting procedures for all payments based on shares or share options of the company. This being the case, and bearing in mind that JMH has a benefits plan for its senior staff based on Jerónimo Martins shares, JMH decided to adopt the standard in this financial year. The current benefits plan is managed by an entity that is totally independent of the Group, with a trust having been set up for the purpose, to which were transferred 337,098 Jerónimo Martins shares, in accordance with the deliberations of the Company’s General Meeting on 9th August, 1996.


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Although the rules of the plan establishes that participants receive participation units, equivalent to Jerónimo Martins shares, the plan can be categorized as equity settled, taking in consideration that the issued shares transferred to the trust have the purpose of meeting these responsibilities. The standard stipulates retrospective application for those share options attributed after 7th November 2002 and not yet vested at 31st December 2004. As the impact of the application of the standard to the financial year 2003 would be around EUR 30 thousand, JMH decided not to make any changes to the financial year 2003, with the impact referred to being jointly recognized in the costs relative to 2004.

SIC 12 (Special Purpose Entities)

In 2004 IFRIC revised its interpretation of SIC 12 Consolidation – Special Purpose Entities, removing the exemption to this standard enjoyed by equity compensation plans. Thus, all benefit plans for employees in the form of shares or share options, even when attributed through autonomous trusts, must be consolidated by the entity that controls the Trusts. The Jerónimo Martins Stock Options Plan Trust is managed entirely autonomously and independently of any Jerónimo Martins Company, with the management of all its assets assured by the Trustees, independent entities that are not ruled or controlled in any way by the Group. For these reasons, the assets and liabilities of the Trust are not consolidated, as the Group cannot be responsible for their management or control. On the other hand, being JMH the final beneficiary of any hypothetical liquidation, dependent on acceptance of the conditions of liquidation by all holders of share units, JMH decided to recognise as assets in the accounts the surplus assets that could be attributed in the event of liquidation. The recognised value in 2004 of the surplus assets of the Trust was EUR 1,402 thousand, corresponding to the residual value of those assets and liabilities not captive to match the share units held by the Participants. This amount was recognised as available-for-sale against retained earnings. IAS 32 / IAS 39 Based on what was proclaimed in IAS 39, JMH could recognise gains and losses on fair value adjustments of financial investments available for sale, either in the income statement or directly in equity. JMH decided to include them in the income statement. However, due to the changes introduced to this standard, this option was eliminated, with the variation being just recognised in the equity, which means that the changes in the fair value of those financial instruments available for sale are shown directly in equity, specifically in reserves. Also related to IAS 39, JMH decided to separate within the Balance sheet derivative financial instruments, with the balance sheet for 2003 adjusting accordingly. 2.2 Foreign currency transactions Foreign currency transactions are recorded, on initial recognition in euros, by applying to the foreign currency amount the exchange rate between euro and the foreign currency at the date of the transaction. At the balance sheet date, foreign currency cash assets and liabilities are reported using the closing exchange rate and the exchange differences arising are recognised in the income statement. The main exchange rates applied on the balance sheet date are listed below:

Rate on 31 December 2004

Sterling Pound € 1.4183

2.3 Derivatives

The company uses derivatives with the sole intention of managing financial risks to which it is subject to. In accordance to its financial policies, the company does not enter into speculative positions.

Although the derivatives carried currently in its books correspond to effective economic hedges against the risks to be hedged, not all of them qualify as hedge instruments for accounting purposes, according to IAS39 rules. Those that do not qualify as hedge instruments are booked on the Balance sheet at fair value and changes to that amount are recognized in the Profit and Loss statements.


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Whenever available, the fair values are estimated based on quoted instruments. In absence of quotes, fair values are estimated through discounted cash flows methods and option valuation models, in accordance with generally accepted assumptions.

2.4 Hedging operations Interest rate risk (cash flow hedge)

Whenever expectations surrounding movements in interest rates so justify, the company tries to anticipate any adverse impact through the use of derivatives, such as, interest rates swaps, caps and floors, forward rate agreements, etc. The selection process that each instrument is subject to, praises the economic contribution more than anything else. The implications of adding any new instrument to the portfolio of derivatives are also taken under account, namely, in terms of volatility reduction it brings to the earnings.

The instruments that qualify as cash flow hedging instruments, in accordance with IAS regulation, are booked at fair value on the Balance sheet. To the degree that they are considered effective, changes to their fair value are initially booked against equity and afterwards reclassified as financial expenses. This way, in net terms, all costs associated to the underlying exposure are carried at the interest rate fixed by the derivative instruments.

The profits or losses incurred with the unwinding of any of these interest rate swaps are recognised, through the income statement, on the unwinding date.

2.5 Tangible assets

Assets are recorded at acquisition cost net of accumulated depreciation and impairment losses. Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the asset and are included in the operating profit (extraordinary results in profit and loss account by nature). Repairs and maintenance costs that do not extend the useful life of these assets are charged as an expense in the income statement, when incurred. Financial lease agreements Assets used under financial lease contracts in which the company substantially assumes all the risks and rewards of ownership of the leased asset are classified as tangible assets. Financial lease contracts are recorded at inception as assets and liabilities for the lower of fair value of leased assets or present value of outstanding lease payments. The depreciation of leased assets is calculated based on the policy established by the company for tangible assets. Rental payments are split into a financial charge and a reduction of the outstanding liability. Financial charges are recognised as costs over the lease period, so as to produce a constant periodic rate of return on the lessor’s remaining net investment. Depreciation Depreciation is calculated by the straight-line method, on a duodecimal basis on acquisition cost according to the useful life estimated for each class of asset. The most important annual depreciation rates are as follows (in %):

%

Buildings and other constructions 10 Tools and Utensils 25 Transport equipment 25 Office equipment 10-25 Other tangible assets 10


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2.6 Intangible assets Intangible assets are stated at acquisition cost net of accumulated amortisation and impairment losses. Research and development expenditure Research expenditure incurred in the search for new technical or scientific knowledge or alternative solutions are recognised in the income statement as incurred. Development expenditure is recognised as intangible assets when the technical feasibility of the product or process being developed can be demonstrated and the company has the intention and the capacity to complete their development and start trading or using them. Computer software Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. If those costs are directly associated with development projects that will probably generate future economic benefits (reliably measured), they are recognised as research and development in intangible assets. Amortisation Amortization is recognized in the income statement by the straight-line method, on a duodecimal basis on acquisition cost over the estimated useful life of the intangible asset, except if that life is considered indefinite. The most important annual amortisation rates are as follows (in %):

%

Development expenditure 20

2.7 Investments and loans to subsidiaries Investments in subsidiaries, associates and joint ventures are stated at cost. When so justified, provisions are set up for loss of value. Loans to subsidiaries are stated at cost. When so justified, provisions are set up for loss of value.

2.8 Available for sale financial investments Investments other than subsidiaries, joint ventures or associated companies are classified as available for sale financial investments, and recognised in the balance sheet as non current assets. These financial investments are marked to market, i.e., they are stated at the respective listed value as at balance sheet date. When there is medium term expectation of significant decrease of the value below the listed value, provisions are set up to reflect permanent losses. If investments are unlisted, they are stated at cost. When so justified, provisions are set up for loss of value. Unrealised capital gains and losses are recognised directly in equity, until the financial asset is de-recognised, at which time the accumulated gain or loss previously recognised in equity is included in net gains or losses for the period. Whenever potential losses represent more than 20% of the acquisition cost of available for sale financial investments, those losses are transferred from reserves to the income statement. 2.9 Investment property Investment property is registered at fair value as determined by specialised independent entities. Changes in fair value of investment property are recognised in the income statement, in net financial costs, in accordance with IAS 40.

2.10 Customers and debtors Customers and debtors’ balances are recorded at nominal value net of the provision required to restate their expected recoverable amount.


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2.11 Cash and cash equivalents Cash and cash equivalents heading includes cash, deposits on hand and short-term investments.

2.12 Impairment JMH assesses at each balance sheet date whether there is evidence that company assets (except for investments properties - Note 2.9), are impaired. The recoverable amount of an asset is estimated when there is evidence of potential impairment loss. Whenever the carrying amount of an asset, or the cash-generating unit to which the same belongs, exceeds its recoverable amount, its value is reduced to the recoverable amount and the impairment loss recognised in the income statement. Determining the recoverable amount of assets The recoverable amount of medium and long-term receivables corresponds to the present value of estimated future receipts, using as discount rate the actual interest rate implicit in the original operation. For all other assets, the recoverable amount is the higher of net selling price and value in use. The value in use of an asset is calculated as the present value of estimated future cash flows. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and the specific risks of the asset in question. The recoverable amount of assets that by them do not generate independent cash inflow is determined together with the cash-generating unit to which these assets belong. Reversal of impairment losses An impairment loss recognised in a medium and long-term receivable is only reversed if justification for the increase in the respective recoverable amount is based on an event-taking place after the date the impairment loss was recognised. Impairment losses for other assets are reversed whenever there are changes in the estimates used to determine the respective recoverable amount. Impairment losses are reversed to the extent of the amount (net of amortisation or depreciation) that would have been determined for the asset if no impairment loss was recognised.

2.13 Own shares (treasury shares) Own shares purchased are shown at cost as a deduction in equity.

2.14 Dividends Dividends are recognised as liabilities when they are declared.

2.15 Bond loans Zero-coupon bonds with share redemption option Zero-coupon bonds with share redemption option issued by the company are stated as liabilities at the respective value at issue and accrued every year of interest on outstanding principal. Issuance costs are recognised in the income statement during the loan’s life. Other bond loans Bond loans are registered as liabilities at their nominal value. Issuance costs are recognised in the income statement during the loan’s life. This procedure, without material differences, corresponds to the application of amortised cost method. In other words, the costs recorded reflect the application of the effective interest method on the loans.


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2.16 Employee benefits

2.16.1 Post-employment benefits (retirement) Defined contribution plans A defined contribution plans is a pension plan under which the company pays fixed contributions to an independent entity (a fund). The company has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. JMH’s contributions to defined contribution plans are recognised as expenses at the time they are incurred. Defined benefit plans A defined benefit plan is a pension plan that defines the attribution of a certain benefit amount that employees will receive at retirement date. At each semester, at balance sheet date, independent actuaries estimate JMH’s liability for defined benefit plans. The actuarial calculation is made using the projected unit credit method. The discount rate is the interest rate on medium and long-term risk-free bonds. The obligation thus determined is shown in the balance sheet net of plan assets. The year’s current service costs, interest, return on plan assets and actuarial gains or losses are recognised as costs or income for the year. The effect on defined benefit liability arising from improvements on the plan, related to past services costs, are recognised as an expense on a straight-line basis over the average period until the benefits become vested. Stock Options JMH has a compensation plan based on shares, which assumes the characteristics of an equity-settled, in other words, where equity instruments are attributed to its senior staff. The fair value of services provided by employees in compensation for the granting of options are recognised as staff costs against a Stock Options reserve within equity, during the vesting period. The value recognised as costs corresponds to the fair value of the options at grant date. At the balance sheet date, JMH reviews the estimated number of options it expects to become exercised, with the impact of this review recognised in the income statement.

2.17 Provisions Provisions are recognised in the balance sheet whenever the company has a present obligation (legal or constructive) as a result of a past event and it is probable that a rationally estimated outflow of resources embodying economic benefits will be required to settle the obligation.

2.18 Suppliers and other creditors Suppliers and other creditors’ balances are stated at their nominal value.

2.19 Revenue Services rendered Revenues from the services rendered are recognised as income in accordance with their stage of completion as of the balance sheet date. Dividends

Dividends are recognised as revenues at the time they are declared.


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2.20 Costs

Operating leases Payments made under operating lease contracts are recognised as an expense in the income statement on a straight-line basis over the period of the lease. Net financial costs Net financial costs represent interest on borrowings, interest on investment made, foreign exchange gains and losses, gains and losses in financial instruments that do not qualify for hedge accounting, gains and losses in the valuation of investments property, costs and income with financing operations. Net financial costs are recognised in the income statement in the period to which they concern.

2.21 Income tax Income tax includes current and deferred taxes. Income tax is recognised in the income statement except when relating to gains or losses directly recognised in equity, in which case it is also stated directly in equity. Tax on current income is calculated in accordance with tax criteria prevailing as of the balance sheet date. Deferred tax is calculated in accordance with the balance sheet liability method on temporary differences between the book value of assets and liabilities and the respective tax base. The measurement of deferred tax assets and liabilities should reflect the tax consequences that would follow from the manner in which the company expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities. The rate used to determine deferred tax is that in force in the period when temporary differences are reversed. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which temporary differences can be utilised. Deferred tax assets are revised on an annual basis and reduced when it is no longer probable that they may be used.

2.22 Segment information No segment information has been provided in these individual financial statements. Detailed information is presented in the consolidated financial statements. 3. Operating profit reconciliation between profit and loss account by nature (PLAN) and income statement by functions (ISF)

Operating profit - income statement by functions (ISF) 2004 2003

3,852 3,368 Net financial costs (PLAN operating results) - (52) Gain/losses in other investments (PLAN operating results) - 420

Other operating costs and losses (PLAN financial results) 10 26 Other operating revenues and gains (PLAN financial results) (4) (15) Sales and services rendered (PLAN financial results) (1,322) (1,671)

Other operating costs and losses (PLAN extraordinary results) 618 691 Other operating revenues and gains (PLAN extraordinary results) (296) (279)

Operating profit - profit and loss account by nature (PLAN) 2,858 2,488 Differences are mostly financial services rendered, stated as services rendered in ISF; and lease of premises, considered as gains/losses in other investments.


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4. Staff costs

Other staff costs include namely labour accident insurance, social action costs, training costs and indemnities. The number of employees at the end of 2004 was 62 (2003 was 47). The company’s average number of employees during the year was 52 (58 in 2003). 5. Net financial costs 2004 2003

Financial costs

Interest expense (13,579) (14,965)

Changes to fair value in financial instruments

that do not qualify for hedge accounting (335) (179)

Other financial costs (1,504) (3,570)

(15,418) (18,714)

Financial gains

Interest received 335 370

Other financial gains 8 -

343 370

Net financial costs (15,075) (18,344)

Other financial costs include, namely, stamp tax and issuance costs related to non-current debt recognised in the income statement for the loan’s term. Changes to fair value in financial instruments that do not qualify for hedge accounting are referred in note 23.2. 6. Operating lease Vehicle lease contracts entered by JMH are treated as operating lease. These contracts do not include renewal or purchase option at termination date, nor any amount relating to contingent rents. All contracts may be cancelled by means of prior notice and do not provide any type of restrictions concerning dividends or debt. Liabilities with operating lease are limited to penalty clauses if broken and are as follows: Liabilities with operating lease

2004 2003

Payments in less that 1 year 146 92

Payments between 1 and 5 years - -

Payment in more that 5 years - -

Total future payments 146 92

2004 2003

Wages and salaries 3,408 2,094

Social security 350 329

Employee benefits (856) 2,652

Other staff costs 149 155

3,051 5,230


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Costs for the year relating to operating lease are as follows:

Costs with lease reflected in the Net profit/loss of the year 2004 2003

Transport equipment 237 198

Total costs 237 198 7. Income tax recognised in the income statement

7.1 Current tax Current tax is related to autonomous taxation, in the amount of EUR 54 thousand. 2004 2003

Current tax of the year 54 47

Deferred tax of the year - -

54 47

7.2 Reconciliation of the effective tax rate 2004 2003

Profit/loss before taxes 32,440 111,712

Income tax using the Portuguese corporation tax rate – 27.5% (33% for 2003)

(8,921) (36,865)

Non taxable or non recoverable results 8,921 36,865

Annulment of deferred taxes from previous years - -

Autonomous taxation 54 47

Income tax of the year 54 47

Efective tax rate -0.17% -0.04%

8. Non-recurrent profit/loss 2004 2003

Loss on the disposal of Lillywhites - (50)

Increase/decrease of financial investments provisions (1,269) 5,677

Increase/decrease of provisions for contingencies 3,910 16,013

Gain on the disposal of Hussel - 2,027

2,641 23,667

Note 21 provide detailed information about provisions.


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9. Tangible assets 9.1 Changes occurred during the year

Gross assets

Opening Transfers and Closing

Balance Increases Disposals Write-offs Balance

Tangible assets Buildings and other constructions

130 - - - 130

Transport equipment 121 13 (13) - 121

Tools and utensils 2 - - - 2

Office equipment 1,622 53 - - 1,675

Other tangible assets 389 - - - 389

2,264 66 (13) - 2,317

Accumulated depreciation and impairment



Tangible assets Buildings and other constructions

20 13 - - 33

Transport equipment 121 4 (4) - 121

Tools and utensils 2 - - - 2

Office equipment 1,381 101 - - 1,482

Other tangible assets 227 33 - - 260

1,751 151 (4) - 1,898

Net book amount 513 419

9.2 Equipment under financial lease JMH has IT equipment under financial leases. These leases include a purchase option at the end of the contract and do not include any amount relating to contingent rents or any restriction of any nature concerning dividends or debt. Unsettled liabilities on financial lease contracts are referred in note 20.5. The value of assets under financial lease is shown below:

2004 2003

Administrative and IT Equipment

Tangible assets 291 267

Accumulated depreciation (198) (154)

Net Value 93 113

9.3 Guarantees No assets have been pledged as security for the fulfilment of bank or other obligations.


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10. Intangible assets Intangible fixed assets, fully depreciated in the end of year 2004, are made up of research and development expenses and include expenses borne with the implementation of the SAP information system, which became operational in 1999, in the amount of M EUR 247.

Gross assets



Intangible assets Research and development expenses 247 - - - 247

247 - - - 247

Accumulated amortisation and impairment



Intangible assets

Research and development expenses 221 26 - - 247

221 26 - - 247

Net book amount 26 -

11. Investment property JMH owns a building in Vila Franca de Xira (land and building), which is considered as being for sale. This building was revaluated in the financial year 2003 to its market value. In the financial year 2004, no change occurred in its state or in current market circumstances.

2004 2003

Opening balance 2,459 -

Transfer from tangible assets (net) - 844

Changes to market value - 1,626

Depreciation - (11)

Closing balance 2,459 2,459

Until 2004, this property was considered as fixed assets held for sale. As it is not likely that the asset will be sold within a period below 12 months, it is presented in the accounts as non-current assets. 12. Investments in subsidiaries and joint ventures 12.1 In subsidiaries

2004 2003

Net value at 1 January 227,620 205,651

Increases - 37,106

Decreases - (319)

Increase in provisions (14) (14,818)

Decrease in provisions 1,050 -

Net value at 31 December 228,656 227,620

12.2 In joint ventures The investment in joint ventures was EUR 6,285 thousand (2003: EUR 6,285 thousand) - Note 31.


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13. Loans 13.1 Loans to group companies

Non-current loans 2004 2003


Increases 4,129 118,211

Decreases (195,042) (94,371)

Increase in provisions (2,305) (9,871)

Decrease in provisions - 30,367

Transfer from current loans 351 -


Current loans 2004 2003


Increases 100,000 710

Decreases (654) (33,150)

Transfer to non-current loans (351) -


Current loans are liable to interest rates at normal market levels. Non-current loans are taken as supplementary capital lump sums (which do not bear interest), and as medium and long-term shareholders loans (remunerated at normal market rates). 13.2 Loans to joint ventures

Non-current loans 2004 2003

Net value at 1 January - -

Increases 157,699 -

Decreases - -

Net value at 31 December 157,699 -

Non-current loans are granted as medium and long term shareholders loans remunerated at normal market rates. 14. Available-for-sale financial investments 2004 2003

BCP shares 30,451 17,602JM stock options trust plan (note 2.1) 1,402 -

Other - 25

31,853 17,627Provision to the realisable value (note 21) (1,995) (2,730)

29,858 14,897 In 2004, the company purchased 6,653,524 shares of BCP – 3,326,762 shares were purchased in March and 3,326,762 shares were purchased in September.

As of 31 December 2004, all BCP shares in the company’s portfolio were marked to market – price as of 31 December 2004 of Euro 1.89 – Euronext Lisbon.

Changes in the fair value of these assets are recognised directly in equity and originated a positive variation of EUR 734 thousand.


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15. Taxes

15.1 Deferred tax assets and liabilities JMH financial statements do not reflect any amount concerning deferred taxes on tax losses. This situation stems from the fact that medium and long term projections made by the Company do not foresee any tax profit in the next 6 years.

15.2 Unrecognised deferred taxes on tax losses Unrecognised deferred taxes on tax losses are as follow:

2004 2003

Tax losses 54,425 48,662Tax rate 27.5% 27.5%Deferred tax assets 14,967 13,382

(Unrecognised)

15.3 Taxes receivable and payable

Taxes receivable 2004 2003

Income tax receivable 72 220

VAT receivable – Outside Portugal 1 -

73 220

Taxes payable

VAT payable 181 183

Income tax payable 26 -

Income tax withheld 73 70

Social security 44 36

Municipal real estate tax 38 38

362 327

16. Trade debtors, accrued income and deferred costs 2004 2003

Subsidiaries and associated companies 1,936 3,011

Receivables from suppliers 31 1

Staff 13 23

Other debtors 10 18

Accrued income 1,552 2,228

Deferred costs 567 926

4,109 6,207

Amounts entered in subsidiaries and associated companies concern mainly invoices issued to group companies relating to services provided of various natures. Accrued income respects namely to EUR 1,377 thousand regarding the rendering of technical and administrative services to subsidiaries and joint ventures and EUR 173 thousand of interest receivable. Deferred costs heading includes EUR 522 thousand of prepaid expenses with bonds, bank loans and commercial paper and M EUR 27 thousand of other costs relating to future periods, paid in 2004 or when not paid, already charged by the competent entities.


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17. Cash and cash equivalents 2004 2003

Bank deposits 20 14

Short-term investments - 6,340

Cash and cash equivalents 8 10

28 6,364

18. Capital and reserves

18.1 Share capital and share premium account At the General Meeting of 15th April 2004, a proposal for an increase in Capital from 479,293,220 Euros to 629,293,220 Euros was approved. The increase will be effected by new cash contributions, through the issuing of 30,000,000 new ordinary shares at a nominal value of 5 Euros each, with subscription being reserved to shareholders exercising their preferential rights. The subscription period was from 11th June 2004 and 25th June 2004, with rights exercised for a total of 29,590,861 shares. The remaining 409,139 shares were subject to apportionment. The financial liquidation of the shares subscribed through the exercising of subscription rights occurred on 30th June 2004, and the liquidation of the apportioned shares took place on the 5th July 2004. The signing of the public contract for the increase in capital took place on 7th July 2004, with admission for trading to the Euronext Official Stock Market in Lisbon occurring on 14th July 2004. The new shares confer on their owners, from the date of their attribution, the same rights as enjoyed with ordinary shares existing before the increase in capital, namely the right to a dividend or other remunerations decided upon, paid, or carried out. The new authorised share capital is represented by 125,858,644 ordinary shares (2003: 95,858,644), at par value EUR 5 (five Euros) each. The owners of ordinary shares have the right to receive dividends in accordance with the deliberations of the General Meeting, and have the right to 1 vote for every 100 shares owned. There are no preferential shares. Rights relating to shares held in portfolio by the company are suspended until they are placed on the market again. During the year 2004, no changes occurred in the amount of EUR 22,452 thousand showed in share premium account.

18.2 Own shares

The reserve for own shares reflects the cost of shares held by the company in portfolio. As of 31 December 2004, the company held 171,800 own shares (2003: 171,800).

18.3 Costs with share capital increase

The costs regarding the share capital increase, approved in the General Meeting of 15 April 2004 amounted EUR 2,272 thousand and were booked directly in equity (debit of retained earnings).

18.4 Other reserves

The amount of EUR 394,543 thousand registered in Other Reserves (corresponding to non-distributed profits

from previous years) was reclassified in the item retained earnings.

On 31st December, 2004, the amount of EUR 810 thousand reflected in other reserves was made up of: EUR 734 thousand relating to the variation in fair value of financial investments held for sale and EUR 76 thousand relating to the recognition of the JM stock options trust plan (note 2.1).

18.5 Retained earnings

On 31st December 2004, the total amount of retained earnings was EUR 322,010 thousand, resulting from profit generated in the financial year, and previous years. Of this amount, the following was not able to be distributed: EUR 27,637 thousand corresponding to the legal reserve (articles 218, 295 and 296 of the Legal Code for Commercial Companies); and EUR 6,060 thousand corresponding to the amount for which the own shares are accounted. (Article 324 of the Legal Code for Commercial Companies).


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18.6 Dividends In accordance with the dividend distribution policy announced a number of years ago and described in chapter 1.5 – Corporate Governance, which is an integral part of the consolidated annual report, the Board of Directors proposes to the shareholders the distribution of the following amount: 45,247,263.84 Euros. 19. Earnings per share

19.1 Basic earnings per share

Basic earnings per share are calculated based on the net profit of EUR 32,387 thousand (2003: profit of EUR 111,665 thousand) attributable to ordinary shareholders and on weighted average outstanding ordinary shares, numbering 110,850,778 (2003: 95,686,844).

19.2 Weighted average outstanding shares 2004 2003

Ordinary shares issued at the beginning of year 95,858,644 95,858,644

Own shares at the beginning of year 171,800 171,800

Own shares acquired during the year - -

Ordinary shares issued during the year (30/06/2004) 30,000,000 -110,850,778 95,686,844

19.3 Diluted earnings per share Diluted earnings per share are calculated based on the net profit of EUR 32,387 thousand (2003: profit of EUR 112,954 thousand) attributable to ordinary shareholders and on diluted average ordinary shares, numbering 110,850,778 (2003: 98,614,158).

19.4 Diluted net results attributable to ordinary shareholders 2004 2003

Net profit of the year attributable to ordinary shareholders 32,387 111,665

Effect (net of tax) of interest on warrants (until September 15, 2003) - 1,289

Diluted net profit of the year attributable to ordinary shareholders 32,387 112,954

19.5 Diluted weighted average ordinary shares 2004 2003

Weighted average ordinary shares 110,850,778 95,686,844

Warrants conversion effect (until September 15, 2003) - 2,927,314

Diluted weighted average ordinary shares 110,850,778 98,614,158

Earnings per share – Euros 0.292 1.167

Diluted earnings per share – Euros 0.292 1.145

20. Borrowings

This note provides information on the terms of loan contracts and other forms of financing. For further details regarding the company’s exposure to interest rates see note 23.


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20.1 Current and non-current loans

2004

2003

Non-current loans

Bank loans – Commercial Paper - 25,000

Bond loans 40,000 40,000

Financial lease liabilities 34 56

40,034 65,056

Current loans

Bank loans 22,000 -

Bond loans - 180,760

Bank overdrafts 81,329 3,472

Loans from subsidiaries - 266

Financial lease liabilities 60 57

103,389 184,555

20.2 Loan terms and maturities

Average rate

Total Payable in less than 1 year

Payable between 1 and

5 years

Bank loans 3.09% 22,000 22,000 -

Bond loan: JMH/03 4.08% 40,000 - 40,000

Bank overdrafts 3.47% 81,329 81,329 -

Financial lease liabilities 7.14% 94 60 34

143,423 103,389 40,034

20.3 Bond loans

2004 2003

Zero-coupon bonds with share redemption option - 180,760

Non-convertible bonds 40,000 40,000

40,000 220,760

Zero-coupon bonds In December 2004 a cash reimbursement of EUR 192,287 thousand was made relating to the JMH zero-coupon bond loan issued in December 1997, for which had been issued 25 million bonds (with a nominal value of 1000 PTE), which on conversion to Euro became 12,469,947,427, each with a nominal value of 0.01 Euros. The interest rate was fixed at 6.38%. Non-convertible bonds In October 2003, the company issued 8 million non-convertible bonds, par value EUR 5, with variable interest rate. The redemption date of bond loan is as follows:

Maturity Amount

2008 40,000


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20.4 Bank loans: Commercial paper In September 2003 a joint bank loan was contracted with the company Recheio SGPS SA, in the form of a commercial paper programme, for the amount of EUR 25,000 thousand, due in September 2008. The interest rate is variable, and the loan may be reimbursed at any time. At the end of 2004, Recheio SGPS SA is using the programme in its entirety.

20.5 Financial lease liabilities The responsibilities with financial lease is as follow:

2004 2003

Payments in less than 1 year 62 61

Payments between 1 and 5 years 38 60

100 121

Payment of future interest (6) (8)

Present value of liabilities 94 113

21. Provisions

Opening balance

Provisions set up

Provisions used

Closing balance

Doubtful debtors 187 - - 187

Investments in subsidiaries 272,279 14 (1,050) 271,243

Loans to subsidiaries 23,805 2,305 - 26,110

Available for sale investments 2,730 - (735) 1,995

Employee benefits 17,055 - (1,495) 15,560

Other risks and contingencies 4,205 - (4,185) 20

320,261 2,319 7,465 315,115

22. Trade creditors and accrued costs 2004 2003

Payables to subsidiaries 86 105

Other commercial creditors 464 391

Other non-commercial creditors 11 9

Accrued costs 1,564 1,351

2,125 1,856

The heading accrued costs is made up of salaries and wages payable in the amount of EUR 1,018 thousand, and interest payable in the amount of EUR 448 thousand. The remaining EUR 98 thousand respects to various costs (utilities, insurance, consultants, rents, etc.), relating to 2004 and not invoiced by the respective entities prior to the end of the year. 23. Financial instruments

23.1 Interest rate risk Portfolio of Interest Rate Derivatives (IRD) The company uses derivatives, such as swaps and options, to manage its exposures to interest rate risks. Derivatives are efficient, low cost tools to hedge against adverse effects on cash flows associated with debt service payments, namely interest due.


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At the end of 2004, the company had the following positions open in IRD:

Designation Trade date Amount Marked-to-Market (M2M) KO Cap 14-Nov-03 €10,000,000 (€96,972)

Maxi Cap Floored 10-Dez-03 €10,000,000 (€65,215) Interest Rate Swap 03-Mar-04 €10,000,000 (€172,640)

Lowered Coupon Swap 20-Abr-04 €10,000,000 (€105,446) Quanto 2*6M CHF 20-Abr-04 €10,000,000 (€98,807)

Total €50,000,000 (€539,080)

23.2 Impacts on Financial Statements The M2M of the referred financial instruments raised to EUR 539 thousand, booked in liabilities in derivative financial instruments (2003: EUR 179 thousands), with an impact on financial costs of EUR 335 thousands (2003: financial costs of EUR 179 thousands). 24. Employee benefits

24.1 Defined contribution plans for employees, with a third party managed fund The company has a defined contribution plan for all employees who have permanent contract status, with a third party managed fund. This kind of plan allows costs control related to the attribution of benefits, while simultaneously creates an incentive for the employees to participate in their own pension scheme. Changes in the year: 2004 2003

Liabilities at 1 January 78 35

Staff costs on the year 21 43

Contributions on the year (99) -

Liabilities at 31 December - 78

24.2 Group managed defined benefit plans for former employees Independent actuaries evaluate this plan 6-monthly. According to the actuarial calculation reported on 31 December 2004 the liability is EUR 15,560 thousand, provisioned in its entirety in employee benefits. Changes in the year:

2004 2003

Balance at 1 January 17,055 15,077 Staff costs on the year (877) 2,608 Retirement pensions paid in (618) (630) Balance at 31 December 15,560 17,055

Actuarial assumptions used: Mortality table TV 73/77

Difference between rate of return and pension growth rate 3%

25. Guarantees The guarantees given to D.G.C.I (Portuguese Tax Authority) amounts to EUR 56 thousand.


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26. Contingencies JMH holds a stake in a company that has a negative shareholders’ equity. The company set up a provision for financial investments that reduces investment down to zero. Additionally, there is a provision for risks and contingencies relating to potential liabilities associated with negative shareholders’ equity. 27. Related parties 27.1 Benefits attributed to directors Directors of Jerónimo Martins, SGPS, S.A. board are entitled to complementary retirement benefits, providing they have been board members for at least 10 years, and retire at 65 years old in the function. This benefit corresponds to a complementary pension so as to receive an amount equivalent to the net salary earned as of retirement date. 27.2 Remuneration paid to directors The members of the board of directors received the following remuneration:

2004 2003

Executive directors 1,683 907

Non-executive directors 598 90

2,281 997

The amount considered remuneration for non-executive Directors, in 2004, included EUR 3 thousand relating to remuneration paid to non-Executive Directors taking part in the Auditing Commission.


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28. Subsidiaries, joint-ventures and available for sale investments The direct investments owned by JMH, at 31 December 2004, are as follows:

This information corresponds to the information required by the note 16 of the annex to the balance sheet and to the profit and loss account, in accordance with the statutory accounts.

Head % Stake held Total Shareholder’

s Net profit Companies Notes Oficce Owned directly assets Equity /loss

Investments in subsidiaries

Jerónimo Martins – Distrib. de Prod. de Consumo, Lda. a) Lisboa 100.00% 1,746 127,115 5,668 3,427

Recheio, SGPS, S.A. a) Lisboa 15.93% 23,850 882,164 630,503 (11,302)

Desimo – Desenvolvimento e Gestão Imobiliária, Lda. a) Lisboa 100.00% 50 586 157 (1)

JMR - Gestão de Empresas de Retalho, SGPS, SA a) Lisboa 51.00% 168,300 1,348,941 1,044,512 40,817

Comespa-Gestão de Espaços Comerciais, S.A. a) Lisboa 51.00% 26 2,247 271 115

Jerónimo Martins Serviços, S.A. a) Lisboa 100.00% 50 2,886 48 0

Servicompra - Consultores de Aprovisionamento, Lda a) Lisboa 96.00% 5 198,880 198,880 (3)

Imocash – Imobiliário de Distribuição, S.A. a) Lisboa 1.00% 30 53,824 4,753 1,256

Larantigo – Sociedade de Construções, S.A. a) Lisboa 0.20% 1 5,361 5,290 (80)

Hermes - Soc. de Invest. Mobiliários e Imobiliários, Lda. a) b) Funchal 99.99% 999 42,599 41,553 141

Eva – Soc. de Investimentos Mobiliários e Imobiliários, Lda

a) Funchal 5.60% 28 710,511 710,511 43,167

PSQ – Soc. de Investimentos Mobiliários e Imobiliários, Lda

a) Funchal 11.00% 55 23,797 23,716 15,987

Friedman – Soc. de Investim. Mobiliários e Imobiliários, Lda

a) Funchal 100.00% 5 4,096 4,093 6,208

JMFC1 – Jerónimo Martins Finance Company, Limited a) b) d) Dublin 100.00% 100 2 (15) 1,747

JM Holdings UK, Ltd a) b) Londres 100.00% 8,309 86 40 (30)

Soc. Com. de Representações Socorel Lda a) b) Angola 90.00% 7 c) c) c)

Empal - Emp. Ind. de Produtos Alimentares, Lda. a) b) Angola 60.00% 18 c) c) c)

Investments in joint-ventues

Fima/VG - Distribuição de Produtos Alimentares, Lda Lisboa 60.00% 5,400 321,443 26,086 15,215

LeverElida – Distrib. de Prod. Limp. e Higiene Pessoal, Lda.

Lisboa 40.00% 2,000 203,621 51,742 16,650

IgloOlá - Distribuição de Gelados e UltraCongelados, Lda Lisboa 26.00% 1,300 215,740 60,087 13,135

Available for sale investments (In Portuguese GAAP: Property and securities)

BCP - Banco Comercial Português, S.A. b) Porto 0.46% 15,056 71,678,495 3,605,275 513,002

a) For the purposes of the article 486, paragraph 3, of the Portuguese Commercial Companies Code, we declare that we hold the control of the companies indicated.

b) A value adjustment provision has been set up

c) Not available d) This company presents annual financial statements ending November 30


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29. Group Companies – Direct and indirect stakes Table below describes the companies directly and indirectly held by Jerónimo Martins, SGPS, SA, as of 31 December 2004 according to business areas: Retail Portugal

Companies

Head Oficce

% Owned

JMR – Gestão de Empresas de Retalho, SGPS, S.A. Lisboa 51.00

Pingo Doce – Distribuição Alimentar, S.A. Lisboa 51.00

Supertur – Imobiliária, Comércio e Turismo, S.A. Lisboa 51.00

Feira Nova – Hipermercados, S.A. Lisboa 51.00

Bazar Novo – Distribuição de Produtos Não Alimentares, Lda. Lisboa 51.00

Gestiretalho – Gestão e Consultoria para a Distribuição a Retalho, S.A. Lisboa 51.00

Imoretalho – Gestão de Imóveis, S.A. Lisboa 51.00

Casal de São Pedro – Administração de Bens, S.A. Lisboa 51.00

Jerónimo Martins Finance Company (2), Limited Dublin (Irland)

51.00

EVA – Sociedade de Investimentos Mobiliários e Imobiliários, Lda. Funchal 51.00

Moser & Branco – Distribuição Alimentar, S.A. Carregal do Sal

51.00

Cunha & Branco – Distribuição Alimentar, S.A. Águeda 51.00

Electric Co – Distribuição de Produtos não Alimentares, Lda. Lisboa 51.00

Dantas & Vale, S.A. Lisboa 51.00

Madeira

Companies

Head Oficce

% Owned

Funchalgest– Sociedade Gestora de Participações Sociais, S.A. Funchal 75.50

João Gomes Camacho, S.A. Funchal 75.50

Lidosol II – Distribuição de Produtos Alimentares, S.A. Funchal 75.50

Idole–Utilidades, Equipamentos e Investimentos Imobiliários, Lda. Lisboa 75.50

Lidinvest – Gestão de Imóveis, S.A. Funchal 75.50

Wholesale Portugal

Companies

Head Oficce

% Owned

Recheio, SGPS, S.A. Lisboa 100.00

Recheio-Cash & Carry, S.A. Lisboa 100,00

Imocash – Imobiliário de Distribuição, S.A. Lisboa 100.00

Larantigo – Sociedade de Construções, S.A. Lisboa 100.00

PSQ – Sociedade de Investimentos Mobiliários e Imobiliários, Lda. Funchal 100.00

Marketing and Distribution Services and Specialised Retail

Companies

Head Oficce

% Owned

Jerónimo Martins – Distribuição de Produtos de Consumo, Lda. Lisboa 100.00

Caterplus – Comercialização e Distribuição Produtos de Consumo, Lda. Lisboa 49.00

Hussel Ibéria – Chocolates e Confeitaria, S.A. Lisboa 51.00

PGJM – Importação e Distribuição de Perfumes e Cosméticos, S.A. Lisboa 49.99

Jerónimo Martins – Restauração e Serviços, S.A. (ex. Centro Dominó) Lisboa 100.00


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Retail Poland

Companies

Head Oficce

% Owned

Belegginsmaatschappij Tand B.V. Rotterdam (Holland) 100.00

Jerónimo Martins Dystrybucja S.A. Poznan (Poland) 100.00

Sklepy Spozywece Sp. zo.o Poznan (Poland) 100.00

Twoje Sklepy Spozywece Sp. zo.o Warsaw (Poland) 100.00

Tip Marken – Discount Handelsgesellschaft mbh Sarstedt (Germany) 100.00

PITT Sp. Zo.o Poznan (Poland) 100.00

Optimum Mark Sp. Zo. O, Warsaw (Poland) 100.00

Industry The above mentioned companies results from the joint-venture with Unilever Group:

Companies

Head Oficce

% Owned

Fima/VG Distribuição de Produtos Alimentares, Lda. Lisboa 60.00

Fima - Produtos Alimentares, S.A. Lisboa 60.00

Victor Guedes – Indústria e Comércio, S.A. Lisboa 60.00

LeverElida – Distribuição de Produtos de Limpeza e Higiene Pessoal, Lda. Lisboa 40.00

Indústrias Lever Portuguesa, S.A. Lisboa 40.00

IgloOlá – Distribuição de Gelados e Ultracongelados, Lda. Lisboa 26.00

Iglo – Indústria de Gelados, S.A. Lisboa 26.00

Gelcasa – Comercialização de Gelados e Ultracongelados, S.A. Lisboa 26.00

Other

Companies

Head Oficce

% Owned

JM Holdings UK, Ltd London (England)

100.00

Hermes–Sociedade Investimentos Mobiliários e Imobiliários, Lda. Funchal 100.00

Friedman - Sociedade Investimentos Mobiliários e Imobiliários ,Lda. Funchal 100.00

Jerónimo Martins Finance Company (1), Limited Dublin (Irland)

100.00

Desimo – Desenvolvimento e Gestão Imobiliária, Lda. Lisboa 100.00

Jerónimo Martins – Serviços, S.A. Lisboa 100.00

Servicompra – Consultores de Aprovisionamento, Lda. Lisboa 100.00

Jerónimo Martins Retail Services, S.A. Klosters (Switzerland)

51.00

Comespa - Gestão de Espaços Comerciais, S.A. Lisboa 51.00

30. Transactions with related parties Note: transactions with related parties are always carried out at market prices. 30.1 Technical and administrative services provided JMH provides a set of technical, administrative and management services to operational companies within the Group. These services are debited to respective companies according to the following criteria: Joint-ventures The amount of services rendered is calculated based on the number of hours spent with these companies by each employee of each department of the holding. The number of hours is then valued according to the value/hour of each employee. Subsidiaries The amount of rendered services is calculated based on incurred costs, taking into account the weight of each company on the Group, weighed according to a pre-set allocation key. A 10% mark-up is applied on the amount of incurred costs. This sum does not include the debit to a Swiss subsidiary, which complies with Swiss tax rules.


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In the light of the above, income from technical and administrative services provided during 2004 totalled EUR 10,437 thousand, as follows:

Companies Amount Joint-ventures 3,962Subsidiaries 6,475

Total 10,437 30.2 Financial services provided The Financial Operations Division of the holding ensures part of the financial management of Group companies. This management includes acting on behalf of the companies in the negotiation and contracting with banks and other financial institutions, debt conditions and application of funds. The purpose of this centralized management is to obtain more favourable conditions for funding and applications than would be obtained if negotiated on an individual basis. This centralized management is remunerated and financial services provided to subsidiaries in 2004 totalled EUR 1,322 thousand. 30.3 Services provided – Treasury payments As part of the project to simplify internal management processes (SPGI), the treasury departments of the companies (responsible for payments to suppliers, employees and other entities, as well as daily cash management) in the Distribution area in Portugal were centralized at JMH Financial Operations Division. The value of services provided by JMH is calculated based on costs pertaining to the treasury payments department, with a mark-up of 10%. The contribution of each company to the costs is calculated by dividing the number of payments issued for each company by the total number of payments issued. Thus, the income from provision of services in the financial year 2004 was EUR 148 thousand. 30.4 Lease of property JMH develops its activity in premises rented to a subsidiary, which represented costs of EUR 344 thousand. 30.5 Supplementary income JMH makes an annual debit to a joint-venture company relating to a commission on the sale of margarine. Jerónimo Martins held this brand when it set up the joint venture, having agreed its assignment against an annual remuneration calculated based on the average price of the products sold during the year. This commission totalled EUR 101 thousand in 2004. 30.6 Treasury operations (current loans) Jerónimo Martins Group manages centrally treasury operations of all Group companies. Treasury operations between companies are used as a way to internally manage companies’ liquidity. In this light, companies with surplus may lend funds to the parent company or its subsidiaries and shorted cash companies may temporarily receive treasury operations from the parent company or its subsidiaries. 30.6.1 Interest received on loans to subsidiaries In 2004, interest received on short-term loans to subsidiaries totalled EUR 8 thousand. 30.6.2 Interest paid on loans from subsidiaries In 2004, interest paid on short-term loans from subsidiaries totalled EUR 56 thousand. 30.7 Loans to subsidiaries (non-current loans) Jerónimo Martins granted loans to subsidiaries, which generated interest in the amount of EUR 199 thousand.


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30.8 Debts relating to staff As a group, Jerónimo Martins takes advantage of the synergies existing amongst its various companies and frequently transfers staff from one company to another, according to the needs of the various businesses. In 2004, total costs incurred with personnel from other companies amounted to EUR 2,242 thousand. 30.9 Open balances as of 31 December 2004 Subsidiaries Joint-ventures Total

Loans* 100,417 157,699 258,116 100,417 157,699 258,116 Trade debtors, accrued income and deferred costs - Customers and other debtors 691 1,265 1,956 - Receivable interest 13 160 173 - Accrued income – services 1,377 1,377 2,081 1,425 3,506 Trade creditors and accrued costs - Suppliers and other creditors 248 248 - Accrued costs - services 396 396 644 - 644 * Do not include amounts related to supplementary capital 31. Interests in joint ventures

The company has interests in the following joint ventures:

● Fima – This group of companies manufactures and sells food products, specifically edible fats and drinks, and private labels as well as Unilever Group brands. JMH holds 60% of the capital of Fima Group;

● Lever - This group of companies manufactures and sells personal, home and industrial hygiene products for the hotel and food sectors. The brands marketed are property of the Unilever Group. JMH holds 40% of the capital of Lever Group;

● Iglo – This group of companies manufactures and markets ice cream and frozen and deep frozen food products under Unilever Group brands. JMH holds 26% of the capital of Iglo Group.

32. Information on environmental matters As referred in the management report, there are no environmental matters likely to affect the company’s financial performance and situation, and the company is unaware of any contingent liability or obligation concerning environmental matters. Likewise, the company did not recognise in its financial statements any relevant costs or investment of environmental nature. 33. Events after the balance sheet date On 1st February 2005, the Competition Authority in Portugal decided not to oppose the incorporation of Unilever Bestfoods Portugal- Produtos Alimentares, S.A. (Bestfoods Portugal) into FimaVG- Distribuição de Produtos Alimentares, Lda (Fima VG), with the conclusion of this operation now predicted to be in March. In the light of this, and as a result of the deal reached with our partner Unilever, as from 1st January 2005, the Jerónimo Martins Group will show in its consolidated accounts, 51% of the financial statements of the FimaVG and Bestfoods Portugal businesses.


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COMPLEMENTARY INFORMATION 34. Reconciliation between Portuguese GAAP and IAS Differences between accounting principles followed by JMH and Portuguese GAAP are as follows: Investments property JMH recognised revaluations of investment property (IAS 40) in the profit and loss account, under financial results, while according to Portuguese GAAP, revaluations are entered against reserves in shareholders' equity. Costs related to increases in capital JMH recognize costs relating to increase in capital directly in the item reserves (in accordance with IAS 32). In accordance with general accounting principles in Portugal, these costs are capitalized in intangible assets and amortized over 3 years. Available for sale financial investments Changes in the fair value of available for sale financial investments are registered directly in equity (IAS 39). In accordance with generally accepted accounting principles in Portugal, they should be recognized in the income statement, as they are changes in the amount of previously recognised provisions. Financial instruments JMH has financial instruments like interest rate swaps (note 2.4 and 23), recognised in the financial statements at fair value, in accordance with IAS 39. Portuguese GAAP does not cover this subject. The information presented below, reflects the reconciliation between the principles adopted by JMH, and the general accepted accounting principles in Portugal:


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Balance sheet on 31 December 2004

Financial Statements Adjustments to Portuguese GAAP

Financial statements in accordance with Portuguese

GAAP ASSETS

Intangible assets - 1,830 1,830Tangible assets 419 - 419Financial investments 1,025,488 - 1,025,488Accounts receivable – short term 102,480 - 102,480Cash and cash equivalents 28 - 28Accruals and deferrals 2,119 - 2,119

Total assets 1,130,534 1,830 1,132,364

SHAREHOLDER’S EQUITY Share capital 629,293 - 629,293Reserves and retained earnings 306,825 1,716 308,541Net profit/loss for the year 32,387 661 33,048

Total shareholder’s equity 968,505 2,377 970,882LIABILITIES

Provisions for risks and contingencies 15,580 - 15,580Accounts payable – medium and long term 40,034 - 40,034Accounts payable – short term 104,312 - 104,312Accruals and deferrals 2,103 (547) 1,556

Total liabilities 162,029 (547) 161,482

Total shareholder’s equity and liabilities 1,130,534 1,830 1,132,364

Balance sheet on 31 December 2003

Financial Statements Adjustments to Portuguese GAAP

Financial statements in accordance with Portuguese

GAAP ASSETS

Intangible assets 26 - 26Tangible assets 513 - 513Financial investments 1,045,071 - 1,045,071Accounts receivable – short term 4,283 - 4,283Cash and cash equivalents 6,364 - 6,364Accruals and deferrals 3,154 - 3,154

Total assets 1,059,411 - 1,059,411

SHAREHOLDER’S EQUITY Share capital 479,293 - 479,293Reserves and retained earnings 195,220 1,626 196,846Net profit/loss for the year 111,665 (1,447) 110,218

Total shareholder’s equity 786,178 179 786,357LIABILITIES

Provisions for risks and contingencies 21,260 - 21,260Accounts payable – medium and long term 65,056 - 65,056Accounts payable – short term 185,387 - 185,387Accruals and deferrals 1,530 (179) 1,351

Total liabilities 273,233 (179) 273,054Total shareholder’s equity and liabilities

1,059,411 - 1,059,411

Lisbon, 8 March 2005 The Certified Accountant The Board of Directors




Report of the Auditors for Statutory and Stock Exchange Regulatory Purposes in respect of the Individual Financial Information

(Free translation from the original version in Portuguese)

Introduction

1 As required by law, we present the Report of the Statutory Auditors for Stock Exchange Regulatory Purposes in respect of the Financial Information included in the Directors’ Report and the financial statements of Jerónimo Martins, SGPS, SA., comprising the balance sheet as at 31 December 2004, (which shows total assets of Euros 1.130.534 thousand and a total of shareholder's equity of Euros 968.505 thousand, including a net profit of Euros 32.387 thousand), the statements of income by nature and by functions and the cash flow statement for the year then ended and the corresponding notes to the accounts.

Responsibilities

2 It is the responsibility of the Company’s Board of Directors (i) to prepare financial statements which present fairly, in all material respects, the financial position of the company, the results of its operations and cash flows; (ii) to prepare the historic financial information in accordance with generally accepted accounting principles in Portugal while also meeting the principles of completeness, truthfulness, accuracy, clarity, objectivity and lawfulness, as required by the Portuguese Securities Market Code; (iii) to adopt appropriate accounting policies and criteria; (iv) to maintain an adequate system of internal control; and (v) the disclosure of any relevant matters which have influenced the activity and the financial position or results of the company.

3 Our responsibility is to verify the financial information included in the financial statements referred to above, particularly as to whether it is complete, truthful, accurate, clear, objective and lawful, as required by the Portuguese Securities Market Code, for the purpose of expressing an independent and professional opinion on that financial information, based on our audit.


(2)


Scope 4 We conducted our audit in accordance with the Standards and Technical Recommendations approved by the Institute of Statutory Auditors which require that we plan and perform the examination to obtain reasonable assurance about whether the financial statements are free of material misstatement. Accordingly, our examination included: (i) verification, on a test basis, of the evidence supporting the amounts and disclosures in the financial statements, and assessing the reasonableness of the estimates, based on the judgements and criteria of Management used in the preparation of the financial statements; (ii) assessing the appropriateness and consistency of the accounting principles used and their disclosure, as applicable; (iii) assessing the applicability of the going concern basis of accounting; (iv) assessing the overall presentation of the financial statements; and (v) assessing the completeness, truthfulness, accuracy, clarity, objectivity and lawfulness of the financial information.

5 Our audit also covered the Directors’ Report, having included the verification of its conformity with the financial information disclosed.

6 We believe that our examination provides a reasonable basis for our opinion.

Opinion

7 In our opinion, the financial statements referred to above, present fairly in all material respects, the financial position of Jerónimo Martins, SGPS, SA. as at 31 December 2004, the results of its operations and its cash flows for the year then ended in conformity with the generally accepted accounting principles in Portugal, modified to bring the accounts in line with the International Accounting Standards, as mentioned in note 2.1, and duly comply with principles of completeness, truthfulness, accuracy, clarity, objectivity and lawfulness.

Lisbon, 9 March 2005 Bernardes, Sismeiro & Associados, S.R.O.C., Lda. represented by:

José Manuel Oliveira Vitorino, R.OC.




Report and Opinion

of the Statutory Auditors

(Free Translation from the original in Portuguese)

To the Shareholders 1 In accordance with the law and our mandate, we herewith present the report on our supervisory activity and our opinion on the Directors’ Report and the corresponding Financial Statements presented by the Board of Directors of Jerónimo Martins, SGPS, SA. with respect to the year ended 31 December 2004. 2 During the course of the year, we have accompanied the evolution of the company’s activities, as and when deemed necessary, and have verified the timeliness and adequacy of the accounting records and supporting documentation. We have also ensured that the law and the company’s statutes have been complied with. 3 As a consequence of our work, we have issued the attached Report of the Auditors for Statutory and Stock Exchange Regulatory Purposes in respect of the Individual Financial Information. Furthermore we have considered the Statutory Auditors’ Report sent to the Board of Directors in which the audit procedures undertaken are described, as required by Article 451º of the Commercial Companies Code. 4 Within the scope of our mandate, we have verified that: i) the Balance Sheet, the Statements of Income by nature and by functions, the Cash

Flow Statement and corresponding Notes, prepared in conformity with the generally accepted accounting principles in Portugal, modified to bring the accounts in line with the International Accounting Standards, as mentioned in note 2.1, present adequately the financial position and the results of the company;

ii) the accounting policies and valuation methods applied are appropriate; iii) the Directors’ Report is sufficiently clear as to the evolution of the business and the

position of the company and highlights the most significant aspects.

iv) the proposed distribution of the results is adequately supported.


(2)


5 On this basis, and taking into account the information obtained from the Board of Directors and the company’s employees, together with the conclusions in the Report of the Auditors for Statutory and Stock Exchange Regulatory Purposes in respect of the Individual Financial Information, we are of the opinion that: i) the Director’ Report be approved; ii) the Financial Statements be approved; iii) the proposed distribution of the results be approved. Lisbon, 9 March 2005 The Statutory Auditor Bernardes, Sismeiro & Associados, S.R.O.C., Lda. represented by: José Manuel de Oliveira Vitorino, R.O.C.

268


PUBLIC COMPANY Rua Tierno Galvan, Torre 3, Piso 9, Letra J – 1099-008 Lisboa

Registered with the Lisbon Registrar of Companies under no. 8 122 Share Capital: 629.293.220 Euros Corporate Tax No. 500 100 144

EXCERPT OF THE ANNUAL GENERAL MEETING DRAFT MINUTE

Jerónimo Martins, SGPS, S.A.’s Annual General Meeting was held at 10:00 a.m., on the 30th of March, 2005,

at Rua Actor António Silva, 7 – 15th floor, Lisbon.

(…)

Starting the Meeting, the Chairman of the Meeting after analysing and signing all respective documentation,

referred that all the legal requests were fulfilled so that the Meeting could legally meet and resolve, being

present or represented seventy seven dot seventy seven per cent of Shareholders.

(…) The Chairman of the Meeting read the Summoning for the General Meeting and referred that he was going

to start with the first and third issues of the Agenda which would be presented together, if all shareholders

present, were in accordance.

As any shareholder presented no objection, the Chairman of the Meeting invited the Board of Directors to

speak about any of these issues if considered relevant.

(…)

Having occurred no other interventions, the Chairman of the Meeting announced that he was going to

proceed with voting for the first issue under discussion – resolving on the Management Report and Financial

Statements for the year 2004.

Results of this voting were announced by the Chairman of the Meeting having the first issue of the Agenda

been approved by 976,694 favourable votes, corresponding to 99.93% of the shareholders in attendance, 3

votes against and 684 abstentions.

Concluded the voting of the first issue of the Agenda, the Chairman of the Meeting announced that he was

going to proceed with voting for the third issue under discussion – resolving on the Consolidated

Management Report and Consolidated Financial Statements of 2004.

The Consolidated Management Report and Consolidated Financial Statements of 2004 were approved by

976,858 favourable votes corresponding to 99.95% of shareholders in attendance, 3 votes against and 520

abstentions.

(…)

Moving forward to the second issue of the Agenda – resolving on the Proposal on Results’ Application – the

Chairman of the Meeting invited the Board of Directors to speak about this issue if considered relevant.

269

(…)

Concluding, Mr. Luis Palha proceed to the presentation of the Proposal on Results’ Application, considered in

the Annual Report, as follows:

In the final year 2004, Jerónimo Martins, S.G.P.S., S.A. declared consolidated profit of 92,515,031.00 euros,

and a profit in individual accounts of 32,386,645,79 euros.

The Board of Directors proposes that the net profits be applied in the following manner:

- Legal Reserve = 1,619,332.29 euros

- Retained Earnings = 30,767,313.50 euros

In accordance with the policy of dividend distribution announced several years ago, and described in chapter

1.5 of the Corporate Governance Report, the Board of Directors proposes a distribution to the Shareholders

of 45,247,263.84 euros, an amount which corresponds to 48.9% of consolidated net profit, and which is to

be taken from free reserves available for distribution.

This proposal represents a dividend payment of 0.36 euros per share, excluding own shares in the portfolio.

It is also proposed to cover retained loss, through the transfer of 77,465,397.11 euros from free reserves.

(…)

The Chairman of the Meeting announced results of this voting, having the second issue of the Agenda been

unanimously approved.

(…)

Since there were no more issues on the Agenda, the Chairman of the Meeting thanked all present for their

collaboration and declared the Meeting over and ordered the elaboration of the present draft minutes which,

after being read, will be signed by the members of the table of the General Meeting.

ANNUAL REPORT 2004web3.cmvm.pt/sdi2004/emitentes/docs/PC5710.pdf · Annual Report’04 – Introduction 6 Jerónimo Martins is a Portuguese Group of relevant size with turnover in

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