Annual Report 2023

53. Details and Description of the Major Economic, Financial and Legal Risks to which the Company is Exposed in Pursuing Its Business Activity

The year of 2023 was shaped by disruptions of various types, including among others, the continuity of the invasion of Ukraine by the Russian Federation, the beginning of a new armed conflict in the Middle East, an extremely fast increase of inflation and interest rates to unprecedent levels since 2008 and a deceleration of most economies.

All these factors significantly impacted the conditions in which Jerónimo Martins’ Companies operated throughout the year and were reflected in the various risks to which the Group is exposed, namely in strategic and operational terms. Therefore, various measures were implemented in order to anticipate and mitigate the most relevant impacts on the execution of the strategic objectives.

Strategic Risks

Strategic risk management involves monitoring factors such as social, political and macro-economic trends, namely the evolution of demographics, consumers’ preferences, the life cycles of the businesses, the dynamics of the markets (financial, employment, natural and energy resources), geopolitical situation, the activities of competitors, technological innovation, legal and regulatory changes and social scrutiny of the Group’s business activities.

The management team uses this information to understand market needs and attempts to identify any opportunities and threats in the industries and sectors in which it operates, namely in terms of potential growth and profitability, but also in terms of the strategic alignment of its business model in light of current and future conditions.

Operating Risks

Arise from the execution of normal business functions, across the value chain, and focuses on risks generated among the processes through which the Group units operate.

The operational risks cover risks related to category management and sourcing, stock management, cash management, logistics and supply chain and the efficiency in the use of resources and assets, as well as their safety and security.

Fraud, money laundering and corruption risks are also considered in the risk assessment for the most relevant operational activities. The adequacy and range of the controls and mitigation measures are also reviewed and reconsidered whenever necessary.

Food Quality and Safety1

The Group seeks to provide healthier products and food solutions, and it seeks to ensure and enforce product safety measures in strict compliance with the highest food safety standards.

The Quality and Food Safety Departments of the Companies are responsible for the following areas:

  1. prevention, through selection, assessment, and follow-up audits on suppliers;
  2. monitoring, by following the product throughout the whole logistics flow, to analyse compliance with best practice and certification requirements;
  3. monitoring, by analysing the product to check its compliance with Quality and Food Safety requirements; and
  4. training, by carrying out periodic simulations and awareness initiatives.

The Companies are monitored continuously by quality control technicians, to ensure the implementation of procedures and to assess the efficiency of training and the suitability of the facilities and equipment.

Environmental Risks2

Jerónimo Martins implemented processes to compile and evaluate data related to environmental sustainability, ensuring that the management body is aware of the risks that the Company may incur, being able to outline and implement action plans to mitigate them. Regular assessments of the environmental risks and opportunities that may be associated with its businesses are therefore carried out, using studies and audits to assess the main impacts of its activities on ecosystems and the resources they provide, in the following areas:

  • Agricultural management practices focused on water and energy consumption, biodiversity and land management, and on the economic management of perishables suppliers;
  • Assessment of the level of conservation of Private Brand and perishables fish sold;
  • Analysis of risks and opportunities associated with impacts arising from climate change and water usage and quantification and analysis of the materiality of the Group’s greenhouse gas emissions scopes 1, 2 and 3;
  • Mapping of deforestation commodities, their origins and production methods in Private Label and perishables products;
  • Carrying out internal and external audits at its own facilities, on Private Brand and perishables suppliers and service providers.

Therefore, the following risk typologies were identified:

  • Transition, which may cause an increase in costs in order to comply with environmental legislation and originated by the transition to a low-carbon economy and by promoting biodiversity;
  • Physical, which may result in shortage of natural resources, such as agricultural products, or disruption of supply chain activities associated with climatic events;
  • Reputational, associated with expectations of the Group’s stakeholders in what regards the impact mitigation initiatives adopted by the Group.

The probability of occurrence of these situations and their level of impact, including financial risks, as well as their management, is analysed by the Group as part of the short, medium and long-term risk assessment processes. Based on these assessments, adaptation and mitigation measures are defined to maximize differentiating opportunities and improve the resiliency of our Companies and their businesses. These actions promote efficient management in the use of resources in the operations, products and services of the Group Companies, mitigate the occurrence of possible natural risks such as extreme climate events, and identify opportunities to create value from a logic of promoting environmental preservation and regeneration.

Physical Security and People Risks

The Security Department is responsible for ensuring that conditions exist to guarantee the physical security of people and facilities.

Physical security and people risk management involves: i) defining and publicising working standards and instructions, ii) carrying out employee awareness initiatives and training, iii) performing audits on the stores, iv) assessing the risks of all establishments and v) performing emergency simulations.

Information Systems Risks

The risks associated to Information Technologies are analysed considering their different components: planning and organisation, development, innovation, operations management, information security and continuity.

The risk management of Information Security in the Group is the responsibility of an exclusively dedicated Department and consists of implementing and maintaining an Information Security Management System that ensures confidentiality, integrity and availability of critical business information, performing monitoring and control activities in order to identify and mitigate potential vulnerabilities.

Regulation Risks

Compliance with legislation is provided by the legal departments of the Group´s Companies.

Regarding the Holding Company, the Legal Department guarantees the co-ordination and implementation of strategies aimed at protecting the interests of Jerónimo Martins in legal disputes, and it also manages outside advisers.

Compliance in issues related with personal data and corruption prevention is the responsibility of the Compliance Department in close alignment with the Legal Department of the Holding Company, and in collaboration with the Legal Department of the Group companies, the Information Security Department, the Internal Audit Department, the Human Resources Department, among others.

The Company, and the Group’s main companies, in Portugal and in Poland, also have a Data Protection Officer, in what regards data protection compliance.

In order to ensure the fulfilment of tax obligations, the Group Fiscal Affairs Department advises the Group’s companies, as well as oversees their tax proceedings.

Financial Risks

Jerónimo Martins is exposed to several financial risks, namely: price risk; which includes interest and exchange rate risks: transactional risk, which includes credit and liquidity risk; and the risk arising from the Group’s investments portfolio, including various risks such as interest rate, credit, foreign exchange, inflation, political and fiscal.

The management of these risks is focused on the unpredictable nature of the financial markets and aims to minimize its adverse effects on the Company’s financial performance.

Certain types of exposure are managed using financial derivative instruments.

The activity in this area is carried out by the Financial Operations Department. It is responsible, in conjunction with the financial areas of the Group´s companies, for identifying and assessing risks, and for executing the hedging of financial risks, by following the guidelines set out in the Financial Risk Management Policy.

Every quarter, reports on compliance with the Financial Risk Management Policy are presented to and discussed with the Audit Committee.

The information concerning financial risks to which the Group is exposed can be found in note 29 – “Financial risk”, in the Consolidated Financial Statements.

1 The actions carried out by the Group for Food Quality and Safety in 2023 are detailed in “Promoting good health through food”.

2 Actions carried out by the Group during 2023, on Environment Protection are detailed in “Respecting the environment” and “Sourcing responsibly”.

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