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Micro-Exercise 3: The Retailer's Secret Weapon – IFRS 16 Leases & Negative Working Capital
Micro-Exercise 3: The Retailer's Secret Weapon – IFRS 16 Leases & Negative Working Capital
GROUP 3: JERÓNIMO MARTINS, SGPS, S.A. (EURONEXT: JMT)
GROUP 3: JERÓNIMO MARTINS, SGPS, S.A. (EURONEXT: JMT)
Welcome Team 3 (Jerónimo Martins, SGPS, S.A.)!
In this guided exercise, you will work directly with the Jerónimo Martins 2025 Annual Report (PDF) (specifically Chapter 2: Management Report and Chapter 3: Consolidated Financial Statements) to uncover how leased Biedronka stores and supplier credit shape a food retailer's Balance Sheet, and how much revenue Biedronka contributes to the Portuguese parent group.
Educational Objective
Educational Objective
To learn how to locate Right-of-use (RoU) assets (IFRS 16) and Negative Working Capital lines (Inventories vs. Trade creditors / Suppliers) on a retail Balance Sheet, and to extract segment sales from Note 3.2 (Segments reporting) and the Management Report tables.
🛒 THE STORY BEHIND THE NUMBERS: The Retailer's Secret Weapon – IFRS 16 Leases & Negative Working Capital
🛒 THE STORY BEHIND THE NUMBERS: The Retailer's Secret Weapon – IFRS 16 Leases & Negative Working Capital
Welcome to the world of high-velocity food retail! Jerónimo Martins, SGPS, S.A. is a 230-year-old Portuguese retail group listed on Euronext Lisbon, operating over 6,500 stores across Europe and South America. While its headquarters are in Lisbon (where it runs Pingo Doce supermarkets and Recheio cash & carry stores) and it is rapidly expanding its Ara neighbourhood stores in Colombia (1,653 stores), the true crown jewel of the empire is in Poland: Biedronka (3,882 stores in Poland plus its first 15 stores opened in Slovakia in 2025) alongside Hebe health & beauty drugstores (394 stores). In 2025, Biedronka celebrated its 30th anniversary, generating 70.4% of the Group's sales and over 80% of its EBITDA!
Puzzle #1: Why Does a Supermarket Chain Have Over 67% Non-Current Assets? (IFRS 16 Leases)
Intuitively, you might think a supermarket chain mostly holds short-term shelves of food (Current assets) because it rents most of its store locations rather than buying the real estate. Under old accounting rules, rented stores were kept "off-balance-sheet." Not anymore! Under IFRS 16 (Leases), long-term store and warehouse rental contracts (typically 5 to 20 years) must be capitalized on the Balance Sheet as a massive Non-current asset called Right-of-use (RoU) assets (€4,001 million), paired with a matching Lease liability (€4,322 million). Combined with owned store equipment and distribution centres (Tangible assets of €6,146 million), over two-thirds (67.1%) of Jerónimo Martins' Balance Sheet consists of Non-current assets!
Puzzle #2: Is Growing Inventory a "Red Flag"? The Negative Working Capital Engine!
As Biedronka and Ara open hundreds of new stores, total Inventories on the Balance Sheet naturally grow (reaching €2,248 million in 2025). In manufacturing, rising inventory can be a warning sign of unsold goods. In food retail, you must never look at Inventories in isolation—always compare them against Trade payables (Suppliers)! Customers pay Biedronka immediately in cash or by card at the checkout, and the average product sits on the shelf for only ~20 days. However, Jerónimo Martins pays its suppliers after 30 to 60 days! Because it collects cash from shoppers weeks before paying suppliers, its Trade creditors (€7,590 million) are more than 3x larger than its Inventories (€2,248 million), creating a Negative Working Capital of €-4,577 million. Suppliers effectively fund the Group's working capital as it grows!
🎬 Watch Before You Start (2 mins): Check out the official 2-minute summary of Jerónimo Martins' 2025 Financial Results (in English): https://www.youtube.com/watch?v=VpbkVP0RngE
📋 WORKFLOW FOR TEAMS 1–5: Paper First, Screen Second!
Use your printed paper worksheet as a scratchpad to extract the Y2024 figures from the PDF report and calculate your ratios. Once you have written down and rounded your answers on paper (whole numbers only, no decimals!), transfer them into the interactive online form below and click Check until every box turns 100% Green! Keep your paper worksheet ready for our live classroom comparison!
Step-by-Step Walkthrough (How to Read the Jerónimo Martins 2025 Annual Report PDF)
Step-by-Step Walkthrough (How to Read the Jerónimo Martins 2025 Annual Report PDF)
Follow these exact steps in the Jerónimo Martins 2025 Annual Report (PDF). Do not skip any step—this is the exact workflow you will use in future financial analyses!
STEP 1: Check the Reporting Currency and Units
Before looking at any numbers, check the currency and units used in the report:
Go to Page 77 or Page 78 of the PDF (or check Note 2.1 on Page 81): Look at the top-right corner of the financial tables: € Million (All amounts are shown in million euros unless otherwise stated).
What this means for you: Because Jerónimo Martins is headquartered in Lisbon, Portugal, its consolidated financial statements are reported in millions of euros (€ Million)—even though over 70% of its sales happen in Polish zlotys (PLN) at Biedronka and Hebe! (If you are curious what exchange rate was used to convert Biedronka's PLN sales into EUR, Note 2.3 on Page 85 shows the 2025 average exchange rate was 4.2397 PLN/EUR).
Since our question asks for the answer in EUR millions, you will not need to divide or multiply the number you find in the table!
STEP 2: Check the Big Picture in the Executive Summary & Management Report
Go to Page 3 of the PDF (Index): Notice how the report is organized into 5 chapters: Chapter 1 (The Jerónimo Martins Group, p. 9), Chapter 2 (Management Report, p. 20), and Chapter 3 (Financial Statements, p. 75).
Go to Page 12 of the PDF (Sales & EBITDA by Business Area 2025): Look at the pie chart on the left: out of €36.0BN in total Group sales, Biedronka accounts for 70.4%, followed by Pingo Doce (14.8%), Ara (9.0%), Recheio (3.9%), and Hebe (1.7%). In the table on the right, Biedronka generates €1,991 million in EBITDA—an astonishing 80.3% of the Group's total EBITDA (€2,480 million)!
Go to Page 14 and Page 31 of the PDF (Operating Indicators & Consolidated Net Sales):
On Page 14, look at the Number of Stores and Sales (€ Million) bar charts for 2021–2025: Biedronka grew from 3,250 stores (€14,542M sales) in 2021 to 3,882 stores in Poland (€25,343M sales) in 2025 (plus 15 stores in Slovakia shown on Page 47).
On Page 31, inspect the Consolidated Net Sales table: it lists the exact 2025 euro sales and percentage shares for every banner in the Group.
Go to Page 36 (or Page 42) of the PDF (Balance Sheet summary in the Management Report): Look at the 4th line of the summary Balance Sheet table: Total Working Capital: (4,577) € Million in 2025 (vs. (4,062) € Million in 2024). Why is working capital a huge negative number? Let's check the official Consolidated Balance Sheet in Chapter 3!
STEP 3: Uncover IFRS 16 Leases & Negative Working Capital on the Consolidated Balance Sheet
Go to Page 78 of the PDF (CONSOLIDATED BALANCE SHEET as at 31 December 2025, in Chapter 3):
Check the Asset Structure (Non-current vs. Current): Look at Total non-current assets (11,452 € Million) compared to Total assets (17,058 € Million). Non-current assets represent 67.1% (over two-thirds) of the entire Balance Sheet! Why? Look at the two largest lines under Assets:
Tangible assets (Note 8): 6,146 € Million (owned store equipment, shelving, and distribution centres).
Right-of-use assets (Note 10): 4,001 € Million (the capitalized value of long-term store and warehouse rental contracts under IFRS 16!). If you also look down under Non-current liabilities and Current liabilities, you will see the matching Lease liabilities (Note 10) of 3,652 + 670 = 4,322 € Million.
Compare Inventories vs. Trade creditors (The Negative Working Capital Engine):
Under Current assets, locate Inventories (Note 13): 2,248 € Million.
Now look down under Current liabilities and locate Trade creditors, accrued costs and deferred income (Note 20): 7,590 € Million!
Key Insight: Current trade creditors and accruals (€7,590M) are more than 3.3 times larger than Inventories (€2,248M)! Even if you look at Note 20 (Page 119) and Note 28.2.2 (Page 131) to isolate pure merchandise Suppliers (€5,433 million), supplier payables are still 2.4 times larger than Inventories—because Biedronka sells its groceries for cash in ~20 days while paying suppliers within 30 to 60 days!
STEP 4: Locate the Segment Breakdown in Note 3.2 (Pages 93–95)
Go to Page 95 of the PDF (Note 3.2. Segments reporting – Detailed information by operating segments as at December 2025 and 2024):
Look at the columns across the top: Portugal Retail (Pingo Doce), Portugal Cash & Carry (Recheio), Poland Retail (Biedronka), Poland Health and Beauty (Hebe), Colombia Retail (Ara), Others, eliminations and adjustments, and Total JM Consolidated on the far right.
Inspect the top three rows for 2025:
Net sales and services: shows total segment sales including 1 million euros of internal sales between Group companies (25,344 € Million for Poland Retail).
Inter-segments: shows internal sales (1 € Million for Poland Retail), which are eliminated in the consolidation column.
External customers: shows the pure sales to external shoppers (25,343 € Million for Poland Retail / Biedronka out of 35,991 € Million for Total JM Consolidated)—this is the exact headline sales figure reported for Biedronka across the entire Annual Report (Pages 13, 14, 31, and 43)!
🎯 Task / Question for Team 3 (Y2024 Data)
Please complete STEP 3 (Consolidated Balance Sheet on Page 78) and STEP 4 (Segment Reporting in Note 3.2 on Page 95 / Consolidated Net Sales table on Page 31) for Y2024 data (using the right-hand comparative column 2024)!
📋 WORKFLOW: Paper First, Screen Second!
Use Your Printed Worksheet First (Scratchpad): Before typing anything on the screen, use the printed paper worksheet provided by your instructor to extract the Y2024 figures from Page 78 and Page 95 (or Page 31) of the Jerónimo Martins 2025 Annual Report PDF and calculate the Non-current assets percentage share by hand.
Whole Numbers Only (No Decimals!): Enter exact values in € Million directly from the 2024 column, and round percentages to the nearest whole number (e.g., write 68 instead of 68.40%).
Transfer Your Answers to the Online Form Below: Type your 10 answers into the interactive Y2024 Checker below and click Check until every box turns 100% Green!
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