By Daniela Soares Ferreira and Sonia Peres Pinto
After energy drinks, the focus was also on distribution. The Prime Minister announced this week that the bill that the government will introduce for the taxation of unexpected profits will also include the wholesale distribution sector. A news that hit industry leaders like a bomb, but which could calm public opinion given the results announced by the various companies this week. And the numbers speak for themselves. Galp made a profit of more than 600 million euros until September, EDP 518 million – despite the fact that the activity in Portugal made a loss of 181 million – and Jerónimo Martins made a profit of 419 million, among other things.
At Nascer do SOL, Gonçalo Lobo Xavier, Director General of the Portuguese Association of Distribution Companies (APED), says he found out “at the same time as the country”, and he expressed surprise at this decision, as to date the Government has never spoke to the entity. “We don’t know to what extent this was thought through. The truth is that it has no parallel with the recommendations of the European Commission, which was very clear about this tax for a specific sector of the economy and for a very specific reason,” he emphasizes. But he does leave a guarantee: “We are thinking about this and as a sector are waiting for information and explanation from the government. We don’t know exactly how it’s going to happen.”
The official also stated that “there was nothing out of the ordinary that contributed to the companies’ results” and that the sector is facing “massive growth in the cost of production factors across the chain and that has not been passed on to consumers”. And when it comes to food retail, he remembers it’s a very low margin business, on the order of 2 to 3%. «There is no extraordinary factor, no one is satisfied with the scarcity of raw materials, with the rise in the cost of factors of production, with the war, with the instability that all this causes in the economies».
Electricity companies established in Spain will not escape this extraordinary tax either. “Although the headquarters of EDP Renováveis is located in Spain, the company is also covered by this measure. Just look at the case of Iberdrola, which is also based in Spain and will fall under this measure,” said Henrique Tomé, analyst at XTB.
Minimize public opinion?
António Costa Silva was the one who kicked off the possibility of moving forward with this tax on extraordinary profits, but over the weeks he withdrew, even realizing that companies were unprepared. But the measure was finally made official by Fernando Medina during the presentation of the state budget proposal, guaranteeing it would continue even this year. Now António Costa has expanded the range in relation to the companies covered.
A measure that does not surprise Henrique Tomé. “It makes sense to continue with these tax hikes on extraordinary profits from companies that have benefited from the effects of inflation and should support the government’s proposed support measures,” he told Nascer do SOL.
However, he acknowledges that it is a controversial topic, “as government aid is significantly lower compared to other eurozone countries and this is noticeable when we analyze the impact this spending has in relation to GDP”.
But he also recalls that the net results of energy companies have risen significantly due to the rise in the prices of natural gas and oil. “This situation is causing discontent among companies, and in this part there is a clear mismanagement of the situation on the part of the government.” He has an opposing view on the taxation of distribution companies: “I believe that this measure should be better studied because, unlike other energy companies, these extraordinary taxes can seriously disadvantage the sector”.
João César das Neves had already guaranteed that an exceptional situation would justify the measure, but recalled that the difficulty is in determining this exception. “Some governments that find themselves in a more precarious political situation, such as in Spain, Italy and the United Kingdom, have more difficulty appeasing public opinion and resisting populist pressure. This shows less the wisdom of the measure than the political fragility of these countries,” he admitted.
Gonçalo Lobo Xavier also recalled that the distribution sector has signed a collective bargaining agreement with the union, in which an average of more than 5% of the salary scale was raised, regardless of the value of the national minimum wage. “It seems a bit demagogic to me that we say that companies are getting great results and people are feeling sick. Unfortunately, we have a country that is not rich, but that needs solid companies that create value and that, even many of them, have the ability to internationalize,” he said, adding that “looking at the results of companies with a feeling of discomfort seems to us to make little sense at a time when we need strong companies».
EDP saw profits rise to EUR 518 million in the first nine months of the year, despite activity in Portugal being penalized by extreme drought and high electricity prices in the Iberian wholesale electricity market.
EDP Renováveis followed suit in increasing profits, which in this case increased by 181% to 416 million euros. And he says the “solid” and “robust” results over this period were “primarily” impacted by the rise in sales prices and energy production.
This is followed by Iberdrola, which saw profits rise 29% in September to €3,104 million. And he says he wants to reach the end of the year with a record profit: 4200 million.
In turn, Galp made a profit of 608 million euros in the first nine months of the year, an increase of 86% compared to the same period last year. And he says the results “reflect strong operating performance across all business segments.” Repsol, on the other hand, saw profits rise 66% in September to € 3222 million. And he says these results allow him to “partially offset the losses” of 2019 and 2020.
Jerónimo Martins posted an attributable profit of EUR 419 million in the first nine months of the year, an increase of 29.3% compared to the same period of the previous year.
For now, only the owner of Pingo Doce has responded, saying that the company is not making excessive profits. “In Portugal, we have the highest rates applicable to corporate profits and we don’t know how the law will affect said unexpected profits. Unfortunately in Portugal we don’t see a profit increase that would allow us to say that we have extraordinary or exceptional profits. But we’ll have to wait and see what the impact of the law will be, it will depend on the design of the law that is published,” the company said during the presentation of the results.
This extraordinary tax has been applied in several European countries. Germany and Spain have already decided to tax the profits of companies in the energy and banking sectors, as well as Italy, the United Kingdom, Slovakia, Bulgaria and Romania.