ZF argues foreign retailers "optimise" most of their profits made in Romania

"Dedeman's profitability is a very good indicator of what real profits multinationals make, but which they often "optimise" through transfer prices," Ziarul Financiar (ZF) daily concludes starting from the outstanding profit reported by the financial vehicle Paval Holding owned by the founders of DIY chain Dedeman, Dragos and Adrian Paval.

The outstanding EUR 690 mln net profit reported by the Paval Holding is a result of operational profit generated in the years before by the DIY chain Dedeman (and of the profits generated by the companies in the holding's portfolio), explained Dragos Paval - one of the two owners of the investment holding. This is accurate, but the double-digit net profit margin of Dedeman is also real - which supports the daily's conclusion (although based on approximate calculations).

"It is the operating profit accumulated over the years and undistributed from Dedeman, distributed as a dividend at the end of 2020, to which the dividends from all companies where Pavăl Holding holds shares are added," Dragoş Pavăl told Ziarul Financiar.

The robust profit reported by the Holding surfaced at the end of last week. Ziarul Financiar compared the high (16%) net profit margin of Paval Holding (of which Dedeman DIY chain accounts for a part only, just above half in terms of assets, according to our calculations) with the profit margins reported by other retailers: Leroy Merlin (9%) and Hornbach (2%) to name only those in the same segment.

This is not entirely accurate, though, since Paval Holding's revenues do not reflect those of the Dedeman DIY chain. However, the profit margin posted by Dedeman, calculated from the annual reports submitted to the Finance Ministry, was 14% for 2020, 15% for 2019 and 16% for 2018 - indeed well above those reported by other retailers - which supports Ziiarul Financiar conclusion related to abnormally small profit margins reported by the foreign retailers in Romania.

Over the past three years, Dedeman reported aggregated EUR 830 mln net profit for EUR 5.6 bln revenues, which can not be explained by retained earnings distributed with delay.

In the top of the largest retail traders, with a business of over RON 1 bln in 2019, Dedeman leads by net profit margin with 16%, followed by Pepco (Poland, 9% net profit margin), Leroy Merlin (France, 9% margin), Kaufland (Germany, 7%), Lidl (Germany, 5%), Mega Image (Belgium, 4%), Carrefour (France, 2%).

Some large retailers do not even declare a profit, such as Profi or Artima (Carrefour supermarkets), being at a loss. Auchan declares a net profit of RON 0.03 bln for RON 5.4 bln turnover, namely 0.5% profit margin.