Sports Direct hit with £605m tax bill
Written by Peter Walker
Sports Direct’s long-delayed full-year results have revealed regrets over the purchase of House of Fraser - which recorded losses of £54.6 million for the period - and a £605 million tax bill from the Belgian authorities.
After being promised a week earlier, the report for the 52 weeks ending 28 April eventually came 10 hours after the expected time of delivery on Friday – and an hour after the stock market closed.
They showed a six per cent drop in group underlying earnings before tax to £287.8 million, although underlying pre-tax profit grew five per cent to £143.3 million.
Group sales rose 10.2 per cent to £3.7 billion, but for its key retail business - which trades under the Sports Direct chain - sales rose by just 0.3 per cent to £2.19 billion. On a like-for-like basis, which excludes new stores, sales fell 1.6 per cent.
On a statutory basis, the full-year group operating profit declined from £200.5 million to £160.5 million, while pre-tax profit more than doubled from £61.1 million to £179.2 million.
The report explained that these profits are likely to be hit by “material VAT and penalties” due in Belgium as result of the tax audit. The company blamed publication delays on the fact that it was only informed about a tax audit in Belgium the day before, and added that the fine - which includes 200 per cent interest and penalties - can be contested.
It explained that the authorities were “requesting further information in relation to, amongst other things, the tax treatment of goods being moved intra-group throughout the EU via Belgium”.
Meanwhile, Sports Direct admitted that House of Fraser, which it acquired out of administration for £90 million in August last year, was in “terminal decline” and that more stores may need to close.
Chief executive Mike Ashley criticised the department store’s former owners for under investing in the business and for “excessive and unsustainable outsourcing and financing”.
He called ex-chairman Frank Slevin the epitome of “City greed and excess” when House of Fraser was in a “death spiral”.
Sports Direct gave no financial guidance for House of Fraser this year and admitted it would have thought again at purchasing the department store. On its own, the department store chain recorded an operating loss of £54.6 million on the back of revenues of £330.6 million.
“We have done as much as we could realistically do to save as many jobs and stores as possible, and indeed we appreciate many landlords and local authorities have worked hand in hand with us as we tried to do this,” read a statement.
“We are continuing to review the longer-term portfolio and would expect the number of retained stores to reduce in the next 12 months,” Ashley continued, adding: “Even though we do believe there could be a bright future for House of Fraser, and indeed have publicised our Frasers vision which we are very excited about, if we had the gift of hindsight we might have made a different decision in August 2018,” he said.
Elsewhere in the announcement, Sports Direct’s chief financial officer Jon Kempster announced his resignation, “to pursue other interests” after two years with the retail group. He will be replaced with deputy finance chief Chris Wootton following the AGM in September.
The FTSE 250 company had been due to release its results on Friday at 7am. But when the markets opened an hour later, they were nowhere to be seen and investor calls were cancelled.
Analysts and investors were told to expect a further update at midday, which was subsequently amended to 2pm and then 4pm. Finally, at 5.19pm, the results were published and the City was told the presentation would take place at 6pm – but with journalist’s questions banned.
Ashley went on to deny speculation he was considering taking the company private, insisting that being public was a “good framework”.
He commented: “The thing about The City is it actually gives you a lot of disciplines… The City may think I’m a bit undisciplined as it is, imagine if I was private – I’d be uncontrollable.”