Sports Direct hit with €674m tax bill from Belgian authorities

Shares in sports fashion retailer Sports Direct plummeted by as much as 27% to 166.6p in early trading today, later recovering to 208p, following its chaotic results announcement last Friday (26 July).

The results were expected to have been announced at 7am ahead of the market opening, less than an hour before Sports Direct was due to meet investors and the press at its London head office, but were only released at the tail end of the day.

It reported that underlying profit after tax was down 9% to £91.5m, compared with £100.6m, the previous year, after the group revealed it had been the subject of a tax audit in Belgium.

On 25 July 2019 it received a payment notice from the Belgian tax authorities to the amount of €674m (including 200% penalties and interest), and authorities are also requesting further information in relation to the tax treatment of goods being moved intra-group throughout the EU via Belgium.

Additionally, The Telegraph has reported that accountants at Grant Thornton were only informed of the claim from the Belgian authorities early on Friday, according to “well-placed sources”.

The acquisition of House of Fraser also impacted the results, with the retailer adding it has found problems in the company that were “nothing short of terminal in nature”.

Group underlying EBITDA decreased by 6% to £287.8m during the period, but excluding House of Fraser, underlying EBITDA would have increased 10.9% to £339.4m

It said “serious” under investment in stores and appropriate support services, “excessive and unsustainable” outsourcing and financing, and selling brands to the company’s Chinese parent shortly before administration are just some of the “many problems faced”.

However, underlying profit before tax was up 5% to £143.3m, which was largely due to the non-recurrence of investment write downs being counter-acted by the overall result of the group being down year-on-year, primarily due to the results from House of Fraser since its acquisition.

In a separate announcement, it has been revealed that Jon Kempster has decided not to stand for re-election at the company’s next AGM and will step down from his role as chief financial officer of Sports Direct and as an executive director from the board of directors.

The retailer said Kempster joined the company during a transitional period and was “proactive” in succession planning for the CFO position. Chris Wootton will be promoted from deputy chief financial officer to CFO effective 12 September 2019.

David Daly, chair of Sports Direct, said: “The board appreciates Jon’s contributions and wishes him well in his future endeavours.”