// Sports Direct published its full-year results on Friday night after a 10-hour delay
// The Mike Ashley-owned firm is being pursued by Belgian authorities over a £605m tax bill
// Sports Direct also confirmed House of Fraser store closures on the horizon as it booked a loss of £54.6m
// Chief financial officer Jon Kempster resigns “to pursue other interests”
Sports Direct has said it is being pursued by Belgian authorities over a €674 million (£605 million) tax bill and expressed regret over acquiring House of Fraser after the department store booked a loss of £54.6 million.
Jon Kempster, Sports Direct’s chief financial officer, also resigned “to pursue other interests” after two years with the Mike Ashley-owned company.
He will be replaced with deputy finance chief Chris Wootton following the AGM in September.
The revelations came amid the firm’s full year results for the 52 weeks ending April 28, which were published last Friday night nearly an hour after the stock market closed – and following a 10 hour delay.
Sports Direct reported a six per cent drop in group underlying EBITDA to £287.8 million, but underlying pre-tax profit grew five per cent to £143.3 million, the delayed results showed.
Group sales for same period climbed 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, Sports Direct’s 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.
However, Sports Direct said it was “less than probable that material VAT and penalties will be due in Belgium as result of the tax audit”.
It said it was informed about a tax audit in Belgium only the day before the full-year results were due to be published, and the fine – which includes 200 per cent penalties and interest – can be contested.
The firm added that 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.
Ashley hit out at the department store’s former owners for under investing in the business and for “excessive and unsustainable outsourcing and financing”.
He also placed a lot of blame on ex-chairman Frank Slevin, labelling him as the epitome of “City greed and excess” when House of Fraser was in a “death spiral”.
Sports Direct would give no financial guidance for House of Fraser this year and admitted it would have thought again at purchasing the department store a year ago.
On its own, House of Fraser recorded an operating loss of £54.6 million on the back of revenues of £330.6 million.
“We have found that [House of Fraser’s] problems are nothing short of terminal in nature,” Ashley said.
He added: “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.
“However, there are still a number of stores which are currently paying zero rent and that are still unprofitable and unfortunately this is not sustainable.
“We are continuing to review the longer-term portfolio and would expect the number of retained stores to reduce in the next 12 months.
“On a scale out of 5, with 1 being very bad and 5 being very good, House of Fraser is a 1, albeit we are trying very hard to turn the business around this will not be quick and it will not be easy.
“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.
The full-year results were published at the end of a bizarre day for Sports Direct, which was branded a “total shambles” after it delayed publishing them for the second time in as many weeks.
The FTSE 250 company had been due to release its full-year results on Friday at 7am.
By 8am on Friday, when the stock market opened, the results were still missing, all planned calls with the media and analysts in the City were cancelled, and a presentation to investors at the retailer’s London head office was scrapped.
Analysts and investors were told to expect a further update at midday.
This was subsequently amended to a 2pm update, and then a 4pm update.
Finally, at 5.19pm – almost an hour after the stock market closed – the results were published and the City was told the presentation from the company would take place at 6pm.
Journalists were told initially they would be banned from asking questions.
Speculation was rife throughout the day on the reasons for the delays, but the firm confirmed the issues with Belgium were the cause.
Ashley also denied speculation he was considering taking the company private, insisting that being public was a “good framework”.
“The thing about the City is it actually gives you a lot of disciplines,” he said.
“The City may think I’m a bit undisciplined as it is, imagine if I was private – I’d be uncontrollable.”
Sports Direct’s full-year results were initially due for publication on July 18 but this was postponed to a later date.
It confirmed on Wednesday last week that the results would be published the following Friday.
Sports Direct said the initial delay was due to “complexities of the integration into the company of the House of Fraser business”.
It also blamed “increased regulatory scrutiny of auditors and audits including the FRC review of Grant Thornton’s audit of the financial statements of Sports Direct for the period ended 29 April 2018.”