One day before its planned results presentation on 26 July, UK retail group Sports Direct was handed a payment notice on 25 July by Belgian tax authorities for EUR674m ($750m), including 200% penalties and interest. This led to a day the company is likely to want to forget with a series of repeatedly rescheduled then cancelled deadlines for the release of its results.
When eventually released in the evening, the company said the payment notice is not a formal tax assessment but a ‘proces verbal’ whereby the group will enter a ‘fiscal mediation’ in order to respond to the tax authorities questions and provide them with requested documentation. The company added that ‘it is less than probable that material VAT and penalties will be due in Belgium as result of the tax audit’. The Belgian authorities are looking into the tax treatment of goods moving through the EU via Belgium.
That said, the word used by one analyst to describe the events of 26 July was ‘shambles’ and follow-up reporting in the UK national press was not complimentary towards the company and its flamboyant CEO Mike Ashley. The Daily Telegraph claimed that the company did not tell its auditors of the Belgian tax demand ‘until the day it was due to release its annual results’.
The company’s presentation was accompanied by the news that CFO Jon Kempster is stepping down with effect from the end of the company’s AGM ‘to pursue other interests’. He will be replaced by Chris Wootton who will be promoted from Deputy Chief Financial Officer to CFO effective 12 September 2019.
On the subject of its auditors, Sports Direct denied that it had run an audit tender process this year, pointing out that Grant Thornton have been the group auditor since 2007 and the first year-end subject to audit after this date was the April 2008 year-end. In line with mandatory rotation rules their last possible year will be the April 2027 year-end and the company said last tender process took place in 2016.
Ashley also decribed as ‘inaccurate’ reports that Sports Direct’s 2018 year end accounts were being investigated. His statement said, “We reiterate that it was the audit of the financial statements by Grant Thornton and not the preparation of accounts by Sports Direct that were being reviewed, not investigated, by the Audit Quality Review Team. We would also note that FRC's Audit Quality Review team review on rotation which is a normal part of their procedures and we understand the Sports Direct audit has not been picked for any other reason.”
His statement also includes the remark that the company has ‘noted to the FCA that we believe that there should be a voluntary drug test for CEOs and CFOs of listed companies. Having such undisclosed personal issues could lead to blackmail and force CEOs and CFOs to make decisions based on saving their own skin and potentially reducing shareholder value’.
