Sports Direct says it is facing a €674m (£605m) tax demand from Belgian authorities – as boss Mike Ashley warned that problems at House of Fraser were “terminal”.
Mr Ashley also warned of more store closures at House of Fraser and expressed apparent regret for buying it, as Sports Direct published a much-delayed set of full-year financial results.
The tycoon used the results statement to deliver a stark assessment of the problems his business is facing as well as venting at length about those he blames for them.
He warned that the acquisition of House of Fraser had “led to significant uncertainty as to the future profitability of the group as a whole”.
Meanwhile, the group said its chief financial officer Jon Kempster would step down in September.
Buried at the bottom of the results, Sports Direct revealed that only a day earlier it had received a payment notice of €674m from Belgian authorities – including penalties and interest payments – after a tax audit.
But the group said it would enter talks with the authorities and believed it was “less than probable” that the final sum due would be “material” to its finances.
It said the sum related to “amongst other things, the tax treatment of goods being moved intra-group throughout the EU via Belgium”.
Mr Ashley’s assessment of House of Fraser – after he had “looked under the bonnet” of the department store chain bought by Sports Direct for £90m last year – saw him take aim at previous management for its woes.
Blaming “serious under investment” as well as “greed and excess”, he said: “We have found that the problems are nothing short of terminal in nature.”
House of Fraser had 59 stores when acquired by Sports Direct last year – with Mr Ashley aiming to turn it into the “Harrods of the high street” – but by the end of April five had closed.
Mr Ashley said the group had worked as hard as it could to save jobs and stores but that many remained unprofitable and more were expected to shut in the next 12 months.
He added: “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… if we had the gift of hindsight we might have made a different decision in August 2018.”
The results showed underlying profits at Sports Direct rose 5% to £143.3m for the year to the end of April, with revenues climbing by 10% to £3.7bn.
But within this, House of Fraser dragged on the bottom line, recording an operating loss of £54.6m.
The results statement also saw Mr Ashley take aim at Debenhams after his failed attempt to take control of the company – in which Sports Direct had a 30% stake before it collapsed and was subsequently taken over by its lenders.
MPs were also in his sights – he accused them of having “showboated” during his appearance before a Commons select committee last December in which he expressed his concerns about the dire state of the UK high street, and of failing to act on his concerns afterwards.
The results were only published after markets had closed on Friday afternoon, having been due for release at 7am. They had previously been pushed back from an initial release date of 18 July.
Shares fell 4% on the delay, which was described as a “shambles” by one analyst – even before investors were able to deliver a verdict on the results themselves.
They will now have to wait until Monday when trading re-opens.