One part of Sports Direct’s plea about the delay in publishing full-year results is credible. The firm’s auditor, Grant Thornton, is struggling to repair its reputation and probably regrets ever accepting the job of approving the sportswear retailer’s accounts. So it would be understandable if it wants to test every assumption in the 2019 numbers.
Last week the second-tier auditing outfit was put into the regulatory equivalent of special measures after 50% of its work was deemed substandard in the Financial Reporting Council’s latest annual review of quality. What’s more, the 2018 audit of Sports Direct was one of eight probed by the FRC’s inspectors. Thus the now-delayed 2019 audit of the same company is a big one for Grant Thornton. In these circumstances, it is better to be accurate than on time.
Yet Sports Direct’s investors can take no comfort from the heat on its auditor. The other half of the explanation for delay is alarming. What does “current uncertainty as to the future trading performance” of House of Fraser mean?
The department store chain was acquired out of administration last year with the ambition of turning it into “the Harrods of the high street”, according to chief executive Mike Ashley’s bluster. The fruits of this “elevation” strategy are hard to spot in the stores but the root of the uncertainty sounds more basic. Has Ashley decided how many stores to keep? If not, the auditors would be entitled to be baffled.
Indeed, an audit is a two-way process in which management starts by presenting numbers. It is conceivable that Grant Thornton has been obliged to work overtime because Sports Direct itself is struggling for clarity after Ashley’s dealmaking blitz in the past two years, a theory advanced by analysts at City brokers Peel Hunt. Sports Direct’s finance department, and thus the auditors, “seem to have been overrun by the amount of work required, given the changing shape of the group”, they suggested. Yes, that’s plausible.
Sports Direct has given itself until 23 August to announce numbers for the financial year that ended on 28 April – so within a week of the four-month reporting deadline for quoted companies. That’s cutting things fine. In the meantime, investors are left with ominous words about how “a number of key areas” could “materially effect” guidance given in the interim report last December. That sounds like a profits warning, with only the severity to be determined.
If so, the main conclusion requires no auditing detective work: Ashley should have stuck to flogging cheap sports kit and avoided vainglorious adventures such as HoF. But we knew that already.
GSK’s £4bn-worth of confidence in biotech firm Tesaro may be justified
GlaxoSmithKline gave its shareholders a fright last year when it agreed a 110% takeover premium to buy a US biotechnology firm whose main drug, for ovarian cancer, struck many outsiders as too small to justify a $5bn (£4bn) purchase. Glaxo’s educated guess was that Tesaro was developing something much bigger. If you’re going spend that kind of money, you’d better be right.
The good news is that the results from a big clinical trial, already in progress at the time of last December’s deal, appear to justify Glaxo’s confidence. The readout from the labs suggests Zejula could be prescribed at an early stage of treatment and thus should be useful for three times as many women with the cancer.
It’s a useful advance for GSK’s effort to rebuild its oncology portfolio after selling the old products to Novartis five years ago via a complicated asset swap. Two more important clinical trials – one involving a Tesaro compound, one not – are due to show results later this year, so it’s too early to declare victory. But progress with Zejula represent a decent start.
GSK chief executive Emma Walmsley will be relieved. She can control the fancy strategic stuff, such as the intended demerger of the Aquafresh-to-Panadol consumer products division, but she relies on the scientists, notably big hire Hal Barron, to make sensible pharmaceutical bets.
A (modestly) improving share price, and a £4bn deal that longer looks overpriced, suggests GSK’s self-help approach in pharma is moving in the right direction. About time too, investors might add.
Will renaming the Boeing 737 Max help to reassure fearful passengers?
Would a rebrand for the Boeing 737 Max, the aircraft that is grounded worldwide after two crashes in Indonesia and Ethiopia killed a total of 346 people, really a good idea? Fearful passengers want to know the software, currently being modified, is safe. A cynical marketing ploy may create more suspicion than it dispels.
