Section:GDN 1N PaGe:37 Edition Date:190815 Edition:01 Zone: Sent at 14/8/2019 19:36 cYanmaGentaYellowb
Thursday 15 Aug ust 2019 The Guardian •
Financial^37
Sports Direct shares fall to eight-year
low as auditor Grant Thornton quits
Mark Sweney
Shares in Sports Direct have tumbled
to their lowest level since 2011 after its
auditors quit, leaving the retailer less
than a month to fi nd a replacement.
The share price slumped more than
11% to 214p on the news, valuing the
company at just over £1bn. Five years
ago, shares were changing hands at
922p and the retailer was valued at
more than £5bn.
Yesterday’s share price slump
slashed the value of the 62% stake in
the business held by the chief exec-
utive, Mike Ashley, by almost £90m.
Grant Thornton, which has audited
Sports Direct since its 2007 fl otation,
will stop working with Ashley’s busi-
ness following its annual meeting on
11 September.
The announcement came a day
after Sports Direct published its annual
report, in which Ashley proposed that
Grant Thornton be reappointed by
shareholders at the meeting.
The resignation puts Sports Direct
in a diffi cult position, as Ashley said in
the report that the scale and complex-
ity of the company mean t it need ed
one of the “big four” accounting fi rms- Deloitte, PwC, KPMG and EY – to cope
with its auditing requirements.
However, Ashley admitted that
discussions with each of them about
taking on the audit responsibility for
Sports Direct had got nowhere.
Ashley said Deloitte could not take
on the audit work because it handle d
Sports Direct’s tax compliance and
advisory work, but seemed unim-
pressed by the reasons given by the
other three big auditors as to why they
would not take on Sports Direct.
KPMG cited confl icts of interest
with its client base, which Ashley
annual results. It eventually published
them after the market had closed on a
Friday evening.
The document included the bomb-
shell revelation of a €674m tax bill
from the Belgian authorities. T hefi nance director announced his res-
ignation the same day.
In a joint statement with Grant
Thornton, Sports Direct said it still
aim ed to appoint one of the big
accountancy fi rms, despite rejections.
“Sports Direct has a longer-term aim
of looking to engage a big four audi-
tor in the future,” the companies said.
Sports Direct has now asked the
government what its options are, as
it faces breaking stock market rules if
it cannot appoint an offi cial auditor at
its annual meeting.
The business secretary, Andrea
Leadsom, has the power to appoint an
auditor to a quoted company if it can-
not do so itself. If Sports Direct fails to
fi nd an auditor it will be the fi rst major
publicly listed company to do so.
The Financial Reporting Council
is investigating Grant Thornton over
why it did not disclose payments made
by Sports Direct to a company run by
Ashley’s brother as a related-party
transaction in the accounts. The FRC’s
audit quality review team is also look-
ing into how Grant Thornton valued
Sports Direct’s holding in Debenhams
before its near-collapse in June.
Neil Wilson of Markets.com said:
“Investors have reacted to the latest
sign of the complete and utter lack of
control at the top.”believed was not an “insurmount-
able” issue. EY, he said, had shown
“ reluctance” because it ran the House
of Fraser administration process, in
which Ashley bought the business
for £90m. Ashley said PwC ha d cited
“a reluctance to engage based on our
ownership structure”.
The audit industry is under pressure
to raise its standards after a series of
high-profi le collapses in recent years,
including BHS and Car illion, and the
£94m black hole discovered in the
accounts of Patisserie Valerie.
Ashley criticised the big four for
being “more than happy” to take on
companies such as Carillion, which he
said supposedly had good governance,
while Sports Direct off er ed “trans-
parency, true and fair accounts, and
realistic communications and expec-
tations to the market”.
Last month Sports Direct stunned
investors by repeatedly delaying itsOffi ce-space
startup
WeWork
announces
fl otation
Dominic Rushe
New York
WeWork, a company that has shaken
up the world of offi ce rentals by bring-
ing a hipster aesthetic and free beer
taps to the offi ce , has become the lat-
est Silicon Valley “unicorn” to fi le for
an initial public off ering (IPO) , reveal-
ing rapid growth but huge losses.
The nine-year-old company now
runs offi ces in 111 cities worldwide
with 527,000 “members” paying fees
for access to shared workspaces in 29
countries across the world.
We Co , WeWork’s parent company,
more than quadrupled its revenue
from 2016 to 2018 to $1.82bn (£1.5bn).
At the same time, the fi ling shows, the
company lost close to $700m in the
fi rst half of 2019, on top of $1.6bn in
2018, almost $900m in 2017 and more
than $400m in 2016.
In the prospectus, We Co warned :
“We have a history of losses and,
especially if we continue to grow at
an accelerated rate, we may be unable
to achieve profi tability at a company
level ... for the foreseeable future.”
The share sale will be the latest test
of investor appetite for fast-grow-
ing companies making huge losses.
This year has been the biggest for U S
IPOs since 2014, with Uber and Lyft,
fellow unicorns (private companies
valued at over $1bn) making much-
awaited market debuts. However, the
car-service rivals have struggled since
listing : investors have been wary of
their multibillion -dollar losses and
absence of a profi tability timetable.
WeWork was founded by Adam
Neumann, 40, an entrepreneur whose
previous businesses included a com-
pany making shoes with collapsible
heels and baby clothes with built-in
kneepads. Neither company took off.
In 2008 he opened his fi rst co-working
space in Brooklyn, New York, with his
business partner, Miguel McKelvey – a
venture that proved a hit with entre-
preneurs, supported by low interest
rate loans and venture capital money.
Japan’s Soft Bank is We Co’s larg-
est investor and has invested about$10.5bn in the business. It s last invest-
ment, of $2bn, valued the company
at $47bn. Much of that money comes
from the SoftBank Vision Fund, which
is largely backed by the Public Invest-
ment Fund of Saudi Arabia.
With its steep losses, WeWork faces
some of the same headwinds which
have held back Uber and Lyft. Its
business model, based on short-term
revenue agreements but long-term
loan liabilities, has faced investor
scepticism. Revenue has surged,
however, with the company off ering
start ups and entrepreneurs short-
term contracts in lieu of traditional
long-term leases. It also generatesgreater revenue per square foot than
landlords.
The company also warned that rev-
enues per member would fall in future.
“Average revenue per WeWork mem-
bership has declined, and we expect
it to continue to decline as we expand
internationally into lower priced mar-
kets,” the company said.
We Co is expanding into other
businesses including WeLive apart-
ment rentals, and WeGrow education,
but neither business has gained the
traction of WeWork, and in the pro-
spectus the company warns that
these businesses too “may not gener-
ate meaningful revenue or cash fl o w ”.Mike Ashley says his fi rm
needs one of the ‘big four’11%
The fall in Sports Direct’s share price
yesterday, slashing the value of
Ashley’s holding by almost £90m▲ Adam
Neumann, 40,
the founder
of WeWork
PHOTOGRAPH: CHRIS
FLOYD/THE OBSERVER▼ A shared offi ce
run by WeWork
in New York.
Its parent
company lost
$1.6bn in 2018‘If we grow at
accelerated
rates, we may
be unable to
achieve
profi tability
at company
level ’IPO
prospectusРЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS