GVC Holdings makes €200m provision for Greek tax bill, says it will appeal

Sports betting and gaming group GVC Holdings has made a provision of around €200m in its 2017 financial accounts after its Greek subsidiary received a €186.77m tax bill for 2010 and 2011.

During that period, the business was owned by Sportingbet, as this was prior to its acquisition by GVC in 2013.

Having obtained legal and tax advice, GVC said it has has “strong grounds” to appeal the assessment, which is what it plans to do. As currently there is no formal settlement mechanism, the appeal process is expected to be conducted through the Greek courts.

“The board strongly disputes the basis of the assessment calculation, believing the assessed quantum to be widely exaggerated and is confident in the grounds of appeal. However, given the group subsidiary has to go through an appeal process, the board believes it prudent at this juncture to make a provision,” it said.

In the meantime, in order for the Greek subsidiary to continue to trade normally, GVC plans to enter into a payment scheme with the local authority whereby around €7.8m is paid to the authority over the next 24 months and held on account.

GVC insisted that entering into this agreement is not an admission that the assessment is correct and said it will look to recover the payments.

The company said it was one of a number of online gaming operators that had been hit with a Greek tax bill.

Berenberg said the amount of tax demanded by Greece "grossly" overstates how much GVC should owe in back taxes. It estimates that the tax-only component of the request from Greek tax authorities should be around €10m. The bank also noted that the current Greek business is licensed and that the company has been regularly paying gaming taxes on it since 2013. As a result, it argued that there is no threat to the company’s legitimacy in Greece and no threat to the Ladbrokes Coral acquisition.

"But there is a risk it may not get all its money back: That said, even if the ruling ultimately finds in favour of GVC, it could take a long time for the company to recover the money from Greece, and it may not recoup the full amount. We have therefore factored into our GVC price target a 50% likelihood that it will end up not recovering the full €200m, which has
shaved 30p off our previous price target of 1,100p (now 1,070p). While initial market reaction is likely to be negative today, we would remind investors that, even in the worst-case scenario, €200m represents circa 6% of GVC’s standalone market cap, and 3% of the combined GVC-Ladbrokes Coral group."

Whitman Howard said: "We treat the €93m a year as an exceptional in our P&L, so whilst reported earnings would reduce, our underlying adjusted profits for the business remains as before at 65c for FY18 and 72c for FY19. We adjust our FY18E and FY19E cash forecasts for the €93m outflow a year and as a result the balance sheet swings into net debt of €77m (previously net cash of €17m) in FY18E and net debt of €61m (previously net cash of €127m) in FY19E.

"GVC’s balance sheet on a standalone basis remains robust with net debt/EBITDA ratio below 0.5x for FY18E and FY19E, despite the €93m outflow relating to tax."

At 1100 GMT, the shares were down 2% to 929.50p.