August 25, 2017 / 12:01 PM / a year ago

Polish Eurocash says VAT refund issues neutral for acquisitions, dividend

WARSAW, Aug 25 (Reuters) - A board member at Polish retail and wholesale group Eurocash said on Friday the potential need to refund tax after it fell victim to a VAT fraud is neutral for its acquisition plans and dividend policy.

Late on Thursday Eurocash said it had been used in a Value Added Tax (VAT) fraud and may be obliged to refund the tax to the state, which will reduce the group’s 2017 profit by 114 million zlotys ($31.57 million).

The news sent Eurocash shares 5 percent down in morning trade and slowed the Warsaw blue chip index’s WIG20 rally.

Eurocash had notified the prosecutor about the suspicion of a crime and had paid the tax office 95.7 million zlotys in security of the potential VAT liability.

“The management has adopted a conservative approach when estimating the potential liabilities,” Eurocash board member Jacek Owczarek told Reuters on Friday.

The tax refund-related impairment weighed on Eurocash results in the second quarter when the company booked a net loss of 63 million zlotys versus a profit a year earlier.

“Taking into account the company’s financial condition then the VAT-related impairment is not an element that would prevent us from conducting acquisitions,” Owczarek also said. Earlier this month Eurocash said it considered buying a smaller retailer Mila.

He also said Eurocash maintained its dividend policy and planned to pay out around 50 percent of this year’s net profit, excluding the impairment.

Owczarek also said excluding the negative impact of the tax-related issues, earnings before interest, tax, depreciation and amortisation (EBITDA) in the second quarter rose year on year.

“Effectively, it was a quarter of stabilisation. Taking this into account we are on track to improve results in the third and fourth quarter,” Owczarek added.

Eurocash posted a net loss of 63 million zlotys in the second quarter compared to a 52 million zlotys profit a year ago due to the impairment.

In the statement released on Thursday night the company said its audit indicated that Eurocash had been used in a mechanism of VAT fraud by “groups of outside entities in transactions concerning intra-Community delivery of goods”.

The news comes at a time when the ruling conservative Law and Justice party (PiS) has stepped up actions aimed at more effective tax collection.

$1 = 3.6112 zlotys Writing by Agnieszka Barteczko; Editing by David Evans

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