Mike Ashley's Sports Direct suffered a 91 per cent fall in pre-tax profits after the sports retailer was forced to write-off £53.1 million of shares held in rival retailers following the collapse of its Iceland banking partner, Kaupthing Singer & Friedlander, (KSF) last year.

Pre-tax earnings at the retailer fell from £118.9 million to £10.7 million, despite resilient sales, up 5.1 per cent at constant exchange rates, because of a charge relating to shares held in Blacks Leisure, JD Sports, JJB Sports and Finland's Amer Sports.

The write-down arose because the shares were held on Sports Direct's behalf by KSF, and partly financed by the now stricken Icelandic bank. When KSF went into administration on October of last year, the shares it bought on behalf of Mr Ashley were frozen.

Sports Direct said it was "in dispute" with KSF's administrators, Ernst & Young, as to the true ownership of the shares. But, while that battle continues, the retailer said that it had to take account the fact that it did not have full control over the shareholdings.

"We have now concluded that, while we continue to maintain that the shares are ours and should be delivered to us, we may not 'control' the shares for accounting purposes," Sports Direct said in its full-year results statement to the Stock Exchange.

Mr Ashley, who owns 71 per cent of Sports Direct, holds a number of stakes in rivals.

Sports Direct owned 29.9 per cent of Blacks Leisure, 13.3 per cent of JD Sports, 1.5 per cent of Amer, and most controversially 4.8 per cent of JJB Sports through KSF at the time of its year-end on April 26.

Earlier this month, it emerged that Mr Ashley had privately agreed to lend Sir David Jones, the chairman of JJB Sports, £1.5 million to help him fund a separate technology company. Sir David was forced to pay the loan back after the secret arrangement between the two competitors became public.

Sports Direct has also been hit by £30.5 million in write-offs stemming from charges taken against freehold property bought that now appears overvalued and Everlast, the American maker of boxing equipment, acquired back in 2007 for £91 million. That also depressed pre-tax profits.

Underlying performance, though, was more resilient despite the depressed state of the economy, with only the weakness of the pound against foreign currencies causing problems. Gross margins across the group dropped to 40.8 per cent from 43.6 per cent, caused "almost entirely by the drop in the value of the pound" meaning that underlying earnings decreased 8.9 per cent to £136.8 million.

David Forsey, chief executive of Sports Direct, said that underlying earnings would be "at least £140 million this financial year," but promised that the group would trim debts, currently £431.3 million — 3 times underlying earnings — to below £400 million.

As previously reported, the company is scrapping its full-year dividend and will save £21 million.

Times Recommends

• Toyota recalls 437,000 cars including Lexus
• Myners says bonuses are bleeding pension funds
• Japanese company faked safety reports on seats