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Summary
- On 19 October, Boohoo announced that PwC was still its auditor but would not participate in the bidding process for a new auditor.
- PwC has been Boohoo’s auditor since 2014.
The share prices of Boohoo Group Plc (LON:BOO) closed the day at GBX 254.00 on 19 October, down 19. 52 per cent after PricewaterhouseCoopers (PwC) quit as auditor for the fashion retailer. In a statement, Boohoo Group said that the leading accounting major was still the Group's auditor. However, Boohoo’s Audit Committee has initiated a competitive tender process for its audit purpose and would keep the shareholders updated once it would get finalised.
Boohoo noted that PwC has been its auditor since 2014 and would not participate in the bidding process for selecting a new auditor. The fast fashion retailer additionally stated that PwC has signed an unqualified opinion on its 2020 financial statements.
The development followed the scrutiny that Boohoo underwent in July over its business practices. The examination by Alison Levitt QC (Queen’s Council) presented a report stating malpractices in its Leicester supply chain. Some of the key findings showed sweatshop conditions, life-threatening conditions, lower pay than standard wages and long hours at work.
In the wake of the report, the retailer’s biggest shareholders have been requested to remove its billionaire chairman. Liz Kendall, a shadow minister, said that the investors must remove Mahmud Kamani and chief executive John Lyttle for such failures in the company’s supply chain. Members of Parliament from Leicestershire, including Jonathan Ashworth and Claudia Webbe and Conservative Andrew Bridgen, too called for a shake-up at the fashion retailer. The report mentioned that Boohoo deliberately did not allow poor conditions within its supply chain and was to bring in the changes as recommended by the investigation report.
Also read: Independent Review Identifies Flaws in Boohoo’s Leicester Supply Chain
Also read: Dunelm Group Plc (LON:DNLM) returns back £14.5-mn claimed under furlough scheme
Also read: Online sales a game-changer for these two LSE stocks: Dunelm Group & Domino's Pizza Group
Expert’s opinion
Several industry experts believed that after the recent investigations at the company, PwC does not want to continue with Boohoo Group. Despite the retailer implementing the suggested measures, they might find it tough to attract accounting firms to become auditors owing to the present circumstances. Auditors are apprehensive due to the reputational risks of getting associated with the Boohoo Group along with its governance system and supply chain mechanism.
Top audit firms rebuff Boohoo Group
According to industry sources, four well-known audit companies in the UK, including Deloitte, KPMG, BDO, and Grant Thornton, have ruled out working for the fast fashion retailer. This has left Boohoo Group with a difficult task of finding a replacement of PwC. EY remained as the only leading firm to bid for Boohoo Group’s contract.
While Deloitte and KPMG have opted not to bid for the role, BDO and Grant Thornton have decided not to seek appointment when approached by the Boohoo Group. Due to a potential conflict of interest, KPMG would be unable to apply for the role for a minimum of 12 months.
KPMG’s recent consulting assignment for the fashion retailer included advice to its pay setting committee. It is important to note that the Department for Business, Energy, and Industrial Strategy could exercise its legal powers for appointing an auditor to public companies that fail to find one from the open market.
Key highlights from Boohoo Group’s interim earnings report
On 30 September, the Boohoo Group released its interim results for the six-month period that ended on 31 August. Some key highlights are:
- Boohoo Group’s revenue was £816.5 million, up 44 per cent from £564.9 million registered for the same period in 2019.
- The retailer posted a strong revenue growth across all its geographical locations and brands.
- In the UK, growth was recorded at 37 per cent as compared to global growth that stood at 55 per cent. Of this overseas growth, around 83 per cent came from the US.
- Overseas operations accounted for around 47 per cent of the revenue, which was posted at 44 per cent in 2019.
- Boohoo Group was able to acquire new customers in the first quarter due to change in consumer behavior.
- The company completed minority shareholding in PrettyLittleThing, a British fashion retailer.
- Boohoo Group bought and integrated Oasis and Warehouse brands, UK brands that focused on fashion forward shoppers.
- In H1 2020, net cash at the company stood at £344.9 million as compared to £207.3 million in H1 last year.
- The operating cash flow of approximately £147 million was an increase from £55.9 million that was recorded for the same period last year.
Stock performance of Boohoo Group Plc
Established in 2006, Boohoo Group serves fashion conscious consumers across the globe through its online fashion platform. On 21 October at 12.29 PM, the company’s stock (LON:BOO) was trading at GBX 260.00 UP 3.96 per cent from its previous day’s close of £250.10. The 52-week low high range was recorded as 157.50 and 415.00. With a market capitalisation of £3,148.51 million, the stock provided a negative return on price, which was minus 16.38 per cent on a year-to-date basis. The total volume of shares traded at the time of reporting was recorded at 11,163,933.
