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Boohoo Group denies cashflow claims

Tom Shearsmith
27 May 2020

Boohoo Group has strongly denied claims that it had exaggerated its free cashflow by more than £32m.

Shares in Boohoo fell by more than 12% after investor Shadowfall, a London hedge fund that specialises in taking positions against companies’ share prices, revealed it had bet on a share price fall.

The leading online fashion group noted that the recent decline in its share price is in response to the short-selling note issued, that contains allegations of disclosing information that could be deemed to be misleading.

In a 53 page report, Shadowfall claimed that the Boohoo Group had overstated its free cashflow this year by 65% (£32.2m), partly because it failed to take into account its tax payments.

It also alleged that the company was treating cash that is generated by its PrettyLittleThing subsidiary as if it owned the business entirely, despite only having a 34% minority stake.

In response to the claims, Boohoo issued a statement to clarify:

"The group strongly refutes any allegations of understating costs incurred by PLT, thereby overstating its profitability. All inter-company transactions are conducted on an arms' length basis.

"The Group operates a multi-brand strategy with the profitability of its more established brands such as boohoo and PLT being significantly ahead of the Group's adjusted EBITDA margin of 10.2%; with that higher margin being reinvested into new opportunities and brands that the Group has started or acquired in recent years.

"As disclosed at the time of the acquisition of the majority of PLT, and in the latest annual report and accounts, the Group has the option to acquire the remaining 34% minority shareholding in PLT, with the terms of the option coming into being on 28 February 2022. Under the terms of the agreement, it was agreed that an independent big-four accountancy firm would undertake a valuation exercise to determine the market value for PLT, after which a minority discount may be applied of up to 30%.

It continued: "Whilst the Group has recognised the minority interest in this manner at a statutory level, for adjusted earnings per share, the Group has deemed it appropriate to recognise the full 100% of the 34% of PLT’s adjusted profit after tax to allow its shareholders and readers of the accounts to fully understand PLT’s underlying profitability. To not do so would risk over-stating the Group’s current adjusted earnings per share, and understate the minority shareholders’ likely future interest in the after-tax profits of PLT.”

Boohoo also refuted Shadowfall's claims that rival online retailer I Saw It First could threaten Boohoo’s market position.

"I Saw It First is an online fashion business, based in the UK, set up by Jalal Kamani in 2016, having previously worked at boohoo group. Jalal Kamani retains a small holding in boohoo group plc (0.65%). The business is an unrelated entity to boohoo group and is a smaller competitor in a highly fragmented marketplace."

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