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Boohoo shares drop nearly 24% as analyst says response to Leicester factory claims not good enough

Lauretta Roberts
06 July 2020

Updated: Shares in fast fashion group Boohoo lost nearly a quarter of their value today, effectively wiping £1bn off the company's market capitalisation, after a newspaper investigation over the weekend showed illegal working practices at a Leicester factory purporting to be a supplier.

This morning the Manchester-based group responded to The Sunday Times investigation, which revealed that workers at a company claiming to be Jaswal Fashions were paid as little as £3.50 an hour, saying it would launch an investigation. However analysts' at Liberum said the company's response "does not go far enough".

The factory was also found to be operating last week during the local coronavirus lockdown in Leicester, without additional health measures in place. Although not a direct supplier to Boohoo, the factory was producing garments that were destined for Boohoo and its subsidiary Nasty Gal.

In a statement to shareholders this morning, Boohoo said: “We will not hesitate to immediately terminate relationships with any supplier who is found not to be acting within both the letter and spirit of our supplier code of conduct.

“This includes very clear expectations on transparency about second tier suppliers.”

In addition Boohoo said that the company occupying the Jaswal Fashions building was not, in fact, Jaswal Fashions, which ceased trading two years ago. “A different company is using Jaswal’s former premises and we are currently trying to establish the identity of this company,” it said.

“We are taking immediate action to thoroughly investigate how our garments were in their hands, will ensure that out suppliers immediately cease working with this company and we will urgently review our relationship with any supplier who have contracted work to the manufacturer in question," Boohoo added.

But brokerage Liberum said it was not satisfied with the response. “The statement only really speaks of investigating the particular factory in question and raises the question of how many other breaches management is potentially unaware of.

“The rest of the statement speaks of procedures and checks that management has already put in place, which if the allegations are true, have clearly not been robust enough to stop significant breaches happening.

“With an investigation requested by the Home Secretary into the matter, we think Boohoo had an opportunity to show leadership and get ahead of these allegations, and this statement will do little to convince stakeholders.”

Health Secretary Matt Hancock has said he had "significant concerns" about practices in some garment factories in Leicester, which have experienced outbreaks of COVID-19 amid a wider surge in cases in the city.

Speaking to Sky’s Sophy Ridge on Sunday programme, Hancock said companies can expect “very significant fines” if employment laws and Government workplace safety guidance were found to have been breached.

By close of business on 6 July Boohoo shares had slumped 23.43% to 296.7p.

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