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boohoo's value crashes by £1bn as investors desert after Leicester factory allegations

Broker Liberum said the response from Boohoo ‘does not go far enough in our view’

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Boohoo Group PLC (LON:BOO) had more than £1bn cut from its market value as investors fretted over allegations about working practices at a supplier’s factory in Leicester.

The group’s response to the story was deemed inadequate by one broker, Liberum, which over the weekend cut its rating to 'hold' and its price target to 350p from 500p.

A story in the Sunday Times claimed conditions in the factory were akin to modern-day slavery. 

Jaswal Fashions was paying its staff as little as £3.50 per hour compared to the minimum adult wage in the UK of £8.72, according to an undercover reporter for the paper.

The site was also said to be operating without proper social distancing or additional hygiene protocols even though the city went back into lockdown last week.

Health Secretary Matt Hancock said yesterday he was concerned about working practices in some clothing factories in Leicester and wanted an investigation.

In a statement today, the AIM-listed fashion giant said it ‘remains committed to supporting UK manufacturing and is determined to drive up standards where this is required’.

“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."

Last week, boohoo’s factories were linked to the coronavirus outbreak in Leicester by a garment worker’s lobby group Labour Behind the Label.

it published a report that alleged staff at the online fashion giant’s factories in the city had worked as normal throughout the crisis and been ordered to come to in even when sick

Response from boohoo 'not enough'

Liberum said the response from boohoo ‘does not go far enough in our view'.

“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.”

“While we are huge fans of Boohoo’s strategy, with concerns on corporate governance and ethics escalating, the outlook for the shares becomes less certain,” said the broker.

boohoo raised eyebrows recently with a £150mln bonus scheme for its two founders that pays out if the share price rises by two-thirds.

The chances of that happening were diminished significantly today, however. 

Shares in the group, which is AIM’s largest company, had slumped 23% near the close to 295p compared to 388p at the start of trading.

Quick facts: Boohoo Group PLC

Price: 264.168 GBX

AIM:BOO
Market: AIM
Market Cap: £3.33 billion
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