Published: 6th October 2020 – 15:50

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When a company faces serious allegations, whether it be aggressive accounting, falsification of financial statements, unethical conduct by management, or possibly the exploitation of workers in its supply chain, amongst the factors which influence our decision to cover, retain, increase or initiate a short position is how management responds to those allegations. For example, does the company outright deny the allegations, although refrain from providing any supporting evidence as to why the allegations may be false? Perhaps the company simply ignores the allegations, hoping they will go away? Sometimes the company may attempt to discredit the critic, to distract from the allegations and divert attention onto those who are highlighting the company’s wrongdoing? A company’s management may even go so far as to wage its battles with critics privately, by engaging external operators to smear or use costly and aggressive legal avenues to attempt to silence the critics. The manner of response can be wide-ranging, and different responses can be revealing for different reasons.

When a company seeks to engage directly, the perception by its supporters is that this reflects better on the company. However, if the allegations are accurate, then this can be a risky course to take. The response will be on record. But when this happens, then the natural focus is on the language used in written responses, where we look for deviations against prior statements. We also monitor verbal responses, where contrary to written announcements, the author has had time to carefully craft a response; verbal statements can often be live in the form of analyst calls or interviews, and the speaker has less time to prepare. When available, we also look at body language and speech patterns including tone, intonation, breathing patterns, indications of nervousness, all for signs of deflection, deception, evasiveness, or other features that may provide insight into the credibility of the underlying message being relayed.

Figure 1: Linda Blair, The Exorcist, 1973. Source: Warner Bros, AA Film Archive, Alamy Stock Photo

On body language, here is an excerpt from an interview during 2013, with the former CFO of Wirecard, Burkhard Ley:


“You are the only large payment processor, who actually owns a bank. Does that give you a competitive edge in anyway?”

Burkhard Ley, CFO, Wirecard AG:

“Definitely, we decided in 2006, having a history of seven years as a pure payment processor, to acquire Wirecard Bank, integrated it and I would say this has at least two huge advantages. . . . and secondly, with having the bank we were able to increase the value chain internally, we are now profiting from being a technology company as well as being a bank and this deepens the value chain.”

The words all sound straight forward and believable. However, when watching the video of the interview there is one glaringly obvious red flag that should have set alarm bells ringing for Wirecard’s investors. Instead, for Wirecard’s sceptics it was positively encouraging that all was not as it seemed within the company. When Burkhard Ley mentions “profiting from being a technology company” he can’t look his interviewer in the eye. Not only can Ley not look his interviewer in the eye, but his head almost rotates completely off his shoulders just as he mentions “profiting”. We took this, not as a sign of demonic possession but rather extreme discomfort with the answer Ley was providing. We interpreted this jerky, involuntary reaction as evidence that Ley knew he was inventing a claim that Wirecard was profiting from being a technology company. At no other point in the 4-minute interview does Ley repeat this type of head movement. It would now appear that Ley was lying and his weird head movement gave it away. Seven years later and Ley is now cooperating with the fraud investigation into Wirecard AG and rejecting the allegations against him.

Below is a clip of the interview mentioned.

Figure 2: European Conference in Penny Hill, Burkard Ley, former CFO of Wirecard AG, 5 December 2014. Source: YouTube

A further, more comprehensive example of a forensic dissection of verbal and written responses is that which was conducted by Muddy Waters regarding the AIM listed company, Burford Capital. In August 2019, Muddy Waters commissioned the firm, QVerity, Inc, to conduct behavioural analysis of Burford Capital’s written response, as well as its commentary and responses to investor’s questions regarding Muddy Waters’ report. We, and no doubt others, found this to be particularly enlightening in helping us to determine whether Burford’s management had proficiently responded to the well-reasoned concerns that Muddy Waters had raised regarding Burford’s accounting and its corporate governance.

ShadowFall is short Boohoo.

The Independent Review into Boohoo’s UK Supply Chain, which was led by Ms Alison Levitt QC, was published on September 25, 2020. The 234-page report provided an opportunity to evaluate our position in Boohoo and having read the report we elected to increase our short position. Our evaluation of matters is that all too often Boohoo’s management’s version of events does not reconcile either with the report’s findings or prior statements which they have made. We discuss our reasoning in more detail below. There is of course also the serious Environmental, Social and Governance (ESG) issues to consider. However, whether ESG features in an investor’s approach to their investment framework or not, we believe that integrity of management should be a universal consideration in determining an investment. Suffice to say, we would be astonished that Boohoo’s institutional investors could satisfy themselves that Boohoo’s management is reliable.

We also note that now that the review commissioned by Boohoo is concluded, it does not mean that the issues – which Boohoo claims it is addressing – are left there. It is now a matter for the statutory authorities to decide whether they wish to pursue or indeed continue any such investigation that may be underway into the serious issues that have been occurring in Leicester. In that regard, we note that Ms Levitt alerted the National Crime Agency (NCA), HMRC and the Health and Safety Executive (HSE) that she had been engaged in her review. Given the evidence that Ms Levitt was able to uncover in such a relatively short period of time, even during instances of less than forthcoming cooperation, we trust that these agencies will take a keen interest.


On July 5, 2020, the Sunday Times published two reports on Boohoo and its supply chain. These were:

  • “Boohoo’s sweatshop suppliers: They only exploit us. They make huge profits and pay us peanuts”; and
  • “Boohoo: fashion giant faces ‘slavery’ investigation”.

The reports highlighted the experience of an undercover reporter in a Leicester factory and alleged that a supplier to Boohoo had been exploiting workers by paying below the minimum wage and pressuring workers to attend work despite risks from Covid-19.

On July 6, 2020, Boohoo released an RNS, thanking the Sunday Times for bringing this to light, but also noting that the supplier highlighted by the Sunday Times was “. . . not a declared supplier and is also no longer trading as a garment manufacturer”. The line was spun that a different company was using this supplier’s former premises and that Boohoo would investigate further. Part of the perfunctory response was written as follows (our bold for emphasis).

We are keen and willing to work with local officials to raise standards because we are absolutely committed to eradicating any instance of non-compliance and to ensuring that the actions of a few do not continue to undermine the excellent work of many of our suppliers in the area, who provide good jobs and good working conditions.”

This statement did not shore up Boohoo’s share price. By July 8, 2020, the group released a further RNS, announcing an “Independent Review of UK Supply Chain”. This detailed the launch of an immediate independent review of Boohoo’s UK supply chain, to be led by Ms Alison Levitt QC. The July 8, 2020 RNS began (our bold for emphasis):

As a board, we are shocked and appalled by the recent allegations that have been made and we are committed to doing everything in our power to rebuild the reputation of the textile manufacturing industry in Leicester. We want to ensure that the actions of a few do not continue to undermine the excellent work of many suppliers in the area, who succeed in providing good jobs and working conditions.”

On September 25, 2020, Boohoo released an RNS, “An agenda for change in UK garment manufacturing”. This was accompanied by the open publication of Ms Levitt’s report.

The report begins in a jovial spirit, mentioning the success of the company, job creation in Manchester and Burnley and the workforce as a family. However, what follows, is in our view, damning, reflecting a board whose actions have been inadequate.

In particular, we believe that Boohoo’s CEO has been inconsistent with his comments regarding the allegations and that the Executive Chairman is unfit for stewarding a listed company. This sentiment has been echoed by Liz Kendall MP (Leicester West), who yesterday wrote to Boohoo’s major shareholders:

“. . . calling on Jupiter, Invesco, Baillie Gifford and Boohoo’s other shareholders to demand the removal of the current Chief Executive and Executive Chair.”


Ms Levitt’s interaction with Boohoo’s Chairman, Mahmud Kamani, was conducted by video interview from the breakfast setting of a hotel in Istanbul. Ms Levitt notes:

The setting in which he chose to be interviewed about these serious matters (having breakfast on a terrace with people coming and going) left me doubtful of the seriousness of his approach to my Review, given his senior position in the company. However, I am prepared to accept that this was a misjudgement of the circumstances on his part rather than a lack of interest.

We view Ms Levitt as generous in accepting that this was a misjudgement, especially when Ms Levitt goes on to say:

Interviewing Mr Kamani was a colourful experience. One possibility is that he didn’t care what I thought; the other is that these answers represent his real opinions. Either way, this is a cause for concern in terms of the light it throws on the governance of Boohoo.

Further, when it came to the series of questions which were designed to try to understand Mr Kamani’s views around the issues in the Leicester supply chain compliance function, Ms Levitt notes:

Alison Levitt QC (ALQC): “Did there come a time when you became concerned that you didn’t have visibility on what was happening in Leicester?”

Mahmud Kamani: “No not really, I never had that concern.”

Edward Toogood is Boohoo’s Head of Internal Audit Committee. Somewhat astonishingly, Mahmud Kamani, who Chairs Boohoo, doesn’t know who his Head of Internal Audit is. Ms Levitt asked (our bold for emphasis):

ALQC: “Do you remember [Edward Toogood] raising it?”

Mahmud Kamani: “. . . who is this guy? [Edward Toogood] who??

ALQC: “He’s your internal auditor”

Mahmud Kamani: “He had some concerns did he?”

ALQC: “Yes”

Mahmud Kamani: “And did he make it better?”

ALQC: “It’s fair to say it’s taken a while”

By the time of Ms Levitt’s interview with Mr Kamani, on August 21, 2020, Verisio [an ethical audit company which was engaged by Boohoo in August 2019], had conducted 204 spot checks on suppliers. According to Mr Kamani, he hadn’t bothered to read these reports. Regarding the Verisio reports, Ms Levitt details:

ALQC: “Have you seen them?”

Mahmud Kamani: “No, John [Lyttle] is looking at them”

ALQC: “What are [Verisio] finding?”

Mahmud Kamani: “Is it 50:50? I haven’t got a full brief”.

Based on the above, we have serious doubt whether the Chairman of Boohoo is “keen and willing” to work to raise the standards in the supply chain in Leicester. However, Ms Levitt’s verdict on this and Mr Kamani’s own words are the most relevant and, in our view compelling. Ms Levitt states (our bold for emphasis):

As Mahmud Kamani told me, he knows how to sell clothes and leaves it to others to deal with the other aspects of running the company. I have concluded that for too long, Mr Kamani’s priorities have been allowed to dictate company policy.

We believe that this is a staggering admission by a Chairman. Mr Kamani’s role as Chairman is to lead the Board, focus on strategic matters, oversee the group’s business and to set high governance standards. In his own words, Mr Kamani states that he leaves it to others to deal with running Boohoo, which begs the question, what exactly does he do as Executive Chairman? In the light of this, we are surprised that Mr Kamani remains in place as Chairman.


According to the report, Boohoo’s UK Compliance Team comprises six individuals for a UK supplier base of 220. Ms Levitt highlights that at the outset a request was made for a list of Boohoo’s Tier 1 and Tier 2 suppliers and that this list was never provided. Ultimately, Ms Levitt concluded that such a list doesn’t exist. However, this 220-supplier base seems contradictory to other mentions in the report. Apparently in an interview with Carol Kane, Group Executive Director, Ms Kane advised that there were roughly 200 Tier 1 suppliers and around 300 Tier 2 suppliers in Leicester. This tally would also seem to contradict evidence which Ms Kane gave to the House of Commons, Environmental Audit Committee in November 2018:

Chair (Mary Creagh): “Okay, thank you. Ms Kane, what do you do with Boohoo? How many factories in Leicester do you use?”

Carol Kane: “We currently work with 94 factories and 76 cut, make and trim units.”

Chair: “Sorry, say again?”

Carol Kane: “CMT units we call them, so second-tier suppliers.”

Chair: “You work with 94 factories?”

Carol Kane: “Ninety-four suppliers and 76 CMT units in Leicester.”

Chair: “CMT is second-tier factories?”

Carol Kane: “You could refer to it as that. If we placed an order with one of our suppliers, who would have their own production capacity, if their capacities were full there is a second tier of audited units that can manufacture for those suppliers.”

Whether it was 220 or 94 Tier 1 and 300 or 76 Tier 2 suppliers in Leicester, the report states that in Leicester there was only one Compliance individual ‘on the ground’. Further, that this Compliance auditor was placed on furlough during the pandemic. Presumably this would make it difficult to audit factories that remained supplying Boohoo during the lockdown period and to ensure that health and safety conditions were adequate for the workers.

According to the report, one Compliance individual based on the ground in Leicester, for its estimated 220 suppliers compares to ten Compliance individuals for 87 suppliers in China (the report states that the UK team comprised on 6 individuals but that only 1 was on the ground in Leicester).

A Compliance team nearly double as many in China for a Leicester supplier base multiple times larger than that in China strikes us as reflective of Boohoo’s supply chain audit procedures being inappropriate.


We also note that in her evidence to the House of Commons, Environmental Audit Committee (EAC), Ms Kane states (our bold for emphasis):

Carol Kane: “Can I answer those as two different things? . . . I do not know of any instances and I do not accept there are any instances where suppliers are played off against each other. I used to be very much a part of that supply chain for many years before I became a founder of Boohoo.com, so I do understand the sensitivity of costing from one supplier to another. I took that allegation on board. I have asked if that does happen. I have sat in meetings and I have not witnessed that ever happening on our buying floor.”

This is a complete contradiction to the comments which were made by Brian Small, Boohoo’s Deputy Chairman and Chair of the Audit Committee. According to Ms Levitt (our bold for emphasis):

Brian Small said “you want to play suppliers off against each other of course you do, that’s business”.

We interpret this to mean that either Ms Kane misspoke to the EAC, or that Ms Kane is unaware of the methods used by Boohoo’s buyers in their approach to bargaining with suppliers. Alternatively, Mr Small could have been mistaken, however, Ms Levitt indicates that this sentiment was also expressed by Boohoo’s CFO, Neil Catto. Ms Levitt appears to go further with her consideration of Ms Kane’s comments to the EAC, stating (our bold for emphasis):

The internal audit report was presented to the Audit Committee on 19th September 2019. It was agreed that there should be a ‘Review of information given to the EAC versus the reality of the supplier audit status.’ This appears to be an acknowledgement that the information Carol Kane had given the EAC was not accurate. I agree with that assessment.

Either-way, we presume that Ms Kane may have an opportunity to clarify her comments to the EAC. This morning, Liz Kendall MP (Leicester West), has indicated that the EAC will conduct a follow-up inquiry, where she hopes that the EAC will bring back Boohoo’s management for questioning. Ms Kendall further hopes that the EAC will also call in Boohoo’s major shareholders for their response to the findings of the Levitt Report, which Ms Kendall suggests “makes a mockery of their [shareholders in Boohoo] claims to champion Environmental, Social and Governance [issues]”.


When it comes to being “. . . keen and willing . . .” with supporting the report and its author, we find there are echoes of Wirecard and its infamous KPMG report.

In October 2019, Wirecard AG commissioned KPMG to perform a special audit to investigate allegations among which included claims that Wirecard had inflated its revenue and profit within its subsidiaries in Dubai. When this report was published in April 2020, KPMG detailed how, despite it being commissioned by Wirecard, that Wirecard’s board was often uncooperative. At the time, this seemed bizarre. Of course, by June 2020 it became clear why Wirecard was unwilling to provide much in the way of assistance to KPMG. An example of this was when Wirecard stated to KPMG that no minutes were taken at Board of Management meetings.

Boohoo’s investors will no doubt be pleased to learn that minutes are taken at its board meetings. However, like Wirecard, getting them to the special investigator, Ms Levitt, seemed to be challenging. Ms Levitt notes (our bold for emphasis):

Many of the Board Minutes are undated and at least one has the wrong date on it. In at least two instances a document is described as ‘Minutes” when it appears to be the Agenda, just with the names of those present added at the top, but no record of what was discussed or decided. A meeting plainly took place on those dates but I have been provided with no other document.

The first tranche of Minutes arrived from the company in random order. It took me a full day to sort them out; having done so I realised that there were a large number missing. After many requests and some pressure from me, I received a further 24 sets of Board Minutes on 9th September 2020 (nine days after I delivered my interim report and six days before my final report was due). One or two sets of Board Minutes which I believe must exist (because they are referred to in other Minutes as having been approved) have never materialised.

I was sent eight documents which purport to be the company risk registers from the date of the floatation to the present day. The documents are largely undated and most of them are word-for-word identical. I have never received a ‘RAG-rated’ risk register.

I have seen no records which document the company’s risk appetite, nor how risks for which the mitigation is in conflict are evaluated and resolved. If there are documents which I have not been sent that is in itself unacceptable, given the number of requests I have made for governance documents and particular those which relate to risk management.

We believe that this should set the proverbial alarm bells ringing among Boohoo’s investors. Accurate and detailed board management meeting minute taking is a core pillar for good governance within any company, let alone a listed company. From the perspective of members of the board it is also vital so as to ensure that there is an accurate depiction of events to protect them should any claims of malfeasance, corruption or negligence ever be brought against the directors of the company. Of further concern is the fact that many sets of minutes appear to have been furnished so late in the days of the investigation or not at all. It is unclear whether some minutes were missing simply because they didn’t exist or there was a reluctance on Boohoo’s part to disclose them. Either-way, our view is that it is the Chairman’s role to ensure that board meeting minutes are accurately recorded and signed off, and so we see this as another example of Mr Kamani being unfit for his role as Chairman.

We would note although Boohoo is not a UK registered entity (falling under the UK Companies Act 2006), that it is a Jersey incorporated company. As such, it should fall under the scope of the Companies (Jersey) Law 1991 (the “Companies Law”). This suggests that the Legal Requirement for Board Minutes for Jersey companies is that they are obliged by Article 98 of the Companies Law to keep board minutes. Further, that a failure to meet this statutory obligation is a criminal offence on the part of the company itself with every director in default. Minutes generally should be approved at the next succeeding meeting before being formally signed by the Chairman of the meeting. They should then be placed in the company’s minute book. Once signed by the Chairman, minutes should not be altered. Auditors are entitled to inspect board minutes under Article 11 of the Companies Law. Board minutes are not open to inspection by shareholders. They are generally confidential to the directors (and the auditors), but they may be admissible in legal proceedings, so considerable care needs to be taken in their preparation.

Figure 3: Claude Rains and William Harrigan, “The Invisible Man” 1933 Universal File Reference # 32914 292THA. Source: PictureLux, The Hollywood Archive, Alamy Stock Photo

Boohoo announced the appointment of Ms Levitt to conduct her review on July 8, 2020. The report was completed and supplied to the board on September 24, 2020. Given the length of the report, it appears that Ms Levitt wasted no time in investigating over the 11 weeks. However, during this 11-week period, Ms Levitt did not speak to two of Boohoo’s non-executive directors, Iain McDonald and Pierre Cuilleret. It was suggested that the timescale was too short to speak to a number of people and that some of these may not have anything particular to add. This seems to us somewhat odd, especially in the light of the fact that the board minutes were either late, unreliable, or non-existent. Further, that this investigation was commissioned by Boohoo itself and centred on questions regarding the awareness by Boohoo of exploitation in its supply chain and its approach to mitigate this. We note that in 2020, Mr McDonald received £75,000 in remuneration, while Mr Cuilleret received £66,667 in remuneration.

Figure 4: Jan. 23, 2013 – Washington, District of Columbia, U.S. – Secretary of State HILLARY CLINTON testifies before the Senate Foreign Relations Committee about the Benghazi attacks. Source: ZUMA Press, Inc, Alamy Stock Photo

As with the board meeting minutes (see above), there are further shades of Wirecard when it comes to Boohoo’s unwillingness to provide the investigative team with certain emails (our bold for emphasis).

At Grant Thornton’s request, on 3rd September, the Independent Review team asked for access to the emails of the Boohoo Board from 1st January 2020 onwards. This was refused by Boohoo on the basis that the request was too late and too broad to be complied with within the timetable for delivery of my report.

Thus Grant Thornton’s report had to be prepared without access to the communication data of the executive members of Boohoo’s management, which, in their view, would have provided important material to aid them in understanding the guiding actions and strategic management regarding its purchasing and supplier relationship behaviour.

We find it odd that Boohoo refused to furnish the investigators with the emails of the board. Especially for the reason provided when the timing of the report was entirely in Boohoo’s command. Further, targeted searches of emails is a relatively easy function to perform, so we believe that the broad nature of the request as described by Boohoo should not have been too much of an issue.

We note that in its announcement of the Independent Review of the UK Supply Chain on July 8, 2020, that Boohoo expressed its willingness to work with the UK’s Home Secretary, Priti Patel, on any future investigations:

We would welcome the opportunity to work with the Home Secretary and the local authority on any future investigations to help eliminate any instances of labour malpractice in Leicester.

We presume that while Boohoo would not provide the emails between board members to the independent investigator, we would expect that if the statutory authorities, such as the National Crime Agency (NCA), wish to review them, then Boohoo will in that instance provide them.

Figure 5: The Hangover (2009), ZACH GALIFIANAKIS. Source: Warner Bros, Legendary Pictures, Green Hat Films

“To answer your first question, as I described, the compliance team is part of our legal team. And they are, of course, supported by all legal teams, consisting of more than 20 people working in the compliance sector.”

Alexander von Knoop, Wirecard AG Statement regarding Recent Media Coverage
February 4, 2020

“Continuing within our short update on compliance . . . we expect to reach the aspired number of 230 full-time employees in compliance related departments by the end of the year.”

Alexander von Knoop, Wirecard AG Q3 2019 Earnings Call
November 6, 2019

John Lyttle is Boohoo’s CEO. We could almost believe that Mr Lyttle attended the same counting Compliance Personnel school as Wirecard’s CFO, Alexander von Knoop.

In August 2019, Boohoo’s CEO, John Lyttle gave an interview with LeicestershireLive. Leicestershire Live reports (our bold for emphasis):

“CEO John Lyttle said a 20 strong team based in Leicester was helping to ensure its suppliers in the city were treating staff ethically and paying them a fair wage.”

Further (our bold for emphasis):

“Mr Lyttle said: ‘We have an office in Leicester which has auditors who go out and visit and inspect factories on a daily and weekly basis, mostly unannounced, looking at how many workers there are making the products and examining payroll.

Over 80 per cent of them [suppliers] have automated payrolls, making payments straight into bank accounts which is a great way to ensure they are paying the correct wages and that staff work the correct number of hours.’”

Ms Levitt notes:

Grant Thornton requested, but did not receive a copy of an ‘organisation chart’ for the Compliance function.

However, from the Ethical Trading Initiative application dated May 2019, Ms Levitt highlights (our bold for emphasis):

The Compliance team in the UK had six individuals for a supplier base of 220 suppliers (and in Leicester there was only one individual ‘on the ground’; the others were based elsewhere) . . . The sole Leicester-based compliance auditor was placed on furlough during the pandemic.

Ms Levitt also reports (our bold for emphasis):

The number of members of the Leicester compliance team fluctuated over time. From January 2017 until April 2020, the team consisted of Witness 152, a Compliance Manager based in Manchester and a ‘Regional Compliance Technician’ in Leicester, Witness 16, plus two administrative assistants. A further Leicester-based ‘compliance technician’ joined the team in January 2018 before leaving in August 2019. She was not replaced.

From this it will be seen that, save for the eighteen months when there were two of them, Witness 16 was the only member of the team actually on the ground in Leicester. In other words, the Leicester audit compliance “team”, in the sense that the lay person would understand it [that is to say actually conducting audits and inspections], actually consisted of one person, save for the eighteen months when they were a team of two.

This is totally at odds with what John Lyttle mentioned to LeicestershireLive. It also contradicts the evidence that Carol Kane provided to the House of Commons, Environmental Audit Committee in November 2018. Ms Kane stated (our bold for emphasis):

Chair (Mary Creagh): “Can you talk me through your in-house compliance team? How many people do you have?”

Carol Kane: “We have three people in Manchester and three in Leicester and then we have two offices in China, where we have between our two China offices about another 10 people.”

What happened to the “20 strong team based in Leicester”? Although the above quotes are taken at different points in time, we are alarmed by either the significant level of churn in the compliance department or that by the time of the pandemic, this team appears to have been reduced to one auditor on furlough.

We see five possible explanations for this discrepancy:

  1. LeicestershireLive has misquoted Mr Lyttle and it should be one auditor not 20.
  2. There were 20 auditors, however in the time since August 2019 to September 2020, Boohoo made 19 auditors redundant. However, the Levitt Report explicitly highlights that at the most there was a team of two.
  3. There were 20 auditors, however in the time since August 2019 to September 2020, 19 auditors resigned and were not replaced by Boohoo. However, the Levitt Report explicitly highlights that at the most there was a team of two.
  4. A combination of points 2 and 3.
  5. Mr Lyttle misled LeicestershireLive.

We also question Mr Lyttle’s comment regarding “over 80 per cent of them [suppliers] have automated payrolls”. Ms Levitt’s report makes numerous mentions that many suppliers pay the Leicester factory workers below minimum wage. For example (our bold for emphasis):

One of the most persistent supply chain allegations to emerge from responses to the Call for Evidence related to pay below the national minimum wage. This was alleged by 31 people who completed the questionnaire.

Whilst we received a small number of responses suggesting that the minimum wage was paid, the majority of respondents told us that that pay below the minimum wage was commonplace. Witness 413 suggested that it was the case in 90% of factories. Witness 139, who had described themselves as an auditor with extensive experience in Leicester, said something similar:

“This is widespread. I cannot stress this enough, this is endemic. Upwards of 90% to 95% of the garment manufacturers in the LE5 area are paying below NLW [National Living Wage]/NMW [National Minimum Wage] rates”.

Given the contrasting evidence from Ms Levitt’s investigation which suggests that 90% to 95% pay below the minimum wage, we do not see how this squares with Mr Lyttle’s suggestion that 80% of Boohoo’s suppliers use automated payrolls.

Figure 6: CASABLANCA, Conrad Veidt, Claude Rains, 1942. Source: Everett Collection Inc / Alamy Stock Photo

On July 8, 2020, three days after the allegations of exploitation within the Leicester supply chain was revealed by the Sunday Times, Boohoo announced that its board was “shocked and appalled by the recent allegations . . .”. Really?


Ms Levitt notes that between March 2014 to July 2020, there were 57 Board meetings at Boohoo. From the minutes that were provided (some were not – see above) supply chain risk was discussed on 10 occasions. More specifically, Ms Levitt highlights several instances where serious allegations of issues within the supply chain had received high-profile attention. For example, in a January 2017 episode of Channel 4’s Dispatches, which was well covered in the main stream press.

Even if these issues had not been well publicised in the past, more recently, we fail to see how either the board, and certainly the CEO, John Lyttle, could have been “shocked” by the allegations raised by the Sunday Times. Internal documentation suggests that the issues had already been raised in advance of the Sunday Times articles. For example, Leon Reed, the Managing Director of Verisio [the auditing company commissioned by Boohoo], wrote an email to Tom Kershaw, Boohoo’s Director of Sustainability, on December 11, 2019 regarding three factories his team had inspected. Mr Reed wrote to Mr Kershaw (our bold for emphasis):

“I know you wanted to have an update on how we are doing in Leicester, so I have done a review of the three below sites. I’m afraid it’s not pleasant reading and the non-compliance that we have identified shows the significant risks to the Boohoo brand …… “

“The factory has the worst working conditions that I have seen in the UK and is not safe for the workers. We have pictures and I will send to you. “

“I honestly feel that Boohoo should stop trading with the #55 factory with immediate effect as it is such high risk. I do not usually make such suggestions but think that the risk is so high to the Boohoo brand and is a major news story waiting to happen.”

Within 12 minutes of receiving this email on December 11, 2020, Tom Kershaw forwarded it on to Boohoo’s CEO, John Lyttle, and Boohoo’s General Counsel and Company Secretary, Keri Devine. In addition, Mr Kershaw wrote:

Sharing this update from Verisio’s initial work in Leicester. It is not a good read, at all. I’ll speak with [Leon Reed] the morning and then perhaps we can regroup to discuss”

Ms Levitt notes how she was surprised that in her meetings with John Lyttle, he did not mention the existence of this audit report, even when apparently, Ms Levitt presented at least three opportunities to Mr Lyttle for him to do so. Aside from Mr Lyttle’s reluctance to mention to Ms Levitt his knowledge of this audit, we ourselves are shocked that either Mr Lyttle or the Boohoo board could themselves be shocked by the allegations which had been raised by the Sunday Times. Only six months prior they were reading emails regarding the worst working conditions their own audit counsel had ever seen in the UK.

Figure 7: FRIENDS TV series from top: Courtney Cox Arquette, Matthew Perry, Jennifer Aniston, David Schwimmer, Lisa Kudrow and Matt LeBlanc. Source: Pictorial Press Ltd / Alamy Stock Photo

Again, we question how “shocked” Boohoo’s board might have been regarding the allegations since as Ms Levitt discovered:

Further, the Chairman has a social and family relationship with Witness 98 and their family, who owns Morefray Limited and Revolution Clothing Co Limited, the two companies at the centre of the media allegations in early July 2020.

Ms Levitt further details:

Mahmud Kamani told me:
“Revolution is one of my very good close friends. He has done nothing wrong. He passed the order on . . . He went to Morefray who he passed the order to and Morefray made it in Morocco, I am led to believe, who repacked it in the UK for us to deliver it.”

Then there is Jalaludin Kamani, who is the brother of the Chairman of Boohoo, and according to Ms Levitt’s report a minority shareholder in Boohoo. Ms Levitt indicates that:

We were told that the UK arm of Boohoo’s supply chain was something that Mahmud Kamani’s brother [Jalaludin Kamani] brought to the business.


Supplier #54 is an interesting example within the Levitt report. According to the report, Boohoo began a relationship with supplier #54 on February 27, 2018. However, there were nine audits or client relationship visits for #54 during the period 2016 to 2020. It seems unlikely that auditing would be required two years in advance of #54 becoming a supplier, so as Ms Levitt puts it “. . . the start date of 2018 seems unlikely to be correct.”

Witness 152 worked for Mahmud Kamani and Carol Kane for twenty years, and before Boohoo started. Witness 152 was the Compliance Manager for Leicester from January 2017 until April 2020. Witness 152 claims that #54 was sub-contracting to an unauthorised supplier as long ago as August 15, 2016. Witness 152 claims that #54 was a top 20 supplier to Boohoo as of August 2016. By November 2016, #54 had become a top ten supplier to Boohoo.

By April 2020, members of the Kamani family had a so-called “indirect interest” in #54 (our bold for emphasis):

They had identified two instances of members of the Kamani family having an indirect interest in a key supplier, or a close personal relationship with the supplier, which did not appear to have been recorded in Boohoo’s compliance files. For example, on 8 April 2020, the Chairman’s brother (minority shareholder in Boohoo and brother of the Executive Chairman) appears to have issued a secured loan to the beneficial shareholders of company #54, which is a major supplier to Boohoo.

To be fair to the small Compliance team for Leicester, the report highlights numerous occasions when they wrote to #54 to address audit issues. However, very little appears to have resulted from this interaction. Most recently, when the external auditor, Verisio, visited #54, the Levitt report notes (our bold for emphasis):

Verisio conducted its first spot check on #54 on 17 July 2020. No workers were on site at the time and so the check could not be fully completed. However, the auditors still found issues with right to work documentation and COVID-19 compliance. The work visa for one worker had expired, two workers didn’t have right to work documentation, three workers’ documentation was not signed by management and two workers did not have contracts of employment available. The COVID-19 risk assessment was generic, was not properly implemented and workers had been working in the facility prior to its creation two days before the audit took place. As we have already observed, it is hard to understand why a company would suddenly acquire a COVID-19 risk assessment in July when they had been operating for months, unless it was because it had become known that Boohoo was conducting emergency checks as a result of the negative publicity.

A follow-up audit was conducted by Verisio on 3rd August 2020 where there were a number of serious infractions found. One worker had an expired visa, working hours records could not be verified, holiday time did not meet statutory requirements (it was 1.6 weeks short) and payment of the national minimum wage could not be verified. There was still unauthorised subcontracting taking place, with eleven undisclosed CMTs used during the company’s claimed five -week shutdown period.

The auditors were unable to conclude that there had not been furlough fraud committed because there had been payments made to #54 throughout its shutdown period.

As highlighted above, the brother of the Chairman of Boohoo extended a loan to #54 in April 2020.

It is unclear whether the company whose factory was described as “. . . the worst working conditions that I [Leon Reed, Verisio Managing Director] have seen in the UK and is not safe for the workers”, is a sub-contractor for supplier #54 or supplier #57.


Corporate Governance is broadly the existence of controls, measures, policies, and processes to ensure the effective running of corporations for shareholders and other stakeholders. Good governance seeks to control and operate corporations in an effective and efficient manner for both shareholders and other key stakeholders in the business. Conversely poor governance would typically result in deviance from what is best for shareholders and other stakeholders, benefitting certain parties more than would otherwise be optimal.

In our opinion Corporate Governance, or all too often a lack thereof, is of growing importance in the effective operating of markets and capital allocation. However, the effects of good or bad corporate governance are typically only visible in the long term. In today’s world of chasing yield at every basis point, all too often it seems that market participants view Corporate Governance as of backseat importance to near-term earnings expectations. We find this more perplexing when one considers that low discount rate environments result in the terminal value of assets contributing a disproportionately larger share of its value than in high discount rate environments.

We have seen numerous cases when Corporate Governance becomes of sudden importance to investors, typically when it has the potential to drive near term business impact. We believe that Boohoo is now at this stage. In Ms Levitt’s review, she states that (our bold for emphasis):

“I am satisfied that Boohoo did not deliberately allow poor conditions and low pay to exist within its supply chain, nor did it intentionally profit from them. I do not accept that Boohoo’s business model is founded on exploiting workers in Leicester.”

To us, it seems that Ms Levitt concludes that although not deliberately, Boohoo has profited from the exploitation of factory workers in Leicester through poor conditions and low pay within its supply chain. Considering this, we would question what the materiality of the benefit has been? Although not necessarily accurate, one potential sense check could be the following:

  • 40% of Boohoo’s supply is from the UK, of which Ms Levitt states that this is mostly in Leicester 1.
  • FY20 cost of goods sold (COGS) totaled £568.6m, meaning that up to £227.4m was from Leicester.
  • Leon Reed, Verisio’s Managing Director estimated that for at least 90% of the supply chain, the Sunday Times’ allegations were probably true 2. Witnesses 413 and 139, also suggested that c. 90% of factories in Leicester were failing to pay minimum wage 3.
  • If this is true, then by quantity, only 10% of the suppliers available are without ESG issues. Boohoo stated on its 1H 21 results call that of the c. 200 Tier 1 suppliers in the UK, “the top 50 account for the significant majority of our UK volumes”.
  • If Mr Reed is correct, then it would imply that 20 of Boohoo’s Tier 1 suppliers were likely clean (10% of 200), and giving Boohoo the benefit, we will assume that all the clean suppliers sit in the 50 largest suppliers.
  • Assume that the 20 ‘clean’ suppliers make up 40% (20 out of 50) of the top 50’s volume, and that “significant majority” means 75%

From this, we come to 30% of Boohoo’s UK supply being clean of ESG concerns. If true, and that “volumes” either relates to monetary volume or is a fair reflection of value, then we come to £68m of COGS as ‘clean of ESG concerns’ and £159m as potentially exposed to the Leicester supply chain issues. If the £159m COGS potentially exposed to supply chain issues had risen by just 10%, then we calculate that FY20 group operating profit would have fallen by 17.5%.

Since the greater scrutiny on its supply chain, a key debate is whether Boohoo’s current industry leading profit margins would be impacted.


Well… It depends who you ask…

In its RNS published on September 25, 2020, Boohoo stated (our bold for emphasis):

Our business model
Our business is founded on a test and repeat model with the speed of our supply chain fundamental to its success. We are confident that we can successfully embed all of the Independent Review’s recommendations into our business model, without impacting lead times or financial expectations.

And the company stated in an RNS on July 8, 2020 (our bold for emphasis):

“Producing garments in the UK does not bring a cost advantage for the Group. We produce garments in the UK because of its proximity to our international distribution centres, giving the Group additional flexibility to react to the latest trends for our customers.”

Among our views on Boohoo, one which we believe we likely share with Ms Levitt is the intense focus its managers have on the commercials of the group, namely growth and margin. With this focus, we do not believe Boohoo would commission supply from Leicester without its managers believing there is some direct benefit to either the business’ growth or margins. Ms Levitt echoes this below:

“Historically Leicester has been able to deliver much shorter lead times than companies overseas. The reason lead time is important is because of Boohoo’s ‘test and repeat’ model. A short lead time means that a product is more likely to come to market when it is still ‘on trend’, a crucial aspect of fast fashion.”

Whilst Design Director Caroline Evans said that:

“Leicester can do things within a couple of days. Speed is the advantage really”.

And in its September 25, 2020 RNS, Boohoo states that it aims to implement the changes by:

“We will consolidate volumes, place more consistent order flows and focus on working to achieve best practice with suppliers. Taken with the continued growth in the scale of our business, the Group remains well-positioned to lead the fashion e-commerce market in the future and successfully implement an agenda for change in UK garment manufacturing.”


If we take the above as true, then it would seem to us that to retain the Test and Repeat model, Leicester, is likely to continue to play a key role in Boohoo’s supply chain. Given Ms Levitt concludes that Boohoo has profited from poor practices in the supply chain, if this is to be resolved, then we believe that the costs in the UK are likely to rise. Alternatively, supply flexibility could reduce owing to larger order sizes, through the consolidation of ‘ethical’ suppliers to the smaller group who meet the required standards. We are mindful that Boohoo’s Deputy Chairman, Brian Small, claimed “you want to play suppliers off against each other of course you do, that’s business.” This sentiment was echoed by Boohoo’s CFO, Neil Catto, and flag that with a consolidating supply base this may be less effective. Higher UK costs could be offset by lower costs from overseas sourcing, but as Mr Kamani himself says below, overseas order volumes would have to rise (the below references discussion of a potential factory in Istanbul):

“our volume’s not good enough to do business with [them]”.

Alternatively, Boohoo argues that higher UK supply costs could be offset by the efficiency gains driven by consolidating orders into larger sizes with fewer producers. However, we believe that this presents a risk of capacity issues in the near term as outlined by the materiality framework we presented earlier. Then we estimate that some c. 30% of Boohoo’s current UK supply is clean of ESG concerns. If true, then Boohoo’s capacity to produce in the UK could be significantly impacted near term.

Net-net, for costs to remain consistent then supply chain flexibility would likely decrease, through a longer weighted average lead times, and the size of orders from overseas would likely rise. We believe the effect of this would be greater levels of inventory having to be held. Historically, Boohoo has maintained lower levels of Inventory days than peers, likely resulting in a tailwind to cash collection and margins, figure 8 below. Management consistently points toward Test and Repeat as a core tenant to the company’s success.

Figure 8: Boohoo inventory days vs peers ASOS and Zalando, ASOS is August YE whilst Boohoo is adjusted to the period with the most overlap. Source: Company Filings, ShadowFall calculations

In our view, to retain flexibility in the supply chain, goods and supply costs would likely increase. Alternatively, the measures required to maintain the margin would likely result in higher levels of inventory being maintained across the group, in turn this could potentially erode margins and/or reduce the efficiency of cash collection within the group.


How this all plays out will be interesting. If investors can get comfortable from an ESG perspective that Boohoo’s business hasn’t benefited from the exploitation of workers or, if it has, that it won’t do so going forward, then we believe that these investors will also need to satisfy themselves that Boohoo’s management are truthful. As detailed above, having read the Levitt report in full and contrasted this with prior commentary by management, we would be astonished if anyone who also reviewed this could arrive at the conclusion that Boohoo’s management is reliable.

For those that can look through ESG and credibility concerns, then they will have to be the ones who believe that in addressing the supply chain issues to correct them, that this will not have any adverse impact on Boohoo’s profit margins or business model. Again, we have our doubts that this can be accomplished.

In the meantime, we will pay scrutiny to any signs of statutory investigations that may be underway. In that light, we believe that the Levitt report will provide ample assistance to any such investigation.

  1. Independent Review into the boohoo Group PLC’s Leicester supply chain, Page 33
  2. Independent Review into the boohoo Group PLC’s Leicester supply chain, Page 91
  3. Independent Review into the boohoo Group PLC’s Leicester supply chain, Page 116
Matthew Earl

Matthew Earl

Matthew is the Director of ShadowFall Publications Ltd and Managing Partner of ShadowFall Capital & Research LLP.

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