boohoo group plc (BOO.L) Independent review of UK supply chain

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 good working conditions. To support this, we are:

· launching an immediate independent review of our UK supply chain, led by Alison Levitt QC

· making an initial commitment to invest an incremental £10 million to eradicate supply chain malpractice

· accelerating our independent third party supply chain review with ethical audit and compliance specialists, Verisio and Bureau Veritas

We take extremely seriously all allegations of malpractice, poor working conditions, and underpayment of workers. The Group will not tolerate any incidence of non-compliance with its Code of Conduct or any mistreatment of workers, and will not hesitate to terminate relationships with any supplier who does not comply.

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.

Update on investigation into media commentary

As soon as the Group was made aware of the allegations of mistreatment of garment workers by our third party suppliers, as detailed in the 6 July announcement, an immediate investigation was launched.

Our findings show some inaccuracies with last Sunday’s media report. The garments featured were not actually manufactured in Leicester, but in Morocco. Post production, the garments were shipped back to the UK by the supplier to be repackaged into compliant boxes for delivery to the Group’s international distribution centre in Burnley. This was the process that was filmed at a premises formerly operated by Jaswal Fashions Limited.

Jaswal Fashions Limited, contrary to the media report, is not and has never been a supplier for the Group, and does not operate in the unit stated. Investigations over the last 72 hours have highlighted that the order from Nasty Gal was placed with Revolution Clothing Co Limited, who then instructed Morefray Limited to manufacture in Morocco and repackage the garments on their behalf in Leicester.

Our investigation to date has not found evidence of suppliers paying workers £3.50 per hour. However we have found other evidence of non-compliance with our Code of Conduct and the Group has taken the decision to immediately terminate its relationship with both suppliers.

Our commitment to UK manufacturing

boohoo supports UK manufacturing and the British fashion industry. boohoo does not own or operate any manufacturing facilities. We have a global and flexible supply chain and at this time around 40% of the products that we sell are manufactured in the UK, supporting thousands of jobs in this country that may otherwise be lost to overseas markets. 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. The Group is wholly committed to continuing to have garments manufactured in the UK and we will develop initiatives to further support our suppliers.

Since the onset of the COVID-19 pandemic, we have stood side by side with our manufacturers, continuing to pay them promptly with our industry-leading 14-day payment terms for all of their orders. During this period, the Group has not taken advantage of any of the financial support that has been made available by the UK Government in either grant or loan form.

Supplier auditing procedures

We monitor our UK suppliers through a dedicated in-house compliance team who are responsible for co-ordinating our supplier compliance programme. In 2016, we established an on the ground compliance team in Leicester who carry out regular unscheduled inspections against our Code of Conduct so as to ensure adequate standards are maintained in the supply chain.

In late 2019, we supplemented our team by funding an additional third-party audit programme, with ethical audit specialist, Verisio. We are working together to further improve the transparency of our supply chain compliance, including our tracking and auditing practice. This comprehensive review commenced in May 2020, and is focusing on all of our UK suppliers, and their subcontractors, with unannounced audit visits to all of their facilities. As part of this review, all of our suppliers are required to acknowledge their compliance with the Group’s updated Code of Conduct and to provide full disclosure of their own sites as well as details of any locations where work is subcontracted. Non-compliance with this programme will not be tolerated and we are committed to working with the relevant local and national authorities.

Immediate independent review of UK supply chain

Today the Group has launched an independent review of its UK supply chain. The objective of the review is to identify areas of risk and non-compliance, take action to strengthen future compliance, and to provide stakeholders with comfort that similar allegations will not recur in the future.

The review will be led by Alison Levitt QC with boohoo board representation from Brian Small, the Group’s Deputy Chairman and Senior Independent Director.

It will focus on reviewing our UK supply chain, prioritising:

● Supplier compliance with minimum wage regulations

● Compliance with COVID-19 regulations

● Working hours and record keeping

● Right to work documentation and contracts of employment

As part of this review, the Group has retained additional services of compliance specialists, Bureau Veritas. This appointment will provide additional capacity to accelerate the review that is already underway with Verisio.

Timeline for communication

We are committed to providing our stakeholders with regular and informative updates on our supply chain initiatives in order to give as much transparency into our review as possible, with an indicative timetable outlined below.

Late July 2020

· Publication of Terms of Reference for the independent review

September 2020

● Update on supply chain review and Half Year results

January 2021

● Update on supply chain review and publication of the Group’s peak trading performance

April / May 2021

● Update on Sustainability and publication of the Group’s Full Year Results

May / June 2021

● Publication of the Group’s Annual Report and Accounts, including dedicated Sustainability Report

Board composition and governance

The Group currently has a PLC board comprising three Non-Executive Directors, and four Executive Directors. The Group is currently in the process of recruiting two additional Non-Executive Directors to provide an appropriate balance of independent Directors on the Group’s board. Consideration will be given to experience in dealing with Environmental, Social and Governance (ESG) matters as part of the recruitment process.

Update on wholesale operations

The Group has a relatively small wholesale operation with almost all of our revenues coming from our own brand websites. In the last financial year, wholesale accounted for less than 4% of the Group’s turnover, as we increased our focus on our direct to consumer proposition. In the first four months of the current financial year, wholesale accounted for just 1.4% of the Group’s turnover.

Sustainable and agile business model

As a Group we have a flexible and diverse global supply chain, which has adapted extremely well to our test and repeat model, with 60% of our products manufactured in overseas markets. We will continue to develop our international supply chain and invest in high quality UK manufacturers. We are therefore confident in our ability to maintain our sustainable business model that can create value for all stakeholders.

John Lyttle, Group CEO, commented:

“As a board we are deeply shocked by the recent allegations about the Leicester garment industry. We wish to reiterate how seriously we are taking these matters and we will not hesitate to terminate any relationships where non-compliance with our Code of Conduct is found. Our commitment to an incremental £10 million of investment demonstrates our resolve to enforce the highest standards of ethics, compliance and transparency for the benefit of all garment workers. We look forward to regularly updating our stakeholders as we move through this process.”

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