Ethical concerns are chucked at the checkout. Campaigners have long complained about the “intention-action gap” — the difference between what consumers say they care about (sustainability) and what they do (nothing). Sometimes the action is there: Nike suffered from the sweatshop allegations of the 1990s. But more often than not, consumers shrug.
Wednesday’s half-year results showed Boohoo’s customers shrugged, stylishly. Over the final two months of its reporting period, the fashion retailer was dogged by allegations over poor conditions in its supply chain. It commissioned an independent review that published its findings last week. But at £817m, sales for the six months to August 2020 were only £40m shy of those for the whole of the year to February 2019. Pre-tax profits were up 51 per cent. Boohoo raised revenue and margin guidance for the rest of the year.
The retailer is preparing for a slowdown in the second half of the year. But that is management taking a prudent approach with an eye on consumer spending, not Boohoo customers taking a prudent approach to how their clothes are sourced.
While customers really do not seem to care, investors mind only marginally more. The shares did fall 45 per cent in 10 days in July after the media reported the allegations about Boohoo’s suppliers. But this was mainly on fears for the sustainability of the company’s 10 per cent ebitda margins, rather than the welfare of garment workers in Leicester reportedly earning £3 an hour.
They need not have worried. The unflattering findings of the report have not changed Boohoo’s medium-term margin targets. By all accounts, the company does not plan to protect its margins by increasing prices. It will do so by keeping costs low. As it expands, it is moving more production overseas to cheaper locations. So far, it has earmarked only £10m to address supply chain issues. Small change.
If solving these issues is cheap, why has Boohoo waited so long? The University of Leicester first flagged supply chain concerns in 2015. Company culture seems to be the problem.
Newish chief executive John Lyttle puts more store on sustainability than perhaps founder-chairman Mahmud Kamani did when he was in the job. But Boohoo’s bumper bonus schemes are linked to share price growth, not softer objectives. Until that changes, it is hard to shake the sense that financial concerns, not ethical ones, come first for the company — as well as for its customers.
TP ICAP’s sotto voce transformation
Traders usually trumpet transformative deals in the morning. TP ICAP, the interdealer broker, told the market oh so quietly on Tuesday evening that it is buying US equities trading business Liquidnet for between $600m and $700m in a mix of shares, debt and dividend cuts.
Why so sotto voce? Perhaps it is because the group has spent four years bedding down the £1.3bn acquisition that turned it into TP ICAP. That was supposed to be transformative, too. But TP ICAP’s total equity value is just £1.5bn. Costs are still too high and still too much of TP ICAP’s business is done by phone, not electronically. And now trading in complex swaps and derivatives has dried up. The group says trading in July was materially down on 2019. It badly needs the US election to spark market volatility and drive up volumes. But that would not be enough to change its trajectory.
TP ICAP is pinning its hopes on the Liquidnet deal allowing it to expand into trading equities, credit and swaps with fund managers, and bringing opportunities in data and analytics. Liquidnet made about £50m of earnings before nasties on £264m in revenues in the year to June. TP ICAP reckons Liquidnet will lift its low single-digit revenue growth into mid single digits and boost its slipping operating margins above 20 per cent in the medium term.
The deal might just get TP ICAP out of trouble — as well as relieving the burden on the founder-owner of Liquidnet, Seth Merrin.
TP ICAP shareholders may be paying a high price for transformation, though. Mid single-digit revenue growth is not cheap at 11 times earnings. TP CAP’s forecast earnings are trading at nearer seven times. The dividend is being halved this year and rebased thereafter.
And TP ICAP, which is also in the process of redomiciling itself in Jersey, is taking on new challenges — notably fund managers as clients — to add to the set it took on in 2016. It isn’t so surprising its shares fell 15 per cent on Wednesday. If it had trumpeted the deal from the rooftops in the morning, they’d probably have fallen further.
Hammerson winner
Hammerson is putting its trust in nominative determinism. It has hired Rita-Rose Gagné, whose last name means won in French, to lead it. The property group, which has just raised £552m in a 24-for-one rights issue, is paying Ms Gagné £647,000 to turn it round and a £400,000 relocation fee for moving from her home in Canada. She has certainly won out. That said, she may arrive, take one look at the mess that is Hammerson, and turn back for home.
Boohoo: cat.rutterpooley@ft.com
Other stories: kate.burgess@ft.com