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Boohoo shares: what to expect from the first-half results

Boohoo will release interim results on Wednesday 30 September. This will cover the six months to the end of August 2020. Boohoo surprised the market last Friday by publishing the independent investigation into its Leicester supply chain. The fast-fashion firm was due to release the review alongside its results this week, but decided to publish…

  • Boohoo is expected to report revenue growth of 35% in the first half (H1) as demand remains strong during the pandemic
  • Boohoo published the independent investigation into its supply chain last Friday, which identified many failings but cleared it of any serious wrongdoing
  • Pressure is still building after MPs called for senior management, including billionaire founder Mahmud Kamani and chief executive officer (CEO) John Lyttle, to quit
  • Boohoo believes it can it can rectify issues in its supply chain without impacting its financial performance, but there are still concerns that the drastic action Boohoo is taking – like establishing its own UK factory – could raise costs and hurt margins
  • Boohoo shares have recovered by over 80% since hitting a low on 15 July, but they still trade below the all-time high set on 30 June just before the scandal erupted

When will Boohoo’s H1 results be released?

Boohoo will release interim results on Wednesday 30 September. This will cover the six months to the end of August 2020.

Boohoo H1 results: what to expect

Boohoo surprised the market last Friday by publishing the independent investigation into its Leicester supply chain. The fast-fashion firm was due to release the review alongside its results this week, but decided to publish early to give investors time to digest the 234-page report and ensure it doesn’t overshadow what is expected to be a strong set of H1 results.

Read more: Boohoo’s supply chain review sends shares higher

Boohoo’s deputy chairman Brian Small admitted the review ‘makes for uncomfortable reading’ at times. It found that some suppliers were underpaying staff and offering unsafe working conditions. It revealed Boohoo largely lived in ignorance about the situation and didn’t know where most of its clothes actually came from. It also found that Boohoo had prioritised growth over equally important obligations, and that its corporate governance was below par for a company of its size.

But Boohoo shares still rose on the back of the report being released because the review cleared the company of the most serious allegations, stating Boohoo did not ‘deliberately’ allow suppliers to offer poor conditions to staff or ‘intentionally profit’ from it, adding there was ‘no evidence that Boohoo has committed any criminal offences’.

Still, the publication of the review isn’t the end of the matter. In fact, it is just the start. Although Boohoo has been cleared of any serious wrongdoing, management are still coming under fire. Several MPs have called for billionaire founder Mahmud Kamani and CEO John Lyttle to leave their posts after allowing the supply chain to fall into trouble. The fact Boohoo awarded £150 million worth of bonuses to its board just weeks before the review was launched will not help their defence.

Plus, Boohoo will now have to spend years addressing the problems and investors are rightly concerned about how this could impact Boohoo’s business and financial model. Boohoo said it was implementing the recommendations of the review in full and taking immediate action.

This includes overhauling the supply chain and ensuring people are paid correctly to establishing its own factory and hiring new staff, and Boohoo will have to convince investors that the radical changes it is making won’t impact its performance.

It will certainly change the business model considering Boohoo doesn’t currently make any of its own clothes but intends to establish a factory with 250 staff to underpin its commitment to the Leicester garment industry.

Boohoo has said it is committed to UK manufacturing but establishing its own factories is a big step. One of the reasons Boohoo has a low-cost model is because it is asset-light and outsources work to others. Its primary assets at present are its two major distribution sites that send goods to customers around the world, but establishing its own factories in the UK could require significant investment and impact margins.

For now, Boohoo says its business and financial model will be unaffected by the dramatic changes it will have to make, but some will remain unconvinced that will be the case as time goes on.

Boohoo will take the opportunity to dive deeper and expand on the review when it releases its results, reinforcing its intention to clean up its act and continue to deliver strong growth for investors.

What does the City expect from Boohoo?

Boohoo’s reputation has, so far, avoided taking a hit among its customers this year and sales are expected to have remained strong during the first six months of the financial year. The online-only model has undoubtedly benefited Boohoo and others during the pandemic as customers avoid the high street.

That was demonstrated by the fact revenue soared 45% in the first quarter (Q1), growing at double-digit rates across all of its geographies and established brands. However, that year-on-year (YoY) growth is expected to have slowed to 27% in Q2.

Boohoo H1 results: consensus

Estimates compiled by Reuters suggest Boohoo will deliver H1 revenue of £762.8 million – up 35% from the £564.9 million delivered the year before.

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Daily Financial News

Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Daily Financial News

Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Financial News

Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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