Investor Presentaiton
BOOHOO GROUP PLC
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF BOOHOO
ANNUAL REPORT AND ACCOUNTS 2021
/// FINANCIAL STATEMENTS
OPINION
We have audited the consolidated financial
statements of boohoo group plc and its
subsidiaries (the 'group') for the year
ended 28 February 2021, which comprise
the Consolidated Statement of Financial
Position, the Consolidated Statement of
Comprehensive Income, the Consolidated
Statement of Changes in Equity, the
Consolidated Statement of Cash Flows and
notes to the financial statements, including
a summary of significant accounting policies.
The financial reporting framework that has
been applied in their preparation is applicable
law and International Financial Reporting
Standards (IFRSs) as adopted by the
European Union.
.
In our opinion:
the financial statements give a true and fair
view of the state of the group's affairs as at
28 February 2021 and of the group's profit
for the year then ended;
.
the
financial statements have been
group
properly prepared in accordance with
IFRSS as adopted by the European Union;
and
the financial statements have been
prepared in accordance with the
requirements of the Companies (Jersey)
Law 1991.
BASIS FOR OPINION
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAS (UK)) and applicable law.
Our responsibilities under those standards
are further described in the Auditor's
responsibilities for the audit of the financial
statements section of our report. We are
independent of the group in accordance with
the ethical requirements that are relevant to
our audit of the financial statements in the
UK, including the FRC's Ethical Standard
as applied to listed entities, and we have
fulfilled our other ethical responsibilities in
accordance with these requirements. We
believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
CONCLUSIONS RELATED
TO GOING CONCERN
In auditing the financial statements, we
have concluded that the director's use of
the going concern basis of accounting in
the preparation of the financial statements
is appropriate. Our evaluation of the
directors' assessment of the group's ability
to continue to adopt the going concern
basis of accounting included obtaining
management's assessment of going concern
and associated budgets for a minimum period
of 12 months from the date of approval of the
financial statements. We have reviewed the
inputs to the forecast financial information
for reasonableness, compared to historic
financial information, and stress-tested where
appropriate.
Based on the work we have performed,
we have not identified any material
uncertainties relating to events or conditions
that, individually or collectively, may cast
significant doubt on the group's ability to
continue as a going concern for a period of
at least 12 months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities
of the directors with respect to going concern
are described in the relevant sections of this
report.
OUR APPLICATION
OF MATERIALITY
The scope of our audit was influenced by our
application of materiality. We determined
materiality for the financial statements as
a whole to be £6.2m for the consolidated
financial statements using 5% of profit before
tax as a basis. We consider profit before tax
to be the most relevant determinant of the
group's performance used by shareholders.
Whilst materiality for the financial statements
as a whole was set at £6.2m, each significant
group was audited to an
component of the.
overall materiality ranging between £3.9m
and £4.3m with performance materiality
set at 70% and a triviality threshold of 5%,
above which any differences noted have been
reported to the Audit Committee. We applied
the concept of materiality both in planning
and performing our audit, and in evaluating
the effect of misstatement.
OUR APPROACH
TO THE AUDIT
In designing our audit, we determined
materiality, as above, and assessed the risk
of material misstatement in the financial
statements. In particular, we looked at areas
requiring the directors to make subjective
judgements, for example in respect of
significant accounting estimates, including
inventory provision, returns provision, and
judgements related to the fair value of the
consideration in respect of the acquisition of
the NCI in PrettyLittleThing.com. We also
addressed the risk of management override
of internal controls, including evaluating
whether there was evidence of bias by the
directors that represents a risk of material
misstatement due to fraud.
A full scope audit was performed on the
complete financial information of the group's
operating components located in the United
Kingdom, with the group's key accounting
function for all being based in the same
location.
KEY AUDIT MATTERS
Key audit matters are those matters that, in
our professional judgement, were of most
significance in our audit of the financial
statements of the current period and include
the most significant assessed risks of material
misstatement (whether or not due to fraud)
we identified, including those which had the
greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and
directing the efforts of the engagement team.
These matters were addressed in the context
of our audit of the financial statements as a
whole, and in forming our opinion thereon,
and we do not provide a separate opinion on
these matters.
Key audit matter
Acquisition of the 34% minority stake in PrettyLittleThing.com
[Note 1]
As
part of the pre-existing shareholder agreement, boohoo had an
existing option to buy the remaining 34% non-controlling interest in
PrettyLittleThing.com Limited ('PLT') for market value or a lesser sum,
depending upon financial performance over the five years to 2022.
The performance period for the option commenced on 1 March 2017
and attracted an equity-settled share-based payment charge over the
five-year performance period in accordance with IFRS 2.
During FY2021, boohoo exercised this option and now holds
100% of the shares in PLT. The 34% stake was acquired for initial
consideration of £269.8 million, with a further £54 million of
contingent consideration, with the initial consideration settled through
shares in the Group totalling £107.9 million and an up-front cash
payment of £161.9 million. As part of the transaction, the share-based
payment charge under the option agreement was accelerated.
There is a risk that this transaction has not been appropriately
accounted for, and that it did not take place on arms-length terms.
There is a further risk that the share-based payment element of
the transaction has not been appropriately valued and recorded.
Valuation of inventory [Note 1 and Note 16]
Inventory is carried at the lower of cost and net realisable value.
The provision in respect of inventory requires significant judgement.
There is a risk that the provision is understated and inventory is
therefore not held at the lower of cost and net realisable value in
accordance with the group's accounting policy.
How the scope of our audit responded to the key audit matter
Our audit work in this area included the following:
•
Obtaining copies of the original share purchase agreement in
respect of PLT, and the share purchase agreement relating to the
current year
34% interest acquired, and reviewing the key terms;
Vouching cash and share elements of consideration to supporting
records;
Obtaining and reviewing the reports produced by KPMG in respect
of the NCI acquisition, including the accounting treatment of the
transaction and the valuation of the consideration and the Non-
Compete agreement;
Engaging auditor's expert to review key inputs to fair value
calculations in respect of the contingent consideration and the
non-compete agreement, and reperform these calculations using
Monte-Carlo models, providing challenge to the work performed by
management's expert;
Reviewing the accounting entries made in
existing share-based payment, and ensuring the charge was
appropriately accelerated in the year;
respect
of the
pre-
Reviewing accounting entries made at acquisition date to ensure
compliance with IFRS 10;
Reviewing disclosures made in the financial statements surrounding
the transaction to ensure compliance with IFRS.
Our audit work in this area included the following:
.
.
Discussing with management the rationale and methodology used
in making such provision in order to gain an understanding of key
assumptions and inputs to the model;
Obtaining management's year-end provision against inventory
calculation and performing the following:
- Agreement of the provision per stock listing to the financial
statements;
- Recalculation of the provision using the IT team to reproduce
underlying data;
- Prior year lookback -
FY21;
review of utilisation of FY20 provision in
- Performing sensitivity analysis on the calculation;
- Assessing completeness of the provision;
- Testing accuracy of inputs to management's model;
- Testing the mathematical accuracy of the model.
For a sample of items included within the inventory listing at year
end, vouching to pre-year end purchase documentation and post-
year
end sales information to ensure inventory is held at the lower of
cost and net realisable value.
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