Mahmud Kamani told – ‘get your own house in order’ in brutal takedown

Revolution Beauty saw its shares climb 45% on its first day of trading following readmission to the AIM market yesterday (29 June 2023) and beauty products retailer hit out at Manchester-based Boohoo with a call for fast fashion retail group to come clean on its intentions.

In a statement this morning the board of Revolution Beauty said it remains focussed on value creation and claimed Boohoo’s hostile actions are “value-destructive, opportunistic and self-serving, as well as not being in the interests of the Company’s shareholders as a whole.”

On trading, the statement said: “The Company was pleased by the reaction to its shares being restored to trading on AIM with the share price up 45% as at the close of business yesterday versus the price when the Company’s shares were suspended on 1 September 2022.  The Board continues to believe in the exciting future growth prospects of the business and believes the Company’s shares are still significantly undervalued.” 

It defended the award of options to chief executive Bob Holt and finance chief Elizabeth Lake claiming they were put in an extremely difficult position by Boohoo’s actions which risked the re-admission to trading.

“Despite boohoo’s extensive complaints, shareholders should remember that this situation was entirely of boohoo’s creation, and could easily have been avoided if boohoo had simply followed its own advice, acted in a manner consistent with corporate governance best practice, and engaged with the Company’s board directly, rather than embarking on a public and hostile board takeover campaign.”

The response also included a number of pointed digs at Boohoo’s corporate governance and often uneasy relationship with the City.

“The Board find it extremely ironic that boohoo look to highlight Revolution Beauty, in their view, “contravening best practice in relation to corporate governance”.  As shareholders will be aware, boohoo has a long and well documented track record of substandard corporate governance and legal, reputational, supply chain and shareholder engagement issues.”

It defended the award of share options to Bob Holt, Elizabeth Lake and other members of the management team, and insisted they were fully disclosed to shareholders in the Group’s annual report and accounts for the year ended 28 February 2022 (which were approved at the AGM).

“These had an aggregate value of approximately £2m across 17 individuals and were made to reflect the hard work and commitment needed over the past 12 months to secure the Company’s solvency and restore the trading of the shares on AIM, together with a 12-month holding period to secure commitment to the sustainable recovery and return to growth going forwards.  In addition, no cash bonuses have been paid, with employees agreeing to take their bonus in share options rather than cash to keep the cash in the business to support growth activities. As previously stated these options equate to approximately 3.4% dilution and are well within ABI guidelines.”

It couldn’t resist a dig at Boohoo and its owner Mahmud Kamani, however: “These amounts pale in comparison to the extremely management-friendly incentive packages Boohoo have awarded in the past, including most recently awarding the executive team significant cash bonuses even after missing certain financial targets.

“Examples include the £150m management incentive plan in 2020 and the £175m scheme earlier this year to replace the 2020 plan with one containing adjusted performance conditions. Both incentive plans included large individual awards and the 2023 scheme was voted against by 37% of those boohoo shareholders that cast votes on the resolution. The 2020 scheme was not put to a shareholder vote.”

It further claimed that Boohoo was distracting shareholders from its own problems, pointing out a collapse in market capitalisation by over £4.3 billion, a fall from net cash position of over £200 million in 2020 to net cash of only £5.9 million as in February 2023, revenues decline by over 10%, and its adjusted profit before tax has declined from £82.5m in the year to 28 February 2022 to a loss of £1.6m in in the most recently audited accounts.

The board claimed it didn’t want a “prolonged PR battle” and said it “continues to be prepared to engage with boohoo in good faith and in a constructive manner.  To date, boohoo have declined all efforts to engage in discussions.”

A new general meeting of shareholders requisitioned by Boohoo will propose resolutions for Bob Holt, Elizabeth Lake and Derek Zissman to be removed from the board and for Alistair McGeorge and Neil Catto to be appointed as new directors.  It is expected that this general meeting will be held in late July or early August.

Russ Mould, investment director at Manchester investment platform, AJ Bell, said: “The slinging continues in the big pie fight between boohoo and Revolution Beauty and this feels like a situation where both sides have a point.

“Revolution Beauty thinks boohoo is trying to take de facto control of the business without having to make a bid, while boohoo has some legitimate gripes about governance, even if this is an area where it does not exactly have an unblemished record itself.

“Revolution Beauty’s defence of the farcical scenes at its AGM, where boohoo successfully ousted senior management only for them to be immediately reappointed, is that it would otherwise have prevented the lifting of a suspension of its shares trading on AIM and this seems fairly logical.

“Less convincing is the company’s case for awarding those directors generous share options. Keeping a company solvent and ensuring its shares can be traded, the stated reason for these awards, seem like a bare minimum and not something which should be met with a handsome reward. It’s also not a great look that the share options were not put to an investor vote as would normally be the case.”

He added: “With the relationship looking pretty much broken at this point, boohoo may have to decide if it likes the brand and business enough – and cosmetics is a category which has historically been resilient in an economic downturn – to make a bid or to cut its losses and sell its holding now trading has resumed on AIM.”