A2 Milk’s next CEO could be the cream from its own crop

A2 Milk has been search for a new CEO for the past eight months, but could best candidate for the top job be already in its own ranks?

Geoff Babidge, interim chief executive of A2 Milk. Picture: Hollie Adams

A2 Milk says it is still progressing with its search for its new chief executive as former boss Jayne Hrdlicka finished her gardening leave with the company on Tuesday, eight months after she stepped down.

Geoff Babidge, who led the company for seven years until 2018, returned to A2 as interim chief executive in December and told The Australian this year he would stay on for as long as it took to find a suitable replacement. An A2 spokesman said the search “process is continuing”.

But speculation is mounting that A2 could already have its next leader in-house — the boss of its Asia-Pacific operations, Peter Nathan.

Mr Nathan, based in Melbourne, has been at the company since 2008 and, working in tandem with Mr Babidge, he was instrumental in forging A2’s market darling status.

Andrew Mitchell, director at A2 investor Ophir Asset Management, said Mr Nathan was a “first-rate corporate executive”.

“He should receive much of the kudos for managing the highly complex and multiple channels to market for the business,” Mr Mitchell said. “He clearly understands the Asia-Pac market well, having very successfully worked in the region for A2 Milk for over a decade.”

Mr Mitchell said the next chief executive would need “a deep understanding of the complexities of the Chinese infant formula market” as well as “protect the small company culture and agility that has served (A2) so well as they’ve grown”.

“That challenger brand mentality and ability to nimbly change with consumer prefer­ences is what has set them apart from larger FMCG (fast-moving consumer goods) companies — they can’t lose that.”

Since May 2015, A2’s shares have surged around 3600 per cent to more than $18.

But it hasn’t been trading all in one direction. The company lost about $4.5bn from its market capitalisation last year after Ms Hrdlicka warned in August an increase in marketing would result in earnings before interest, taxes, depreciation and amortisation margins falling from 31.7 per cent to about 28 per cent.

The comments spooked investors, sending A2’s shares from around $17 in August to a low of $11.31 in November.

Despite the challenges faced during the COVID-19 pandemic, including travel restrictions and border closures, Mr Babidge and Mr Nathan have managed to claw back the share losses and add almost another $1.1bn to its market capitalisation.

The company’s shares have surged from $13.97 to a high of $19.39 last month since Mr Babidge returned to A2.

Earlier this year Mr Babidge revealed an EBITDA margin of 32.6 per cent for the six months to December 31, which he said was better than expected.

Demand for the company’s products have continued to grow in China, with Mr Babidge saying its partnership with China State Farm had ensured distribution throughout China had remained uninterrupted.