Freedom Foods increases writedown and cuts staff

Chairman Perry Gunner declares the healthfoods company is experiencing ‘not its finest hour’.

Rory MacLeod, CEO, Freedom Foods. Picture: Adam Taylor

Freedom Foods will write down another $10m of stock, bringing total losses to $60m this year as its chief executive is on forced leave and its chairman Perry Gunner declares the company is experiencing “not its finest hour”.

In an investor conference call, Mr Gunner declined to reveal details about chief executive Rory MacLeod’s employment, saying it will update the market “on a timely basis”.

It comes after the $974m company’s share price dived more than 21 per cent on Wednesday after telling the market Mr MacLeod was on leave. It later requested a 14-day trading halt as it “considers its financial position”.

The company has also terminated 61 positions, resulting in 41 redundancies.

When asked why there was delay between the announcement regarding Mr MacLeod and the trading halt, Mr Gunner said the board had gathered more information during that time and requested the suspension following media speculation.

“It’s a disappointing episode in the company’s history. It’s not our finest hour. But we want to assure everyone that we will provide information on a timely basis and be as transparent as we possibly can,” Mr Gunner said.

“The company is not in a position to make any further comment at this time in relation to the employment position of Rory MacLeod. A further announcement will be made next week.

“We ask you to respect we have employment obligations and we are continuing to review the situation.”

Mr Gunner said it revised the writedown of its inventory from $25m to $35m, to reflect provisioning for obsolete and out-of-date stock and product withdrawals, bringing total stock writedowns to $60m. Mr Gunner said it identified the issue as it moved stock from five external warehouses to its own facilities.

The writedown angered investors, who asked why the board hadn’t acted sooner.

Mr Gunner said the board had relied on information, which he said had been audited, from the company’s employees and it was not the board’s job to complete a stocktake of Freedom Foods’ warehouses.

“There was an amount of stock that had been put aside for rework. On further examination of the possibilities of rework it became evident it was not practical or profitable to rework that stock, so we believe the appropriate decision is to write that stock off.

“Clearly this is very raw. We learnt a lot about this today and there are further investigations underway.

“We hope this is the bedrock and when we next speak to you it will be a more positive outlook than what we are presenting today.”

Freedom Foods produces a range of allergen-free breakfast cereals, such as gluten free and dairy products and dairy billionaire Tony Perich has a holding of about 54 per cent in the company.

It has reviewed its doubtful debt after it identified a $4m provision would be required in relation to an export account in May. Mr Gunner said this is likely to wipe about $10m off the company’s earnings.

“This revised estimate is subject to further analysis, year-end review processes and audit as part of the finalisation of the FY20 results.”

“This has caused the company to undertake a more detailed review of its revenue recognition and doubtful debt provisioning more generally.”

Mr Gunner said Freedom Foods still had the support of the Perich family in regard to the “company’s development and capital requirements as they arise”.