A2 Milk CEO Jayne Hrdlicka stepping down

A2 CEO Jayne Hrdlicka is set to exit after only 18 months, citing travel pressures despite investors’ margin worries.

Jayne Hrdlicka is set to depart a2 Milk. Picture: Stuart McEvoy

A2 Milk chief executive Jayne Hrdlicka is unexpectedly stepping down after only 18 months in the role.

The company’s board, led by former Goodman Fielder chairman David Hearn and Ms Hrdlicka, have agreed to an arrangement for her departure and she will be replaced by former CEO Geoff Babidge as interim CEO while the firm undertakes a search for a permanent replacement.

Mr Hearn said the company’s board and some of its investors were worried about the pace at which chief executive Jayne Hrdlicka was transforming the company, which was eating away at its profit margins.

At a2’s annual results in August the company revealed its earnings margin in the year ahead would be lower than expected, which saw the share price slump.

It rebounded after last month’s AGM when a2 upgraded its margin guidance following a decision to improve cost controls and slightly curb marketing spending.

“That is a concern the board has had,’’ Mr Hearn told The Australian on Monday when asked if the directors were concerned about the pace of change under Ms Hrdlicka.

“We were going to balance out the pace of change with continuing to produce attractive margins

“Like all strategies, like anything in life, the answer is always a good and fair balance. There is a balance of investment which we agree with as well as managing the profitability of the business.

“As a board, we are committed to targeting a 30 per cent net margin.”

On the issue of investors, he said: “I am well aware there have been some investors that have been concerned by the pace of change. Only because they have been concerned about the margin compression that has been implied.”

New interim CEO Geoff Babidge told The Australian: “I would possibly have implemented slightly differently”. But Mr Babidge said he fully supported the company’s strategy under Ms Hrdlicka.

Margins upgrade

The departure of one of Australia’s few top 100 female CEOs comes only weeks after a2, one of the glamour stocks of the ASX in recent years, unexpectedly upgraded its expected margins for 2020 underpinned by continued strong pricing in the China market and cost cutting.

A2 shares were one of the best performers in the ASX200 in November rising 20 per cent after the company shook off the negative sentiment associated with outlook at its annual results in August.

The move is likely to bemuse investors after Ms Hrdlicka’s strategy to increase the company’s marketing spend and build an infrastructure to underpin its growth for the future was apparently being accepted by some initially sceptical shareholders.

Ms Hrdlicka, who was a consultant at Bain & Co for more than a decade, has defended the spending.

In July 2017 she took over from former long-serving CEO Mr Babidge, but was immediately hit by the unwelcome distraction of the controversy surrounding her unexpectedly selling shares in the company, a move that earned the wrath of investors.

Hrdlicka sold the shares to meet tax obligations and commitments made before she joined the company from Qantas, where she was boss of the airline’s loyalty business.

Ms Hrdlicka and Mr Hearn acknowledged last year that the need for the sale could have been better explained to investors.

A2 has become one of the most closely watched stocks on the market in recent months as its share price fell significantly following its annual results amid growing concerns about its hefty marketing spend and pricing for its booming infant formula products in China.

But last month Ms Hrdlicka said the company was “demonstrating results behind our words” after upgrading its expected margins for 2020.

Leading A2 investor Andrew Mitchell of Ophir Asset Management has previously praised Ms Hrdlicka’s “intent to invest for the future”.

Another A2 investor, the New York-based value manager Ruane, Cunniff & Goldfarb, has publicly backed Ms Hrdlicka’s strategy.

Mr Hearn also gave the strategy some backing, saying that “the board wishes to thank Jayne for the important contribution she has made to the company and remains confident that the strategic course of the business which was recently communicated at the annual general meeting will continue to deliver strong rewards to all shareholders in the future.

“The board recruited Jayne primarily for her ability and experience in developing and implementing strategy, recognising that the company needed to develop a refined strategy for the business to meet the new challenges in the next phase of our development. The board fully endorses the strategy which Jayne and the senior leadership team have developed.”

Ms Hrdlicka said: “The a2 Milk Company is an extraordinary business and I joined the company excited about the opportunity to help define its full potential and deliver against it. Board and management have worked closely together to chart the future and it is no doubt bright and we are well advanced in executing it. I am delighted with how much progress has been made, the momentum underway in executing the strategy and the strength of the current leadership team.

“The reality however is that the next three to five years will continue to require the CEO being present in our core markets of China and the US and that combined with running a New Zealand company based in Australia required more travel than I had anticipated when I joined the company. The board and I agreed that this next phase is going to be too difficult to manage alongside my other commitments whilst also managing the health and wellness priorities of my family and me.

“My passion and commitment to this great company is unchanged and I will of course work closely with the board and new CEO as required to ensure a smooth transition,” Ms Hrdlicka said.