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Home / Business / Companies / Agribusiness

Back to the future for a2 Milk as former chief Geoff Babidge returns

Jamie Gray
By Jamie Gray
Business Reporter·NZ Herald·
3 Jan, 2020 02:00 AM4 mins to read

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A2 Milk Back: David Mair, Richard LeGrice, Andrew Clark, Greg Hinton Front: Geoff Babidge, Jayne Hrdlicka and David Parker Picture supplied Rick Willis Director network

A2 Milk Back: David Mair, Richard LeGrice, Andrew Clark, Greg Hinton Front: Geoff Babidge, Jayne Hrdlicka and David Parker Picture supplied Rick Willis Director network

It's back to the future for a2 Milk.

Geoff Babidge, who is largely credited with turning the nearly insolvent alternative milk company into today's multi billion dollar operation, is back in the hot seat following the sudden departure Jayne Hrdlicka, who stepped down in early December after less than 18 months in the job.

Babidge, who had a successful run at A2 from 2010 to 2018, very nearly didn't get the top job.

Metlifecare founder Cliff Cook came to the rescue of a struggling a2 Milk with a capital injection in its early days.

READ MORE:
• A2 Milk shares fall as major Chinese competitor emerges
• A2 Milk anticipates strong revenue growth in 2020

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Babidge - who was then with Australia's Freedom Foods - called Cook out of the blue one day.

"Hello, I'm Geoff Babidge. I know a little bit about dairy. I can help your business in Australia," was Babidge's account of the conversation.

"Cliff was extremely dismissive," Babidge said.

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"Cliff actually said his business was going very well and that he did not need Australians to assist him."

As Cook recalls, Babidge was telling him "how wonderful he was and how he could make our product work".

A "fair bit of pestering" followed before Cook relented.

The business become a joint venture - that it was important to bring the Australian business and the New Zealand business together.

In 2010, the Australian joint venture was fully merged into the a2 Milk Corp.

"From day one I believed in the a2 concept," Babidge says.

"It represented an outstanding potential commercial opportunity with first mover advantage."

2019 was bumpy one for of a2 milk, which has a market capitalisation of $11.2 billion but which employs just over 200 people.

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The company commercialises intellectual property relating to A1 protein-free milk that is sold under the a2 and a2 MILK brands, as well as the milk and related products like infant formula. It maintains its a1 beta free protein can benefit those who have trouble digesting standard milk.

Shares in a2 Milk slumped to $14.00 after the news that Hrdlicka would step down. They have since fully recovered, and now trade well over $15.00 a share.

In stepping down, Hrdlicka, a former executive of cut price airline Jetstar, said the a2 Milk job would have involved more much travel than she had anticipated.

Investors have taken heart from the general direction of a2 Milk, but questions remain over the departure of Hrdlicka, who by some estimates will leave with $13 to $20 million for her stint.

Hrdlicka was paid $2.2m in 2018, the same year that she controversially sold a tranche of shares netting $4.3m.

She sold a further 146,000 shares last month to meet tax obligations and has 93,000 "transition" shares worth $1.4m remaining.

Despite reporting a hefty lift in its annual net profit for 2018/19, a2 Milk's share price took a big hit in August when it transpired that the company would spend more money on future growth.

In announcing Hrdlicka's departure, chairman David Hearn was at pains to say the strategy had not changed.

Still, Hrdlicka's sudden departure has left many scratching their heads.

With the return of Babidge, it was "back to the future kind of stuff," Harbour Asset Management portfolio manager Shane Solly said.

Harbour Asset, which has a stake in a2 Milk, had confidence in Babidge's ability to keep driving the business along, he said.

"We will obviously be looking very carefully what happens next in terms of where, who, what, and how."

Craigs Investment Partners head of private wealth research, Mark Lister, said the negativity surrounding Hrdlicka's departure would soon blow over.

He still favours the stock and its strategy.

"I still like it. It (Hrdlicka's departure) has obviously been terribly managed and that reflects badly on the board," he said.

"It's been a bit of a shambles but I am inclined to still stick with it," he said.

Has a2 Milk's risk profile increased?

"Yes it has, because there is a little bit of dysfunction at the management level now," Lister said.

"Geoff has had a long history with the company, so that is great," he said.

"He's a safe pair of hands and it's good that he's been enticed back into the company in a caretaker role, but he is not a long term solution."

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