Investors back a2 Milk's direction, but questions remain after CEO's departure

Investors have taken heart from the general direction of a2 Milk, but questions remain over the sudden departure of chief executive and managing director Jayne Hrdlicka, who by some estimates will be $13 million better off after just 18 months in the job.

Some observers calculate that the final figure could be higher than that, depending on how a number of variables pan out.

Hrdlicka, who was paid $2.2m last year, controversially sold a tranche of shares that year, 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.

READ MORE:
• A2 Milk shares fall as major Chinese competitor emerges
• A2 Milk anticipates strong revenue growth in 2020
• A2 Milk boss Jayne Hrdlicka exits job suddenly

The Australian Financial Review estimated Hrdlicka had made more than half a million dollars for every month she worked at a2 Milk.

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.

Announcing Hrdlicka's departure this week, chairman David Hearn was at pains to say the strategy had not changed.

Monday's shock announcement came at time of disquiet in the investment community over the number of top level staff leaving a2 Milk.

In November, the company said marketing officer Susan Massasso would leave at the end of February next year.

In September, the company announced that chief financial officer Craig Louttit would step down from that role.

In December last year, Simon Hennessy, a2 Milk's general manager for international development, took early retirement.

The same month, Michael Brakka, head of business development — emerging markets, also left the company.

In August last year, chief executive — UK and Europe, Scott Wotherspoon, who played a role in establishing a2 in China, stepped down.

A spokesman for a2 Milk said the company would not comment further on Hrdlicka's departure and attempts by the Weekend Herald to contact her for comment were unsuccessful.

The week's events leave the market in two minds.

Analysts have been comfortable with the company's direction, as outlined at last month's annual meeting, but questions remain about Hrdlicka's exit after such a short tenure.

"If you look at the guidance given at the AGM in terms of the way the first-half Ebitda (earnings before interest, taxation, depreciation and amortisation) is progressing, clearly it was well-received by the market," said Tama Willis, portfolio manager at Devon Funds.

But he said questions persisted about the departure of the chief executive after such a short time.

"That's an area that we are continuing to look at and will be engaging with the board and the company," he said.

"Clearly, the chief executive's tenure over what looks like 18 months is very short for a role like this, given that the board appears to have supported the strategy.

"There are questions as to the exit terms and what the cost will be to the business — all relevant questions — and the answers to those will be followed very closely," Willis said.

"Importantly, though, the operating performance continues to look solid.

"Certainly, for a short tenure, the remuneration looks pretty excessive," he said.

The a2 Milk board said it would immediately start a global search for a new chief executive.

In the meantime, former chief executive Geoffrey Babidge — who is credited with turning the once-struggling a2 Milk into one of New Zealand's biggest listed stocks — has accepted the role of interim chief executive.

In her part of this week's statement, Hrdlicka said a2 Milk was an extraordinary business and it had a bright future.

But Hrdlicka, who was last month re-elected unopposed for a second term as chair of Tennis Australia until 2022, said the a2 Milk job would have involved more travel than she had planned for when she took on the role.

A2 Milk's share price plummeted by more than $1 to $14.00 when the announcement first came to light.

By yesterday, the market had more than made up for it, with the stock trading at $15.27.
The price had rallied sharply last month when the company said it expected annual operating profit margin would be stronger than previously communicated and in the 29-30 per cent range.

The alternative milk and infant formula company said it expected to see strong revenue growth, supported by its investment in China and the United States, in the current financial year.

"Overall, for FY20 we anticipate continued strong revenue growth across our key regions supported by brand and marketing investment in China and the US and the development of both capability and infrastructure to support in-market execution," Hrdlicka said then.