Under-scrutiny Australian business Freedom Foods Group is probing the possibility of fraudulent activity after booking fresh write-downs, which followed the departure of its CFO and a leave of absence for the company’s CEO.
Freedom Foods held a conference call yesterday (25 June) with analysts at the end of a week of turmoil for the business, which has also included the announcing of redundancies.
Perry Gunner, named Freedom Foods’ executive chairman on Wednesday after the company said CEO Rory Macleod was “on leave pending a further announcement”, told analysts the group is committed to resolving the current issues and “ensuring that we regain the confidence of investors as soon as possible”.
During the call, Gunner cited a series of cancelled export orders and admitted Freedom Foods would have to revise its Asian trading strategy. He also said retailers had de-listed a number of products, which would force the company to rationalise its brand range.
Freedom Foods, which produces free-from cereals and snacks and also supplies fresh milk, milk drinks and plant-based beverages, has widened its write-down estimate for its 2020 financial year from AUD25m (US$17.2m) to AUD60m to reflect the provisioning for obsolete inventory, out-of-date stock and product withdrawals. However, the company added “this revised estimate is still subject to further analysis, year-end review processes and audit as part of the finalisation of the financial year 2020 results”.
On the subject of the increased write-down, Gunner was asked if he was aware of any fraud. He said the company was “undertaking further investigations”.
Advisory firm PwC has been brought in to help it assess its financial position.
Reflecting on Freedom Foods’ current standing, Gunner said: “The current issues are having no impact on our operational performance. We previously stated on 29 May that Covid-19 was having a material influence on our performance, but these issues are not and I think that needs to be made quite clear.”
He pointed out Freedom Foods’ cornerstone investor – the Perich family – continues to support the business.
“It’s a disappointing episode in the company’s history, certainly 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, being fully aware of our continuous disclosure obligation,” he said.
Gunner said the company is not in a position to make any further comment at this time in relation to the employment position of Macleod.
On Wednesday, Freedom Foods said Macleod was “on leave pending a further announcement”. That came a day after it was announced CFO and company secretary Campbell Nicholas had resigned with immediate effect.
That news led to the company’s shares plunging by more than 16% by mid-morning which in turn led to Freedom Foods halting trading in its shares on Wednesday, when it also made the announcement about Macleod. Trading in its shares has been suspended for 14 days.
Yesterday, the company told the Australian Securities Exchange (ASX), on which it is listed, that 61 positions are to be terminated with 41 staff losing their jobs and informed the market about the widening of its write-down estimate.
Earlier this month, US investment vehicle All About Healthy Foods Holdings (AAHFH), which has a stake in Freedom Foods, revealed it was pulling the plug on the operations of its All About Healthy Foods arm.
AAHFH, which was was unveiled by AFT Holdings in January 2018, was set up to focus the investor’s moves in food in one group.
It held AFT’s ownership of US plant-based foods maker Atlantic Natural Foods, as well as its investment in Freedom Foods.
The AAHFH operations include the distribution in the US of Australia’s Freedom Foods Group. Covid-19 had “created an overwhelming challenge for the US supply chain from Australia”, AFT said last week, leading Freedom Foods to stop selling its products in the US.
“Freedom Foods has withdrawn its products from sale into the US market until the future is clearer after Covid-19,” Hines added. “The sales and distribution for North America will be consolidated into Atlantic Natural Foods.”
just-food contacted Freedom Foods for comment.