Freedom Foods shares are now suspended for the next 14 days while the company investigates a massive $50 million blow out in inventory costs and other charges of just on $16 million.
In a statement to the ASX at 5pm Thursday and a tele briefing, the food manufacturer revealed a near doubling in inventory write downs.
Freedom Foods confirmed it will have to write down an extra $35 million of inventory and increase its allowance for doubtful debts for the current financial year.
In a trading update in late May Freedom Foods had said it would have to write down about $25 million of inventory. But late on Thursday the company said this amount has now more than doubled to around $60 million.
News of the extra costs came after the shares were lated on Wednesday in the wake of a statement announcing the surprise move by CEO Rory Macleod to go on leave for an indefinite period. That was a day after the chief financial officer Campbell Nicholas resigned suddenly.
The company has also revealed a blowout in doubtful debts. In May it revealed it was provisioning about $4 million for doubtful debts, relating to an export account for the June half. But a review of its doubtful debt provisioning, and of its revenue recognition, has revealed a further negative impact on its EBITDA (earnings before interest, tax, depreciation and amortisation) of about $10 million.
There’s also a charge of $5.9 million in respect of its staff share scheme. On March 8, 2020, the company announced that “it was in the process of reviewing administration and disclosure matters under its employee share option plans and the issue of shares to employees”… The calculation of non-cash share based payments expense in relation to these issues has been completed and a charge of $5.9 million will need to be brought to account, either wholly in FY2020 or spread across FY2020 and prior periods.
The company has been granted a 14 day suspension from trading on the ASX, as it addresses its problems. Freedom Foods has engaged PWC and law firm, Ashurst to advise it on its financial position.
The newly appointed executive chair, Perry Gunner said on the teleconference that investigations into what had happened were continuing and he stressed that the company’s major shareholder, the Perich family who hold more than 52% of its shares, fully supported the business.
Freedom shares remain at Tuesday’s close of $3.01, valuing the company at $976 million. Once they relist, the shares won’t remain over $3 for long.
The one point to remember is that in all cases of corporate loss making – no matter how it is achieved, the first loss estimate is always the lowest (it’s always the same when there are big natural disasters). The investigation now to be conducted will almost certainly find more problems.
The extra costs will wipe out expected net profit around 419 million (according to analysts’ forecasts and the $78 million forecast for EBITDA.
