A2 Milk share price collapses 6% as CEO steps down

We examine the details behind Jayne Hrdlicka’s decision to step down from her role as Chief Executive Officer at the a2 Milk Company.

It was hardly a surprising reaction from the market this morning: A2 Milk’s share price fell as much as 6% after the company announced that MD and CEO Jayne Hrdlicka would step down from her role.

By 10:27 AEDT, A2M traded just below the $14 mark – at $13.930 per share.

In response to this news, A2’s Board noted that they would immediately commence a global search for a replacement Chief Executive – with the company's former CEO, Geoffrey Babbidge, set to take reigns as Interim CEO in the meantime.

Mr Babbidge served as A2’s CEO from 2010 to July 2018, overseeing the company as it went through an explosive phase of growth. Specifically, from a2 Milk’s ASX-listing in 2015 to 2018 – the share price ran up more than 1,600% – as the company saw its revenue and earnings rise at an exponential rate.

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A2 Milk share price: a new path forward?

Speaking of the broad implications of Hrdlicka’s decision to step down, A2M’s Board attempted to reassure investors, noting that it:

‘Remains confident that the strategic course of the business which was recently communicated at the Annual Meeting will continue to deliver strong rewards to all shareholders in the future.'

Evidently dissatisfied with the potentially turbulence that this C-suite shakeup would create, by 11:12 AEDT A2M’s stock continued to dive, dropping 6.09% to $13.66 per share.

Commenting on the decision herself, Jayne Hrdlicka stressed how delighted she was over the progress that has been made at the company in recent times, as well as her confidence in the company’s current leadership team's ability to execute on the current strategic-growth plan.

'The reality however is that the next 3-5 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.'

She further continued by saying that, '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.'

A broader issue at play

Analysts, and the market more broadly appeared to express dissatisfaction with the aggressive growth plans – spearheaded by Hrdlicka herself – that would of seen A2’s marketing spend upsized while its margins compressed. he stock fell after strongly after its FY19 results revealed the company expected (EBITDA) margins in the realm of 28%.

On the side of all this, an article from the Australian Financial Review today suggested that there may have been tension between Hrdlicka and the board over strategy; namely, over balancing growth and margins, and how to do so appropriately.

Indeed, the stock did rise around 30% – from November to December – after the company recently announced it expected its margins to be higher than previously flagged. A2's marketing spend will remain signifcant in FY20.

Tellingly, in an A2 investor briefing also released this morning, the company's CFO David Hearn stressed that the company will 'target an EBITDA margin of at least 30% in the medium term.'

A goal the Board views as achievable, without much detriment to growth, he added.


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