Follow on from the Investor introduction - the q n a part of the presentation - I guess it says it all

a2 Milk heading for change of pace after Jayne Hrdlicka exit

A2 Milk CEO Jayne Hrdlicka is departing after just 18 months. Picture: David Geraghty.

• DAMON KITNEY

  VICTORIAN BUSINESS EDITOR

  
• 46 MINUTES AGO DECEMBER 9, 2019
• NO COMMENTS

When Jayne Hrdlicka made a flying visit to Auckland a year ago for a function at the home of the a2 Milk Company’s inaugural chairman Cliff Cook, it was more than an event to mark her acceptance of the leadership baton from long-serving CEO Geoff Babidge.

In attendance were the five CEO’s who had steered a2 Milk through the ups and downs of its 18 year life – including Babidge – as well as current and former New Zealand-based directors of the company and Ulrike McLahclan, widow of the man who discovered the A2 protein, Dr Corrie McLachlan.

For Hrdlicka, the evening was important opportunity to pay homage to the New Zealand heritage of the company and to celebrate the importance of its trans-Tasman legacy.

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• Twelve months on it appears that legacy, and the concern of the board and some investors with the pace of her strategy, have played a role in her decision – mutually agreed with chairman David Hearn – to quit as CEO, heralding the surprise return of Babidge as interim boss.

  a2 CEO Jayne Hrdlicka and chairman David Hearn. Picture: Stuart McEvoy.

  Hrdlicka stressed that the next phase of the company’s growth, with the travel it would entail, was “going to be too difficult to manage alongside my other commitments while also managing the health and wellness priorities of my family and me”.

  In her first CEO role at a listed company, the former Qantas executive and Woolworths director did her best to stamp her own authority while respecting a2’s strong New Zealand connections.

  She made bold decisions to invest in marketing and capabilities to set up a2 for the future.

  The company spent $NZ135 million on marketing in the year ended June 30 (including $NZ20m on consultants) and is spending more than $NZ200m in the year ahead.

  Hrdlicka, who was a consultant at Bain & Co for more than a decade, defended the spending, even if it was affecting the company’s bottom line.

  She said the company did not have the infrastructure that would support the next stage of its growth, especially on the ground in China and in its head office.

  But after a2’s annual results in August, when the company revealed its earnings margin in the year ahead would be lower than expected, some investors panicked and the share price slumped.

  Pace of change

  While the board supported her strategy, it was worried about the pace at which she was transforming the company.

  “That is a concern the board has had,” chairman David Hearn told The Australian on Monday.

  “If you look at the (media) release in its total, we are reconfirming that the business is on track so there are no holes in the (earnings margin) number that have caused this.”

  “We were going to balance out the pace of change with continuing to produce attractive margins.

  “Like all strategies, like anything in life, the answer is always a good and fair balance. There is a balance of investment which we agree with as well as managing the profitability of the business.

  Qantas CEO Alan Joyce (left) Jayne Hrdlicka, editor Anna Wintour (third left), Australian film director Baz Luhrmann (third right), Australian actor Nicole Kidman and musician Keith Urban in the crowd at The Australian Open. Picture: AAP

  “As a board, we are committed to targeting a 30 per cent net margin.”

  On the issue of investors, he said: “I am well aware there have been some investors that have been concerned by the pace of change. Only because they have been concerned about the margin compression that has been implied.”

  Sitting alongside Hearn and when asked about the pace of change, Geoff Babidge told The Australian: “I would possibly have implemented slightly differently,” but said he fully supported the company’s strategy under Hrdlicka.

  “People need to make a call how quickly certain things should be implemented,” he said.

  “Obviously I will bring my own flavour during this period of time I Ike to ensure there is the appropriate balance of growth and monitoring the bottom line.”

  In a magazine interview in July, which was accompanied by a glamorous photo shoot, it was reported that the board had been “reluctant” to “publicly endorse” Hrdlicka’s reign as CEO, which surprised many inside and outside the company.

  Then the consultant-speak inherent in her presentations during the company’s inaugural investor day in Shanghai in mid-September frustrated some investors, although all left China comfortable with the strategy.

  Hrdlicka also adopted a different style to Babidge. While the latter regularly kept Hearn and the board appraised of his work, Hrdlicka preferred to work more independently.

  There were also concerns among some directors about the workload of her role as president of Tennis Australia, the nation’s governing body for tennis.

  The Australian’s DataRoom column also reported earlier this year that two long-time a2 Milk backers — New Zealand fund mangers Harbour Asset Management and Fisher Funds Management — had expressed concern about losing access to the company’s well-regarded operational boss, Asia Pacific chief executive Peter Nathan.

  Last month global chief marketing officer, Susan Massasso, announced she was unexpectedly stepping down from the role at the end of February.

  Massasso had been in the role for more than six years, joining in 2013 as the brand’s first CMO.

  Now Hearn says of Massasso: “I am not ruling out her return.”

  “Let’s wait and see. She has announced she wants to take a break. She is an extreme workhorse. She is burnt out and she needs a little bit of time to get her own personal space together.”

  In September a2’s chief financial officer for the past five years, Craig Louttit, announced he would step down from his role, to be replaced by former Jetstar CFO Race Strauss, a close Hrdlicka confidant. But Louttit remains with the business in charge of the finance function.

  Unwelcome distraction

  In July 2017, shortly after Hrdlicka took over from Babidge, a2 was immediately hit by the unwelcome distraction of the controversy surrounding Hrdlicka’s unexpectedly selling shares in the company, a move that earned the wrath of investors.

  Hrdlicka sold the shares to meet tax obligations and commitments made before she joined the company from Qantas, where she was boss of the airline’s loyalty business.

  Hrdlicka and Hearn acknowledged last year that the need for the sale could have been better explained to investors. But the controversy and the company’s handling of the issue is said to have tarnished their relationship.

  Hrdlicka’s decision to leave was agreed with Hearn following a discussion last month between the two of them.

  Asked this morning if some investors and the public would be cynical about the reasons given for her departure in this morning’s media release, Hearn replied resolutely: “We have made the release we have. I am standing by it. People can interpret it in any way they like.”

  Ironically a2 shares were one of the best performers in the ASX200 in November, rising 20 per cent after the company shook off the negative sentiment associated with outlook at its annual results in August.

  It appeared Hrdlicka’s strategy of winning significant market share in the high growth markets of China and America – even if her hand was forced to pull back on cost growth – was finally being accepted by some initially sceptical investors.

  Babidge now returns as the prodigal co-founder of the company. The board and the company’s New Zealand-based power base will be confident that after a whirlwind 18 months, a2 is back in safe hands.