Behind Hrdlicka's ousting at a2 MilkJayne Hrdlicka wasbrought in...

Behind Hrdlicka's ousting at a2 Milk

Jayne Hrdlicka wasbrought in to change things up at a2 Milk, but after just 18 months as CEO shemay be a casualty of pushing for too much change.

Dec 9, 2019 — 9.37am

Perhapsthe best indication of what’s gone wrong inside the boardroom of The a2 MilkCompany isn’t the removal of chief executive Jayne Hrdlicka after just 18 months, but who it’s turned to now.

That the board would immediatelybring back Hrdlicka’s predecessor Geoff Babidge as interim CEO – the man whobuilt a2 into a market darling and was such a key part of the business that heactually helped select his successor – suggests it is prepared to go back tothe future to steady the ship.

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Jayne Hrdlicka'stenure as CEO of The a2 Milk Company has ended after just 18 months. DavidRowe

Chairman David Hearn toldChanticleer on Monday morning that there were no personal or cultural problemsbehind Hrdlicka agreeing to step down from the role.

Rather, he said, it was aquestion of “execution and balance”.

Hearn insisted the board wasright behind Hrdlicka’s strategy to ramp up marketing spending to help buildthe brand on the ground in China, where a2 Milk’s past strategy of selling intothe country via the import channel known as the daigou trade will no longerdeliver the same growth as it once did.

But whereHrdlicka has been prepared to sacrifice margin to get there, it appears thatthe board feels less sure about that part of the plan.

In August, when Hrdlicka delivered the group’sfull-year numbers, she warned that the marketing investment blitz would seeEBITDA margins fall from 31.7 per cent in 2019 to about 28 per cent in 2020.

Investors didn’t like the soundof that, and a2 shares fell almost 25 per cent from the results day on August20 to November 19, when Hrdlicka announced a tweak to herstrategy. EBITDA margins would now sit between 29 per cent and 30 per cent forthe full 2020 year, and between 31 per cent and 32 per cent in the six monthsto the end of December.

The stock has bounced in the pastfew weeks and, it should be noted, increased more than 40 per cent duringHrdlicka’s time in charge.

Hearn, who confirmed thisguidance on Monday, said the new margin settings better reflect what the boardwants.

“This issue is not about whetherJayne has put in place the right strategy. The board is completely behind thestrategy,” he told Chanticleer.

“The issue if there is one isabout execution and balance. We want to balance between very strong growth andattractive margins.”

The other balance that Hearnbelieves was at issue here was between strategy and implementation.

He says the board broughtHrdlicka in knowing that a2’s market was facing big changes and needed a newstrategy.

But having put that in place,there is a question over whether Hrdlicka is the right person to roll it outover the next three to five years.

'Somegenuine logistical issues'

He said Hrdlicka had chosen tolive in Melbourne, when a2’s Australian head office is in Sydney and its globalheadquarters – and spiritual home – is in Auckland.

“Even when she’s at home she’snot at home, so there are some genuine logistical issues.”

Hrdlicka said similar in herstatement. The job meant more travel than she had expected when she joined, andher other commitments – including her role as president of Tennis Australia –were going to be “too difficult to manage … whilst also managing the health andwellness priorities of my family and me”.

It all makes sense on thesurface, but given Hrdlicka has been in the job for such a short period oftime, it’s hard to escape the sense that something has gone wrong here –whether that’s a cultural clash or a mismatch of expectations, or both.

Hrdlicka is a strong, directpersonality who really wanted to drive the business hard.

But there had been suggestionsaround the investment community that the way she sold the message of herstrategic change rubbed some up the wrong way; some found Hrdlicka a little tooinflexible on her investment plan.

The strong investor pushback onthe issue of margins – which, it must be said, was heeded by Hrdlicka – is theclearest evidence of this.

Did Hrdlicka’s distance from HQand her commitments outside the business also create problems? Did she everreally click?

It was very notable thatwhen AFR BOSS magazine profiled Hrdlicka earlier this year,Hearn and other directors declined to comment, saying it was too early topublicly endorse her reign. Given what we know now, that does speak to acertain distance between CEO and board.

And for all Hearn’s support forHrdlicka’s strategy – which as he makes plain, was endorsed by the board – itdoes seem like there’s a little buyer's regret here. The board sensibly wentafter a change agent, only to find they got a bit more change than theybargained for.

Indeed, by bringing back Babidge– who told Chanticleer he was relaxed and refreshed after 18 months on thesidelines, but not a contender for the job long term – Hearn is determined toshow the business is in safe, trusted hands.

“It’s a business as usual story,with a change at the top, but not with a fundamental change to the business,”Hearn said.

Dec 9, 2019 — 9.37am

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