Freedom Foods seeks to offload stock, provision may rise

Carrie LaFrenzandJemima Whyte

Sep 3, 2020 – 1.05p

Freedom Foods may be facing higher inventory provision than its original $60 million, and is is hoping to salvage some of its outdated stock.

The troubled manufacturer is suspended from trading until October 30 as it conducts reviews into how so much old UHT milk and cereal products came to be piled up in its warehouses, mostly in Shepparton.

Michael Perich is the interim chief executive of Freedom Foods, which has sent legal letters to former employees.

Freedom Foods, whose brands include Messy Monkeys, Milk Lab, and Blue Diamond Almond Breeze milk, appointed a number of advisers, including Moelis, PwC and Ashurst, to conduct a deep dive into the accounts.

The investigation is nearly complete, with a final report due to the board led by Perry Gunner in a few weeks.

Its final provision will not be known until the final audit is done, but sources suggested it might move closer to $70 million, rather than the $60 million it flagged in late June.

Industry sources suggested ProviCo Rual (Protein Vitamin Company) - which manufactures fortified calf milk replacers - as possible buyer of this stock which was denied by managing director Andrew Paterson.

"The company is working to assist Freedom in the management of dry goods milk powder inventory, but we are not involved in the recovery of any UHT milk product," he said.

Possible clean-up options for Freedom Foods include offloading the aged stock to a piggery, or using its existing relationship with Cleanaway Waste Management, which will be a cost to Freedom Foods.

Mr Gunner previously told investors in late June that there was some stock that had been put aside for "rework" in five external warehouses that were being consolidated.

But on further examination, it was clear that it was "not practical nor profitable to rework that stock", so a further write-off was needed. The provision then jumped from $25 million to $60 million.

The company is backed by the wealthy Perich family, which recently installedMichael Perich as interim CEOafter former head Rory Macleod andchief financial officer Campbell Nicholassuddenly resigned in June.

Freedom Foods is still nutting out its recapitalisation plans, which is likely to result in the group remaining listed on the ASX. Itrecently threatened formerstaff with legal action if they discuss confidential company business.

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The list of headaches continued to grow after the company was forced on September 2 to recall its Milk Lab Almond Milk and Blue Diamond Almond Breeze Chocolate Almond Milk products due to a potential microbial contamination.

However, the company said it takes product quality and safety extremely seriously and has fully resolved the issues, with its Ingleburn facility up running.

According to the Food Standards Australia and New Zealand, Freedom Foods' recent recall was the only one in 2020, and it did not have any product recalls in 2019.