They’re the slick orange-and-white cartons that have become a mainstay in Australian coffee culture. Championed by baristas, chosen by McDonald’s, Starbucks and Muffin Break, and beloved by lactose-avoiding consumers, Milklab’s plant-based products are a common sight in cafes across the nation.
But few coffee drinkers would know that Milklab’s manufacturer is at the centre of one of the most spectacular corporate implosions in recent Australian history.
Milklab’s maker, an ASX-listed company once known as Freedom Foods, is still struggling to recover from revelations two years ago of significant accounting irregularities worth over half-a-billion dollars.
The irregularities, preceded by the sudden resignations of two top executives, forced the company into a nine-month trading halt. Two class action lawsuits and an investigation by the corporate regulator, ASIC, have followed.
Freedom Foods has changed its management team, secured support from a new cornerstone shareholder - the billionaire Perich family, one of western Sydney’s biggest landowners - and rebranded itself as Noumi (pronounced “new me”).
Despite this, the company behind a wide range of dairy and plant-based milk products and health supplements has failed to win back the trust of investors.
“Noumi was a ‘market darling’ as recently as a few years ago,” class action law firm Phi Finney McDonald associate Muhammad Arayne says. “The financial irregularity revelations made in mid to late 2020 genuinely shocked the market and caused the company to lose a substantial amount of trust from investors. The share price collapse ... was catastrophic.”
Noumi shares, currently hovering around 28 cents, are about 90 per cent below a September 2018 peak price of $5.30. With a market value of $78 million, Noumi is worth less than 5 per cent of a company once valued at nearly $2 billion.
Throughout this turmoil, Milklab has been one bright spot for the company, enjoying stratospheric growth and strong customer loyalty among baristas.
But now, even Noumi’s most prized brand, and the company’s future prospects, are hanging on a knife’s edge.
And this week, the company disclosed that a separate legal battle has been launched by French tea and coffee company Sunday Collab over rights to distribute Milklab in Europe, claims Noumi says are “without merit”.
Noumi had already been accused of fraud by its former supplier, Californian almond grower Blue Diamond, which sued Noumi for breaching a licensing agreement between the two parties relating to Milklab.
The pair of companies have reached a settlement of $US35 million ($49 million) – more than the embattled Noumi can afford. So to pay it all off, Noumi wants to sell its stake in a separate company – but this needs shareholder approval.
The future of Milklab rests in the hands of these shareholders, who will vote on whether to approve the stake’s sale at an extraordinary general meeting on Wednesday.
Spilt milk
The first sign something was wrong at Freedom Foods came on Tuesday, June 23, 2020, when then chief financial officer Campbell Nicholas suddenly resigned.
The following morning, CEO Rory Macleod went on leave. Trading on the ASX was suspended, pending a further announcement, but not before shares dropped to a five-year low. An unusually high volume of 21.5 million shares traded hands (there have been no allegations of insider trading).
Then on Thursday of that week, the company released a statement to the ASX revealing that its estimated value of useless assets, $25 million, had blown out to $60 million. A review of inventory levels showed there was more out-of-date stock, some from cancelled orders, than originally thought. Sixty-one staff positions were made redundant.
Almost simultaneously, the company held a conference call. With the CFO and CEO gone, the unenviable task of hosting it fell to then-chairman Perry Gunner.
The most pressing question from investors and stakeholders was: where did things go wrong? The outdated stock and cancelled orders went as far back as 2017. Why wasn’t it picked up earlier?
The company had been shifting stock from five external warehouses into its own facility, the chairman explained that. They knew there was “some amount” of stock that needed to be reworked (for instance, turned into dry powder) but didn’t realise just how much there was.
Over the years, vast amounts of milk had been going off in warehouses, and either no one had noticed or no one had reported it.
But getting rid of it was expensive. Simply put, there was so much milk that had gone off that it was cheaper to write it off than to rework it.
“The difficulty is the cost of getting that milk out of the packages and into a vat ... to allow it to be processed, does not justify the protein or the value of the milk powder that you would obtain from doing it,” he said, according to transcripts of the investor call. “That’s why the ... likely provision has been increased from $25 million to $60 million.”