ASX listed Halo Food Co has gone into voluntary administration 18 months after buying health and wellness company, The Healthy Mummy, for $17 million dollars. Halo sold THM to healthcare platform Mosh for $588,540 on 10 August.
Halo Food’s other brands are functional beverage brand Tonik, milk powder manufacturer Key Dairy, and confectionery brand Gran’s.
The company went into a trading halt on 24 August, and in a statement to the ASX said the strategic review it started in May to unlock value through divestment, M&A, and other opportunities had not met expectations. Financial support had been withdrawn from the company.
Rahul Goyal, Kate Conneely, and Michael Korda of KordaMentha have been appointed administrators. David Hardy, Ryan Eagle, and Emily Seeckts of KPMG have been appointed as receivers and managers, taking control of the assets and trading operations.
On 10 August, Halo divested 100 per cent of the share capital in The Healthy Mummy to Hairmop, trading as Mosh. Mosh runs a men’s healthcare platform and recently launched a female version called Moshy.
The terms of THM’s sale included settlement of inter-company debt owed to Halo Manufacturing, Mosh to assume all liabilities of THM, and all employees to remain with THM entities.
Halo and Mosh also entered into an arm’s length and exclusive manufacturing agreement for the future production of THM powders, including smoothies and weight loss shakes for an initial term of 18 months.
Halo presented its full year FY23 results for the 12 months to 31 March, reporting a 72 per cent decrease in normalised group EBITDA to $0.7 million. The company said underperformance of its New Zealand contract manufacturing business, THM, and its bar line caused the drop.
It’s Australian Contract Manufacturing arm had a record year with sales of $51.6 million, which excluded inter-company sales to brands and THM. That was a 26 per cent increase on FY22 and attributed to winning more contracts and repeat and increased volumes from existing clients. Increased ranging of its Tonik protein bars and drinks in petrol and convenience, and independent supermarkets and specialty stores drove the increase, Halo said.
Its New Zealand Dairy vertical had a challenging year, but Halo said sales were beginning to rebound and it had just signed a two-year contract with Fonterra for NZ$6.4 million.
Halo Manufacturing was impacted by the underperformance of its bar line operations, which reduced its EBIDTA by $1.5 million.
THM recorded a 31 per cent decrease in revenue to $13.9 million. Halo said macroeconomic headwinds and tighter consumer discretionary ecommerce spending saw a reduction in digital app subscriptions and product sales through the ecommerce channel.
While the impact was mitigated slightly by a move into retailers ahead of forecast, which generated $690,000 in the first three months, Halo implemented a cost rationalisation review and reduced costs by $300,000 a month.
The company also recorded a non-cash impairment to the goodwill of THM of $11.3 million on the company’s balance sheet.
Net loss for the year declined to a loss of $50.1 million, from $7.5 million in FY22 driven by a non-cash impairment charge to goodwill.
The majority of the statutory loss was the non-cash impairment of $36.1 million of goodwill relating to the acquisition of THM and prior year acquisition of Halo Manufacturing.
“The impairment has been driven by a deteriorating macroeconomic environment, rising interest rates, rising inflation, and increased cost of living pressures. In addition, there is a large delta between the market capitalisation of the Halo group and the goodwill recorded on the balance sheet.
“These macroeconomic factors have led to a significant increase in the company’s weighted average cost of capital (WACC). The resulting discount rates used (FY23 WACC was 20.8 per cent, FY22 11 per cent) to test the goodwill headroom pursuant to accounting standards as compared with prior years resulted in the impairment,” Halo said.
The board said the value of the business units within Halo could be worth substantially more than the implied values based on the listed value of the company. Modus Partners was appointed to conduct an external strategic review.
The first creditors meeting is on 5 September 2023.
