A Federal Court ruling that outlined how one of the biggest corporate collapses in recent years occurred and a divestment with a non-cash impairment of hundreds of millions of dollars dominated the headlines this week.
Historic company disclosure breaches
On Monday, 5 August, Federal Court Justice Ian Jackman approved the $5 million civil penalty agreement between Noumi and the Australian Securities and Investments Commission (ASIC) in relation to its role in company disclosure breaches in FY19 and HY20.
The court found Freedom Foods Group (now Noumi) failed to disclose material information about the value of inventories in its financial reports for FY19 and HY20. In FY19, it overstated its disclosed inventory of $120.2 million by $31.77 million by including unsaleable inventory. And in 1H20, it included $36.6 million of unsaleable stock in its declared $122.3 million disclosed inventory.
And there was the situation with its lactoferrin reporting, with overstatements of disclosed revenue and profit of at least $9.8 and $8.5 million respectively. That was possible by including invoice amounts that had never been paid and lactoferrin never being delivered.
For Noumi, chair Genevieve Gregor said it was a “pivotal milestone” for the company. The company cooperated with ASIC from the outset and installed a new board and leadership team.
ASIC’s proceedings against the former CEO, Rory Mcleod, and CFO, Campbell Nicholas, are ongoing, but Justice Jackman’s ruling provides insight into just how the company ended up in the place it did.
This wraps it up rather succinctly: “Mr Macleod’s and Mr Nicholas’s awareness of the facts and circumstances giving rise to the relevant information, especially as to the mounting non-nettable inventory, of concerns expressed to them by senior employees, the admitted “CEO Instructions”, and Mr Macleod’s refusal to write off stock even when requested by FFG staff, give rise to the clear inference that the omission of the relevant information from the financial reports was deliberate, or at least reckless, conduct by Mr Macleod and Mr Nicholas.”
Treasury Wines to divest commercial business unit
Treasury Wine Estate’s announcement this week that it will divest its Commercial brands portfolio did not come as a surprise. A year ago it announced it was going to divest its commercial winery, Karadoc, in Victoria, and vineyards in Vic and New South Wales, and remodel the operational and organisational structure of the company. CEO Tim Ford said divesting or rationalising some assets either individually or in combination was being considered.
“We continually and proactively assess our business performance, our structure and our cost base to make sure we’re in the best position to continue to deliver on our premiumisation and growth strategy,” Ford said.
But perhaps the non-cash impairment charge of $354 million ($290 million post tax) did. It will be recorded in its FY24 results. The amount is substantial and is completely connected to three iconic brands it has owned for decades ($115 million for goodwill, $229 million for brands) – Wolf Blass, Yellowglen, and Lindeman’s.
While Ford said the brands contributed less than five per cent of the group’s gross profits last year, there is a question around why the impairment against them is only being recognised now after owning them for so long.
