Freedom Foods restated an $11.6M profit into a $145.8M loss — ASIC moved in

Freedom Foods, the Australian cereal and snack maker 54%-owned by the Perich family, spent 2020 unravelling its own books. CEO Rory Macleod and CFO Campbell Nicholas were forced out by mid-2020; chairman Perry Gunner and director Trevor Allen announced retirements in December. In a flurry of announcements after market close on November 30, the company revealed its FY2019 profit of $11.6 million had been restated into a $145.8 million loss, that FY2020 losses had widened to $174.5 million, and that write-downs would total $590 million.

The write-downs mapped the fiction: $372.8 million of asset-value cuts on machinery built for new product lines that had never been expensed, $75.9 million off goodwill and brands, and $60.1 million for 'out-of-date, unsaleable and obsolete' inventory. The company's own statement conceded the accounting treatments had driven decisions 'based on unrealistic assessments of market opportunities', so that 'too many group products were sold at prices that did not fully recover their costs'.

The sharpest finding was a governance one: between September 2014 and September 2019, management granted undisclosed employee share options and extended option expiry dates without board authorisation — payments to employees, including senior management, made without the board's permission, flagged by auditor Deloitte. Shares had been suspended since June at about $3, against a September 2018 peak of $7; to fix the balance sheet the company asked shareholders for another $280 million, drawing the webcast retort 'why should I throw good money after bad?'.

$590M in write-downs; FY2019's $11.6M profit restated to a $145.8M loss; shares suspended since June at $3, down from a $7 peak.

Expansion capex and obsolete inventory were kept off the expense lines, so the P&L kept certifying a growth story the balance sheet couldn't support.

Management granted itself unauthorised share options and extensions for five years without detection.

Products were priced below cost under margin assumptions that were never revisited against reality.

Board oversight failed until external auditors and a forensic investigation forced the restatements out.

Growth bought on mislabelled accounting isn't growth: if machinery costs and dud inventory are parked off the P&L, every expansion decision is made on fiction.

ASIC opened a formal investigation and requested documents, with the company cooperating. Interim CEO Michael Perich began simplifying the business — chairman Gunner attributed the mess to a 'fast' pace of growth — while the company negotiated with a new investor to fund the $280 million recapitalisation. In a curious coda, Freedom published an 'insider trading' policy restating prohibitions that were already law, on the same day it confirmed the regulator's investigation.