BACKGROUND: Noumi Ltd (ASX: NOU), formerly known as Freedom Food Group Limited (ASX: FNP), is one of the nations’ biggest dairy farmers. The company owns several well‐known brands such as Milklab, Australia’s Own, So Natural, Crankt, Vital Strength and Purenferrin.
On 30 November 2020, Freedom Foods revealed more than $590 million in write‐downs and the company had restated several years’ worth of accounts. In a number of announcements after the ASX had closed on Monday, the company revealed that its past financial results were inaccurate, among other revelations. Freedom Foods reported, in October 2019, that it earned a full‐year profit of $11.6 million. But that figure has now been “restated” as a $145.8 million loss. The cereal business also confessed its losses had since widened to $174.5 million in the last financial year (ending June 30, 2020).
Callers questioned company oversight and the scope of the $590 million write‐down, of which $372.8 million is linked to asset values being slashed. It was explained that Freedom has incurred enormous costs building machinery to handle its new product lines, but did not put it down as an “expense” in its books. In addition, the company also wrote down its goodwill and brands by $75.9 million and had to also write down $60.1 million due to “out‐of‐date, unsaleable and obsolete inventory”.
Further investigations also reveal that payments had been made to some employees, including senior management, without permission from the board. The employee incentives include granting of previously undisclosed employee share options and/or extension of the expiry date of share options by management between September 2014 and September 2019.
QUESTION ONE (750 words)
The corporate governance statements of Noumi (Freedom Food) from 2016 to 2020 reveal that the company adhered to most of the ASX principles of corporate governance. Yet the accounting scandal of Noumi (Freedom Food) suggests that corporate governance may have failed.
Discuss how failure of the board of directors (principles 1 & 2) and failure of the ethical culture (principle 3) at Noumi (Freedom Food) contributed to the downfall of the company. Students should review the annual corporate governance statement and Appendix 4G filed by Noumi (Freedom Food) from 2016 to 2020. Students should also refer to the annual financial report or other publicly available resources where necessary.