The Freedom Foods Group Ltd (ASX: FNP) share price won't be returning to trade any time soon after the diversified food company requested that its shares be suspended for 14 days.
Freedom Foods made the request while it further investigates its financial position following the sudden exit of its CEO and CFO this month.
What is happening at Freedom Foods?
As well as requesting the suspension of its shares, Freedom Foods provided an update on several corporate matters.
One of these was its inventory position. After writing down the carrying value of its inventory at the end of May by $25 million, the company has been further analysing its stock.
The company advised that this analysis suggests the need for further write downs to reflect the provisioning for obsolete stock, out of date stock, and product withdrawals. This is expected to lead to an additional write-down of $35 million, bringing the aggregate inventory write down for FY 2020 to ~$60 million.
Freedom Foods is also looking into inventory held outside the country to see if that needs to be written down.
In addition to this, the company notes that it has become aware that the initial estimate did not include inventory write-offs related to FY 2020 product withdrawals and deletions and accounting matters relating to costs of goods carried forward as a capital item that should have been included as cost of sales. This matter requires further investigation.
Doubtful debts.
Freedom Foods has also been looking into its doubtful debts. It has found that further bad debt provisioning is required and a reversal of prior period revenue recognition will be necessary in FY 2020.
This is expected to impact its EBITDA by approximately $10 million. Though, the company acknowledged that it may also be necessary to include adjustments to the timing of revenue that was reported in prior periods and debtor balances in the balance sheet.
And finally, the company has been looking into its employee share plan and found issues. It expects to incur a charge of $5.9 million after the issue of employee options were not completed.
Foolish Takeaway.
Overall, this is a very surprising and messy situation financially. Shareholders will no doubt be seeking answers to how this was able to happen.
