A strategic review rarely signals good things. Most times, it reveals the many cracks within the company. But if you’re lucky, the review will end with only great things to say about it. Amid a multi-million dollar deal with dairy nutrition company Fonterra, the functional beverage brand Halo Food Co (ASX: HLF) has decided to onboard Modus Partners to conduct a strategic review. Though it hopes for the latter outcome, shareholders aren’t so confident.

On March 30, 2023, the Company announced that it has engaged the services of Modus Partners, a corporate advisory firm with offices in Sydney and Singapore, to carry out an external strategic evaluation aimed at creating value for all stakeholders and providing recommendations on how to increase shareholder value within the group.  

Halo has launched a strategic review into its 100% owned subsidiary The Healthy Mummy and has subsequently expanded the review to Halo’s entire operations and divisions. As such, Modus is seeking expressions of interest from parties for the Company as a whole or the individual business units of Halo. According to Halo’s board, the review may reveal that its underlying businesses are worth significantly more than their current implied values. 

The review will explore various options, such as divestment, mergers and acquisitions, and partnerships, for individual business units or the Company as a whole, in order to optimise shareholder value.

The Halo Manufacturing unit comprises three standalone production facilities: a powder blending and packing facility, a long-life UHT ready-to-drink PET bottling facility, and a protein bars/healthy snacking and confectionery facility. The business serves a leading customer base in the health and wellness industry. 

On May 1, Halo’s dairy subsidiary Keytone Enterprises (NZ) Company Limited entered into a manufacturing agreement with Fonterra Brands (New Zealand) Limited. Keytone will manufacture nine milk powder products, which will be distributed in several countries, including China, India, Vietnam, and New Zealand. The two-year initial term of the contract is valued at $6 million, and Fonterra has the option to renew it at the end of the term. The finished products will be manufactured at Halo’s New Zealand manufacturing facilities.

In the quarter ending March 31, its New Zealand dairy segment suffered a 22% decline. Both Keytone and The Healthy Mummy underperformed. The total sales for New Zealand were $12.7 million in comparison to $16.3 million for FY22, due to decreased orders from Chinese customers due to high milk powder pricing. THM’s total sales for FY23 were $14 million, compared to $20.1 million for FY22, due to macroeconomic challenges and tighter consumer discretionary spending in e-commerce. To counterbalance this reduction, Halo reduced operating expenses by $160k per month and is exploring additional cost and revenue improvements in the upcoming months.

Besides that, it also reviewed its salaries. The payments made to both executive and non-executive directors continued to decline during Q2 and Q3 of FY23, following the implementation of a salary reduction plan for the board members starting in December 2022. The total reduction was fully implemented during the quarter, resulting in payments of approximately $33,000 for salaries and wages to the directors.

The management has given considerable attention to working capital management during the quarter and plans to continue this focus in FY24. Given that the Company has already implemented solutions, Modus’s role remains a bit vague. Will the strategic review turn out to be an unproblematic move after all?