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Should A2 Milk (ASX:A2M) investors worry with the Synlait (ASX:SM1) CEO going?

A2 Milk Company Ltd (ASX: A2M) investors may want to pay attention to the fact that the Synlait Milk Ltd (ASX: SM1) CEO has just left.

What happened?

Synlait announced that the board had accepted the resignation of CEO Leon Clement from the company.

Leon has been the CEO since September 2018. The board said it was thankful and recognised the major achievements he has overseen. It also acknowledged that there has been a substantial impact from COVID-19 on Synlait and it would have been difficult to any management team.

Mr Clement will stay in the role until the end of April. From 1 May 2021, John Penno – the co-founder, former CEO and current director – will be the interim CEO until a new CEO is found. The recruitment process will be started shortly.

Synlait Chair Graeme Milne said: “Leon has been an authentic and transformational leader. He has successfully repositioned Synlait’s purpose, ambition, and strategy to make us a more diversified and sustainable company. On behalf of the board and all staff we wish Leon the very best in his future career and thank him for his energy and dedication to Synlait during his time with us.”

Synlait pointed out that under his leadership, the company added more than $500 million of revenue, achieved $1 billion of revenue for the first time in FY19 and delivered a record net profit result of $82.2 million. But profit has been going backwards recently.

It was also the largest southern hemisphere company to receive a B-Corp registration (social & environmental performance, public transparency and legal accountability.

What can A2 Milk investors take from this?

Well, they aren’t better off for it. Remember that A2 Milk is a substantial shareholder of Synlait with a holding of around 20%. Synlait shares are currently down 0.6%. Synlait is also a major supplier to A2 Milk.

A CEO changing can lead to better results if that CEO was responsible for the poor performance – sometimes CEOs make poor strategic decisions. But from the outside I’m not sure what more Mr Clement could have done because of the large drop in demand for infant formula in Australia and New Zealand from daigou buyers.

Can A2 Milk and Synlait turn things around? I hope so, for their sake. But trading conditions could remain subdued for longer than some investors are hoping.

There may be other ASX growth shares that deliver more profit growth and are able to achieve better returns.

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