A2 Milk wanted a change agent but was rattled by Hrdlicka's speed

The sudden departure of a2 Milk chief executive Jayne Hrdlicka has shocked investors but the discord between her and the board made continuing in the job almost impossible.

On Monday morning, a2 released a statement saying Hrdlicka "has agreed to step down from her role". She had been in the job only 18 months and will leave immediately — replaced on an interim basis by former chief executive Geoffrey Babidge.

No lingering farewells or long notice period.

She will receive none of her long-term incentive shares which were due to vest next year.

The disagreement stems from a difference in an element of strategy, or more particularly the board’s desire to push for higher margins, and Hrdlicka’s quest to fast-track investment and spending on marketing to amp up the company’s push into the US and China.

A2 Milk's chairman, who is a former chief executive of Goodman Fielder, David Hearn, is keen to see earnings before interest tax and depreciation and amortisation [EBITDA] margins above 30 per cent as opposed to margins in the mid to high 20 per cent level.

Hearn said the board and Hrdlicka "were in agreement on the broad direction of travel (the company was taking)".

It seems the board was looking for a change agent but was rattled by the speed of that change under Hrdlicka.

But Hearn was keen to see what he described as a balance between investment and margin.

Thus, it is expected the new chief executive, who will be appointed after an international search, will have a remit to tighten the focus on the timing of investment costs.

Hearn spent the morning speaking to investors who have strongly supported the company’s share price since the annual meeting in November when its guidance was for an EBITDA margin of between 31 per cent and 32 per cent in the first half of 2020 and slightly lower for the full year.

However, the market was clearly disturbed by the abrupt departure of Hrdlicka and sent the share price into a tailspin — it was down more than 6 per cent in mid-morning trade before retracing a third of that ground by lunch. Shares closed down almost 4 per cent at $13.97.

It seems the board was looking for a change agent but was rattled by the speed of that change under Hrdlicka.

Equally, shareholders were clearly disappointed with the full-year 2019 earnings presented by Hrdlicka in August, when she warned that the marketing ramp-up would result in EBITDA margins falling from 31.7 per cent in 2019 to about 28 per cent in 2020.

The share price tumbled 25 per cent and found its feet again after that forecast was revised at the annual meeting in November.

The chain of events suggests the board had taken control of the strategy over the past few months.

In Hearn's statement, he thanked Hrdlicka for her contribution.

In that statement, Hrdlicka explained her departure as a logistical problem given her need to run a New Zealand company out of Australia and the increased rigours of travelling to both the US and China.

In a separate statement by Hrdlicka released late yesterday, she said: "There have been unforeseen changes in my personal circumstances in the very recent past and they must take priority at this time. At my 18 months at a2, the stock price is up 40 per cent and the business is running better than ever."

The board is also keen to clear up any misconception that Hrdlicka’s decision to sell down what it refers to as her "transition shares", awarded to her to compensate options she forfeited when she left Qantas, played into her departure.

She cashed out about $4 million worth of a2 stock last year partly to fund tax. The cash is said to have also gone towards paying for a house in Melbourne.

Some shareholders voiced concerns about this decision but it was supported on Monday by Hearn.

Her replacement is likely to continue with the strategy but execute it in a different way.