A year ago Murray River Organics was on a path to “become a leader” in the $100 billion organic food ad drink market, according to its December prospectus.

Now its two founders are gone and the dried fruit producer has issued a profit downgrade.

This week Murray River Organics (ASX:MRG) told investors it would write down inventory by about $4.3 million in fiscal 2018.

Murray also announced chief executive Erling Sorenson had resigned, to be replaced by George Haggar from Costa Group.

Mr Sorenson’s co-founder Jamie Nemtsas quit in August.

Belying the fond words of farewell accompanying Mr Nemtsas’s exit, last week the board made its position clear on how the business had been managed.

“The new management structure, which has been in place since August, has introduced a heightened focus and discipline on process and quality throughout the company,” the company told investors on Thursday.

“Following the findings of significant operational errors and questionable operating decisions during the previous harvest period, the board has considered it prudent to undertake a comprehensive external investigation into the practices that led to the inventory write-downs.

Murray River Organics share price over the past year. Source Investing.com

‘Deficient operating practices’

Murray River Organics listed in December 2016 after selling shares at $1.30 each in a $35 million in initial public offering.

Because of its exposure to the growing China market for Australian goods, Murray river drew comparisons with the then-rockstar of Australia-Chinese trade, Bellamys, which became a billion-dollar business on the back of powdered milk sales to Chinese parents.

But “a combination of weather events and deficient operating practices” impacted harvests. In May a $10 million revenue downgrade preceded a profit warning two weeks later, as the impact of wet and cold Spring weather became clear.

Investors reacted accordingly, sending the stock’s value south by 65 per cent that month to 37.5c. The shares were trading at 43.5c in late trade on Friday.

At the same time, Murray River was investing heavily — upgrading a processing facility in the Sunraysia region and buying a 7500-acre farm, two snack fruit brands, a packaging facility in Dandenong, and an enterprise resource planning software system.

‘Very good assets’

EBITDA came in even lower than expected at $600,000 and the business made a loss of $5.9 million — compared with a $2.6 million profit the year before.

In August Murray River announced a $12 million capital raise at 30c a share to shore up its balance sheet — just eight months after listing.

Acorn Capital’s head of research Robert Bruce told Stockhead the business still has very good assets.

“It’s capable of achieving reasonable earnings going forward… and the thematic of organic foods [has good potential],” he said.

“The business just needs to be reset at an achievable level.”

Murray River told investors this week that “despite the unfortunate findings from the recent stocktake process and subsequent financial impact, it has been a very busy, and productive, few months for MRG”.

The Board was “looking forward to the new CEO driving operational efficiencies and profits”.

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