MG chairman Philip Tracy said that «history would judge Gary as a visionary leader». Another commentator claimed Helou just «tried to do too much too quickly and in the face of every headwind imaginable,» that the partial public float was «the right strategy at the wrong time» and that his multi-faceted strategy was «well planned and executed until the market turned against him.»
Huh?! Yes, Helou took the reins of an old fashioned farmers’ co-op too heavily weighted toward the bulk commodity trade. And theoretically, offsetting its exposure to global powder prices by growing its value-added product mix was a sound direction. But that’s about as much as MG ever got right.
To get Devondale brands shelf space, Helou signed up to supply Coles with a decade of cheap private label drinking milk. To produce those kind of volumes, it had to build two new plants, which (in effect) it borrowed the $140 million to build. And even with the manufacturing efficiencies gained, the profit margin on the Coles deal is non-existent.
The IPO was supposed to clear debt, in effect giving away equity to pay it down – a balance sheet trick. But to get the deal done, Helou and his bankers had to promise farmers $6 per kilogram and unitholders 7.5 per cent yield on their notes, neither of which were logical given global prices. So within months, the debt and inventory piled back up again.
Helou’s last chance was to sell an unrealistic volume of Devondale powder in China at unrealistic yield, right as that segment’s bubble burst.
So did Helou really just run out of time? No. He borrowed money to pay for a domestic value-added strategy whose economics never added up. And to keep the show on the road, he just kept tapping more debt and equity. That’s not the clock, it’s the calculator. And there’s nothing visionary about it.
Sadly, this downgrade wasn’t just a downgrade. MG farmers are now on the bones of their arse and chairman Tracy’s Orwellian «milk supply support package» is actually a revenue claw-back, with interest! This all happened on Tracy’s watch, so I’ll have a cow if he’s around much longer.
