Braving Challenging Times in Treasury with Stuart Gray

Foreign welcome to this week's Treasury Career Corner podcast, where I interview treasury professionals about their treasury careers. Each and every week I talk to them about how they've built their careers, where they are now, where they see both themselves and the treasury profession going to next. Let's get on with the show. In this week's show, I'm drawing joined by Stuart Gray, the director Group treasury and Corporate Finance at nats. Now, for those of you don't know, NATS was founded in 1962. They are the leading air navigation service and provider in the uk, handling actually two and a half million flights across UK airspace and North Atlantic every year. But over the past couple of years, which we'll get into a bit later on in the show, because obviously, minor thing called pandemic, bit of an effect on flights and everything else, but again, that's part of the interest level for me, I think of the story that, you know, Stuart has been through the past few years, which we're literally going to bring out a bit later on in the show, but suffice to say, providing traffic services, 14 airports across the UK and abroad and everything else. But again, enough from me, let's get into Stuart's story. So we were just talking before the show that, you know, hockey was a way that sort of introduced you to your first role at PwC. Give us the. The intro, if you like, to how you discover the wonderful world that is finance and then treasury and then we'll go through from so over to you, sir.

Thanks, Mike. Morning. Yeah, no, you're right, hockey has always been a very big part of my life. When I went to Bristol University, probably one of the first things I wanted to start doing is joining a sports team and playing hockey. And certainly at that stage, any form of career wasn't particularly high up on my mind. But actually, curiously, it did probably lead me into certainly my first role in London in as much as our shirt sponsor at the time, the hockey club ended up offering summer placement and that got me into auditing.

They were like.

They did Indeed.

And so PwC at the time, again, most people would know PwC, but, you know, why were you attracted to them? What was it about it? You were doing an economics accounting degree, but was it just the natural thing that you went in to study as an accountant, or was it a deliberate choice or what was the background?

I suppose it was a deliberate choice, but one mainly because I wasn't too sure what I really wanted to do in the long term and I had plenty of friends who had Gone down that path a year or so earlier and certainly recommended it as a good place to start out. And the more I looked into it, the more I felt I would agree it was an opportunity to get a good professional qualification. You got to work on sort of a project based approach, working on audits for short periods of time, moving around and as a result you got to see how a lot of other companies operated and it seemed like a good place to start.

Did it give you the insight that many people say oh yeah, I've got to see lots of different companies, divisions and everything else. Did you find that it was sort of giving you that breadth of experience and then we'll come on to the treasury piece later. But what was it like?

At first it did. I mean I started in the banking capital markets audit division and there, there's quite a range of different clients. But soon after qualifying I was given an opportunity to work on a project in another division which was the transaction services division at the time. And that was one that I couldn't turn down in as much as it involved two weeks working out in Miami in working in a nice hotel, doing some due diligence out there, you know, as a young 20 something year old that was, that was difficult to turn down. And I think that really opened the door to the sort of possibility of seeing far more things in the transaction services division. And I think that's really where I started to see more and more different companies started to get a feel for how they set themselves about how they, how they sought to make their money, how they sought to finance themselves and the like. And I think that then probably led me to wanting to do a bit more and ultimately my move into banking.

Again some people, you know, some people say oh, you know, just fell into banking or everything else, but you actually more of a choice and you joined rbs talk us through what that role was like because that gave you again that sort of joined exposure to Treasury.

It did. So transfer services division at PwC have spent a lot of time writing due diligence reports for various transactions and I think what I really wanted to do was actually receive those reports and then start to make decisions about them. And so moving across into banking into RBS team at the time seemed like a good place to. And yes it sort of, it seemed to make logical sense to me. It certainly was a move that led to probably no change in the hours worked or anything like that. But it certainly gave me the perception I could progress my career in the way I wanted to, which was I think to have that sort of bigger picture view and sort of stepping out of some of the detail of doing the due diligence reports. And I think ultimately that's another reason why I ended up in treasury itself.

Talk us through those moves just to give a bit more flavor to people listening day that they wanted to sort of understand what did they give you that you've then used? They were filling in your back pocket of treasury, if you like. So you again, I've talked to a few people that started out in banking and they said one thing is, you know, then when you're talking to banking partners a few years later. Yeah, well, you know, you don't know what we want, but you go, hang on, I did your job, mate for a number of years. You know, what was that like for you to sort of. Do you think that's really helped?

It has. I think you're right in saying it filled in sort of different pockets because when working for the accounting firms there's a lot of analysis, there's a lot of questioning, there's a lot of trying to understand situations. The things that it didn't involve a huge amount were financial modeling and it didn't involve a huge amount of contract negotiation. And they were the two big changes I think for me, moving to banking. But equally I think I found them to be hugely valuable now in my role as much as you say, you know, I have spent time trying to build that financial model, work out what the right sort of lending levels should be and equally sat negotiating bank term sheets and similar documents on the other side. So again, as an accountant, you don't often get that opportunity, but certainly in banking, bread and butter. And part of the role we touched.

There on nats and stuff like that, making the move into corporates and I talked about it before. Can you just maybe tell us about what NATS is, what nats are and. And then we'll start to talk about your role there because it's been extremely challenging, but interesting period nonetheless, you know, throughout, you know, the recent times. But you started there about 10 years or so, 10, 11 years ago. So talk us through.

Yeah, so it was in 2010, that's for those that don't know, as a sort of came about really what it was established beforehand. It came about in its current form in 2001, a public private partnership whereby the government sold down part of its stake but retained 40, 49% ownership. So the company moved into the private sector, but obviously still with a significant government involvement and almost straight after that Event though obviously we had the very unfortunate events of 9 11, which somewhat, well, caused some significant issues from the financing perspective of the company and it took quite a long time for the company to recover from that. I first sort of came across NAT while I was working at hsbc. I started getting involved in a few more infrastructure style financings and when looking at some of the transactions associated with some of the airport financings that came across nats, and it wasn't really something that I knew very much about, but the more I looked into it, the more it interested me. And this opportunity came up, as you say, in 2010, to be assistant treasurer, operations within the team. And I jumped at it really in terms of my personal life. I was keen at that point to move out of. We'd had our eldest boy at that stage and I think my wife and I definitely wanted a bit more space in our life, a bit more greenery, so keen to move out of London and this role really gave us good opportunity to do that. Interestingly though, timing wise, I moved in the same year that we all learned about the impacts of volcanic ash. You may recall there was an Icelandic volcano that erupted earlier that year. And in a way that was the real precursor to the pandemic in as much as the business had to suddenly react to a closure of the airspace. And that led to changes within the business even back then around liquidity policies and the like, which I think we're very grateful for actually in later years.

Talk us through that journey because you then took over as the treasurer back in 2013 and took that role and then it sort of continued to progress. But again, someone listening today will say, well, you know, your, your role is a commercial role, even though it's not necessarily a commercial company, it's not a corporate, you know, in the classic sense of it, but your role is very, very commercial. So give us a walkthrough, if you would.

Yeah, yeah, that's right. I think that's one of the differences being in treasury compared to, I suppose, other parts of finances, that almost irrespective of what the company does, you have external and you have internal customers and it is very commercial. I mean, for me, having moved from banking into that role at nat, it was quite a shock at first, not least because whilst, even while I was at banking, I actually started doing some of the ACT exams because I recognized that I thought that corporate treasury was the direction of travel for me. But I arrived at nats having never actually done an FX trade before. I'd never actually used TMS system. And so there was quite a lot of things that I just needed to do and get under my belt. But yeah, as you rightly say, I think it was the things that I was able to bring to the role from previous jobs, particularly banking, that helped with that, the commercial angle, that has meant that I've always been very comfortable talking to bankers and to advisors and to lawyers, knowing that I have sort of sat on their side of the table as well. And it does give you that sort of confidence to push them as hard as you think is appropriate and talk.

Us through then you just touched on it there. We had. So you joined there. 9 11. Wow. Well, bring us more up to date because, you know, I mean, those are. Without being, you know, making light of it, you've been through two extremely challenging situations, but you got through the other side. Oh, get your breath back. Everything else, talk us through then, most recently and how that affected you guys.

As you said in the introduction, the business generally handles two and a half million flights there or thereabouts a year over the uk. But clearly during the pandemic that that hasn't been the case at all. The way in which we earn our cash is, you know, airlines will get billed for flying over UK airspace and if they're not flying, there's. There's no, there's no cash coming in. So from a liquidity perspective, the pandemic obviously had a massive effect on us. I mean, in the same way that it' you know, it's had a massive effect on the aviation industry and, you know, many other industries, if not all industries. Unlike some businesses, we have a license obligation to continue to provide the service irrespective of the level of traffic. So what that meant for us is that whilst we were cutting back where we could on all sort of discretionary costs, we still obviously had to maintain a large cadre of controllers. It takes a long time to. To train them up and you can't just sort of turn them off and then rehire them again. And so our cost base in many respects is very fixed. And so the moment we recognized that traffic was falling and not looking to bounce back particularly quickly, we had to get in gear pretty quickly to try and firstly call in our current liquidity, but then find some more liquidity over the course of August 2020. But then pretty soon we recognized that the sort of, well, the very complex financing structure that the business has operated within since just after 9 11. So since 2003, we had a whole business securitization structure which was ideal at the time because the company was highly geared, didn't have an amazing credit rating, and it was in a very appropriate structure. But given the current position of the business, with at the time very low gearing, entering into the pandemic and a strong credit rating, it was a bit of a straitjacket that prevented us from being able to respond appropriately to the pandemic. So we embarked over the course of 2020 on a strategy to completely remove the existing financing structure that we had so the whole business securitization would go. That involved redemption of all of the listed bonds. The bank facilities at that time, and some of the inflation swaps as well would go. Not something that's undertaken very often, I don't think, by corporates. I'm not aware of others who have actually gone through that process. And it did take several months to do. But it culminated in us issuing some senior unsecured bonds in spring of 21. And these were unsecured, as I say, with very few financial covenants, where the bonds had no financial covenants, but the bank securities alongside had some financial covenant, but nothing like what we had before. And I think what was, to me amazing was the fact that we were able to achieve that shift in the financing structure at a time when obviously the world didn't know what was happening. And certainly when you first start having conversations with banks about our sector, they get very nervous about the way in which their credit departments might react.

But what was the answer for them? You know, again, you and I talked about this before the show and everything else. So the listeners out there. This is a loaded question, I thought was a great answer when Stuart and I spoke about, you know, how did you go to them and say, well, look, you know, this is. This is us, you know, and they kept talking to you, they stayed talking to you. How did it work?

One of the things that was to our benefit, in a sense, is that that the existing financing structure required us actually to maintain a very close relationship with our banks. Actually, we found that to be very useful. And so we were engaging very regularly with the syndicate of banks that we had at that time. We were also engaging heavily with the rating agencies. And everyone, I suppose, was asking the same sorts of questions, which was sort of, well, how is this all going to work, Stuart? What's going to happen? We are, as some people may know, obviously a regulated business, or at least most of NAPS is a regulated business because it holds the monopoly services over UK airspace. And so it does benefit from a regulatory regime that's associated with that, that did always contemplate what would happen if affect levels were not the same as what were forecast by the regulator in any given settlement. The big difference here being no one ever thought that any deviations in traffic levels would be anything like what we were seeing. And so we didn't know quite how the regulator would be reacting. But I, given the fact that we had maintained such a close relationship with the banks and the agencies over many years, I think they were willing to sort of bear with us a little bit and take on trust a little bit. The fact that we could see that this was all going to work out somehow, we didn't know quite how and when, but it did give them the confidence to be able to go to their credit department and ask for increased levels of funding to support us, which they were able to get.

And you got that. And now as we pass out of this sort of thing and not. Not back to normal, but we're approaching normality, sort of more normal way of working. You and I talked about the sort of. It's interesting for you, the refinancing and the things you've done there, but using that and reflecting on the future, where do you see it going for yourselves? And also the future of treasury, as it were?

There have been quite a few sort of trends leading up to the pandemic that have raised the profile, certainly of the treasury team within nats, and I think probably, you know, across many companies, be that the cyber risks or Brexit, and now the sort of, the growing ESG sort of trend. And certainly on the financing side, I think that the pandemic has really brought the importance of the treasury team to the business to the fore. And I don't, as you say, we're not really over this yet at the moment. And I think what we're very mindful of is that there can be a few more bumps in the road, which could well mean more liquidity and funding challenges that need to be addressed. So I think we're mindful of that and I think also it has changed businesses, it has changed risk profiles of businesses. And also I think people's willingness to accept risk and all of that, I think, leads to new opportunities for the treasury team. I think if I think about what I and my team will be doing, we'll probably be spending a little less time on the financing, certainly in the very near term. We've spent the last 18 months really working hard on that, but tackling some of these other emerging topics a bit more, be they Around ESG Cyber, building out our own TMS system, them a bit more. There's. There's quite a lot to be getting on with.

Yeah. And with that, you know. Well, let's ask that question, actually. Just dig into that for a moment without going too much. But where do you see the sort of next pressures? You know, you're. You sort of, oh, you know, maybe take. Take Christmas, you know, just take a bit of a breath, you know, a step back and think, right, okay, what are you again? This is for the listeners out there. If they're in a similar situation, they're all, you know, similar industry or something like that, and they go, all right, what next? What is not keeping you up? But, you know, you think, right, this is what we need to focus next. What's going on there, as it were.

The thing that's probably keeping me up the most is something that I rely on a lot of people for, actually, which is the cyber risk. We benefit from a good team of people at NAT who are constantly on that. But I think the one bit that sort of worries me slightly is the cyber risk. As we roll out and sort of increase the connections between different systems and the like, it gets very complicated. And I think that's one thing that does concern me a little bit, is that we start to lose the real understanding of how things will fit together.

Sorry, how can you, as a treasurer, you know, impact or contribute to that conversation with the group? You know, again, you know, we will go start to go back to conferences and we'll discuss this and everybody will be talking about how can you actually make an impact? Again, for some of the listeners, you know, they might be thinking the same. Oh, actually, yeah, I'm in the same position as that.

I think that. I think making sure that the team themselves, the treasury team, are alive to this and, and themselves ensuring that they are as up to speed as they can be on the risk is helpful because I think the other thing that we're very conscious of, and I think this would be true of most treasury teams, you're there as a service provider in many respects, but others around the business trying to do stuff, and they often come to you worried about something, be that an FX problem, they've got FX risk or something. I think the same is probably true of cyber in a way as well. You know, they're conscious that, you know, that you're in charge of the bank accounts, that's where the cash is. You know, what's the risk that, you know, the accounts get hacked, they don't get paid when they want to. You know, these are sort of, these are things that people could worry about and they'll come to the treasury team seeking some form of reassurance or to the other cyber team. So I think ensuring that the team are alive to the risk, I think it will help.

Definitely. Excellent. And you know, we really enjoyed it so far and normally continue but any closing thoughts? I mean, we'll put your LinkedIn details in the show notes. I think it'd be great to be able to have you in their networks, as it were. But, you know, any, any things, takeaways for people you may have heard the show before. So this is the sort of, you know, the top tips for people, if you like, what should they be thinking about out there?

I think I'm. I'm naturally a fairly curious person and I think that's, that's helped me in treasury always wanting to learn more and to ask questions around that and I think even if that's not your natural disposition, I think that that is a good thing to be doing, certainly in Treasuries, always wanting to ask why, always wanting to try and get under the skin of things to do that I think that's always going to be helpful. But the other big thing for me is making sure you push the boundary of your role. I've been lucky to work in some very supportive of firms and good teams to work with have always sort of helped me when I've done this. But I think it is important a to show that sort of ambition and drive to your line managers and the like, but also just for your own benefit, to be constantly pushing at the boundary of that role because treasury is definitely an expanding sort of universe in a way and, and I love it when people in my team are asking to do more, to get involved in this and that. That's amazing both for me and for them, I think. And so I think that would be my main tip because treasury itself is getting bigger year after year, new things coming along. If you can be the person saying, oh, can I, you know, this is interesting. Can I get involved with that? Well, I think that's the top thing, I would say.

Amazing. Well, I think both of them don't be afraid to push the boundaries and also don't be afraid to be a curious treasurer to get stuck in and.

Explore that role because treasury is definitely an expanding sort of universe in a way and I love it when people in my team are asking to do more, to get involved in this and that's amazing. Both for me and for them, I think. And so I think that would be my main tip, because treasury itself is getting bigger year after year, new things coming along. If you can be the person and saying, oh, can I, you know, this is interesting. Can I get involved with that? Well, that, that's. I think that's the top thing, I would say.

Amazing. Well, I think both of them, don't be afraid to push the boundaries and also don't be afraid to be a curious treasurer to get, you know, stuck in and explore the boundaries of it as well, I think. Amazing. Stuart, great. We have rearranged this. And Stuart very kindly did this. We're both first thing in the morning, both having some strong coffees to keep ourselves going, which is a kickoff to the day. But thank you very much for your time today. I know that people have some nice takeaways and really enjoy, you know, the, the conversation and, you know, thank you very much, sir.

My pleasure, Mike. Thank you.

Thank you. Hello, it's Mike here again. I hope you enjoyed this week's show. If you did, then maybe you want to follow the show or subscribe, depending on where you listen, whether that's itunes, Spotify, or another great place to listen to the show from. It's totally free and means that you'll be the first to see each and every week when we release a new show. And maybe whilst you're there, you could even leave a quick review. Reviews and ratings are among the most important metrics for a podcast to effectively rank. And as you can probably appreciate, the podcast is a lot of hard work to produce. Every week. It'd be amazing. Just take, say, 20 seconds, leave a quick review of my amazing guests and their great career stories. We'd really appreciate it. Thanks very much and I can't wait to see you soon.