Mastering the Art of Treasury in Turbulent Times with Henrik Welch

Foreign 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. This week's show, delighted to be joined by Henrik Welch, the Vice president head of Group Treasury. Alpha Laval, founded in 1883, group is a leading global provider of first rate products in the areas of heat transfer, separation and fluid handling. With this as its base, Alfa Laval aims to help enhance the productivity and competitiveness of its customers in a variety of industries across the world. But as always, you know, I mean that's focused in energy, environment, food and marine industry as the main industries. But we're going to get Henrik to explain a bit more about the company a bit later in the show. But Henrik, like many Europeans, I was just looking through your background. You started your finance and treasury career within banking within the Nordics. Do you want to take us back there and how it all started and then we'll walk. Lovely walk through your career. So looking forward to it. Over to you.

Absolutely. Thank you very much for being part of the show. Quite seasoned. So it's a long time since I started in banking and quite early on in my banking career it took me on to the International Bank Banking group. So I was working in investment banks like credit Lyonnaire and ABN AMRO at the time. Back in the 90s my professional direction was very much taken into structured finance, structured trade finance. So that became kind of my core activity. So being very active, selling different products within that area towards the Danish and the Nordic companies and even in a period of time pan European companies. So working a lot with export and project finance. So with that you can say my background was very much linked to, you can say selling product to Treasuries, to corporates. Then after a period of time in banking wanted to elevate myself on a managerial site. So I decided to join the Danish Export Credit Agency which at that time was called ekf, it's now called Eiffel A E ifo. I was planning to be there a couple of years just to, to sort of strengthen my managerial skills being heading a team of the, our responsibilities towards the Danish exporters who were our clients. But I ended up being there close to eight, nine years mainly because it was hugely interesting, also because it actually took me from being, you can say very focused on individual transactions, project finance transactions to, to emerging markets or even you can say emerging industries within the wind sector. But it took me to have discussions at strategic level with the CEOs and, and CFOs of and treasures of the companies that we were working with. Because during the time from you can say O2 and until 10, a lot of discussions were already there on development on the wind industry took off extremely heavily. We had a financial crisis as well which where we needed to put in, you can say products to support companies. Be it because the liquidity was absolutely low, the banking sector could not support them. Therefore the states sort of stepped in thinking that I was joining, you can say a state organization had to be there for a couple of years. It actually proved to be a very, very interesting place, very developing from my side and we were extremely successful during the time to meet and support much more customers than we had been before. Also internationally. I think that's the sort of the finance background that took me from banking towards export credit agency part And Henrik.

Just, just reflecting back a moment just to. I just want to jump back to your ABN Amro days if you like. Yes, I've heard that, you know, when I talk to a lot of European candidates, particularly in say the Nordics and you know that area, a lot of you guys tends to be good foundation area, you know, so you start as maybe you know, the first role out of university is like you join one of the banks and you get to know the other side of the corporate table. And I've heard so many people then step across and go I'm really interested in treasury and things. But as you say, that was a quite specific working on individual transactions before, you know, broader with your experience, but with the ABN experience and things that if you look at other candidates who they may be listening today and they're in a similar position, would you recommend that do you think you know, getting that banking or do you think, you know, go straight into Treasury? What are your thoughts?

That's a very, very good question actually because banking has also changed over the time. And at my time back in both Credit Lyonaire, but also ABN Amro, ABN for example was one of the absolute top banks at the time when it came to supporting corporates. We had a fantastic network which was really, really interesting for me as well and also in my profession as dealing with export finance. So when I was the expert on the the Nordic or on export credits in general, then I had colleagues in Indonesia for example, who were relationship managers for the largest cement manufacturers in Indonesia, which was a perfect link to do a transaction so working across cultural barriers but also being able to actually support financing into for example, emerging markets was really, really fantastic. That was very interesting. You can say from a personal level as well. I think when it comes to banking there is strong educational process as well. Banks are very, very strong in their products in those parts. So I would to a large extent still say that having been in a bank, in a financial institution is actually you can say an interesting path before joining a corporate treasury and if you have been for example a product specialist, then you have something to come with and I. And that is probably one of the aspects I would take in my own career as well that, that you come with something and then you come into something which you do not know a lot of things. So there are things where I would definitely recommend that path because it's extremely, extremely interesting to know how banks act and how banks work, how the products are and then go to the corporate side. But I can also see an advantage in joining a corporate. Yeah being there, knowing how it works, knowing you can say on it can be from product side, it can be then then working with the. They can say the financial controlling and so on and so forth and then joining treasury from there there you have a lot of aspects and knowing the company, knowing the systems, how it works and you get kind of into a lot of processes regarding sales, regarding production and how do we do things and what is needed from policy point of view of hedging and stuff. So you get to know it but you're just not an expert. But I think ideal background. If I was to start over again I still wanted to end in treasury but then I wouldn't mind having started in a corporate then for a while joining a financial institution and coming back to the corporate then I think you would have a lot of the interesting aspects.

Why would that be so good, do you think? Just gives you more of the product knowledge of both sides of the table and you balance it. Is that why?

Yeah, I think if I'm looking to recruit today, if you have someone that has been in treasury and you can basically have the person in almost as a plug and play into what you do, I think that would be of course one ideal situation. However, there's so many things happening also in the banking world world and in the fintech side where if you have worked in a financial institution, you come in with some knowledge, you come in with some aspects that you can say can lift the treasury function in the company. And I think, I think you need that perspective as well. So you Need a combination of not only homegrown from company but you need the financial aspects as well.

So this is great. We won't go in this direction, but I like these directions. And then you as you say you did EKF and that was planned for a short period. But again working for a state institution if you like and if that's the best way or agency rather that gave you this breadth for eight, nine years. What was that like in comparative terms? Because what I mean by that is, you know you're not working for a corporate or not working for a bank where results, results, results or was it very results driven in that because you know it's owned by the Danish state. Was it driven like that or what.

Was the situation the interesting thing with exactly EF and exactly @ the time. Not exactly but. But around the time when I started people have started of course recognizing that you could not use the state agencies as being you just giving state support to your exporters. That was actually illegal or that is illegal within EU and. And there are some rules of the game you have to follow. And in particular ETF was quite good in setting. But we need to be able to speak the language of the banks because they are the one that take most of our products. But we need to be very, very close to our customers which are to a start of course a focus on the Danish exporters. However, the ones receiving most of the funding they were the exporters customers in both emerging markets but also in other, you can say more developed markets. So you needed basically to be able to stand up to you can say bank knowledge. And that was the aspir and the ambition of EF that we wanted to be at par with the banks. And therefore I think me and many of my colleagues at the time we became instrumental in. But we wanted to change you can say it from being a perceived as being a dusty state organization which is actually wasn't but being actually very, very agile. Denmark is a small country. So we were able to basically say we do not produce a lot in Denmark. We rely on production outside Denmark as well. So I think that also gave me a good perspective on. No, but globalization is many things and we were able to support a Danish company that would potentially manufacture most of the product outside Denmark. But still of course being governed and steered from Denmark and the profit to some extent coming back to Denmark and in the sense of taxes, in the sense of having employees then. So I think it. It actually gave me a lot of perspective on. But it this and it was at the time probably the most interesting institution. If you wanted to look at international finance in emerging markets, I think ETF was, was second to none. And over the time from you can say this beginning of the 2000s and onwards, the wind industry took off dramatically. Also today, so many years after I have left etf, the wind industry actually takes up a lot of their portfolio. And I think for me again that was really, really interesting. Getting to know, know an industry in detail, talking to, you can say decision makers there being very close to this, to the strategic directions and so on. I think it gave me many, many aspects to things. And not least from a business point of view. We developed quite heavily. Of course some of the KPIs were different than you would see in a corporate. But we had to, we knew that we had to deliver a surplus which some exporters would say no, no, no, you should not be having a surplus on the bottom line because you're here to support us. And our counter argument all the time was if we're not delivering a surplus, we need to go to the government and ask for more money. And if we are deficit, they will, if they have a bad day, one day say that no, this is not sustainable. But if we came with positive results also that we supported the industry big time, we had a huge support from the government and I think they still have at the current organization. So again it gave me an aspect also working in a state organization where some other rules have to be applied, which I think has helped me also going forward. And then joining Vestas is then the start of my corporate career.

So then we'll talk about investors. If I know well and you and I both do, but again some of our audience won't. So you join Vestas Win Systems. Who were they? What were they at the time? Because again evolved a lot in the past 13 years. You joined them 2010. How did it come about? Was it just time to make the next move?

Now it was responsible for all customers of EKF and they have all transactions. And in my team we were covering Vestas, as you can say, as a bank would cover a relationship. And I and I had a really strong relationship with Vestas and with the group treasurer at that time. And then at that time I was heading destructed finance team which at Vestas what they had seen was also that they in their propositions to their customers, they had to look at financing aspects, come up with finance solutions. In addition, you can say to the commercial offer and there of course being a Danish company, they were looking a lot to for example, etf. And therefore ETF was an instrumental part of the financing packages when discussing with customers. And therefore I was an interesting person to get on board with that. And you know, the money flow in all green areas is huge. So there was a need to figure out, but how can we manage that? How can we manage the pension funds? How get that to support our customers, how can we be ourselves, look into funding some of the development project and so on and so forth. So those were some of the thoughts at the time. Vestas was the leading manufacturer at the time, but had some difficulties in respect of the offshore sector that their Siemens were a bit stronger. I knew Siemens extremely well from my time at EQF as well, but and then shortly after, and that, that is then what pushed me into heading the treasury position at one point in time. But shortly after I joined Vestas was hit by the financial crisis with a bit of delay, but started seeing lack of funding to the different projects and at the same time tried to basically develop a turbine that could give the customers long lasting income. Almost like a bond that you, when the turbine spins then it just, it can continue year over year. In that process the product had become far too expensive. So unfortunately we had actually some loss making quarters, a number of profit warnings. And that led to actually investors coming into a very, very difficult situation back in the beginning of 12 and in the spring of 12 it actually became worse and worse and we had to go into discussions with our banks about living up to the covenants in the loan agreement. So we had to look at a restructuring of the financing, which was not both an easy task, but not a pleasant thing either. But I became treasurer at that time. I was asked to sort of step up to that. And you know, I started as an interim treasurer because we were waiting for a new CFO to come in place. As I said, it was a really, really tough because you had a situation where the company had its most busy half year ever at a time when there was a burning platform all over the company at the time when of course in the aftermath of the financial crisis, the financial institutions were extremely cautious at one point. And coming from a situation where Vestas had been not a rated company, but perceived to be maybe below investment grade. But at least the financing that we had was investment grade terms. So had been very aggressively sort of getting that in place. And that of course had then in these difficult times, a pushback from the banks. So I was whirled into all this with a banking group of, I think there were nine banks. We had A lot of surety lines to support us. We had bondholders as well. So basically trying to figure all that out. And at the same time with the company being in red figures and neat and there were changes at the management, so I was together with my team maneuvering and all, all this. And this has been by far, so far the most challenging period in my whole actually career.

And when you went into that as a treasurer, you know, I sometimes talk about, you know, some of our guests going into startup situations and you know, what's your checklist and cash management FX and do this and da da, da, get these things in place. Yours is an established treasury, established group, treasury with a team, with everything else, you're thrown in at that literally deep end, single swim. But you're an experienced treasurer, you know, what's your checklist? How are you approaching some of those.

Challenges in this situation? It is fair to say as well that Vestas came from a situation, of course, some acquisitions and mergers in the industry, but from zero. And until say many years there were bumps along the lines. Absolutely. As I said in the offshore sector, a lot of provisions done for those. However, the growth rates have been phenomenal and they were perceived to be double digits for many years. And you know, in companies that also give the impression, no, but we need to grow, we need to grow, we need to grow fast, we need to spend a lot of money. So I think the thoughts within the company were very much the sky is the limit, we need to develop and we get money from the shareholders and we spend a lot of money in developing new products. So R and D functions, what have you, new factories set up many places in the world because that is part of the supply chain setup in the wind industry. So Vestas had spent a lot of money for a long time and in all fairness, maybe without focusing too much in detail about cash flow and making sure that the sort of the bottom line was supported and that the capital structure maybe was the right one. So I think it is fair to say, and it has been also public knowledge that there was a lot of push from the financial or from the bank's side that when we ended in the situation where we actually had to say we cannot live up to the covenant, then you get into a different situation and discussion with your banks. And because of all, there had been a lot of news around Vestas, the leadership, the board had been, the chairman had left, new chairman had come in, a lot of changes had happened on the management level. So there was a lot of uncertainty in the press among the shareholders, among the banks and so on. So that of course was spiraling into a kind of almost hostile environment between some of the banks and us. And banks demanded to have a check up the business. So a business review had to be done. And you know, in that perspective, the banks do not do that themselves. They hire consultants to do that. We hire consultants to basically deal with their consultants. And I think the reason why I say that is because it has kind of given me a lot within that I have been able to use going forward. Because the main focus on the business review was of course to figure out is this really a sustainable company, a sustainable business. And the interesting thing of course that came out fortunately was that yes, it is. The strategy is actually good. There's been some loss making quarters, there are a lot of working capital that can be unwound here. So there's a lot to work with. And of course the focus immediately comes into the working capital part. How can we better set up cash flow forecast? We ended into 13 weeks cash flow forecast and followed it on a weekly basis. And in particular in a project company like Vestas, there are huge deviations from week to week. And we're talking it could be 100 million euro and more so huge. Which also came as a surprise to the banks because they didn't know the business well enough to know about these deviations. So they of course got spooked in the first place when all by sudden cash flow deviated maybe 200 million euros from the one week to the other. But then getting into the weekly cash flow follow up and also knowing exactly but what one thing is, is the cash flow, but what are actually the inter quarter cash flow deviations. So you don't only look at quarterly or whatever monthly even is. I think that focus on cash flow has been a huge part in going forward and for Vestas was important as well. Because telling the organization what counts is free cash flow that needs to be delivered all over the organization. Every single person in the company knew that. And that has been a big focus also for me going forward.

And then you took that experience with you to, you know, you joined Alpha Laval in 2019. What was that transition like? Maybe again I touched on it there. But Alpha Laval, who are they? I know them well and you do. But again, some of our international listeners, they may not know the group at.

A step over from Vestas and joined ssab. I was there for two years in Stockholm and they honestly, they had not been in the same situation as Vestas, but they had to Focus a lot on working capital as well. So I used all my things from the Vestas toolbox to at least know that you don't want ever to come out in the situation that we were investors and that is lessons learned. So SSAB was highly geared when I came there and within a year we deleveraged the company big time and which was also part of the plan, working really well. And then I was approached for joining Alpha Labal which was then a total different ball game in the sense that here we had a rated company. Vestas was not rated, is now SSAB was rated, but far below investment grade. They have also come up the latter after. But Altala Bal was high rated when I joined and a company that was very strong and perceived to be a Swedish jewel was kind of how the headhunter portrayed it to me. So there I joined sort of a Treasury team where many of them had been there a long time and the company was actually doing really well. But you mentioned the three core things that we have. The heat exchangers, the separators and then we have the fluid handling part. And then we apply that those technologies, we apply that into many different sectors and we bundle it in an energy division and in a marine division and in the food and water division and with applications. For example, within the marine industry we have hydraulic pumps. And also within energy, it's a lot about energy efficiency, which is the company deals with all kind of aspects related to the sustainability journey for companies because we are dealing with energy efficiency with the heat exchangers being more and more efficient and being also eligible for heat pumps, which is a market that develops extremely positively. At the moment we look at in the marine part, the big thing there when it comes to sustainability is obviously the CO2 emission. How can you actually reduce that? We have some digital tools that we support there, but also looking at alternative fuels for that industry. And then in food and water business, it's also a matter of effective processes, water scarcity to deal with that sustainable food. So the new foods in the future. So everything with that company is great, I would have to say. And the development has been also great. The last, not only the last years I've been there, but for many years with the company is growing. Our shareholders want the company to grow. We have a very strong cash flow. We have margins that when I look at the two other companies I was in Vestas, margins on the core products are not significant. But here at Falavel we actually have good, very good margins. It's a very, very nice company to be in and we are in a fantastic process at the moment. We look at a future that is bright. When I came in, you know I was told that ah, but it's a very. The company is very decentralized so a lot of decisions are taken out in the different organizations in the world which is maybe one of the things that treasury should be thinking about how to deal with. I was told that trade finance in the past had been very close to the business but maybe was lacking a little bit and had to be closer to the business as well again. So I entered with a very positive tone about the company, the company culture and the prospects and then of course also with some thought about how to develop a Treasury going forward.

And what do you think that is? You know, because you've got that background within areas like trade finance and I know that you've really grasped that and got treasury closer to trade finance, supply chain chain and everything else. Are you seeing that as the way that treasury is getting more and more close to the business through that route or what are you thinking?

Yeah, that is clearly a development that has happened over some years I would say. But I also think that and it's not you can say me that has necessarily taken all the steps but I do think that with my background both from banking but also from export Credit Agency have given me very broad background to be able to discuss with colleagues out in the organization about customer financing for example or different trade related products coming from the banks. So with that part I have that much more in my DNA than if you think about the core treasury from from the past. But I would have to say both in investors but also SSAB and now also alpha level Trade finance has big part in my heart and has been part of my Treasuries in in those areas. And I do think there is a license to work with the organization when you have entities. Because my way of acting as Treas is I'm not the central person in the organization. I think the central part is that we are close to the customers and that we support that we can do sales, good sales. So that is for me the wheels that makes the things turn. I'm seeing treasury as you could say the lubricant that actually oil the wheels and support the business. Knowing the different aspects of sales for example or the purchasing side that is key to treasury and I think the whole working capital, either payables, receivables or inventory those are things that we as treasury need to take into consideration because it is where I've seen it where it can be within short time unwound to be part of the financing and make the finance metrics stronger again. It is also something that can consume a lot of capital, capital that I would have to go out and raise in the markets. And of course depending on the leverage you have, that gives me challenges as well. But also just a discussion about if we tie up a lot of money in inventory or we are not efficient in our internal financing part. Maybe I then have to go out and fund the company either short term or long term, but at terms that are maybe not attractive at the moment. Whilst at the same time you have some inner tier in the setup and could actually generate the money ourselves. I think that combination has become important. And then at the same time being able to support the sales organization with guarantees in connection with their commercial contracts also give insight into discussions about how should the contracts be structured on the things that matter in a Treasury perspective, both payment terms but also issuing guarantees and thereby also what kind of lines do I need to have with the banks. Coming back to one of my points from when I joined Alpha Laval where it seemed to be a little bit more decentralized, there's always this discussion about oh, but centralized treasury is a nightmare for the organization out in the different regions because they would like to rule their own world and. And the central treasuries, they're just a pain in the neck. I don't think it is like that. I think the matter is how do you deal with it? How do you work with the organization? If they see that you add value, if they see that you are there, you're really supporting them, even at times you know that you're trying to at least support them the best possible. I've not come across anyone that do not see that as an advantage to be very honest. And if you are able to also then have the discussions that I have with I report directly to the CFO and have a very strong relationship with him and with our group management and with our board as well. If you are able to manage that, then you are the strongest supporter they can get. Then it's my impression that people actually like the fact that treasury has a central setup, but central must never be to buy the policy. We come and punch you in the head all the time with the policy and if you step a little bit aside, we punch you and it's a matter of when it's time to say no on a transaction that you say you try to deal with it in a way that it's absolutely no this way. But if we try to do it in a different manner, if we try to maybe change the payment terms a bit, then I'll be able to support it. If you ask for maybe some support from your customer on this and not only deal with a sort of very little credit worthy entity, then I'll be able to support it. So having that dialogue I think is important.

You know, we're not quite at the end of the show, but when you're looking at the future of treasury, when you and I were going to be at various conferences throughout the rest of this year and into next, what are the things that you're thinking about next? What are the, the challenges you think for treasurers out there?

There are a couple of things and it's again, some of the trends that have come and some are trends that are here and we'll see in the future. We'll take the positives first. I think some of the positive things, which of course are challenges that is related to digitalization and technologies to support the treasury functions in being more effective and then it's sustainability. So bringing that into tertiary perspective and how we deal with it from the different products that we are, we're getting into, I think for me it's a hugely interesting area and being able to develop at the same time when I think organizations are trying to develop, you can say reporting and all that. And then I think the one thing as well which is maybe more on the negative side because it takes up a lot of time, but it's, it's related to KYC and sanctions regimes. I think it takes an awful lot of time for Treasuries to deal with the request that comes from the banks. And the banks, of course they are the watchdog from, from the different countries and the international world to basically push this towards their, their customers because they have that influence. So to trying to get that more effective is, is one thing that I think we should be looking much more at.

Yeah, well, we'll put your LinkedIn details in the show notes. We've gone, gone through your background but as you reflect back, you know, maybe you are, you know, at conference having a coffee with someone and say, look, what are your reflections? What, what advice would you give to me if you're sitting with, you know, across the table, coffee table is a junior treasury manager, you know, thinking what next move or next to them is a senior experienced treasurer like yourself. What are the bits of takeaway advice you give to those guys?

I definitely think be curious about the organization you're in Try to know and learn as much as you can on the business. And I would actually. And it could both be a junior and a senior. But for the junior part then I don't necessarily think that a Treasury career as it has maybe been sometimes in the past, that you enter treasury as maybe late twenties and then you exit when you are on retirement, there do see many different parts and I also have seen many of colleagues have done that. So going to a regional CFO function and then maybe afterwards even going a CFO career. But I do think that people should not be afraid of stepping out of treasury for a while to get to know other things. It could be project related work and thereby knowing about implementing systems or how other other things work in the organization. That makes you even stronger when you come back to Treasury.

Yeah.

Then one thing which I touched a little bit up on it earlier, but I think for me it's also a matter of have confidence in yourself. If even if you come in as a relatively young one, you come in with some skills, you're young, you have maybe strongest IT skills in the team, you may be able to work with projects and so on, that gives you a role in the treasury. Even though you may not be an expert on FX hedging or borrowing or trade finance or anything, we can teach you that. So don't be afraid of sort of crossing into something that may look challenging. And I think for my own part, and that is from my own experience, I had experience, you can say from the outside, but I've not been dealing with currencies, I've not been dealing with interest rates and I've not been handling cash management and all that, which is very core in Treasury. But still I took up the challenge because there were other things that I knew extremely well and that I could actually then use as my platform in getting there. For the senior ones, I would always advise two things. Have good people around you. You don't need to be an expert on everything. And of course people know that. And being honest about it, that you're not the expert on every single thing, I think gives you a much stronger position.

Amazing. Great advice. I'm going to, I'm going to leave it there because. Great takeaways. Thank you very much for your time. Looking forward to seeing you in real life very soon. And yeah, I'm sure people will enjoy it. We'll put your LinkedIn details in the show notes and thanks very much for your time today, Henrik. It's been great to chat.

My pleasure, Mike. Thank you.

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