Navigating Treasury in the Energy Sector with Martin Hoad

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 Martin Hoad, the group treasurer at Centrica. Centrica is a leading energy services and solutions provider founded on a 200 year heritage of serving people. They're the UK's biggest retailer of zero carbon electricity, serving around 10 million customers across the UK, Ireland and continental Europe through brands such as British Gas. They are supported by highly trained engineers and technicians. I'll get Martin to explain a little bit more about that later in the show. We're going to go back to his start in maths degree and then finding his way into Treasury. Martin, if you would, I'll hand it over to you as a. And he's a regular listener to the show, so thank you for listening to so you know how it's structured, Sir. So, Martin, over to you. How did he first start in finance and then treasury over to you.

Thanks, Mike. So it's kind of sad, but I, I always wanted to work in finance. I loved maths and thought, sad but true, that working finance was a good way to make lots of money. My father used to read the Financial Times, so I started reading that and I had a student subscription to the Financial Times. I don't know if they still do one, but I had a student subscription when at university, but didn't really know what I was going to do in a career in finance. I just wanted to work in the City. I suppose I'm so old that the big bang, not, not the original one, at the creation of the world, but the big bang in the City was happening just as I joined the City, which was changing types of jobs that were available. And I ended up working in an investment company. Well, an insurance company's investment arm, yeah. And I started on their graduate scheme and the idea was we would spend six months in UK equities overseas equities, bonds and their cash and foreign exchange desk. So I started off in the cash and foreign exchange team and then six months in, they decided to scrap the graduate scheme because we were just becoming useful in our individual desks. So I stayed on the treasury team, which was great because I loved it. I'd fallen in love with Treasury. It ticked all the boxes as far as I was concerned. Gave me the opportunity to play with Numbers play with money, but also a lot of time talking to people, you building relationship with the bankers and so on. So, so yeah, so that's, that's how I kind of fell into Treasury, I suppose.

And that was your first start within insurance and treasury sort of thing. And we had Dan Ferguson, we were talking about that, you know, he was in insurance for many years and things like that. What was insurance like for in treasury terms back in those days?

In a way it was quite a good introduction to treasury in some ways because you're dealing with lots of money. Obviously an insurance company is all about money and so I got exposure to foreign exchange, to interest rate management and during my time in the investment company I was a fund manager managing pension funds, insurance funds and so forth. So you get quite a lot of exposure to the financial aspects I suppose of treasury. And without jumping too far ahead in my career, it actually though is a little bit artificial some ways because it is just big numbers, you're not making anything or particularly the investment side, you're not sort of engaging with customers particularly you are sitting almost like in an ivory tower playing with big numbers. So it was good in some ways but I guess frustrating in other ways. And for me it worked out really well because having had the financial knowledge of the markets and the trading and so forth that the working first sun alliance gave me, that there was then a merger with Royal and I took the opportunity at that point to move to the combined Royal and Sun alliance had a corporate treasury so there was much less involvement in the financial market side of things because we had the trading team that would do that. But it was more engagement with investors, with the banks, the long term building the relationships and the corporate financing side of things and so on. So that gave a different perspective on corporate Treasury I suppose.

And that then led you, you know, there are a number of years, really good all round sort of foundation if you like for treasury. What happened next? Because obviously that was more city based. But then ASCO came along. What were they like as insurance to Hasco? Can you explain again?

So there are a couple of reasons for me to move on from Royal Sun Alliance. Partly I think some people or a lot of people you have on your podcast have a career planned that they know what they're trying to achieve, how they're going to get there and they've gone out with a strateg. Yeah, I don't really have a plan for my career. I like to think that God has a plan for my life, but I don't really have a career plan. And so I think possibly I'd stayed a little bit too long at Royal sun alliance because I enjoyed it, I enjoyed the people I worked with and so forth. By the time I moved on I had a young family and I was spending quite a lot of time commuting and I thought do I want to spend all this time on the train? And also as I mentioned earlier, although insurance is great, you're not making anything. And I kind of thought what would be great for my next move would be to have a job closer to home and also have something where I kind of feel I'm doing something. And that's not to say that insurance isn't worthwhile, obviously it is, but just kind of feel you're producing something in some way. Yeah, yeah. Now Hasco is probably a company that most people haven't heard of. It's changed a little bit since I was there, but at the time it was a US Fortune 1000 company. Industrial support services.

What does that mean?

Basically outsourcing industry. So for instance they did a lot in steel mills, so you heard of Chorus or Tata manufacturing of steel on a steel mill run by them. There would be Hasco trucks doing some of the non glamorous stuff, moving the waste products around and so forth. So we did a lot of stuff in the steel industry. Railway maintenance, scaffoldings. If you've heard of SGB for instance, in the scaffolding world doesn't the brand exists now but used to be a big, big name. Horsco owned the SGB scaffolding brand. So we oper operated in 60 countries around the world in those non glamorous but industrial support services. So you know, in that time working for an insurance company, I got to go around various insurance sites which basically look like offices with halfsco. I got to go to a steel mill which as someone who's born and bred in Surrey, I hadn't seen what an industrial sized steel mill look like. You know they are massive and it's fascinating, you start to see real industry, real making things. And so one of my favorite stories, I used to work very closely with the international tax team. One of my tax colleagues went out to the Czech Republic to see the finance team there and we always would share the workload. So she check on them from a Treasury perspective as well and feedback to me and do the same. When I was out visiting she was chatting to the finance director of the Czech business and said is there anything from, from a Treasury perspective you'd like to meet a Feedback to Martin, and he got all excited and turned round behind his desk, there was this massive, great picture of a bridge. He said to my tax colleague, oh, Martin, Martin built that bridge. And she. She knew full well that there are some things I can do but I can't build bridge building. What he explained was that until I joined the company, they'd always struggled to get the cash flowing through properly and so forth. And when I joined, I helped put in place intercompany loans and facilitate cash flow through property, made sure there was hedging in place. And so I provide funding for him to tender for and get the contract to provide the scaffolding and formwork for the building of that bridge. So, you know, I say I didn't really do anything, but what I was doing in an ordinary treasury world was having tangible effects elsewhere. So that was the kind of thing that.

Yeah, well, that was good because you actually gave him that springboard, as it were, otherwise without that, couldn't have perhaps done it. So fair enough, well done, sir. And then talk us through what happened next, because it's an interesting one for the listeners. We've got some interesting guys actually. Fun enough coming up from Deloitte in consulting, and we're going to talk about consulting in another podcast episode coming up soon. What happened next?

Yeah, I've been at Costco for a number of years and was enjoying my career there. I've done lots of things, been involved in M and A activity, restructuring projects and so forth, and I've managed to travel quite a lot as well. But the head office was in Harrisburg in Pennsylvania, which is a lovely place, but was not where I was going to live. And so my career kind of stalled, as it were. There was, there wasn't. I couldn't really push it any further. So I started thinking, what would I like to do? You've given it away. I moved to Deloitte. I kind of saw an advert from Deloitte and looking for consultants and I thought, oh, yeah, maybe, maybe I could do that. So I joined the Deloitte treasury consultancy team, which was relatively small at the time, really. I was given the role of supporting the team that was already there in growing that business and making it a more permanent, substantial presence for Deloitte. And if you look at the Deloitte team now, I think we've succeeded. How much. How much I did in that, I don't know. But the Deloitte treasury consultancy team is in a really good place now. That was good. I have to say, I really enjoyed There are some really positive things about doing consultancy. There are some things that I'm less good at, I suppose. So I love the building relationships with people. And one of the great things with doing consultancy and interim, which I did subsequently, you can go in and make a big impact quite quickly. You can solve a problem or help people deliver a project. And that's great. What I found with the consultancy piece is that I wasn't very good at selling, so you kind of have to sell your services. And so building relationships is, is one thing, but there has to come a time when you say, okay, but now I need you to pay me to do this sort of thing. And that was something that I found didn't come easily to me. But also if I move on slightly to my, to my interim work when I did, did interim work. Interim work is great. If someone's looking to recruit someone, so they need someone to cover on a temporary basis, it's great. And you do that and you feel you've added a lot. What I then found with the consultancy and the interim thesis, you actually only see the start of a journey. You don't see what happens subsequently. And so I did a project, for instance, with a Tanzanian, Tanzanian cement company. And for six months of your life or something, you're focused on the cement industry in Tanzania. And then when you've delivered that project, you switch off from that and you never think about it again. And that's quite good in some ways for me. I like to sort of follow the journey through and I suppose in a way that's kind of why I sometimes stay too long in where I am, because I like following the company's journey. So I did that for just shy of a couple of years, I suppose, and then decided to move on, did a series of short term slash interim.

Roles and that, you know, those interim roles, what were they giving you? As a Treasury professional, you know, I know that you sometimes get somewhere and, you know, perhaps it needs fixing or just some support and things like that, but, you know, there are a few different roles. What was that like for you?

The thing that's interesting when you move on to a different company is that people see you for who you are now rather than what you were. So, for instance, when I was at Royal Sun Alliance, I started as the young graduate whose suit didn't quite fit and so on and so forth. When I left there, there were still people that remembered me. The new boys. You go to Hasco and you come in as a Treasury Professional with 15 years experience and so when you start doing interim work. So, for instance, I did interim work as assistant treasurer at Centrica. I went there as a seasoned treasury professional, the group treasurer at the time, Deputy resign, she wanted to have someone to cover on that role while they looked for the permanent replacement. And so they brought me in as someone who was a safe pair of hands, someone who had that experience. And so it's quite nice going in somewhere and using all of the knowledge you've got to help run that place, albeit for a short period. There are challenges because obviously if you're only there for nine months or something, you can't go in and change the whole world. So you have to look at keeping things running, solving any specific problems that they may have or may have helped you with, but without kind of going in and saying, I know everything, I'm going to change the world. It's something where, in many ways, man management skills are as important as your technical skills, because if you're going to upset the people, it's not going to work so well. So, yeah, so that gave some interesting experience. And also I was at Centrica for, as you said, energy business, but then I moved to Marks and Spencer's for a short period, which again, is completely different. And treasury is basically treasury in every company, but there are nuances. And so, you know, Ms. For American listeners, everyone in the UK knows M& S. Marks and Spencers is well known at the high street retailer used to be predominantly closed, now does quite a lot in the. In the food bit as well. And so for me, you know, there was. That retail experience was new and I had exposure to the. The collection of the cash and the credit card piece and so on that I hadn't experienced before. So, again, that was another interesting experience while I was there on an interim basis, while they recruited in the permanent deputy before then going back to Centrica again on another interim basis.

Talk us through how you then went in on the perm roll. What happened then?

Centrica, mainly known for owning British Gas, but it's done a number of things. It's owned by telephone businesses. In the past, it owned the AA automobile repair business. It's kind of done lots of different things and so it's forever changing. And obviously one of the things within corporate treasury we need to change and adapt as the business changes. So when I joined the treasury function, it kind of was a little bit behind where it needed to be, where the business was. And so I, as well as being interim, I worked with treasurer, effectively doing a little bit of Consultancy and looking at how the treasury function should be structured so that it can meet the needs of the company as it stands and where we thought the growth was going. I did that and we came up with a new structure and the treasurer rather cynically suggests that I created a role that was designed perfectly for me. It wasn't my intention, but it did look a little bit like that. I was persuaded to stay permanently, shall we say, just a little bit of background. I did interim for a while because I wasn't sure where I was going to be living. My wife is in the Church of England clergy and so we've. We've moved around occasionally and so when I first went to centre, I wasn't exactly sure where I was going to be living longer term, and so that's why interim suited me. However, when I moved to permanent, I knew where I was living, was able to do a weekly commute for a period. So, yeah, that's how I ended up permanently at Centrica.

And tell us about the role at Centrica, if you would. What was your focus? Because how was the sort of the responsibility areas split out within the function at that stage? Because you joined in 2015 as deputy treasurer, permanent basis, what were you focusing on?

The treasury was, I guess, split into three areas, if you like, but there was a front office, a back office and middle office, if you like, but it did projects, finance and other sort of odds and ends. And so I was responsible for front office piece and then fairly soon after that took over the back office. So I was really responsible for treasury operations, if you like. So all the processing through the foreign exchange hedging that we did and so forth. And then my colleague, the other Deputy Treasurer, looked after the rating agency relationships and projects and so on.

And then how did the role develop? Because I know that it was also the group and yourself and the role were going through quite a transition sort of thing and quite a development. It wasn't just got in there, did your job and that was it. It was a constant. Wow. Next challenge, next challenge. Because you're there for a period of time, eight years or so, you know, talk, talk us through how it evolved.

It was interesting. So when I started, we were quite active in the debt capital markets, for instance, we raising debt. We issued a hybrid bond as well. So good, good experience there in the capital markets. We also had fairly recently acquired large US operation, which had a Treasury function of sorts there. And we part of the. While I was there, one of the things I had to do was integrate that team into Our team, which had its challenges but also gave us the scope to cover more of the time zone. So, yeah, there was an interesting period, but then Centrica's had different plans and different strategies, all within energy, if you like. We started to get into a bit of a downturn as things moved away from the exploration production side of things. Centrica created a joint venture to move our upstream assets out to jv. But also we had a few other issues and won't revisit history. But Centrica started to downsize, we cut headcount, tried to cut costs and so forth. So then we've got the challenges of trying to manage the team with small number of people. There were a few people that were laid off and the previous group treasurer, when she left, she was not replaced. They brought in a head of Tax and Treasury head up the functions. And so there were various changes that were going on. Interim head of Tax and Treasury moved on. I became treasurer and was reporting into someone who was initially head of Tax and Treasury but expanded into a broader corporate finance type role. So there's quite a lot of change within the team. And you found that you were trying to do the same with fewer resources, which is always a challenge.

And then bring us more up to date. We've been through, been through Covid. I mean, you know, in an energy business throughout tumultuous times. What's it been like for you, sir?

The thing is, as with all Treasuries, we've been on a journey of trying to automate what we can and obviously as you have fewer people in the team, the more you can automate, the better. So we've been doing a lot of automation and so on. ESG is another factor which is again, most Treasuries are looking at now in some shape or form. And with a company like Centrica, although we're clearly involved, the burning of carbon part of our business, the net zero and ESG journey generally is a major part of what we're trying to do. So as treasurer, we have to get on board with that. I think the thing that's been most exciting, should we say, in the last 18 months or so, has been the energy crisis. So you've had trying not to get political and so on, but there's been a lot of conversation about the regulation of the energy supply market in the UK and you've seen that perhaps the regulation hasn't been as good as it could have been. And there's been focus, perhaps too much on price competition and not enough on looking at the companies that provide those markets. And so you've had a number of companies going bust recently and exiting the market, which is not what anyone wants to see, because a company defaulting and leaving the market, the losses that they make effectively get fed through to everyone's utility bills in some shape or form. It has meant that OFGEM have focused a little bit more on the oversight of those companies, which I think is positive. But it has meant that there have been challenges for some of the bigger companies as we've had to take on more customers. And of course that you then got on top of that sort of background noise, if you like. You then have Russia invading Ukraine. And clearly anything I'm going to talk about as far as frustrations on my job is insignificant compared to the real pain that people in Ukraine are feeling. But for us, it obviously gave some financial challenges. People who don't work in commodity markets just explain a little bit about margin movements. So when you're buying and selling commodities, obviously the price can move after you've agreed to buy the product. And so the seller has a large risk to your credit worthiness. And so a lot of trading is done with margin. So if the price moves a certain amount, you post a proportion of the price to reduce the risk that the vendor has. Centrica has always had this energy market and trading part of our business, who are historically, they've generally been just buying the gas that British Gas needs and buying the electricity we need, and then a little bit of selling around the edges of that so that it's not too obvious to exactly what we're doing. And then gradually that business has been growing. And I'll touch on that a bit more in a moment. But what that means is that energy market and trading business is a large part of what we do now. And with the volatility that we saw in energy markets, we saw a huge amount of volatility in our cash requirements. A simple example I can give you is we trade in LNG trading liquefied natural gas cargoes around the world. And when we first started trading those, we have to issue a letter of credit to facilitate the trade. LC for LNG cargo used to be about 25 million. During the peak of the crisis, an LNG cargo was close to 400 million. So you can see that the size of movement now with our margin cash, we were seeing hundreds of millions flowing out. It wasn't just us, lots of businesses were seeing that. So we were having to make sure that we had liquidity to manage that volatility. And happy to report that we obviously had some cash anyway. We have committed facilit fees and so forth. And we did in fact speak to our banks and increase facilities over the winter period, just in case didn't actually need the increased facilities. But it very much became a sort of a thing that we were very much focusing on from where historically EMT was something that we knew we did, but it wasn't a major focus for treasury, if you like, from a cash perspective. Suddenly it became the big thing that we were looking at. I think in many ways the world has changed. Although energy prices are pending down, you'd like to think, you know, that, that we all know our own energy bills are high, so we're far from back to where we used to be. And all the time there is the conflict out in Ukraine. I don't think the markets will settle down completely.

Yeah. Until it's done. And so, you know, looking at the future, you've touched on a little bit. We talked about the sort of current crises, but you know, some of the issues that are around there. But those aside, I mean, in general treasury terms, you know, I was just talking with podcast guests yesterday and he was talking about embracing AI and some of that stuff. We've got that there, but we've got treasury stuff happening and you've got this breadth of experience. What are the things that you are thinking about keeping. I've got to keep an eye on that and stuff. We talked about some of the day to day issues, but other things that you're thinking.

Technology is obviously a key thing that people need to look at because if your computer can do something, get a computer to do it. The computers theoretically don't make mistakes and don't get bored of doing the same thing over and over again. And I think with AI and technology generally, people are always worried that someone's going to lose their job. And I think what happens is that the people can add value in building relationships with people and interpreting data and so on. So I think there's definitely something about using the technology. The thing that I think for me, as quite a mature treasury professional, is looking at the interest rate activity at the moment and seeing people saying, oh, how interest, how high interest rates are when they get to 5%. I was thinking, hang on a minute. I remember when interest rates were in double figures and bond and beyond. I think that's something that's interesting to watch to see how the market copes. We got used to a new normal of low interest rates. Now with interest rates picking up Again, how does the market react to that? And I think the other thing that's interesting to watch is the whole cyber bitcoin. My son is very cross with me because he, when he was at school, talked about investing in Bitcoin and I said, I don't understand it. What's it all about? I wouldn't invest in it. And he tells me periodically that he could have made a fortune. But I still stand by it. From a corporate treasurer perspective, what's its purpose? I'm not sure it has one yet in many places, but I think it's not going to go away. And so treasurers need to understand what's happening, how the market is developing and what might it be used for within Treasuries. Not to find the use for it, but to be aware that uses may appear, if that makes sense.

Well, at the end of the day as well. And I've talked to a couple of treasures about this. You know, your job is to be the custodian of, you know, cash and safety for clients and everything else. So it's, you know, you're doing your job.

Yeah, that's the great thing with treasury, is that we need to ensure that the businesses have the cash that they need when they need it, they have the access to the banking services and the hedging instruments that they require. And we need to be thinking about the risks that they may not think of sometimes in a way. One of your previous guests made a comment about it. Quite nice not to be noticed in treasury, because that means you're doing your job. Well, I kind of understand that to a certain extent, treasury should be there in the background supporting what's going on. But where treasury does need to move to the foreground is when the business is looking to expand in new areas, because then that's when we need to, with our experience of treasury risks, look at what the risks are that businesses might be taking inadvertently or deliberately, and just to make sure that the business understands those things. And so that's why within any business, you need to look at even things, as I said, for instance, with the cryptocurrencies within Centrica, maybe I don't see particular value, but if you are a retailer, perhaps of luxury brands or something, maybe you start to receive payments in those cryptocurrencies. So how does that work and what's that going to be looking at? So we need to be looking at the opportunities and the risks of our business. You know, I say. People often upset me by saying, when I say I'm a Treasurer, they say that like an accountant. I have to explain to the difference between treasury and an accountant. And I think that as a treasurer, we are looking at financial risks and trying to help help our businesses mitigate those financial risks. And obviously cryptocurrencies are a part of those financial risks and they're going to be for some businesses, they're going to be a material part, for others, they're going to be irrelevant. They're the sorts of areas going to be going to be interesting to watch.

And I think just to bring it in perspective and just we'll put a link to maybe where you referred that was actually Michael McCarten, a recent one with Curaleaf, who involved in CBD and cannabis and things. One of the things he. And you refer to it very well there, not talking about being a gray, faceless treasurer. What he was talking about is if you're doing your job right, it's, you know, you're not noticed for doing a great job in a good way, you know, and I just love that sort of, as you say, it was a great interview with him and just that has been with you, sir. Right. You're a regular listener, so you know that as we come toward the end of each show, we put your LinkedIn details in the show notes and you then give the audience your take takeaways. What are the. I set you up for this the other day. What are the takeaways you're going to give to listeners if they're earlier stages, career or later on? What are your thoughts?

My go to career advice for particular people who are starting out in their careers. As I said, sort of slightly tongue in cheek. You know, I didn't plan my career at all. I think it's really difficult to plan your career because you don't know what's going to happen to the company you're working for. You don't know what's going to happen to the economy, you don't know what's going to happen to your boss. What I would say is, is be ready for whatever happens next. If you think you want your boss's role, look at it, what it is that they do. What do you need to have to do their role as well as they do or better than they do. And then they may leave, they may not, but if they don't, at least whatever happens, you're ready for that next step up. I think the other thing is be inquisitive, keep learning. You know, say I've been in treasury for over 30 years. I've done most things in treasury in some shape or form, but there's always stuff coming up. I'm actually in the middle of doing the ACT course on esg, so there's plenty of stuff to learn and pick up on. And I guess the other thing I would say is, as far as the interest in learning is concerned, is learn about your business, the business that you're in. So I say I've worked in insurance, industrial support services, retail and so on. So there are lots of different things. And as you learn about those businesses, it helps you do your job as a treasurer. As you understand what the underlying business is going through, it's much easier to help solve their problems. Going back to what we're saying, it's not about being the hidden face in the background, it's about being a friendly face in treasury that will help solve problems. One of the things I learned early on in my career is that it's much better to say yes, but rather than no. And so as a simple example, if someone comes to me, and I'll give you a real life example, I was being asked to settle an M and a transaction where we were selling our Australian business and we were selling our Australian business from one UK company to another UK company. And the. The big bosses were planning on going out to Australia and doing a big signing and at midday in Australia or something, getting me to make a sterling payment at that time. And I said, well, no, you can't do that because it's the middle of the night in the UK and the banks aren't open. And the answer was no. However you looked at it, the problem is by saying no, you come over as negative. What I would advise everyone is to say something along the lines of, okay, I see what you're trying to achieve. We just need to address these issues. So try and sound positive rather than saying, oh, no, you can't do that. As I say, I did have a tendency, and I probably still do, if I'm honest to say, you can't do that. And then I say, but you could do this, but by then someone's already heard no. Whereas if you say, oh, yes, I see what you're trying to do. We just need to address these issues, which effectively means no, to be a friendly face of the business so that people come to you, because it's much better that someone comes to you and says, I'm thinking of buying this massive, great piece of equipment from Japan. How would I hedge that foreign exposure? Or, and can you help me? Then you find out six months down the line, they've made this order and it's not hedged and they don't know how they're going to settle it because you don't have a Japanese yen account and so on and so forth. You want them to come to you and you want to be the friendly face who helps them solve the problems.

Be the friendly, curious face of Treasury. There you go. That's your takeaway.

That's it. It took me a long time to say that. No, no, I loved it.

Loved it. Well, it's an amazing to chat to you. Thank you. I know that, you know, it's great to have another listener and again, if you're listening out there and you think, oh, actually I could share my stories then, then sen details through. It'll be another guest alongside Martin. So thank you, sir. It's been great to catch up with you and actually record it. So lovely to chat.

Thanks, Mike.

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