Purpose-Led Treasury with Martin Watts

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 treasurers about how they build their careers, where they are now and where they see both themselves and the treasury profession. Going to next this week's show, I'm joined by Martin Watts, the Director of treasury at lnq, or London and Quadrant. London and Quadrant is a housing association operating in London, South East England. East Anglia, based in Stratford in London. They're one of the largest housing associations in London. Quarter of a million people in more than 95,000 homes, primarily across London, the southeast. Known Martin for many years, I have the delight of actually placing his wife, who was in treasury, in one of her first roles ever in Rio Tinto many, many years ago. So a thoroughbred treasury family, which is ideal, I think, in these challenging times. That conversation around didn't say all about Treasury. That's what I want to hear. That's brilliant, Martin. We can get onto that in a little bit. But perhaps tell us about your career, how you first encountered finance, treasury and how it all came about. And, you know, again, we've known each other for many years. But I'll give it back to you because no one wants to hear me. They want to hear my guests. So it's over to you, sir.

Thank you very much, Mike, and thank you for inviting me to participate in your podcast. I'm absolutely delighted to be here. So treasury started for me at a very, very young age, actually. It was actually when I was in school. During my school years, business studies became a subject. It's a subject that I then took at GCSE level and took further into my career. One of the key things for me was the choice between working and university. As much as I would have loved to have gone to university, my parents simply could not afford to send me to university and I was told to go and work. The first thing I'd done, I wrote to every single bank in London. This is prior to emails, this is prior to online applications. It was a handwritten letter. I had a book with every single bank name in London, and at the age of 18 years old, I managed to secure, I think it was four interviews within banks. Interestingly, some of those banks now Support us at NQ. I didn't succeed. It was the early 90s. There was a recession then. So I basically took the first job that came my way, and that was as an office junior at a media company which was part of the Saatchi and Saatchi Group. From There I progressed from doing generic office work such as filing and filling in timesheets and expenses, through to accounts payable through to accounts receivable, where I had to look after major clients for which Zenith Media their advertising space for them. And then eventually that particular group went through a demerger exercise. As part of that exercise they wanted to set up their own Treasury. And a gentleman came in to be the treasurer as a gentleman who I thoroughly admire, gentleman called Rory Boud, who was exceptionally experienced and I was asked to go and join him in Treasury. So I was absolutely delighted. My first forum into Treasury, I will never forget the first FX trade that I'd done with Laurie Mackay at HSBC all those years ago. And from there I learned the basic fundamentals of treasury, the importance of cash management and the basis for relationship building. That was a key component of how Zenith Media was so successful. From Zenith Media I felt I learned a number of basics. So whether that was trading, whether that was cash management or cash management structures, whether that was around policies and procedures, that grounding for me I feel was really, really important. And it's something that's always stuck with me. From there it was actually Roy who told me to move. He said, I feel that you have learned what you can learn here, go out into the wider world. And at that point he introduced me to you, Mike. Actually, all those years ago, I was very, very fortunate to land a role at AstraZeneca within AstraZene. That for me is probably the most professional corporate treasury that I've been involved in within AstraZeneca. I spent my early part looking at policies, procedures and then trading fx, money market, cp, all the generic stuff that you would expect a front office analyst to do. And throughout that I had a huge interest in terms of the financial markets. And for me, the opportunities that AstraZeneca gave me weren't just about what we were doing at AstraZeneca, but they gave me the opportunities to go into banks and to sit with, for example, FX traders or options traders. And from there I really learned the grounding of financial markets and how they operate. And actually from there we were asked to redesign our hedging strategy. We used all of the value at risk analysis, Monte Carlo, we completely changed the approach in which we conducted FX options. And it really, really gave me that grounding of understanding how the banking environment works. So AstraZeneca was a huge part of my career and I feel there I was exceptionally well supported by the personnel that were in play. Patricia Greenfield, who was widely known within the corporate treasury sector was Amazing lady, Amazing lady and exceptionally inspiring and exceptionally supportive to me personally. I never forget the fun times we had with Patricia, but she was a stalwart, if you like, within the corporate treasury sector at the time. From there I went to Vodafone. That for me was a different type of experience in, in terms of the industry in which it operated. The role for me at Vodafone was predominantly around FX again. And if I combine my experiences with both AstraZeneca and Vodafone, that kind of transactional piece within the, the supporting frameworks around policies, procedures around communication up to various levels into senior management, I think was a fantastic learning curve for me from Vodafone into PwC. Again, something very, very different. And that role at PwC was more around the recovery services piece at PwC whereby PwC was appointed as administrator or receiver for some very large ent. MG Rover is one that stood out for me as well as others. And that there was quite an interesting piece because there was an ability to expand what that particular piece was doing. Not just looking at kind of insolvency side of the business. It was a really, really interesting experience for me going through from Zenith Media into Zeneca into Vodafone into PwC. I really felt that I'd obtained the grounding that I needed and then the chance came for me to share some of that grounding for me. People always ask me, so what made you go into social housing? I think the first thing we got to remember about social housing, it's not local authority led. Housing associations are independent entities, they have their own boards. But for me it was about the opportunity to be able to express what I had learned and going into a sector that I could see had huge growth potential. I met my now current FD wacar, who impressed me from the off. So my role was in effect come into LNQ and build that Treasury Department from scratch. And I definitely felt I had all of the grounding that was required in order to do that.

Can you explain for the listeners, we've got a massive audience in the us so they might perhaps not understand housing associations in quite the same way. Let's just give a quite a basic description of LNQ and you know, and at that stage, and also we talked about it before the show, you going from, you know, the public sector, PLCs, corporates and stuff like that, and then suddenly you're going to a housing association or again, we talked about how it's evolved and really grown into itself. So maybe that kicks off that story. So can you do that for the listeners as well, if you would?

Yeah, absolutely. So I think the first thing to recognize is that there is a huge housing shortfall within the UK and something that is replicated in many parts of the globe. Australia is a great example where there's a huge housing shortage. But it's not just the housing shortage, it's the affordability gap that then comes out of that housing shortage. And for example, we look in London, within the UK, an average price of a property is something like £600,000. We compare that to average earnings, it is just unaffordable for the majority. And obviously London itself relies upon what we would define as key workers, key workers being those who work in the nhs, teachers, police, firemen. So social housing is actually a concept whereby you're trying to support those who are vulnerable. And vulnerable covers many different aspects. It can cover things from mental health through to disability, through to single parent households. And this is a concept that actually is within the us, similar to the projects within the us, but certainly it is something that is global. If we look further into Europe, into Sweden, for example, or into Holland and even France, social housing is an integral part of the infrastructure of particularly big cities. But it's not just about the big cities, it's across the pit. So the affordability gap is clear. And for L and Q, one of our key remits is to try and help the homeless. Homelessness is a real issue. It's not often seen, it is very often ignored. And therefore our role in terms of social housing, the way it works, is that we would charge something like 50% of the market rent of a property rather than 100%. And the remaining 50%, then in effect is subsidised. And that can be subsidised in two forms. It can be through government grant. So LNQ has about 3 billion of government grant on its balance sheet, or it can be subsidised through the profits that we generate. So for lnq, whilst we have eight shareholders who are the trustees of our board, we do not pay dividends. Any profits that we make, in effect are recycled back into the business with the objective of building more affordable housing. Like many countries in the world, there's political pressure to develop and build more housing, more housing, that is quality housing, that is energy efficient. The ESG agenda is a huge thing globally and that does apply to green cities, for example, green living. And our remit, therefore, is to try and place shape as well as just building Units. It's about bringing communities together, it's about offering the infrastructure to those communities, whether that be through things such as community centres, whether it's other initiatives that we undertake. So social housing within the UK is a huge component of housing in London. For example, those in social housing or social housing providers that provide housing for one in ten people in London. The government thinks in the UK that we need to build something like 340,000 new homes per year to balance the supply, demand, economic.

I think one of the things I'd add there as well. And again, we both spoke, Martin and I, before the show and I've done a lot of work with the housing sector in recent years and it's certainly evolved. And again, Martin will go. But I remember Mark Washer, who now Chief Executive Sovereign Housing, said to me when I did some work for him when he was at Clarence Housing, and he said that, just as you put there, we work in exactly the same way as the public sector, but our reason for doing it is different. We don't give dividends. What we do is reinvest for the good of our members and actually grow this. And actually by doing that, we do good. And actually it's not do gooders, it's actually. But you reinvest in that. And I think it's not. That's admirable. It's not. It's actually the point of what you guys do. And I think that's definitely something that Martin brings out. As we carry on, I just thought I'd chip in there because I think it's a really. It's so powerful because, you know, does that affect the way that you view what you do in your job? Do you feel?

Yes, of course it does, because it's a culture in which we operate. And within lnq, the headline, in effect, of how we work at LNQ is we have social purpose, but we work with commercial discipline and commercial drive. And that is no different to the PLCs that I've worked within, whereby the end means is shareholder wealth. For us, the end means is the provision of more affordable housing, given the important role that affordable housing has within the infrastructure of the uk. And I think that's a really, really powerful message in that it is no different to corporate entity. If we was to look at LNQ's treasury, how we are set up, how we are governed, the policies, procedures that we have in place, the accounting that we have to do, the systems in which we use, the communication in which we have to have, which is vitally important both internally and externally. That is no different to a corporate treasury in a FTSE 100 or no different to a corporate treasury and a small startup business. The principles are absolutely 100% the same. It's just that endpiece around social purpose. So yes, I think for me personally, Mike, obviously operating within that culture and positive things that we do within the communities in which we work and actually we would say the communities in which we serve, which again is a very powerful message. Of course when we are thinking about our decisions from a Treasury perspective, we always have to look at the big picture. We can't just focus on the here and now. We need to understand that linkage between what our objectives are and that objective is social purpose. Supporting that objective is the ambition that we have within Ann Q. So we have grown tremendously over the time that I've been at anq. We say we've now have something in the region of coming on 113,000 properties. That's a huge number. The market value of those properties would be in and around £40 billion. So the size and the scale of NQ is comparable to what we see within these large entities. The end goal is just different. And obviously that does fall in within LNQ the behaviors and values that we have which are very clearly defined. We talk about impact, we talk about responsibility, we talk about inclusion, we talk about passion. These kind of value driven behaviors do form a fundamental part of what we do within treasury and how we approach our external and internal stakeholders.

And how is you joined the group in 2006? So yeah, a number of years, 14 years ago. How have you seen treasury evolve in the sector? I know that when I first, you know, 14 years ago, if someone said oh do you want to recruit for the Housing association? No thanks. You know, I used to get phone calls from HR people and say well you know, what's your charity stroke housing sector rate? And I'm like it's the same as it is in the public sector because you're a commercial organization and oh well now you know. And there was always that has changed massively and actually the way that I think Housing Associates certainly we have and we work with a number of them now as well, very successfully. It's fabulous. But how have you seen that change and have you firsthand, you've been the center of things. What have you seen?

I think there's been tremendous change. I'll start from the big picture perspective firstly and it does go back to that commercial drive. If we look at the people, the skill Set the education, the learning, the coaching, the mentoring, the ability to learn from our peers, for example, the big FTSE house builders or the land companies. That culture of being able to operate at a required level certainly exists within housing associations and that stems right the way from board members, right away down to officers. So I think there's been a fundamental shift in the culture. That's the first thing. The second thing for us in particularly, we are the most ambitious housing association within the uk, there is no doubt about that. And if we have a look at our ambitions, we want to deliver another 100,000 homes over a 10 year period. We do not get charitable rates for how much a home costs to build, nor do we get charitable rates for employing the builders who build the homes for, nor those who maintain our homes for us. So we have to, within our business, we have to be very efficient in terms of the supply chain. That's a big component. We have to have relationships across the piece, whether that's with our house building partners. Often we will use joint ventures to ensure ultimate benefit and maximum efficiency. So these kind of points in terms of fundamental shift in what we are doing are tremendous and wrapped around that. We've also got to take into consideration the UK government's view on housing. If we have a look over the last 10 to 15 years, we've had more changes in housing ministers than I can think of and certainly name. The political environment is a big influencing factor. If we look at Conservative government, who initially under Cameron and George Osborne, really wanted to emphasise on home ownership, and we in LNQ offer shared ownership, which is a product that you can buy a percentage of that home and rent the rest and then continue to top up buying that home until you ultimately own it. But home ownership was a big driver under that government under Theresa May, that went back to rental under Boris. It's probably yet to be fully decided, but we kind of feel that that's probably edging back towards home ownership and the ability of the government to put pressure on our sector. Government grant has been reduced tremendously. We used to get something in the region of £100,000 of grants per unit that we built. Today that's about 18,000. We're only charging half of the rent then. If we were to put our treasury hats on and do some net present value calculations, it does not stack up. And therefore to fill that gap, we've had to make key strategic decisions to operate within different fields, within different tenure types. So LNQ has a very, very large outright sales program. We will either do that out sales or we will work within joint ventures. If you go around any part of London, you are likely to see an Allen Q site. At present, we're on 157 sites which outlines the ambition that we have. We have gone into place shaping Barkin Riverside, which is on the River Thames in London, slightly, slightly east of Canary Wharf. That whole site, we are building 11,000 properties, we are building a new town there, we are putting in a new train station, we are putting in three or four schools, we're putting in place community centers. So that ambition has fundamentally changed within our business. And then we look at other things that we've done. For example, LNQ has, if not the largest, one of the largest, private or market rented portfolios. And that's something that I've been heavily involved in. I actually started that entity that now has about 2,400 market rent properties, a portfolio that's worth something like £1.2 billion. So we've had to fundamentally change and rethink the way that our business works because of changes in government. That would also apply to changes in economic outlook. And obviously of late, there's been a huge focus on quality and fire safety. Tragically, the Grenfell disaster, which was absolutely horrific, outlined some of the quality issues that are apparent within the building sector. And that will fundamentally change, has already fundamentally changed our approach to quality, our approach to fire risk, our approach to ensuring that our tenants and residents are everything that we do. So we have all of these influencing factors from a business perspective, from a Treasury perspective, I feel it's even more interesting. And if I go back to my first days of @LNQ, I was surprised we didn't have a Treasury management system or proper policy or procedures and process maps and Bloomberg Terminal and this reliance upon external advisors, that's the first thing I did. I removed all of that to ensure that accountability and responsibility sat with our executive. The recommendations that I put in place to support that independent viewpoint that we have, and that definitely has changed across the sector. From a Treasury perspective, that means that we get more professional people working within the sector. And we can see that certainly across our peer group, but obviously within treasury, we've been through the financial crisis in 2008, we've been through a downturn in the property market. We are going through what we are unfortunately going through now with the COVID pandemic. We've got to be able to adapt, we've got to show flexibility within how we operate. And from a Treasury perspective, what I feel are really, really important are a couple of key things. Relationships people talk about relationship banking people talk about having strong relationships. Do you have strong relationships? Really? It's all hunky dory when it's going well, but when things don't start to go well, that is where the value of corporate Treasury Department certainly shines, in my opinion. And we've been through some of that, some stuff that's outside of our control, changes to government policies, virus regulations, Covid financial crisis, but the importance of the Treasury Department within our entity, I think this is something that has also fundamentally changed and it's probably changed across the corporate sector. The relationship between the board, the FD and the corporate treasurer is more important than it ever has been before, in my opinion. And we've certainly seen that within Adam Q.

And you've highlighted there the importance of treasury and the team and everything else. And one of the things we've discussed as well is that ELIQ has won some industry awards, you know, corporate finance deal of the year and bonds less than 500 for the act. You know, that's just about showboating, isn't it? Having a nice meal, you know, at the expense of getting a bit of coverage in the magazine or, you know, what is it about that? Again, that's. We sort of. I'm doing that very tongue in cheek. But, you know, again, for the listeners, why have you bothered. Why have you bothered to get those awards or put yourselves forward for that? What does that give you guys?

Well, I think firstly, Mike, in terms of those awards themselves, we're tremendously proud to have received two ACT Deals of the Year awards in such a short time period. And for us, that really does reflect how we as a Treasury within LNQ operate and compare to our peer group. So I feel that there are a couple of key things here. One, awareness around what do housing associations do? It's just like a corporate Treasury. It's exactly the same principles. The end means is just slightly different. And I think that awareness of housing associations has come to the forefront. So that's something that we are keen to advocate and support across the industry, the important role that we play within the economy. So that's one area I feel that the point that I've just spoken about, internal stakeholders, board members, exec members, for them to truly understand the importance of treasury things such as the ACT and the ACT awards and various conferences and everything else that they run, I think it's really important that they have a clear understanding of why treasury is really important. It's also an opportunity for us to learn. We look at the ACT Deals of the Year award in the year that we won the corporate finance in Deal of the Year, we beat, I think it was Tesco's into second place. It was Tesco's, indeed. And actually through the conversation I had with the treasurer at Tesco, you can learn from one another in terms of what processes did you undertake? Why did you stand out? Why was it different compared to what else was on the table? What things are you doing right? But it's also about learning from other people around you to continue doing things better and to continue doing things right. And I think finally from team perspective, motivation of a team, particularly in this environment, but engagement with the team and recognition of a team is really, really important. Saying that thank you or being recognized externally is such a motivating factor for us as a team and we within lnq, within our culture, people is one of the key values that we have and engagement is one of the key values of us weaving LNQ have been a Sunday Times top 100 employer for a number of years. We are in the Great Places to Work survey. We are up there and have been for a number of years. We have won various accolades around women in the workplace, for example. And that engagement and motivation for the team being recognized for the hard work that they've done, I think is. Is really, really important. I don't see this as a glossy piece in a magazine. We're very, very proud and why you've done it and the status and the awareness piece, I think is really important. Coming off the back of that and.

Looking towards future, you know, the future team of treasury and everything else. You're very much at that. And you and I have talked about it as well that what do you see as being key coming through now? I mean, I sometimes talk about the treasures being pushed Forward by their CFOs to check out technology and things. It's less than that. I'm just thinking where are you seeing we're in a new world with post Covid starting to. It's on the downturn, but the way of working has changed. We've got remote work and all that stuff. But where do you see it overall in treasury changing what's your view of the world? So they.

I think my view of the world is we come back to simple messages, the importance of relationships. We at LNQ have got 6.3 billion of debt. Maintaining active engagement with our relationship banks, with investors, being transparent, being honest within our disclosures, continuous Dialogue right here in this environment. And I think it is a way forward. I do not to want see the relationship aspects of treasury to banking, of treasury to investors, of treasury to boards going away. I think that that becomes even more important quite simply because Treasuries is arguably the heartbeat of any company. It's simple cash management, but it's about looking at the bigger picture. And for us within treasury, one of the pulling points for me going into energy, it isn't just treasury that I do. My role is so much wider than Treasury. Yet being within treasury and having that grounding that I've had has allowed me to see the bigger picture. I'm very lucky in that I've had personal coaching and that person has tremendously helped me. My coach, one of the things that she says to me is, Martin, remember that there's a dance floor, remember that there's the balcony. Sometimes be on a dance floor, always make an effort to get up on the balcony and see the bigger picture. And our roles within Treasury, I think become more ingrained within the wider business. Whether that's through procurement and supply chains, whether that's through esg, which is a huge topic at the moment. I might dig into that a bit more. But my role isn't just about treasury, it's about the whole business understanding what decisions are being made within the business, of how ultimately they can impact us, but importantly showing that the other way around. And often I've seen in the past, those relationships don't necessarily exist to the extent that they do make to exist. We as treasurers need to know what is happening within the business. One, because we need to communicate that through to external stakeholders, through relationships. But two, decision making fundamentally can impact what we are doing within treasury team. So I think that that role of the treasurer being more ingrained within the business, that's how I see the way forward. Obviously that will get supported by things such as technology. And I'm sure you've had many podcasts on benefits of technology, blockchain and the rest of it. Of course we have to be up to speed and up to date on technology. Technology coming out of the banking industry is another thing. But another key thing that I feel sometimes is missed within corporate Treasuries is you have to understand the bank's perspective. The banking environment, like us, like within Treasuries, has materially changed over the past 10 years. There's more regulation than ever, there are more rules, policies get tighter, step away and put yourself in their shoes and try and establish relationship whereby they can step away and be in your shoes. And if you've got that understanding, I think that that tremendously helps as well.

And we could deep dive into ESG and everything else. We've done a couple of essays episode perhaps for those, those links in the show notes, but unfortunately we're approaching the end today. You know, our show each week is sort of 30 to 40 minutes of, you know, people's commute time and all that malarkey and so that they get some amazing nuggets, which I think they definitely have today. And so, Mr. Watts, we're going to put your LinkedIn details in the show notes so that people can actually connect with you if it's right and you know, you think they want to be in your circle if you like. The one I was going to say, sorry just on the ESG is we did a really good one. You may know Adrian Sargent, who's ex Tesco, who I've known before, but particularly that one because you know, ESG treasury, exactly as you say, Martin is a rising thing. But maybe connect with Martin if it is something with you guys. But going back to you, you've got this wealth of experience over many, many years. We've got a variety of listeners from junior guys to mid level to treasurers. Listen to some of the war stories. But, but you know, if someone looks at your background and says, do you know what, what are the top three things this guy would recommend? And you know, maybe that's because of people coming up the curve or people already there. What are the top two or three?