Running Treasury on a Global Level with Erik Smolders

So 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've built their careers, where they are now and where they see both themselves and the treasury profession going to next in this week's show. Delighted to be joined by Eric Smulders, the Vice president for Deloitte Advisory and the extended treasury solution offering league at Deloitte. Now, many of you will know Deloitte, they're obviously a global treasury advisory services, that's what they provide. But they're one of the biggest accounting firms in the world and alongside some other big accounting firms, you're one of the big four. So you've got kpmg, ey, Pricewaterhouse, and again Deloitte. So you can look up that. But actually Eric's relatively fresh to Deloitte. He had a many year career through Ingram Micro and so we've talked about that and we'll talk about that on the show and he can perhaps explain what treasury was like there. Ingram Micro again, technology supply chain company. As always, enough of me whittering on, let's get Eric, who's a native Belgian, he can actually explain a bit more about his background about how he first ever discovered finance, then into banking and then discovered the wonderful world that is Treasury. So Eric, enough from me whittering on over to you sir. Talk us through your career, if you would.

Thank you, thank you and thanks for having me on this podcast. Yeah, my career, I actually started in banking after doing what is in Belgium called commercial engineer as a degree at college and it's really kind of degree for people that don't know what they want to do after they finish high school because it combines economics and engineering. Now I don't think I ever did anything with engineering but if someone wants to ask me how a nuclear power plant works, I think I can, I can still explain it. But I started first in banking and in what at the time, and this is going to kind of age me, but at the time were the new financial products which were the currency swaps and the futures and the forward rate agreements. And I was looking after kind of the back office for, for those products. But after some time I wanted to do something else. 22 treasury in Belgium at the time we had what was called the coordination centers, which was a way for Belgium to get international companies to invest in the country. It attracted probably at its heyday, maybe 200 to 300 large international corporates. And they put their treasury centers and regional headquarters and in house banks and what have you in Belgium. And I worked for Sandoz who had started a coordination center and we started working on centralizing flows, mainly for their Benelux activities and centralizing cash flows. It was a great school, it was a great way of learning what cash management is all about. Notional pooling, CBA pooling and all of that stuff that was kind of sort of invented in Belgium at that time. But I wanted to do more than just call it Benelux. Treasury and I moved to Inger Micro, an international or global technology distribution center or distribution company, I should say. And Ingram had a European wide coordination center which at the time was 10 countries. And we centralized treasury for 10 countries being cash management and foreign exchange hedging. And we acted as their in house bank for the companies they had across Europe.

And then tell us just a bit more about maybe Ingram Micro. You say you're acting as the bank there. Some people won't know the company, but they might have heard of it. How did treasury operate? Because I had a chat earlier with Todd Yoder with Blue or Corporation and they were construction and we were talking about some of the ways that affected treasury and the flows, if you like, because it's a physical product. And actually the FX was moving around when we were also talking to him. And earlier on he was with Zimmer, so Zimmer frames and Orthopedics, quite different sort of dials if you like, on treasury activity and things with yourself and with Ingram. What was the sort of treasury ethos if you like. That's the right way to describe it.

So Ingram Micro is a technology distribution company and works with large numbers of relatively small companies across the world. But I was a European treasurer, so across Europe. So it is very important to have your banking structure set up so that you can collect from relatively small companies. But on the other hand works with large suppliers and so has large payments to suppliers go out. But it's very capital intensive. So it was very important for, for us to be able to get the collections that come in daily from all of your customers quickly into bank accounts, central bank accounts, through cash pooling structures and then back out to the suppliers to make supplier payments. So the flow of cash. Yeah, the flow of cash was really important. So we had all kinds of cash management tools, zero balance tools, notional pooling. Those are the things we set up at Ingram to be able to manage our treasury from the European hub. The other thing that we did was on the hedging side, lots of Products in the technology space are paid in dollars towards our suppliers. But on the other hand, working with large numbers of smaller resellers, those all need to get their invoices in local currencies. So we had a natural exposure, short dollars along local currencies. And this was at the time that there were still deutsche marks and pesetas and francs and so on. So we constantly had to convert currencies and do the hedging and we did all of that centrally. So we had a cash pulling model set up where we could quickly convert cash, move the cash in house bank and from there out paid the major suppliers around the world.

So as you became the European treasurer, you were going through and Ingram Micro was going through a rapid period of growth in terms of revenue, in terms of responsibilities as the company got bigger and bigger. Obviously as a treasurer you were coping with that as well as your day job. And this growth, what was that like existing through that period as you grew sort of thing?

Yeah, I think it was a period that the technology industry went through fast growth and we needed to have our tools and cash management tools set up to cope with that growth. Part of that growth was through acquisitions. So it's a matter of quickly kind of integrating acquired companies into an overall structure and again not leaving idle cash on bank accounts and making sure it just moves fast into your in house bank. So we dealt with that by moving people into partner banking structures and changing bank relations whenever we acquired companies and making sure we, we had the team and the technology to, to deal with with growth. So we had a Treasury management system that could kind of grow with us. We communicated and we started using, at one point we started using SWIFT to communicate with our banks. So it's setting up the structure to make sure you can easily add on new countries when you do acquisitions. And then the company itself was fairly quickly in integrating new acquired companies into the group and into its structures and then facilities to make sure that you could fund the growth. Because like I said, technology distribution is a capital intensive business.

And you talk there obviously this technology, technology, you know, a lot of the people we're talking to now, you know, we talk about automation, robotics and all those things. That aside, when we're talking about you saying about Swift and most people within treasury and Finance will have heard of that. But you know, again taking this back, this was sort of 15, 20 years ago and you were in the birth of technology within treasury in some ways. And you've obviously seen technology go through that transformation and help you as a treasurer but where were you in that evolutionary arc, if you like, what was that and what impact did that make on you and the treasury team sort of thing?

Yeah, we tried to be innovative. Now on the other hand, I was working for a business with relatively small margins and very cost conscious. So you have to have the right balance between on one side trying to get manage your information, get your information fast and on the other hand doing it in a way that doesn't break the bank either as far as costs are concerned. But fairly early on we always had a banking platform whereby we could look at bank account balances across Europe. Later on when I became the global treasurer across the world, but definitely across Europe, so that we knew what the bank account balances were so that we could take action and pool money. So that helped us. Later on we had our own Swift address and then were able to get information in and payment information out through using that Swift address. But before that we used one bank to centralize the information through MT940s, which is Swift's message format for bank account data. And then on the payment side we liked to centralize payments as much as we could so that we had control on payments. And we had the advantage at the time that we used one global platform as far as ERP was concerned, so that the payment files that we needed to send to the bank to pay our suppliers kind of had the same format across Europe so that we didn't have to worry too much about connecting different ERP systems.

And then your role, you went through a couple of different positions there with Ingrid because you had, you know, again for the people listening, you know, 20 plus years or 20 odd years there, you know, just again for the listeners, you went through these other roles within business analysis and CFO and then you were the VP and treasurer. Talk us through that sort of career progression just in whistle way.

No, I think it's important that, I mean a career in treasury and I love doing treasury, but I think doing some other functions within a finance organization is enriching in a progression as a treasurer. So I did business analysis for some time which was all about analyzing and doing business cases around potential merger candidates or acquisition candidates. We looked at, at CapEx, we looked at explaining our organization what return on working capital was. And that was at the period that things like return on working capital, return on invested capital were kind of the hot topics. And we in the business analysis team were explaining those concepts and kind of making sure that our operating businesses around Europe at the time were using those concepts in Their decisions in how they allocated working capital to the different businesses that they were running. And then I was time the CFO of what we call the Pan European Business Unit, which was one of the companies within the INGER microgroup in Europe. And I just found it enriching as a treasurer to see how essentially how the business operates and what the constraints are that a business controller or cfo, whatever you call it, someone who's running the operations from a finance point of view, what kind of things they deal with in their interaction with treasury, which afterwards, when I then became the corporate treasurer and moved to the us helped me in understanding, understand what the constraints are. I mean, from a corporate treasury point of view you kind of have your ideas on how the world needs to work, but sometimes it's also interesting to know how the real world works so that it's kind of easy from a corporate treasury point of view to say, well, I want everyone to work with the same bank around the world. But that might not be how the operations need to have their bank relations set up. So I think that was about six years that I left treasury and then it went through those two roles, business analysis and business unit cfo. And it helped me better understand the constraints that the business had because in the end you can develop the world's best treasury organization. If it doesn't serve the need of your actual operations, it's not worth developing it because you always have to understand in the end the business has to sell the product to the customers. And treasury is a support function. The core is always the commercial side of any kind of operation.

Yeah, so one of our previous shows we had Mark from Johnson Controls, the global treasurer who's now recently been made that move to the number one role, as it were. And he had some commonality. He's originally himself from Belgium. Then he made the move to Milwaukee. He went Milwaukee to Singapore, which I know you had some exposure to yourself and then he said, oh, we want you back in Milwaukee. So he did that and now eventually, and congratulations to him, he got the global treasurer position. And it's great news. You were then in a similar way you were Belgium by background or things like that or just perhaps explain for the listeners that move from Europe to the US and how that changed you and also what it was like as a Treasury experience for you having come from Europe.

Yeah, first of all, moving from rainy Belgium to sunny Southern California was like a no brainer for me. But it elevated me from, I mean, having been a regional treasurer and I spent here in Singapore, looking after the Asia Pacific treasury there as well. But it elevated me from being a regional treasurer to the corporate treasury position. It's then less about the regional treasury stuff and the cash management. So I started learning other things that I wasn't exposed to before when I was a regional treasurer, things such as managing more from the corporate side, the corporate relationships with the banks. What I found really interesting is the relationship with the rating agencies and seeing how rating agencies look at the world. And then I also added risk management and insurance to my role, which I hadn't before. So that was managing the company's insurance portfolio, which was new. And the other that I found exciting thing was being able to have an impact to things like policies and procedures from a corporate. Corporate point of view and then working on things with like share purchases, which is more a corporate function you are not exposed to from a regional point of view. And then the interaction with the board, which I also found very exciting to see how the board looks at corporate finance as a whole and treasury in particular.

And with the contrast maybe between European treasury and US global treasury, if you like, or that shift. I know that when I've spoken to some of my clients, we've done work with Chanel and we've done work with Nike and Duracell and the focus on cash, which I know is a big thing for you and that's. We were talking before the show and that's a passion of yours and the release of cash, do you see that as a different sort of emphasis or spotlight? If you're looking at Europe and we mentioned earlier, FX focused and everything else, but more it's about the cash. And you talked about the cycle of cash and getting into the bank account. That's the start, not the finish. Perhaps describe. Is there a contrast, would you say, between Europe and US and then cash itself sort of thing? What are your thoughts?

Yeah, I think when I was looking at cash management and like I said, I always think that from a Treasury point of view, cash management is really important because the sales cycle for me doesn't end when the customer pays money on the bank account. The sales cycle ends when that cash that's on the bank account is used to pay down debt. When I looked at it just as a regional treasurer, I wanted to keep my interest expense low and reduce cash to the corporate function or to the regional function and pay down debt. When you look at it from a corporate point of view, I had much more focus on things like debt to ebitda because that was one of the Drivers of our rating. And that's the discussion you have with rating agencies is around debt to ebitda. It was less about keeping the interest costs down and of course, important, but it was also, how does our balance sheet look on a global level and what can you do and reduce cash to keep your debt low and present a debt to EBITDA number that is within the range that rating agencies set for any given industry or a specific company. So I looked at it probably more holistically. You can then look at how cash is managed across the world as well, which is not always the same from country to country because payment instruments are different. In Europe, we probably do a lot more things with wires and ACH payments or low value payments, while in the US you have to deal with collecting checks, which is still a thing that we do here in the US People still write checks for personal and business reasons. So you're trying to get efficient in clearing checks and the time it takes to clear a check and get the money on the bank account. So the perspective is a little bit different. But I think I could look at it more holistically and saw the corporate impact much more around, like I said, things like balance sheet ratios and how you could improve it by doing better cash management.

Yeah. And with you just going back to, you know, looking at that role as the VP and treasurer, corporate, you know, for the group, how many were in the team and on an individual's basis, what were you like as a boss? Obviously perfect. I'm imagining. Yeah. The most inspirational. Of course we're going to say that.

Right.

You know, you know, managing big teams, global teams. You had a very international background. What was your ethos behind doing that?

I tried to speak to my colleagues around the world in a very frequent basis, help them out with, try to give them a corporate view of things. When sometimes you have to change policies, make changes to things that may impose bank relations, maybe things that are not what the local guys want to hear. So I tried to have a frequent dialogue and explain the corporate view in things that I did. Now one of the things I did, which was maybe not so good from my colleagues around the world, but when I looked at things from a corporate point of view, we started centralizing treasury on a corporate level in the sense that it was part of the sort of the political climate within the company that created that opportunity. We started centralizing treasury and run treasury from a global level. I think the technology was ready to do that and the environment was ready to do that, and we built a global Team, which kind of shrank my overall team and the colleagues I had around the world. But we were able to be a lot more efficient in global cash management by running it out of one team globally rather than the traditional decentralized teams where we had a European treasury, an Asia Pacific treasury team, and a Latin American treasury team, and a US or North American corporate Treasury team. Then as far as how I interact with people and how I like to work with my group, I. But there's something I picked up recently. I was watching something on Netflix, but it struck me someone said when you manage a team, we always talk about you have to be a coach for your team members. And they said, no, you shouldn't be a coach, you should be a captain of the team. Because the coach stands on the sidelines and the captain sits in the stands in the field and directs the team from the field. And I felt I was more of the captain of a team than the coach of the team. I'd like to be part of the team, be in the field and that doesn't mean that I'm the only one scoring the goals. You have to allow the other team members who score a goal every now and then, but you have to, you have to be on the field and direct them in to where they go rather than stand on the sidelines. I found that always, that's kind of always driven me.

And then more recently, you know, as we people will see on your LinkedIn profile and things like that. So you had many, many years with Ingram Micro and be then made a move to Deloitte. How did that come about? Or you're over in California, you know, great part of the world. But, but what led to the move on and tell us about Deloitte maybe and your role there.

Yeah, no, I had a great opportunity to move to Deloitte and be a Treasury advisor. So rather than now running Treasury, I'm advising people in how to organize their Treasury. One of the things we do at Deloitte is that we have a call it treasury outsourcing. Although we don't like to call it treasury outsourcing, but we have a function where we can run day to day cash management, bank account positioning in cash management on behalf of corporate. So I found that a very interesting opportunity to help implement that as a solution. So it's a way to take some of the day to day activities around cash management out of the company and kind of outsource it and do it and have it done by a team of professionals that help with paying attention to day to day cash management. I do see sometimes companies that don't have the time or the resources to look daily at bank accounts and manage cash. And it goes back to reducing idle cash and making sure that you keep your cash balance as optimal as possible. So we have the capability of doing that on behalf of our clients. And then the other thing I do is just help people organize their cash structures. And this is like one of the projects I'm working on right now is a divestiture where I'm helping to set up a Treasury team. And this is opening bank accounts. Help with opening bank accounts, help with connecting their ERP system to bank portals and just helping them develop a Treasury function. So after spending more than 10 years as a corporate treasurer, I find it really very exciting to be able to help organizations large and small in optimizing their treasury structure and helping them set up and be better in global cash management and hedging and all the other functions that you have within a Treasury environment.

So, Eric, one of the passions you talked about before the show and we discussed was about cash itself and that when it arrives in the bank and it's there a lot of people, then that's it, that's the end of the journey. And you talked about it more. That's the start of the journey from there for you and then making the efficient utilization and get that moving. Can you describe that for again, some of the listeners so they might think about that in their treasury lives as well?

Yeah, sure. Think about the business cycle. You sell a product, you buy it from your supplier, you sell the product, you send an invoice to your client, and then you worry for 30 days, is the client going to be able to pay me? Because you have a credit risk on that client. But then after the 30 days or 45 days or whatever the terms are, the client puts the money on the bank account, wires the money into the bank account, and then 99% of the business says, okay, well, we're done. We've achieved what we have to do, we've made our profit and the money is in a bank account. I think that's when the trader says, well, no, the cycle isn't done because as long as I haven't been able to pay down the debt that I incurred when I paid the supplier, the cycle isn't closed and you're incurring interest expenses. So I think that's the last part and that's what the treasurer should be worrying about or should spend their time on. How can we get the Money fast from wherever the client paid it. And maybe for some reason you have it in a bank account that's not, not your core bank account or it sits in a country where it doesn't need to be sitting. I think. And what I like to focus on is how can we improve and speed up to get the cash from where it sits or where the client has paid it to where it's useful again for the company. And that can be useful because we can pay other suppliers with it or useful because we can pay down debt or invest it. And if the company is cash rich, invest it and it starts, starts producing money. And even with the days in low interest rates, that can still be an opportunity to invest in. So I have always been focused on as part of treasury function, how fast can you get the money back from being somewhere and sitting as idle cash on the bank account to where it can be effectively used? And like I said before, you can pay down debt with it. It improves your debt to EBITDA ratio. And it's an ongoing thing. It's not something that you just do at the end of the quarter to make your balance sheet look nice, but it's ongoing thing and it, it does provide a benefit to the company if you build your systems and build your structure so that you can get the cash back to where it's useful to the company as fast as possible after your client has paid it.

Excellent. Well, we got to, as I say, we, you know, we talked about the fact you're with Deloitte, so if anyone wants to, you know, connect to you via, say, LinkedIn, we'll put your LinkedIn profile in the show notes. But looking back over your career and someone's listened to today's show and they've looked at your LinkedIn profile and they said, you know what, what I want a career like that. That's something that I really, I'm interested in or want to sort of follow in the footsteps. What's the sort of key takeaway pieces of advice on more of a personal level you might give to treasury analysts, managers or other treasurers that look and say, oh, that's an interesting move and things like that. What sort of the top pieces of advice you would give those guys?

So first of all, I think the treasurer is the face of the company towards the financial institutions. So I think, and I've always found that very important. I mean, the treasury is not a salesperson, but in the end he is selling the company to the financial institutions because. So I think foster relationships with your Banking environment, I think that's always been very important. You are really as a treasurer or as someone in a Treasury team, you are representing the company towards a very important relationship, especially in the environment. Side I usually always worked on in was where we were needing money and the banks were funding us and you have revolving credit agreements and other debt facilities. So it is important to see yourself as the face of the company towards the outside world as far as financial institutions is concerned. The other thing that I often hear colleagues say when people come with a question, they say, oh, it's not treasury, you go somewhere else. It's not a Treasury question here. And I think that's wrong. I'm not saying that the treasury should expand their roles and become everything, but I think as a treasurer, you're part of the finance community and don't shy away from expanding your role of things that are maybe at first glance kind of adjacent to treasury, but in the end create value if you do them. And if you do them within a Treasury function, of course always be aware of things like segregation of duties and control. I think that's very important within a Treasury function where you have signatory rights over bank accounts, you can buy hedging instruments and stuff like that. You have to think about segregation of duties and controls. But on the other hand, I think treasury should not be the back office organization somewhere in a little room where everyone knows kind of that you're there but has no idea what exactly you're doing. I was in my role. I've always interacted with Ingram's vendors every now and even with Ingram's customers. And I think as a trader you're just representing the company and you shouldn't limit your role to just moving money from A to B. It can be wider than that. Lastly, to be open to other opportunities and don't be afraid to temporarily leave treasury and do something else and grow your your knowledge base and find a way back. Spending some time like I did as a CFO is enriching and makes you a better treasurer afterwards.

Awesome. Well, so in summary, I'm scribbling notes as sometimes too. So focus on the relationships, be driven by those and be that effective representative for Treasury. Don't exist in an ivory tower that is be open to other areas and interfacing because by doing that, as you say, you create value by helping others others. Which is fantastic. And I. Well, as exactly as I expected from Eric on a windy, wet Friday afternoon in the uk. Unfortunately the sun is probably shining in California and you're just sitting there thinking, margaritas later. Yeah, we're a bit chillier, so. No, Fantastic to talk to you, sir. Really enjoyed it and thank you very for your time. What we'll do is we'll put your LinkedIn profile in the show notes and people can connect to you from there there and talk to you about Deloitte and what you might be able to offer. And it's been great to talk to you today. Thanks for your time.

Thank you.