Treasury’s Strategic Role: Aligning Finance with Business Goals with Dirk Arhelger

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 treasurers about how they build their careers, where they are now, where they see both themselves and the treasury profession going to next. And a special thanks to Flywire, our fantastic sponsors. If you've ever wondered whether there was a way to ease your international transaction hassles, they're the guys to talk to. If you follow the link in our show Notes, you can see me talking to my mate Greg Levin, their Senior VP of Sales. I get to ask Greg about who are Flywire and how they can help you and your treasury team with your cross border payment headaches. Just follow the link to the interview in today's show Notes. And now let's get on with the show. In this week's show I'm joined by Dirk Al Hilga, the head of Group treasury and Investor Relations at Ineos Quattro. INEOS are a global manufacturer of raw materials and a producer of energy used in everyday life. From medicines to mobile phones, agriculture through to automotive. Their products enhance standards of living for everyone around the world. And I'll get Dirk to explain a little bit more about the company, some of the different things they're doing about delivering the zero carbon emissions future to meet the commitments to the Paris agreement, lots of stuff about that about sustainability and they invest in the energy transition, all while creating jobs, improving that living standards worldwide. But Dirk will explain that later on the show. But Dirk, if we will, can we dig back to the beginning of your career as it were, how you first started in originally finance under banking and treasury, how you first started back at the beginning of your career. And then we'll walk through over to.

You sir, thank you very much for inviting me. Yeah, happy to start. Actually it started quite early, just after school I applied for an apprenticeship with Deutsche bank in Frankfurt and suddenly ended up in London. Yeah, Deutsche bank as well as other German companies and banks wanted to bring the German apprenticeship to the UK and thereby they invited also a few folks from Germany to join that program in London. I spent time, two years in London working on the trading floor for Deutsche bank, working a bit in asset management and controlling areas and that's where I basically got acquainted with FX research. And that led me to study economics going forward in Cologne. During that time I went twice actually into consulting and banking industry. During the summer I worked for J.P. morgan for the summer internship originating bonds for at the time a German bakery. And it was really interesting to see the whole process of doing such a thing. But at the same time, I discovered that running from deal to deal and not I have to live with the deal that came out is not my world. After my studies ended, I had to make the decision whether I would go into the industry or whether I would stay at university. And it came out that I wanted to really go into industry and turn down an offer on economics research. But I also wanted to go to an industrial company because I wanted to be responsible for what I do and not run from deal to deal. And that basically led me to my first position. And I decided to take up a position with Lufthansa in an area which is not really linked to Treasury. It was in the consolidation department doing annual reports. So for almost two years I really focused on doing the consolidated reports for the Lufthansa Group. And that was a great experience because you get to know all the little pieces in such a big company and you. I learned how to do and read and do accounting and develop an understanding for the numbers and how they are made up and how. What they tell you and how actually they got influenced by the various bits and pieces. And after two years I had the opportunity to change then into the corporate finance area of the Lufthansa Group. And there I stayed quite a while. The times changed and the job changed very significantly. At the beginning, the Lufthansa Group, and mainly in two areas, which is aircraft maintenance as well as catering, were expanding into Asia, into India, into Eastern Europe. So I had lots of projects looking into financing those endeavors. Lots of M and A activities around buying kitchens and doing joint ventures on aircraft maintenance. That was quite challenging being. Being in a position to. To finance locally in the Indian market, for example.

Sorry, just to jump in there, you. So you did the two years of getting your accounting basis, if you like, at Lufthansa, and then correct, you moved into corporate finance and then for projects and things. Tell us, do you think that. Do you think everyone should be doing that? You're starting your career accounting, good area to learn. You learn the basics and then head into corporate finance or how did it work?

For me it worked extremely well. Because literally when you think about the discussions you have today, especially in doing financings, you literally come around financial numbers all day long and to really understand what they mean and how it works the basis, especially when you think about discussion with rating agencies, for example, thereby it is absolutely essential to see the connection between the various KPIs, various metrics, and that those two years actually helped me in doing that. Probably there are other ways of doing it, but that was my way and in hindsight I'm very thankful for those two years.

Yeah, yeah. And then to. Again, I don't want to run this up. So you then moved into corporate finance but then you did a projects role. Talk about that. So again and how it relates to treasury if you like.

The project role for the first couple years was really supporting the individual businesses in their expansion and doing financings on a much smaller level than on the corporate level. Gives you a good insight how to negotiate that and actually pops up many questions that may not pop up on a corporate level because. Because you don't have that credit worthiness around. So it's much more learning the financing and running into issues that you may not see on a wider scale. So it's really getting you up to speed on financing. That's what it was.

And so you then did that role and people know of Townside Airline and everything else. You then joined INEOS at the time. And I know that it's been through a transformation over a number of years which you and I have talked about before, but you then talk about the move to these guys and who the company was, what the company is then maybe what the. How the company's transformed as well. Yeah, walk us through.

Yes, the lieutenant role evolved and then, then capital markets became key actually at the end and because of the financial crisis and the capital need. And then I was in the position to think about how to move next in my career and I was looking for a company that is a bit smaller than Lufthansa just to be more agile. And the other thing is I was looking for something that is new where you basically had a field to work on. And the third one was it need to have a decent size to be capital market ready. That were my three criteria. And then I saw an ad looking for Director Corporate Finance from BASF and they recently set up a joint venture called Styrolution between BSF and ineos. The production facilities were running but the whole corporate arm was completely new. There was no management around it, no processes. It was really startup mentality on that level.

But okay, but a startup for. I know it's hard to describe it, but describe it like say you were walking into a dinner party there and you say yeah, I work for ineos Sty Revolution. And they're like what? Who are they? Can you explain to again someone that us listeners, they will never know the company. Maybe it's more well known in Europe for someone like that.

Who else? Starolution is the the largest global producer of styrene plastics. And Styrenex is a plastic that you see all around you and it's used in electronics. Over plastic needs to look nice and shiny and that is what the main characteristics. And it has lots of different features. You see it for example in your grill in your car. When you think about it, it is exposed to wind, to sun, to rain, to little rocks. And it needs to look beautiful over the lifetime of a car. So it's very difficult to produce that. And that's what this company does, producing the material for molders and automotive companies to basically form then the grill. And you have many other parts of the car that process.

Yeah, but so this is shiny resistant plastics for lifetime.

Exactly. And it goes into many different industries. Part of it goes into packaging for example as well. And that company at the time was the joint venture was around 5 billion euros in revenues, but being a startup at the same time. And that was the challenge from a Treasury perspective. Because when I started there wasn't literally not much. Yeah, building the whole corporate finance team in the beginning, then developing a structure. After two years, it was clear that joint venture would be resolved in some shape or form. There were two options. One was going ipo. So we did prepare in the first couple years the ipo. And the second was that INEOS had the option to buy the 100%. It turned out that Ineos bought 100%, which meant a further integration into the INEOS group. It's the largest privately owned chemical group in the world and also led to further expansion. So we got involved in M and A and built, bought three, three plants worldwide. And then just around Covid time there was a transformational acquisition for that group in years, acquired the remaining bits and pieces of the BP petrochemical business and thereby I had to use the financing capabilities of Starvolution and another group called Innovin, which produces PVC mainly used in construction, to form a new holding company called Ineos Quattro, which now consists of four businesses doing that Styrenex business, doing PVC business, as well as the two businesses, aromatics and acetals, which were acquired from bp.

Okay.

And that's now my current position.

So as the group has evolved and you've been through those sort of acquisitions and now you're Ineos Quattro, how have you evolved Treasury? Because a lot of people are listening and they might be in a similar situation there. They've gone in. Here's a blank sheet of paper. Set up a Treasury team. Set up a Treasury function. How have you started it? Middle. Now where are you up to staying in in the structure of Treasury?

When I first started out the company had a very regional based finance structure. You had more or less regional CFOs with the usual setup and the central treasury team. Over that time we noticed that this was really inefficient and it was 2019 that we decided to run a program which I led at the time. It's called Finance Vision to bring the whole finance team, not just treasury into the future. And one piece of that was the organizational changes. And we decided to move from a regional geographic set of to a functional setup. So we Internet that and the Treasure team became one at the same time we worked on processes. We implemented a Treasury system worldwide the same and we implemented it with a provider ourselves without consulting. Because the main aim was to understand the system, to be able to adjust it and to really get what we wanted and also adjust our processes accordingly to the system rather than the other way around, which sometimes happens. And that led to a significant efficiency gain which gave us time to think about other stuff and which led us then into the position to really deal with business much closer than before and come out of that little box of treasury and being really a business support function afterwards. But it required that automation first.

So I know that's one of the areas we're going to touch on in a minute and I know there are four major areas that you and I talked about before the show. The first one I think is relevant to lots and lots of treasuries, all of the four areas. So the one we were going to talk about is supply chain and obviously that's critical to a lot of treasurers. It's a big topic and things like that. But you were saying that the rules around supply chain you think need reviewing and people need to really dive into those which is quite. Treasury gets touches on it sometimes. But why do you think that's so important with supply chain and becoming part involved with that with project financing as well?

I think we live in a time of change and the transformation that we need to do as a society requires quite a lot of investment. And to give you an example is that in the chemical industry we have many startups who produce bio feedstock for example. They're pop up companies and when they want to build a plant their only option currently is doing project finance. But project finance in the real classical sense leads then to the fact that you move that credit risk over to the buyer of the product, in that case it is ourselves. And literally the financing will not come if we don't sign long term contracts with that startup. And long term means 10, 15 years. At the same time, when we try to move on those materials into the downstream industry, there are no rules and regulation about recycling or bio content. So we don't find a customer that also is willing to put up 10, 15 years contracts and they just wait. So basically what's been happening that we were putting quite a significant amount of risk into actually the first group of the old chemical company. And when we think about transformation and what sort of financing need there is, we're limiting that. It's only put on the first company in the supply chain, traditional supply chain, and not the whole supply chain. So that would be the first thing to look at. So actually looking into forcing people to use recycled content because then everybody, that would be a signal that this material is the one in which is needed in the future. And the other piece is we're using traditional project finance here. And there are so many risk takers worldwide and the financial services industry is actually designed to spread risk, but we're not doing that in that case. And that's really around banking rules. Is there not a smarter way to finance that? And how do we get risk takers outside of the the actual supply chain involve taking up some of that risk rather than putting it on an individual participant in the supply chain. I think those two measures would allow much more financing volume and much quicker transition into sort of the new world. And those are the things that drive us currently because we can take only so much. And then basically that design that means also that the whole transition is going slow.

That's what a lot of treasurers need to think about. One of the other issues then the other area that you touched on we talked was about how having an awareness of tax. I know tax and treasury need to work together, but you were saying more in a holistic sense about the company, that tax affects the company as a whole.

Absolutely. In my mind it's good to pay taxes because it means you're profitable, but sometimes you get into the position that taxes actually hurt investment. And the example I would like to talk about are the OECD interest capping rules, which are designed to avoid super highly leveraged companies deducting their finance cost from the tax position, which is a fair point. But in current times, when we look at the current economic position that we're in, we're seeing we have increased interest rates at the same time profitability has gone down. Having the same amount of debt leads to a much higher percentage of your profit, the interest being a much higher percent of your profit. And that leads often to the point that you can't deduct your interest bill completely from your profits anymore. In future you will, but at current times, no. And that means that the tax authorities are coming around asking for another cash out. And in a time of economic weakness when we're looking for spending more on capital expenditure. And that's basically from a timing perspective, hurting the economy and again does not help us to get out of this hole. And what I think is that we need to make the politicians aware of those implications of the rule itself. Understood. Has a good intent, but it has. It also hurts the economy significantly. And I'm not sure whether everyone is aware of that. And I think the industry and especially the treasurers should make their management aware. And it should be part of the discussion between companies and politics because we're talking really material, as you said.

Yeah. It's about awareness of the topic rather than leading crusaders. But guys, you need to know this by the way, they don't seem to understand it thing as you said.

Yeah. And the impact of it. Yeah. And I think it's not even clear that this is happening.

Yeah. And one of the, one of the other ones which was great and it said hot topic at the moment, Automation, AI, robotics, everyone is the lead session at lots of things but actually I loved your take on it because you said that's all very well but are you actually using the systems you've already got? It seems like you're bolting on this new technology without using the old technology. But the technology you already have in place. Would that be the right way to describe it?

Yes, I think we, we need to spend time on the new technologies. But the automation is probably best placed in, in the current system and it's the cheapest way to do that. I give you an example. I have a team of around 15 people looking at credit risk for the entire company for four and a half thousand customers in Asia. We're receiving lots of cash in advance and somebody needs to allocate that to the order. And we looked into new systems but then actually we looked into our existing system and there was a little tweak. We could do that. We could fully automate that. That from the bank statement. It goes directly to that order it and that saved us probably three, four FTEs completely when you think about that and that was using things.

So that was using existing technology they already had in place. So it wasn't going. Everyone's saying, oh, come and come and get this AI tool, come and get this. But actually you've already got.

We looked into robotics solution, but it actually was a little tweak which we could do ourselves to improve. And that's just one example. But for me, we should be using robotics when we don't have any other solution. Look into your existing environment first, then apply the new technology. And also with the AI, what are you actually after? What's the goal you want to achieve? And that are the questions which we are asking ourselves. And before we go too deep on those new technologies, I think they will come, but there's lots of room to improve on your existing platform with fairly little capex.

And we've gone there through the bronze and silver. We're going to come to the gold content if you like. Because when I was having my pre chat with Dirk, I was going, what are the top areas that you look at? And I love this one. And this is where we're talking about. And again I've talked about this at conferences. I talked to a number of people in New York the other day about how Treasury 20 years ago I put itself in a corner, got a pay rise because you're the specialist treasurer, but then you became separated from the business. You were this finance expert, but in the corner, Tax was in the corner great. And actually spent 20 years fighting and battling its way out to become more involved with the business. And as you said, you see it much more as a cohesive thing. And that's one of the things that you feel that treasury really needs to be part of the business rather than be this standalone thing. Can you explain that? And then you. We talked about hedging and understand. Understanding the underlying risk because I thought it was a great part of the conversation. Maybe for the listeners.

Yes, I think that's a topic which, which actually goes to my heart. I think you need to understand what the company does and how it works. Because ultimately when we're doing financings, what do I need to explain to people? I need to actually sell my company? I need to convince you why you should be borrowing me or giving me money for a certain time that I can do something profitable with it. And in order to convince you, it just doesn't help just to run around with numbers. But I need to explain you my business model. And so.

But who are you talking, which audience you're talking to your banks or to banks, to.

To investors. That's.

You really need to know the business to be able to sell the story of the business as opposed to the story of the Treasury. Would that be right?

Absolutely right. Correct.

How do you do that then?

If I look at my question colleagues, then actually what I want them to understand the supply chain and how it actually connects to each other and how the competition works and how we design contracts also with our customers. That's basically what I ask of my colleagues and which we have been working on so much. And it does help also to mitigate risks. When you think about customer credit risk or FX risk, where does it occur? It occurs first in your contracts with your suppliers and in your contracts with your customers. And rather than addressing it through wild hedging techniques, isn't there something that you can do to each of those contracts to actually put yourself into a position to mitigate that risk? And we have decided for ourselves to just look at transactional risk. We're not interested in any number of the financial statements that just by evaluation goes up and down. We're in the fortunate position as a private company to do that. But also look at it whether it generates a significant amount of risk to us that threatens the company. If it doesn't, then we actually very consciously decide not to do anything to make things simpler. Because what we have also experienced is that educating the business people, the salespeople around those topics in a fairly simple way improves their knowledge, what they can do to the contract and at the same time where we allow them to participate also in our bits and pieces rather than being in that standalone.

So. And how do you educate those guys? Are you actually going out and coaching them or.

Yeah, so we're actually having workshops with the different sales teams to. To really walk through that sales process. So starting out with how do you do we educate ourselves from them, how they do, how they approach customers, how they approach suppliers, and what sort of the main pieces in their contract negotiation is. And usually it turns out the topics that are relevant for us are just relevant for us. So there's no awareness that it could be relevant for the company, the business itself. Yeah, yeah. They learn then what they can add to their contracts to.

I was asked to. So I was asked this and jump in. I was asked this the other day and say I was in the US and I was giving this as an example. One of our regular listeners, Monique, and there's a couple of others we were talking about. They said, oh, it's great when you give us these tips, but One of the things I was saying that when I'm talking to a treasurer like yourself, they said, this is all very well, they're doing workshops for Big at the top of the tree. I said, yeah, but you as a Treasury analyst, manager, when was the last time you invited someone from another team to have a coffee? And they were like, what? And I said, there's nothing to stop you from picking up the phone and having a coffee with them. And actually one of the very successful now, well, he's a Treasury manager now, but senior treasury analyst, and he basically committed to doing one coffee. And this was actually his boss. He said, I need to develop myself. He said, no, I can't help you. He's like, oh, thanks, go and get to know the business. And he started off by doing one coffee a month. And then he was like, oh, this is going well. I did it for a couple of months. And the. The treasurer said, I'll pay for the coffee if you want it. Oh, no, hang on. No, I want you to go once a week. Is that what he said? Every week go and meet a different person with the business. Doesn't need to be the top of the business. It might be someone who's a manager or something like this, and go and understand the business. And the guy's doing exceptionally well. It's a pain because I can't move him now because he's very happy. Damn him. But it's helping his career. Have you seen that with your guys or how do.

Absolutely. We're a global company, so it's sometimes hard to do a coffee, but to have chats around it and actually I find basically forcing people to talk to each other rather than continuously write emails or chat does help. When you know each other, then to solve an issue, that's a fine way to do it. But to really talk to each other and explain what your life is about and understand what the life of the other one is about is really something that helps both people and to develop their career. And actually, what you find out sometimes is that you talk to three different salespeople and they all do it differently because they haven't been talking to each other. And then just by pointing that out, you start a whole different process, which has nothing to do with Treasury. It's all around interaction and trying to understand and being eager to know how the other piece works. Maybe in the first instance it doesn't help you, but when you form a picture, then you start to understand and you see how your treasury piece fits into the whole picture, because Ultimately, in our company, we're a chemical company, so we're buying raw material, we're producing granular plastic and are selling it. That's a very simple thing and you need each and every bit in order to make that profitable. And that's what people need to understand. And if you know the whole piece, then probably you will be more successful and as a person and as a company, absolutely convinced.

As we approach the end of the show, we're going to put your LinkedIn details in the show notes so people can connect to you and things like that. Takeaways from today's show. What if, as I said, if you're junior in your career or bit further on in your career, what reflecting back, what sort of advice are you going to give for the global treasury market out there with the global treasures that are listening?

I think first of all you need to know the basics of your job. So really go into it. And I gave the example of accounting. I think same thing needs to happen on other aspects, but then widen the view to the company, understand the business and see how treasury fits into it. And that also helps you then to discuss company matters much better. I think going from small to big and always be eager and ask questions. I think that is probably what I have experienced as being something very helpful but also something that kept me going because I'm continuously learning by doing that and that helped me to evolve my career where I am now and I continue doing that.

Cool. There you go. Nice closing words from a global treasurer. Thank you very much sir. I think you great takeaways there from everything. As we said, the, the four areas we were looking at, the supply chain then it's a have an awareness of tax automation, use what you've already got and then get involved with the business. So yeah, great takeaways from today's show. Thank you very much. Hello treasury professionals. Before you dive into the next episode, could you please help me continue to grow the world's only global treasury salary survey? That's right, our one. So you know your compensation is constantly benchmarked against the market. It's amazing, isn't it? Just go to treasurysalary.com takes less than two minutes to complete, start to finish. You then gain exclusive regular updated access to our salary survey, keeping you ahead of the curve. The survey is an evolving, breathing entity that constantly tracks tracks the salaries of treasury professionals on a global basis. Currently we have over 1, 100 participants taking part at treasurysalary. Com. Thank you for being such amazing, loyal listeners. Your support is incredible. Couldn't do it without you. Thank you. Go to treasurysalary. Com.