Why Technology is the Solution to Treasury Challenges with Vasu Reddy

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've built 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 Vasu Reddy, the Director of Treasury Africa at ge. Vasu has got an amazing treasury career with Chevron and number of other companies. Woolworths, you know, old British brand. Well a British group that we knew before. I know that was one of my guilty secrets. My first ever job was with Woolworths but we won't get into that in the episode But Vassu's got this great experience, 24 years treasury experience. We're going to go right back as always to the beginning of his career and he can talk through very much more about the, you know, African region things and I saw an amazing article, we'll also put that in the show. Notes about Vasu originally on treasury today and I think he really got into some of the, the local issues if you like and, and how he deals the treasury sense. So enough from me, I'll shut up now. Vasu, take us back if you would to your and we'll talk about your career today and how you originally got started in Treasury. Back to you sir.

Thank you Mike. And I really appreciate being on this call. It's quite a privilege and I'm quite humbled to be on this call and just to start with my career. Yes, I mean it started while I was at university. I mean I did a BCom which was commerce and then I went into accounting and from accounting and then when I started to work I basically joined accounting roles. I mean I was in an accounting role so it was. And then I joined Woolworths initially in the finance training management program and while I was at Woolworths I progressed into four different accounting roles. But while I was doing the accounting for the international business I was exposed to foreign exchange and then we took over the offshore reporting and with that we started a dealing desk and the foreign exchange trading and then I became quite involved with dealing with the banks and that's how I started to enjoy Treasury. So basically treasury was much more outward looking forward looking. It wasn't just your normal mundane general ledger processing and as a result it actually enticed me to do more and more and then the more I got to know about the different types of products and the different strategies and how that can support the business as well as optimize cash from a cost saving perspective, which had pure bottom line impacts, I just became very, very intrigued by. And so in the beginning, treasury seemed quite mysterious and sexy, but once I got into it and once you understand the mechanics and the way the industry and the banking sector actually operates, it just gives you a much more fuller persp perspective on Treasury. And that's how I started with treasury.

Again. I joked at the beginning of the show because it was my first ever job working with Woolworths with the horrible crazy turquoise tie, lovely. But actually in the high street and things like that. Is that what Woolworths is like in South Africa? Is it exactly the same or. I know it can be slightly different businesses, is that right?

It's actually a slightly different business in South Africa. So in South Africa, it's actually based on the model of the Marks and Spencer model that's based on the British retailer. So it's a food and clothing and home business. Right. And it's got the similar culture. And Woolworths still has links to Marks and Spencer. So it's more about the retailing on the food side, it's the distribution and then it's the clothing and the homeware and it's purely the retail side. And now I think they become much more focused on the online business. And the food business has actually transformed from just a food store within a clothing store into a supermarket chain with their standalone food businesses.

And you were there for six years or so and then you sort of started to pursue more of that sort of treasury side of your career. Talk us through as you then move from Woolworths and onwards sort of thing.

So when I was at Woolworths I moved into four different roles. So it was the training role, then it was an accounting role, looking after the import export business and then it went into the international offshore reporting with the foreign exchange component. And then I spent some time as the group accountant doing the consolidation of reporting. And because I've spent like six years, they came to a point whereby there was no further roles to actually move. Then I was actually approached by the Land and Agricultural Development bank as a business unit finance manager. So this gave me a different perspective on finance. So it was more on the budgeting and planning. And while being employed at the Land Bank, I was exposed to a SAP implementation as well as the banking sector per se. So I was the acting regional manager for EBIT while the bank went through a huge restructure. And that actually gave me some exposure into banking, the interest rate environment, as well as looking at your retail clients and your debt book as well as the risk around that. So that was quite interesting.

How did you find the contrast between obviously core corporate activity to banking? Was that quite a shift for you?

It was a huge shift in the sense that retail is fast paced and I think the banking sector is also fast paced. But it was a different perspective because with banking it was more about clients, it was more about the loans and the risk as well as bad debt provisioning as well as interest rate environment. So you make a decision because if you don't, if you take too long, the market could move. So it was on that perspective. Whereas in the retail side it was just selling initiative, but more on a bulk basis.

You had your foray into banking but then you came back to the. Not the dark side if you like, but you came back and you came back into corporate side. How did you make that move or what influenced that?

So one of the bank. We went through the restructure. The bank was quite. It was a smallish bank within South Africa which was partly state owned and then I was busy with the sub implementation. So that was quite good. And while the projects were actually completed and then there was a lot of audit adjustments we had to do so we had to fix all the audit queries. It came to a point whereby although I was there for a year in that role, I had basically achieved all my goals and objectives. And then Chevron actually approached me because and their treasurer had immigrated and they came across massimi and they approached me for a role and it was Chevron Oil in South Africa is quite a decent sized business. They own a refinery here, so they have the oil business, the refining business as well as the lubricants business. And we had the retail stores on that basis. It was quite a big step up into the oil business. Although the oil business is much more different than to banking and the retail. It's much more slower things take a longer time to happen. But the size of the volume as well as the capital outlays and the crude purchases and the cash forecasting and loan requirements, they were much on a bigger scale and it was a much bigger team as well was looking after us. So on the old side gave me a huge perspective on the banking side because they had a full on trading desk and a cash desk. We also had a whole bank administration team and it also took care of the bank accounting, the intercompany for that as well. As well as we had the employee accounts in terms of the corporate accounts as well as later on in the all sector I took on the role of the chairperson of the pension and the Provident fund as well as we had a minority shareholder. So I was given exposure into the minority shoulder and the investor relations. So the move from a bank to Chevron was quite a massive jump because Chevron is a global company, it's a much more bigger business and gave me the first footing into a global reporting function. Because we have the corporate treasury teams based in Singapore towards the regional treasury center as well as in the US and even within South Africa. The business encompassed a refinery which was a 70,000 barrel per day refinery. The lubricant sales into Africa as well as the retail side where we own the four courts as well as is the retail stores. And this function covered the south and Central Africa. So it was your South Africa, your Namibia, Zimbabwe, Zambia, Malawi as well as.

Mozambique starting to really deal with those different countries as part of your portfolio as it were. Were you starting to then what was it like relationship managing with those guys? Because again we spoke about this before the show, that this is a key facet of your background. We'll come on to your most recent role and things like that. But that's a real strength of yours and what it like suddenly having to deal with Malawi and different countries and things like that. Were there differences everywhere or were there similarities everywhere or what was the sort of the ethos as it were South.

Africa compared to the Botswana, Namibia and Switzerland? They're more or less linked because they have a common monetary area, although the cultures are different, the time zones are the same, but they have different rules and they've got different currencies, although most of the currencies are paid just South Africa. So they're more or less and you can operate. And the banks that we use in South Africa, they have a presence in your Botswana, Lesotho to Namibia and Swaziland. So that made it a bit easier then once you go into Mozambique, it was a Portuguese speaking country, different banks, just one of the common banks were there. The language was different and the pace of operating that environment was also different. But most importantly was the exchange control laws around operating in Mozambique. And as well as the currency when you go into Zimbabwe, Zambia and Malawi they were totally different markets. And so Zimbabwe as you know had the hyperinflationary back in 2003-2009 it was hyperinflationary. The currency actually devalued. I think the Zim dollar was actually worth minimal at that stage. And then eventually they moved into a dollar based environment.

Funnily enough, I saw a documentary about it the other day and we used to have a very lovely Lauren. She won't be listening, but she was from Zimbabwe and things told me a lot interesting things. And, and one of the bits that she told me and I, and I saw it repeated was that between getting a loaf of bread off the shelf and getting to the counter, the money would have moved. The currency would have changed so much that you would have sometimes wouldn't be able to afford it because you wouldn't have enough paper money to pay for it. She. She said. And I was like, yeah, come on. You know, you just. But actually I saw this and that was what it would actually came about, wasn't it?

That is absolutely correct, Mike. I mean, hyperinflation was so crazy that the currency would move three or four times in a day. It came to a point whereby we used to use SAP in Zimbabwe. There was no small space because of the devaluation on a system, per se. That was number one. Number two was that people would actually go out and barter for things, so they would swap. And the other important point that I heard was that the current dollar, the actual dollars in Zimbabwe, they were so much used that they were almost perished because there were no further circulation of foreign currency into the market. So those were the three things. And the fourth thing was that if you wanted to buy something, you would normally get family members outside of Zimbabwe to send you money to buy food and groceries and medicine. So it was quite horrendous. The sad thing was that people were employed in Zimbabwe, their pensions were peanuts, they couldn't go for medical treatments. The interesting thing was when we used to sell fuel in Zimbabwe, we had to open up a foreign currency account in South Africa, get people to deposit the funds within South Africa, and then we would then issue a coupon to the local depot in Zimbabwe for their family to come and collect fuel. So it was quite crazy times, devastating times. It was a challenging environment to operate in, so you couldn't do an investment. The impairments would have to be revalued every month on a monthly basis. It was quite challenging. Right. So, yeah, so I totally agree with you on the challenges that colleague of your actually faced, because we used to speak to our staff and colleagues and friends and they used to tell us about the experiences.

Yeah. When they. They changed it, you know, that sort of obviously made it much more simpler or easier to deal with. Was that right?

In fact, you know, the challenge actually continued so with the introduction of a US dollar Currency it just made things worse because there was a parallel market and the parallel market and the variance between the parallel market and the official rate, there was a huge disparity because there was a shortage of foreign currency. And as a result it was difficult to get things into the country because they had no foreign currency liquidity to pay for the imports. So normally you would see goods being shipped through the borders but it was challenging and things just never actually improved. And I think the hope was that with the change in government things would improve, but it just never actually improved.

Right. You were doing with air and things like that. What other challenges do you face? We talked about some of the other, you know, there was obviously language issues which didn't realize the Portuguese and things like that. But is it right to go on to the next role that you did or you carry on with the Chevron?

The challenges within Africa per se. So not just, not just in the Chevron world, but also within the geo world. I think for Africa the biggest challenges that I always saw within Africa was that like in the US you have 50 states, one single currency, a single banking platform, one central bank, one language, one banking platform. Whereas for Africa you've got your 54 countries, you've got 54 different languages, 54 different cultures, 54 different central banks and 54 different currencies. And they all have different exchange control rules and different currency restrictions and challenges within each of those countries. So I think that's number one. Number two is that I think Africa is still an emerging market and it'll still be an emerging market for a long time. And then I think number three is that we have the challenges in the sense that the political risk might drive. Africa is still very much a commodity driven. So once you see a downturn in the price of commodity or crude, then you see there's a major impact on each of the economies. And we've seen that in Nigeria, we've seen that in Angola, we've seen that in Ghana, that's number two. And then number three is that Africa also, they have high debt levels. So there's huge amount of borrowings, Euro bonds, there's huge amounts of obviously IMF reviews and funding. And thirdly is that the banks that operate within Africa, they have a poor credit rating, they have smaller balance sheets. So there's huge amounts of challenges that come about it. And then the most important thing is that the liquidity and the FX currency movements and the volatility. So we've seen huge amounts of volatility and exchange losses and We've seen that. When I joined GE back in 2013, the Angolan Kwanzaa to the USD was 99 to $1. Now it's 640 to $1. So it tells you the level of devaluation that actually happened in the last eight years.

Wow. Yeah, that's crazy. So you've had to deal with that. But then how do you then make the move? Because you were again, Chevron, now you made a move to GE and things. So what was from a Treasury perspective? Let's focus on that. What was that move like? You're still focusing on the African region and things like that, or South African region, rather. So over to you.

Yeah, so it was quite an interesting move. I mean, within the oil and gas sector, they were much more structured and you had your straightforward reporting lines, although there was a matrix environment. It's quite minimal, but clear reporting lines. And then as I think the oil business going forward is basically a business that is slowing down because there's more focus on environmentally focused fuels to use and electricity. Therefore, Chevron as a whole, and because South Africa was primarily a downstream market, whereby this is just the marketing, the refining, the marketing and the distribution of fuel, whereby there's price control, which means that the price is actually controlled by government, so which means that your margin is quite minimal and it's quite maintained. And I think Chevron as a whole is purely an upstream company. So I think they decided that because of all the regulation and the compliance and the minimum profits, so they decided to basically divest from Africa. So as Chevron was actually divesting and becoming smaller, GE actually approached me because they were actually expanding to Africa and they actually approached me for this role. I thought it was quite interesting, because you want to grow, you want to move purely because of growth and development. It was a much bigger organization. They had eight different businesses. They were big in aviation, oil and gas, healthcare, power and renewables, and they had their transportation and rail business and they had the mining and the industrial solution business. So I think from that perspective, it gave me a growth because it was a move from oil and gas and manufacturing into an industrial congruent.

Definite change there as well, and different businesses and things. And what was given your local experience and this is what you really got. You know, you've got that in spades, if you like. But, you know, just looking at you, you know, what have you brought to it? What was it, you know, did they come in and say, right, this is the way we're going to run it and everything Else actually you can't run like that. This is the better way to run it, you know. What did you add if you like ge?

One important thing about the G leadership team in Africa was that they understood that things operated differently in Africa. It wasn't the same as the US what they wanted somebody to come in and challenge the situation because GE is a very, very centralized and controlled environment and everything is centralized. Reporting is centralized. Your decision making as well is centralized in the us. But I think they wanted somebody with a different perspective for Africa because it didn't mean that one size was going to fit all. And I think they focus and when I initially joined ge, it was part of the global growth and operations team. And this team was purely to grow the business in Africa and increase the market share and try and do as many deals as possible to grow the revenue and the bottom line. So when I joined them, they gave me a landscape of what the priorities were. And what I did was I tried to work with the GE leadership team as well as the global treasury team as well as the local banks, trying to find a common ground in trying to support the business to the best of the ability within the current environment. And as you know, that Africa, the markets are very, very challenging, very, very uncertain. And I think the bigger businesses that we have in Africa was the power business, the oil and gas business and the health care business. And GE's focus was to grow that and to basically go above and beyond and to deliver for the businesses and to support them to the best of our ability. From a Treasury perspective, what I did was, and when I joined them, we helped to set up the banking infrastructure. They had four big hubs at the time, which was South Africa, Nigeria, Angola and Kenya. And Kenya was a CoE. So we operated in 25 markets within Africa. But the bigger markets were before countries that actually mentioned. And I think the challenges and the primary challenges that they listened to me at the time was where they needed the help was firstly setting up the banking infrastructure, the cash and the funding requirements, the cash repatriations, because they wanted to alleviate the trapped cash challenges that we have building banking relationships as well as navigating within the regulatory environment within that model.

And you say about trying to ease trap cash and things like that, just to reflect back on that, is that because it was an inherited structure or did you come in with a new thing or was it actually guys, you shouldn't have set up these 18 bank council. What was the ethos and how did you then implement it?

In the past there Wasn't a fully fledged treasury team within Africa to support the business effectively. When we did deals, it wasn't structured. So the idea is that whenever we did deals we tried to do good, profitable deals end to end, meaning that it just didn't seem good on paper. But at the end of the day it wasn't trapped in the country incurring losses. But in the past there were poor processes. We structured deals just to get a deal done. They didn't look at the landscape and say, you know what, because we are a US dollar based company, let's try and structure deals so that we get the money offshore instead of just doing a deal and collecting it locally. So it was the structuring around that, not reviewing and understanding and taking advantage of the landscape. So for example, like in Angola, I saw there was a local partner as well and there was challenges with the local partner. That was number one. Number two was that the deals were done locally, it wasn't done offsh. And then I think also the other challenge was a lot of collections happened in country and there were documentation challenges. So the idea was to go in, look at all the challenges from a cash and funding perspective, from a deal perspective and from the foreign exchange and the hedging and the risk around that, trying to see how we can optimize the businesses. And that's where I played a pivotal role in trying to ensure there was minimal capital injection going into country, using the cash that we had in country to fund our businesses optimally. And whatever excess cash we had, it was done through a remittance, either through intercompany billing in terms of a settlement or through a dividend, taking into account the most tax efficient structure and the cost effective structure and then looking at the rules per country and looking at the landscape of country to see what the best banks that we can deal with and partner with to try and optimize the business, basically repatriate the cash as well as ensure that the cash that we collected was collected efficiently. And the foreign and the foreign exchange risk around that was actually hedged correctly because operating in Africa was quite challenging. It was a mixture of banks that we used. So we actually use global banks, regional banks as well as local banks. So in certain countries, like for example, like in Ghana, you couldn't bid for businesses unless you use a local bank. And this caused a localization content law. So what we tried to do was try to get a balance of the global banks as well as where we were required by law to use a local bank. We would use a local bank, but try to ensure that we maximize on the relationship. They knew who GE was, they knew what GE was trying to achieve. They understood our business, they understood that, you know, what we were coming in to invest for the long term. But at the same time we are a US business and we want to obviously ensure that the parent company goals and requirements were also met at the same time.

Yeah, and just going back to that, I've heard this before and you know, IT and technology is a massive, you know, everyone's talking about all the time and everything else. But in terms of, I might have impressions of the level of complexity in different countries, they might be completely incorrect. What was the sort of level of technical IT expertise around? Were you able to just come in, right, this is the system we're going to use and everything else guys, or did you find it was really, you know, quite sort of fragmented, if you like. What was the sort of IT landscape for treasury in that sense?

A lot of the markets, like I said, they were undeveloped and there were a lot of manual processing. And I think with it, GE had a lot of systems whereby we wanted centralized reporting. So we wanted to know if we had cash in this country at this point in time, how much of cash do we have there and in what currency it was. So we wanted real time reporting. So apart from the global banks, which was much easier to automate the process, it took a little longer time with the regional and the local banks. So we had our banking infrastructure team together with the treasury and the bank IT guys trying to automate the processes and the systems. And so we used a back end system that was owned by GE but linking to the bank's portals in terms of their electronic funds transfer systems. It took a long time but eventually and we got this. So I think technology is quite key from a. Reporting from a payment processing perspective as well as ensuring that we had the right documentation in place as well as from accounting and recording perspective as well. So technology is quite key. And I think from that perspective, the second point around technology was that we had to marry the GE tools with the bank tools. That was quite key.

Just looking at your background. Obviously there's a lot of development coming up and you know, there's. You've had some great achievements thus far but I wanted to maybe move towards looking at the future of, you know, the region, how you things see things developing and everything else. It'd be cool before we wrap up the show actually, because we, you know, we're zooming on time wise, which has Been great and great conversation. But you know, what do you see as the, you know, future challenges? You know, Sometimes we have CFOs pushing treasurers like yourself in right in the front of things. Oh, can you assess this technology or can you look at this, you know, Swift? Can you do this? What are the things that you see is coming down the line sort of thing that people need to be thinking about.

There was always the question about what is the next Swift. And that's quite important. And I think it's whether you want an in house bank or you use the bank Swift. So I think that boils on to the treasury culture and I think a lot of corporates want the one control over it. And I think from a GE perspective as well, they want control of your payments. So your Swift is quite important. But I think AI is very much important. I think going forward. Why? Because what a lot of corporates are doing is if you look at the current pandemic, it's forced us to work from home. So the automation and digitization is very, very important. And I think the one point that I stress is that the prior chairperson of GE mentioned that Uber built a $50 billion business through digitization with no assets and he wanted to turn GE into a digitized company. So I think from a Treasury perspective, going forward, a lot more processes and reporting and bank transactions are going to be digitized. So once that actually happens, and I think the most important thing is not having many, many systems. I think for GE as a whole, when we did acquisitions, we had many systems, but I think there's more consolidation around the systems and the automation around that. So once you have that fully functional automated system or automated treasury management tool that includes your new fx, includes your payment process, includes your cash and reporting, includes your exposure management as well as like your forecasting, then it will minimize your headcount, it will minimize your resource cost, it will minimize the time and room for error. So I think that for me is quite important. But at the same time, because we operate in a world that is quite diverse. If you look at your North Americas versus South Americas, your Europe, Middle East, Africa, as well as your Asia Pacific versus the other countries, the idea is almost, if you're a global corporate, the idea is to almost try and get everything to work as close and seamlessly as possible, but you're never going to get it 100% right. But the idea is to have it automated because digitization and AI is a way forward.

Yeah, Sebastu, we've talked a lot about the Region We've talked about South Africa and things your completely ingrained in it, you know it, you know through. But what would you pick out, you know, if someone is thinking about this, what are the key things about it? What should be people be thinking about it? What sort of stands out above everything else for you, would you say?

I think for me Mike, it's more about the banking relationships and trying to understand the landscape in which you operate. Right. And I think for us the strong banking relationship that we had helped us tremendously to navigate within the challenges within Africa. So for example, I mean if we look at the trapcash issue, the banks like whenever a deal is sought, the team carries out a detailed country analysis and we will try to define the maximum risk appetite that we have for taking into account the customer, the tenants and the value of the deal and the likelihood of any guarantees being provided. So that's number one and then number two is that trying to get that cash out because you don't want to do a deal and then it becomes unprofitable because you cannot get the liquidity out. So the idea was to partner with the right banks, maintain those good relationships. The banks understand your business and try to help you to repatriate that as well as understanding the central bank rules around it because they should be able to advise you. Many of the local banks, like I say they suffer from a poor credit rating that makes it difficult to work with from a risk perspective. But also the local bank environment is still generally unsophisticated with a large under developed technology infrastructure. It seems that the manual processes are quite rife. So the idea is that going forward banks I think understand this and they're investing more and more in technology, trying to automate their processes. Because I think with the pandemic now as well, we've realized that a lot of manual processes and with people we're working from home, things were taking a longer time to get done. And I think banks understand that and they're investing more and more in that, trying to ensure that they don't lose market share and they keep and they build and maintain those customer relationships. And then number three is that operating in an uncertain environment where things could just change within a day is having stable systems, processes and people on the ground because these markets are quite, you can only operate remotely for so much of the work. But having people on the ground to speak the language, to go and see a person to get things done how greatly as well. So I think you know those for me the banking relationships the technology, you know, having people on the ground understanding the rules, very, very key for us in order to operate successfully in challenging and uncertain markets. Awesome.

Great little summary there. We usually are, you know, three closing tips, but we use those as well. But you know, the region and that's sort of external. If you, let's look at internal just to wrap up today's show. So we'll say we'll put your LinkedIn details in the show notes so people can connect to you and, you know, expand their networks and the same for yourself. But what looking back at yourself and you know, if someone does look at your profile on LinkedIn and they want a similar background to you and they say, do you know what this is? You know, that's someone I want to sort of follow in the steps of. What are the tips you would give to those guys? Again, people listening today, what would you say to them?

So I would say firstly, you know, is to have a strong academic background, to have the qualifications behind it and I think normally your finance and your accounting and banking qualifications that have a lot of value and number two is that it's to have industry experience and have some banking experience as well. So if you've got exposure on the buy side and if you got some exposure on the sell side and you understand the pricing and the mechanisms, but the most important thing is to be able to support the businesses to the best of your ability and maintain. I think that is quite key. And I think what's also important is that industries differ and the treasury exposure and experience or the products and knowledge you require also. So the more industry that you get exposed to and the size and the caliber of the industry also adds to your value. Because from my perspective, I realized that when I moved from a retail environment into an oil and gas environment, it was totally different. A different pace of operation, a different product base, a different treasury infrastructure, a different funding requirement. And when I moved into an industrialized conglomerate, it was totally different as well. But the exposure that I gained over time, you know, it just helps to build on your current exposure and it's not like, you know, you know everything, but the more you do and the more you learn, it just, you know, helps to put a stronger foundation on your business.

Amazing. Vasu, it's been amazing to talk to you. Thank you, sir. I mean, just the summary there. So get educated, build your relationships and as you say, seek variety maybe in your background because that's definitely going to, to stand you in good stead. So again, brilliant advice, sir. Thank you very much for your time today, and I look forward to connecting with you in the future.

Thank you as well. Mike and I really appreciate the opportunity.

Pleasure. Thank you, sir.