Working Through Foundational Changes with Gerard Tyler

Foreign 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 Treasures 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 Gerard Tyler, the group treasurer at Yorenco group. Founded in 1970, Yarenko is the international supplier of enrichment services and fuel cycle products with a head office based just outside of London. Known Gerard for a number of years and he can. I'll get him to explain a bit more about Yurenko, actually, because he describes it a bit better than I do. But actually Gerard's got a long, deep, rich history within treasury and we were just talking before the show that he's gone in. He loves a bit of troubleshooting, going into more distressed businesses and then more recently going to sort of more businesses with a bit more of a cash laden sort of, you know, way of working sort of thing. He'll explain the difference of what the difference is with when you're up against the wall and when then it's actually a little bit more, a little bit different actually in the different ethos. But let's go back, Gerard, maybe you could take us back to how you first ever encountered, you know, finance and thought that's a career for you, and then discovered Treasury a number of years ago. Now, over to you, sir.

Great. Well, good morning, Mike, and thank you for inviting me on your show. So, way, way back, my degree was engineering science and I took economics papers as my option instead of doing mechanical engineering or electrical engine, took economics and found I quite like that and ended up becoming a chartered accountant with a firm forerunner of Ernst and Young. And then when I qualified, like many others, I kind of take stock. What was I going to do next? And I'd spent quite a bit of time auditing banks in the City. A stock taking a gold vault was quite an intriguing thing to do. But also looking at bond market, bond trading arm of one of the banks, that sounded right, quite like the technical products. But I didn't really want to go into, to work for a bank. I thought there was a lot of talent had gone into the City and I couldn't see myself being an internal auditor in a bank for the rest of my day. So I then happened across a Treasury accounting role at Grand Metropolitan, which was a forerunner of Diageo, which incorporated the kind of technical interest in the financial products, but in a real world sort of business that was sort of trading with real customers and activities. So it sort of fitted the bill quite well with the technical convexity, but also the real commercial drive in the business. So I spent a couple of years at Grand Metropolitan. It was a time when treasury was evolving and back then we were one of the first companies to do a series of swaps of some debt using ISDA master agreements which were only just coming in. So we've got a long way as an industry since then. It makes me sound very ancient, but I'm sure I'm not really.

But that was the relatively early days of the association of Treasurers as well, when I was coming into it. Shortly after that, there was the professionalization of treasury, if you like. It was this accidental area and then it sort of became a real profession, you know, have been for many years, but it suddenly evolved in it.

It was. And I worked with colleagues then who reminded me that it wasn't that many years since exchange controls had been lifted in the UK. So it's difficult to remember now, but in the 1970s and before it wasn't possible just to go and do a deal and buy foreign exchange as you can today in the treasury, you have to go and get a license from the bank of England to do all of that. So that wasn't my era, but there were, I had colleagues who had experience with that, so it's easy to forget how open the markets. So after a couple of years at Grand Met, I moved on to Dunhill holdings, which was the luxury goods brand again, an area that was probably relatively underdeveloped or unknown as an industry sector. But that was a fascinating business. We had a small treasury team. We held quite a lot of cash which we were investing at interest rates as high as 15%, which is an era that's long gone. But also currency hedging was really important to the business. We bought most of our luxury goods, pens and suitcases and clothing in continental Europe, so Swiss francs, deutsche marks and Spanish pesetas, and sold principally to Japanese business travelers who buy these goods in duty free and then take them back as business gifts to their colleagues and families when they got back from their travels. So the, the relative strength of the yen was incredibly important to the company, even though the cash came through, say Singapore dollars or US dollars in duty free shops around the world. But that currency hedging was so important to the business because we really needed to protect the whole margin in the fashion industry buying forward a couple of years, that was the cycle at the time. So it was Important too. So hedging and the treasury activities were really key to the business. So fascinating to be. And being inherently nosy about how businesses work and what goes on. When you sit in the Treasury Department like that, it's not money. Not much happens in the business without some impact coming through and you can see how the business is trading and how it's developing. So I had several years there, then changed track a bit. I went to bet, which was a massive conglomerate. It had focused on business services and they had acquired, through the 1980s, a huge number of businesses, some of which competed against each other and they hadn't really been consolidated together. They then crashed and had several profit warnings in a row and a complete change of management. And I came in as the management team was changing. They had dismissed almost all the Treasury Department, along with many of the other people in the Finance department. So we really started from scratch. Huge emphasis on forecasting cash because the business had almost run out of money. It had accounting profits because they were very good at matching those from the air. But the real key thing was generating the cash in the businesses and that meant actually going out to a lot of the operating units and really helping to get the ethos of cash. How do we improve working capital and real, real focus across the business? Even if we had cash, profit forecasts that were still declining. But the message coming out from the center was, if you can't get the profit, at least get the cash. Do whatever you can and pretty much whatever you could. Although there were. And the bonus schemes for management were targeted on cash. Although there was an instance of the management of one of the subsidiaries, which wasn't in the uk, losing their jobs between the year end and getting the bonus because they had passed on making the year end payroll payments to their staff. They were so keen to preserve the cash that was considered to be on the line. Holding up our customer payments and supplier payments was definitely part of the optimizing working capital, selling assets to generate cash. So that environment is a great learning curve and the power and value of really good forecasts. And we spent so much time in the treasury making sure that we'd. We've got forecasts that we could rely on. Really, really important.

Yeah. And then you got into this sort of. Again, this is a theme here. Cash strapped businesses distressed. Interesting work. Why did that interest you so much and then obviously influence your next couple of moves sort of thing.

Yeah, well, I think you can really make a difference and can't underestimate how important really good cash forecasts are to treasury management and actually business management. And I'll tell you about one of the places I worked a bit later, but they basically ran out of money. And when that happens, everything stops. So when a business is doing well and ticking along, people can get complacent on cash. But you need to keep that discipline in place because the world can turn quite quickly and therefore that cash discipline, the focus on generating real money rather than accounting is ever so important. So then, I guess going on from my time at bet, I went to apv, which was a relatively small engineering group, turnover about a billion pounds. But it was had briefly been a bit of a star of the ftse. It had risen as sort of one through some acquisitions, but it actually was actually a very, very international business. And this was the time that Eastern Europe was opening up for western trade and APV's business was engineering. We supplied process equipment and plant for various industries, but things like food processing and dairy industry, brewing pharmaceuticals. And we used, because we couldn't trust some of the customers that we were dealing with, particularly in Eastern Europe, we had a program of using export finance, insurance or guarantees to port our sales into various developing markets. So that was quite a different thing. That took a lot. We were quite close to the commercial teams who were selling into what were then emerging markets like Czech Republic or Poland. We wanted to make sure we could get paid. And those countries all had sort of hiccups in their performance as they sort of evolved from Soviet satellites towards Western style open economies. And it again was very. We're working very closely with the teams that were selling into these countries. We manufactured in various European, Western European countries, so we could pick and choose sometimes the agencies we were using to support the trade, so from Denmark or France or the UK into these markets. So again, quite a different focus. And it was a business that struggled for cash. So again, very, very targeted on making sure our cash forecasts were good and that we knew where the money was.

And when you were going into businesses like that yourself, you went in as the treasurer. What appealed to you about that? Surely? Didn't you just say, it's too much hassle, why do I want to go into someone like that? Or let's find someone with a bit of money. It's different.

I think those are the places you learn most and actually some of it is about who you're working with and you end up working with some quite interesting people, these sorts of businesses. But because of the breadth of activities within the Treasury Department, you just see an awful lot more about what's going on. And you can make a real difference not just in the sort of pure treasury areas of currency hedging or in debt management, but it's very satisfying when you can help somebody deliver a sales contract and do a big deal that's going to generate quite a lot of top line income for the company. So from that point of view, and actually the treasury gets valued more by colleagues who don't see you just as a sort of another part of the finance team, but as somebody who can actually help them to get their business.

Done closer to it as well. And then you did that and then sort of a couple of interims, but then this big role at Telewest or you know, talk us through the moves.

So Telewest was a, it seems an era ago, but it wasn't, wasn't so many years. But the cable industry in the UK started out with lots of local franchises. Each local authority put, put plans together with an independent company to basically dig up the streets and lay fiber optic cables. And Telewest started consolidating the local franchises and became one of the big three in the country. But it had huge capital expenditure because if you're digging lots, digging up streets and laying cables, if you're then providing set top boxes and all those kind of electronics switch gear and things. And it's very interesting to hear the stories of Huawei on their 5G at the moment because the sorts of kit are very similar to the sorts of things that were put in place to mastermind the way that a cable network is operated. So huge amounts of complex electronics but very, very expensive. And really the race was to get revenue growth from customers fast enough that we could get the cash flows in to pay for the capex that had been incurred. And for both Telewest and ntl, we failed to do that at the time sky was rolling out and they were our main competitor for digital TV and multichannel tv. And it's difficult to remember now, but sky almost went bankrupt their digital rol and if they had, it would have been a very different story for the cable industry. But sky sort of made it through and with their sports rights ended up dominating the offering. Whereas the cable industries, it's probably fair to say, were a bit too engineering dominated and a bit less customer market focused. That changed a bit, but a bit too late. So having the best technology, getting to somebody's house is not really a compelling sales pitch. Having the best products to the house. The irony is that today the cable networks are really, really valuable because that's how high speed Internet is accessed now, where everyone's TV is. So Virgin Media came out of the ashes of the cable industry and I think has been a pretty successful business in its new guise. But we went through a big period of capital expenditure. We raised a lot of money in the high yield bond markets and then there was a credit crunch and we dropped five credit ratings and we were already sub investment grade, five notches in one day and then the game was over. When you dropped down from BB to C, that was the message. It was time to change. And I remember going into the office one morning and basically everybody who was in the finance team who were in offices along the same wall that I was all called in one after another and told that we were going various notices, cost cutting really came the order of the day. But I'd already started then working with some of the banks, distressed debt teams, because the banks immediately, as soon as you get into trouble, they change the relationship managers out and the guys who live in the dark basements whose job is to recover the debt turn up. I'd started working with some of them. We've been giving them regular, really detailed cash forecasts of what the business was doing. As I left Telewest, a couple of them came to me and said, look, we've got this business in Germany that we've just taken control of because we enforced our security. Can you come and give us a hand? Because we need to turn around accountants in there, but we need to actually focus on the treasury there. So I went and joined ish, which was based in Cologne. I thought that was just going to be a short term assignment for a few months, but ended up there for nearly three years. And the remit was this business was now owned by the banks. The bondholders lost everything. It too attracted. It had been spun out from Deutsche Telekom. It had spent a huge amount of capital building out a modern cable network, but failed to make the impact on customers. And in Germany customers already had multi channel tv so they weren't that bothered about buying even more channels because they had about 20 to choose from, which was different from the UK. But gradually we got the high speed Internet product going. Yeah, we launched digital TV and we started by launching it into ethnic minorities in Germany, so Russian language, Polish, Italian, Spanish, Turkish, because they were underserved by the existing TV channels. So our first 100,000 digital TV customers were mainly focused on minority languages and then gradually got momentum into digital for the German channels as well.

But as you say, it sort of related to your earlier example with Telewest, you go into the product rather than the actual physical infrastructure is much more. This is what people want to buy and they'll pay for it exactly that.

They don't buy a technology, they buy what travels on the technology. So you can see that with really successful brands like Apple, having a phone that's a nice piece of kit is only half the story. It's really about how they use it and how they capture the ancillary revenue from that. In Germany too, high speed Internet is really sought after and that was well served by the network that Ish had built up. So I was there for nearly three years. We got the business stabilized, we bought the capital expenditure way, way down, found some smarter technologies for using the old copper networks that we had to provide digital services. And then having turned it around and started paying down the bank sort of interim finance debt that we had then sold the business. We had a false start when the regulators like the first people we were going to sell to, but we ended up selling it to one of the private equity owner of one of the neighboring regional franchises. And the banks doubled their money over the three years from the prices they were shown at the beginning. So it worked out very well and was a great sort of experience. I commuted back and forward to Germany and I still don't have very much German language but it was certainly eye opening an environment where you really could make a huge difference.

And then you came back and did an interim role before then properly getting into 7 Trent, you know that's that was a big role.

So talk us through SO7 Trent, one of the biggest water companies in the UK the water industry sort of runs in five year cycles where they almost when you finish one, you start the next. But the regulatory cycles where the prices are set, the whole business plan and budget and plan is agreed with the, with the water regulators. But once a new business plan plan is agreed for five years that sets the revenue line but it also requires the investment to follow. So at 7 Trent there was a big capital program. It still spends a lot. All the water sector still spend a huge amount of money. And in truth the reason for privatizing the water sector was that to meet environmental requirements, the water industry in the 1970s and 80s needed a huge amount of money spent on it and government was never going to do that. So by privatizing they access capital from the markets and that continues today. They're all very big borrowers and they've used private shareholder capital to finance these networks and it runs into tens of billions that have been spent in the sector. So it was about borrowing, it was about getting really efficient sterling capital markets access. We also used programs of swaps to secure interest rates going forward. We issued some of the debt in index LinkedIn inflation format because the very long term growth of the industry was water prices go up by inflation plus or minus a factor. And so there is some linkage there. So quite an unusual market. And I was there through the financial crash and the banking crisis and it was really interesting. I think I've never written so many board papers in succession as to when the banking crisis was on because almost every week we were reviewing the counterpart banks and were we happy that they were still good for us and could we rely on them for the facilities that they were promising us? Did we want to put any of our cash with those banks? And in the end we kind of got comfortable that well, RBS has been rescued. The other really big banks in the UK are probably going to be bailed out by the government if they have to be. So they're probably okay. But a number of the other banks, we just said look, we're not putting any money with them for the time being. We'll just wait and see what happens. And in the end for the banks that we had, it all turned out, turned out well. But you choose your bank group very carefully because when the market turns down, it's not only the money you've got with them, it's the promises that they've made to you that need to be honored. So again, you have to be very focused on what's happening outside. I had nearly seven years. At seven, Trent went through a couple of the cycles and then began to. And I did a lot of work on the pension scheme there as well because being an ex public sector organization, it had a fairly strong pension scheme, a lot of very long standing employees who were in a defined benefit pension scheme. It had been closed to new entrants several years before. But one of the major things we did just to de risk the business in future was we said look, we've got to stop this pension scheme. And auto enrollment came along where the law changed and every employee had to be put into a pension scheme by default. And we realized that of our workforce, half were in the defined benefit scheme, a quarter were in a defined contribution scheme and a quarter were in nothing. They never bothered to sign up. And we just said look, we've got to spread, we might spend the same budget, we've got to spread it More equally across the workforce. We've got to get the quarter who aren't in the schemes into a scheme. So we designed a new defined contribution scheme and closed the defined benefit scheme for to further accruals and then agreed a deficit recovery plan as well which we needed to have get the scheme to a long term solvent position to de risk it. So it wasn't a question of having to close it urgently. Definitely the right thing to do for the long term health of the business.

Yeah. And you made that transition really from. You mean from these distressed capital intensive businesses which were real challenge and we spoke about this before the show as well. Then suddenly you were starting to move to these more cash generative, you know, bags of cash businesses in a nice way. And then you7 trend good steady flows literally like the water. And then you carried that on, took us through that.

So Yourenco is a very, very unusual business. It's owned by three or owned by two governments, the Dutch and the British government. Also two German power utilities. It was set up in 1970 by Intergovernmental Treaty. Objective was to commercialize the technology for enriching uranium. Clearly that's very sensitive at one level because it's got weapons potential and you can see that with what's going on in Iran today. So enriched uranium is a key part of nuclear fuels. It's so important that the governments wanted to make sure that they got fuel for the power stations that they were investing in. Because if you're investing in power stations with a 50 or 60 year life, you need to make sure you can fuel it for that life. So Eurenko was born out of that. There are plants in the UK and Holland and Germany and then in the mid 2000s they started building a plant in New Mexico in the US because that's the largest nuclear power sector in the world. A large of our customer base is over there, so we wanted to build a plant nearer to our customers. So there was a very big capital expenditure program that continued in my early years at Eurenko and we went up to about 3.2 billion euros about four or five years ago. And since then we've actually been spinning off a lot of cash and paying down debt so that at the end of 2018 we were back down to 1.4 billion of debt. Incredible rate of cash generation. And that will continue for a few years. But. But we know that we're living on contracts that were put in place before the Fukushima incident in Japan and that incident took out 10% of the nuclear Reactor market at a stroke as they closed everything and gradually they're reopening, but it's taking a long time to do that. And if you've got a market that's imbalance and you take out that much demand, prices drop. And so the contracts we're signing today are nowhere near as lucrative as the ones we're executing now. So we have a kind of one time opportunity to, to harvest the cash on these valuable contracts and we're doing that, using that to pay down debt, de risk the business for the future. By the way, we closed our UK pension scheme here. We've put the Dutch one into a consolidator. So we're trying to look for areas of future risk that we should just manage today to put the company in a good state for the long term future.

And you talk about that. And this is again related to something we talked about throughout your career. You, we joked before, you've had this very, you know, curious nature, you want to dig into things as well. But then one of the things again we said to Gerald, we had a pretty brief call and one of the things I said, so what do you see as being key to Treasury? You know, is it all about the money? Is all about this? And you, you said it, you took it outside of that, you said, look, it's all about your relationships, you know, both internal, external, making those work. Can you describe it again? Because we've got, you know, listeners here, you know, particular UK European orders tends to be more junior guys, some of them coming up, some of the US audience a bit more senior and they will know, you know, sometimes you ask for war stories, they want to know what the treasurer see as being important. What do you see as being important?

I think that one thing is actually move around the companies a bit because that's where you, you learn because the cash, the shape of the cash flow is different. And you can hear from what I've said that, you know, I've worked in businesses that are very international, I've worked in those that are very debt driven, worked in those ways, the backs was to the wall and therefore cash forecasting was essential to being able to pay the bills very shortly. And the shape of those different companies dictates how treasuries run. What are the things you do and therefore you learn more. As a treasurer, I think the other thing is pick good people to work for. I've been lucky, I've worked for some very good CFOs along the way. In my early career I worked for some Very good treasurers and treasury managers, some were probably, fair to say, were a bit eccentric in their thinking, but were very, very smart people and well connected into the companies they worked for. So build your relationships. Make sure you work with good people above you and around you, and build good relationships with your colleagues in the finance team, the general counsel area, the legal colleagues, because you'll need those to help you put documents together. Tax teams, inevitably, because they're often helping to approved. Approved payments and things, but they're. They're also good eyes and ears about what's happening in the business and how so.

And how do you do that? You know, you say build good relationship. Well, just go out to lunch with them or, you know, how have you elicited that sort of, you know, getting.

Close, that doesn't hurt and it's. But look for opportunities to work on projects together. Include them. And if you're, if you're looking at doing something, make sure you include those sort of colleagues, the right colleagues from those areas in you're planning for treasury activities and things you're going to do. If you start off on a project without including them, they'll probably derail you later on because they'll think of something that affects them that you haven't thought about. So work with interdisciplinary groups. And we all sit very, very close to these colleagues and other teams. And it can be informal, too. People come to your desk and say, can you just tell me a bit about this letter I got about my pension scheme? Yeah, that's a good way of getting to know colleagues. And also on the commercial side, because if the commercial teams are outselling in different places or to different types of customers, sometimes there's opportunities to say, look, we can help you, we can put together a trade finance package. Or have you thought about structuring the payment stream you're going to get from that customer to protect the business? That might not be a very good credit rating you're dealing with, or it might be coming from a country that's got a poor record of paying. So keeping your ear to the ground with those guys, and they often don't think in terms of treasury things, but you can bring them assistance. And you might say, well, why don't you structure it in a different currency? Then you'll get. It works for them and it'll work for us. And sometimes that gives them a bit of an edge when they're negotiating for a contract.

Bring them into the world of Treasury. And obviously, as we approach the end of today's episode, because we'd like to keep it sort of the. What we want to do is sort of try and summarize people. Look back at your career, Joan. Again, we'll put your LinkedIn profile in the show. Notes people can connect you there. But as you look back through, because you've got this incredible history where you've gone from sort of starting at treasury, then distressed companies and more challenging times, and now sort of a different sort of side of the fence, if you like, and the money's coming in and things. There's that side of things, but also just generally looking back over your career. What sort of tips would you give to the summary? What are the two or three things people that should be thinking about again, earlier in their careers? Thinking. Right, this is what you should be doing or thinking about. What would you say?

I keep going back to it, but I don't underestimate the power of cash forecasting. So if there's a chance to work on cash forecasts and really get those going, well, that's an absolute must grounding for anybody in Treasury, I think. Take your chances. If there's opportunities to work in different areas or different kinds of companies, sometimes you'll be surprised you might end up somewhere you hadn't thought of. Particularly when I had a spells of contracting in the past, there are one or two places I worked where I probably wouldn't want to work long term, but really interesting for just small periods of time to learn about something different. And an example, I worked in Lloyds of London for a few months at the insurance industry. Very, very different kind of ethos and structure, but from anything else I'd seen, and also incidentally, the only place where the kind of regulations are signed off by the Queen because everything goes up to the Privy Council for approval. But probably not an industry that I was destined to spend the rest of my career in. But it certainly was an insight into how a very different kind of treasury operation was run. And so I'd recommend people to take that opportunity. If you get a chance to be seconded to work in a subsidiary on a project somewhere, take that too, because it'll get you closer to some of the commercial activities going on in the business. I've found things like pensions to be fascinating and it puts you on the other side of the table. So as my day job has been issuing bonds, I then go to a pension trustee meeting and we talk to the fund managers who are the people who invest in those bonds, and you get both sides of the perspective of the market that you're trying to raise money in, so there's no sort of one formula. And then. I know a lot of people these days have the ACT qualification. I don't, but I have a Chartered Accountancy qualification. When I started, it was probably fair to say ACT wasn't essential, but I think that's a really good grounding for many people and I encourage the teams I've had working for me, the people to. To get the ACT qualification. It shows that you're serious about treasury and I think they provide some very, very good grounding and through their. Their education.

Yeah, really help. Gerard, brilliant show. Thank you very much for your time today. As I say, we'll put your link to you in the show notes and we will perhaps connect and, yeah, thank you for surviving, you know, getting through all those tough times and, you know, now in a, you know, really, you know, company, which is, yeah, it sounds like going from strength to strength and long may it continue. Sir, thanks for your time today.

Great. Well, it's a pleasure, Mike, and we've worked together over a number of years and I know you've provided me with quite a few of the colleagues who've made all this possible, so thank you.

Very much and we'll keep doing it. We'll keep doing it. Thank you. Thanks for your time.