Since entering the corporate treasury profession five years ago, Eddie Mak, Group Treasurer at Kerry Logistics, has been on a mission to ensure treasury provides value within his organisation. The key to this mission has been making sure that treasury is not seen as the ‘bad guy’ by the business units.
Kerry Logistics is an Asia-based global third-party logistics (3PL) service provider engaged in integrated logistics, international freight, express and supply chain solutions. Headquartered and listed in Hong Kong, the company has a global footprint spanning six continents and the strongest network in Asia.
Despite sometimes being classed as a niche profession, corporate treasury offers a breadth of scope that is not found in many finance roles. From funding to investment and from cash management to counterparty credit risk, treasurers do it all.
It was this that attracted Eddie Mak, Group Treasurer at Kerry Logistics, to the profession. And having been given the mandate to build the department in line with his vision, Mak has spent the last five years creating a best in class treasury function. Despite not being anywhere near finished, his efforts are already reaping rewards, both in terms of industry accolades – including a Treasury Today Adam Smith Asia award – and, most importantly, the trust and respect of his peers.
Front end dealing
Like many treasury professionals in Asia Pacific, Mak’s career didn’t begin in corporate treasury. After graduating from the University of Hong Kong with a degree in social sciences and an MBA from The Chinese University of Hong Kong, he began working in the banking industry, primarily focusing on project financing.
After a number of successful years, Mak decided to broaden his experience and joined the corporate world, working in numerous corporate finance roles for infrastructure companies such as CLP Power Group. “My focus in these companies was primarily around M&A and sometimes investor relations,” says Mak.
Although he enjoyed these roles, Mak notes that he felt that he needed to gain a greater breadth of experience if he was to move up the career ladder. “In all of my previous positions, my focus was largely on the front-end of deals,” he says. “Once the deal had been completed, the control and monitoring of the asset were passed onto somebody else and I moved onto the next project.”
In 2012, the timing was right for a move – not least because there had been a slowdown in infrastructure development across Asia five years ago. Opportunely, Mak received a call enquiring if he would be interested in taking up the newly created Group Treasurer position at Kerry Logistics. “It was a great opportunity and one that I knew would test my existing skills and force me to learn a whole new set, so I quickly accepted,” he says.
Mak entered the Kerry Logistics treasury department with a blank canvas on which to work, as the role of treasury had previously been bundled in with another finance role. “This was a great opportunity, but also a great challenge,” he says. “There were some areas that fell under my purview where I had limited experience. I had to learn about these quickly, as well as about the solutions that can deliver best practice in these areas.”
“Aside from putting in place treasury structures that help drive cost savings and efficiency, Mak’s strategy has also included getting to know and working with the business units.”
He didn’t have much time to adjust to his new surroundings, however. Kerry Logistics was investing in a treasury department not as a cost centre, but as a value-adding function for the business. “My boss told me on my very first day that he wanted treasury to become a profit centre,” says Mak.
Mak spent the first six months getting used to his new environment, establishing relationships with the banks and putting in products that would make cash work better in order to support the business. “After achieving these first steps we built up the team and began to focus on better protecting the company against risks,” he says. “It was then important to spread the message of treasury across the business, get involved in what the business entities were doing and help them become more efficient and cost effective.”
Winning over the business units
Aside from putting in place treasury structures that help drive cost savings and efficiency, Mak’s strategy has also included getting to know and working with the business units. This effort has been especially crucial in recent years as economic uncertainty has put pressure on many of Kerry Logistics’ customers and thus on the company itself.
“Recent market volatility poses a lot of challenges to the business,” explains Mak. “For treasury, this has really manifested itself in the need for a tighter control over accounts receivables. A lot of our customers are impacted by the economic downturn and we therefore need to be sure that they are creditworthy.”
Mak has worked to move the credit control process away from a simple checklist to a more thorough analysis of the customer. “We are also trying to standardise the credit terms that we offer our customers and reduce these in many instances,” he explains. “The final aspect is placing a greater emphasis on chasing up those customers who are not paying on time.”
This focus has created some issues for the treasury. “When we start chasing customers for payment, the business units can often see us as the ‘bad guys’ and ask us to give the customers some more time,” says Mak. “Of course, we don’t want to damage their relationship and understand the point they are making. However, if we grant them 30 days credit and they still haven’t paid after 45, we are well in our right to chase. The business units care about profit margin and market share, but at the same time, treasury cares about the risk and cost of funds.”
For Mak and his team, using soft skills and educating the business units has been key to overcoming this challenge. “We have worked with the business to explain that late payments negatively impact our working capital and can cause significant damage to the [economy], especially in times of economic uncertainty,” says Mak. “In doing this, we have improved our working capital. I think that treasury is now seen as a ‘good guy’ and a partner to the business.”
Time for a TMS
The use of dedicated treasury technology, Mak hopes, will enable treasury to monitor the financial health of the business and its customers more closely. Currently the treasury is in the final stages of implementing a dedicated treasury management system (TMS). This has been a big focus of late for Mak and he sees the TMS as the key pillar of the treasury function that he is building.
“The TMS will enable us to monitor our bank balances around the world more closely and provide more accurate cash flow projections,” explains Mak. For Kerry Logistics, with its decentralised operating structure, this is very important. “We operate in 51 countries and territories with over 200 operating units so we need technology in order to be clear about what those units are doing, the cash they hold and to see if they are using it in an efficient manner,” says Mak. “In the next phase of the project we are planning to use some business intelligence tools that will allow us to spot any irregularities quickly and step in, if need be, to ensure that there is no damage to the company.”
While Mak and his team are working tirelessly to digitise and improve the treasury function, there are other areas that impact treasury which still remain highly manual and burdensome.
Despite all the benefits that the TMS will bring once it is fully installed, Mak admits the journey to this point has been painful. “The implementation process has taken two years to date and we are still not there,” he says. “This is our first system implementation and we do not have the manpower or internal expertise to do this quickly; we are very much learning on the job.”
Another issue is that the company has over 2,000 bank accounts, so collecting all the data associated with these and plugging them into the system has been a slow process for Mak and his team. “Once you have done this, you then need to work with the banks to get the MT940 into the system and then also plug this into the accounting system to create the short-term forecasts,” explains Mak. “This is keeping me very busy right now, but all the work will be worth it.”
Working with the banks
While Mak and his team are working tirelessly to digitise and improve the treasury function, there are other areas that impact treasury which still remain highly manual and burdensome. Know your customer (KYC) requirements, as many other treasury professionals attest, is perhaps the most frustrating.
With over 2,000 banks accounts, this is a particular issue for Kerry Logistics. “Opening a bank account is not an easy task,” says Mak. “And then once this is open there is a lot of KYC follow up on a regular basis.” Although Mak says that he doesn’t have to deal with this directly a lot of the time, it still causes some issues. “It takes a lot more time to put in place the banking infrastructure for the business units when they expand into new markets or make strategic acquisitions,” he says. “Also, if treasury wants to implement a project it can take a very long time to complete. For example, KYC held us up for almost eight months when we set up our cash pool. This is unacceptable, but is the reality today as banks are increasingly cautious in this area.”
Although this area remains frustrating for Mak, he is keen to add that overall the banks are providing a good service. For instance, bank funding has been crucial to Kerry Logistics of late as the company has been on extending its footprint through M&A around the world. “We have been very happy with the banks and the funding they have provided,” he says. “It helps that we raise funds in Hong Kong, which is a very liquid market with little demand for new funding at present. As a result, the margins have been declining and we have been able to access some fairly cheap funds.”
That said, Mak is seeing a change in the banks’ willingness to participate in revolver facilities. “Basel III is making it a little bit harder for the banks to be as involved in these as they were before,” he says. “In the pre-Basel III days, a bank could offer 50% of your facility limit revolver. Today they only offer one-third of that because of the cost of funding.”
The banks also help in the company’s more complex markets. At present, it is South East Asia that gives Mak the biggest headache. “A lot of the countries we operate in there have currency controls,” he says. “We try to make the company as tax and cash efficient as possible in these geographies but the strict regulations around fund flows mean that we do have some problems. It is here that we really rely on our banking partners to keep us abreast of any changes in regulation and make sure we are in a position to take advantage of any opportunities once they arise.”
In China, another country where currency control poses an issue to many corporates, the issue is not quite as acute for Kerry Logistics. Mak explains that the diversity of the firm in China, and the work it has done with the regulators both at state and provincial level, means that the impact of the recent window guidance – the unwritten rules put in place by the Chinese regulators to limit the cross-border movement of cash – has been limited and “business is able to run as usual”.
Having achieved his ambition of gaining a more holistic finance experience by working in a treasury department, what is next for the ambitious Mak? “Right now, the Hong Kong government is promoting the treasury profession in the country and it is becoming increasingly important in all businesses,” he says. “I am therefore very happy to continue on my current path and finish my job of building a first-class treasury function at Kerry Logistics.”
Further down the line, however, Mak wants to put his full skillset learnt throughout his various roles into action by becoming a CFO. “This is the ultimate ambition and I hope one day to be able to achieve this,” he concludes.