At the time of my interview with Ingmar Bergmann he was treasury leader at Ventient Energy. He is now treasurer of a start up SK Partners.
Ventient Energy is a large independent renewable energy company with more than 130 wind farms in six European countries. Ventient is owned by institutional investors on a portfolio-by-portfolio basis, and that limits the ability of treasury to consolidate group cash and investment management in the way most diversified corporates would do. Mr Bergmann joined us for one of Calastone’s regular treasurer Q&A sessions to talk about how Ventient had responded to some particular treasury challenges.
Tell us something about Ventient and what is special about its treasury operations?
Ventient Energy is a sustainable company by nature, producing renewable energy from wind farms across Europe. We are owned by pension funds managed by J.P. Morgan, but we are essentially a group of separate wind energy portfolios that are all financially ring-fenced. That creates some challenges from the treasury point of view, as we can’t use the revenues and wind generation from one portfolio to combine with another portfolio. So we have to structure our cash flows very carefully.
How has the company historically approached this challenge?
When I joined in September 2020 there wasn’t a treasury function in the company. We had lots of treasury activities that were spread out between different departments in different energy asset portfolios, so the first job was to set up a functioning treasury. So, for example, we might have an interest payment cycle to handle for a particular asset portfolio, but that was done by that portfolio’s finance department. That model had been copied whenever a new portfolio was acquired.
What was the reason for building a consolidated treasury function?
You can go on working like that, but the problem is that there is no accumulated history of how to work, no skills bank. The advantage of having a concentrated treasury function is being able to improve the corporate control and governance, achieve economies of scale to cut costs and developing centralised centres of achieving excellence. So another thing I did was to create a common treasury policy to govern all the portfolio cash management built around the half-yearly debt services and disbursement of returns to shareholders. All that cash has to stay within the individual portfolio entity, it can’t be shared or pooled on a horizontal basis, so instead the cash is ring-fenced and only consolidated at group level per portfolio for the purpose of bi-annual debt services and dividend payments. And even that is complicated because some portfolios are cross-border and there are tax issues.
What operational issues did you have to deal with when consolidating the work?
From a practical point of view, we had to focus on the bank accounts. Having grown through acquisition of generating portfolios we had ended up with several accounts in individual countries, so inevitably we had dormant accounts and accounts with no signatories because of natural staff turnover. Therefore we rationalised to the point where we have only one preferred banking partner in each portfolio. Also, if you are building from the ground up, there is no ready-made treasury policy you can draw on for everything, because your treasury structure depends on what you are focusing on. You need to decide, is your focus on payments, or risk, or liquidity, or IT? The answer will shape your treasury policy.
Did you need to bring in new skills or new technologies?
The big gap you have to fill is the technology gap. When I started I really needed to get visibility on the cash position for every entity. Initially we worked portfolio-by-portfolio just using multiple spreadsheets – bear in mind that some entities in the group had even outsourced their finance departments – and it soon became clear that a formal treasury management system (TMS) was going to be a lot of help when it came to reporting on the cash position, so we are now implementing a new TMS as of June this year.
How easy have you found it to implement a new TMS?
As far as the implementation goes the main problem you will have is that different departments have different assumptions and in business terms they speak different languages. You may think you have agreed on how to integrate your TMS with the enterprise planning system, but then you will find that while treasury thinks things will be done one way, finance may have a very different interpretation. So the real challenge lies in the company’s understanding of what they are getting and what it will do.
Will you be using money market funds (MMFs) as part of the consolidated cash management approach?
I think MMF investment will be the next step as we begin to pool the cash that will be used for bi-annual disbursements. As the portfolios are ring-fenced, we can’t use pooled cash for inter-company lending and we can’t transfer cash between portfolios, but only upstream it to the corporate centre and even then only when certain investor criteria are met. In the meantime, I think money market funds are the only solution to protecting that cash and getting some return.
What else do you hope for from the new technology you are implementing?
Next on the agenda is getting better forward understanding of capex needs. The last thing I want to hear on a Monday morning is that we suddenly need to find $300 million in capex. We have already improved forward planning for M&A, which is on something like a six-month process cycle, and we will do the same for capex. And that is all about timely information.
Are you confident that your systems are responsive to growing environmental, social and governance (ESG) concerns?
We’re experts in asset management and we operate to the highest Environmental, Social and Governance (ESG) standards. Our commitment to ESG has seen us recognised as sector leaders and awarded a five-star rating by GRESB, the world’s leading ESG benchmark for real estate and infrastructure investments
On the environmental side we are by nature a green company – our business is green energy. And we have embedded ESG in our treasury policy. Every wind energy portfolio is financed by lenders who insist on ESG terms – one of our investment criteria is the ESG policy of the potential lender. The fact is if a lender has two alternative destinations for their capital, their preference is clearly going to be for the better ESG profile. But what we are always finding is that from the point of view of a borrower or an investor, an asset or an organisation may have a green label but there is still very little transparency on what that really means. It is still a marketing tool. So transparency still has to improve.
Looking forward with your treasurer hat on, what is the biggest challenge for the business?
It’s all about the structure of green energy finance. Ten years ago, it was very expensive and very complicated to build a new wind farm. It was high risk, nobody quite knew what the implications were and the challenge was to sell the idea to investors. Today it is much easier, there is more understanding, the investors are more comfortable. The problem is that subsidies everywhere are decreasing and that is fine for new projects because we can build those financial metrics in, but it is very challenging when it comes to re-financing existing projects that were built on a different financial basis. But when it comes to building the new capacity, I am very optimistic.