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Cast In A Different Mold

As Seen in CFO Studio Magazine Q4 2015 Issue

SCHOOLED IN CHEMICAL ENGINEERING, BURKHARD ZOLLER LEARNED TECHNICAL CONTROLLING ON THE JOB AND LIKED IT

BY JULIE BARKER

Perfectly at home discussing methacrylates and performance polymers, Burkhard Zoller, CFO for Evonik Corp. – North America, has spent 30 years with the chemical company based in Essen, Germany, starting right out of college as a plant engineer. Three decades and 11 jobs later, he is experienced at running plants and business units. He has also run finance and strategic projects, and was controller for two different business units for about seven years. All this serves him well day-to-day in his current job.

And when he scrutinizes acquisition targets, he gives them the once-over in two ways. He examines the financials and the balance sheets, as all CFOs do, but he also evaluates the firm’s technology to ensure that it’s not only capable of what the target company claims, but is also a good fit with Evonik’s extraordinarily broad portfolio of applications. Zoller, whose master’s degree is in chemical engineering, is a different type of CFO for our times. But he’s not unique in this particular regard. According to a Bank of America report titled “Evolving Role of the CFO,” 63 percent of CFOs are taking on strategic responsibility for technological advances.

For Zoller, having such a skill set is useful with the Board of Directors when presenting the reasons for a proposed acquisition. “You can only put so much information into a paper and present it to the chairman, or in our case, chairwoman. In the meeting, additional questions pop up and I’m in a good position to know about the environmental issues, about the technical issues, about the market access, about the competition, and so on. And that way, I’m very helpful in the decision-making process.”

Diverse Products and Skills

With historic roots dating from the beginning of German industrialization in the first half of the 19th century, the contemporary Evonik Industries was established in 2007 from a lineage of predecessor specialty-chemical companies. Its products, says Zoller, “are in everybody’s life.” Its chemicals are in consumer products like toothpaste and soap. Its polymers are in pill coatings for delayed release of the drug as well as taste masking and moisture protection to make pharmaceuticals more palatable and long acting. Evonik products also make spices more free-flowing and make airplane wings more lightweight.

To keep the inventions coming and to tap into megatrends, R&D is essential. “We spend more than 3 percent of our revenue on R&D,” says Zoller. “We always have projects in the innovation pipeline. Evonik has an intellectual property department here in North America because we had too many ideas to have it done in the central patent department in Germany.” As CFO, one of his focuses, he says, will be to keep money flowing to innovation.

Prior to stepping into his CFO job in 2014 — overseeing finance, tax, IT, and several service units, including energy management, for Evonik’s U.S., Canada, and Mexico operations from offices in Parsippany, NJ —Zoller had several notable shifts in responsibility and title. One of the most important was when he became vice president and controller for the Methacrylates business unit of Degussa AG (an Evonik predecessor). For the first time his job was to look at numbers and think of probabilities. “Accounting is describing what happened last year, putting it in a financial statement. But controlling is looking forward,” he says. “That’s an important part of today’s business. You can’t wait until it’s too late. You have to correct the direction the company’s going, and that’s what controlling is about.”

In that role, he also headed up strategy, and in consultation with the business unit’s head, contributed to decision-making and business development. He advised pursuing acquisition of a company that is still a major part of Evonik’s U.S. business, Evonik Cyro. The acquisition was completed in 2005. “We were on a growth path,” he says. “From then on, we grew.”The methacrylates business expanded from a largely European one to North America and Asia. “It was a very interesting time. We were touring, doing the roadshow to get the approval for this big expansion course, and we actually succeeded. When I started as the controller in that unit we had 270 million euros in revenue, and when I left seven years later, we had 1.4 billion.”

Deeply Involved

Besides his dual background in chemistry and finance, Zoller is an atypical CFO in other ways, as well. To clear his head, he might take off on a motorcycle trip for several days. In early summer, he and a friend rode touring bikes from New Jersey, where he lives, to the White Mountains of New Hampshire, and up Mount Washington for the view. “I’ve driven motorcycles all my life,” he says. “It’s my way to get a fresh mind. You can’t think of anything else when riding a motorcycle.”

One might guess there’s a bit of a risk-taker in such a personality, but he is certainly not that. Asked about the most beneficial contribution a CFO can make to his company, he says, “Keep the company out of financial trouble. That’s the core. The old traditional CFO tasks are still the most important.”

He says the most exciting part about his job is “being involved in everything. Having this broad knowledge about the company, and being able to talk to everybody in the company and outside.” Recently, he says, he enjoyed a lengthy conversation with a major tire manufacturer’s head of innovation and was able to speak knowledgeably about a green tire ingredient Evonik makes.

In July, a new Evonik innovation hub opened in Richmond, VA. “We’ll create new jobs there — and I also want to bring more manufacturing to North America. The United States has an advantage in raw material, in energy costs, and it is a steady, growing market, one of the biggest in the world,” says Zoller. “I’ll try to get more investment over here.”

You Can’t Be Blind To Important Information

As Seen in CFO Studio Magazine Q4 2015 Issue

A CHANGING BUSINESS MODEL DRIVES CHANGING DATA NEEDS

BY MARTIN DAKS

Gary Piscatelli, Senior Vice President and CFO of Hunter Douglas North America, tackles his job using a holistic approach, which is exactly how the company, the worldwide market leader in window coverings, established its prominence. The Netherlands-based company —with its North American headquarters in Pearl River, NY— stands out from competitors with its commitment to creating innovative product designs that fuse form with function to meet the evolving needs of the marketplace.

Piscatelli oversees the organization’s finance, technology, and human resources groups. Among other projects, he is helping Hunter Douglas to improve its data-gathering, reporting, and analytical systems in a way that enhances the company’s business operations. That means establishing more standardized information and systems without detracting from the magic that has driven so much success.

Looking at Information Anew

“Historically, operations were run in a somewhat decentralized manner,” he says, “but we are now moving toward greater centralization when it makes sense. We need a common language to ensure that metrics and measurements align, so when we talk across departments and functions, everyone is using the same definitions.”

Piscatelli joined the company a year and a half ago, following stints with Gillette Co., Nestle, and Timex Group, where he was involved in a comprehensive array of operations. Today, Piscatelli draws deeply on his previous experiences.

“The CFO is seen as a custodian of the company’s assets,” he says. “That reaches across many functions, and combined with the responsibility for business operations, means you’re basically connected to almost every part of the company. So you look for commonalities, ways that you can standardize and simplify functions and operations, not for the sake of standardization, but to help accelerate a company’s ability to achieve.”

Recently, Hunter Douglas converted the fabrication segment of its business from one that relied on a combination of independent and company-owned services, to one that is now entirely owned and operated by the company, bringing complete control of the manufacturing, assembling, and wholesale distribution aspects of the business under one umbrella. The increased vertical integration has helped to drive a change in the way the company looks at its data.

“When you’re tying together so many operations, it changes the way you gather and utilize your data,” says Piscatelli. “Ensuring that your data is accurate, and that you’re able to get at it, becomes a high-priority imperative. And it’s not a simple one. Among other challenges, it means gaining consensus on common standards, common hierarchy of information, and common goals.”

He sees the strategy to build a robust data architecture as both a logical and emotional journey. Building a comprehensive interconnected data set that links all the dimensions of a business at a level that drives understanding and decision-making without being overly complex is not simple. Getting it done with companywide consensus can be even more challenging. As challenging a task as this may be, capturing the right data is a critical enabler of strong business partnering.

Piscatelli sees partnering as an essential role of finance, but the function needs to first ensure it’s got the basics covered. To begin with, he says, “a company needs a solid foundation made up of accurate accounting and a strong system of internal controls. Once those are in place, a CFO and his or her team can drive financial improvement through cost containment, top-line growth, and delivering more bottom-line value.”

Sharing Data Drives Efficiency

“If you want to create value, you have to ensure that everyone has access to the information they need to do their job right,” he says. “Regardless of whether you’re talking about production—which involves keeping tabs on everything from inventory to manufacturing—or product, or branding activities, or cost centers, or customer information, you need to be able to get real-time information so you know where the company is right now, and use that as a planning guide to determine where you want to aim in the future.”

Piscatelli is well qualified to address and integrate these myriad concepts — his background includes responsibility for purchasing, financing, information technology, and other functions. He also understands the human angle.

At Gillette, prior to leading finance for the Personal Care Business, he served as Director of Corporate Finance, where he led a global SAP implementation that included revamping data architecture, accounting, reporting, and analytics. Afterward, he was Senior Vice President and CFO at Timex Group, where, among other things, he drove changes in reporting and analytics that he believed helped enable the transformation of the financial function from accountants to involved business partners.

A lot of the information may be on a sales invoice, but it’s useless unless a data system can capture it and present it in a meaningful manner. “The key is to structure a system that can capture data from disparate sources and integrate it all in a way that makes sense,” says Piscatelli.

As part of the effort, Piscatelli is talking to employees at all levels and functions across the company, and will continue to, asking key questions that will better enable systems that will aid Hunter Douglas to deliver more value. That’s where the human element comes into view.

“People are more likely to be candid with you if they know their statements are being taken seriously,” he says. “We let our co-workers know that they are an integral part of the Hunter Douglas operations, and that their input and activity will be vital to the company’s success.”

In addition to updating its internal data-gathering and reporting models, the company has recently had a changing of the guard in the C-suite. At the beginning of July, longtime Hunter Douglas North America CEO, Marvin B. Hopkins, retired. Ron Kass was named as the new President and CEO. Kass joined the company in 2005, previously serving as President of both the Hunter Douglas Design Products Group and the Independent Fabricator Group of companies, and as Executive Vice President of Marketing, where he oversaw brand marketing, advertising, and communications for Hunter Douglas.

“Our underlying strategy has not changed,” says Piscatelli. “Hunter Douglas has a long legacy of bringing to market well-designed, high-quality, and otherwise superior custom window treatments that are both profitable for the company and sought after by consumers. We are well positioned to continue this trend moving forward to maintain our leadership position.”

Preparing for Private Equity

As Seen in CFO Studio Magazine Q1/Q2 2016 Issue

WHAT COMPANIES MUST DO TO RAISE CAPITAL

Going after private equity funding was the focus of a CFO Studio Executive Dinner held at Blue Morel in Morristown, NJ. Luke McKinnon, recently having served as Chief Financial Officer of a global engineering services company, was the discussion leader.

“Going out and raising private equity is a huge effort,” said Mr. McKinnon.

Successful private equity firms have financial controls in place that focus on the basics of performance— revenue, operating margins, and cash flow. McKinnon was tasked with finding a long-term minority-interest investor for the global engineering services company he was part of, one who would be willing to have a seven- to ten-year relationship. “We found three firms interested in this length of term. Although they are called private equity, many of those investment companies are more family-run type places,” explained McKinnon.

The company McKinnon was with was global in nature, with operations in countries including Afghanistan, Iraq, Sudan, the Congo, Vietnam, Thailand, and Indonesia. “At one point, I had 2,000 bank accounts around the world,” said McKinnon.

This wasn’t the only challenge the private equity firm had to contend with. “They are focused on Day Sales Outstanding (DSOs) and cash flows,” said McKinnon.

This comment led to a discussion about DSOs. Bill Baldwin, Chief Financial Officer, Kepner-Tregoe, Inc., a Princeton, NJ–based capability development and consulting solutions company said, “Our most troublesome country is India, whether it’s with a major IT company or another Fortune 500 client that we deal, in India it’s a very, very long payment cycle.”

Delayed payments have become the norm. Historically, government agencies are known to be sluggish. “We provide engineering and consulting services to the government sector, mainly municipalities and counties, and they’re always dealing with funding and processing issues, so we’re probably at 115 to 130 days,” said Michael Dentici, Senior Vice President, Chief Financial Officer, T&M Associates, an engineering, planning, and environmental consulting firm based in Middletown, NJ.

Procurement and finance are becoming more interwoven than ever. “We’ve been involved in deals where the client’s procurement executives say, ‘We require 60- to 90-day terms, to which we counter that our prices will go up 15 percent, to which the client often agrees. This makes absolutely no financial sense, because the 15 percent fee increase is much more than the cost of money. There is a disconnect in the performance systems and communications between procurement and finance when this happens,” said Mr. Baldwin.

Peter Pfreundschuh, Vice President Finance and Chief Financial Officer, Immunomedics, Inc., a Morris Plains, NJ– based biopharmaceutical company, said not only are payments in each country unique, but they are ever changing. “When I first audited payments with some French companies, we were seeing 360-day payment cycles. A law was then enacted in which companies were required to pay on time.”

John McAndris Jr., Chief Financial Officer and Vice President of Finance, JJM Consulting, LLC was previously in charge of Latin America for Pfizer/Wyeth. “Venezuela is a country that is very tough, as many companies there never release money. You have to go to the government to get a special dispensation to get the money out of the country,” he explained.

This discussion put things in perspective for Andrew Wood, Chief Financial Officer, J. Fletcher Creamer & Son, Inc., a Hackensack, NJ–based contractor. “About half of our work is with government agencies and the other half is with private companies. Most of our work is with utility companies, which are semi-regulated. I used to complain…until I heard you guys. Our DSOs are in that 65- to 68-day range, which is not that bad, compared to all of you,” said Wood.

Selling accounts receivable is a standard form of managing cash flow and is something with which Gunther Mertens has experience. Mr. Mertens is President, North America Region of Elmwood Park, NJ– based Agfa Corporation, the North American arm of global imaging leader Agfa-Gevaert N.V. “Our DSO is actually 45 days, which is good. But what we see is that some bigger companies are asking us to offer extended-payment terms beyond the standard 30 days, in exchange for a supplier-side financing program,” said Mertens.

As an example, Mertens explains that if a customer owes Agfa $1,000 and payment term is 60 days, the customer’s bank will pay Agfa $995 after only 10 days. The customer in turn will pay his bank $1,000 after 60 days. “So the customer achieves his goal of improved cash flow by keeping his cash 30 days longer,” said Mertens. “The customer tries to make this palatable to Agfa by not deteriorating vendor’s cash flow by 30 days and instead improving vendor’s cash flow by 20 days. But there is a cost to the vendor similar to if the vendor were to sell its receivables.”

Prioritizing revenue cycle issues was of paramount interest to most CFOs at the CFO Studio Executive Dinner. “If you don’t bill them, they don’t pay. The start-up time is in the invoice. If you change the terms of your agreements, so that your billing point is earlier, you can actually move forward the payment,” said Barry Lederman, Chief Financial Officer, Whippany, NJ–based Halo Pharmaceutical, a contract development and manufacturing organization that provides scientific and development expertise.

A steady billing cycle is key to success. “When I was in professional services, one of the things we changed right away was, instead of billing at the end of the month, we started billing every two weeks,” said Michael Roth, Chief Financial Officer, Chief Operating Officer, Beefeaters Holding Company, a North Bergen, NJ–based manufacturer of dog treats. “We dramatically increased cash flow by billing major customers every two weeks.”

The Right Partner

“One of the most important lessons for everybody is to get the right people to invest,” said Ed Schultz, Principal, of New Jersey–based Highlands Business Group, a consulting firm. “It’s important to make sure the due diligence is right, that the fit is correct, and that you’re not going to get beaten up. A lot of deals go south because the private equity firm didn’t listen and didn’t gain a solid understanding of the business. Sometimes, they only want to do the deal and aren’t thinking about who they’re investing in.”

The correct fit is important. “There are two things to consider: style and strategy. Does everybody agree about what the company is going to look like in the future? Is there knowledge of the industry and can you really get along with these folks? What is their style going to be on a tactical basis, too?” ponders New York City–based Curt Cornwell, Partner, Transaction Services, PricewaterhouseCoopers, a leading professional services network, and a CFO Studio Business Development Partner.

Andrew Savadelis, Chief Financial Officer, Angion Biomedica Corporation, a Uniondale, NY–based biopharmaceutical company, pointed out the uniqueness of the arrangement made at the company McKinnon had worked for. “It’s not private equity in normal terms. It sounds like it is more Venture Capital than Private Equity. VCs tend to take a longer-term perspective, but they also look for higher returns on their capital gains.”

Many agreed with Savadelis. “I concur, as the VC model typically includes raising a fund that is very industry-centric,” said Gregg Kam, Chief Financial Officer, Sonneborn, a Parsippany, NJ–based manufacturer and supplier of high-purity specialty hydrocarbons.

When preparing for private equity, sell-side reports have become a trend, according to PricewaterhouseCoopers. A selling company has an accounting firm come in, prepare a quality earnings analysis, a debt analysis, as well as details on trends being experienced, and that book goes out.

Allen Lane, Senior Vice President and Chief Financial Officer, Solix, a Parsippany, NJ–based provider of program administration, eligibility determination, and call center services, said, “I’ve been reading through a lot of these recently. There is a definite marketing slant on the part of the seller in these documents. They are a nice road map to begin your discussions with, but you still have to do a full due diligence review.”

Mr. McAndris of JJM Consulting said sell-side reports help from another perspective. “You can steer the course of where you want the buyer to look. You’re controlling the conversation,” he added.

In some instances, these procedures are not necessary. “We were headed down the road of going public and [our investors] came along and made us an offer that was about 50 percent above our projected IPO price. That’s what we call a no-brainer,” said Bert Marchio, Chief Accounting and Operations Officer, Edge Therapeutics, a Berkeley Heights, NJ–based clinical-stage biopharmaceutical company.

There are cases where acquirers don’t see the forest for the trees. “Every due diligence sale that I’ve been through, some companies got involved and looked at minutiae that didn’t really mean anything. For example, ‘I see you spent $22,000 on a particular purchase. What was it? Oh, it was a Christmas party,’ ” said Mr. Kam. “They often miss the big picture about the business in due diligence, focusing on immaterial items.”