Interview with Charlie Stough
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio interview between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and finance executive, Charlie Stough, CFO of Atalanta Corporation.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
How the Financial Team Protects Profits When Doing Business Globally and Domestically
Zezas: Hi this is Andrew Zezas, your host at CFO studio. I am joined today by Mr. Charlie Stough. Mr. Stough is Chief Financial Officer of Atalanta Corporation. Atalanta Corporation is a privately-held food importer with annual sales in excess of 400 million dollars. Atalanta Corporation is part of the Gellert Global group which in of itself has annual sales of 900 million dollars. Atalanta Corporation is a large player in the domestic specialty foods industry, one of the largest cheese importers in the United States, and its customers include food service companies, restaurant chains, club stores, and retail specialty stores. Mr. Stough is here to talk to us today about how the financial team protects profits when doing business globally and domestically. Charlie, it’s really great to have you here on CFO studio.
Stough: Great, thank you.
Zezas: Charlie we are talking about the financial team protecting profits, it’s a very exciting topic, and I can’t wait to hear your thoughts. Given what’s been going on in the market, why don’t we start out with the discussion of credit, how has the credit environment affected how your company has done business in the last few years?
Stough: Historically, Atalanta has always screened new customers very carefully. We’ve taken a look at their track records with banks, with vendors, etc. And in 2008 when the United States went into a recession, what we found was that a few more customers would file for bankruptcy, a few more customers would close their doors, and we really had to be more diligent. And we have a team of employees who screen every new customer, and it has paid dividends because really the bad debt we’ve incurred have diminished. The other thing is that we made a conscious corporate decision to try to sell more to medium and large size customers rather than to the very smallest customers, we service the smallest customers through other distributors.
Zezas: So, at the time in the economy when some of your competitors are struggling to maintain business, struggling to acquire new customers, Atalanta Corporation is being selective and has made a strategic decision to focus on a particular sector and perhaps to focus less on small businesses
Stough: Yeah exactly, and the company has been in business for approximately 60 years, and we provide a very wide variety of products which gives us the opportunity to go to people like Wegmans and provide a huge number of SKUs rather than just trying to pedal cheese or tuna to smaller stores.
Zezas: Now Charlie, you’re bringing in food products from around the world, and I know your background has a lot to do with having done business around the globe. You’re involved in hedging, especially on foreign exchange markets. Given that the Euro and the dollar have experienced weaknesses, how has hedging helped the company maintain its profitability?
Stough: Well, basically we purchase about 50 million Euros a year to buy cheese, olives, olive oil, and other products in the European community and because of the volatility of the currency versus the US dollar there are very distinct opportunities to save money by buying advantageously. Typically what we do is use some forward contracts where we’re buying a fixed level, fixed exchange rate several months forward. We’ve also used options with great success in the past, options you’re really buying a range on the currency, you’re buying let’s say 130-135. In some cases you’re buying a collar which gives you the specific range, nothing above nothing below. Other option products marketed by the banks will give you a wider range, but then there’s a penalty rate if you hit the most advantageous point, but the reality is that you can protect your cost structure and you can manage your risk by locking into forward exchange rates. One specific example is Outback restaurants where we’ll sit down with Outback and we’ll make an agreement to provide 100% of the blue cheese that they sell in the United States for a calendar year. As soon as we sign that contract, we go out and we hedge the Euro for the number of Euros we are going to need for the 12 months to supply Outback, that way we’ve fixed our costs and fixed our profit margin.
Zezas: Wow so this is a very sophisticated approach to import and export, and I have to believe that you have a department behind you that supports you in these endeavors, but I also have to expect that you have strong banking relationships that help you accomplish this. How do banking relations tie into your belief to do this?
Stough: Well first of all we need banks that can provide the plain vanilla products such as forward, but we also need banks who can provide option contracts and beyond that we need, banks who can help us settle transactions in some far reaches of the world such as Romania, we need somebody like Wells Fargo or Chase or Citibank who can accept deposits of Romanian currency in Europe to settle contracts, and a lot of US banks don’t offer that. In terms of bank relations as a whole, we have a 5 year syndicated loan which provides us with long term low interest rate financing, and it provides a steady source of funds for us over time as well as other products like letters of credit
Zezas: Now you mentioned Wells Fargo, Chase, and Citibank. Are there other banks that work with your business?
Stough: Yes, Banco Santander, TD Bank…
Stough: Yes IDB, Israel Discount Bank, yes. And we try to emphasize Communications with the banks because what we found is if you go to them, and you keep them in tune with the business, they are much easier to make decisions and provide financing on a timely basis or other products.
Zezas: So let’s go back to domestic issues, now when a company has operations here In New Jersey, in Elizabeth, and you recently gone through an expansion and I understand you’ve used low income financing and new market tax credits to achieve that, how did all that work into the company’s benefit?
Stough: Well, basically in 2007, we got the idea of building a second warehouse, and we went to the NJ EDA in Trenton, and they were very enthusiastic about helping us obtain financing at a very low interest rate, and they also introduced us to the Elizabeth Economic Development Council which provided additional low interest financing in the form of a new market credit tax credit loan. The all in interest cost was about 3.5 percent which would compare probably to 5 7/8 or 6 percent on a regular real estate loan.
Zezas: That’s not bad, not bad. And you got great cooperation from both the state and the city.
Stough: Exactly. And we also made a lot of attorneys in New Jersey happy because there was a lot of libel work.
Zezas: Let me take you back to the global conversation again, I know you have a large presence in Romania and also in Chile. Now you’ve got a joint venture in Chile and you’ve shared with me some interesting dynamics about financing a new venture in Chile from the US, tell me a little bit about that.
Stough: Yes despite the fact that agro-business is very large in Chile, and despite the fact they are a huge exporter of raisins, there isn’t always a lot of financing available to new players in the raisin industry in Chile. What we found was that for start-ups you really need to have a very highly capitalized company which our joint venture is, but as you go forward obviously you would like to get working capital financing, and what we’ve found is that it’s difficult to obtain that in Chile, and it’s difficult to convince a New York bank to lend funds for that in Chile, but I think in working with Citibank we found a solution by putting up a standby letter of credit which a local bank in Chile will use as security.
Zezas: Okay so the challenge is we are here in the US and we have a business in Chile, and the Chilean banks don’t know us because we are here, and the US banks are challenged because the business is there.
Stough: Right, and the assets are there, which is the primary consideration for the banks
Zezas: Very interesting, well you mentioned Romania before, and I understand you had an existing business in Romania, and you were looking to recapitalize it in some respect, and you had some different challenges?
Stough: Yes, basically it’s a high interest rate environment in Romania, and banks in the United States are reluctant to lend because the legal process of securing leans on assets in Romania is fairly laborious, so the reality is that you need a global bank such as Citibank or Wells Fargo or Chase whose willing to go in and use local partners to finance at more advantageous rates.
Zezas: So the golden banks are Wells Fargo, Citibank, and Chase?
Stough: Right and TD bank is also a key player, they are very important to our business as well and Banco Desantander, we are hopeful that they will provide global service to us over the years.
Zezas: Charlie, we’re almost out of time, and before I let you go I want to ask you a personal question about you as a CFO, what do you do in your spare time when you’re not trekking across the globe protecting your company’s profits?
Stough: Primarily, I play taxi driver for my three daughters who are participating in various sporting and Girl Scout events and play a little golf and read a little bit as well.
Zezas: I also play taxi driver, I just don’t have a meter in my car. They think I do. Charlie, this has been wonderful, I truly appreciate you sharing our ideas and thoughts with us on CFO studio. I wish Atalanta Corporation continued success, and I hope you’ll come back and join us again.
Stough: Great thank you, thank you.
Zezas: It’s been a pleasure. This is Andrew Zezas, your host at CFO studio with Charlie Stough, CFO of Atalanta Corporation, saying thank you very much for watching.
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