Interview: On Discipline, Relationships, and Fine-Tuning Methodology

A CFO has access to a company’s day-to-day transactions, which could run into the thousands depending on the firm’s sector and size.

But what if the company is a holding? A holding, such as Colombia’s Grupo Argos, doesn’t have a transactional website per se. Rather, it focuses more on few transactions in very large amounts, such as mergers, acquisitions, and investments. This type of operation requires a particular knowledge.

In this interview, Alejandro Piedrahita, vice president of strategy and corporate finance at Grupo Argos, shares his insights on data protection and cybersecurity, as well as financial innovation, technology, and how to maintain growth in a volatile environment.

Q: What is Grupo Argos doing in terms of cybersecurity in the finance department?

A: It’s important to set the context we operate in. We are a holding company, we invest, so we don’t have transactional websites or payment systems. Basically, we do few transactions, but for very large amounts of money. Those transactions usually require a series of systems and protocols that are extremely important.

There are several things we’ve been working on in that respect. The first is a series of measures to guarantee the protection of information. For example, mergers and acquisitions have information that is in the cloud, and that information is restricted. This means that we establish protocols to access that information, who has access, and the type of information to be consulted.

We are also working on how we manage portable computers. We’ve identified some key points, such as the use of USB hard drives, which shouldn’t be used. What we want is that all information be shared over email, which creates traceability.

Additionally, we’ve hired ethical hackers who look for vulnerabilities in our system. We’ve made several changes based on their recommendations and we’ve better understood topics such as system infiltration and vulnerabilities. We are constantly working with specialist firms who help us protect our data.

Another important topic is training the teams. For example, we recently had a case where one of the financial team managers received an email supposedly from me asking to transfer money by order of the company’s CEO. Thanks to the team’s work, they were able to identify that the email didn’t adhere to our normal standards and it didn’t follow our strict procedures, so we alerted everyone and were able to solve it in a timely manner, successfully avoiding the risk.

Q: How are you innovating in the financial department?

A: In this company we are working on innovation in two ways.

The first has to do with innovation in the operation. Today, in each of Grupo Argos’s companies (Cementos Argos, Celsia, and Odinsa), there are innovation teams, each led by a manager. This shows the level of importance innovation has for the company.

In Cementos Argos, for example, almost half of its day-to-day transactions are carried out on a digital platform. Today, a person who wishes to buy cement doesn’t necessarily have to interact with people, they can just do the whole transaction through an app or mobile device. This helps the company make predictions for offer and demand, identify trends, and consumer patterns.

We also created an independent team called Grupo Argos Ventures, which invests capital in new companies. In this project, Argos, Celsia, and Odinsa are investing in companies with services related to our businesses.

We recently invested in a U.S. firm called Stem, which has global partners in the energy storage industry. Renewable energy is central to Celsia’s strategy, and one of the biggest challenges in the future has to do with energy storage. But to do it with an internal team within Celsia isn’t easy and could be very costly. That’s why we considered investing in shares of an independent company was important and can create value.

What do we look for in these investments? Even though we invest in small stakes (in many cases, it’s 1 or 2 percent), what we try to negotiate is exchanging information, and this is of interest for the ventures. In some cases, we create pilot projects using our companies’ know-how in the region. In this way, we become allies while gaining access to information firsthand. For example, in some cases we take part as observers in board meetings, which is very powerful because we are interacting in the decision-making process, or we have access to the management to share ideas.

I’ll put it this way: investing in these companies for us through Ventures is the equivalent of the Formula 1 for a company like Mercedes Benz, where the Formula 1 represents cutting edge technology. We are able to take ideas and even apply them to our businesses. This means we can renew procedures and ideas, look at different ways of approaching things, and in some cases, solve problems differently.

Q: How do you maintain growth in a volatile environment?

A: The role of a holding group like Grupo Argos is to assign capital in the most efficient way. To achieve that goal, we have a very clear methodology that allows us to be disciplined. A couple of years ago we carried out a capital assignment methodology exercise with a world-class consultancy. After that exercise we fine-tuned our own methodology and the way we make decisions, moving our portfolios and breaking them down to a very high level of granularity.

One example is Odinsa, our infrastructure business. When an opportunity arrives, we don’t see it as a general rail or airport project, but rather, we break it down to determine the objective return on highways and airports. We also take into account the country we are investing in, and we analyze if it’s a greenfield or brownfield project. We can determine the objective return for each of those projects. We don’t talk about general returns by sector, we talk about particular returns according to each asset’s specific risks, and we look at our capability to create value to a specific asset.

We grow through mergers and acquisitions, organic growth, and by developing our own projects. But we are also very disciplined in terms of deciding when we should divest or pull out of a project or asset.

Another important element for us is the capital structure of our companies. We always look at financial flexibility as a very valuable characteristic to develop a long-term strategy. In other words, we measure the companies’ capital structure, taking into account things like volatility and uncertainty. The leverage capability should be such that we have the flexibility to continue our strategy even when events such as a sudden increase in interest rates or other risks arise.

And finally, there is the role we have as a holding. I would put it like this: Grupo Argos is a last resort lender. For example, we hold 65 percent of Bogotá’s El Dorado airport, which today is Latin America’s third largest in terms of passenger traffic and largest in terms of cargo. Initially, we held 35 percent through Odinsa, but we identified that we could make an unsolicited offer to acquire an additional 30 percent and take control of the airport. At the time, Odinsa didn’t have the leverage to make the acquisition, so Grupo Argos made the 30 percent acquisition so that we could control the airport and continue our series of strategic initiatives.

Q: What do you think are the main changes in the role of CFOs?

A: From a macro viewpoint, I’m the vice president of strategy and corporate finance. My role not only involves the financial and transactional tasks, but a larger focus on the company’s long-term strategy and vision.

When you have a strategic vision, you aim to secure your company’s mid- and long-term goals. This means the CFO role has a much larger scope. Not only do you have to oversee the creation of value in the short term, but you also have to make sure that the long-term goals are accomplished.

Another important aspect is that I actively take part in the board meetings of all of our companies. This gives me a wider vision and knowledge of what’s going on in each of them.

On top of that, the CFO role also includes monitoring macroeconomic issues, the public policies of the countries where we operate, and understanding how those elements affect our business. This obviously means having a relationship and communication with the stakeholders, governments, and communities. This aspect is crucial and increasingly required of a CFO.

This interview was conducted by Latin Trade for Council of the Americas.