Case study: Johnson Controls’ treasury ops head on Tyco tie-up

Mario Del Natale is a technology and treasury specialist who joined Johnson Controls in 1997, spending the first eight years as manager of the global treasury unit’s information systems (IS), working out of its international offices in Diegem, Belgium. He was previously senior treasury manager for Europe and Africa, taking up his present position in April 2010 as director of global treasury operations, systems and applications.

Del Natale has been particularly busy this year. Johnson Controls, which reported 2015 sales of US$37.2bn, announced plans in January to move its global corporate office from the US to Ireland for tax efficiency purposes this year. This follows a ‘super tax inversion’ merger with Cork-based fire protection systems group Tyco International which, according to reports, will own 44% of the new company Johnson Controls Plc.

The merger, due to complete by the end of fiscal year 2016, is subject to customary closing conditions. As part of the reorganisation, Johnson Controls’ Automotive Experience business unit, specialising in car seating, controls and interiors, is due to be spun off this October into an independent company called Adient. This leaves the reformed corporation to focus on products, controls and services for heating, ventilation and air conditioning (HVAC), fire, security, power solutions and energy storage end uses. The company will serve the commercial, residential and retail buildings market, and large institutions.

The major reorganisation has had considerable impact on the supporting treasury operations and technology infrastructure at Johnson Controls, which Del Natale is responsible for helping to reformulate.

What are the key responsibilities of your job?

I’m director of global treasury operations, systems & applications at Johnson Controls. That means I’m responsible for providing strategic advice to the vice president (VP) and corporate treasurer. I report to them on developments in the payments, IS and technology industry, including treasury management systems (TMS) and electronic bank account management (eBAM).

My primary mission is to translate corporate treasury strategy into updated systems and applications worldwide, covering cash management, derivative and hedging activities. This includes updating TMSs and electronic e-trading, settlement and commodities platforms as required. I’m the business process owner (BPO) for treasury operations.

How are you coping with Johnson Controls’ major reorganisation?

It will require a TMS upgrade and some separation work for when the company’s Automotive Experience division is spun off this October into an independent firm, Adient.

The connectivity and technology architecture of the company will necessarily change following the announced merger with Tyco and planed move of the global corporate office to Ireland. There’s a lot of work to do rearranging the back, middle and front office IT and cash management architectures – not to mention the derivatives and hedging systems, which themselves face new regulatory reporting duties under the European Market Infrastructure Regulation (EMIR) and US Dodd Frank rules. As you can imagine, I’m rather busy!

The first job is to upgrade and clone our Quantum TMS, which used to be SunGard-badged but is of course now FIS-owned since their takeover. The reformed TMS is currently undergoing user acceptance testing (UAT), ahead of a planned go live on May 1. The associated Trax payment factory solution has already been cloned and gone live. The cloning of the standalone Adient Quantum system is due to go live on July 1. As with any project, we may encounter some issues that cause minor delays, but Johnson Controls is fully committed to delivering this reorganisation on time.

In parallel we are cloning our innovative Global Cash Management Reporting Dashboard that we developed in-house and Johnson Controls’ automated FX clearing and local cash pool clearing system, which are fully integrated with our TMS and payment factory. The solutions use real-time data coming from the cash management reporting system.

The upgrade and cloning work does not per se bring new functionality or capabilities to the table; but does get the company ready for its reorganisation, while also strengthening the reliability and stability of our complex and interconnected systems. It will also ensure compliance with EMIR and Dodd Frank regulations.

Last, but by no means least, we are moving to a full web-based technology stack that will strengthen security at our new firm and increase flexibility for our diverse globally spread end users.

Will Johnson Controls’ reorganisation mean new solutions become available to treasury?

After we’ve completed this primary reorganisation work we intend to look at eBAM and analyse whether to introduce a new trade finance system (TFS). This is a good time to take advantage of our structural overhaul to introduce new technological capabilities, where we can.

If SWIFT and the banks are ready to cooperate Johnson Controls will go for a fully automated and integrated eBAM system, but if not we’ll settle for a solid BAM solution for now.

A TFS will require centralised systems and connectivity to our issuer banks via SWIFT, not to mention reorganisation work on our bank guarantee, letters of credit (L/C) and other processes to ensure alignment and efficiency, but this too is another long-term aim.

How has the technology and business environment changed during your career?

The pace of everything is quicker now. Business and technology have got faster, with each feeding into the other in a loop that means real-time demands and capabilities have both increased during my time in treasury operations. I obtained a Masters in finance and in management from Belgium’s Université Catholique de Mons (FUCAM) in order to be prepared for the rapid changes in treasury, technology and business that the IT and internet revolution was then unleashing. I also obtained a Bachelor degree in computer sciences, as I’ve always been interested in technology.

I started my career as an analyst programmer at CSC Belgium in 1987, implementing an enterprise resource planning (ERP) system for a client and introducing various accounting and manufacturing software packages. I went on to work as a European financial analyst at GE International Benelux and Avis Fleet Services in Brussels, Belgium, for the majority of the 1990s.

Looking back to that time, and my early days with Johnson Controls, it is a different landscape. The 2008 financial crash obviously has a lot to do with that in terms of increasing real-time reporting and risk calculation demands, changing treasury funding models and investment practices, but analytics and technology have also changed a lot.

Moore’s Law, which says that computer power doubles every 18 months or so, has ensured constant advancement. The interconnectedness of business and technology has also strengthened.

The move towards real-time execution platforms on financial markets, faster corporate reporting and a generally speedier landscape is a key trend I have observed during my career and there is no sign of things are slowing down. In this fast-paced environment you cannot own and control everything as tightly as perhaps you did in the past, which means the possibility of failing is higher but equally the rewards are greater if you succeed.

Globalisation, increased connectivity and technological advancement are all part of this interconnected business trend. If you’re ready and prepared for this world, you can overcome the inevitable challenges of faster, more global competition and faster financial markets, but it’s not easy.

What do you see as the major risks and opportunities in today’s economic and technology landscape?

I’m not an economist or economic expert, as technology is my primary specialisation, but even I can see that the financial markets – and indeed various national economies and politicians – are currently too volatile. From big swings in share prices to currencies and border controls and work/ immigration policies, it seems there is a lot of volatility and discord in Europe and the wider world. All this can negatively impact companies and investment plans, and drive short-term hedging policies. Uncertainty isn’t good for treasury.

Regulation is also impacting businesses. Connectivity and technology infrastructures that treasuries deploy have changed in order to cope with increased reporting, transparency and real-time risk demands since the 2008 crash. This has an operational impact, so affects my working life.

These days it seems that politicians and indeed markets are just reacting to anything and nothing – exacerbating this volatility. They aren’t taking the right long-term decisions and sticking to them. A macro long-term vision is what is missing in this world, which in my opinion is too focused on micro viewpoints and real-time business and technology demands and capabilities, without the accompanying long-term strategic overview.

In this fast, volatile world, how do you mitigate risk at your firm?

It’s not really my area of expertise as a techie person, but we adopt many of the common policies seen at other treasuries. Johnson Controls, for instance, uses hedging instruments for foreign exchange (FX) and commodities, as others do, and we try to strengthen the supply chain wherever possible.

Reliable, diversified and resilient partners and payment systems, which prioritise orderly deliveries and working capital, are always a good way to mitigate risk.

Are you hopeful for 2016?

My nature is to be optimistic, but personally I don’t see many nice things coming out of the clouds as I look at the year ahead. Everything is about risk in today’s volatile environment, but real-time reporting, execution platforms and such technology-based speedy systems and procedures don’t help stability. Indeed it can often appear that financial markets are just reacting wildly as they don’t know what the underlying fundamentals are! Not enough people take the time to study a country or company’s long-term strategic plans, because the short-term dominates.

The rise of algorithms on capital markets hasn’t helped this messy situation. Execution technology has replaced common sense in this specific instance. But that isn’t to say that technology cannot be helpful, it just has to be harnessed in the right way. Powerful ‘big data’ analytics, when used effectively for financial planning and analytics (FP&A) – what used to be called financial control – can update investors and correctly predict the impact of major marketing campaigns, new product launches and such initiatives, but only if properly used.

My perspective is obviously that of a technologist, but I do believe that technology needs to be aligned with people and processes to deliver good results. The same goes for economies. Alignment between short and long-term goals is often lacking at the moment, to the detriment of the latter.

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