Treasury Today Country Profiles in association with Citi

Honeywell

Corporate View: 
John Chen, Honeywell

John Chen, Honeywell

John Chen has over 20 years of experience in treasury and finance across a variety of industries. In 2012 he joined Honeywell in the Asia Pacific region, where the company has regional revenues in excess of $6 billion generated by business entities spanning 14 countries in the continent.

John Chen

Treasury Director

As a Fortune 100 diversified technology and manufacturing leader, Honeywell invents and manufactures technologies to address some of the world’s toughest challenges linked to global macro-trends such as energy efficiency, clean energy generation, safety and security, globalisation and customer productivity. The company employs approximately 132,000 people worldwide, including more than 22,000 engineers and scientists.

In the Asia Pacific region, China has been critical to Honeywell’s growth and innovation strategies. Today, all of Honeywell’s four Strategic Business Groups are represented in China, and all of them have relocated their Asia Pacific headquarters to China. Over the years, Honeywell has set up subsidiaries and joint ventures in over 20 cities across the country. Honeywell employs approximately 12,000 people in China.

The company’s key footprint in Asia Pacific also includes turbo operations in Korea and Japan, as well as semiconductor manufacturing operations for its Electronic Materials business in Thailand, Korea and Japan. The Honeywell Process Solutions and Building Solutions businesses have established a R&D center focusing on designing automation and control software in Sydney, Australia. Honeywell’s UOP – the leading international supplier and licensor for the petroleum refining, gas processing, petrochemical production and major manufacturing industries – has established a design and operations centre in Kuala Lumpur, Malaysia to serve oil and gas customers across Southeast Asia.

There are certain qualities that all individuals who reach the top of their professions display. It makes no difference whether the person in question is a leading politician, a Premier League footballer or a corporate treasurer at one of the world’s largest multinational conglomerates.

One such quality is a relentless determination to improve. That is the challenge John Chen sets himself every day in his role as Treasury Director for Honeywell in Asia Pacific. When he succeeds, and time is freed up from performing the routine, nuts-and-bolts treasury activities, it benefits not just his department but the business as a whole. “Any time that can be freed from my team members from operational work,” he explains, “can be more effectively utilised to forge a deeper partnership to the businesses that we support.”

Treasury engineering

Perhaps John’s fascination with simplifying work through automation, standardisation and integration stems partly from his time spent as a mechanical engineering undergraduate – a field of academia concerned principally with providing efficient solutions to the development of processes and products.

After adding to his degree with an MBA in Finance, John got his big break in the world of corporate treasury when he earned a place on a fast-track programme while at General Motors in Jakarta, Indonesia. It was a valuable introduction, one which proved instrumental in shaping his future career trajectory. With General Motors’ inclusive approach to staff development, John was rotated through several of the firm’s finance departments, enabling him to acquire a taste for different aspects of the business. That helped him to acquire a broad skill-set – a valuable asset to any employer – but it was the time spent within the treasury department where his real education began. “In hindsight, that proved to be a very valuable experience as not many regional treasury offices offer such breadth in their scope of mandates and responsibilities,” he says.

Over the course of the next decade-and-a-half, John built upon this experience by taking on a variety of different treasury positions across General Motors’ various Asian entities. After leaving the company in 2006, he worked for a handful of different multinational companies and financial institutions including Phillips Electronics and J.P. Morgan. In 2012, he arrived at the technology and manufacturing giant Honeywell. Within the Asia Pacific domain, Honeywell’s treasury operations are structured around geographical coverage with John’s team in Singapore supported by another office in Shanghai, together overseeing all treasury activities within their respective regions.

Besides routine cash management duties, John and his team have risk management duties which entail ensuring compliance with corporate policies, in addition to minimising the incremental risks that might result from the introduction of a new financial instrument or counterparty. The other activity that consumes a lot of his time is managing working capital. Other than for some strategic reasons, almost all of Honeywell’s funding needs are met through inter-company loans. Treasury structures the tenor of the funding according to the intended use of the proceeds, with drawing on cash concentration structures to fund working capital and short-term funding needs at one end of the spectrum, to structuring bilateral inter-company lines to fund longer-term capital projects at the other end.

Staying ever vigilant

Having lived through two near apocalyptic financial crises, John knows just how important it is for the corporate treasurer to remain alert to signs of market stress. In this increasingly globalised and interconnected world, the probability of contagion, direct or otherwise, is always present, he says. In order to avoid nasty surprises, therefore, constant vigilance is necessary to monitor more than just local events within Asia, but also beyond the continent’s periphery, too. As we have seen in recent months, Asian markets – just like every other – can soar or dive on the basis of manufacturing data in Europe, or even a tacitly implied indication by the Federal Reserve that it intends to reduce the pace of its quantitative easing programme.

Market stress is certainly a key agenda item for John. Unlike regulatory, tax or operational issues which can usually be tackled through negotiation or discussion, when financial markets begin to unravel it is simply impossible for an organisation, however large, to confront. “The Asian financial crisis in the late 1990s and the recent banking crisis should serve as reminders that such financial events, even though eventually contained in those two episodes, will be too powerful to be stopped,” says John. The best the treasurer can do is to keep a watchful eye on events so risks can be mitigated before it is too late. “As a company, we exercise great diligence towards managing exposures to our financial counterparties, and we are very disciplined and methodical in managing our cash balances against those limits.”

Proof is in the pudding

Like nearly all multinationals, Honeywell maintains extensive global banking relationships while working more closely with a handful of banks on the partnership level. But what do John and his team look for when selecting a relationship bank? An organisational structure mirroring Honeywell’s own treasury structure is critical, explains John, adding that it is also important for “communication to flow in a seamless and transparent manner across both organisations at all of the various contact points”. Meeting that criterion really boils down to the way in which the bank perceives Honeywell; the Honeywell business should not be considered an aggregate of business across the bank branches that the company holds accounts with, rather it should be looked at as a single global business.

Delivery is also a big issue. Having worked in the treasury world for over 20 years now, sitting through glossy presentations about a new product or service promising the earth is an all too familiar experience for John. However, making something “look good on paper is the easy part,” he explains. The real test for a bank comes in providing a solution that actually does all it promises.

Table 1: Key financials

12 months to 31st December 2013 2009 2010 2011 2012 2013
Total revenue ($m) 29,951 32,350 36,529 37,665 39,005
Price/earnings ratio 16.00 15.1 20.4 17.2 18.6
Profit after tax 1,529 1,957 1,865 2,931 3,962
Total fixed assets ($m) 22,068 22,348 23,674 24,255 24,271
Total liabilities 27,050 27,047 28,906 28,788 27,856
Operating margin (%) 8 9 7 11 14
Dividends ($m) 1.21 1.21 1.37 1.53 1.68

Fiscal year ending 31st December
Without CPG

Ahead of the curve

That is not to say that John has an aversion to innovation. On the contrary, he cites a strong focus on technological innovation an important quality to look for when selecting a banking partner. “We prefer to work with banks which offer the latest technology,” he says. “We like to stay ahead of the technology curve.”

That mantra extends to Honeywell’s own treasury operation. Currently, treasury uses SunGard’s AvantGard Quantum treasury management system (TMS), supplemented with external portals for investments and an internally developed system to track the numerous bank guarantees that the business issues. By allowing treasuries to process vast amounts of information quickly and with far fewer resources than before, TMS portals are certainly an advantageous asset – if not a necessity – for today’s rapidly expanding multinationals. A degree of caution must be exercised, however. The benefits of technology, after all, can only be realised if all the systems are running smoothly – and as every treasurer knows, that is not always the case. As such, John recommends treasurers ensure a robust disaster recovery plan (DRP) is in place to safeguard against the worst-case scenario.

There is also another big risk associated with technology beyond its reliability. It comes from a lack of coordination and understanding of the system amongst users. As a result, each user needs to be fully trained in the use of the system, and if global operations are using a single portal, a common understanding of the segregation of responsibilities on a universal scale is absolutely imperative, he explains. Similarly, users running reports need to have a good understanding of the search and filter criteria built into the customised reports, or they may run the risk of pulling position reports that do not reflect the intended request. Like many of the financial risks treasurers manage in their day-to-day work, the risks associated with technology can never by fully eliminated, but by taking sensible precautions, they can be minimised. Either way, John would rather embrace technology than fear it. “Despite the risks, the advantage that technology offers far outweighs them. It’s all about managing the risks” he says.

The regulatory challenge

Like any forward-looking treasurer, John is strongly focused on integration, standardisation and automation (ISA). It has become a key part of how Honeywell’s treasury operates. “I would like ISA to become a habit, the way we do things by nature,” he exclaims. “It is not part of a plan, it is how we work.” Of course, such ambitious objectives are not easily achieved, particularly in Asia’s notoriously complex and uneven regulatory environment. Across the region, regulations, investments, and the processes that surround them can vary considerably, making it near impossible to achieve complete consistency in practice across Honeywell’s Asian entities. It is a challenge compounded by the need to integrate newly acquired companies into the Honeywell set-up. “As acquisitions continue to form part of our growth strategy at Honeywell, we will continue to face ISA requirements, but as long as it is in our DNA, we will get there.”

Given the challenges it poses to him in his treasury role, one might expect John to express considerable frustration at the weight of the regulatory burden within the region. His assessment of regulation in Asia is more nuanced, however. Although Treasury Today’s 2013 Asia Pacific Benchmarking Study reveals that 68% of treasurers in the region see regulatory issues as a challenge – more than any other region – John argues that the question of whether regulation should be viewed as a force for good or a constraint on business has greater applicability beyond APAC. Some degree of regulatory oversight is clearly necessary, he explains. But, on the other hand, too much can be detrimental to the markets and businesses operating within them.

Overall, regulatory bodies in Asia are generally pragmatic and pro-business, he says. “Nevertheless the pace at which changes are introduced is often dictated by political and domestic agendas, which sometimes takes precedence over economic considerations.”

Moving forward

Honeywell recently changed one of its cash management banks in a particular region and as such working on that project has consumed much of John’s time of late. Now that is behind him, he intends to spend more time creating more efficient processes, tearing down silos, and developing the department into a strategic partner for the business units in the region looking to grow. “I have a strong team which certainly has the capability to do more, such that over time, we should take on an increasingly larger partnering role within the business.”