Photo of Roger Sun and Ariel Liu, Johnson Controls and Dino Albuquerque, Bank of America Merrill Lynch.

This solution responds to the global joint venture cash management needs of JCI and Hitachi in early 2015. The solution encompasses funding, cash management and trade services across 16 countries globally, resulting in some impressive benefits, especially in straight-through-processing automation rates.

The challenge

Johnson Controls, Inc. and Hitachi Ltd. announced the intention to enter into a global joint venture (JCI-Hitachi) on January 21st 2015 that would allow both companies to deliver one of the most diverse portfolios in the heating, ventilation, air conditioning and refrigeration industries. Johnson Controls, Inc. acquired a 60% ownership stake of the new entity, which had more than ¥350bn in sales annually (approximately US$2.8bn). The resulting JCI-Hitachi venture had operations spanning 16 countries across three continents.

JCI-Hitachi required an innovative cash management solution that could cater for the highly complex funding, global transaction and liquidity management needs of the to-be-integrated structure.

As Pieter Lens, Senior Treasury Manager recalls, “Integrating two diverse companies across such a large scale is a complex, resource-intensive task, with multiple work streams that need to be meticulously managed and controlled to deliver demanding results in a very tight time frame.”

The solution

With complex requirements and an aggressive timeline to meet, JCI-Hitachi appointed Bank of America Merrill Lynch (BofAML) to deliver a comprehensive banking solution encompassing funding, cash management and trade across the 16 countries globally. It was critical that the solution could standardise processes via a single automated infrastructure that would be integrated with JCI-Hitachi’s systems to offer complete control, visibility, reporting and transaction timeliness.

“A deciding factor for choosing BofAML over its peers was the bank’s ability to offer one integrated standardised solution covering the 16 countries. They proved their ability to successfully deliver a smooth transition from multiple banks, multiple treasury centres and divergent processes to a more centralised structure with complete visibility, efficiency and control,” says Lens, who led the JV treasury transformation project.

Best practice and innovation

At the time of the joint venture formation on October 1st 2015, there were 249 legacy bank accounts across 55 banks, multiple systems, manual processes, minimal liquidity management and little integration between these disparate banks. Through the initial account rationalisation exercise with BofAML, JCI-Hitachi was able to decrease the number of accounts by 45% by May 2016, and was on track to achieving their goal of a 70% reduction in bank accounts.

Additionally, JCI-Hitachi was looking to maximise liquidity by creating a consolidated pool where it could have all funds concentrated.

JCI-Hitachi established one cash pool in London and one in Hong Kong with an internal sweep set up between the two pool centres. In line with their global business model, this automated structure provided JCI-Hitachi with an optimal window for their daily cash management.

Today, all JCI-Hitachi countries participate in the company’s notional cash pool, except for countries where regulations do not allow. In addition, a multibank solution with a local bank in Japan is also in place, which involves a daily morning sweep to the cash pool. This workaround solution required both internal and external coordination between BofAML and the third-party bank, and served the company very well. Working with BofAML, the company also had success in countries where there are restrictions on cash pooling. For example, in Taiwan a new solution was implemented that enabled JCI-Hitachi to pool large sums of US dollars by doing an FX swap on a monthly basis to its notional global cash pool.

“The success of a treasury project of this scale requires a strong sense of collaboration and understanding of in-country practices. It is essential for the treasurer to strike a fine balance between local requirements and company objectives. This solution demonstrates how a small global treasury team successfully leveraged the integrated capabilities and platform of an international bank to achieve real-time visibility and control across its operations in 16 countries,” says Lens.

Key benefits

• Number of bank accounts reduced.
• Concentrated liquidity.
• Increased efficiency and automation (99%+ STP) at lower cost.
• Centralised visibility on daily cash.
• Increased security and control.
• Single point of contact.

Key learning points

A global project like this one involves many different stakeholders. I believe it is crucial for the success of such an undertaking to ensure you convince the various parties of the benefits of the project. Nobody enjoys change for the sake of changing. It is therefore important for everyone to see the greater goal (in our case increased efficiency, liquidity and global process improvement) in order to keep people motivated and dedicated to driving results.

It is an honour to have won this award, especially given the outstanding quality of competing entries from other multinationals who I profoundly respect for their expertise in the treasury field. Innovation is one of Johnson Controls’ core values and we therefore greatly appreciate this acknowledgement by Treasury Today Asia for our efforts to achieve leading cash management solutions.

Pieter Lens, Senior Manager – Corporate Treasury, Johnson Controls Inc