Byron Jackson has worked in corporate finance and treasury for long enough to know that lessons can be learnt from the most unexpected of sources. With a deep understanding and interest in emerging market economies and anthropology he has applied his collected experiences from around the world – including a pre-liberalised China – to great effect and is now bringing home some major changes at one of the world’s foremost smart utility metering companies, Itron.
If, through acquisition, a business doubles in size and turns from a simple and largely domestic operation into a complex global organisation with no central systems or processes, matters can get out of hand pretty soon unless it can find a calm and collected presence to steer it in the right direction. So when US-based utility technology company, Itron, acquired a major international meter manufacturer, Actaris, in 2007, it needed an individual with many years’ experience in the global treasury arena to formulate a technology-led plan to simplify, standardise and centralise operations.
Arriving at Itron in 2008 as its new VP and Treasurer, Byron Jackson was faced with a fragmented global operation built around “too many legal entities, multiple instances of ERP, numerous manual interfaces and accounts with nearly 60 banks”. But drawing on knowledge accumulated throughout his time working in developed and emerging countries in the Americas, Europe and Asia, Itron is now looking at a more unified future.
Much of Jackson’s career had been spent working out of the major world financial centre that is Chicago. But his interest in international financial affairs started as a 19-year old despatched to Uruguay for two years as a missionary for his church. “I witnessed first-hand the impact of high inflation, currency devaluations and economic dislocation on the lives of the common people,” he notes. “Growing up I’d never really witnessed a high degree of poverty before.” With a newly found passion to try to understand its causes and how to improve it, the experience has had a major influence on his career direction.
Jackson first arrived in Chicago to study for his MBA in Finance at Northwestern University. He decided to stay on in the ‘Windy City’, having secured an internship and then in 1974 full time employment with FMC Corporation as a financial analyst. The firm was a $5 billion diversified industrial company with a major interest in agricultural chemicals, machinery and food processing equipment.
The first real international opportunity for Jackson arose when the company experienced some “significant losses” in foreign exchange. “Defining foreign exchange risk management back in the early 1980s was a major issue,” he recalls. “It was a great learning experience.”
With 20 years of service at FMC under his belt, Jackson decided the time was right for a move. Still based in the Greater Chicago area, in 1994 he joined mobile communications firm, Motorola. “International finance was becoming increasingly important to them and again they had some issues with foreign exchange management.” Stepping up as Corporate Vice President and Assistant Treasurer at a time when Motorola “needed to focus on working effectively in a lot of different countries”, over the next 14 years that is exactly what he did, carving out some very interesting partnerships, including work with the World Bank.
Motorola was at one point the largest foreign investor in China. Jackson describes the company as having a “very strong relationship” with the Chinese government, it being the first western business to establish a semiconductor manufacturing facility in the country (semiconductors are used in all modern electronics). Having established a relationship “built on trust,” Motorola helped the Chinese government work on a number of international financial processes before opening them up to other corporations, such as lending cash generated in China to Motorola’s finance subsidiary in Singapore or investing dollar-denominated cash in Motorola’s private, global money market fund.
In 2008, the role of VP and Treasurer at Itron surfaced. “It came at just the right time for me,” notes Jackson. Itron was a smaller business than he had been used to, but having just purchased Actaris, with its many international operations, overnight it had been thrust onto the world stage and was suddenly facing all of the issues that Motorola had faced.
In reality, Itron had scaled up from being an operationally centralised company in North America to being a “complex global organisation with no central systems or processes”. Developing international finance capabilities was now vital as countries such as South Africa, Brazil and Indonesia would increasingly play an important part of the company’s expansion. Immediately, this meant hiring new team members and developing the skills of those already in situ.
Today there are 17 personnel on board, including the members of a financial accounting group, a risk management group and an international treasury group (based in Brussels). The emphasis on bringing about “simplification, standardisation and centralisation” of all treasury processes has seen the integration of new and existing treasury technologies, notably the IT2 treasury management system (a case study covering the project in depth was published online in January 2014 as part of the Treasury Today Insight series).
“The goal is straight through processing and transaction automation,” explains Jackson. By freeing people from having to manage individual transactions and manual analysis it is possible to deliver “visibility and transparency” over all transactions, he believes. “We want the same financial systems and financial processes throughout the world.”
At the start of the global financial crisis in 2008, Itron was in a highly leveraged state having just acquired Actaris. It was insulated to a degree from the worst of the downturn by a number of very large electricity utility contracts in North America, sustaining it through to 2012. But it was far from clear sailing. “We still experienced a lot of the volatility, the dislocations of the financial crisis and the natural conservatism of utility investments throughout the world,” says Jackson.
There has always been a strong sense of the importance of cash flow at Itron. In difficult times that focus became more intense. Itron mobilises its cash around the world, concentrating it in the US and, in the midst of global meltdown, paying down more than $1 billion of debt. That debt is now at “quite a comfortable level”, the company even managing to implement a share buy-back programme.
It was fortunate too that as the US programme of quantitative easing (QE) was ramped up, Itron moved to floating rate bank debt. During the last three years the business has experienced “an extremely low cost of borrowing”, the likes of which Jackson says he has never before experienced. But as the low interest-rate environment continues the financial concern he has is the degree of volatility being created in emerging markets as QE tapers away.
With Itron’s business strong in many emerging markets he has already seen some “real volatility”. With rates rising, investors are heading back to quality, practically forcing central banks in countries such as Turkey, South Africa and India to raise their key benchmark rates to try to offset falls in their respective currencies and to protect against rising inflation. From Itron’s perspective it means having to maintain focus on cash flow, looking at commitments made on longer-term contracts and becoming more effective at forecasting and hedging its exposures.
However, given the company’s presence in many emerging markets, banking in some countries can be a challenge. “Our international bank group has a pretty good reach in places like Indonesia, South Africa, Argentina and Eastern Europe, but there will always be countries such as Mozambique where it is hard to find an international bank to work with,” notes Jackson. Today it has a panel of 11 banks. When Actaris first came on board, it swelled the number of Itron banking partners around the world to around 60. “We pared that number down dramatically but that is a difficult process; it changes the financial flows and processes in each country,” he reports. Change management has been a “challenge” but Itron has focused on delivering a fair share of its wallet to its relationship banks. “They’ve stepped up with technology and have been very helpful as we move to our new treasury system,” he reports.
On that topic, the implementation of IT2 is going well, but in January 2013 Treasury Today reported on the acquisition of that vendor by Wall Street Systems. “When that change was announced I had some concerns but they have been open in their communication,” comments Jackson. “Overall they continue to focus on their product line; we feel like we are at the forefront of using their system and provide a lot of ideas for enhancements going forward; we are waiting for some of our enhancement requests and suggestions to be incorporated into future versions of IT2.
The project to deliver a whole suite of new treasury technologies was just over half-way through at the time of writing. However, the scope of the undertaking means Jackson spends much of his time engaged in internal change management. “Technology provides opportunities but it changes the roles and functions of a lot of different people, not just in treasury,” he explains. The shift, for example, from manual transaction processing towards more analytics where rich data and information that hasn’t been available before on a global scale can now be called upon, means training treasury and financial groups throughout the world.
Resistance to change is common, but Jackson points out that as well as giving a lot more insight into processes, technology provides opportunities for personal growth and development. “I think people have been surprised at the value created when you have a common system across many different countries.” The new technology will make life easier in the future but the process of change can see some staff effectively doubling up on workload as old and new systems function in parallel. With most of the implementation expected to be completed by the end of the year, the benefits are becoming ever more apparent. For many, this signifies “the light at the end of the tunnel” helping to sustain the project effort.
Of course, one of the first projects undertaken by Jackson upon joining Itron was the implementation of a foreign exchange management structure. The introduction of a balance-sheet hedging programme has, he reports, worked out well but it does not solve all foreign currency issues. “How do you manage currency risk in a country such as Argentina?” he asks (the country is still reeling from its 2001 IMF default, it has no access to international capital markets, and CDS spreads on Argentine debt are in default territory). Notwithstanding such challenges, Itron is still looking at a point in the future of its cash flow hedging where more of its contracts are hedged. “We haven’t introduced that fully yet because all the systems have to be in place first.”
Its work in emerging markets almost inevitably means Itron is holding more cash in certain countries than it would normally tolerate. This forces treasury to find more effective ways of mobilising that cash but where possible it is brought into Itron’s pooling and inter-company lending structure. Jackson wants to go further. “We like the idea of having an in-house bank,” he states. With the systems falling into place, treasury is currently able to see over 98% of its global cash balances and statements on a daily basis and is getting to the point where an in-house bank can be a reality.
In addition, the next stage of Itron’s development will see treasury preparing for growth, both organically and through acquisition. With bank debt maturing in 2016, the next 18 months have been set aside as a time to explore all options. As treasurer, Jackson feels it is his job to be “ahead” of the company. “As growth opportunities appear we have to be prepared to move quickly.”
With continued interest in anthropology and the economic development of the emerging markets, Jackson is always keen to learn from new sources. He notes that manual processes can become entrenched in larger economies whereas some emerging nations have been able to jump straight to the next level, unencumbered by legacy processes. The use of cheques in the US, for example, continues almost unabated whilst those that never used them (perhaps because of economic uncertainties) have been able to leapfrog into the modern age with vastly more efficient electronic payment tools (M-Pesa mobile payments in Kenya being a classic example).
On the darker side, Jackson notes that many emerging markets have demonstrated that there are fundamental economic and financial principles that must be followed. “They tend to suffer the consequences of mismanagement rather quickly whereas in the developed world we think we don’t have to listen to those principles.” As a word of warning to the larger economies he cites an old maxim learnt from a former treasury boss that says the ‘chickens always come home to roost’; in other words, you have to pay for it some time. “It is surprising how long the US has been able to maintain very low interest rates – but things have to return to balance sometime and that can create a lot of volatility.” Asked whether it is the job of the regulators to reinstate balance, his view is forthright. “We will return to balance one way or another. It just remains to be seen how much volatility, dislocation and disruption occurs in getting there.”
Whilst pondering such events, Jackson can occasionally be found engaging in a spot of fly fishing. But, he insists, he is always thinking about treasury. “It’s been a part of me for so long that it’s difficult to pull my mind away from work. I have to be fly fishing and away from the phone for many days before I start to focus on other things.”
Dating back to his first overseas experience, it is of great importance to him that he is part of a business that in some way benefits society. It has been a conscious decision throughout his career to seek out businesses whose corporate objectives are in alignment with his personal views. FMC’s positive agricultural impact is obvious. Motorola worked to reduce the cost of wireless communications in developing countries. And now Itron, which is focused on conserving energy and water, is making a difference with its pre-payment meters by taking credit risk out of the utilities, allowing acceleration of their expansion into emerging markets, and giving power to more people.