We continue our popular series of interviews with senior figures in the world of treasury and finance, this month talking to Giuseppe Matassi, European Treasurer, Johnson Controls Inc.

What is your role as the European Treasurer in an American Company?

Johnson Controls is a highly decentralised company. Treasury is becoming more consultancy, technology and investment banking driven rather than process-execution driven. As technological developments allow much more automation, this drives down treasury costs. We are therefore changing our focus to become a partner for our operational businesses. We will be advising our businesses during their operational decision-making on how best to, for example, move into emerging markets.

At the same time, risk management will become much more important as a role for the treasury. As an illustration, treasury will become central to more parts of the business during strategic planning. We will develop risk management strategies before those risks are taken on, rather than managing risks after changes have been implemented, as has been the case to date.

Technology has added, and will continue to add, more value to the business. By making execution and strategic hedging, for example, easier, treasury will have more time to provide advice to our operational businesses.

What is your relationship with the corporate treasurer in the United States?

I report to the corporate treasurer. I am a member of the currency advisory board, which includes the chief financial officer, the corporate treasurer, the corporate controller and two divisional worldwide controllers.

Within the organisation, I head up one of the company’s four regional treasury centres. I am based in Brussels and have responsibility for treasury activity in Europe, Africa and the Middle East. The other three treasury centres are in Singapore, the United States and Brazil. As a treasury centre, we are working more closely with the operational side of the businesses, in the ways that I described earlier.

We are now operating as an in-house bank. Our plan is to integrate all the back office treasury functions here in Brussels.

As a result of advancements in technology, it is now possible to process treasury functions from a single, common database, accessible from remote location via the Johnson Controls network. The office in Brussels will be the worldwide back office hub for all the group’s treasury activities. By operating a single global database in this way, we will avoid duplicating unnecessary back office costs.

The corporate treasurer in the United States will continue to advise companies in the US and Latin America. In addition, he will set the strategy for treasury across the group, by looking at debt, derivatives and the other main aspects of treasury.

You operate as a Belgian Co-ordination Centre. Why did Johnson Controls choose to establish in Belgium rather than, for example, in Switzerland or Dublin?

In 1991, the company faced a dilemma. Through a series of acquisitions, it had expanded into Europe. The company needed to decide whether to continue to use separate, incountry treasurers or whether to centralise European treasury operations in one place. We decided to centralise because we felt that the introduction of the single currency would reduce foreign exchange activity within Europe and would make the process of managing one pool of cash in Europe not only possible, but also relatively easy.

Having taken the decision to centralise, the next question we had to answer was where should we set up this centralised treasury? Realistically we could choose from a number of possible locations – Belgium, the Netherlands, Switzerland and Ireland. There were three determining factors:

• Location.

  The treasury centre had to be easily accessible for our key business units. Transport from Dublin to some places is difficult, as it involves changing in London. Brussels, however, is central for our key European operations, which are sited in the United Kingdom, Germany and Spain.

• Language skills.

  When the decision was taken we felt that Belgium offered us a workforce with multilingual skills. Each member of my staff speaks at least three languages.

• The tax advantage.

  At the time, there were also significant tax advantages for us to set up a Belgian Co-ordination Centre. However, as an American company, these advantages still apply, but have less positive impacts as we pay tax on the worldwide income and can elect for the “check the box” tax method. This highlights that companies should not take long-term decisions on the basis of tax advantages alone. These incentives will disappear over time (as they are doing now in Dublin). Tax rules will not last for the whole life of a corporation.

As a result of these factors, we decided to locate our European treasury centre in Brussels.

How do you approach the issue of the use of technology?

We see technology as an enabler. It is not a cost that we have to reduce, rather we have to show that any investments we make in technology will lead to improvements in productivity. As an indication, the group’s turnover has doubled in the last five years from $8.3 billion to $17.2 billion. However the treasury team across the group is now the same size as it was five years ago. This shows that we have been successful in making the technology work for us.

We use technology to automate processes and to standardise. As an example, developments in commercial banking are using technology that will allow us to benefit from straight-through processing. Business units within the company want to know that using us will add value to their bottom line.

I have been discussing with a recent acquisition the benefits that they will get from using our in-house bank. They will want to see that by using us they will benefit from lower levels of processing and transaction costs than they would have been charged had they continued to use their commercial banks.

In the longer term, the group should benefit from the introduction of common processing. In this way, the use of technology allows us to free up resources to add value elsewhere. For example, as I have already discussed, we are able to spend more time providing advice to our business units.

What treasury management system do you use?

We have been continuously implementing Trema’s FinanceKIT. Our vision is that we will be running a central database in Europe that will be used to manage treasury activities globally. All our operations will be linked to the central database in Europe and the treasury will be able to be managed from anywhere in the world. We envisage the group’s treasury being run twenty-four hours a day – during the Asian day, from Singapore, then being taken over by Brussels and then Brussels handing over to the US, and so on.

That is our objective. That is not how we currently operate. We are still waiting for the upgrade from Trema that will allow us to operate the multitasking and the 24-hour management. This upgrade should come through in October. We will then need a period in which to fine-tune the system. We expect to be operating this global system early next year. We started this planning process in 1997. We selected Trema because we wanted a software developer that could share our vision and would be able to work with us to achieve our aims.

You talked about this treasury system being managed globally from Singapore, Brussels and the US. What role do you see for the treasury centre in Brazil?

At the moment, Brazil’s infrastructure is not sufficiently developed to allow the treasury centre to be incorporated into Johnson Control’s global treasury management process. Neither the state of the telecoms sector nor the bandwidth available is sufficient to enable the Latin American treasury centre to be managed remotely. The level of regulation in Brazil makes this difficult as well. All these reasons mean that the integration of the Brazilian treasury centre is on hold until later.

This problem with technology exists elsewhere as well. For example, the level of technology available now in Romania is the same as that which was available in the Czech Republic in 1991. Our activities in Russia are also limited by the state of the technology. However, the volumes involved in these countries are not that large – as an indication, the group’s European turnover is about $4 billion, of which about $200m is from Russia. Although we cannot integrate all our businesses, we can put our vision into motion, and these countries can join as appropriate.

What role do you see technology playing in the future?

It has been argued that the Internet will change (and has changed) the face of the world. However on the question of security and connectivity, the Internet has not necessarily changed things at all. Firstly, one does not necessarily receive a better quote from Internet-based trading systems. When seeking quotes on the phone, I don’t pay a fee, I simply pay the cost of communication through a connection cost. I shouldn’t pay to use an e-dealing service, because they don’t change anything. I still need quotes from, say, three banks. Once I have the quotes, I then have to push the button and get the confirmation. For multibank services such as Currenex and FXall, the banks should pay – not the company. Having said that, there are some benefits from straight-through processing.

I do see future benefits from the Internet in that it will allow me as a treasurer to deal directly with a treasurer from another company in another country. For example, I might be able to arrange a swap directly with another company, rather than through a bank. If this happens, the role of the bank will then shift from being the provider of the service to being the guarantor of liquidity.