The holistic commodity management approach25-3-2014

PwC

Agenda

Introduction

Trends

The PwC holistic commodity management approach

Different types of trading require different system Functionality

CTRM Systems

Roadmap Dycotrade

PwC

High volatility in commodity prices

Slide 3

1/1/

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2012

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2013

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Historic Volatility 2002-2013

3 Month Euribor

CRB Commodity Index

Rogers Int. Commodity Index

His

tori

c V

ola

tili

ty

PwC

Trends

•From decentralised to centralised commodity management

• More liquidity in markets/ more products and banks offer more and smaller products

• Awareness and increased opportunities for portfolio optimisation (Arbitrage)

•Interest in Commodity Risk Management Systems

•More Regulations (MiFID II, MAD, EMIR, Dodd Frank act)

•New Accounting Regulations (IFRS 9, IFRS 13)

• Need for improved liquidity forecasting and cash management

• Need for a system that supports valuations including basis risk and CVA/DVA

Slide 4

PwC

Commodity Managemen

t

Accounting&

Internal control

Treasury

Logistics

IT

Risk Managemen

t &Compliance

Tax & Legal

Holistic Commodity Management Approach

How

What

Regularly compliance & control

Efficient and

effective processes

Integrated Commodity Manageme

nt

Value throughout

the business

TimeSafeguardingassets

Influencingbusiness strategy

The Commodity Management value chain

Complyingwith

regulation

Minimizingcost

Maximizingshareholder

value

Slide 5

PwC

Risk Management & Reporting

Planning & Portfolio Management

An end to end view on Commodity Management deal life cycle

Deal Negotiations

Deal Manageme

nt

Deal Execution

Settlement

Deal Capture

Accounting & Reporting

Systems

Commodity Management Strategy

Slide 6

PwC

Our Holistic approach

• Deal Analysis• Deal Entry• Logistics and

Nominations• Deal

Management• Inventory

Management

• Deal Entry Validation

• Transaction Reconciliation

• Confirmation• Contract

Management

• Limit Monitoring• MTM & Valuation• P&L Calculation• Risk

Measurement• Performance

Measurement• Credit Risk

Management

• Actualization• Settlement• Journal Entries• IAS 39/ IFRS 7• Disclosures

Fu

ture

Sta

te E

nvi

ron

men

t

Infrastructure

• Business Objectives and Risk Appetite

• Front, Middle and Back Office Functions

• Risk Limits• Portfolio/book management• Pricing Models & Analytics• Metrics/KPI

• Risk Reporting• Performance Reporting• Compliance & Regulatory

Reporting• Financial Reporting

OrganizationMeasurement &

AnalysisReporting

Pro

cess

Peop

leTech

nolo

gy

• Actualization• Settlement• AP/AR• Journal Entries• IAS 39/ IFRS 7• Disclosures

Deal Negotiations

Deal Manageme

nt

Deal Execution

SettlementDeal

Capture

Slide 7

PwC

We distinguished three different types of Trading for benchmarking

Slide 8

1. Supply chain Trading

2. Asset backed Trading

3. Proprietary Trading

Sales/procurement

drivenArbitrage Directional

Low Risk profile High

Less Controls / open positions /MtoM accountingMore

Freight/physical trading Paper trading

PwC

CTRM systemsCommodity Trading & Risk Management requires specific functionality

Gartner Magic Quadrant

• The ETRM market is dominated by niche vendors

• Average ETRM supplier revenue is in the range of $20 – $24 million per vendor

• Many consolidations in the last years

• There is not a wide variation in the platforms offered by vendors

PwC

Selection criteria and weighting factors

Overall we differentiate between the following areas, the final criteria will be determined in close cooperation with Customer:

1) Overall system vendor information (credentials)

2) Cost estimations (license / maintenance fees)

3) Deal Negotiations

4) Deal Capture

5) Deal Management

6) Deal execution

7) Settlement

8) Portfolio Management

9) Freight Logistics

10) Risk Management, Treasury & Reporting

11) Governance & Controls

12) Systems & Interfaces

PwC

Roadmap Dycotrade

Some of the elements currently in place

• segregation of Duties

• Deal capture, pre deal analytics, real time reporting

• Portfolio management, Wash outs, circles and strings.

• Interfaces with back-office and logistics

• FX Management

Some of the work in progress

elements

• More advanced pre-deal analytics

• Regulatory reporting under EMIR/MIFID II

• Hedge accounting solution

(these are the elements where PwC is involved)