Specialist in Commodities




               Vienna, March 2010
About MERIT
 MERIT provides tailor-made commodity management services:
                                                 se...
MERIT‘s Convictions
 MERIT is strongly convinced that commodity management is now-more-than-ever
 strategically important ...
MERIT‘s Approach
 As a human business MERIT emphasises a client-needs-driven approach
 In-house trained specialists team-u...
MERIT‘s Core Services (1/2)
  Consultants
      Identification, analysis and quantification of price risks (commodity and
...
MERIT‘s Core Services (2/2)
         Execution Services
                Execution of Hedging Strategies via 24h Brokerage ...
Related Services
 MERIT Stock Control                                        MERIT Strategy Development
 Elimination of th...
Core Industry Expertise
 Automobile producers                    High Energy consuming industries

 Suppliers to automobil...
Markets we cover
    Non-ferrous and precious metals                   Energy
          Copper, aluminium, zinc, nickel, t...
MERIT – Tools                                MERIT Risk Matrix - Example



 Our teams use internally developped tools
 su...
Critical Client Challenges
  The budgeting process
      Huge divergence between planning and operational processing / flu...
How MERIT turns Challenges into Opportunities (1/3)
Securing price levels to achieve competitive advantages
The prices of ...
How MERIT turns Challenges into Opportunities (2/3)
Securing and improving the earnings position
Companies should be able ...
How MERIT turns Challenges into Opportunities (3/3)
Reduction in the cost of purchased materials
Due to the increasing vol...
In Conclusion: Your Benefits of Partnering with MERIT
  Strengthening your business:
        Risk control – knowing the im...
Reference Clients




                    16   Vienna, March 2010
Reference Projects                  (1/2)

         Client              Year                        Description/aim of pro...
Reference Projects          (2/2)

          Client     Year                        Description/aim of project

          ...
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Merit Commodity Management

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Merit Commodity Management

  1. 1. Specialist in Commodities Vienna, March 2010
  2. 2. About MERIT MERIT provides tailor-made commodity management services: services Analysis & monitoring of commodity exposure – effective risk control Defining commodity hedging strategies – budget balance Realizing commodity trading strategies – stabilisation of company earnings MERIT was founded in Vienna in 1988 as an independent commodity specialist company by visionary Dr. Michael Zillner, who is still the CEO today MERIT’s methodology is based on a robust +20-year business experience with industrial companies in Germany and Austria Dr. Michael Zillner Founder & CEO of MERIT Group 2 Vienna, March 2010
  3. 3. MERIT‘s Convictions MERIT is strongly convinced that commodity management is now-more-than-ever strategically important for industrial companies as a real value driver to strengthen company earnings and competitiveness: 120 Many companies are confronted with price risks 115 without taking adequate measures 110 105 Commodity buyers lack the tools -based on 100 95 independent price information and accurate 90 forecasting methods- for effective control of their 85 80 exposure to fluctuations and increases in raw 75 Aluminium Lead Copper Nickel material prices 70 1/4/2010 Tin Zinc 1/18/2010 2/1/2010 2/15/2010 3/1/2010 YTD Price-evolution, Source: MERIT Although good negotiation skills of purchasing departments remain important, the importance of commodity risk management and timing is essential to ensure relative stability and predictability of company earnings 3 Vienna, March 2010
  4. 4. MERIT‘s Approach As a human business MERIT emphasises a client-needs-driven approach In-house trained specialists team-up with clients Aiming for long-term partnership based on mutual trust MERIT offers services developed under one roof: roof Consultancy Exposure Management Execution Services Physical Trading though dedicated wholly-owned group company Inventory / Storage Financing 4 Vienna, March 2010
  5. 5. MERIT‘s Core Services (1/2) Consultants Identification, analysis and quantification of price risks (commodity and financial) Developement and optimisation of a customized Management Information System (MIS) for continous quantification and controll of all relevant price risks Definition of hedging strategies Daily reporting, customized value- and risk presentation Risk- and Exposure Management Data capture, analysis and active management of market price risks Outsourcing with clearly defined links to client‘s risk department Optimisation of the result with best possible product mix Exposure Management using quantitative tools to improve overall results 5 Vienna, March 2010
  6. 6. MERIT‘s Core Services (2/2) Execution Services Execution of Hedging Strategies via 24h Brokerage Desk* Implementation of appropriate account setup Signaler function Physical Trading Physical trading and delivery capabilities Inventory / Storage Financing *Execution in cooperation with group company Merit Alternative Investments GmbH (FMA authorised) 6 Vienna, March 2010
  7. 7. Related Services MERIT Stock Control MERIT Strategy Development Elimination of the stock price risk Strategic support for company boards with regard to financial risks MERIT Order Management Securing income Active Risk Management Taking into account the respective purchasing, sales MERIT Procurement Management and stock situations Control of the purchase price risk Scenario Simulation and Evaluation MERIT Exposure Management Using our standard software suite RIVa Overall risk assessment of a company MERIT Overlay Management MERIT Budget Management Stabilisation of financial results through targeted Assistance in keeping to budget targets overlay management of a company’s financial risks Reconciliation of group-wide financial risks MERIT Value Management (Currency, interest and raw materials risks) Results optimisation within pre-defined risk thresholds taking correlation and price elasticity into account Derivation and Modelling of Hedging Direct market access to relevant Measures exchanges in accounting systems (IAS 39 – hedge accounting) Through the MERIT-Group, with direct exploitation of market opportunities to optimise purchasing results Group Reporting – Risk Report Assistance in compiling the risk report for annual MERIT Cash Flow Management reports Safeguarding cash flows from raw materials risks 7 Vienna, March 2010
  8. 8. Core Industry Expertise Automobile producers High Energy consuming industries Suppliers to automobile industry Steel Industrie Airlines and other transportation Energy providers / public sector businesses related Metal processors Paper and pulp Other commodity processing Utilities industries 8 Vienna, March 2010
  9. 9. Markets we cover Non-ferrous and precious metals Energy Copper, aluminium, zinc, nickel, tin, gas oil, crude oil, natural gas, coal, lead, magnesium kerosene Gold, silver, palladium, platinum, Electricity, CO2 rhodium Steel and steel derivatives Plastics Long steel, flat-rolled steel, high- PP, PE, PA6, PA6.6, ABS, PC/ABS grade steel types, tubes,… Iron ore Soft commodities Pulp Corn, wheat, soybeans, sugar, cocoa and coffee beans, cotton, palm oil Customer-specific special materials and alloys 9 Vienna, March 2010
  10. 10. MERIT – Tools MERIT Risk Matrix - Example Our teams use internally developped tools such as: MERIT Risk Matrix MERIT Sensitivity Analysis MERIT Sensitivity Analysis - Example MERIT Chart – Parameter Analysis Academically relevant evaluation models such as Value at Risk are actively used: MERIT VAR - Example MERIT Chart – Example (Gas) 10 Vienna, March 2010
  11. 11. Critical Client Challenges The budgeting process Huge divergence between planning and operational processing / fluctuating prices of raw materials / lack of transparent profit centre calculations Difficulties with the order calculation process Price variation while preparing/processing the order / contribution margin can not be estimated/foreseen / sales pressure on costs through large corporations Stock & inventory valuation Changes in prices between purchase and processing / build-up of risk positions and hidden risks / working capital costs Difficulties stating earnings Dependency on international markets / uncertainty due to external factors / imprecise reporting / unpredictable cashflows 11 Vienna, March 2010
  12. 12. How MERIT turns Challenges into Opportunities (1/3) Securing price levels to achieve competitive advantages The prices of nearly all important commodities markets have recovered from their historical lows and rallied considerably since the beginning of the year. The first signs of recovery in the world economy are visible. The peaks in prices of last year presented huge problems for many manufacturers and energy-intensive companies. In the medium term there is an opportunity to secure raw materials prices and purchasing budgets with some room to the downside. By using standardized options and futures contracts one can profit from short-term setbacks and hedge against a new rise in prices. Presentation of the risk factors to investors and lenders of capital The tightened regulatory capital requirements for financial institutions under Basel II and the shortage of capital for the banks caused by the financial crisis will make company financing much more difficult in the future. As a result, a good credit rating and a strong investor relationship will be ever more important. In addition to the general economic and market factors, company key performance figures (KPIs) as well as controlling and management functions will become increasingly important. 12 Vienna, March 2010
  13. 13. How MERIT turns Challenges into Opportunities (2/3) Securing and improving the earnings position Companies should be able to concentrate on what they’re best at – producing innovative products and selling them at competitive prices. Supply side situation and competitive product price calculation are very important. Exogenous variables such as raw materials prices can be actively managed using standardised finance instruments – use of such instruments leads to a stabilisation in the earnings position and, over and above this, frequently to an improvement in earnings themselves. Implementation calls for expertise based on experience, which is often not sufficiently available in many organisations. Efficient corporate management Due to the growing complexity of financial products and the increasing volatility of the financial and commodities markets senior executives are confronted with increasing expectations to risk management. Planning is made increasingly more difficult as a result of rising or falling raw materials prices - and the efficient use of financial products for risk management is hampered because of a lack of modelling systems. 13 Vienna, March 2010
  14. 14. How MERIT turns Challenges into Opportunities (3/3) Reduction in the cost of purchased materials Due to the increasing volatility of raw materials prices planning of raw materials-based purchasing costs is difficult. These can be partly compensated by medium to long-term supply contracts, which then leads to increased sales price risk, however. Evidence of raw materials risks Production costs are becoming ever more influenced by raw materials prices. The costs not only of primary products but also of consumables and energy have to be taken into account here too. Pushing procurement risks and management thereof onto suppliers is an insufficient solution to the problem. The problems that suppliers in a variety of sectors have recently been experiencing have shown that those businesses that are actually more at the end of the supply chain are indirectly affected by the risks. 14 Vienna, March 2010
  15. 15. In Conclusion: Your Benefits of Partnering with MERIT Strengthening your business: Risk control – knowing the impacting risks and preparing for appropriate action Budget balance - independent price information and accurate forecasting improve planning & cost efficiency Stabilization of company earnings – improving your bottom line RISK DEFINITION OF RISK Added Value Fragility IDENTIFICATION MANAGEMENT EXPOSURE CONTROL STRATEGIE Tailor-made commodity management services based on a robust 20-year experience 15 Vienna, March 2010
  16. 16. Reference Clients 16 Vienna, March 2010
  17. 17. Reference Projects (1/2) Client Year Description/aim of project Provision of consultancy on how to approach fixed pricing for Central European customers. Its suppliers having changed the basis for their supply manufacturer of alloy rims 2008 contracts, our client was faced with the problem of variable prices for purchasing but supplying to its customers at prices fixed for years in advance. New energy purchasing concept for the main operation in Austria and Multinational 2008 thereafter for its subsidiaries in the UK/US. Optimisation of electricity conglomerate supply and development of a strategy for pulp purchasing. Hedging of stock values and recalibration of the trading risk through capping overall exposure. Introduction or regular risk reporting to allow Large European 2008 timely control of the relevant risk factors. As a result, the company can metal trader deal with price fluctuations in non-ferrous metals markets in a controlled way. Development of a strategy to reconcile the risks at each location. Definition of a product catalogue to handle the Group’s existing nickel, Cable manufacturer based 2008 plastic and currency exposures. The positive operating result is in CEE therefore assured, even if there are sharp declines in the raw materials markets. 17 Vienna, March 2010
  18. 18. Reference Projects (2/2) Client Year Description/aim of project Cross-hedging analysis of the product portfolio – in particular for long Important European steel and flat-rolled steel. Creation of a risk profile for the whole group. 2008 steel merchant Hedging solutions by means of different market segments (cross, LME, OTC…) Data collection and analysis of the overall exposure on raw materials. German Development of measures to demarcate value-added/raw materials 2009 car manufacturer components in purchasing. Development and deployment of strategic overlay management. Analysis and evaluation of the existing fuel supply contracts. German Development of planning and analysis tools to aid optimal fuel stocks. 2009 airline Establishment of a Group-wide hedging strategy and supervision of its implementation with core banks. 18 Vienna, March 2010

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