This is a unique system implemented by the company’s treasury which captures real-time FX exposures from origin, further consolidating and aggregating with offsetting exposures to allow the exposure to be sent straight through the online dealing platform for hedge execution with auto hedge accounting in the company’s TMS/ERP.

The challenge:

As one would expect for a company whose business resides in the metals sector, EGA Treasury manages a substantial FX and commodity hedging portfolio. To manage the company’s various exposures effectively, however, treasury was cognisant of the need for more accurate and timely information about its exposures which, up until that point, had been collected and examined primarily through a system that required heavy manual effort and was therefore slow and prone to human error.

EGA reached the conclusion this needed to change, and replaced the old system with a company-wide exposure management system which now forms the foundation of the company’s financial risk management activities.

The solution:

The benefits of this solution were realised almost immediately. The new system, (which contains a significant amount of custom functionality) captures the FX exposure from its origin (ie the various business units) on a real-time basis and then consolidates for offsetting exposures. Hedging decisions are made on the resulting net exposures and hedge positions closely monitored to ensure that the amount over-hedged or under-hedged is within the company’s threshold.

Other important features of the solution included:

• Real-time capture of changes to the original exposure which is extremely important to EGA as a major portion of its hedging portfolio consist of cash flow hedges.
• Hedge positions need to be reviewed as and when major changes happen to the exposures so that the hedges can to be adjusted accordingly to meet the hedge requirements as per IFRS. The system provides alerts to changes in exposures and helps the EGA Treasury to manage the hedging portfolio efficiently.
• Assistance with the mark-to-market of open hedged items and derivatives exposures, and has the functionality to run a scenario and sensitivity analysis to determine for one of EGA’s operating companies out the value-at-risk (VaR).

This automated solution has been in place since June 2014 and is now in the process of being implemented for other companies within the EGA Group. For H2 2014, approximately 186 FX deals constituting circa 82% of volumes for the period were managed using the above process.

Best practice and innovation:

The system that was introduced is unique, for a number of reasons. Firstly it captures real time FX exposures from origin, further consolidating and aggregating with offsetting exposures to allow the exposure to be sent straight through the company’s online dealing platform for hedge execution. Upon execution the ‘deal’ is then automatically sent back to TMS/SAP for auto hedge with auto hedge accounting plus matching. Secondly, the solution provides for better governance, audit trail, avoids manual keying errors and frees resources for more value added activities.

“The customisation and implementation of this solution was a great IT initiative that took a year to implement. The team is proud of the tremendous results and efficiencies delivered. We plan to roll-out the solution to any newly-created entity and all other group companies,” says Toby Shore, Senior Director, Group Treasury Risk & Insurance at EGA.