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Steel Determination: ArcelorMittal’s Front-to-Back Trading and Risk Challenges Resolved

Published  4 MIN READ

With its multi-vendor hedging and financial risk management system architecture coming to the end of its useful life, leading global steel and mining company ArcelorMittal’s treasury looked to Calypso and implementation partner Synechron for a long-term solution.

Even with the advantages of a highly skilled IT support team, every corporate financial system will one day come to the end of its useful life. With its multi-system treasury and trading architecture no longer delivering the expected levels of service and risk management, so it was that the Paris-based group treasury of Luxembourg steel production giant ArcelorMittal knew the time had come for a major technological upgrade.

The firm’s IT team had kept the existing fragmentation of in-house and vendor systems in operation across a group-wide intranet for around 15 years, successfully interfacing each system and delivering a degree of automation. However, this set-up required an increasing amount of maintenance and audit work, says Laurent Koenig, Treasury Head of Operations, ArcelorMittal.

With a number of applications no longer being supported by their vendors, he says it was the right time to go to market. The intention was clear: find an integrated solution that could become the heart of treasury for at least the next 20 years.

Goals

The primary objective was to optimise ArcelorMittal’s front-to-back global trading, liquidity, funding, regulatory reporting, and foreign exchange (FX) and commodities hedging activities. With its financial risk management carried out mostly using Excel, Koenig was keen for the team to build “something far more robust”.

To achieve its goals, group treasury embarked upon a two-year quest for a single-vendor, single-platform successor. “We certainly took our time,” recalls Koenig. Using the services of KPMG to guide the search, an extensive request for information/request for proposal (RFI/RFP) process whittled down the list of possibilities to three, cost constraints having removed several vendors early on.

Following a proof-of-concept demonstration, based on selected scenarios, Calypso’s integrated suite of trading and risk applications was selected. As a key part of the agreement, the vendor’s implementation partner Synechron was brought on-board to deliver the bulk of the deployment.

Enhancements

The nature of ArcelorMittal’s business means it hedges many commodities. “It’s a pain point for us,” Koenig explains, noting that “it’s often difficult to record trades, so having a customisable system like Calypso is essential”. With Calypso open to enhancing its commodity hedging module in line with its client’s needs, group treasury anticipates working with its new partners to steer this functionality “in the right direction for us”, stretching the platform’s modelling capabilities further.

That said, Koenig is adamant that customisation will be strictly limited. “My preference is to keep it to the bare minimum. This way it makes it a lot easier for us to document, support and upgrade.” With the platform intended for the long-term benefit of the company, introducing complexity at this stage would, he feels, be a mistake.  

Implementation

The implementation project will replace most of the applications currently in use by ArcelorMittal’s group treasury. However, it will retain one of its core systems for pure cash management activities, Koenig “feeling quite at ease with that system”.

Calypso will therefore focus on front-to-back trading operations, interfacing directly with existing settlement functionality. With the low-customisation rule laid down, Jérôme Plainchault, Director, Synechron France, says his team will rely on a standardised Calypso platform architecture and messaging formats to deliver the project’s remit.

“There will be times when we do need to customise for the ArcelorMittal implementation, and the power of Calypso is that it is possible to tailor formats and processes,” notes Plainchault. “We just need to find the right balance between what’s proposed natively by the system and what the client wants.”

Synechron will be working closely with ArcelorMittal’s IT team to deliver an on-premises version of the platform, this being located within the Paris group treasury. With the initial stages getting underway in December 2020, restrictions imposed by the pandemic have so far made physical collaboration difficult but not insurmountable, says Plainchault. His team, located in Paris and Serbia, is also in regular contact with Calypso’s Customer Delivery team, ensuring technical and functional support is on hand throughout.

Benefits

The aim is for the entire group treasury to be live by 2022. Access by ArcelorMittal’s global community of subsidiaries is under review, not least from a licensing standpoint. The company currently provides user rights to its existing intranet facilities to more than 1,000 individuals. For Koenig, this means finding “the most economic operating model of integration”.

As might be expected, the cost effectiveness of day-to-day running is also part of his equation. “We believe that with the Calypso system we can produce a lot more EBITDA [earnings before interest, taxation, depreciation, and amortisation] than we currently are,” he says. “We hedge all our residual financial exposures, so feel we need this integrated system to enable us to generate stronger results here too.”

The project is now at the stage where market data is being imported – under the demanding gaze of the system’s key users – and the User Acceptance Testing (UAT) environment is being prepared. There’s still a way to go, but Koenig is looking forward to “seeing what Calypso can do with all of our exotic underlying trades”.

Despite a few early challenges – this is a huge ‘rip and replace’ project necessitating a massive change management programme – he remains focused on the benefits of improved connectivity, stronger system management and, through full process integration, enhanced financial risk management across the group. After all, he says, “we are building for the next generation”.