SilverGoldBull Case Study

Companies

SilverGoldBull (SGB) is a precious metals trading company with clients in North America, Europe and Asia with a large focus on e-commerce and technology-based sales channels.

DeRISK is a FinTech company focused on corporate risk management services providing brokerage, advisory and technology solutions.

Overview

SilverGoldBull, Canada’s leading bullion dealer, was proactively looking for hedging experts and chose DeRISK Business Solutions, for its team and specific expertise in derivatives, trading and quantitative risk analytics. Innovation thought leadership embracing cultures and within both companies led to a long-term partnership that kick-started the development of a real-time risk monitoring solution across FX and commodity exposures for hedging purposes.

The Problem

SGB has sales in 20+ different currencies and additional large exposures to market price risk of metals, including gold, silver, platinum and palladium — the company faces a significant number of currency and commodity related risks with an annual total exposure approximately US $1 billion.

Approach

DeRISK analyzed SGBs business model and its operational systems to find links, strengths and weaknesses in:

  • Finance, Accounting and Business processes
  • Data flows, management and maintenance
  • Sales and supply operations and channels

Based on SGB’s unique business model, DeRISK advised its client on a number of relevant process improvements across business, accounting, finance and data management operations, and set out a goal of achieving real-time hedging capabilities for FX and commodity risks across the business.

DeRISK looked at the best outcomes for risk aggregation, covering FX and commodity exposures, operational costs reduction, and possibilities for real-time risk management and treasury functions that altogether would allow SilverGoldBull to grow and scale quicker.

As a result of the advisory process, DeRISK and SGB’s management decided to establish a cost and time efficient treasury management function that closely mimics capabilities of internal treasury teams within banks. This kicked-off a project to establish the function.

DeRISK Project Strategy & Goals

  1. Understanding client’s business and process dependencies.
  2. Identify cost-saving opportunities to reduce project cost (e.g. cost savings);
  3. Focus on client’s strengths and propose solutions to eliminate weaknesses;
  4. Step-by-step systems’ improvement process to keep track of changes and impact on business;
  5. Establish real-time data aggregation system;
  6. Develop real-time risk and hedging analytics;
  7. Synchronize operations and accounting standards by introducing fair value accounting.

Outcomes & Breakthroughs in Risk Management

As many other fast growing companies, SGB faced a number of systemic and operational challenges, ranging from inventory to payment verification and accuracy issues. However, company’s strive for excellence and attention to detail allowed them to explore innovative and modern solutions to some unique as well as to some of the old problems in businesses. The project showed that:

  1. Quantitative analytics and ML/AI tools can help with data aggregation, validation and prediction, significantly decreasing data flow, timeliness and accuracy issues;
  2. Focus on unique business model and its success can help establish a risk management process that is at the heart of a company’s competitive edge – a smooth risk management function enables to maintain extremely competitive pricing for clients while managing risks and costs;
  3. Focus on data flow helps discover process weaknesses and improve business operations. For example, SGB established a number of systemic processes to reduce human errors during the data input process;
  4. Expert advice on data and analytics can help integrate data sources to improve company-wide accountability and profitability tracking, ultimately leading to better profit margins, which, in turn, can fund project costs. Data accuracy required for hedging function proved to be extremely useful for sales and profitability performance monitoring and benchmarking;
  5. Highly flexible DeRISK infrastructure delivers custom solutions with better results in a shorter time compared to buying multiple “out of the box products” that need lengthy and complex integration projects.

Project Roadmap

2 months

DeRISK built a functional risk analytics prototype linking all core SGB systems that allowed the company to go from no hedging to intra-day (multiple times per day) hedging operations.

3 months

DeRISK created Machine Learning and AI models that helped risk aggregation across FX and commodity exposures.

4 months

Established analytics and data flows to ensure data coherence and accuracy across CRM and accounting systems.

5 months

Established hedging facilities that helped improve inventory financing and improved overall profit margins.

Significantly reduced banking costs helped self-fund the project (annual savings of ~$500,000)

6 months

DeRISK established a risk management system that keeps track of and provides hedging analytics for FX and commodity risks, including:

  • Multiple legal entities
  • Accounting systems
  • CRM
  • Banking and payment platforms
  • Trading and broker platforms
  • Systems and analytics to support additional requirements for fair valuation of inventory

Key Take-aways

  • SGB trusted DeRISK with their data and vision resulted in the state-of-the-art risk monitoring and hedging solution. In sophistication and achieved objectives, the solution can be compared against the technology used by the most sophisticated institutions with multi-million budgets for IT systems and risk management departments.
  • Machine learning and AI models helped overcome inherent business uncertainty and led to more accurate and timely hedging.
  • Focus on improved profit margins and operational cost reduction generated significant savings, which helped fund the project.
  • Real-time risk management analytics and advanced treasury function enabled SGB to grow and scale faster in a highly competitive market. This is done by maintaining financial controls and profitability target tracking across all of the organization, even outside of the finance function.

Conclusion

SilverGoldBull engaged with DeRISK Business Solutions with an intention to start hedging commodity risk exposures. The relationship advanced into long-term collaboration as DeRISK introduced significant cost savings for SGB while simultaneously improving its operational processes. DeRISK focused on unique characteristics of the company and implemented technological advances that support real-time risk management and hedging strategies that stabilized and improved business profitability while maintaining its competitive edge.

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