Organisation and infrastructure for growth
Over the last five years, Trafigura’s equity value has grown rapidly, from USD5.5 billion in 2016 to over USD10 billion in 2021. This growth has been enabled by our disciplined approach to risk management, our entrepreneurial culture within a clear governance framework, our organisational structure and by the infrastructure and resources we have developed. In other words, without the right systems, processes and people, Trafigura could not have become the company it is today.
Indeed, the exceptional growth experienced in 2020 and 2021 has placed an ever-higher premium on continuously improving the way we manage all these elements to ensure reliable customer service, resilient risk management in volatile markets and maximum efficiency. Commodities trading is by definition a low-margin business, so operational precision and accuracy are existential requirements.
This section of the Annual Report aims to provide insight on these less visible foundations of our success and to explain how they are evolving to support the next phase of business growth and diversification. Although we are an employee-owned company, we aim to be transparent about these aspects of our business as well as our operational and financial performance.
Trafigura’s core business is the physical trading of oil and petroleum products as well as non-ferrous concentrates and refined metals and bulk minerals, and their transportation across the globe. Newer activities include power and carbon trading and investment in renewable power generation, low-carbon hydrogen, ammonia and biofuels and battery storage.
These activities demand extensive, expert support teams to oversee financial risk management, manage physical operations and carry out administration. They also require sophisticated IT systems to manage data, implement internal controls and keep constant track of balance sheet assets and liabilities.One of the keys to our success in recent years has been managing all these functions in such a way that we could substantially grow revenues while maintaining a disciplined approach to our cost base.
People and organisation
In the 2021 financial year, Trafigura Group employed an average of 9,031 people in 84 offices in 48 countries. The equivalent figures five years ago were 3,935 employees and 62 offices in 35 countries.
The expansion of headcount reflects the rapid growth in trading volumes over the period and the Group’s increasing diversification, which has called for the recruitment of new skill-sets such as data analytics and those required to trade power and carbon.
In turn, the increasing number of offices demonstrates that our business depends ever more on maintaining a physical presence close to where the commodities we buy and sell are produced and consumed. As a global business involved in logistics and supply chain management, we rely heavily on local insights, expertise and market insight.
We require the people providing those services to be extensively trained in the company’s values and culture, including transparency and compliance, and to be directly accountable to Group management. Our Compliance department reports directly to the Compliance Committee of the Board. The department consists of 16 individuals covering all time zones and business needs, supported by constantly evolving systems, tools and training modules. Our employees undergo regular and compulsory compliance training, including anti-money-laundering and anti-bribery training.
A key strategy enabling disciplined and efficient global growth has been the establishment of a network of hub offices around the world that host commercial activities and a wide range of support functions.
First in Mumbai, then in Montevideo, and now also in Athens and Calgary, these hub offices are important centres for the company that mean support functions such as Operations, Deals Desk and Contract Administration – once carried out physically alongside trading in centres such as Geneva or Houston – can be increasingly performed remotely without compromising their quality or resilience.
The concentration of support functions under trusted senior managers in these centres has made them easily scalable, while enhancing specialised expertise. More than 800 people are now employed in the Mumbai office, and more than 500 in Montevideo. A new development in 2021, which will continue into 2022, was the accelerated build-out of the Athens office, which can now complement Mumbai in providing a wide range of additional support in the European time zone. Similarly, we expanded our presence in Calgary, to create a regional hub performing a similar role to Montevideo for North America. There are advantages in having multiple centres of this kind, including risk diversification and healthy competition and the ability to offer personnel relocation and career development opportunities.
The creation of an efficient and distributed global organisation along these lines, with standardised processes and high-quality IT infrastructure, also helped us to confront the major challenge of COVID-19 in 2020 and 2021. We moved quickly when the pandemic hit, shifting the vast majority of our workforce to home-working and providing employees with the hardware and communications infrastructure they needed. Even so, remote working is not easy in a complex and fast-moving business such as ours. Making it function effectively required intense collaboration and trust between commercial teams, operators, deals desk, finance, IT and all the support functions – underlining the quality of our systems and the adaptability of our people.
IT landscape
Over the last six years, Trafigura Group has spent an average of USD144 million per year in capital and operating expenditure on information technology. One of the key focuses of this activity has been the establishment of a proprietary, front-to-back entreprise resource planning (ERP) platform covering everything from trade capture to accounting for all our trading divisions, known as Titan. This major project has been underway for several years. It builds on our first generation proprietary platform, with the primary objective of consolidating multiple existing systems and moving to real-time reporting to support rapidly growing trading requirements. It has been progressively implemented across our Metals and Minerals division in recent years, and will be completed in the Oil and Petroleum Products division in 2022.
Titan is unique in our industry, contains considerable amounts of proprietary IP, and is already bringing benefits to the organisation in terms of efficiency, control, risk management and reliability. Once fully installed, it will provide a rich seam of data to support decisions on allocation of working capital between different trading books and generally enrich the risk management discussion across the organisation.
Various initiatives to improve these processes will be undertaken over the coming year, reflecting the importance of putting available financial liquidity to the best possible use at a time of high commodity prices and rising volumes.
Further benefits are likely to accrue from the ability to structure and analyse the vast amounts of internal data that Titan will generate. Our recently-established Data Science and Engineering team has already delivered a range of useful insights to assist trading decisions by structuring and analysing publicly available data on matters such as weather events.
Employee shareholder model
A discussion of Trafigura’s operations would not be complete without comment on Trafigura’s corporate culture and the ownership model that underpins it. Since the company’s foundation in 1993, it has been owned by a growing number of employees, for whom equity is an important element of remuneration. This year that growth accelerated in tandem with our recruitment activity, taking the number of shareholders to circa 1,000, compared with 850 in 2020.
Again, this is a unique feature for a company in our industry. We see the increase in the number of shareholders as an unalloyed positive as it will further reinforce the advantages we have witnessed over the years – a long-term perspective in running the company; close alignment between management and employees; conservative risk management; and a highly collaborative approach to business development. As Trafigura moves further into new areas, such as power trading, with all the synergies with other trading activities that this promises, we expect this culture to continue to bear fruit.
Mike Wainwright
Executive Director and Chief Operating Officer
