Commodity risk

Energy companies often contact us with requests to review their portfolio and stabilize its impact on the profit/(loss).

Our recent cooperation with a leading energy company which concluded sales contracts for a fixed price with an associated combination of derivative financial instruments on the German and Austrian markets (net financial settlement) provides a good example. The company’s problem was the considerable volatility of its profit/(loss) due to fluctuations in commodity prices in individual markets. The primary reason was that physical sales and purchases on the Slovak market were not revalued. As a result, there was no opposite movement in relation to derivatives in the profit/(loss) during the lifetime of the respective contracts.

Our output included problem identification and presentation of recommendations on how to solve this situation. Our work helped eliminate volatility in the company’s profit/(loss), better predict future cash flows, distribute dividends to shareholders, and led to the tax deductibility of potential losses from the revaluation of derivative financial instruments (in line with Slovak GAAP).

In addition, we also prepared the hedging documentation and efficiency testing in line with IFRS 9 and Slovak GAAP, and held a practical workshop during which we navigated the company through key aspects that need to be considered in the future.