Message-ID: <3231798.1075849852634.JavaMail.evans@thyme> Date: Mon, 26 Feb 2001 11:11:00 -0800 (PST) From: mike.jordan@enron.com To: richard.causey@enron.com, rick.buy@enron.com, sally.beck@enron.com Subject: Metals - Imminent Actions - an update Cc: fernley.dyson@enron.com, michael.brown@enron.com, ted.murphy@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable Bcc: fernley.dyson@enron.com, michael.brown@enron.com, ted.murphy@enron.com X-From: Mike Jordan X-To: Richard Causey, Rick Buy, Sally Beck X-cc: Fernley Dyson, Michael R Brown, Ted Murphy X-bcc: X-Folder: \Sally_Beck_Nov2001\Notes Folders\Europe X-Origin: BECK-S X-FileName: sbeck.nsf Rick / Rick / Sally=20 I attach the 'executive' summary of a note sent to the office of the chair= =20 last week detailing current operational difficulties with the Metals=20 Merchanting business. Subsequently an 'all hands' meeting was called to=20 discuss the operational issues and the business imperatives of=20 Off Balance Sheet Facility ("OBSF") renegotiation Minimising working captial SAP implementation The notes of that meeting are also attached at the bottom of this email Should you require any further information please call, otherwise I will=20 forward updates as they are completed. Regards Mike ISSUE The Physical metals business implemented an Off Balance Sheet Structure=20 (OBSF) pre year-end to meet Enron requirements for gearing ratios. Whilst this does not present undue problems for LME warrants, these being= =20 bearer documents, it does present an issue when physical metal, the value o= f=20 which depends upon brand and location, is placed into the facility. Given t= he=20 hard deadline of year-end the operational support of this process initially= =20 took place on spreadsheets. The impact of the OBSF on the operational side of the physical business=20 should not be underestimated. The process of moving material off and on=20 balance sheet places considerable strain from trading through to settlement= s,=20 particularly when there is an absence of necessary control functionality in= =20 the AS400. With the specified functionality it is believed that all=20 operational and trading issues arising from OBSF can be managed=20 satisfactorily. The core functionality, which was due prior to the year-end, was released= =20 during January but was subsequently found to have introduced =01+bugs=01, t= o the=20 integrated business control processes. Whilst an improvement on having no= =20 OBSF functionality, the =01+bugs=01, have had an increasingly negative effe= ct on=20 the control environment, compounded by the fact that IT can not provide a= =20 guaranteed delivery for the =01+bug=01, fixes and non core =01,reporting=01= ,=20 functionality. This has given rise to the following concerns: ? There are insufficient experienced resources to fully reconcile stock at = a=20 brand & location level to coordination records (the global position is=20 reconciled however). ? It is not possible to substantiate the DPR for EM&CL as: ? a) P&L on spread moves from Cash to 3 months positions (and related cash = to=20 3 months provisions) can not be produced by the system and must be estimate= d,=20 and ? b) System bugs have created uncertainties over trial balance values. These concerns are compounded by the following: ? The most experienced AS400 IT developer for the EM&CL business has=20 resigned. He is currently working his 6 months notice which will expire in= =20 July 2001. ? The most experienced AS400 IT developer on the EML side of the business h= as=20 also resigned. He left in January 2001.=20 ? There is no documentation for the AS400. It is therefore difficult for=20 experienced AS400 programmers to get upto speed on the system. Conclusion It is essential that we do not become hostages to the development of the=20 AS400 system and the renegotiation of the OBSF facility with Barclays. The= =20 current situation has arisen due to non-delivery of IT developments and tig= ht=20 timescales on the finalisation of the OBSF facility. To meet Q1 end requirements (i.e. full production of the DPR and stock=20 reconciliation), IT and the OBSF deal team must make concrete commitments o= n=20 delivery timeline. The business will not be able to commit to successful=20 implementation of the facility and resubstantiation of the Trial Balance=20 without these ---------------------- Forwarded by Mike Jordan/LON/ECT on 26/02/2001 16:18= =20 --------------------------- Mike Jordan 26/02/2001 16:18 To: Michael R Brown/LON/ECT@ECT, Fernley Dyson/LON/ECT@ECT, Joe=20 Gold/LON/ECT@ECT, Michael Farmer/EU/Enron@ENRON, Michael J=20 Hutchinson/EU/Enron@Enron, Anne Edgley/LON/ECT@ECT, Melissa=20 Allen/LON/ECT@ECT, Mark Pickering/LON/ECT@ECT, Paul Chivers/LON/ECT@ECT,=20 Robert Campbell/LON/ECT@ECT, Andrew Cornfield/LON/ECT@ECT, Howard=20 Carter/EU/Enron@Enron, Bill Appleby/LON/ECT@ECT, David P Tregar/EU/Enron@En= ron cc: =20 Subject: Metals - Imminent Actions - notes of meeting 23 rd Feb To all I seek to clarify the actions discussed at Friday's meeting and to emphasis= e=20 the critical importance of getting all the below completed as quickly as=20 possible to meet our Q1 requirements ( revenue targets, balance sheet=20 targets, interest expense minimisation etc ). The proposed tactical plan th= at=20 was circulated is not attached as it has already been superceded! There was agreement on several broad areas of immediate focus with specific= =20 objectives and accountabilities -=20 IT resourcing Communicate priority to HR about the importance of obtaining skilled AS400= =20 programmers - for tactical short term and for long term work - action MP Resourcing for long term AS400 'off-load' initiative to be completed asap -= =20 action MP Merchanting resource focus to be on bug fixes impacting MO ability to updat= e=20 OBSF options in AS400 and for traffic to update recent location movements o= f=20 stock in OBSF - action RC ( deadline 1 week ) Completion of inception document for full OBSF inventory control=20 functionality - action RC ( deadline 1 week ) Split of resources for SAP interface - only EML SAP implementation is now= =20 planned for 1/4/01 - action RC to confirm resource reallocation 27/01 Immediate improvement in IT Operations support required ( including=20 completion of transfer of support responsibility from Dev. to Ops. ) - acti= on=20 MP Operational Support MO risk/trade accounting resources to focus on rebooking all remaining=20 transactions on OBSF inventory spreadsheet - action HC ( deadline asap ) Validation of system generated p&l to commence following the above - action= =20 HC ( deadline asap ) Timetable for catch up of traffic OBSF location movements to be completed= =20 with John Lunzer 27/02 - action HC=20 Determine action for improvement in delivering metal to facility ( initial= =20 assumption for recent working capital increase was that we had operationall= y=20 slowed down in placing qualifying material into facility ) - action HC / AC= =20 (deadline asap) Working Capital=20 Detailed daily analysis of working capital movements to be produced and=20 formatted in style of sources and uses of funds ( including facility=20 headroom ) - action AC ( deadline asap ) Forward estimate of working capital to be produced for rest of quarter and= =20 used for estimation of full interest expense - action AC, MJ & MA ( deadlin= e=20 asap ) Analysis for trade receivables ( and reasons for recent increase ) and=20 investigation of possible factoring - AC/MJ and AE/BA ( deadline asap ) Determining extent to which pricing signals for working capital usage can b= e=20 communicated to traders, traffic and operations - action JG, MJ ( contingen= t=20 on above ) OBSF negotiation Documentation of current negotiation issues ( including AA sign-off issues = )=20 to be drafted and circulated with clear accountabilities - action MA/DT/BA= =20 (deadline 26/3) Operational impact of agreement to be considered in parallel to negotiation= -=20 action HC/AC/BA LME relationship Consider utilising a US subsidiary to book OBSF transactions to negate LME= =20 reviewing facility as part of regulatory regime - action MA/FD Monitoring notice of investigation issued by LME -action FD/DT