Volume & Profitability Profitability Analysis CO-PA Workshop 13/10/99

1. Volume & Profitability Profitability Analysis CO-PA Workshop 13/10/99

2. Workshop Overview • DELIVERABLES • This workshop will provide the user with basic knowledge about -- CO-PA module -- Assessment of costs • -- How to complete the affiliate input required • in completing affiliate specific assessment design • On-line demonstration; reports and cost assessment • SESSION SUCCESS FACTORS • Active Participation -- Questions & Answers during the course • 'Parking Lot' for very specific, difficult questions

3. Agenda 1. Underlying concept of CO-PA: • Report formats • Profitability methodology • Cost assessment principles 2. Brief explanation on how CO-PA fits in with other modules 3. Key aspects for how to perform CO-PA reporting (on-line demo) 4. Assessment cycles (on-line demo) 5. Guidelines regarding the OPEX transfer to CO-PA By the end of this session you will be asked to: 1. Define the rules for the transfer of OPEX to CO-PA 2. Deadline: November 30, 1999

4. CO-PA Terminology • Operating Concern • Highest profitability reporting level in SAP (1 by affiliate in Stripes) • Characteristic • Criteria on which the operating results are reported; Ex: LBU, Customer Group, Product hierarchy • Business Profitability Segments (Stripes) • Lowest level: Customer group (CG) and product hierarchy level 3 (PH3) • And any combination of the characteristics above lowest level • Value Field • Field in which the system stores values and quantities for profitability segments. Ex.: Rebates, Weight, Handling costs...

5. Stripes Terminology • LBU Total • Logical Business Units (LBUs) as defined by ECI provided that such business is relevant for the affiliate Also includes a certain numbers of pseudo-LBUs (Refining, Corporate Downstream, Segment Earnings and Financial Items) • LBU Local • Logical Business Units (LBUs) which are reportable to ECI by the relevant affiliate (e.g. ICR in ECE includes LPG, Asphalt & Marine) • Market • Defines Local Market Sales vs. Export Sales vs. Supply Sales vs. Affiliate Sales

6. What is a Business Profitability Segment? Company Owned SS Dealer Owned SS CORs Industrial/Commercial Government/Military Home Direct Wholesalers Airlines General Aviation Export CUSTOMER GROUP BY LBU EXAMPLES fromCustomer Group & Prod. Hier. level 3 The Customer Groups will typically appear in several of the Logical Business Units (LBU) For the lower levels in the product hierarchy, Gross Margins based on invoice, will be available in SIS only Lowest level for business profitability segment Motor Gasoline Diesel LPG PCEO (cars) MCO (motorbikes) HDDO (heavy duty) Asphalt PRODUCT HIERARCHY, level 3 Grand totals by Prod. Hier. Grand totals by Customer Group

7. CO-PA Positioning (1/2) • Organisational Focus • Senior and Business Line Management • Senior Supervisors • Planning & Economics Analysts • Controllers • Monthly Earnings calculation system: • Profit defined as: • Net Margin (profit after OPEX) at profitability segments level • Operating Earnings A/T at LBU level • Net Income at total affiliate level • Other elements: • Monthly, on-line after books close • Reconciled to General Ledger • Comparisons to plan version and prior periods (when history builds)

8. CO-PA Positioning (2/2) Organizational focus MarketingManagementControllers Sales Information System LBU Reporting focus LBU Reporting focus • Focus: Day-to-day business • Sales volumes / quantities • Sales revenues • Key figures down to Contribution • after Handling + Delivery • Most detailed levels of characteristics • Down to Prod. Hier. 6 • Material • Sales Employee • Individual customer • Individual plant • Sales document CO-Profitability Analysis • Focus: Business Profitability Segment • Sales volumes / quantities • Sales revenues • Actual and ref. COGS • Full OPEX reconciliation • NO accounts • Value fields down to • Net Income (Affiliate level) • Operating Earnings (LBU • level) • Net Margin (Profitability • segment level) Profit Center Acctg. • Focus: Full reconciliationwith FI / Balance Sheet • All accounts • Sales revenues • Actual COGS • Cost Center OPEX • Other Earnings

9. SD SD CO- CO- CCA CCA FI FI CO- CO- OPA OPA CO-PA Data Collection Sales orders/ Invoices Quantities/ revenues/ discounts Transfer Price incl. Primary Freight. Differential to reflect method of delivery as appropriate/ sec. freight Actual cost of goods sold Other Earnings effects (A/C 060-090) CO-PA EC- PCA Overhead andmarketing costcenter acctg. incl. Delivery and hdlg. OPEX Cost center costs by LBU and CG allocated to Product Hierarchy 3 Settlementof orders

10. CO-PA Coverage: Reporting Structure TOTAL AFFILIATE REFINING/SUPPLY MARKETING LUBES MARKETING FUELS LubesTotalLBU Retail Fuels Aviation Refining 1 Distribution Marine Refining 2 Lubes ex. Retail LPG Lubes Refining Retail Lubes Asphalt ICR CO-PA coverage Function CO-PA Drill-down characteristics are: • LBU Total and Local • Market • Customer Group • Product Hierarchy down to Level 3 PCA/REA coverage only LBU Total

11. CO-PA Report Forms Affiliate High Level Affiliate Reconciliation Marketing LBU Performance (*) Marketing LBU and CG/PH3 (*) All sets of reports are on user defined basis; month, quarter and/or plan, as well as selection of comparison period where appropriate • No drill downs • No drill downs • Split between Marketing Fuels, Marketing Lubes and Refining Drill down: -- to each Mktg LBU Note: -- Incl. 2 Lubes LBUs Drill down: -- from LBU total-- .. Mktg LBU-- .. Market-- .. Prod Hier 1-- .. Prod Hier 2-- .. Prod Hier 3-- to Cust Grp Report Type Overview focus down to Net Income Bridging using TP details down to Net Income Monitor perfor-mance. Options include YTD Plan and YTD prior Period down to Operating Earnings A.T. Marketing LBU Performance down to Net Margin after all OPEX PH3 and CG as lowest level (*) The two sets of reports are also available by Distribution channel; Retail, Lubes and I&W to meet user access profile needs Data content • Actuals • Plan data • Unit figures • Actuals • Plan data • Unit figures • Actuals • Plan data • Unit figures • Actuals • Plan data

12. On Line Presentation ALREADY FRUSTRATED ? NOW... ...A QUICK SYSTEMS DEMO: Marketing Total and LBU Report

13. Cost Centre Allocation to CO-PA Key Principle Profitability segment 1 2000 USD ASSESSMENT CYCLE Cost Centre X 5000 USD Profitability segment 2 1500 USD Profitability segment 3 1500 USD

14. SAP Terminology • Assessment cycles • Set of rules and criteria for allocating costs to profitability segments • Composed of segments • Segment • Contains the sender, the receiver and the rules to process the allocation • Sender and receiver are processed simultaneously using an assessment cost element • Tracing factor • Allocation criterion to distribute the costs from the sender to the receiver Ex: volume, gross margin, fixed percentage

15. OPEX Allocations within CO-CCA... In principle -- ALL COSTS TO Customer Group (COT) Cost Centers Retail Mgmt. and staff Corporate Pool Node, for reporting in CCA, no booking Cost centers Retail LBU CO-CCA Sales Support Retail Sales Support Telephone Support Contracts RETAIL SALES Overhead Support Training LBU: Retail CG: COCO SS 5000 DEM LBU: Retail CG: DODO SS 2500 DEM LBU: Retail CG: Motorway SS 3500 DEM

16. ...and then allocation to CO-PA LBU: Retail CG: Motorway SS 3500 DEM LBU: Retail CG: DODO SS 2500 DEM LBU: Retail CG: COCO SS 5000 DEM Volumes Margin Reference delivery costs Reference handling costs Fixed percentage = Segment CO-PA = Cycle LBU: Retail CG: DODO SS PH3: Mofuel 1000 DEM LBU: Retail CG: Motorway SS PH3: Mofuel 3500 DEM LBU: Retail CG: COCO SS PH3: Mofuel 3000 DEM LBU: Retail CG: DODO SS PH3: Diesel 1000 DEM LBU: Retail CG: COCO SS PH3: Diesel 2000 DEM LBU: Retail CG: DODO SS PH3: LPG 500 DEM

17. OPEX allocation - 4 Cost categories • Costs are booked / allocated by LBU and CG in Cost Centre Accounting (CO-CCA). • The following groups of costs are combined in 4 assessment cycles and transported from CO-CCA to Profitability module: • DIRECT LBU OPEX: marketing costs booked directly to the relevant LBU cost centres and allocated down to Customer Group (CG) cost centres • ALLOCATED OPEX: all other costs not booked directly to the relevant LBU cost centres, (Ex.: Overheads) but allocated down to LBU and CG cost centres • HANDLING: costs associated with terminal & handling at plants and allocated to departmental overhead (marketing) cost centres • DELIVERY: costs associated with delivery from terminal to customer and booked to the relevant CG cost centres for Fuels. For Lubes these costs are kept at LBU level within CCA • Tracking costs by these groups in CO-PA provides the user with information on Direct Marketing OPEX within the LBU and CG, the associated overheads, as well as the handling and delivery OPEX.

18. Direct and allocated LBU OPEX - allocation criteria (1/3) • Within each Customer Group the DIRECT LBU OPEX and ALLOCATED OPEX are allocated to Product Hierarchy level 3 based on main Product Group (division) reflecting base business for the Customer Group within the LBU. Implications are: • Customer Group base business will carry ALL marketing and overhead costs while incremental business will not attract any costs • Costs associated with Lubes sales (if any) in all LBUs except Lubes and Retail Lubes are not allocated to Lubes. • If not incremental, customer group costs will first be split by division and then allocated down to PH3 • Retail CG costs will be split by mofuel and shop: affiliate provides %-split. Memo Division (Product Group):Fuels, LPG, Lubes, Aviation Fuels, Marine Fuels, Crude, Feedstock, Non-Products (e.g. rents and fees, shop products, thruput fees, royalties), Asphalt and Other Products (e.g. chemicals, naphtha)

19. Direct and allocated LBU OPEX - allocation criteria (2/3) • Direct and Allocated OPEX allocation criteria differs depending on product type: Petroleum Products ex. Lubes: • Volumes within the relevant Customer Group and main Division • basis will initially be current period actual volumes. Once history builds and basis for developing volume plans by CG is established, then the affiliates shall move to cost assessment based on current period seasonalized plan volumes which is in line with Best Practice Lubes • Reference Gross Margin defined as Net Sales Realisation minus reference product and production costs • information coming from billing by business profitability segment

20. Direct and allocated LBU OPEX - allocation criteria (3/3) Non-Petroleum Products: • No allocations to Non-Petroleum products • this group includes miscellaneous items like rents/fees from service stations and terminals, margins on shop products, card system fees and 3rd party commissions • One exception • Exception is Retail Shop sales where profitability is shown for Shop by the PH3 categories (TBA, Food and Other non-food). If no allocation basis, then the default is to assess all costs to “Food”. Thus, profitability will be at Customer group and Product hierarchy 2 only.

21. Handling OPEX - allocation criteria MARKETING CONTROLLED PRODUCTS: Lubes, LPG, Asphalt and Aviation • Actual Handling costs are allocated down to the business segments based on reference Handling costs • Reconciliation between actual and reference costs available at all CO-PA reporting levels • Information coming from billing DISTRIBUTION CONTROLLED PRODUCTS: Fuels, Marine, Refinery Products,... • Actual Handling costs stay at LBU level and are offset from the transfer price to avoid double counting • Applies to all the drill-down reports on Customer Group and Product Hierarchy level 3 (CG/PH3) for Marketing, Retail and I&W where the line “Terminal Handling Allocated” will be empty for all drill-downs below LBU

22. Delivery OPEX - allocation criteria • Actual Delivery costs are allocated down to the profitability segments based on reference Delivery costs as available in the Sales Information System (SIS) • These costs are allocated based on the REAL delivery activities associated with each customer shipment • Information coming from Billing • CO-PA reports provide full reconciliation of delivery costs at all reporting levels

23. Allocations - Technically • Variable / fixed cycles • Variable: set of cycles using available allocation criteria/conditions • For ongoing business, this would normally ensure full allocation of costs • Fixed: set of cycles using fixed percentage tracing factors to empty the cost centres in case of Volumes/margin unavailability. • Assessment is defaulted to the predominant product for the customer group • Cycle = set of segments • One set of cycles by Operating Concern • One cycle by cost type: Direct LBU, Allocated, Handling, Delivery • One set of cycles by Tracing factor type: Variable, Fixed percentage => 8 cycles per Operating Concern

24. Allocations - Technically • Each segment contains: • Sender: Combination of Cost Centre and Cost elements • Receiver: Combination of characteristic values • Rules: sender, receiver and tracing factor • Excel spreadsheet (completed by Local Team) with every needed field is uploaded in the system (Central Team responsibility) ONLINE DEMO

25. Segment definition - SAP view CT provide LT provide

26. Segment definition - SAP view CT provides LT provides

27. Cycle definition - Excel view CT provides LT provides

28. Conclusion • CO-PA = multidimensional reporting tool • on Business profitability segments • down to LBU, Customer Group and Product hierarchy 3 • Profit defined as: • Net Margin (profit after OPEX) at profitability segments level • Operating Earnings A/T at LBU level • Net Income at total affiliate level • CO-PA interfaced with CO-CCA for OPEX transfer • assessment from LBU and CG in CCA down to PH3 in CO-PA • set of 8 cycles per Operating Concern • designed on Excel (LT) and uploaded in SAP (CT)

29. Next steps • Deadlines • October 13th: Workshop • October 15th: Cost Centre list with the Excel spreadsheet is transmitted • November 15th: Begin of the review process by Central TeamComplete Excel spreadsheets from affiliates • CT Contacts • Tom Kristiaensen (3558) • Rudi Paye - Jean-Michel Leclercq (2414) • LT Contacts • Review process • Second part of November

30. SD FI MM CO SAP R/3 PP EM Client/Server QM PS ABAP/4 PM WF HR IS ATTACHMENT 1 Stripes SAP R/3 Modules • SD: Sales and Distribution • MM: Materials Management • PM: Plant Maintenance • FI: Financial Accounting • CO: Controlling • EC: Enterprise Controlling • PS: Project Systems • WF: Workflow • IS: Industry Solutions

31. ATTACHMENT 2 CO-PA - Value Fields (1/3) • Quantities in volume at ambient temperature, std. temperature and weight • Net Sales Realisation (NSR) • Total Net Sales Realisation (NSR2) = NSR minus Accrued and Cash discounts • Transfer Price/Reference Product costs • Delta Actual vs Reference Product cost --> AT LBU AND LEVELS ABOVE • Reference Production costs (Lubes only) (*) • Delta Actual vs Reference Production costs --> AT LBU AND LEVELS ABOVE • Gross Margin (GM): • Reference GM = NSR2 minus Transfer Price/Ref. Product and Ref. Production costs • Actual GM = NSR2 minus Transfer Price/Actual Product costs minus Actual Production Cost --> AT LBU AND LEVELS ABOVE (*) Note: Production Costs (Lubes) are OPEX

32. ATTACHMENT 3 CO-PA - Value Fields (2/3) • OPEX: • Reference Terminal handling and Delivery OPEX (secondary freight costs) • Delta Actual vs Reference Terminal handling (*) and Delivery OPEX • LBU Direct OPEX • LBU Allocated OPEX • Contribution after Handling and Delivery (Contr): • Reference Contr. = Ref.GM minus Ref. Term. Handl. and Delivery OPEX --> ALL LEVELS • Actual Contr.1 = Ref.GM minus Actual Term. Handl. and Delivery OPEX --> LBU AND LEVELS BELOW • Actual Contr. = Actual GM minus Actual Term. Handl. and Delivery OPEX --> LBU AND LEVELS ABOVE • Net Margin Before Tax (NM) • Ref. NM = Ref.Contr. minus other OPEX --> ALL LEVELS • Actual NM 1 = Actual Contr. 1 minus other OPEX --> LBU AND LEVELS BELOW • Actual NM = Actual Contr. minus other OPEX --> LBU AND LEVELS ABOVE (*) only for marketing controlled products (e.g. Lubes, LPG, Asphalt)

33. ATTACHMENT 4 CO-PA - Value Fields (3/3) • Other Earnings Effects (OEE) --> AT LBU AND LEVELS ABOVE • Operating Earnings B.T. = Net Margin minus OEE • Tax • Operating Earnings A.T. • Segment Effects incl. LIFO/Non recurring Item & Tax --> AT AFFILIATE LEVEL ONLY • Segment Earnings = Operating Earnings minus Segment Effects • Financial Items --> AT AFFILIATE LEVEL ONLY • Net Income = Segment Earnings minus Financial Items