This newsletter is relevant to promoters, CEO's or CFO's of fast growing companies looking to take their companies to the next level through a combination of improving valuations and through improvements in the finance/ IT domain. The newsletter focuses on topics/ themes which are of relevance to these decision makers. The survey corner highlights the current/ future trends in the CFO/ Finance domain in India or globally that may have a bearing on a company's decision making process while the case study talks about the role played by MyCFO and the tangible benefit to the client.

Preserving cash flows seems to be the number one priority for most CFO’s today.  CFO’s have realized that there is no substitute for cash in an era of economic uncertainty.  A recent report in the Economic times (June 25th) by the Center for Monitoring Indian Economy (CMIE) stated that large enterprises like Reliance Industries, Infosys, Coal India, Wipro and TCS have cash and bank balances aggregating to approx. INR 80,000 Crores  ($ 14.5 Billion).  What is interesting is the

fact that these companies have added more than 25% of the cash and balances in the last 12 months. The CMIE data also showed that out of the 85 companies in the BSE 100, cash and bank balances of nearly 45 companies (excluding banks and financial services firms) had gone up. Market observers felt that companies were cautious with their expansion plans especially IT firms who are waiting for the valuations in Europe to come down to make acquisitions.

Businesses have never been more complex, with the number of products, services, channels and markets multiplying all the time. CFO’s are under pressure to demonstrate that they are paying full attention to working capital arrangements. The credit crunch may not feel like a blessing for finance departments and for the CFO’s but it does present an opportunity to push through changes to manage their working capital better. What these companies listed above have taught us is that achieving sustainable improvement over the long term requires cash management to become an integral part of every day life and companies should consider the cash flow impact of decisions in addition to the sales and/or profit effect. Visibility and control of cash flow is also a key element in creating the right framework for managing cash. Inaccuracy of forecasting is only a part of the problem; the real issue is that most companies don’t use that metric as part of their assessment of operational cash performance. The finance function and the CFO in particular needs to engage with all parts of the business to drive the awareness and importance of cash conservation and working capital management.  Cash conservation and working capital management are set to remain high on the corporate agenda. The winning companies will release cash from their business and use this opportunity to embed cash as part of the organization’s culture and maintain a healthy balance between cash and earnings when the ‘good times’ are back.

My CFO assisted a fast growing PE invested Indian organic foods company with a Diagnostic on its Finance and IT operations, with particular emphasis on working capital, product costing, MIS/Business Intelligence and implementation of an ERP. MyCFO delivered a 'Finance Roadmap' to prioritize the activities that the company needs to focus on in the next 12 months. MyCFO allowed the Promoter to validate his thinking on Finance/ IT department objectives, in the context of the Business Plans of the company. The Roadmap also identified the key actions that will provide best Return for the Effort Investment. For more details about how MyCFO can assist your company in designing a Finance Roadmap, please write to deepak@wealthtree.in



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Exposure to volatility in the forex rates has been identified as the biggest threat to their companies growth prospects by senior finance executives in India in the fifth annual survey conducted by American Express/ CFO research Global Business and Spending Monitor which covered 541 senior finance executives from the US, Europe, Canada, Latin America, Asia and Australia. 45% of the senior finance executives in India viewed volatility in exchange rates as the biggest threat. The survey also took the views of the respondents on economic expansion in their countries, growth prospects on domestic sales, conserving cash amongst other things. India based finance executives had a more 'positive' outlook concerning the country's growth prospects and were far more aggressive when it came to talking about their company's own plans.

To access this survey, please visit
http://about.americanexpress.com/
news/pr/2012/axpcforesearch
2012.aspx

Investor relations (IR) used to traditionally be a ‘one off’ role in the CFO’s portfolio, the perception is rapidly changing; IR is now a more integral part of the CFO’s job. What is driving this trend? Institutional investors place credibility and accessibility of the CEO and the CFO at the top of their list of factors that constitute a successful IR program. Direct interactions with these professionals carry more weight than stock
market and experts reactions to the company performance. Several investors now have in house capabilities to research and analyze the financial performance of their investee companies, they prefer that they get in front of the corporate management teams to pose their own questions and test their own theories.  

A study by Ernst & Young of 750 CFO’s finds that less than half of the investors believe that corporate reports provide enough detail on the risks of investments. This is particularly true in India in the case of fast growing Indian companies where investors are finding this to be a challenge. IR is a new area for most CFO’s since historically their focus has been on managing a company’s finances. With increase in the business complexity, diversification into new products and markets leading to increasing demands from the regulators and the investors, the role of a CFO is undergoing a massive change. Investors today are keen to understand the company’s risk profile to factor these into their decision-making by seeking timely and precise information from the CFO’s, CEO’s and the boards. Moreover their expectation is also for the CFO’s to go beyond the numbers and serve as strategic business advisors and manage risks better.

CFO’s also need to remember that investor relationship building is a continuous process and should not be viewed as something that needs to be focused upon only at the time of difficult times. Transparency and Predictability are other attributes that an investor likes to see in a CFO. Lastly, the CFO’s also need to ensure that they expose a larger group of individuals within the company’s eco system to the investors so that this builds trust and confidence in the investor.

MyCFO has launched 'CFO's make the difference' series with ICICI Bank. This is a 6-city event which started at Pune on July 12, 2012. Hyderabad is planned on August 10, followed by Chennai, Ahmedabad, Delhi and Mumbai. The theme of the series is for the CFO's to share their experiences, which are practical and implementable, and has made a difference to the companies that they lead.

The focus is on issues, which are of immediate relevance and practical importance to the CFO's and will not be 'advisory' in nature. Themes will not have a compliance orientation (no GST, IFRS etc). The messages during the session would be driven through specific case studies, examples and illustrations and not through 'generic' ideas. The sessions would be delivered by practicing CFO's of companies with a turnover of Rs. 1,000Cr or more. For more details about the series, please contact Mr. Deepak Narayanan (deepak@wealthtree.in)