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Dr. Suresh Nanda December 12, 2012MECA CFO Conference, Dubai
Multiple faces of a CFO • Balance capabilities Operator • Optimize cost • Improve service levels • Protect and preserve the assets of the organization Steward • Internal controls, risk and accountability • Provides financial leadership in determining Strategic strategic business decision • Align financial strategies with shareholders’ value and objectives Catalyze • Ensure high performance culture • Investment management and strategic execution PWC study
Continuous evolution of CFO’s role Crisis • Expertise in credit and banking • Capital market and investment banking Management • Restructuring • CFOs are sought with digital knowledge to Digital help the company integrate new business models, marketing strategies and sales Champion channels • CFO needs to understand what drives the PE landscape business and how to get the numbers that go to the heart of those key drivers.
Landscape in the Middle East –Historical challengesDiversified companies - Growth through unrelated opportunisticinvestmentsEnergy riches have led to strong growth over the years - Element oforganizational arrogance ?Strong preference for ownership of real estate assetsRestrictive competition and privileged access to power centres throughfamily connectionsEasy access to bank funding by large family group often throughownership linkages
Landscape in the Middle East –Organizational challengesLack of boundary between promoter interest and corporate interestOrganizational structure – Loose organizational structures, complex relationshipbetween holding companies and operating entitiesLack of succession planningPrime managerial positions with family membersBlurring lines of control, complex relationship between family members andstated and behind the scene power structures
Landscape in the Middle East –Governance challengesLack of a governance framework - Adequate policies,systems and procedures,Absence of robust financial reporting frameworkLack of independent directorsAbsence of shareholders’ activism
Landscape in the Middle East –Banking scenarioBanks were largely lending on names and security rather than focusingon cash flowLarge inflow of funds in 2007-08 led to indiscriminate lendingLarge portfolio of real estateDiversion of short term funds for investmentsEncouraged corporates high leverage and unrelated and riskyinvestments in diverse geographies
Landscape in the Middle East –Unique opportunityFamily controlled take a longer term approach torunning their businessesReadiness to invest capital with patience that bringscompetitive advantage.Quick and centralised decision making paves way forseizing market opportunity quicklyLong term commitment to the region rather thanon/off approaches of multinationals
Changes in the Business Scenario –Post CrisisBusinesses are now facing tough economic environmentMajor default of a number of corporate across the regionIntensified competition and pressures of globalizationStronger regulationRapidly changing political landscape in the MENA
Changes in Banking scenarioBanking system initially suffered liquidity problemsSectoral prudential caps by Central BanksBankers moved from exuberance to extreme caution- Decision ParalysisHigh CDS rates restricted funding in 2009-10 in DubaiAlternative financial players have got effected due financial turmoil anddeleveraging.
Cash Strapped Companies –Survival and way forwardPost 2008 after banks have tightened credit, number ofcompanies remain in a precarious cash positionAccessing cash is a permanent preoccupation manysuch CFOsImprove working capital managementEvaluate supply chain and business model
Cash Strapped Companies –Survival and way forwardBuild trust with banks and improve communicationExplore non bank funding - Basel 3 rules with stringent capitalprovisioning will have adverse effect on funding of SMEsFollow an asset light policy to reduce debt and improve cashflowCan a private placement market be developed in an organizedmanner in the middle east ?
Cash Rich companies – Wayforward and opportunitiesExplore the best approach to long term funding and use the opportunity of lender’s focus onlow risk funding to reduce cost of fundingImprove controllable business parameters and work towards improving the credit rating –external/internal audit, management structure, freeing up of capital, better cost controlEvaluate current business to move away from unrelated businesses – Overcomereluctance to put on sale due to perception issuesExplore sale and lease back for real estate assets used by the organization – freeing of capitaland improving ROELook for unattractive assets of other investorsImprove market share in current areas of operations
Cash Rich companies – Wayforward and opportunitiesExplore new market opportunities – Africa the continentof future growth ?Resource rich and the potential to build compellingbusiness models of integrated projects mitigating rawmaterial price risksLarge market, favorable demography, growing economies,growing middle class , need for large infrastructureinvestment and also manufacturing opportunities