Financial Risk Management In a Volatile Economy R.Kannan 20 October 2011 Annual CFO Conference – Silicon India

Economic Environment Expectations of Economic Growth had shown a declining trend in developed countries. Expectations of Economic Growth had shown a declining trend in developed countries. US and Europe are affected in a big way and back to old normal will take a few years US and Europe are affected in a big way and back to old normal will take a few years Corporate Sector outlook in many countries had shown a negative trend. Corporate Sector outlook in many countries had shown a negative trend. Asian countries offer promise in Economic Growth Asian countries offer promise in Economic Growth Customer sentiments are very positive in the Developing countries Customer sentiments are very positive in the Developing countries The developing countries have to take the lead in sustaining the global economic growth. The developing countries have to take the lead in sustaining the global economic growth. Focus is shifting to the Real Economy activities. Focus is shifting to the Real Economy activities. Regulators have started discouraging the Profiting from Derivatives and just paper transactions Regulators have started discouraging the Profiting from Derivatives and just paper transactions There will be increased regulation on speculative activities. There will be increased regulation on speculative activities. Profiting from speculation will come down Profiting from speculation will come down

Trends There will be increased volatality in the performance of Economies, Corporates, Markets and different asset classes. There will be increased volatality in the performance of Economies, Corporates, Markets and different asset classes. The old method of forecasting and the available statistical models can not address all the imponderables. The old method of forecasting and the available statistical models can not address all the imponderables. The inflation is likely to come down to 7% and then to 5% within a year. The inflation is likely to come down to 7% and then to 5% within a year. The Economic growth this fiscal would be between 8 and 8.5% and depending on global developments, the prospects for the growth will evolve in future. The Economic growth this fiscal would be between 8 and 8.5% and depending on global developments, the prospects for the growth will evolve in future.

Managing Volatility Challenges for CFO’s are many Managing a multi country operation Managing a multi country operation Main challenge is how to manage volatility in Demand, Costs of inputs and managing Cash. Main challenge is how to manage volatility in Demand, Costs of inputs and managing Cash. Robust Financial and Performance Planning Robust Financial and Performance Planning Ensuring predictable performance Ensuring predictable performance Measurement of Risk Measurement of Risk Be ready with an appropriate response for various types of risks. Be ready with an appropriate response for various types of risks. Introduction of new reporting standards by regulatory authorities Introduction of new reporting standards by regulatory authorities

Strategies to be followed Develop a highly flexible organisation and Financial Architecture. Develop a highly flexible organisation and Financial Architecture. Reduce the level of Fixed costs in the system and increase the variable costs. Reduce the level of Fixed costs in the system and increase the variable costs. Strategic outsourcing of activities and follow asset light strategies. Strategic outsourcing of activities and follow asset light strategies. Focus on Cash generation Focus on Cash generation Focus on Core business and reduce the income from financial and derivative transactions. Focus on Core business and reduce the income from financial and derivative transactions. Scenario planning and be ready with response for all possible scenarios. Scenario planning and be ready with response for all possible scenarios.

Hedge the input costs and output price at the budgeted levels. Hedge the input costs and output price at the budgeted levels. Monitoring of performance at regular intervals including daily, weekly and monthly depending on the need. Monitoring of performance at regular intervals including daily, weekly and monthly depending on the need. Monitor supplier and Customer performance closely. Monitor supplier and Customer performance closely. Develop a good risk management system and monitor all types of risks continuously. Develop a good risk management system and monitor all types of risks continuously. Introduce flexibility into the budgeting system. Introduce flexibility into the budgeting system. Review the ongoing Projects and Capital expenditure progammes at regular intervals and assess the need for course correction. Review the ongoing Projects and Capital expenditure progammes at regular intervals and assess the need for course correction.

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