2017: A year of political and economic challenges

September 2017, by Jorge Sepúlveda, VP Financial Management

Without a doubt, all new changes in the local, regional and global macroeconomic environments require us to adjust our short-, medium- and long-term strategies to make sure stakeholders keep considering Prolec GE as a sustainable enterprise.

This year has been no exception; volatility continues to impact macroeconomic variables / factors affecting our performance. For example: from January to July, 2017 the peso – dollar exchange rate accumulated a 14% appreciation, the copper base carries a 10% inflation. Also, annualized inflation in Mexico reached just over 6%.

In Prolec GE, we follow certain strategies to cover some of these risks, for example: currency hedging and commodities with instruments offered by financial institutions and the stock market. However, they only cover part of the macroeconomic risks. Therefore, in addition to the above, we have established other internal processes to forecast, in the best possible way, long-term cost and expense variables, with the purpose of minimizing the impact of volatility in both financial and operational performance, always with the goal of creating value for our customers.

During the remainder of 2017 and during the first half of 2018, there will be relevant events such as the renegotiation of the North American Free Trade Agreement (which began in August 2017), and the federal elections in Mexico in July 2018, where the President of the Republic, as well as Senators and Congressmen will be elected. These events will cause an economic volatility that will impact federal government spending, foreign investment flows, peso-dollar exchange rate, private investments, among others, which affect the demand for our products, the availability of talent, and cause higher costs in raw materials and energy to name a few.

Given the uncertainty that we are likely to face in the next 6-12 months, we must be vigilant and prepare ourselves to quickly make the necessary adjustments to our market strategies, be in constant communication with our customers and suppliers, execute the necessary risk coverages, as well as ensure funding sources to support the required working capital.

Strategies to address market uncertainty are surely particular to every industry, the important thing is to clearly define them and spread them to all areas of the company to make sure everything is covered and to always provide the best possible service to our customers.