Uncertainty over corporate earnings continues but is levelling off, according to US corporate treasury and finance executives surveyed by the Association for Financial Professionals (AFP). Cyberattacks are also top-of-mind for many financial professionals, with reputational risk viewed as the most serious consequence.
The 2015 AFP Risk Survey, produced in conjunction with global management consulting firm Oliver Wyman, part of Marsh & McLennan Companies, found that 43% of US corporations see higher levels of earnings uncertainty over the next 18-36 months, down from 45% last year and 59% two years ago. Nevertheless, a full 86% of respondents see the same or higher levels of earnings uncertainty – about the same as last year’s results – suggesting that earnings uncertainty has become the new normal.
Financial professionals say top drivers of uncertainty are concerns about business/operations (cited by 25% of respondents), financial factors (24%), external factors (20%), and macroeconomic factors (20%). Amid changing oil prices, 11% of respondents point to commodities as contributing factor, up from seven percent a year ago.
Looking ahead, 44% of treasury and finance professionals rank political/regulatory uncertainty as their biggest risk to corporate earnings in the next three years, down from 48% last year. They also cite tougher competition and customer satisfaction/retention among top three risks on the horizon.
In response to these threats, financial professionals report their companies are adjusting product lines or offerings (69%) or extending or creating new supply chain partnerships (62%). More than half are increasing capital expenditures, expanding their workforces and re-prioritising their geographic markets (each cited by 59% of respondents).
“The survey results show that as companies are becoming more attuned to the uncertainty in the business environment, they are identifying opportunities to invest in their businesses,” said Alex Wittenberg, Partner, Oliver Wyman and Executive Director, Marsh & McLennan Companies Global Risk Center. “Whether expanding product lines, hiring new talent or concentrating on high-growth geographies, the goal is to be more competitive and more resilient, and it is information gleaned from risk analyses that companies are using to shape their decisions.”
This year’s survey also focused on cyberattacks. According to 45% of survey respondents, the most severe likely impact resulting from a cyberattack is damage to the company’s reputation. Indeed, 51% of financial professionals from companies that have suffered breaches cite reputational damage as the most severe result. Financial liability, revenue loss, regulatory investigations and fines also were cited as potential consequences.
For protection, companies are moving to technical solutions (71%), such as levels of systems approvals, authentication procedures, and access controls. Fewer companies (62%) are implementing better training for staff. A significant vulnerability is in corporate treasury departments, where 60% say they have no clearly documented mechanism in place to initiate a response to a cyberattack.
“When it comes to cyberattacks, it’s a question of when, not if,” said Jim Kaitz, AFP’s president and CEO. “Companies need to move beyond technology and change their culture to protect themselves.”
About the Survey
In October 2014, AFP surveyed its senior level corporate practitioner membership and prospects with job titles of CFO, treasurer, controller, vice president of finance and assistant treasurer about uncertainty and the way their organisations manage risk, receiving 509 responses. This is the fourth survey undertaken by AFP and Oliver Wyman to study the business risk landscape and impact to companies and their treasury and finance function. Download complete findings on www.afponline.org/risksurvey.
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