US finance professionals see geopolitical risk weigh on earnings

Geopolitical risk is having a bigger impact on earnings than ever before – and US senior management and boards are taking notice, reports the Association for Financial Professionals (AFP).

The AFP, headquartered near Washington DC, polled 480 finance professionals holding the job titles of chief financial officer (CFO), treasurer, controller, vice president of finance and assistant treasurer.

The results, published in the 2017 AFP Risk Survey supported by Marsh & McLennan Companies, shows that 49% of finance professionals believe their organisations are exposed to greater earnings uncertainty than they were three years ago.

In addition, 52% of treasury and finance functions are considering the impact on their organisation’s growth expectations due to a geopolitical event. In line with this figure, 46% say their C-suite and board were concerned about geopolitical risk in 2016.

“Geopolitical risk in the form of a surprise election result, new regulations or heightened diplomatic conflict is a greater threat to organisations than ever before,” said Jim Kaitz, president and chief executive officer (CEO) of AFP.

“As much as they plan for external competition, it is very difficult to plan for the unexpected geopolitical event or crisis which can severely impact an organisation’s earnings.”

The top two drivers of earnings uncertainty are financial factors such as credit, interest rates and foreign exchange (FX), and business/operations, such as production interruptions or supply chain disruptions. Each was cited by 24% of survey respondents.

Forecasting risk continues to be a challenging issue for most finance professionals, with 89% agreeing that forecasting risk will be either as difficult or more difficult three years from now.

“Given the rise in geopolitical instability and other global risks, forward-thinking financial leaders and treasurers must focus on helping their organisations understand the potential impact of uncertain events on business strategies, operations, and supply chains,” commented Alex Wittenberg, executive director, Marsh & McLennan Companies’ Global Risk Centre.

 

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