Finance Professionals See Earnings Uncertainty as New Normal – 2015 AFP Risk Survey
Among risks, executives rate themselves least prepared for cyberattacks
January 21, 2015 – With tension between economic improvements in the U.S. and shakier economies in Asia and Europe, uncertainty over corporate earnings continues but is levelling off, according to corporate treasury and finance executives surveyed in a report released today by the Association for Financial Professionals (AFP).
The 2015 AFP Risk Survey, produced in conjunction with global management consulting firm Oliver Wyman, part of Marsh & McLennan Companies, found that 43 percent of U.S. corporations are experiencing higher levels of earnings uncertainty as compared to three years ago down from 45 percent last year and 59 percent two years ago. Nevertheless, a full 86 percent 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.
Finance professionals say top drivers of uncertainty are concerns about business/operations (cited by 25 percent of respondents), financial factors (24 percent), external factors (20 percent), and macroeconomic factors (20 percent). Amid changing oil prices, 11 percent of respondents point to commodities as contributing factor, up from seven percent a year ago.
Looking ahead, 44 percent of finance pros rank political/regulatory uncertainty as their biggest risk to corporate earnings in the next three years, down from 48 percent last year. They also cite tougher competition and customer satisfaction/retention among top 3 risks on the horizon.
In response to these threats finance professionals report their companies are adjusting product lines or offerings (69 percent) or extending or creating new supply chain partnerships (62 percent). More than half are increasing capital expenditures, expanding their workforces and re-prioritizing their geographic markets (each cited by 59 percent 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 percent of survey respondents, the most severe likely impact resulting from a cyberattack is damage to the company’s reputation. Indeed, 51 percent of finance pros 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 percent), such as levels of systems approvals, authentication procedures, and access controls. Fewer companies (62 percent) are implementing better training for staff. A significant vulnerability is in corporate treasury departments, where 60 percent 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. "Treasurers and CFOs need to move beyond technology. To protect their companies, they must also change the corporate culture."
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 organizations manage risk, receiving 509 responses. This is the fourth survey in the risk series undertaken by AFP and Oliver Wyman. Download complete findings on www.afponline.org/risksurvey.
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With offices in 50+ cities across 25 countries, Oliver Wyman is global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. Follow Oliver Wyman on Twitter @OliverWyman.
Marsh & McLennan Companies’ Global Risk Center generates insights and explores solutions for addressing major threats facing industries, governments, and societies. The Center aims to highlight critical challenges and bring together leaders from different sectors to stimulate new thinking and practices.
Headquartered outside Washington, D.C., the Association for Financial Professionals (AFP) is the professional society that represents finance executives globally. AFP established and administers the Certified Treasury Professional and Certified Corporate FP&A Professional credentials, which set standards of excellence in finance. The quarterly AFP Corporate Cash Indicators serve as a bellwether of economic growth. The AFP Annual Conference is the largest networking event for corporate finance professionals in the world.
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