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Economic Uncertainty Keeps U.S. Energy CFOs Up at Night

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Congressional dysfunction on tax reform, seemingly bottomless oil prices and global economic turmoil are all making strategic planning difficult for energy-industry finance executives. Yet these same CFOs remain surprisingly optimistic about the future, according to the latest edition of Grant Thornton LLP’s CFO Survey.

The recently released survey reflects the insights of more than 900 chief financial officers and other senior financial executives across the United States. According to the results:

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  • Nearly 40 percent of energy-industry CFOs expect their industry’s financial prospects to improve in the coming year (a 14 percent drop in confidence from one year ago).
  • Only 7 percent expect financial prospects to worsen in the coming year.
  • Nearly a third (28 percent) are considering private equity investments in the coming year (compared to just 11 percent of companies on average).
  • An equal number of energy CFOs expect prices or fees charged in their industry to increase (26 percent) and decrease (26 percent) in the coming year.

Overall, more than half (55 percent) of CFOs across all industries say uncertainty in the U.S. economy is a major concern that could impact their businesses’ growth in the next 12 months. This is despite the fact that most CFOs expect the U.S. economy overall to remain the same (49 percent) or improve (43 percent) in the next 12 months, suggesting that factors other than the overall health of the economy are presenting a barrier to growth.

“While the U.S. economy has stabilized, our data suggest that uncertainty related to other economic factors is making strategic planning difficult for financial executives,” said Randy Robason, Grant Thornton’s national managing partner of tax services. “CFOs are looking to Washington, regulators and the Federal Reserve for answers and getting nothing but indecision.”

Business leaders’ concern over these economic uncertainties appears to have increased significantly since earlier this year. In May 2015, only net 22 percent of U.S. business leaders saw economic uncertainty as a major constraint on their ability to grow in the coming year, according to the Grant Thornton International Business Report.

Cybersecurity is also a major source of worry for financial leaders, especially in light of recent high-profile cyberattacks on major U.S. companies. When considering what the most significant cyber risks they face are, nearly half (44 percent) of CFOs say the most significant risks are the unknown risks, and a majority (57 percent) say it is the potential for undetected breaches. Interestingly, more public companies (47 percent) fear they are at risk of reputation loss compared to private companies (31 percent).

Regulatory and compliance burdens also top the list of concerns for finance chiefs. Nearly half (45 percent) of CFOs say that increasing costs of compliance present the biggest challenge to growth, and nearly a third (31 percent) say that keeping up with the volume and complexity of regulations is their number-one challenge.

While the survey also suggests that the recent enthusiasm for mergers and acquisitions (M&A) may be waning, with only 28 percent of finance chiefs planning to pursue M&A opportunities in the coming year (a 9 percent drop since fall 2014), CFOs of companies in certain industries had varied opinions:

  • For example, 37 percent of CFOs in the health care industry plan to pursue M&A in the coming year (9 percent higher than the national average)
  • Fifty-four percent of finance chiefs in the technology industry expect their industry’s financial prospects to improve, 10 percent higher than national average
  • In the manufacturing sector, 40 percent of manufacturing CFOs say uncertainty in global markets could impact their growth, 15 percent higher than the national average

Meanwhile, good news for finance professionals: CFOs are aggressively looking to develop and hire new talent. The vast majority (70 percent) of CFOs say finding and retaining the right talent is a critical need for supporting growth. Forty percent expect their business’s new hiring to increase in the next six months; 52 percent expect hiring to remain the same. A majority of CFOs (67 percent) plan to increase salaries in the coming year, holding steady since 2014.

The full report is available at grantthornton.com/cfosurvey.

Founded in Chicago in 1924, Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the world’s leading organizations of independent audit, tax and advisory firms. In the United States, Grant Thornton has revenue in excess of $1.3 billion and operates 57 offices with more than 500 partners and 6,000 employees.

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