CFMA WINTER 2018 CONFINDEX REPORT. Concern Grows Even As Economy Improves 1/24/2018. January 24, 2018

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1 CFMA WINTER 2018 CONFINDEX REPORT Concern Grows Even As Economy Improves January 24, 2018 Stuart Binstock President & CEO Construction Financial Management Association (CFMA) Tim Wilson National Industry Partner BKD National Construction & Real Estate Group 1

2 TO RECEIVE CPE CREDIT Participate in entire webinar Answer polls when they are provided If you are viewing this webinar in a group Complete group attendance form All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificates within 15 business days of live webinar WHAT IS CONFINDEX? CONFINDEX is CFMA's proprietary confidence index survey of CFOs in the commercial construction sector. It is the only confidence index survey asking the level of confidence from important decision makers in a critical industry of the US economy. 2

3 WHAT IS CONFINDEX? CONFINDEX is compiled from four sub-indices measuring critical components of the financial health of a commercial construction company: Business Conditions Financial Conditions Current Conditions Current Year Outlook WHAT IS CONFINDEX? Measurements Taken Using 8 Questions Current Business Conditions Future (1 year) Business Conditions Current Bank Credit Availability Future (1 year) Bank Credit Availability Future (1 year) Bonding Credit Availability Line of Credit Status Current Backlog Future (1 year) Backlog 3

4 WHAT IS CONFINDEX? CONFINDEX Survey Panel Composition 300+ randomly selected CFMA General Members with the title of CFO in non-residential construction companies WHAT IS CONFINDEX? What the CONFINDEX Number Indicates Built using a net confidence scoring approach Measures degree to which there is a more positive or negative outlook among survey panel members Neutral point is set at 100 Less than a 100 reading indicates pessimism among the survey participants, while a reading more than 100 indicates optimism among the survey participants 4

5 QUARTERLY CONFINDEX READINGS SEPTEMBER 17 VS. DECEMBER 17 INDEX READINGS SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index Business Conditions Index Financial Conditions Index Current Confidence Index Year Ahead Outlook Index

6 SEPTEMBER 17 VS. DECEMBER 17 INDEX READINGS SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index Business Conditions Index Financial Conditions Index Current Confidence Index Year Ahead Outlook Index Business Conditions Index is closely tied to estimates of current and future backlog. SEPTEMBER 17 VS. DECEMBER 17 INDEX READINGS SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index Business Conditions Index Financial Conditions Index Current Confidence Index Year Ahead Outlook Index Financial Conditions Index represents bank credit, bonding credit, and working capital line of credit availability. 6

7 SEPTEMBER 17 VS. DECEMBER 17 INDEX READINGS SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index Business Conditions Index Financial Conditions Index Current Confidence Index Year Ahead Outlook Index Current Confidence Index reflects all current business conditions levels of bank credit availability, bonding, working capital, and backlog. SEPTEMBER 17 VS. DECEMBER 17 INDEX READINGS SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index Business Conditions Index Financial Conditions Index Current Confidence Index Year Ahead Outlook Index Year Ahead Outlook Index pertains to anticipated future business conditions, future bank credit, bonding, and backlog. 7

8 CONSTRUCTION INDUSTRY BUSINESS CONDITIONS DECEMBER 16 VS. DECEMBER 17 DECEMBER 17 VS. DECEMBER 18 Significantly Better 13% Significantly Better 5% Slightly Better 40% Slightly Better 31% Same 35% Same 37% Slightly Worse 10% Slightly Worse 26% Significantly Worse 2% Significantly Worse 0% Don't Know/NA 0% Don't Know/NA 1% 0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% PROFIT MARGINS DECEMBER 16 VS. DECEMBER 17 DECEMBER 17 VS. DECEMBER 18 Significantly Better 3% Significantly Better 6% Slightly Better 43% Slightly Better 36% Same 30% Same 43% Slightly Worse 19% Slightly Worse 14% Significantly Worse 5% Significantly Worse 0% Don't Know/NA 0% Don't Know/NA 1% 0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% 50% 8

9 CONSTRUCTION MATERIALS PRICES DECEMBER 16 VS. DECEMBER 17 DECEMBER 17 VS. DECEMBER 18 Significantly Better 0% Significantly Better 0% Slightly Better 5% Slightly Better 2% Same 33% Same 35% Slightly Worse 51% Slightly Worse 55% Significantly Worse 7% Significantly Worse 4% Don't Know/NA 3% Don't Know/NA 3% 0% 10% 20% 30% 40% 50% 60% 0% 10% 20% 30% 40% 50% 60% BANK CREDIT AVAILABILITY DECEMBER 16 VS. DECEMBER 17 DECEMBER 17 VS. DECEMBER 18 Significantly Better 7% Significantly Better 5% Slightly Better 21% Slightly Better 12% Same 63% Same 71% Slightly Worse 2% Slightly Worse 5% Significantly Worse 0% Significantly Worse 0% Don't Know/NA 6% Don't Know/NA 6% 0% 20% 40% 60% 80% 0% 20% 40% 60% 80% 9

10 COMPANY TOTAL BACKLOG REVENUE DECEMBER 16 VS. DECEMBER 17 DECEMBER 17 VS. DECEMBER 18 Higher Than 60% Higher Than 40% About the Same 20% About the Same 48% Lower Than 19% Lower Than 12% 0% 20% 40% 60% 80% 0% 10% 20% 30% 40% 50% 60% AVAILABILITY OF BONDING CREDIT DECEMBER 16 VS. DECEMBER 17 DECEMBER 17 VS. DECEMBER 18 Significantly Better 9% Significantly Better 4% Slightly Better 19% Slightly Better 13% Same 66% Same 76% Slightly Worse 1% Slightly Worse 1% Significantly Worse 0% Significantly Worse 0% Don't Know/NA 5% Don't Know/NA 5% 0% 20% 40% 60% 80% 0% 20% 40% 60% 80% 10

11 WORKING CAPITAL LINE OF AVAILABLE CREDIT (DEC 16 THRU DEC 17) Increased 21% Remained the Same 69% Decreased 6% Not Applicable 4% 0% 10% 20% 30% 40% 50% 60% 70% 80% RANK YOUR LEVEL OF CONCERN Not concerned Watching with some concern Very or highly concerned Rank your level of concern for demand for construction for the upcoming year Not concerned Watching with some concern Very or highly concerned N/a 11

12 LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR Demand for Construction Dec. 17 Demand for Construction Sep. 17 5% 26% Not Concerned Some Concern 6% 23% Not Concerned at All Some Concern 69% Very or Highly Concerned 71% Very or Highly Concerned LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR DEMAND FOR CONSTRUCTION Good market, think will go into But waiting for the volatility in government to end is getting old. I am worried about the overall economy slowing down over the next 18 months. Length of current market is a concern; this will turn downward at some point in the next couple of years. Non-residential work seems to be fairly competitive - still seems like there is plenty of supply. Local area is saturated now but moving forward, not sure how public side will affect general construction. The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD. 12

13 RANK YOUR LEVEL OF CONCERN Not concerned Watching with some concern Very or highly concerned Rank your level of concern for availability of financing for projects for the upcoming year Not concerned Watching with some concern Very or highly concerned N/a LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR Availability of Financing for Projects Dec % 3% 2% 40% Not Concerned Some Concern Very or Highly Concerned NA Availability of Financing for Projects Sep % 5% 1% 35% Not Concerned Some Concern Very or Highly Concerned NA 13

14 LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR AVAILABILITY OF FINANCING FOR PROJECTS As material costs increase, will projects continue to be financeable? Concerned longer term with overvaluation of commercial projects possibly leading to a pull back in financing. Interest rates increasing may dampen some of the demand for commercial construction. Evidence of funding is sometimes like pulling teeth. Lenders have a lot of red tape for borrowers on construction projects - the process takes longer and some have had to go to a 2nd bank but in the end they have secured financing. The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD. LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR Public Policy Regarding Construction Dec. 17 Public Policy Regarding Construction Sep. 17 3% Not Concerned 1% Not Concerned 14% 27% Some Concern 19% 38% Some Concern 56% Very or Highly Concerned NA 42% Very or Highly Concerned NA 14

15 LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR PUBLIC POLICY REGARDING CONSTRUCTION Dismantling of the administrative state approach in Washington creating uncertainty everywhere. Unstable foreign policy could create shocks to the economy. Current political arena is volatile, even though administration favors construction. Regulations and code changes continue to make the whole process more complicated and more expensive. Public policy seems to be relaxing. The state and federal politics associated with immigration is awful. The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD. RANK YOUR LEVEL OF CONCERN Not concerned Watching with some concern Very or highly concerned Rank your level of concern for skills shortages for the upcoming year Not concerned Watching with some concern Very or highly concerned N/a 15

16 LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR Skills Shortages Dec. 17 1% 81% 2% 16% Not Concerned Some Concern Very or Highly Concerned NA Skills Shortages Sep. 17 1% 92% 7% Not Concerned Some Concern Very or Highly Concerned LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR SKILLS SHORTAGES There is a shortage of skilled workers, not just in construction but also for the companies we build for. We need to import more labor and skilled trades. Lack of quality available skilled field workers are still by far the #1 challenge for the industry. Skilled labor is still hard to secure. All trades are passing around the same labor pool and increased wages are the result. We are trying to focus on younger workers and training them in our trade. The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD. 16

17 LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR Challenge Not Listed Dec. 17 Challenge Not Listed Sep % 6% Not Concerned Some Concern 15% 7% Not Concerned Some Concern 61% 20% Very or Highly Concerned 62% 16% Very or Highly Concerned NA NA LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR CHALLENGE NOT LISTED Materials Pricing Changes Ability to keep pace with rate of change affecting construction environment. The quality of plans from architects continues to diminish, increasing risk in the construction process. What will the tax reform changes bring to this industry? Unreasonable delayed payments both progress and retainage is an ever growing challenge. The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD. 17

18 CHALLENGE QUESTION Choose the industry challenge that is of most concern to you Demand for construction Availability of financing for projects Public policy regarding construction Skills shortages Challenge not listed CHALLENGE QUESTION Of the challenges not listed previously, choose which one you see as your biggest challenge Use of technology Declining work ethic in younger generation Change in the type of work performed Changes in health care Trump administration s policies 18

19 QUESTIONS? BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information contained in these slides is presented by professionals for your information only. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered herein or in these seminars. 19

20 CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at THANK YOU! FOR MORE INFORMATION Stuart Binstock President & CEO CFMA Tim Wilson Partner BKD, LLP 20

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