Transformation at the Top of the Cycle - CAGC … · Billions of constant 2009 dollars. Source: FMI Q1 2019 Construction Outlook $-$200. $400. $600. $800. $1,000. $1,200. $1,400

G r o v e P a r k I n n | J u l y 27 , 2 01 9

W. Chris DaumChief Executive Officer

FMI Corporation

Transformation at the Top of the Cycle

2FMI Corporation Copyright 2019

Where are we in the industry cycle?Economy Still Growing, Nonresidential Slowing, Residential Recession


Total construction spending put in place (US)Billions of constant 2009 dollarsSource: FMI Q1 2019 Construction Outlook

$-

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$400

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1973 oil crisisFall of the Bretton Woods system

1979 oil shockIranian Revolution

Black MondayDJIA loses 22.6%

9-11Dot-Com collapse

Sub-prime mortgage collapse2008 financial crisis

Federal rate hike Second since 2008

50-year medianWhat’s next?

Where are we at in the construction spending cycle?


Second Quarter Economic Performance (vs. Q2’18)

unemployment 3.7% near 50-year low; employment ratio at 79.7%; hourly wages 3.1%

residential housing starts are down, new home sales are down, median home price down (YoY)

consumer spending on durable goods slowing; auto sales flat and off-peak since 2015

% inflation below 2%; low energy prices

manufacturing index slipping; trade deficit widening

economy grew at 3.2%

personal consumption increased

business investment slowed

Source: Bureau of Economic Analysis; Silvercrest Asset Management


“A greatness of American industry is that it continues to perform in spite of its government”



Federal stimulus during the next recession may be limitedRepublican or Democrat


Federal Debt Held by the Public as % of GDP

20

30

40

50

60

70

80

1/1/

705/

1/71

9/1/

721/

1/74

5/1/

759/

1/76

1/1/

785/

1/79

9/1/

801/

1/82

5/1/

839/

1/84

1/1/

865/

1/87

9/1/

881/

1/90

5/1/

919/

1/92

1/1/

945/

1/95

9/1/

961/

1/98

5/1/

999/

1/00

1/1/

025/

1/03

9/1/

041/

1/06

5/1/

079/

1/08

1/1/

105/

1/11

9/1/

121/

1/14

5/1/

159/

1/16

1/1/

18

% o

f GD

P

The only time in U.S. history the federal debt held by the public was this high was during WWII


Leading at the Top of the Market Cycleirony, paradox and deficit


Everest climbers die from poor decisions made near or at the summit


So do contractors ....

Market Cycle

You are Here


Leading on a Different Playing FieldBifurcation, Concentration and Urbanization


Many Many Few

< $250M(< 100M specialty)

$250M to $1B($100M to $250M specialty)

$1B +

1999


Many Few

< $250M(< $100M specialty)

$250M to $1B($100M to $500M)

$1B +

2019

100+


Source: Economist, UN

Urban Population 1989 – 41%

10 million + (pop) – 2.3%



Urban Population 2019 – 54+%




Urban Population 2030 – 60+%



Even Distribution of Growth - 1997 thru 2007

6.2% avg. annual MSA growth

Growth in 98% of markets

49% above national avg.

51% below national avg.

Source: FMI Construction Outlook Forecast


Average MSA growth = 0.9%

Negative growth in 58% of markets

22% of MSAs above national avg.

78% of MSAs below national avg.

Negative Neutral Positive

Majority of Markets Did Not Recover - 2007 thru 2017

Source: FMI Construction Outlook Forecast


Total construction spending put in place by metro market (2018)Forecast by Metropolitan Statistical Area (MSA)Source: 2018 FMI Overview, Featuring FMI’s Fourth Quarter 2017 Construction Outlook

Construction Spending is Concentrating in Fewer Markets


Thriving

1. Top 10% of Growth Markets Grew = 8.6%

2. Top 10% of Growth Markets Account for 24% of ‘19 Spending

3. Average Growth Rate in the 38 Largest Markets = 5.6%

Surviving

1. Average Market Growth Rate = 2.1%

2. Markets Below Average Growth Rate = 215 (56%)

3. 50% of all Markets Grew Less Than Inflation = 1.6%

4. 23% of Markets Have Declined (negative growth)

The Last 10 Years (2009 to 2019)


Largest Markets (2019) $ MM's Fastest Growing (last 10 years) CAGR1 New York-Newark-Jersey City, NY-NJ-PA 80,695.9$ 1 Naples-Immokalee-Marco Island, FL 14.0%2 Los Angeles-Long Beach-Anaheim , CA 50,868.0 2 Cape Coral-Fort Myers, FL 13.3%3 Dallas-Fort Worth-Arlington, TX 38,591.4 3 Punta Gorda, FL 12.8%4 Houston-The Woodlands-Sugar Land, TX 34,637.4 4 Port St. Lucie, FL 12.1%5 Washington-Arlington-Alexandria, DC-VA-MD-WV 32,132.3 5 North Port-Sarasota-Bradenton, FL 12.1%6 Chicago-Naperville-Elgin, IL-IN-WI 31,865.8 6 Sebastian-Vero Beach, FL 10.0%7 Atlanta-Sandy Springs-Roswell, GA 29,284.5 7 Greeley, CO 10.0%8 San Francisco-Oakland-Hayward, CA 26,479.2 8 Orlando-Kissimmee-Sanford, FL 9.6%9 Boston-Cambridge-Newton, MA-NH 24,796.5 9 Santa Rosa, CA 9.5%

10 Phoenix-Mesa-Scottsdale, AZ 24,033.6 10 Ocala, FL 9.3%11 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 23,685.3 11 Crestview-Fort Walton Beach-Destin, FL 8.9%12 Miami-Fort Lauderdale-West Palm Beach, FL 23,151.0 12 Bend-Redmond, OR 8.8%13 Seattle-Tacoma-Bellevue, WA 22,737.7 13 Provo-Orem, UT 8.8%14 Minneapolis-St. Paul-Bloomington, MN-WI 22,118.7 14 Fort Collins, CO 8.7%15 Denver-Aurora-Lakewood, CO 18,723.4 15 Denver-Aurora-Lakewood, CO 8.4%16 Riverside-San Bernardino-Ontario, CA 18,058.4 16 Boulder, CO 8.4%17 Orlando-Kissimmee-Sanford, FL 15,000.3 17 San Jose-Sunnyvale-Santa Clara, CA 8.3%18 Austin-Round Rock, TX 14,937.3 18 Lakeland-Winter Haven, FL 8.0%19 Detroit-Warren-Livonia, MI 14,803.5 19 Ann Arbor, MI 7.9%20 Charlotte-Concord-Gastonia, NC-SC 14,790.9 20 Austin-Round Rock, TX 7.9%21 Tampa-St. Petersburg-Clearwater, FL 14,441.4 21 Midland, TX 7.8%22 San Jose-Sunnyvale-Santa Clara, CA 13,363.8 22 Boise City, ID 7.8%23 Portland-Vancouver-Hillsboro, OR-WA 12,756.4 23 Tampa-St. Petersburg-Clearwater, FL 7.7%24 San Diego-Carlsbad, CA 12,704.8 24 Nashville-Davidson--Murfreesboro--Frankli 7.7%25 Sacramento--Roseville--Arden-Arcade, CA 11,597.8 25 Atlanta-Sandy Springs-Roswell, GA 7.6%26 Nashville-Davidson--Murfreesboro--Franklin, TN 11,462.1 26 Jacksonville, FL 7.6%27 Baltimore-Columbia-Towson, MD 10,770.6 27 Grand Rapids-Wyoming, MI 7.6%28 Las Vegas-Henderson-Paradise, NV 10,555.1 28 Miami-Fort Lauderdale-West Palm Beach, F 7.5%29 St. Louis, MO-IL 10,520.9 29 St. George, UT 7.5%30 Indianapolis-Carmel-Anderson, IN 9,987.6 30 Deltona-Daytona Beach-Ormond Beach, FL 7.2%31 Jacksonville, FL 9,673.1 31 Wilmington, NC 7.0%32 Kansas City, MO-KS 9,226.5 32 Reno, NV 6.9%33 San Antonio-New Braunfels, TX 8,989.8 33 Gainesville, GA 6.9%34 Raleigh, NC 8,773.4 34 Detroit-Warren-Livonia, MI 6.8%35 Columbus, OH 8,526.7 35 San Francisco-Oakland-Hayward, CA 6.8%36 Cincinnati, OH-KY-IN 8,382.0 36 Minneapolis-St. Paul-Bloomington, MN-WI 6.6%37 Salt Lake City, UT 7,503.2 37 Portland-South Portland, ME 6.5%38 Pittsburgh, PA 6,766.4 38 Palm Bay-Melbourne-Titusville, FL 6.4%


1997 to 2007 2007 to 2017

Carolinas: Before and After

Average Annual Growth: 6.5% Average Annual Growth: -0.1%

14 of 24 markets negative growth


2018 to 2023

Carolinas: Growth Thru 2023

Average Annual Growth: 2.3%


Leading the Giantsthe Titanic was a megaproject


Megaprojects

From 3% of all construction starts in 2013 to 33% of starts in 2018

1.8% of annual put-in-place between 2012 and 2018; forecast to average 16.7% from 2019 to 2028

674 projects totaling $2 trillion are in planning stages

Source: Building permits, Reed, Dodge data


Embracing the Megaproject

Implications for the industry?

Implications for your company?

Early research identifies Trust as thecritical success theme

Owners and industry are working together to solve structural and delivery methods

Developing executive and project leaders with the right will be critical

Experience Leadership People Development Finance Technology

Competencies Strategic mindset Communication (all forms) Business acumen Balanced decision-making Political intelligence

Source: Heidrick & Struggles International; Russell Reynolds Associates


Leading Changing Business Models and ToolsDigitization, Industrialization in Real-Time


Enabling Technologies Driving Innovation and Transformation

Entrepreneurs and innovators from both inside and outside the industry are leveraging combinations of these enabling technologies to create new business models and transform existing processes – Brick & Mortar Ventures


Vertical Integration of Supply Chain | New Business Models Point Solutions | Process Transformation

HighMaterials | Commercial | Multifamily | Lodging | Education | Light Industrial

Heavy Civil | Institutional | Ind. Process

The A/E/C Digital Transformation Landscape

Low Relative Complexity

Source: Brick & Mortar Ventures; FMI

There are roughly 2,000 technology companies offering solutions to the Built Environment –this dynamic along is overwhelming to most industry executives....The global E&C industry spends much less on technology than other industries

$4 billion in VC funding was invested in A/E/C technology in 2018 - WSJ


What is Valued More – the Team, the Player or the Tools?


The Industry is Underperforming with Technology

Foundation

Structure

Finishing

Assessment & Readiness

Selection and Adoption (executing well)

Ongoing Innovation & Evaluation (realizing value)

Leaders need to be more effective in answering the important ‘why’ and ‘how’ questions1) ensuring a rigorous assessment process takes place2) disciplined selection and implementation with alignment of all parties (vendors too)3) lasting change management that leads to intended benefits requires sustained effort


When Expectations Are Not Met

Source: recent joint FMI/Plangrid study and publication

14%

11%

17%

19%

22%

22%

25%

36%


Emerging Generations are Trending Green, Clean and Progressive

Paris Belgium

Australia

Global Strike for Climate Change 50,000 students in 2015 to 1.4MM in 2019


The Situation

1. The entire world is urbanizing2. Construction spending is concentrating3. The construction industry is bifurcating 4. Megaprojects are dominating5. Technology is transforming6. Social demands are changing

How do these trends impact how you need to lead?

The Leadership Challenge

1. Where can you compete?2. How should you compete?3. How do your company to change?4. What will be your keys to success?5. How will your risk profile change?

Leading Forward

As the president and chief executive officer of FMI Corporation, Chris oversees themanagement of all FMI businesses and services in the United States and Canada and leadsthe firm’s strategic growth efforts across the firm’s investment banking, managementconsulting and principal investing business units. Previously, Chris served as president ofFMI Capital Advisors, the firm’s investment banking subsidiary, where he also led the firm’sutility infrastructure practice.

Today, Chris works with owners, boards and management teams on strategic issuesinvolving industry trends, leadership transition, ownership transfer, and mergers andacquisitions. He is a contributing author to numerous industry publications and mediaoutlets and is an energetic and entertaining speaker on the current and future impact ofeconomic, technology and competitive trends on the industry.

Prior to joining FMI, Chris served as global financial services leader for an industrialcompany with operations throughout North and South America and Europe, and he beganhis career in public accounting.

Chris is a graduate of Virginia Tech. He and his wife Sharon live in Raleigh, NC and havethree adult children.

W. Chris DaumFMI Corporation223 S. West Street12th floorRaleigh, NC 27603

Tel: 919.785.9264Cell: 919.931.0444E-mail: [email protected]

Website: www.fminet.com

W. Chris DaumPresident and Chief Executive Officer

Documents

Transformation at the Top of the Cycle - CAGC … · Billions of constant 2009 dollars. Source: FMI Q1 2019 Construction Outlook $-$200. $400. $600. $800. $1,000. $1,200. $1,400