RELO
Regina Executive Leadership Outlook Quarterly Report: March 2019
CONTENTS PAGE 2
Executive Summary
PAGE 3
Economic Outlook Dashboard Executive Confidence Current Conditions Fixed Investments Employment Sales Revenue Profitability
PAGE 6
Looking Ahead to 2019
PAGE 7
Conclusion About the Report
Executive Summary The Greater Regina Area’s business executives are making predictions when it comes to forecasting the economic environment for 2019. When compared to the last quarter of 2018, our latest edition finds a decrease in the percentage of respondents that believe the economy will remain the same across all indicators. The Executive Confidence Index is currently 2.16, an increase from the last quarter of 2018, demonstrating positivity among GRA leaders for 2019. The current Executive Confidence Index is consistent with results observed in 2016, which showed a significant decrease in the Executive Confidence Index from Q2 to Q3, changing to a positive outlook and subsequent increase in Q4 of 2016 and continued increases the following year. Regina executives’ confidence reflects the expected moderate growth projections Saskatchewan and Regina will see in 2019. For the City of Regina, the GDP rose a modest 1.8% in 2018 and the Conference Board of Canada projects continued stable growth in 2019, as the GDP is expected to rise by 2.2%. The rise in this quarter’s Executive Confidence Index is due to a decrease in the percentage of executives responding that the economy will remain unchanged in the next 12 months across all indicators. Instead, we see an increase in the percentage of executives believing the economy will perform better in the next 12 months.
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Some other highlights of the Q1 2019 survey: ˙ Less
than half (41.2%) of respondents expect their total fixed investments to remain the same over the next twelve months. The number of respondents expecting investments to increase is up by 19.0% from the last quarter, and those anticipating fixed investments to decrease has also risen by 28.1%.
˙ The
majority (82.4%) of respondents expect to employ more or the same amount of people over the next year.
˙ Over
three quarters (76.5%) of respondents expect sales revenue to increase or remain the same in the next 12 months.
˙ Over
three quarters (79.4%) of respondents expect their business profitability to increase or remain the same over the next year.
˙ We
observe a 35.6% increase in the number of respondents who expect profitability to increase over the next year.
The economies of Saskatchewan and Regina are showing positive signs for growth in 2019 and beyond. Although it may be too soon to state that the economy is in full recovery mode, it is fair to suggest that positive future growth is expected.
Regina Executive Leadership Outlook
Economic Outlook Dashboard CURRENT CONDITIONS
EXECUTIVE CONFIDENCE In the first quarter of 2019, the Executive Confidence Index is 2.16, an increase of 3 points from the fourth quarter of 2018. This is the first increase after the continued decline over the 2018 calendar year. The Executive Confidence Index is still below the overall Index Average (currently 2.28); however, the Executive Confidence Index remains sixteen points above the neutral point of 2.0, suggesting executives still remain optimistic about the economic outlook for the next year. 3.0
2.60
2.55 2.5
2.28
2.0
2.23
2.08 2.11
2.39 2.32
2.36
2.31 2.23 2.21
2.28
2.13 2.16
A calculation similar to the Executive Confidence Index reports executives’ perception of today’s economic conditions as compared to one year ago. When asked to compare the economic condition of their business to one year ago, executives rated the current economic condition of their business at 2.00, a decrease from 2.06 in Quarter 4 of 2018. This current economic condition rating was above the index average throughout 2018; however, in the first quarter of 2019 we observe a decline below the current index average of 2.00, resting at the neutral mark (2.0). This indicates executives have perceived less continuous improvement of current economic conditions for their business in the first quarter of 2019. To date, the Confidence Index and Current Conditions Index are strongly correlated (r=.797, p <.001), indicating that a change in current conditions is likely to be accompanied by a similar shift to the confidence index.
1.5 3.0 1.0
2.60
2.55 2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
Confidence Index Index Average
The increase in this quarter’s Executive Confidence Index is due to a decrease in the percentage of executives responding that the economy will remain unchanged in the next 12 months across all economic future indicators. Subsequently, we observed an increase across all indicators in the percentage of executives believing the economy will perform better in the next 12 months.
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2.5
2.23
2.08 2.11
2.23 2.21
2.0
1.98
1.87 1.85
2.01
2.39 2.32
2.36
2.31
2.14 1.91 1.88
2.24 2.05
2.13 2.16
2.08 2.10 2.06 2.00
1.5
1.0
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
Confidence Index Current Conditions Index
There has been a 44.1% increase in the number of executive respondents who believe the current economy is performing worse as compared to one year ago. About the same percentage of executive respondents (41.2% and 47.1%) believe the current economy is performing worse or about the same as compared to one year ago, respectively.
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FIXED INVESTMENTS
EMPLOYMENT
Less than half (41.2%) of respondents expect their total fixed investments to remain the same over the next twelve months. Within this indicator, the number of respondents expecting investments to increase has increased by 19.0% from the last quarter, and those anticipating fixed investments to decrease has risen by 28.1%.
The majority (82.4%) of respondents expect to employ more or the same amount of people over the next year. The overall sum of respondents who expect to employ the same amount of people has remained relatively unchanged from last quarter (decrease of 3.9%). There has been a significant increase in the percentage of executive respondents who believe they will employ more people over the next year (from 30.4% to 41.2%). The percentage of those who believe they will employ fewer people has decreased from 23.2% to 17.6%.
In the next 12 months, will your firm’s total fixed investments…
Over the 2018 calendar year, we observed a steady trend of more executive respondents believing they will employ fewer people. This has changed in the first quarter of 2019, with an observed decrease in the percentage of executive respondents indicating they expect to employ fewer people in the next 12 months.
HISTORICAL COMPARISON 80%
70%
In the next 12 months, will the number of people your firm employs…
60%
50%
41.2%
HISTORICAL COMPARISON
40%
38.2%
80%
30% 70% 20%
20.6%
60%
10% 50%
41.2%
0% 2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
40%
30%
QUARTERLY COMPARISON
20%
100 80
32.1%
38.2%
48.2%
41.2%
16.1%
20.6%
2018 Q4
2019 Q1
17.6% 10%
60 40
0%
20 0
Increase Stay the Same Decrease Unsure
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
QUARTERLY COMPARISON 100
30.4%
80
41.2%
60
42.9% 40
41.2%
20
23.2%
0
2018 Q4
17.6% 2019 Q1
Increase Stay the Same Decrease Unsure
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Regina Executive Leadership Outlook
SALES REVENUE
PROFITABILITY
Over three quarters (76.5%) of respondents expect sales revenue to increase or remain the same in the next 12 months. The percentage of executive respondents expecting sales to decrease has increased significantly from approximately 18% in the last two quarters of 2018 to 23.5% in the first quarter of 2019.
Over three quarters (79.4%) of respondents expect their business profitability to increase or remain the same over the next year. We observe a 35.6% increase in the number of respondents who expect profitability to increase over the next year.
The percentage of those who expect sales revenue to increase has grown by 21.7% since the last quarter of 2018, while the percentage of executives expecting sales to remain the same decreased by 29.4%.
In the next 12 months, will your firm’s profitability… HISTORICAL COMPARISON 80%
In the next 12 months, will your firm’s sales revenue…
70%
60%
HISTORICAL COMPARISON 80%
50%
70%
40%
60%
30%
41.2% 38.2%
50.0% 50%
20%
40%
10%
30%
26.5%
20%
23.5%
20.6%
0% 2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
QUARTERLY COMPARISON 100
10%
30.4%
80
0% 2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
60
46.4%
40
QUARTERLY COMPARISON
20
100 80
41.1%
0
50.0%
60 40 20
37.5%
26.5%
17.9%
23.5%
2018 Q4
2019 Q1
0
41.2%
38.2%
19.6%
20.6%
2018 Q4
2019 Q1
Increase Stay the Same Decrease Unsure
Increase Stay the Same Decrease Unsure
praxis-consulting.ca
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Looking Ahead to 2019 Regina executives’ confidence reflects the expected moderate growth projections Saskatchewan and Regina are expected to realize in 2019. From a provincial perspective, Saskatchewan’s GDP rose 1.5% in 2018, and the Conference Board of Canada (CBOC) projects GDP growth of 2.3% in 2019. For the City of Regina, the GDP rose a modest 1.8% in 2018 and the CBOC projects continued modest growth in 2019, with a GDP increase of 2.2%. Economic growth in the province is expected to be mixed, as not all the key industries are recovering equally. The GRA and the provincial economy are still driven by extractive sectors and growth or retraction is based on commodity prices and cycles outside the direct control of policy makers and business leaders in the GRA. Despite the sustained challenges for the oil and uranium sector and newer challenges related to market access in the canola and pulse sector, there are still reasons for optimism. The Saskatchewan economy is expected to see gains in the energy, manufacturing, and potash sectors. However, weakness in wholesale and retail sales, decreased provincial government spending on infrastructure, and weak building permits will limit a fully economic recovery in 2019. Despite tepid overall capital investment in the province, several critical projects are expected to be undertaken, which should result in long-term benefit for the province and GRA. Husky Energy says it will proceed with yet another Lloydminster SAGD project, just two months after completing its latest facility in the heavy oil play. In December the company officially added the 10,000-bbl/d Spruce Lake East project to its Saskatchewan SAGD growth pipeline. The North American Helium company is expected to extract helium from 1.2 million acres of acquired land in South-western Saskatchewan. Helium is in short supply and vital in the process to create rockets and silicon chips. It is an ambitious project that could provide a renewable source for power generation in Saskatchewan and have zero carbon emissions. DEEP Earth Energy Production is preparing to begin work on a geothermal energy production facility by Weyburn. DEEP has also recently secured $25 million in federal funds to assist with the five-megawatt facility, which will produce enough energy to power approximately 5,000 homes all while taking the equivalent of the yearly emissions of 7,400 cars out of the atmosphere.
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EVRAZ Steel recently secured $40 million in Federal Government funding, which will help secure 2,100 jobs in the region. EVRAZ is the largest steel company in Western Canada, providing steel plate and coil, small- and large-diameter pipe, and oil and gas well tubing for the energy sector. Global demand for crude continues to rise, but the price differential between Western Canadian Selects and West Texas Intermediate remains problematic. Further compounding this issue is increasing energy production from the U.S. and limited market access for Saskatchewan and Albertan producers. The GRA is a supply-chain hub for the energy service sector for exploration to production to mid-stream pipeline manufacturing and installation. Additional economic gains are expected as Mosaic and K + S Potash are expecting to increase production in 2019, which should precipitate additional procurement in the mining service and supply sector. Protein Industries Canada is headquartered in Regina, and fully operationalized, and will begin funding projects across the plant-protein supply chain in 2019. Following GDP declines for Regina in 2015 and 2016, moderate GDP growth moving into 2019 is a positive sign. Regina’s economy continues to move forward with modest but stable job creation. The CBOC expects that this will keep the unemployment rate at about 6.2% in 2019, with expected declines to 5.4% in by 2020–22. Population growth remains strong, and with rates triple the GRA’s twenty-year average, thanks predominately to international immigration, the GRA stands to benefit from increased diversity. Construction in Regina will see the completion of the Regina By-pass Project in 2019, as well as the City of Regina’s $30.1 million, 60,000 sq. foot bus repair facility, and continued construction of the Chuka Creek Business Park. Housing starts are expected to remain slow. The CBOC projects a 20% increase in housing starts to 1,500 units. This is still under the 10-average of 1,900 units. The construction slow down and potential increased interest rates will temper growth in the retail, whole sale, and financial sectors. The economies of Saskatchewan and Regina are showing positive signs for growth in 2019 and beyond. Although it may be too soon to state that the economy is in full recovery mode, it is fair to suggest that the downturn has ended.
Regina Executive Leadership Outlook
Conclusion The GRA’s business executives are making predictions when it comes to forecasting the economic environment for 2019. When compared to the last quarter of 2018, we observe a decrease in the percentage of respondents that believe the economy will remain the same across all indicators and subsequently, the percentage of those who believe the economy will perform better over the next year has increased.
The Executive Confidence Index is currently 2.16, an increase from the last quarter of 2018, demonstrating positivity among GRA leaders for 2019. The current Executive Confidence Index is consistent with results observed in late 2016 to early 2017. Of note, over the past two years (2017–2019) we have observed a significant decrease in the Executive Confidence Index from Q3 to Q4, which changes to a positive outlook and subsequent increase in the Executive Confidence Index in Q1 of the following year.
ABOUT THE REPORT Economic Development Regina (EDR), in partnership with Praxis Consulting (Praxis), began a quarterly publication entitled, “Regina Executive Leadership Outlook” in September 2014 that captures the thought leadership of senior business leaders in the Greater Regina Area (GRA) on key issues facing Regina and surrounding areas. The survey is distributed to a list of approximately 80 senior business leaders. The survey has a standard component entitled “The Economic Outlook.” This is a set of static questions asked each quarter that inform a unique Executive Confidence Index. This index is used to measure how confident executives are in Regina’s overall economy across each quarter. Every second quarter, Praxis and EDR pick a specific topic as the focus of the publication. Praxis then develops a survey questionnaire to gather quantitative data and an interview questionnaire to gather qualitative data using the chosen topic. This quarter, Praxis and EDR opted to defer the specific topic report to Quarter 2 of 2019.
Survey Fieldwork for this project included 34 surveys completed by CEOs and senior executives in Regina’s business community. Survey responses were received via an online survey, delivered to each participant by email. Responses were collected February 5–18, 2019. A total of 79 survey invitations were sent; yielding a response rate of 43.0%. Margins of error cannot be applied to this type of non-probability sample.
economicdevelopmentregina.com
In many cases data is captured on symmetrical, verbally-anchored five-point response scales. ˙ On
this scale, responses of 1 or 2 are negative; a response of 3 is neutral, and responses of 4 or 5 are positive.
˙ This
report shows frequency of response at every option in the response set, along with a mean, to indicate the overall level of response.
Methodology The Executive Confidence Index is a single statistic calculated to gauge leadership confidence in the future economy. It is an average taken from a series of questions asking executives to look ahead 12 months. These questions ask executives about the future of the GRA’s economy, their business’ future investments, future number of employees, future sales revenue, and future profitability. In each question, a numeric value is assigned to a verbal response. A value of ‘1’ indicates an expected decrease. A value of ‘2’ indicates an expectation of the status quo, while a value of ‘3’ indicates an expected increase. This statistic assumes equal weight across all five economic questions. The result is an average of all responses. In this calculation, the lowest possible result is 1.0 and the highest possible result is 3.0. A result above 2.0 means that executives are optimistic about the economic outlook for their business, while a result under 2.0 suggests that executives are pessimistic about the economic outlook for their business.
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ABOUT EDR
ABOUT PRAXIS
Economic Development Regina Inc. (EDR) is the economic development agency for the Greater Regina Area.
Praxis Consulting is Saskatchewan’s largest locally-based management consulting firm.
EDR is a not for profit economic development corporation, governed by a volunteer board of directors. EDR provides leadership to the community to support industry growth and diversification through retention and expansion of existing business and encouraging investment, development of industry and tourism.
Praxis works collaboratively with clients in the facilitation of growth and excellence. Leveraging an unmatched wealth of experience across multiple sectors, Praxis adds value to their clients through:
In collaboration with key stakeholders, we work to identify, develop and promote opportunities that advance economic prosperity and ensure the Greater Regina Area offers a vibrant and diversified economy for investors, is a positive destination experience for visitors and offers a high quality of life for residents.
˙ Strategy:
David Froh, Vice President E: dfroh@economicdevelopmentregina.com P: 306-565-6389
˙ Research:
Information gathering and data analytics.
Thought-leadership, rigorous planning, and pragmatic strategies.
˙ Results:
Cascading strategy and culture within the organization.
Valerie Sluth, Managing Principal E: vsluth@praxis-consulting.ca P: 306-545-3755