RELO - December 2017

Regina Executive Leadership Outlook Quarterly Report December 2017

Table of Contents Executive Summary

3

Economic Outlook

4

Executive Confidence Index

4

Current Conditions

5

Survey Highlights

6

Economic Influences of 2017

8

Conclusion

10

About the Report

11

Survey

11

Executive Summary The fourth quarter of 2017 saw the second highest Executive Confidence Index scores since the inception of the Regina Economic Leadership Outlook (RELO) in 2016.

Although the index decreased slightly from last quarter (from 2.55 to 2.36), confidence remains high and has risen 0.15 points overall since Q1 of this year.

Regina executive respondents compared the current condition of their businesses to one year ago, and perceive the economy as performing better than it did last year. Over half (55.6%) of respondents expect their business profitability to increase over the next year. The majority (86.4%) of respondents believe that the economy will perform about the same or better in the next 12 months. The majority (84.2%) of respondents are also expecting to employ more or the same amount of people over the next year.

Regina executive respondents feel generally confident that the economy has improved and they are optimistic that it will continue to improve. The rating of 2.05 is above the neutral mark for only the third time since RELO’s inception. Half (50.0%) of the respondents believe the current economy is performing about the same as compared to one year ago. This marks the first time that the rating is above the neutral mark of 2.00 in consecutive months.

This edition of RELO focuses on the major economic trends and insights that are driving the confidence of our executive leaders as we move into 2018.

Looking at the long-term trends, it appears our Regina executive respondents remain confident about the economy. The economic downturn is behind us, but the recovery has been slower than many would have liked. Oil and potash prices are stabilizing, this year’s crop production had respectable earnings, and value-added processing are moving the commodities portion of our economy forward; however, the recovery has yet to significantly impact the service industries within our economy. Our provincial and municipal governments still have to meet their own budgetary challenges, leading to some uncertainty regarding potential tax increases.

Overall, Regina executives remain optimistic despite some challenges remaining in our economy. Continued optimism of Regina executives is anticipated in 2018 as our City and province continue to grow.

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Economic Outlook Executive Confidence Index

In the final quarter of 2017, the Executive Confidence Index is 2.36, a decrease of 19 points (2.55) from the third quarter of 2017.

Although a slight decrease, the result still suggests that Regina executives maintain an overall positive outlook for the next year.

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.

3.0

2.55 2.5

2.08

2.11

2.23

2.21

2.31

2.36

2.0

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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2.23

1.5

1.0

4

2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4

Current Conditions A calculation similar to the Executive Confidence Index reports executives’ perception of today’s economic conditions as compared to one year ago. Executives rate the current economic condition of their business at 2.05 as compared to the economy from a year ago.

This point is above the neutral mark for only the third time throughout the duration of the RELO survey.

3.0

2.55 2.5

2.23 2.08

2.0

1.98

2.11

2.23

2.01 1.87

1.85

2.21

2.36

2.31

2.14 1.91

Regina executives maintain an overall positive outlook for the next year.

2.05

1.88

1.5

1.0

2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 Confidence Index Current Conditions

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Survey Highlights

A steady majority (80.6%) of respondents expect their total ďŹ xed investment to remain the same or increase over the next twelve months. This represents a nominal decrease of 1.8% from last quarter.

Below are the survey highlights from the fourth quarter 2018 RELO report:

The majority (84.2%) of respondents expect to employ more or the same amount of people over the next year. This is a decrease of 7.0% (91.2%) from last quarter.

Regina Executive Respondents remain optimistic, almost half (42.5%) of respondents believe that the economy will perform better in the next 12 months. 45.0% believe that the economy will remain the same.

The largest majority (36.8%) of respondents report an increase in revenue compared to 12 months ago, 34.21% report decreased revenue.

Executive Confidence Index has come down from an all-time high to 2.36, down 19 points from the previous quarter results. Even though the confidence index value has decreased, it is still the second highest since inception of RELO (past seven quarters) and indicates that executives are remaining highly optimistic about the future economy.

Sixty percent (60.5%) of respondents expect sales revenue to increase in the next 12 months. 10.5% expect sales revenue to decrease.

Over half (55.6%) respondents expect their business proďŹ tability to increase over the next year. 13.9% expect a decrease, which is 10.8% more then last quarter (3.1%).

Half (50.0%) of the respondents believe the current economy is performing about the same as compared to one year ago.

This is a 17.7% decrease from last quarter (67.7%). Almost a third (31.6%) believe the economy will perform worse, which is a slight (8.1%) increase from last quarter (23.5%).

www.economicdevelopmentregina.com

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The following tables demonstrate the percentage change in responses from last quarter.

In the next 12 months, will your firm’s total FIXED INVESTMENTS…

In the next 12 months, will your firm’s sales REVENUE…

Q3 2017

Q4 2017

% Change

Q3 2017

Q4 2017

% Change

Decrease

17.6%

19.4%

+ 9.1%

Decrease

3.0%

10.5%

+250.0%

Stay the same

32.4%

33.3%

+2.8%

Stay the same

21.2%

29.0%

+ 36.8%

Increase

50.0%

47.2%

-5.6%

Increase

75.8%

60.5%

-59.5%

Q3 2017

Q4 2017

% Change

3.1%

13.9%

+ 348.4%

In the next 12 months, will the number of people your firm EMPLOYS…

In the next 12 months, will your firm’s PROFITABILITY…

Q3 2017

Q4 2017

% Change

Decrease

8.8%

15.8%

+79.5%

Decrease

Stay the same

44.1%

39.5%

-10.4%

Stay the same

25.0%

30.5%

+22.0%

Increase

47.1%

44.7%

-5.1%

Increase

72.9%

55.6%

-23.7%

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Economic Influences of 2017

in the market; BHP Billiton3 and others, are forecasting the market will return to equilibrium by 2020 as consumption catches up to capacity.

The current price will slowly recover as industry demand grow over the long term. It is important to keep in mind potash production is dominated by deposits found in Russia, Belarus, and Saskatchewan.

GRA executive’s current optimism and their continually positive Confident Index may be a result of perceived relative stability in Saskatchewan’s major resources after a significant downturn.

Over the past year there were a number of events with positive and negative influence on the Greater Regina Area’s (GRA) executive outlook. In this edition we have developed a snapshot and analysis of some of the largest potential economic influences on the economic outlook.

Resource Prices

The Provincial Budget

Development and export of natural resources has a profound effect on the Saskatchewan economy. The influence is felt in rural areas and every Saskatchewan city due to impacts across supply chains and in government revenues. Mineral mining and oil & gas were estimated to make up approximately 21.1% of the GDP in 2016.

The oil and gas market was mostly stable this year with some recovery slated for 2018. The 2016 price fluctuations and ensuing uncertainty, seem to be over and the market is stabilizing as a result of the oversupply dwindling, shale producers’ ability to lower their costs of production, and Saudi Arabia backing off the price war due to shale producer resiliency.

In March 2017, the Saskatchewan Government presented the provincial budget. Within the budget, the PST rate increased to 6% and many goods and services were included in the PST base, including restaurant meals, construction contracts, and insurance premiums. This past budget affected the price of acquiring goods and services across many of Regina’s industries. The budget also included the removal of the Grants-in-Lieu, resulting in municipalities passing on some costs and cutting services to balance their budgets.

Despite of the budget implications, the RELO Confidence Index grew to an all-time high of 2.55 in Q3 17, up from 2.31 in March 2017.

This indicates optimism of the GRA executives even when considering both a phased income tax and corporate tax reduction.

Looking back over the first three quarters of 2017: West Texas Intermediate Crude Oil prices were $ 52.50 USD1 per barrel in January, fluctuated throughout the year and ended at a projected $ 51.50 USD per barrel in October.

Since the initial budget release a number of funding cuts have been retracted but the biggest change for the business environment was the retraction of the corporate tax cut. Premier Wall cited the change due to business tax changes in B.C. He also said government will be looking to increase the small business tax rate threshold, currently at $ 500,0004. This announcement does give some indication the business climate will remain positive and stable.

Potash has also been relatively stable starting 2017 at $215.00 2 USD per metric ton, and ending September at $216.00 USD per metric ton.

Industry expansion over the last 10 years led to overcapacity

1

2

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U.S. Energy Information Administration (EIA): Short-term Energy Outlook Data Brower, West Texas Intermediate Crude Oil Spot Price Index Mundi: Commodity Prices, Potassium Chloride Monthly Price

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3

Jim Smalley. 620CKRM: New report says Saskatchewan potash prices should rebound over the long term

4

The Canadian Press. TV News: Sask Premier Brad Wall hits pause on planned corporate tax cut

MONTH-TO-MONTH

Provincial Uncertainty Over the past few months some points of uncertainty may have affected GRA executives’ level of optimism in the fourth quarter.

The 2017 quarter 3 edition of RELO captured an initial reaction to Brad Wall’s retirement. The majority (62.3%) of respondents indicated that this announcement did not affect their outlook; however, when asked how the announcement would impact investment in major industries (manufacturing, agricultural manufacturing, agriculture, oil and gas, and potash), respondents indicated there may be a slight negative impact. While the initial results in the third quarter indicated there may be no effect on the outlook. Additional time of uncertainty regarding provincial leadership may be having an affect on GRA executive’s outlook as we consider the slight drop in confidence in most recent results.

Employment Unemployment Rate

Oct 2016

Oct 2017

Change

% Change

140,900

140,500

-400

-0.3%

5.1%

5.1%

0

0.0%

Oct 2016

Oct 2017

Change

% Change

139,130

140,330

1,200

0.9%

5.3%

5.3%

0

-0.4%

YEAR-TO-DATE

Employment

Employment

Compared to 2016, the overall total employment in the Greater Regina Area increased 1% from January 2017 through September 2017 (1,378 positions). Comparing the employment level from October 2016 to October 2017, there are 400 less employed people in the city. However, comparing employment growth from this time last year, there is a net positive of 1,200 more people employed in Regina.

Unemployment Rate

The employment trend in the past year closely mirrors the Executive Confidence Index, reflecting growing future optimism during the first three quarters, with a slight decline in the Q4. The modest employment increase over last year is similar to the hiring intentions of Regina executives in the last quarter of 2016. In the Q4 of 2016, just over half (55.32%) of GRA executives indicated that they would employ the same amount of people over the next twelve months, 31.91% indicated they would employ more, and 12.77% indicated they would employ less.

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Conclusion Regina business leaders indicated they are modestly confident in the economy during the past year, with an overall increase of 15 points to the confidence index. The last three quarters of 2017 had the second highest Executive Confidence Index scores since RELO’s inception in 2016.

RELO participants expect strong growth in their businesses over the next 12 months, even though their confidence slightly tapered from Q3. The optimism displayed by the responding executive leaders of our community suggests our economy is moving in the right direction, despite some past challenges.

With the New Year comes renewed optimism and opportunity for growth.

www.economicdevelopmentregina.com

The last three quarters of 2017 had the second highest Executive Confidence Index scores since RELO’s inception in 2016.

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About the Report Survey

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.

Fieldwork for this project included 38 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 October 16 – October 27, 2017.

The survey is distributed to a list of approximately 90 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.

A total of 82 survey invitations were sent; the response rate is 46.3%. Margins of error cannot be applied to this type of non-probability sample.

In many cases data is captured on symmetrical, verbally-anchored five-point response scales.

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.

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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.

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, VP Sector Development E: dfroh@economicdevelopmentregina.com P: 306-789-5099 ext 230

˙ Research:

Information gathering and data analytics.

Thought-leadership, rigorous planning, and pragmatic strategies.

˙ Results:

Cascading strategy and culture within the organization.

Val Sluth, Managing Principal E: info@praxis-research-strategy.ca P: 306-545-3755