CFMA’S 2013 Annual Financial Survey Online Questionnaire Results
CFMA and Industry Insights are pleased to present the results of CFMA’s 2013 Construction Industry Annual Financial Survey Online Questionnaire. These results fuel the industry’s only Financial Benchmarker tool – www.financialbenchmarker.com – whereby construction companies can compare their financial performance as well as their business practices and strategies to others in the industry.1
The 2013 Annual Financial Survey Online Questionnaire was distributed to approximately 8,000 potential respondents, including both CFMA General Members and non-members (mostly employed by U.S. and Canadian construction companies). Responses were received between April and August 2013.
Of the 602 companies that submitted data for the Online Questionnaire, 492 provided detailed financial statements and other required information and thus were included in the financial portion of the results. Companies that submitted data for other sections of the Online Questionnaire and general information that enabled us to classify the respondents were included in the results where appropriate.
CFMA’s Annual Financial Survey Online Questionnaire is confidential and unique to the industry and all results, accessible through the Benchmarker tool, are presented in composite form, segmented by type of construction work performed, region, revenues, and financial performance.
The 2013 respondent profile was similar to 2012:
• 40% of respondents were Industrial & Nonresidential contractors (38% in 2012)
• 20% were Heavy & Highway contractors (17% in 2012)
• 39% were Specialty Trade contractors (40% in 2012)
• 1% of the respondents were classified as “Other”
The percentage of companies that experienced a change in majority ownership in the past five years has slowed since 2010, decreasing from 18% in 2010, to 15% in 2011, to 14% in 2012, and then dropping again to 12% in 2013.
The largest percentage of respondents is from the Midwest (26%). The remaining respondents are fairly evenly distributed among the Northeast, Southeast, Southwest, and Far West. Companies with revenues of $25 million or less account for 39% of the respondents, while those with revenues ranging from $25-50 million comprise 38% of the respondents. Eighty-seven percent of the respondents were CFMA members.
Economy & Competition
Showing an expression of economic optimism, 60% of the respondents expect their sales volume to increase over the next year, reflecting a steady year-over-year increase – 27% in 2010, 47% in 2011, and 54% in 2012. Further reflecting the improved economic climate, only 4% of all companies anticipate a decrease in sales volume, compared to 17% in 2012, 27% in 2011, and 43% in 2010.
Contract backlog decreased by 4% from $87.1 million in 2012 to $83.6 million in 2013. This is a step backward after coming off the lows of $48.3 million in 2009 and $52.1 million in 2010, but is still higher than the five-year average of $74.3 million. However, 51% of the respondents reported having a higher backlog this year over last year.
Only 29% of all companies plan to enter new geographic regions in 2013, down from 34% in 2012 and 43% in 2011. The two methods of entry into new geographic regions most commonly cited are following present customers (46%) and participation in joint ventures (23%). This is consistent with the results of the past three years.
Thirty-seven percent of contractors reported an increase in 2013 in the amount of competitive bid work they are pursuing this year, down from 40% in 2012. Only 14% expect a drop in competitive bid work. The vast majority of respondents in both categories expect a difference in competitive bidding of less than 15%.
The selection of the top challenges in the next five years changed significantly from past years. (See Exhibit 1.) In both 2011 (51%) and 2012 (45%), sources of future work was the dominant concern. In 2013, the major concern for 25% of the respondents was health care costs, followed by 20% citing sources of future work and 19% selecting both lack of skilled field resources and material costs.
Cash Management & Finance
Bank credit availability has steadily improved over the past three years with 27% reporting improvement in 2013, compared to 24% in 2012, 17% in 2011, and only 9% in 2010. This is opposed to 5% feeling that credit availability is worse in 2013, compared to 7% in 2012, 9% in 2011, and 14% in 2010. Sixty-nine percent of respondents reported credit availability to be about the same as the previous year, ranging from a high of 77% in 2010 to a low of 68% in 2012.
In 2013, 73% of respondents reported that working capital lines of credit are generally secured, down slightly from the 74% average for 2010-2012. There has been a slight decrease in requiring personal guarantees by company owners on financing, from 52% in 2012 to 50% in 2013.
Bonding & Sureties
Bonding credit availability has improved since 2012. While 69% report no change from 2012, 26% report better availability. The Heavy & Highway segment is the largest user of bonding with 60% of its respondents citing bonding of 60% or more of their projects.
In contrast, the Industrial & Nonresidential segment reported bonding of 60% or more by only 32% of respondents, and the Specialty Trade segment saw only 11% of its respondents reporting bonding of 60% or more.
Aggressive loss control and competitive bids have been the two most frequent actions taken by respondents to control their insurance costs over the past four years. In 2013, 31% used aggressive loss control, and 24% used competitive bids. Interestingly, only 6% of respondents took no action in 2013 compared to 13% in 2012 and 10% in both 2011 and 2010.
Forty-two percent of the respondents had a workers’ comp experience modifier between .80 and .99. While 38% reported a modifier between .50 and .79, 12% reported a modifier greater than one.
Accounting Policies & Methods
Some form of the percent complete method of contract revenue recognition is used by 97% of respondents, with cost-to-cost being the most prevalent (91%). Use of the physical completion method has decreased to 3% in 2013 from 9% in 2012 (5% in 2011). Seventy-one percent of respondents begin to recognize profit as soon as costs are charged to the job, while 15% wait until a base level of completion has been attained.
Most respondents (69%) use a fact and circumstances approach to recognizing revenue on unapproved change orders and claims, which is consistent with prior years. Forty-seven percent recognize costs of unapproved change orders and claims in the period incurred, but not revenues; 23% recognize revenue equal to the costs incurred on unapproved change orders and claims.
Of all respondents, only 27% are involved in joint venture accounting. Consistent with prior years, 44% use the equity method for accounting for their share of the joint venture.
Profitability for construction companies continued on a downturn from previous years, but at a reduced rate:
• In 2013, the average ROA was 5.0%, a decrease from 5.5% in 2012 and 11.1% in 2011. ROE was 14.2%, a decrease from 15.2% in 2012 and 20.3% in 2011.
• Average days in A/R increased slightly to 51.9 from 50.1 in 2012. Average days in A/P decreased to 34.2 from 43.0 in 2012.
• Gross profits for all companies decreased from 9.2% in 2012 to 9.1% in 2013, which is below the average of the past five years (10.2%).
• Net Income follows the same pattern, decreasing from 2.4% in 2012 to 2.1% in 2013, with a five-year average of 2.7%.
A cash flow squeeze can certainly develop with less net income, lengthening receivables, and decreasing payables.
Best in Class Information
The CFMA Annual Financial Survey Online Questionnaire results identify, as a separate group, the top 25% of companies based on five key indicators of financial performance:
• Return on Assets – The Best in Class companies had a 17.6% ROA in 2013, compared to 18% in 2012. All respondents had a 5% return in 2013.
• Return on Equity – The Best in Class companies had a 40.2% ROE in 2013, compared to a 39.7% return last year. All respondents had a 14.2% return.
• Fixed Asset Ratio – The Best in Class companies had a Fixed Assets to Net Worth ratio of 10.7% in 2013, compared to 20.0% in 2012. All respondents had a 23.4% ratio.
• Debt to Equity – Best in Class companies appear to be less leveraged than all respondents. The Best in Class companies had a ratio of 1.10, while all respondents had a ratio of 1.50. This was also true in 2012 when the Best in Class ratio was 1.20 and all respondents were 1.75.
• Working Capital Turnover – There is not a significant difference between Best in Class companies and all respondents. The amount of revenue being supported by each $1 of net working capital is $10.30 for Best in Class companies and $9.60 for all respondents. The amount is up from $8.40 in 2012 for Best in Class companies.
Of note are the differences between Return on Assets for the various types of construction companies and the Best in Class companies compared to all respondents. Heavy & Highway companies had a downward turn, which led to all companies having a slight downward trend for ROA. Both Heavy & Highway and Specialty Trade ROA decreased for the Best in Class companies, which led to all Best in Class companies having a downward trend from 2012. See Exhibit 2 & Exhibit 3.
Respondents to this year’s Hot Topic section identified benefit offerings before, during, and after the Great Recession.
Wages & Incentives
Wages and incentives are the key components to any compensation plan, and they took a direct hit during the economic downturn. For 2014, only 20% of respondents anticipate an overall wage increase of 4% or more.
Eighty percent of companies directly tied employee performance reviews to wage increases, yet interestingly, 30% of employees do not have performance reviews at least annually. Seventy-seven percent of companies have reported company-wide bonuses or profit-sharing in 2012. Ninety percent of respondents expected these incentive payments to have continued for 2013.
Methods used to deliver wages to employees has shifted in the last 30 years from cash and paper payroll checks to include direct deposit and pay cards. Surprisingly, 37% of respondents still use paper checks as the primary method to deliver wages to employees. Even more startling, results indicate that it is the smaller companies making use of electronic delivery methods and using less paper payroll checks.
The Great Recession impacted construction as negatively as any industry in the economy. Companies were scrutinized to identify where costs could be cut. Benefit offerings, in particular, were evaluated. Even with this additional scrutiny, almost 60% of companies did not change their benefit offerings. Eighty percent of companies are already at their pre-recession benefit levels, with only 7% of companies keeping their reductions in place permanently.
Some companies feel that health insurance (and other benefits) is considered part of an individual employee’s compensation rather than a benefit available by employment. However, 75% of respondents do not consider health insurance part of compensation.
Health insurance coverage had an even greater spotlight coming out the Great Recession due to the Patient Protection and Affordable Care Act (PPACA). Results here show a full 100% of companies contribute to some or all of the cost of their employees’ health insurance. Forty-two percent of companies plan to absorb the potential PPACA surcharge. The rest of the respondents are going to find other ways to fund the additional cost or do not feel the surcharge will apply to them.
High Deductible Health Plans (HDHP) are viewed as a lower-cost alternative to traditional health insurance coverage. Only 19% of respondents have an HDHP as their only health insurance option, although almost half (46%) of the respondent companies do not even offer an HDHP option.
Even with the lessons learned from the Great Recession, as well as any additional financial burden on employers due to the PPACA, 67% of employers are not going to make any changes to their health insurance offerings, and only 14% of respondents plan on making changes to their health insurance offerings in 2014.
Company-paid vehicles and expenses are a common benefit in construction. Only 2% of companies do not have any of these vehicle benefits. Hot Topic responses revealed that companies primarily use company-paid vehicles (75%) and gas cards (70%), while only a few use auto allowance (12%) as a vehicle benefit.
401k plans are the primary retirement saving benefit in the construction industry (97%). However, these plans tend not to take advantage of some available tax-saving components. Only 20% of respondents’ 401k plans contained a Roth provision. Only 8% contained a Davis-Bacon amendment. The greatest portion of companies using a Davis-Bacon amendment were the smallest in terms of annual revenue (less than $10 million).
About the Results
The results of CFMA’s 2013 Annual Financial Survey Online Questionnaire provide critical benchmarking data and financial information about the construction industry. To remain competitive, contractors should review these results in their entirety, with particular focus on company classification, geographic region, and annual revenue data.
The Construction Financial Benchmarker at www.financialbenchmarker.com is CFMA’s online tool that allows users to compare their companies’ financial performance with the Annual Financial Survey Online Questionnaire results. With flexibility in selecting benchmarks and easy data entry, the financial results include graphic presentations of key financial data going back to 2009.
To learn about CFMA’s Construction Financial Benchmarker tool, contact Fern Oram (firstname.lastname@example.org or 609-452-8000).
CFMA’s 2013 Annual Financial Survey Online Questionnaire was conducted by CFMA’s Financial Survey & Benchmarker Committee, and results were compiled and analyzed by Industry Insights2 and the Financial Survey & Benchmarker Committee. The Committee wishes to thank all respondents and encourages all CFMA General Members to participate in the 2014 Online Questionnaire data collection launch in May.
1. Results of CFMA’s 2013 Construction Industry Annual Financial Survey Online Questionnaire are not intended to be, nor do they provide, a statistically valid representation of the construction industry as a whole. Rather, it’s representative of 492 CFMA General Members and non-members who provided detailed financial statements and other required information. The level of participant overlap from year to year can impact the financial results. Differences in the financial statements between years are due in part to market influences and individual company performance, as well as to the different participant makeup each year.
2. Industry Insights was not engaged to and did not audit this information, and accordingly, does not express an opinion or any other form of assurance on it.
GEORGE MAGUIRE is the Vice President and CFO of The Systems Group in El Dorado, AR, where he is responsible for the financial management and information technology for both the operating and leasing companies in the Systems Group. He joined the company in 1993.
George has been a member of CFMA since 1998 and currently serves as Chairman of the Financial Survey & Benchmarker Committee. He earned a BA from Western Illinois University and an MBA from Southern Methodist University in Dallas, TX.
CARYL CORONIS, CPA, is Vice President of Finance and Administration at OpenTech in Houston, TX. Previously, she served as Executive Vice President at BIO Landscape & Maintenance, Inc., where she was responsible for the company’s strategic initiatives and information technology.
Caryl currently serves as President of CFMA’s Houston Chapter and Vice Chairman of the Financial Survey & Benchmarker Committee. She is a summa cum laude graduate of Houston Baptist University.
BILLY STOCKTON, CCIFP, CCA, is the CFO of Advanced Building Concepts in Middletown, RI. Advanced Building Concepts is a comprehensive, single-sourced provider of construction services.
Billy speaks at industry conferences and serves on various association committees. He is a member of CFMA’s Massachusetts Chapter, serves on the Executive Committee, and is Executive Liaison of the Financial Survey & Benchmarker Committee. He is also a member of National Association of Construction Auditors, and the Association of Certified Fraud Examiners.
Phone: 401-849-6658, ext. 224
Copyright © 2014 by the Construction Financial Management Association. All rights reserved. This article first appeared in CFMA Building Profits. Reprinted with permission.
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