Page 14 - 2016 FGM Annual Report

C H A I R M A N ’ S R E P O R T

On behalf of the Board of Directors, I want to welcome you to the 41 Annual Shareholders’
st
Meeting of FGM Architects. In addition to reviewing the results from last year, we will also look
forward to 2017 and discuss our progress toward the firm’s strategic goals.

Every year, I attempt to provide a brief overview of economic conditions affecting the firm.
Nationally, we have been in the midst of a slow growth recovery. Unemployment has steadily
fallen, and stocks, while extremely volatile, have provided healthy returns with the Dow Jones
Index flirting with the 20,000 mark by the end of the year. Global and political shocks contributed
to many of the market gyrations, but, in general, corporations have been profitable. Interest rates
remained at historically low levels. And- oh, by the way, we had a Presidential election this year.
The incoming administration has made many bold campaign promises, some of which may
impact the AEC industry, now we’ll have to see how much real change percolates down to our
level.

Certainly, more impactful for FGM have been the political and economic conditions in the
Midwest, and particularly in Illinois. Here I’m tempted to just summarize by saying- same as last
year. The political stalemate in Springfield has dragged on for two years, during which the State
has operated without a budget. Among our client groups, State Colleges and Universities have
been particularly hard hit. Our flagship institution, the University of Illinois, saw its budget slashed
by 65% for FY16, but was stabilized by a healthy endowment. Other weaker institutions have been
severely tested. Overall, Illinois lagged the nation in almost all statistics, job growth, housing prices,
housing starts and real economic growth. A recent economic report commissioned by the State,
however, illustrates a sharp dichotomy between the nine county Chicago area and the rest of
the state. Outside of Chicago, our population is shrinking and aging, traditional agricultural,
industrial and mining industries are losing employment. Inside the nine-county area, there has
been a significant shift towards financial and service sectors. The population is statistically younger
and quite a few technology firms, along with several Fortune 500 firms, have located to the city.
McDonald’s, our neighbor in Oak Brook, will be moving to a new headquarters in Chicago soon,
in part, to access a younger workforce. These somewhat depressing statistics validate our strategic
initiatives; Geographic Expansion, development of a Corporate Market, and Resilient Design. We’ll
be discussing each of these initiatives in greater detail elsewhere in the report.

FGM’s performance in 2016 resembled the stock market’s- there were plenty of ups and downs,
and the ride was not for the feint hearted. We began the year with a solid backlog of work and
progressed through the first half of the year on plan. In the third quarter, several significant projects
were delayed or cancelled altogether- Aldi’s headquarters, the Arlington Heights Army Reserve
Center, Morton High School Freshman Center to name a few. Other projects bid significantly under
budget resulting in lower fees. One client “renegotiated” our fee and re-designed the project in
the middle of construction resulting in a dramatic drop in profitability. These events occurred late
in the year and would have resulted in a significant loss had we not acted quickly and decisively.
We made some very painful reductions in force and took a hard look at our operations, seeking
efficiencies. Because of these strong actions, I’m pleased to report, we were profitable for the 30
th
consecutive year. Our gross fees year over year were flat, but our net fees shrank by just over
$1,000,000 from 2015 to 2016. We finished the year with a 2% profit. These results were
disappointing, but considering the extraordinary circumstances we faced last year, I believe we
responded amazingly. I want to thank all of you for stepping up under very difficult circumstances
to help pull out a “save” in the ninth inning.