Construction

Despite recessionary conditions in South Africa for most of the year, growth in real value added by the construction sector remained firm over the period. Although demand for residential and non-residential buildings remained subdued, activity in the civil construction sector increased, albeit at a slower pace, due to ongoing infrastructure development projects. 

Overall, the South African building industry faces difficult trading conditions. Slow economic growth and the impact of the global financial crisis led to tighter credit conditions in the local market, exacerbated by heightened competition for those tenders put out to market. By year end, prospects for the housing industry appeared better than those in the non-residential sector given the impact of lower interest rates that were now filtering through. Rising vacancies and lower company profits continue to act as a damper on developments in the non-residential sector. 

However, infrastructural development – specifically roads, power and water continues apace, although the rate may temporarily have slowed due to funding constraints. 

The local civil engineering industry continues to be affected by the global economic downturn and poor commodities markets, resulting in certain projects being deferred or cancelled. In South Africa, the industry has benefited from government’s expanded public works programme, with projects relating to power plants, railway expansions, port and harbour upgrades and water facilities. 

Performance

The construction division is Basil Read’s largest, contributing 84% of group revenue and 71% of group operating profit. For the review period, revenue increased by 46% to R3,9 billion (2008: R2,7 billion). Operating profit was R288,6 million (2008: R170,4 million) at an operating margin of 7,4% (2008: 6,4%). 

The divisional order book at year end was R5,0 billion, split between roads (R3,2 billion), civils (R1,1 billion) and buildings (R0,7 billion).