Durban - Construction giant Basil Read said yesterday it had grown its order book last year despite gloomy growth prospects in South Africa.
The company said in an annual report that the order book grew by R2.3 billion last year against its targeted R10 billion.
Chief executive Neville Nicolau said: “Our order book has increased to R12.3 billion at a gross profit level of R1.4 billion and gross margin of 11.4 percent.
“It is a good balance between the construction, roads and developments divisions and St Helena airport project (R6.9 billion) and mining division (R5.4 billion) and reflects our ability to trade despite challenging market conditions.”
Nicolau said the potential profit of the order book was reasonable enough to allow the company to improve its profitability in a difficult environment.
He said that looking ahead, the group would focus on growing its revenue to minimise the impact of cyclical volatility by reinventing business development, increasing its order book and making it more demographically representative.
Basil Read wants to conclude a BEE deal that will result in the company becoming 51 percent black owned.
Maximum value
“Discussions are under way on a transaction that could result in Basil Read becoming a black-owned company,” Nicolau said. “We are also concentrating on extracting maximum value from our assets. This includes rightsizing overheads, improving project execution, driving supply chain efficiencies and improving cash flow management.”
Nicolau said the group managed to eliminate non-core and distressed contracts.
He said this would allow it to continually improve operating performance by strengthening on-site project teams, improving project delivery and productivity, driving efficiencies and seeking higher margin projects in the private sector and outside South Africa.
The group said the construction industry, a significant contributor to employment and growth in the country, has been in a slump since 2009 and 2016 was no different, with margins under pressure, tight liquidity and decreasing order books.
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“The government’s infrastructure plan, which aims to address South Africa’s needs over the next few years, is a promising development, but will require input from and co-ordination with the construction sector to succeed. Despite the current slump, the industry remains well positioned to support the country’s development goal,” the group said.
It said, following the construction boom ahead of the 2010 Fifa Soccer World Cup in South Africa, revenue growth stalled and profitability was eroded by increased competition, resulting in marginal projects.
Decreased
“The differential between the JSE all-share index and the construction and materials index is clear. Since its September 2009 high, the construction sector has decreased by 68 percent while the JSE all share index grew by 129 percent.
Basil Read is active in building, civil engineering, road construction, mixed-use integrated housing developments, opencast mining and related services for more than 60 years. The company said most of its clients in the public sector had been Eskom, Transnet and the South African National Roads Agency.
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“While these state-owned entities have been reliable sources of work over the years, their total capital expenditure in 2016 declined by 14 percent to R98 billion,” the group said.
Basil Read shares rose 4.5 percent on the JSE to close at R2.09.