PRESIDENT'S REPORT 2009

Thank you once again for the opportunity to report on the past year's events and activities.

State of the Industry

When I addressed you this time last year and reported that economic conditions were deteriorating world-wide, I don't think that most people were expecting the kind of meltdown that actually occurred. The deterioration in economic conditions accelerated towards the end of 2008 and into the first quarter of 2009, but has recently shown signs of easing.

Last year high oil prices were causing unprecedented cost increases. While the oil price has retraced its steps by 60%, most costs have not reduced, and some, such as cement, continue to increase, even though both inflation and interest rates have dropped. The demand for resources, especially from the East, has decreased significantly, affecting many of our major industries.

These and other factors have resulted in a drop in the overall building confidence index. When I addressed you at this time last year, it stood at 66. Today it stands at 28. This confidence index is derived by surveying architects, QSs, contractors, sub-contractors, wholesale and retail merchants, and manufacturers of building materials.

The commitment by the State to providing affordable housing didn't stop the residential building confidence index from plunging to 26. Non-residential fared much better at 51. Building costs rose by 14% on average during 2008 but this percentage is expected to be much lower in 2009. Of course, there are shining lights amidst the gloom, and the Moses Mabhida stadium is one of several projects which contributed to the civil construction industry's relatively high business confidence level which currently stands at 60.

Looking ahead, the easing of local interest rates, and world oil prices, as well as signs that the massive rescue packages injected by world governments are bearing fruit, all point to a slow recovery as the year progresses.

There have also been other dramatic changes, perhaps not as unexpected. We as South Africans held our fourth democratic election on the 22nd of April this year and the new administration is already installed and at work. Certain significant changes have taken place, both structurally and in terms of policy and approach. Only time will be able to judge the success and wisdom of the changes.

Two of the National Government Departments that strongly influence our industry both have new leaders. Geoffrey Doidge replaced Thoko Didiza as the Minister of Public Works in the latter half of last year. The National Department of Housing has become the Department of Human Settlements and Tokyo Sexwale took the reins from Lindiwe Sisulu just a few weeks ago. On a provincial level, Michael Mabuyakhulu of KZN's Housing Department, and Lydia Johnson of Public works have been replaced by Magasvarie Govender who heads the new Department of Human Settlement and Public Works. Government remains committed to both infrastructure development and the provision of affordable housing and it is trusted that this essential expenditure of public funds will boost activity in the sector.

The Association, on its own accord and through Master Builders South Africa where appropriate, will continue building the necessary relationships with these and other leaders. We wish the new government good luck.

State of the Association

The Association is making significant progress with achieving its two broad strategic objectives. The first of these is the continuous improvement and enhancement of service delivery to members, aimed at offering tangible benefits to assist members with the running of their businesses. We will shortly be seeing a presentation outlining these benefits further.

Secondly, the Association's commercial ventures are developing as planned, ensuring that we have a well diversified and sustainable revenue base. As always, this is to ensure that the Association remains sufficiently resourced to provide member services and benefits and to be an effective voice for its members. Member's fees are still a fraction of what it costs to provide the services and benefits we offer.

We have secured a number of noteworthy achievements in the past year:

• I was elected as Chairperson of the CETA which will enable us to contribute substantially resolving that organisation's governance issues. We will also be focussing strongly on promoting real, on-the-ground skills development that will benefit our members and their employees.
• Our members won no less than 8 out of 10 awards in the National Health and Safety Competition, thanks to their hard work and the professionalism of our Health and Safety Division.
• A long and bitter Court case with Investec was finally settled in respect of two of our industry pension funds, again with our Association playing a pivotal role in achieving settlement with 13 funds in total.
• We have also initiated a stakeholder forum with a view to creating dialogue between various stakeholders in the construction industry in KwaZulu-Natal. The first purpose of the forum is for the various stakeholders to identify common challenges and have the opportunity to formulate a common response to the challenges where possible. The second purpose of the forum is to allow for an opportunity to resolve issues between members of the stakeholders represented. This enables the resolution of problems between contractors and subcontractors, or professionals and contractors, at an organised industry level without individual members or enterprises having to tackle these challenges on their own.
• Our Building Excellence Awards was extremely successful last year with both entries and sponsorships setting new benchmarks. This remains the only awards scheme of its kind in the industry.

Finances

The Association continues to remain in a strong financial position. Naturally the investment portfolio was impacted by the economic meltdown, but we are continually monitoring the situation and being advised professionally in order to protect our assets. We continue to plough surpluses back into the operational budget as an investment into our fledgling new enterprises as well as the necessary upgrading of systems and assets.

Membership Promotion, Recruitment and Best Practice

For the period under review membership has grown by some 10% growth to 600 members. We have taken the decision that we are going to promote our members more actively which is why we have invested in developing our new logo, brand and look and feel. Backed by a solid marketing plan, we are able to put our members on the map for clients and the public more than ever before. Along with our expanded service benefits, we are now well placed to embark on an active recruitment drive to increase membership significantly. A larger membership means having a louder voice to lobby and influence the environment in which we do business.

We naturally need to balance this membership growth with the need for quality assurance and consumer protection. If we market our brand, that brand has to remain a symbol of high quality and standards. Our recently finalised Best Practice scheme establishes an incentive-based model which rewards contractors who are:

• legally compliant
• adhere to safety legislation and best practice
• perform work to the best standards possible
• and conduct their businesses efficiently, fairly and ethically

Those members who are still building the capacity to meet these standards, will have access to all of the Association's Services to assist them in this regard. We will also be offering a contractor development training programme to assist newcomers and those seeking to upgrade their contracting skills.

By ensuring that member categories are linked to the right competencies and attitudes, we can ensure that the Association's Logo becomes a mark of quality and peace of mind for clients and the public.

Before the end of the year, the Association will be taking the Best Practice model to the next level. The Master Contractor category will reward all round excellence with the recognition it deserves

Training and Development

The skills shortage remains a serious concern in this industry. We now have a dedicated training division and have already launched no less than there special projects directly assisting members with skills development needs. We are planning to expand this activity and will advise you of further benefits in this regard.

Social Responsibility

We have completed the fourth year of our successful HIV / AIDS awareness and training program and have addressed over 3 500 employees and 150 management personnel in awareness and avoidance training. This particular scheme is being phased out and replaced by another initiative which includes a treatment component. Details will be announced by mid-year.

We are assisting a construction training facility in Zululand with infrastructural needs and the placing of learners for on-site experience, and have become involved in the Youth in Construction program about which you will be advised.

Commercial Activities

The Employee Benefits Administration unit continues to remain profitable although the need to ensure the Funds' competitiveness has necessitated a significant reduction in fees charged.

The NHBRC Outsourced Inspectorate has been financially successful due to initial targets being exceeded substantially. Work has now slowed down considerably due to the slump in residential activity and tremendous systems challenges keep us working hard for our income. This contract officially expires in October and there is uncertainty as to the future of this activity. The Association is regularly praised by the NHBRC for our efficiency and commitment to training and quality.

Our conference activity continues to show strong growth and much work has been done to optimise this activity to ensure maximum profitability.

Our Health and Safety consultancy activity is growing at a comfortable pace and we are targeting the broader construction industry, including clients and professionals in our marketing efforts.

This new financial year will see a many of our carefully planned new activities coming to fruition.

Our financial services offerings in terms of performance guarantees and other short term insurance products are available from tomorrow. This business unit will be carefully and conservatively built up over the coming years with an emphasis on service delivery and sound risk management.

Our Exhibition centre will be receiving a much needed facelift later in the year and forms one of the cornerstones of our new Advertising Hub. Through leveraging our network, brand and unique position in the building industry, we now offer advertisers a range of effective channels to use to reach their markets.

Over and above this, there are a number of other online and offline commercial activities which will be launched throughout the year. You will be sure to hear about them as they become available and look forward to your continued support.

Staffing of the Association

All of the previously mentioned activities can only happened with the right human resources in place and we now have a full team on board to ensure delivery and high quality service.

The operational management team has been boosted with the appointments of:

Clive Hill as Financial Services Manager
Gary Amstutz as Commercial and Online Manager; and
Victor Smith as Training Manager

In addition we also welcome:

Hazel Stevenson as Association Bookkeeper
Ernest Roper as Commercial and Online Assistant
Jannie Matthee as Facilities Supervisor
Thomas Tiquin as Security Guard/Handyman in Pietermaritzburg Office

These new staff members represent the biggest and most important investment we have made in the pursuit of our strategic objectives.

Properties

We have purchased and renovated a stunning property in Empangeni to house our Zululand regional office. There is an official opening at the end of June and we will post photographs on our new website.

We are months away from commencing with a major refurbishment of the Head Office here at 40 Essex terrace. The focus is to make the building and its systems as environmentally friendly as practically possible.

Our property in Pietermaritzburg remains in good condition and is also undergoing a minor upgrade to provide for a training facility there.

Conclusion

I wish to thank my fellow executive council members and the staff members of the Association for their valuable input and the support they have shown me over the last year and I am confident that the Association will become even more successful and more relevant than ever before. Thank you.

President: Gavin Strydom

Executive Director: Brandon Abdinor