Annual Report Presentation to the Human Settlements

Annual Report Presentation

to the

Human Settlements Portfolio

Committee

Mr. Samson Moraba

CEO

02 September 2011

CONTENTS

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Mandate, Vision, Mission

Strategic Objectives

NHFC Values

NHFC Outcomes

NHFC Past Performance

NHFC Other Impact

Operating Environment

Key delivery highlights – 2011

Factors impacting performance

Business Performance

Strategic Investments

Financial Performance

NHFC footprint and target market

Corporate Governance

Way forward

NHFC’S MANDATE, VISION, MISSION,

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Providing innovative and affordable housing finance solutions to the low and middle

income households

To be the leader in development finance for the low to middle income housing

market

The National Department of Human Settlements established the National Housing

Finance Corporation Limited (NHFC) as a Development Financial Institution (DFI) in

1996 with the principle mandate of broadening and deepening access to affordable

housing finance for the low to middle income households

NHFC’S STRATEGIC OBJECTIVES

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Facilitate the increased and sustained lending by financial institutions to the lower end of the housing market.

Expand housing finance activities, through the effective provision of housing finance solutions, thus enabling the low to middle income households to have choice of renting or owning or

incrementally building, to meet their housing needs.

Mobilise funding into the human settlement space, on a sustainable basis, in partnership with the broadest range of institutions.

Conduct the business activities of the NHFC in a manner that ensures the continued economic sustainability of the Corporation whilst promoting lasting social, ethical and environmental

development..

Stimulate the low to middle income housing sector, by providing robust, relevant and timely research and market analysis to practitioners and housing consumers.

THE NHFC VALUES

5

Profit before tax

R76 million

NHFC’S OUTCOMES

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Ou

tco

mes

Housing opportunities created:

Affordable Rental, Ownership and Incremental 9,539

Number of beneficiaries benefitting

36,248

Jobs created

1 171

Value of disbursements targeted towards women-managed / owned companies

R32 million

Disbursements

R501 million

Private capital and investment leveraged

R520 million

Funding Impact

R1,02 billion

NHFC PAST PERFORMANCE

7

The capital provided to NHFC amounted to R1,08 billion and

from this loans of R4,46 billion have been made since inception.

Many of the loans, particularly to social housing institutions and

inner city landlords are long term loans.

The housing units provided in the 15 years of the existence of

NHFC equate to an average of 6 854 per year. This compares

to an average of 11 731 mortgage bonds provided per year for each of the major banks during the FSC period.

NHFC OTHER IMPACTEnterprise development

NHFC has funded and capacitated a total of 58 enterprises including Social Housing Institutions, Integrated Housing Developments, CommercialClients and Private Clients.

Funding initiatives

In the year under review, the NHFC was involved in a number of projects that positively contributed to sustainable social development ofcommunities.

•Yeast City: Gilead House project for people with terminal illness•Tau Village: Residential project for young woman and girls at risk•Johannesburg Inner City Regeneration: AFHCO: CityKidz Pre- and Primary School

Corporate Social Responsibility

In the North West Province, in Lichtenburg, the NHFC contributed funds towards furniture and appliances for houses built under the Women’s BuildProject, in partnership with the government and the private sector.The project, in the Woman’s month, enabled five elderly and highly indigent women to not only own their homes for the first time, but to havefunctional facilities..Environmental sustainability initiatives :

Through funding secured from the AFD and EIB, the NHFC is funding the development of environmentally friendly projects.The Corporation has, for third time, committed to partner with other stakeholders in hosting an international energy efficient building competition.Having a rural focus, the proposed event will take place in Cala in the Eastern Cape.At a corporate level the NHFC partnered with ABSA Bank, the NHBRC, Agre’ment.S.A., Agence Franciase De Development, the Western Province,Drakenstein Municipality, the NDoHS, the Swiss Development Corporation and the Pretoria University in the development of the InternationalHousing Innovation Competition.

OPERATING ENVIRONMENT

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Slow economic recovery from first recession in 17 years.

Shedding of jobs.

Declining real disposable income.

Affordability challenges due to high levels of

indebtedness.

Low inflation and interest rates are not translating

into increased lending.

The residential property market remained weak for most part of 2010 and early 2011, and couldstill experience negative growth.

KEY DELIVERY HIGHLIGHTS - 2011

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The NHFC is on track with the development and implementation of the MortgageDefault Insurance (MDI) Operating Model, backed by the R1bn Guarantee.

Successful mobilisation of external affordable funding into Integrated HumanSettlement development (allocation and disbursement of the AfD and EIB funds, intothe private and social affordable rental market).

The distressed clients’ turnaround and collection recovery strategy was successfullyimplemented.

NHFC's pioneering strategic investment in inner city regeneration, Trust for UrbanHousing Finance (TUHF), loan portfolio reaches more than R 1bn mark (R 1.2bn).

Highest number of NHFC project launches within a single year, proving the extent towhich the Corporation is making a difference, in the lives of the many underservedlow income households.

Concluded an agreement with Old Mutual Life Assurance Company of South Africaand its BEE partners to participate in an Affordable Housing Fund with initial fundingof R900 million.

NHFC company profit before tax is 11% higher than the previous year.

FACTORS IMPACTING PERFORMANCE

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IMPACT

Constraint Banks lending and Household Over-indebtedness

Dependence on Subsidy Funding of Social Rental Housing

Timing of Complex Structured Deals

Graduation of some of the NHFC clients

Entry of new funding entities in the affordable space

Single obligor limits / concentration risk

FACTORS IMPACTING PERFORMANCE

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FINANCIAL

Lending income impacted by below budgeted disbursementsand lower interest rates.

Sale of houses mainly impacted by the delay in bond approvalswhich in turn led to a delay in transferring of completed units aswell as construction of top structures.

Other income - Positive variance mainly due to revaluation ofinvestment properties.

Impairments – Reversal of impairments previously raisedfollowing conclusion of settlement agreement.

Below budgeted operating expenses.

BUSINESS PERFORMANCE DIVISIONS

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WHOLESALE 2011

Number of loans approved 9

Value of loans approved (R‘m) 287

Value of disbursements (R‘m) 394

Housing opportunities created 7 370

RETAIL 2011

Number of loans approved 443

Value of loans approved (R‘m) 83

Value of disbursements (R‘m) 107

Housing opportunities created 709

STRATEGIC INVESTMENTS

14

Cape Town Community Housing Company (CTCHC)Increased focus to turn-around subsidiary into a viable and sustainable operation to attractpotential equity investors. Increased Board participation with inclusion of three membersfrom the NHFC Executive team.

CTCHC has now delivered close to 3 500 units of which 2 700 are for people qualifying forhousing subsidies. Another 2 808 have been upgraded in its rectification programme, withnew windows, gutters, ceilings, paving and painting.

Trust for Urban Housing Finance (TUHF)TUHF remains a conspicuous example of the NHFC’s success story of significantly expandingits impact through Strategic partnership. The NHFC’s initial investment of R10 million in2003, has translated into a viable entity, with a loan book of R 1.2bn, and having created17 000 housing opportunities, mainly in the city of Johannesburg. TUHF is now expanding itsreach, and has now branched out to KZN (Durban), and the Eastern Cape (Port Elizabeth).

As part of its strategy to strengthen TUHF’s ability to significantly grow its business in thenext five years, the NHFC will increase its shareholding in TUHF and help raise additionalcapital funding, to improve TUHF’s capital adequacy ratio.

STRATEGIC INVESTMENTS

15

Housing Investment Partnership (HIP)Recent developments in HIP saw the exit of Pan African Capital Holding as a Shareholder,with the NHFC and Old Mutual remaining with 33% and 67%, Shareholding, respectively.Inclusion of a third investor will have a significant developmental impact of facilitatinglarge institutional investors to participate in the funding into the affordable humansettlement space.

The HiP income-linked home loan enhances the affordability level of first time homebuyers enabling the acquisition of decent housing in the housing gap market segment.

The uniqueness from the product arises from the fact that the loan repayments aredisengaged from interest rate volatility.

FINANCIAL PERFORMANCE Abridged statement of financial position

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2011 2010 2011 2010

Restated* Restated*

R'000 R'000 R'000 R'000

Loans and receivables - advances 1 562 794 1 330 922 1 629 775 1 399 338

Instalment sale receivables 42 005 46 168 - -

Investment property 71 252 59 174 51 745 48 400

Other non-current assets 16 221 15 558 25 799 32 437

Non - current assets 1 692 273 1 451 822 1 707 320 1 480 175

Properties developed for sale 64 015 54 334 - -

Other current assets 1 234 234 1 379 771 1 222 456 1 338 816

Total assets 2 990 521 2 885 928 2 929 776 2 818 991

Net assets 2 276 586 2 216 635 2 236 722 2 186 110

Non-current liabilities 681 844 631 111 672 475 615 778

Current liabilities 32 091 38 182 20 579 17 103

Total assets and liabilities 2 990 521 2 885 928 2 929 776 2 818 991

Group Company

FINANCIAL PERFORMANCESummary statement of financial performance

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Actual Variance Budget Actual Variance Budget

2011 2011 2011 2011

R'000 % R'000 R'000 % R'000

Lending activities 118 923 -31% 171 386 124 758 -30% 177 773

Investment activities 41 036 38% 29 762 40 005 34% 29 762

Sale of houses 54 465 -68% 169 752 - - -

Other income 29 650 52% 19 521 17 929 95% 9 195

Total income 244 074 -37% 390 421 182 692 -16% 216 730

Impairments (4 427) 81% (23 708) (4 427) 81% (23 708)

Cost of sales (47 795) 66% (140 752) - - -

Operating expenses (115 314) 14% (133 543) (112 306) 4% (117 070)

Operating profit 76 538 -17% 92 418 65 959 -13% 75 952

Share of loss of an associate - HiP (1 544) -147% (626) - - -

Share of profit of an associate - TUHF 1 703 - - - - -

Interest paid (1 150) 92% (13 863) (611) 95% (13 191)

Surplus before tax 75 547 -3% 77 929 65 348 4% 62 761

Tax (15 689) 11% (17 573) (14 736) 16% (17 573)

Surplus after tax 59 858 -1% 60 356 50 612 12% 45 188

Group Company

FINANCIAL PERFORMANCE

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Profit before tax

Lending income impacted by below budgeted disbursements.

3% below

Sale of houses mainly impacted by the delay in bond approvals which in turn led to a delay in transferring of completed units as well as construction of top structures.

Impairments – Reversal of impairments previously raised following conclusion of settlement agreement.

Other income - Positive variance mainly due to revaluation of investment properties.

Operating Expenses Under expenditure in marketing, computer and outsourced services.

14% below

FINANCIAL PERFORMANCE KEY FINANCIAL INDICATORS

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NHFC Footprint and Target Market

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KwaZulu-NatalKwaZulu-NatalKwaZulu-NatalKwaZulu-NatalKwaZulu-NatalKwaZulu-NatalKwaZulu-NatalKwaZulu-NatalKwaZulu-NatalFree StateFree StateFree StateFree StateFree StateFree StateFree StateFree StateFree State

GautengGautengGautengGautengGautengGautengGautengGautengGauteng MpumalangaMpumalangaMpumalangaMpumalangaMpumalangaMpumalangaMpumalangaMpumalangaMpumalanga

Eastern CapeEastern CapeEastern CapeEastern CapeEastern CapeEastern CapeEastern CapeEastern CapeEastern Cape

Western CapeWestern CapeWestern CapeWestern CapeWestern CapeWestern CapeWestern CapeWestern CapeWestern Cape

Northern CapeNorthern CapeNorthern CapeNorthern CapeNorthern CapeNorthern CapeNorthern CapeNorthern CapeNorthern Cape

LimpopoLimpopoLimpopoLimpopoLimpopoLimpopoLimpopoLimpopoLimpopo

North WestNorth WestNorth WestNorth WestNorth WestNorth WestNorth WestNorth WestNorth West

Concentration of households

within the NHFC target market

distributed across 6 ranges

using the equal count method















NHFC footprint

CORPORATE GOVERNANCE

21

NHFC conforms to the requirements of the King 2report and the Protocol on Corporate Governance.Substantially complies with King 3 requirements, actionplan adopted for implementation where not fullyaligned with.

Board reviewed oversight role and established a BoardRisk Committee given the complexity of the risks facingthe NHFC.

Unqualified audit report for 16 years.

NHFC Credit Rating – Global Credit ratings

•National Long Term AA-

•National Short Term A1+

NHFC remains a Schedule 3(A) entity.

All necessary committees are in place in terms ofthe PFMA.

Prof. M Katz (chair)

Mr S Moraba (CEO)Ms S Swanepoel

Ms P Ramarumo

Mr S NtsalubaMr S Tati

Dr S Khoza

Mr J Coetzee

Ms A Houston

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The NHFC has a significant contribution to make, in the main, in two of the four Outcome 8 components, namely, the improving of property markets and making affordable rental housing accessible to low and middle income households.

Key to the priorities of the NHFC, is the successful building and implementation of the Mortgage Default Insurance (MDI) Operating Model. The NHFC is on track with the building of the MDI operating model, backed by the R1bn Guarantee.

The process of winding-down Retail is at an advanced stage. This should be complete within the new financial year. As part of the process, is the change management process that ensures the redeployment of staff, within the greater NHFC.

On the Strategic partnership front, the inclusion of a third investor in the HIP’s initiative will represent great gains for the human settlements sector. As the market is turning the corner, the NHFC has embarked on a Strategy to build new capabilities, enhance its pricing and efficiency and thus improve its potential to take advantage of the change.

WAY FORWARD – FY2012

NHFC Client Showcase

8/22/2011 FINANCIER | FACILITATOR | INNOVATOR 23

Southernwood Square: East London

Emerald Sky: East London IMPALA: Rustenburg

Strathdon: Durban CBD



Reservoir Mews: East London

Kenwick Close: East London



Cavendish: Johannesburg CBD

Cavendish Entrance



TUHF: Boston Block

Jozi: Coronia Building


TUHF: WaverleyTUHF: Marshalltown Lofts

TUHF: René Court

TUHF: Sydney Court


TUHF: The President

TUHF: The Sands

Mettle: Karino Development - Nelspruit Mettle: Karino Development - Nelspruit


Mettle: Karino Development - Nelspruit SPACE: Kimberley

SPACE: Kimberley SPACE: Evaton


SPACE: EvatonSPACE: Randfontein

AFHCO: Lustre HouseAFHCO: Lustre House


AFHCO: Lustre House

AFHCO: Lustre House

AFHCO: Lustre House

AFHCO: Lustre House


AFHCO: Ilanga House AFHCO: Ilanga House

AFHCO: Ilanga House AFHCO: Ilanga House

Documents

Annual Report Presentation to the Human Settlements