Financier ∙ Facilitator ∙ Innovator Click to edit Master subtitle style STRATEGIC PLAN and ANNUAL PERFORMANCE PLANS 2013 to 2017

Financier Facilitator ∙ ∙Innovator


Click to edit Master subtitle style

STRATEGIC PLAN and ANNUAL PERFORMANCE PLANS

2013 to 2017




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NHFC’s Mandate, Vision, Mission

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

Providing innovative and affordable housing finance solutions to the low and middle income households.

The National Department of Housing 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.

Mission

Vision

Mandate



Financier Facilitator ∙ ∙Innovator33

NHFC Values




Background – the economy

• Economic growth slowing and GDP growth forecast of 3.4% may not be achieved.

• Construction sector severely under pressure and not contributing positively to GDP growth.

• Slowdown will hit consumer and business confidence further dampening consumption and investment growth.

• Interest rate environments expected to remain stable on the back of deteriorating economy

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Background – the housing market

• Average price growth in target market nominal at 1% in quarter 2 yoy, with a 3.4% decline in real terms yoy.

• Current market environment favours rental to ownership

• For a foreseeable future : remain a low interest rate environment •The affordable housing market remains the most active of the residential property market : Deeds register’s > 50%

• Availability of affordable stock remains a challenge : < R 200 000

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Background – housing market (cont.)

• Developers still facing bridging financing challenges

• Improvement in building activity registered in 1st 5 months compared to corresponding period in 2010.

• Inner city affordable rentals becoming a preference with households

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Background – the lenders

• Lenders began to relax their lending criteria – remain selective

• Some have identified this as a growth area – e.g. 100 000 units in 5 years • Shift in the market share

• Decreasing levels of sales in execution

Institutional Lenders

• New “Unlikely Entrants” : Old Mutual, Future Growth, Cadiz, DBSA, PIC, etc.

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Background – the households

• Households still struggling with high levels of debt – NCR

• Household affordability remains an important consideration

• Majority with a reasonable income still under-served : access to finance

• Choice on tenure option, based on affordability

• Favourable constitutional Court ruling – The Judge to decide : Ms Elsie Gundwana vs Nedcor

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Background – the POLICY

• Outcome 8 : Government Priority Delivery Program – Presidential

• Increase in the FLISP subsidy quantum – R 53 000 to R 83 500

• Formalised the provincial Land Release program

• The Social Housing Regulatory authority – Social Housing solution

• Consolidation of the Human Settlement Development Finance Institutions – NURCHA, RHLF and NHFC ( 1+1+1 = 4)

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NHFC Human Settlements Interventions...

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Strategic Priority Areas

NHFC Strategic Plan (2013 to 2017) has 5 strategic priority areas:

Improve/normalise the property market;

Expand housing finance activities in the affordable housing market;

Mobilise funding into human settlements space;

Ensure robust, timely, relevant market research; and

Ensure sustainability of the NHFC.

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Strategic priority #1: Improve/normalise the property marketPurpose: To improve/normalise the property market

Strategic objective: Facilitate the increased and sustained lending by financial institutions to the affordable housing market

Expected results:

128 339 housing opportunities (housing units, incremental loans and rental stock) over next 5 years (2013: 20 150).

NHFC will leverage funds from private sector, R12.4 bn over next 5 years (2013: R2 bn)

Excludes results from Finance Linked Individual Subsidy Programme (FLISP) and Government Employees Housing Scheme (GEHS)

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Strategic priority #1: Improve/normalise the property market (cont)

Priority Activities:

Implementation of the MDI programme

Implementation of a streamlined and centralised FLISP programme

Implementation of the GEHS

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Strategic Priority#2: Accelerated delivery of housing opportunities

Purpose: Accelerated delivery of housing opportunities

Strategic objective: Expand housing finance activities through effective provision of housing finance solutions (with choice of renting, owning and incrementally building)

Expected results:

Targeted value of approvals over 5 years: R9.2 bn (2013: R1.5 bn) with actual disbursements targeted at R6 bn (2013: R1 bn)

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Strategic Priority#2: Accelerated delivery of housing opportunities (cont)


Provide wholesale funding for affordable private rental, social housing and inner-city developments.

Provide wholesale funding for incremental housing including the Land Release and Informal Settlement Upgrade programmes

Implementation the GEHS

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Strategic Priority#3: Making funding available for affordable housing

Purpose: Making funding available for affordable housing

Strategic objective: Mobilise funding into the human settlements space in partnership with broad range of institutions

Expected results:

Raise R3.8 bn primarily through debt markets, subsidies over next 5 years.

Seek to lower the weighted average cost of capital (of NHFC) to then pass benefit to end user.

Diversify sources of funding to include as broad a range as possible.

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Strategic Priority#3: Making funding available for affordable housing (cont)


Develop a strategy around sourcing funding from diverse range of institutions locally and offshore.

Approach capital markets and other development finance institutions.

Seek concessionary funding from shareholder.

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Strategic Priority#4: Provide robust, timely and relevant market research

Purpose: To be the foremost repository of knowledge in the affordable housing market

Strategic objective: Provide robust, timely, relevant market research

Expected results:

Research and information

Market analysis and forecasts

Advocacy


Source timely, reliable and relevant affordable housing information.

Contribute to innovative housing finance solutions and efficient affordable housing market.

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Strategic Priority#5: Sustainability of NHFC

Purpose: Ensure NHFC becomes a better corporate citizen and becomes financially sustainable in the medium to long term.

Strategic objective: Ensure economic, social and environmental sustainability of the NHFC.

Expected results:

Maintain financial sustainability:

ROE (target): minimum of CPI to be achieved within 5 years

Credit loss ratio: 2%

Improve operational efficiency: total expenditure to total income ratio

22 364 jobs to be created

10-20% of project loans per annum will be targeted towards energy efficient building initiatives over the next 5 years

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Strategic Priority#5: Sustainability of NHFC (cont)


Product pricing exercise to be undertaken in light of increased cost of funding and target ROE.

Review of criteria for evaluating funding of projects to ensure increased focus of developers on environmental sustainability.

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Critical Success Factors...

• Successful partnership with the 4 major banks on MDI and FLISP.

• SARB acknowledgement of the insured mortgages as qualifying for a lower capital reserve requirement – Basel III.

• SHRA effectively regulating and capacitating social housing institutions – support the social and affordable rental housing focus.

• Strengthening of the regulation of the Home Mortgage Loan Disclosure Act (HMLDA) – who gets declined and why?

• Successful raising of projected funding : blending of sources of funding.

• Improvement in the households indebtedness situation – economic growth, jobs, low inflation, etc.

• The DFI Consolidation is completed synergistically – shortest time-frame.

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Strategic Plan Overview

2222

20,150

23,381

24,888

2013 2014 2015

Housing Opportuniti

es R1,035 m

2013

R1,195 m

2014

Disbursements

R750 m

R750 m

R750 m

2013 2014 2015

Funding Requireme

nts R1,279 m

2015

Note: The above figures exclude the Mortgage Default Insurance (MDI) implementation

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NHFC Contribution to Outcome 8

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Outcome 8 OutputsNHFC’s Current Programmes Accelerated

Delivery of Housing Opportunities

(Output 1)

Access to Basic Services

(Output 2)

More Efficient Land Utilisation

(Output 3)

Improved Property Market

(Output 4)

• Wholesale

• Social Rental• Private Rental• Inner City• Ordinary Affordable Rental

YY

NN

NN

YY

• Home Ownership• Partnership with Banks• NBL Intermediaries

N N N Y

• Incremental Housing Y N N Y




Budget Overview

• Profit after tax of R57 million.

• Funding raised externally – borrowing cost evident over planning period.

• Strategic Investments

– CTCHC made profit in previous financial year and projecting positive results

going forward. Disposal of majority shareholding completed at the end of 2014.

– HIP is set to launch during 2012 financial year. Expected to generate profit

from 2015 having incurred losses to date.

– TUHF continues to project positive results.

• RetailSold in 2012. Assumed HFF and two other Retail books sold at a discount of 15% and 30% respectively.

• Gradual increase in interest rates.

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Budget Assumptions

2525

CPI

PRIMERATE

DISBURSEMENTS

IMPAIRMENTS

STAFF

SALARY INCREASE

5.7 %10 %

R 1, 035 m

2%906 %

5 %9 %

R816 m

1.13 %886.5 %

FY 2013

FY 2012




Summary of Financial Performance

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Mar-10 Mar-11 Mar-12 % Mar-13 Mar-14 Mar-15

Actual Actual Forecast Change Budget Budget Budget

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

Interest on advances 111 099 118 923 156 619 61% 251 629 384 534 551 666

Interest on investments 75 691 41 036 28 159 36% 38 351 49 096 58 165

Rental income 4 669 5 440 5 766 6% 6 112 6 479 6 868

Dividends received 158 158 158 0% 158 158 158

Sale of houses 61 176 54 465 40 732 291% 159 248 336 220 -

Revenue 252 793 220 022 231 434 97% 455 498 776 488 616 857

Cost of sales (60 170) (47 795) (33 390) 308% (136 390) (289 459) -

Net impairments (72 888) (4 427) (22 585) 141% (54 459) (71 706) (90 265)

Gross profit 119 735 167 800 175 459 51% 264 649 415 323 526 592

Other operating income 59 764 24 052 13 630 -19% 11 014 13 821 2 630

Operating expenses (103 876) (115 314) (151 172) -5% (143 580) (152 855) (141 504)

Operating profit/(loss) 75 623 76 538 37 917 248% 132 083 276 290 387 718

Finance costs (1 014) (1 150) (12 576) 405% (63 503) (150 288) (232 239)

Share of (loss)/profit of an associate - HiP (1 448) (1 544) (2 989) -52% (1 429) (294) 1 935

Share of profit of an associate - TUHF 279 1 703 2 813 152% 7 087 6 888 6 211

Share of profit of an associate - CTCHC - - - - - - 12 785

Profit/(Loss) before tax 73 440 75 547 25 165 195% 74 237 132 595 176 410

Income tax expense (15 615) (15 689) (6 960) 147% (17 179) (29 816) (43 534)

Profit/(Loss) for the year 57 825 59 858 18 205 213% 57 058 102 779 132 876

GROUP




Financial Position

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Mar-13 Mar-14 Mar-15

Budget Budget Budget

R'000 R'000 R'000

Assets

Non Current Assets 2 604 001 3 476 368 4 487 893

Loans and receivables - advances 2 503 962 3 370 622 4 383 499

Investment - preference shares 2 500 2 500 2 500

Investment in associates 12 984 19 872 41 327

Investment property 71 252 71 252 51 745

Other assets 13 303 12 123 8 823

Current Assets 1 540 685 1 501 100 1 384 619

Properties developed for sale 244 511 177 762 -

Other receivables and prepayments 32 714 34 453 32 559

Held to maturity investments 993 575 1 017 054 1 066 323

Cash and short-term deposits 248 385 250 332 264 237

Income tax receivable 21 500 21 500 21 500

Total Assets 4 144 686 4 977 468 5 872 512

Net assets and liabilities

Net assets 2 299 544 2 402 323 2 535 199

Non Current Liabilities 1 639 285 2 311 318 3 008 621

Funds under management 577 630 656 629 707 138

Other financial liabilities 1 061 655 1 654 688 2 301 483

Current Liabilities 205 857 263 828 328 692

Total net assets and liabilities 4 144 686 4 977 468 5 872 512




Changes 2012 vs 2013

2828

Interest on advances Budgeted disbursements of R1,035 million.Increase in interest rate of 1%.

Sale of houses and Cost of sales

Carry over of projects delayed in previous year.Confirmed Projects as well projects in final stage of negotiation. Forecast for the sale of legacy stock revised to slower and long term release of the value of the stock following a non responsive outcome to the RFP.

Impairments Growth in book. Impairments at 2%.

Operating expenses Forecast for 2012 includes potential loss on sale of Retail.Valuation and pricing of book, in preparation for the sale, currently underway which will inform the additional impairments to be raised.If this cost is removed in 2012 the increase in operating expenses will be 11% and the forecast ROE for 2012 improves to 2%.

Finance cost Increased borrowings from R338 million in 2012 to R750 million in 2013.

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Key Performance Indicators

292928

Actual Actual Forecast Budget Budget Budget

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

Profit before tax (R'000) Group 73 440 75 547 25 165 74 237 132 595 176 410

Return on equity (%) Group 2.61% 2.63% 0.81% 2.48% 4.28% 5.24%

Return on assets (%) Group 1.99% 2.00% 0.56% 1.38% 2.06% 2.26%

Cost to income ratio (%) Group 41.32% 59.10% 75.93% 53.85% 43.60% 36.54%

Credit Loss Ratio Group 4.98% 0.26% 1.13% 2% 2% 2%

Interest Cover (%) Group 74.58 66.55 3.02 2.08 1.84 1.67

Debt:Equity Group 0.73% 2.87% 15.82% 54.18% 78.93% 103.20%




Impact of funding

3030

• Funding raised externally – borrowing cost evident over planning period.

• The Corporation’s gearing ratio increases substantially over the 5 year forecast

• Whilst the Corporation can raise additional capital within the next year without placing undue financial pressure on the business, this is not sustainable in the long term.

• The optimal funding structure will require a blend of capital from the shareholder and external funding.

• The Corporation will request the Shareholder to recapitalise the Corporation in order to strengthen its Statement of Financial Position thereby allowing it to deliver on its developmental mandate.

Funding requirements 2013R’m

2014R’m

2015R’m

2016R’m

2017R’m

TotalR’m

Disbursements R’m 965 1 115 1 188 1 356 1,567 6 191

Funded by

Retained earnings 215 465 528 606 817 2 631

Capital required from shareholder - 390 390 400 400 1 580

External borrowings 750 260 270 350 350 1 980

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Governance Structure

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• The NHFC sustains a comprehensive integrated risk management framework and strategy to meet both statutory and best business practice requirements.

• The Board Risk Committee is tasked with the responsibility of assisting the Board in executing its responsibilities.

• The amended ERM Framework, Policy and Strategy were approved by the Board at its 31 March 2011 meeting.

• Within the Risk Management Framework, key strategic risks for the Corporation are identified as well as controls and management actions to mitigate these risks.

• The NHFC sustains a comprehensive integrated risk management framework and strategy to meet both statutory and best business practice requirements.

• The Board Risk Committee is tasked with the responsibility of assisting the Board in executing its responsibilities.

• The amended ERM Framework, Policy and Strategy were approved by the Board at its 31 March 2011 meeting.

• Within the Risk Management Framework, key strategic risks for the Corporation are identified as well as controls and management actions to mitigate these risks.

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Materiality Framework

• The Board, at its meeting held on 30 June 2011, approved the revised materiality framework for the 2011/2012 financial year.

• The materiality framework provides guidance on the following:

• Disclosure of material losses in term of Section 55(2)(b) if the PFMA; and

• Significance in terms of Section 54(2) of the PFMA.

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Financier ∙ Facilitator ∙ Innovator Click to edit Master subtitle style STRATEGIC PLAN and ANNUAL PERFORMANCE PLANS 2013 to 2017