Thubelisha Homes Presentation to the Portfolio Committee on Housing

1. Thubelisha HomesPresentation to the Portfolio Committee on Housing Presented by: Kevin Duncan Chief Executive Officer 10 May 2006

2. Agenda • Establishment of Thubelisha • Mandate • Funding Framework • Board members • Corporate Governance • Strategic Plans • Key Challenges • Delivery Challenges • Contributions to BNG/ASGISA • Employment Equity/Procurement • Way forward

3. Introduction • Established in 1997 as a Housing Support Institution of the National Department of Housing • CEO appointed in January 1999, operations commenced soon after • Section 21 company, registered under Section 3(a) of the PFMA with Independent Board of Directors and 3 “classes” of members • Original mandate was primarily to provide housing stock for Servcon’s Rightsizing programme • Minister’s decision in October 2004 to “rightsize” the remaining Servcon portfolio in-situ, forced the creation of an alternative future for Thubelisha

4. Mandate • New mandate received on 22nd February 2006 • “To undertake the construction of affordable housing projects and related services” • “To provide project management services” • Now required to do actual construction of houses and installation of engineering services • Requires a different business model to manage the higher risk profile associated with construction activities • Appointed as “Implementing Agent” for the Western Cape DoH on the N2 Gateway

5. Funding FrameworkInitial R50 million Grant • Used as a revolving fund to bridge finance project costs, and then later collect subsidies. • Reduced to R39 m due to R11 m in losses accumulated since inception • Included in the Debtors that still need to be collected from Provinces.

6. R30 million Capacitation Grant • Since 1 November 2005, R14m used for capacitation purposes including: • Recruitment of new staff and salaries • Opening of new offices and office rentals • Marketing and communicating new role for Thubelisha • Travel costs • Telephones, equipment rental, capital expenditure • The balance will be spent on further recruitment, capital expenditure, and installation of new IT systems in 2006/7.

7. Transfers from NDoH for Overhead Recovery • No transfers for overheads up to year 2006/7 • Transfers are expected to take place quarterly starting from 1 April 2006

8. New Corporate Form • According to new legislation, public entities will not be allowed to be section 21 companies. • Thubelisha has made suggestions to the NDoH for a suitable new corporate form. • Whatever corporate form is approved will determine how Thubelisha will be capitalised.

9. Board of Directors • Mr D M Thompson (Chairman) • Mr J L Bartlett • Mr K C Duncan (CEO) • Ms C L Mdaka • Ms D E Moraka • Mr V P Maluleke • Mr P Chauke (recently resigned) • Mr W A Odendaal

10. Corporate Governance • Independent board with relevant committees that meet regularly • Audit 4x pa • Executive 12x pa • Investment 4x pa • Remuneration 2x pa • Reduced number of directors has necessitated urgent changes to Articles of Association

11. Corporate Governance contd. • More appropriate corporate form in accordance with Treasury/DPSA governance framework required for new mandate • Will also require transformation of Board in terms of appropriate skills • Generally compliant with King 2 Code

12. Corporate Governance contd. PFMA non-compliant areas: • Loans, guarantees & other commitments • Investment of surplus funds with Corporation for Public Deposits • Audit Committee should not have same Chair as Board of Directors • Audit committee to meet annually with Auditor General • Payments in excess of R2,000 to be effected electronically

13. Scope of Activities • Land identification • Feasibility Studies • Project/technical audits • Construction of houses • Installation of engineering services • Project and Construction management • Subsidy and claims administration • Beneficiary relocations • Support organisation for “managed” PHPs • Community liaison • Accounts Administrator • Contractor development & skills transfer • Turnkeys

14. 2005/06 Results

15. 2005/06 Results

16. 2005/06 Results

17. 2005/06 Results

18. 2005/06 Results

19. 2005/06 Results

20. 2005/06 Results

21. 2005/06 Results

22. 2005/06 Results

23. Key Strategic Objectives2006/07 – 08/09 Short term: • To successfully re-brand Thubelisha by 30 September 2006 • To successfully restructure Thubelisha by 30 June 2006 • To secure 2 new “mega projects” under the UISP by 30 September 2006 • To reach agreement on a new corporate form by 30 June 2006 • To have the funding arrangements to support this Business Plan approved by NDoH, by 30 April 2006

24. Key Strategic Objectives2006/07 – 08/09 Medium Term: • To contribute 20% of the national “subsidised” housing delivery by 31 March 2009 • To be recognised by the NDoH as the Government’s specialist implementing agent for “mega projects”

25. 2006/07 - 08/09 Operational Indicators

26. 2006/07 – 08/09Financial Indicators

27. Budgets:Implications & Assumptions • Subsidy (sales) value and Cost Of Sales increase by 12% per annum • Various forms of tranche payments for all “unblocking” projects • No more P1 to P5 progress payments • Operating costs to be partially covered by annual transfers from NDoH; R47m, R50m and R54m • Operating expenses increase by 9% per annum, compensation by 7% • Mega projects increased share of total turnover; 34%, 46%, 49%

28. Budgets : Implications & Assumptions cont. • Revenue recognised in accordance with AC 109 “stage of completion” • 10% margin on “unblocking” projects • Zero margin on UISP projects, but monthly retainer and project management fee per unit • 4% fee on social & other facilities • Accounts Receivable balance at 31 March 2006, collected by 31 March 2007

29. Key Challenges • Controls must not be compromised as a result of decentralised operations, and huge increase in Company output • New IT systems must be timeously developed and implemented • Brand awareness and public relations must be enhanced to obtain successful repositioning • Relationships with some Provinces and Local Authorities must be strengthened • Seen as a “total solutions provider” for socio-political problems, yet measured narrowly in terms of houses built

30. Key Challenges cont. • Management and controls of new construction activities need special attention to mitigate against new risk areas • Appropriate technical staff will be recruited at an “affordable” cost, and current staff retained, considering the demand for their skills • Additional funding will be made timeously available for projects under the UISP, to enable implementation as per the requirements of the BNG • Stakeholders must not have unreasonable expectations of what is realistically achievable

31. Contribution to BNG/ASGISA • Upgrading of informal settlements • Provision of social and community facilities • Social (medium density) Housing • Job creation • Unblocking of housing projects • Capacity building in Local Authorities • Rectification of houses built between 1994 and 2002

32. Employment Equity • Thubelisha has adopted targets for employment equity as per the Construction Industry Charter • 30% black people at all management levels • 12% black women at all management levels • “Black” = Africans, Coloureds and Indians i.t.o. BBBEE Act 53 of 2003

33. Employment Equity 2005/06

34. Employment Equity by Race

35. Employment Equity by Gender

36. Procurement • Our procurement targets are in line with the Construction Industry Charter. • Industry target is to achieve a weighted target of procurement spend from BBEEE suppliers of 70% by December 2013. • Our goal is to increase the procurement of women service providers to 15%, and HDIs to 30% in the next three years.

37. Way Forward • Reinstatement as a VAT vendor • Conversion to a more appropriate corporate form • Communiqué from Minister to Provinces and Local Authorities regarding Thubelisha’s new mandate • Standardisation of contractual agreements with Provinces, particularly in terms of “tranche payment” arrangements

38. Thank You