1. Thubelisha Homes Presentation 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 22 nd 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 Framework Initial 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  Audit4x pa  Executive 12x pa  Investment4x pa  Remuneration2x 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

23. Key Strategic Objectives 2006/07 – 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 Objectives 2006/07 – 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 ACTIVITY2006-072007-082008-09 Houses built20,30030,00040,000 Stands serviced10,00020,00030,000 Revenue (Rm)6061,1521,762 Subsidies secured30,00040,00050,000 Employees209287355

26. 2006/07 – 08/09 Financial Indicators ACTIVITY2006/072007/082008/09 1. Revenue (Rm) 6061,1521,762 2. VAT (Rm) 84158240 3. Operating costs (Rm) 98123156 4. Transfers from NDoH (Rm) 475054 5. Investment (Rm) 957954 6. Compensation : Revenue (%) 10,37,26,1 7. Capex (Rm) 6,81,70.1

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