About us
Statements of underlying assumptions
These statements have been compiled on the basis of government policies at the time they were finalised. They comply with FRS-42 Prospective Financial Statements. They are presented to fulfil the Corporation's statutory obligations under the Crown Entities Act 2004.
In this section, 'Parent' refers to the Corporation as a discrete entity. 'Group' refers to Housing New Zealand Corporation and its subsidiaries. The principal subsidiary of Housing New Zealand Corporation is Housing New Zealand Limited, which owns and manages state housing.
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts.
Opening balance sheet positions are estimates derived from best assumptions at closing balance of 30 June 2009.
Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and reasonable current assumptions. The results of its judgements form the basis of the carrying values for assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions, and these may materially affect financial results or the financial positions reported in future periods.
The significant forecasting assumptions used in developing the financial forecasts in the Statement of Intent are detailed in the table below.
Forecasting Assumptions
| Significant Forecasting Assumptions | Risk | Level of Uncertainty | Reasons and Financial Effect of Uncertainty |
|
General price inflation The Corporation has adjusted base financial projections to reflect the estimated impact of inflation. The projections are all in nominal dollars. |
The risk is that actual inflation may be significantly different from the assumed inflation. | Low - Medium |
The level of uncertainty is considered low to medium. Inflation is affected by external economic factors, most of which are outside the Corporation's control and influence. |
|
Price adjustors It is assumed that the price adjustments for rates and maintenance are higher than the general inflation rates. |
The risk is that actual inflation for these adjustors may be significantly different from the projected inflation rates. | Low |
The level of uncertainty is considered low. Inflation adjustors are affected by external economic factors, most of which are outside the Corporation's control and influence. Individual indices will vary at times from those included in the Statement of Intent. The Corporation will monitor future financial information and assess its impact on the Corporation's projected financial position. |
|
Revenue from rents Inflation rates have been applied, adjusted for real rental growth. |
Rental revenue streams are influenced by annual and long-term fluctuations and trends outside the control of the Corporation. | Low - Medium |
The level of uncertainty is considered low to medium. The likely level of variance will not have a material effect on the financial forecasts. |
|
Asset revaluations Properties are revalued annually in line with property indices. |
The risk is that actual revaluation movements will be significantly different from that forecast. | Medium |
The level of uncertainty is considered medium as the change in value of properties can be volatile according to the state of the economy. The impact of any such volatility on the Corporation's operating surplus would be relatively low and manageable. |
Assumptions
| 2009/10 | 2010/11 | 2011/12 | |
| Financing indices | |||
| Average floating rate |
3.6 percent |
5.0 percent |
6.0 percent |
| Average fixed rate (new debt) |
5.7 percent |
6.8 percent |
7.6 percent |
| General price inflation | |||
| CPI |
3.0 percent |
2.4 percent |
1.9 percent |
| Price adjustors | |||
| Salaries |
2.5 percent |
2.0 percent |
2.0 percent |
| Rates |
6.2 percent |
5.0 percent |
5.0 percent |
| Maintenance |
0* |
4.0 percent |
4.0 percent |
| Revenue indicator | |||
| Rent |
1.2 percent |
2.6 percent |
3.3 percent |
| Property revaluations | |||
| Buildings |
-2.5 percent |
1.0 percent |
3.0 percent |
| Land |
-3.0 percent |
1.0 percent |
3.0 percent |
* Additional funding of $20 million has been provided through the Government's Jobs and Growth Plan.
The forecasting assumptions published in the 2008/09 Statement of Intent have not been reused in the 2009/10 Statement of Intent. Items have been reforecast due to changes in government policy, changes in disclosure, the inclusion of revaluations, forecast changes in market conditions in the economy and changes to the capital programme.
Cost allocation
The Corporation's output costs in these statements are derived from the cost allocation system outlined below.
Cost allocation policy
All costs are classified into responsibility cost centres, which are identified as direct or indirect costs. Direct costs are charged directly to Output Classes. Indirect costs are charged to an Output Class by way of an allocation process based on cost drivers and related activity use.
Criteria for direct and indirect costs
Direct costs are those costs directly attributed to an Output Class. Indirect costs are all other costs that cannot be linked with a specific Output Class in an economically feasible manner.
Direct costs assigned to outputs
Direct costs are charged directly to the Output Classes. This includes significant costs of personnel, property depreciation, maintenance, rates and some other operating costs. Some personnel and other costs contribute to more than one Output Class. These costs are allocated to Output Classes on the basis of a predetermined ratio, based on time, capacity or volume of expenditure that has been established through the analysis of business units.
Basis for assigning indirect costs
Indirect corporate costs are assigned to Output Classes on the basis of proportionate expenditure incurred before adding these overheads.
Financial summary and performance
The Corporation is required by legislation to operate in a businesslike manner when managing Crown resources. Through its financial frameworks, the Corporation aims to provide good financial oversight and stewardship, and efficient and effective management of assets and liabilities. It ensures investment decisions relating to the total portfolio maintain or improve financial performance.
The following table summarises the forecast financial performance of the Group.
Statement of forecast financial performance summary
|
Parent Budget |
Group Budget |
Group Budget |
Group Budget | |
| Total operating revenue |
232 |
965 |
1,003 |
1,035 |
| Total operating costs |
201 |
769 |
800 |
825 |
| Interest costs |
20 |
120 |
124 |
128 |
| Operating surplus before tax |
11 |
76 |
79 |
82 |
| Income tax expense/(benefit) |
7 |
30 |
31 |
31 |
| Net surplus after tax |
4 |
46 |
48 |
51 |
Financial performance measures
The Corporation will use the following indicators to measure its financial performance.
Net surplus after tax
This measure indicates how profitable we have been. The net surplus after tax is returned to the Crown as a dividend each year, unless the responsible Ministers agree that it is retained in the Corporation.
Earnings before interest, tax, depreciation, amortisation and leasing (EBITDAL) to income percentage
This measure indicates how efficiently the Corporation manages its costs. It is calculated as total operating revenue less total costs excluding interest, depreciation, amortisation, leasing and tax, divided by total operating revenue.
EBITDAL per property managed
This is a commercial indicator of financial performance. It is calculated as total operating revenue less total costs excluding interest, depreciation, amortisation, leasing and tax, divided by equity.
EBIT/net interest ratio
This measure indicates whether the Corporation's debt to equity ratio will likely require adjustment. It is calculated as total operating revenue less total costs excluding interest, and tax, divided by the net interest cost.
Credit rating
This is Standard & Poor's' annual assessment of the Corporation's financial strength - its ability to pay its debts.
The Group's financial performance measures and targets
| 2009/10 | 2010/11 | 2011/12 | |
|
Net surplus after tax ($m) |
46 |
48 |
51 |
| EBITDAL to income percent |
47 percent |
47 percent |
47 percent |
| EBITDAL per property managed ($) |
6,100 |
6,300 |
6,400 |
| EBIT: net interest ratio |
1.68:1 |
1.69:1 |
1.68:1 |
| Credit rating (Standard & Poor's) |
AAA |
AAA |
AAA |
Managing the Crown's investment
The Corporation is forecast to have total assets of $14.4 billion at 30 June 2010, funded by debt of $3.2 billion and equity of $11.2 billion.
Value of the Crown's investment
The equity (assets less liabilities) is the value of the Crown's investment in the Corporation.
Figures for the following years based on estimated book values
|
As at 30 June 2010 |
As at 30 June 2011 |
As at 30 June 2012 |
|
11,198 |
11,555 |
12,078 |
As a result of the Capital Structure Review in 2003/04, the responsible Ministers agreed that if the Corporation's ratio of EBIT to net interest falls below 1.3:1, or above 1.7:1, debt will be adjusted to maintain an appropriate capital structure. At the same time, Ministers agreed that capital appropriations should be drawn down in the ratio of 22:78 debt to equity.
All current capital appropriations are drawn down in the ratio of 22:78 debt to equity as agreed during the Capital Structure Review. Aside from capital appropriations, the Corporation's capital expenditure programme is funded by cash flows generated from operations and short-term borrowings.
Financial distribution to the Crown
The Housing Corporation Act 1974 section 40(1) requires the Corporation to pay its surplus for each financial year to the Crown, unless the responsible Ministers authorise the Corporation to keep all or any part of it.
Under section 40(2) of the Act, surplus is defined as surplus capital and any operating net surplus after any provision that responsible ministers have agreed is necessary for the efficient and effective conduct of the Corporation's operations.
The net surplus of the Corporation is paid to the Crown as a dividend each year. For the purposes of calculating the dividend, all taxation payable in the current year is deducted, rather than just current taxation expense. The following table highlights the adjusted net surplus after all taxation payable has been deducted, to arrive at the potential distribution to the Crown.
Adjusted net surplus after tax
|
Group Budget |
Group Budget |
Group Budget | |
|
Net surplus after tax |
46 |
48 |
51 |
| Less deferred tax |
26 |
28 |
28 |
| Potential dividend distribution to Crown |
20 |
20 |
23 |
Business diversification
The Corporation will obtain the agreement of the responsible Ministers before making any material changes to its business.
Agreements that result in compensation from the Crown
The Corporation may enter into contractual arrangements with the Crown as required from time to time. Such arrangements would include agreements in line with section 20B of the Housing Corporation Act 1974. All contractual arrangements will be identified in the Annual Report.
The Corporation and the Crown have agreed, under section 7 of the Housing Restructuring Act 1992, that the Corporation will be compensated for any difference between market rents and income-related rents. This is because the Corporation is required to charge qualifying tenants an income-related rent rather than a market rent.
