Our Annual Performance Statement has been prepared in accordance with guidelines provided by the Department of Finance and shows how we performed against the two purposes, and the goals and objectives of our four strategic priorities with associated KPIs as set out in our 2019–20 Corporate Plan. These KPIs are derived from the 2019–20 Defence Portfolio Budget Statements and the Department of Finance Guidelines for Government Business Enterprises (RMG 126).

Following the performance results and analysis for the four strategic priorities, additional information is provided on the operational performance of our regional housing and related services.

Relationship between our Corporate Plan and Annual Performance Statement

Figure 3.4 sets out the relationship between reporting measures outlined in our Corporate Plan and the Annual Performance Statement for 2019–20.

Figure 3.4: Relationship between the Corporate Plan and Annual Performance Statement

Statement of preparation

On behalf of the Board, the accountable authority of DHA, we present the agency’s 2019–20 Annual Performance Statement, as required under paragraph 39(1)(a) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act). In the Board’s opinion, based on advice from DHA’s management and the Board Audit and Risk Committee, this Annual Performance Statement accurately reflects the performance of the agency and complies with subsection 39(2) of the PGPA Act.

Our approach

This statement has been organised according to the four strategic priorities in our Corporate Plan 2019–20 and shows our performance in the reporting period.

The following symbols are used to show our performance against the KPIs:

✔ Met target

✖ Did not meet target

Results snapshot

Purpose 1: Provide quality housing and related services

Table 3.1: Results against KPIs 2019–20

Table 3.2: Results against KPIs 2019–20

Purpose 2: Provide value to Shareholders

Table 3.3: Results against KPIs 2019–20

Table 3.4: Results against KPIs 2019–20

Overarching analysis of performance against our purposes

Our ability to achieve our KPIs is affected by our Services Agreement with Defence, their accuracy of housing requirements forecasting, their policy framework and decisions as well as regional property markets and economic factors. In particular, over 2019–20 bushfires, hailstorms and COVID-19 challenged our performance and drove innovation.

In 2019–20, with the support of Shareholder Ministers, DHA revised its business operating model to make it an efficient, contemporary service delivery organisation. The revised operating model was launched in February 2020. The central feature of the revised model is the creation of a centrally coordinated portfolio management function, underpinned by simplified business processes and refreshed information technology.

To ensure the revised operating model is sustained and to position the organisation for long term success, DHA is implementing a series of refresh initiatives to streamline its operations aligning its customer service practices to service level requirements. For example, we will improve efficiency in repairs and maintenance through the use of new technological and procurement solutions. Since the launch of the revised operating model in February 2020, DHA has made significant progress in implementing the initiatives:

• Centrally coordinate our portfolio management to create one portfolio management function responsible for coordinating leasing, building and buying what we need and selling what we don’t.
• Simplify our procurement model to develop a consistent model to procure services and reduce administrative and contract management burden and deliver better value outcomes.
• Remove duplicate functions to simplify how we operate, reduce effort and provide accountability for outcomes.
• Align our KPIs across all business areas, so we’re working towards the same outcomes.
• Simplify critical business processes to define our core processes and simplifying these for streamlined operations.
• Align service delivery with service level requirements to refocus our services and processes to meet service level requirements in a financially sustainable way. We will do this without compromising the quality and contracted level of service for ADF members.
• Build our workforce capability through a future workforce plan that defines the profile and skills required, ensuring we have the right skills and people to achieve our Corporate Strategy.
• Rebuild our ICT to provide technology that is fit for purpose and operationally efficient. This change enables a digital multi-channel strategy across DHA to make it easier for staff and customers to use the systems and deliver a better service to our customers across all points of contact.

Purpose 1: Provide quality housing and related services

We administer Defence housing policy and provide housing and related services to ADF members and their families in accordance with Services Agreement with Defence. A key planning document under the Services Agreement is the Provisioning Schedule. The schedule sets out the housing provisioning obligations including regional housing requirements. In 2019–20 DHA focused on providing adequate volumes of housing to support Defence with the majority of properties sourced through leasing activities. DHA met the housing provisioning target, and achieved this using lower levels of capital than forecast in the Corporate Plan.

During the 2019–20 financial year, DHA housed over 16,500 ADF members and families enabling members to live within reasonable proximity of their base. We also provided assistance to over 9,500 members in the administration of housing solutions across Australia, reducing the stress of moving. We actioned 208,631 maintenance requests to maintain housing quality to the standard required by the Services Agreement.

Strategic Priority 1—Customers

During 2019–20 DHA exceeded our customer service targets, and maintained service levels and a strong customer focus with the support of our dedicated staff. A number of improvement initiatives were implemented throughout the year to strengthen the focus on our customers. This included the development of a customer service strategy as well as organisational structural changes to align the business functions with customer service objectives. In addition, DHA continued strong collaboration with our shareholder units, and increased the diversity of housing for ADF members.

Performance results

Table 3.5: Strategic Priority 1–Customers

Performance analysis

Delivering consistent service to all our customers

During 2019–20 DHA made a number of changes to align business functions with customer service objectives:

• restructured the organisation to simplify our operations into Service Delivery and Service Delivery Support groups
• aligned leasing activities, including the amalgamation of a number of separate leasing functions
• commenced work to implement a centrally coordinated portfolio management function so we lease, build or buy what we need and sell what we do not
• consolidated housing allocations functions into our contact centres to maximise utilisation of resources and provide a consistent member experience.

DHA also redeployed staff from across the business to assist with DHA refresh initiatives. Project outcomes across the year included:

• reviewed contact centre operations including strategies to optimise customer experience
• reviewed KPIs across the business to clearly align staff performance to our strategic objectives
• removed duplicate functions across the business to offer a more consistent customer experience
• process mapped critical business functions to simplify and improve processes and controls
• reviewed DHA service levels against contractual obligations.

Customer satisfaction and surveys

We are committed to providing all stakeholders with quality customer service. Our commitment to customer service is set out in our service charter. The charter is available on our website (www.dha.gov.au/service-charter) and hard copies are available at our regional offices.

As set out in Table 3.5, we exceeded both ADF member and investor (landlord) customer service satisfaction targets, with results consistent with previous years.

In addition to seeking feedback via surveys, we invite general feedback from our customers, stakeholders and the public. We manage all complaints in accordance with the resolution process set out in our service charter and complaints management framework, which has been developed in accordance with international standard ISO 9001:2018. Wherever possible, complaints are resolved at a local level. We use the information gained from member feedback to inform business change and develop future initiatives to improve customer satisfaction. For a summary of DHA’s complaints activity for 2019–20 refer to the section on the Commonwealth Ombudsman in Part 4.

Online services and information technology

Our web based system, Online Services, complements our traditional service delivery processes and provides ADF members, investors (landlords) and contractors with the ability to view various property related information and access our services. In 2019–20 DHA conducted a review of contact centre operations including strategies to optimise customer experience.

Key improvements implemented during 2019–20 to support customer service include:

• ADF members can do more online (self service) such as downloading and uploading tenancy agreements and property condition reports.
• Improved online ADF member enquiry forms, making it easier to navigate information and engage with DHA.

A number of reviews also commenced, to improve ADF member access to information, reducing unnecessary email notifications and refining communication channels with DHA. These improvements to our Online Services system offer improved usability for Defence members. We also improved our website information on rent allowance processes.

Figure 3.5: ADF member online service usage per month 2017–18, 2018–19 and 2019–20

Figure 3.6: Landlord online service usage per month 2017–18, 2018–19 and 2019–20

Housing services

DHA provides a suite of housing related services in accordance with Defence policy and the Services Agreement with Defence. Additionally, we provide a number of property care services to landlords in accordance with lease agreements.

Table 3.6: National property and tenancy services performance 30 June 2020

Housing allocations

Our Online Services support the allocation of housing for ADF members relocated into a new location. Our system allows members to view properties that will become available as other Defence members vacate our houses. One measure of our success is the percentage of ADF members who, before they arrive in a new posting location, reserve a service residence. In the reporting period, 7,420 housing allocations were actioned with 94.58 per cent of ADF members allocated a home, prior to arriving in their new location. The pre-allocation process addresses some of the stress associated with finding accommodation in a new posting location.

Property inspections

In 2019–20, we completed over 58,000 property inspections. More than 15,800 were annual inspections where we reviewed the condition of the property and, where applicable, provided an inspection report to our landlords.

The number of inspections conducted was lower than previous years due to restrictions resulting from the COVID-19 pandemic. We were able to support a safer environment for members, staff and contractors by using remote inspection processes. This resulted in 715 inspections occurring via telephone, with the ADF member (or their appointed agent) in attendance at the service residence.

Leased property management

In 2019–20, we managed 13,185 properties on behalf of landlords. Leasing plays an important role in ensuring DHA meets its housing portfolio requirements. We manage additions to the portfolio by negotiating new leases, renewing existing leases and exercising lease variations that exist within our agreements.

Repairs and maintenance

Under the Services Agreement with Defence, we maintain our properties to an agreed standard. For this reason, our current lease agreement with landlords includes a property care requirement, which provides a range of property related services we undertake on behalf of the landlord in return for a fixed service fee. In 2019–20 we revised our property care documentation to provide greater clarity on maintenance responsibilities.

In response to COVID-19, we adjusted our maintenance processes to ensure members and their families, DHA staff and our contractors were safe. Additionally, DHA also employed new ways of undertaking property inspections and processing maintenance requests.

Living in Accommodation (LIA)

In 2019–20, the LIA Contact Centre provided critical accommodation booking support to the ADF during the bushfire and COVID-19 events. Key improvements in the reporting of Defence’s asset utilisation this year assisted Defence by providing greater visibility of room occupancy rates and availability.

Rent allowance

When a Member with Dependants (MWD) or Member with Dependants (Unaccompanied) (MWD(U)) cannot be provided with service accommodation (either a service residence or MCA property) at the member’s entitlement, or if the property provided is not suitable for pets, an ADF member (and their family if applicable) may choose to rent through the private rental market.

ADF members are responsible for finding the accommodation but must engage with DHA (on behalf of Defence) to seek rent allowance approval. DHA administers the rent allowance process on behalf of Defence. DHA is then responsible for administering the rent allowance (RA) process.

In 2019–20, we administered 8,954 RA applications for ADF members nationally. The three locations with the highest number of RA housing solutions were: Sydney (4,470), Hunter (3,623) and Canberra (1,818). The majority of RA applications in these locations relate to Members without Dependants (MWOD) or MWD(U).

Providing choice and diversity in housing

Our MWD portfolio also includes a portion of properties categorised as Rent Band Choice Housing (RBCH). These properties are generally inner city apartments and townhouses that do not meet the strict Defence compliance standards of service residences. ADF members typically choose to live in RBCH because the location suits their lifestyle. In 2019–20 we continued to support Defence and ADF members by extending the choice and diversity of housing available through well located RBCH properties.

Increase collaboration and understanding with our shareholder units

In 2019–20, we have continued to work closely with shareholder units to implement our revised business operating model, negotiate our loan agreement and address the Australian National Audit Office’s (ANAO) recommendations. Our commitment to collaboration with shareholder units was further demonstrated by the creation of a tri-party governance arrangement between the Managing Director and his counterparts in the Department of Defence and the Department of Finance to guide the review of the Defence Services Agreement and policy improvements. DHA also welcomed both the Secretary of the Department of Defence, Mr Greg Moriarty and the Secretary of the Department of Finance, Ms Rosemary Huxtable PSM at our Annual Strategic Meeting on 18 June 2020.

Strategic Priority 2—Portfolio

DHA met its provisioning requirements for 2019–20 through strong management of DHA’s leased housing stock and leasing activities, construction projects and acquisitions of new properties from the Australian residential market. DHA’s focus on the management of existing leased properties and leveraging the market for new leases has reduced our reliance on acquisitions and construction activities. A review of the investment portfolio and property holdings further supported the judicious use of capital funds. In addition, DHA improved the diversity of housing provided for ADF members with a focus on well-located higher density housing.

Performance results

Table 3.7: Strategic Priority 2–Portfolio

Performance analysis

Flexible property provisioning

During 2019–20, substantial work was undertaken to support the development of an end to end asset strategy. DHA has developed a decision matrix for all asset decisions and established the framework for centrally coordinated portfolio management. The framework includes the requirement for asset management policy and asset management plans. This work will continue as a part of the DHA refresh initiatives. This new framework, supported by a stronger focus on strategic planning, will improve DHA’s flexibility to meet housing provisioning requirements.

DHA is continuing to maintain a strong focus on delivering high performing leasing stock through both direct leasing activity and the retention of leases. In 2019–20 DHA increased focus on retaining leased and owned properties that met provisioning needs. This was achieved by reviewing the performance of properties to ensure DHA retained the right properties in the right location.

Negotiating flexibility in housing for major metropolitan areas

In 2019–20, DHA worked with Defence to increase housing flexibility and choice for ADF members. This has resulted in a stronger focus on providing alternative housing types such as townhouses. Townhouses can generally be provided in higher amenity areas that reflect the preferences of some ADF members and their families. We have also commenced discussions with Defence on a review of the existing contractual arrangements including the Services Agreement and the Member Choice Agreement.

Member with Dependants (MWD) provisioning summary

While DHA met the Provisioning Schedule target, the portfolio closing balance was marginally lower than the Corporate Plan. This was due to a lower opening portfolio balance from the previous year. DHA was able to maintain provisioning levels by closely managing the property additions and subtractions across the reporting period.

Table 3.8: National MWD portfolio performance 30 June 2020

Member Choice Accommodation (MCA) provisioning summary

DHA has focused on attaining the minimum requirements for provisioning the MCA portfolio. This has seen a major focus on directly leasing products from the market, displacing anticipated capital expenditure on acquisitions.

Table 3.9: National MCA portfolio performance 30 June 2020

Balancing the investment portfolio

In September 2019, a review of all DHA owned properties was undertaken. The role of each property in the portfolio was assessed to ensure that high performing and strategically valuable stock was identified and held for the mid to long term.

As a result of the review:

• 149 properties (valued at approximately $99.65 million at the time) were reclassified as holding strategic value to be held on an ongoing basis.
• 274 properties were made available for sale through the Property Investment Program (valued at approximately $191.16 million). 45 of these properties have subsequently been sold generating $23.73 million in sales proceeds.
• 50 properties were identified for immediate disposal, with these properties moving out of the provisioned portfolio through private treaty sale as they became vacant.
• A number of locations were identified as strategic targets for a buyback program to allow for future redevelopment in anticipation of mid to long term Defence housing needs.

Property upgrades

Sometimes older properties within our portfolio require a refurbishment or upgrade to ensure the property meets current standards.

In 2019–20, we completed upgrade work to 104 properties including:

• 51 properties at Swanbourne in Western Australia
• 20 properties in Sydney, New South Wales
• 11 dwellings in Yallambie, Victoria
• 11 properties in Exmouth, Western Australia.

Commonwealth heritage listed properties

As at 30 June 2020, on behalf of Defence, DHA managed 61 Commonwealth Heritage Listed (CHL) properties across Australia, including on ADF bases and establishments, in accordance with the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act). DHA owns 16 houses and three development sites which are also Commonwealth Heritage Listed.

DHA undertook conservation activities in accordance with the EPBC Act and the DHA Heritage Strategy. Implementation of the DHA Heritage Strategy is monitored through annual evaluation and requires:

• the maintenance and conservation of any identified heritage property
• heritage studies, conservation management planning and other activities relating to the identification, protection, conservation, presentation and transmission of any Commonwealth Heritage Values of a place
• identification of Commonwealth Heritage Values on all DHA owned sites/properties.

In 2019–20, DHA continued a major program of works to conserve and upgrade Defence owned properties, including:

• heating and air conditioning installation to properties
• remediation of lead dust and lead paint issues
• upgrade and refurbishment of properties at RMC Duntroon, Canberra, ACT.

Purpose 2: Provide value to shareholders

Our business is centred on providing value to shareholders by providing housing and associated services, aligning the needs and preferences of Defence and ADF members with property market opportunities for the provision of housing. Our business is self funded—we do not receive funding from the Federal Budget. We seek to generate revenues that are sufficient to sustain, on an ongoing basis, the delivery of housing and related services, our property operations and to provide a return to shareholders. For 2019–20, DHA provided a dividend of 60% of net profit after tax to shareholders ($25.6 million), with dividend yield and total shareholder return exceeding Corporate Plan targets.

DHA also aims to operate as a compliant, better practice Commonwealth entity, with sound governance practices, a capable and productive workforce and integrated and responsive systems to deliver high quality professional outcomes.

Strategic Priority 3–Financial

The 2019–20 year held significant challenges for DHA’s business. The year began with poor property market and credit conditions and evolved to add further challenges, constraint and some opportunity through bushfires and COVID-19.

Notwithstanding these challenges to our business through 2019–20, DHA earned a profit before tax of $59.7 million, exceeding expectations set ahead of the year. We will pay dividends of $25.6 million to shareholders in accordance with our Dividend Policy established in line with GBE guidelines.

Our revenues of $917 million comprise the rents and service fees associated with housing ADF members, the net result from management of DHA’s property portfolio and associated property market activities.

We assess rents annually to ensure that we keep pace with market conditions. As anticipated, there was little change to rents through the 2019–20 review and rents totalled $487.8 million for this financial year, closely matching expected results.

Performance results

Table 3.10: Strategic Priority 3–Financial

Performance analysis

Financial results

Property market constraints were exacerbated by further disruption through bushfires in regions in which we operate and subsequently the impact of the COVID-19 pandemic contributed to a significant thinning of property markets. Through the course of the year, we undertook a major review of our housing portfolio, property sourcing approaches and portfolio management activities to place additional weight on the retention of high performing and strategically important stock. The outcome of the review saw an increase in accessing existing housing available in the property market, a reduced reliance on revenues from our Property Investment Program (PIP) and a reduction in the number of underperforming properties or those not operationally viable.

While meeting our targets for the provision of housing, we exceeded our expectation of directly sourcing leased property from the market. This direct market access reduced capital investment requirements for more than 180 properties and reduced the need for PIP revenues throughout the thin market conditions of the financial year. Our PIP product has retained value with profits from the program totalling $10.6 million—exceeding both revenue and profit targets.

The overall condition of property markets was not uniform through 2019–20, with some segments performing strongly, despite broader constraints. Strong demand in the Sydney and Newcastle regions underpinned our revenue performance and contributed $117.9 million to our full year result. Whereas lower levels of demand were experienced in the Darwin, Ipswich and Townsville.

Returns to the Australian Government

We monitor total shareholder return which measures the total return to our shareholders arising from dividends, together with the growth in the value of the business. The 2019–20 year saw the initial application of AASB 16 Leases accounting standards which, due to the large number of leases (approximately 13,000) had significant impact on DHA’s reported financial outcomes. To meet the compliance challenge of applying the new standard, we consolidated various aspects of the accounting standards implementation and business improvement activities into a single project to upgrade our financial systems. Application of AASB 16 Leases has resulted in adjustments to opening asset, liability and equity balances. After allowing for these adjustments, we achieved a return of 11.1 per cent in 2019–20.

Figure 3.7: Net profit after tax (NPAT) and annual dividend payments 2015–16 to 2019–20

Taxation

DHA fully complies with the Australian Government’s income tax, fringe benefit tax and goods and services tax legislation. We comply with the government’s competitive neutrality policy ensuring that we do not gain a commercial advantage resulting from tax exemptions flowing from our status as a GBE. In accordance with this policy, we make tax equivalent payments in respect of state and territory taxes that would apply if the exemption from state and territory taxation was not in the DHA Act.

Our current tax expense represents amounts paid and payable to the Australian Taxation Office in the order of $17.0 million for 2019–20. We also paid a state tax equivalent amount to the Commonwealth of $35.5 million for 2019–20.

Capital efficiency and debt management

DHA has collaborated extensively with its shareholder units to establish a revised debt facility. The facility will enable more flexible repay-redraw arrangements for DHA and is expected to be established by 1 October 2020. In addition to allowing better management of our ongoing debt requirements and funding costs, establishment of the facility will also enable us to better manage our capital structure and returns to government.

Supporting sound decision making

We continued to review, reform and improve our business operations across 2019–20, improving business analytics and identifying opportunities for operational efficiencies. We achieved cost savings of $6.2 million, contributing to the higher than expected financial performance outcomes.

Strategic Priority 4–Capability

During 2019–20 DHA continued its revised business model, resulting in a higher retention and turnover rate, a trend which is likely to continue over coming financial years as DHA aligns workforce capability with its operational needs. We were unable to measure staff engagement in 2019–20, due to COVID-19, the APSC Census survey will be conducted in the second half of 2020. The total recordable injury frequency rate is just above the target, however, the majority of incidences were minor resulting in a reduction in the lost time injury frequency rate in 2019–20. The wages and expense ratio was met in 2019–20. COVID-19 necessitated DHA to quickly transition its workforce to home based work, with planned technology initiatives brought forward and new technology capability deployed to enable the change. DHA continues to refresh its technology to support strategic priorities and key initiatives.

Performance results

Table 3.11: Strategic Priority 4–Capability

Delivering efficiency savings through improved business processes

As part of the implementation of DHA’s new business model, we developed a technology strategy to inform DHA’s future information technology (IT) direction and support digital transformation. The strategy and supporting roadmap will guide our decisions around technology design, delivery and sustainability to make sure DHA’s technology is fit for purpose and adaptable.

The strategy will make it easier to:

• invest in digital technology and automation to drive efficiencies
• leverage data as a strategic asset to inform evidence based decision making
• deliver fast, clear and simple services to ADF members and their families through multiple digital channels.

Since committing to developing a cloud ready deployment platform by April 2020, DHA embarked on its business model refresh and developed a technology strategy. We are refreshing our enterprise hardware, which will allow DHA to position itself to leverage cloud technology and deliver scalable solutions into the future. This will be complemented by a cloud strategy to provide a strategic approach for the adoption of the cloud, which we will develop in 2020–21. In developing our strategy, we identified initiatives relating to technology, data and information security governance to be delivered to support our transition to the cloud.

Reviewing and embedding governance arrangements and frameworks into our decision making

In implementing our technology strategy, we are producing a business led strategic vision for the use of data in alignment with DHA’s strategy. Improving the quality of our data and providing consistent access to data across the organisation will enhance our capability to report quality information to the Board, enabling strategic discussion and decision making.

As we launch into a period of significant investment in our technology program we have refreshed the IT governance framework. This will enable us to exercise greater control over and management of information security risk.

Additionally, we have established a management level IT Risk Committee to evaluate IT risks, determine appropriate risk mitigation strategies and monitor the implementation and effectiveness of controls. This committee reports to the Board Audit and Risk Committee to ensure that the Board has the information it needs to appropriately manage IT and associated security risk.

Ensuring regulatory and legislative compliance

In response to the introduction of Accounting Standards AASB 16 Leases, a joint team of accounting and IT technical experts designed a system to automate the complex accounting transactions relating to the inception, variation and expiry of DHA’s approximately 13,000 leases and ensure legislative compliance with the accounting standard. In 2019–20, the system accurately calculated approximately 2 million complex lease accounting transactions and created and interfaced journals to the finance system, which otherwise would have been calculated and manually entered by DHA finance staff. The system’s second phase has also been successfully implemented in preparation for the 2020–21 financial year, improving functionality and augmenting the strong internal controls built in the first phase.

During 2019–20 we also delivered the first phase of a program to increase DHA’s maturity level in the Australian Cyber Security Centre’s Essential Eight strategies to mitigate cybersecurity incidents. This program has implemented 17 remediation activities across five mitigation strategies to progress toward or achieve our target maturity levels. The program’s second phase commences in 2020–21.

As part of our broader cyber security program, we delivered a full suite of policies across IT security and infrastructure operations management as part of a Board approved information security policy governance framework. This will ensure that we maintain our target maturity levels and continue to appropriately manage cybersecurity risks.

Operational workforce planning

The DHA Operational Workforce Plan 2020–21 (the workforce plan) was delivered in April 2020. The workforce plan outlines the strategies required to build a highly capable, flexible and efficient workforce that will enable DHA to successfully deliver our strategic objectives and support our long term success. The workforce plan:

• identified the critical roles needed to support DHA, including data and analytical professionals, capital planning professionals, property portfolio professionals and procurement professionals
• identified the six critical capabilities required across our workforce, including change management, business acumen, strategic thinking, influencing and negotiating and digital ability and literacy
• conducted a gap analysis to identify emerging workforce capability needs
• considered emerging workforce risks and identified mitigation strategies to address these risks.

We are taking action to address the risks and emerging needs from the workforce plan. To date we have:

• implemented a build, borrow or buy approach to addressing workforce capability gaps
• commenced rightsizing functions to ensure resources match our operational needs
• focused our learning and development activities on the critical capabilities needed
• developed a recruitment strategy to ensure we are able to attract the talent needed.