Land and Agricultural Development Bank of South Africa

1. Land and Agricultural Development Bank of South Africa Organisational and Operational Alignment Presentation to the Portfolio Committee 19/02/2008

2. Background This document serves to provide a framework of the Land Bank’s Turnaround Strategy The development of turnaround plan was in part to fulfil the conditions set forth by National Treasury for capital injection and provision of guarantee requested by the Land Bank It was also a reaction to: • The issues that the external auditors had raised • Management assessment of the Bank’s position • Fitch Ratings assessment

3. Progress While significant progress has been made on the turnaround objectives, the Land Bank cannot provide significant detail on progress in this particular report, as its year-end figures are still in the process of being finalised. These figures will be available after year-end (March 2008). Further detail on progress will be consolidated and presented following the release of these figures.

4. Turnaround FactorsNational Treasury Revision of Bank’s focus Funding Model Turnaround Issues (National Treasury) • Stabilise the business • improve financial position • - Lowering high level of impairment Operational & Financial Strategies to achieve New Vision

5. Turnaround FactorsFitch Rating Agency • Non performing loans (NPL) ratio deteriorated to 10,6% at FYE06 (FYE05 6,7%). The Agency considered the NPL ratio to be potentially understated, for instance problematic borrower not classified as non-performing at FYE06. Consequently, the Agency considered coverage ratio to be low in light of the bank’s trend of poor recoveries and realisation rates • Loan loss Provisions: At FYE06 Land Bank recorded significantly lower impairment charge of R319,8m (FYE05 R637,4m) primarily as a result of IFRS adjustment of R172m which excluded suspended interest from non-performing loans. The Agency though still felt that the asset quality remains weak and the Agency anticipated that a longer track record of improved credit processes will be required before provisions are normalised at this level • The largest 20 exposures accounted for 45% of gross loan exposure at FYE06, with the bank’s largest obligor representing 15,3% of total exposure and 230% of the bank’s capital.

6. Turnaround FactorsManagement • Delivery of the development mandate • People and systems • Risk management • Brand • Income/cost • Low levels of capital

7. Turnaround focusACCUMULATED DEFICIT PERFORMANCE (1) Key contributing factors to accumulated deficit & deteriorated performance: Financial Level • High personnel cost - adequacy of this cost in relation to skills and core competency, elusive. • The retard collection of debt and interest on loans afforded. • The managing of non-core function assets. • The consistent investment in share, other funds etc., in absence of surplus/ profits. • Inadequate funding/revenue models to determine costs and required funding.

8. Turnaround focusAccumulated Deficit Performance (2) Operational Inefficiency Level • Inefficient processes and models in respect of development funding • An inadequate enforcement process of debt collection, credit management and revenue management • Lack of development plans and programmes • Inadequate systems integration • Weak management, adjustment and updating of approval system and policies • Inadequate security management • Inefficient and/or lack of models in respect of service level determination forward and demand planning, and networking • Inadequate risk management strategy and application • Lack of team integration, operations and support business units resulting in a lack of strategic and business focus • Poor expenditure and revenue controls, procedures and support systems • Weak governance control • Lack of adequate information technology systems over core business activities.

9. Core function of Land Bank (new business model) The Bank developed a business model to answer the mandate question. The new business model has the following components • Focus on development: ensuring graduation of emerging farmers into commercial farmers • Enhancing the role of cooperatives and local agencies • Linking farmers with markets • Working with complete agricultural value chain • Risk management • Making development profitable • Commodity focus • Farmer support • Partnership and collaboration • Advisory support • Making development impact • Financial sustainability • Agricultural information and innovation

10. Process on development of the turnaround plan Following development of the new business model, the Bank engaged the process of developing its turnaround plan • Scoping of project • Review and assess current policies & procedures • Engagement with senior management • Align Processes & Procedures to Policy & Legislation • Mapping of Processes & Procedures (Operational) • Analysis of information • Report and recommendation • Presentation to senior management and board • Presentation and engagement with National Treasury • Development of a detailed implementation plan and budget

11. Turnaround Strategy (1) • Organisational alignment: • Policy • Budget • Business Units • Skills audit – Human Resource capital and personnel cost • Revenue generation assessment: • IT platform and business processes: • Integration of systems and processes • Management reports • Client data base

12. Turnaround Strategy (2) • Partnerships and Co-operative governance • Networking • Agri-Unions • SETA • Local & Provincial Government etc. • Holistic Operational Risk Management Programme • Cost of Funding • Bad debt management strategy • Credit risk (including concentration risk) • Batho Pele/service delivery • Review branch network • Pilot Projects on development & sustainability • Development Initiative Strategy • Project scoping • Focus Areas • Project implementation • Time frames on capital investment & return

13. Implementing The Plan To implement the turnaround strategy an Operations Plan has been drawn to integrate the strategy into daily activities of the Business Units of the Bank by: • Team of senior officials from the various units within the Bank • Developed a holistic integrated project plan with time frames, accountability, etc. • Developed an activity plan • Regular integrated project meetings

14. Sustainability Alignment of Core function to New Business Model Development Quick Wins Organisational Alignment Debt Collection Pilot Projects Co-operative Governance Integrated IT System (Monitored Indicators) Risk Strategy

15. Financial Survival Plan Before the Land Bank can focus on the implementation of its turnaround plan and realignment of its business plan we first need to concentrate on a financial survival plan: • Maintain the funding • Halt the flow of bad loans • Contain expenses

16. Key Thrusts to Stabilisation Identify immediate operational issues to stabilise the bank from: • Long-term strategies aimed at refocusing the Bank as a DFI while ensuring long-term financial sustainability • Provide clear strategies for exit from situations of concentrated risk • Improve revenue and reduce operational costs • Alternative funding

17. Expected outcomes Business Efficiency (Cost to income ratio) Mar. 2007 - 81% Mar. 2008 - 85 % LOAN QUALITY (NON PERFORMING LOANS) Mar. 2007 - 15.30 % Mar. 2008 - 11.70% PROFITABILITY ROE- Mar 2007 - -9.89% Mar 2008 - -7.80%

18. Expected Outcomes CAPITAL RATIO Mar. 2007 - 5.95% Mar. 2008 - 6.37%

19. Performance indicators for development The accountability indicators to these outcomes rests on: • The sustainability of the Development Programme • Employment creation • The establishment of Emerging Farmers • Conclusion of Agri-BEE deals • Percentage growth in the development loan book over three years • Performance of the development loan book • Networking with related stakeholders • Provision of advisory service • Geographic spread

20. Performance indicators for Development NEW FUNDING • Mar.2008 - R300m • Mar. 2009 - R1,0b • Mar. 2010 - R2,0b