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Land Bank 2005 Annual Report Presentation: Portfolio Committee on Agriculture & Land Affairs 12 October 2005. Overview of presentation. The year in review and development impact Alan Mukoki Chief Executive Officer. Our Vision.

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  1. Land Bank 2005 Annual ReportPresentation: Portfolio Committee on Agriculture & Land Affairs12 October 2005

  2. Overview of presentation

  3. The year in review and development impact Alan Mukoki Chief Executive Officer

  4. Our Vision To be the leading provider of world - class agricultural financial services to agriculture and related rural sectors in South Africa

  5. Our Mission: Land Bank is an agricultural development finance institution which supports economic growth in South Africa through the provision of retail, wholesale project and micro-financial services to agriculture and related rural services.

  6. Our approach • Land Bank is the only financial institution devoted entirely to agriculture • We provide a specific set of services and products for emerging farmers • We enjoy a very special relationship with the nation’s farmers: • Championing their progress • Cushioning their setbacks • Celebrating their success

  7. External environment A very difficult year for agriculture • Continued strong rand acted as a brake on agricultural growth, impacting on farmers’ profit margins and risk • Adverse weather impacted on crops and livestock • Unfavourable commodity prices • Increasingly competitive environment in agricultural finance

  8. Review of Operations • Bank’s performance mirrors the difficult state of the agricultural sector • Net loss of R330m, compared to profit of R247m in previous financial year • Impairment losses of R678.4m, resulting in net loss of R330m • Equity and reserves declined from R2.2bn to R2bn However: • Net Interest margin has increased by R25m • R2.1bn growth in loan portfolio

  9. Operational overview Lending by line of business

  10. Evolution of the Bank since 1998 • Pre-1998: Defaulters transferred to ACB; no effect on Land Bank balance sheet • 1998-2002: New mandate (Strauss Commission); new Act; transformation begins to address development challenges • 2002-2004: Re-engineering of business processes; some process improvements and change management • 2005: Comprehensive turnaround strategy begins, with emphasis on banking and financial management systems

  11. Developmental Impact

  12. CONTEXT CORE Development Mandate Commercial Business Standardisation Differentiation Innovation SMME, Agri BEE No Security, No own Contribution, No market no skill Consolidate Out Task Insource Compose Scale up Invention Commoditisation

  13. Loans to emerging farmers • We continue to lead the sector with the number of development loans now at 129 352, compared to 61 014 in the previous financial year • The total value of Step-up loans has increased to R96m, compared to R69m in the previous financial year • The Bank continues to improve its reach in rural areas not serviced by commercial banks.

  14. Supporting AgriBEE Our objective: to achieve a sustainable presence, ownership or participation by previously disadvantaged South Africans within all levels of the value chain in the agricultural sector Our approach: • To engage, inform and support implementation of the AgriBEE framework, within the context of broad-based BEE • To work towards the creation of an enabling environment for the empowerment of the historically disadvantaged

  15. AgriBEE and Empowerment of Women Our activities: • Funded BEE deals totaling in excess of R986m including the following: • Afgri-Sizwe: R501m to fund acquisition of 26.7% stake in Afgri Operations • Ushukela Milling: R485m to fund acquisition of sugar milling operation • Made 28 properties-in-possession (9 000ha) available for land reform • Supported the annual Female Farmer of the Year awards

  16. Additional contributions to transformation • Continued to support and fund youth farm projects of R3.5m in collaboration with Umsobomvu and NYC • Advancing grants of R8m to support Chairs of Agriculture at tertiary institutions • Allocating R3.5m towards bursaries of PDIs • Mentorship’s and Learnerships for 80 students of which 42 are women

  17. Financial review Xolile Ncame Chief Financial Officer

  18. Income Statement

  19. Operating profit before impairments

  20. Sustainable Bad Debt Solution • Health check of existing book by auditors • Separation of credit and sales function • Centralised credit decision making • Focus on financing viable businesses • Engaging MEC’s regarding providing provincial challenges

  21. Equity to Total Assets Ratio

  22. NPL and Provisioning

  23. Going forward – Deliver Bank’s Turn Around Alan Mukoki - CEO

  24. Turnaround Points Core Development Business Commercial Equity Employment Equity in Agri Business Innovation and Invention Development of Finance Schemes to enable and increase access by HDI’s Schemes to develop skills in Agri by HDI’s

  25. Management • Recruit, attract and retain skilled and experienced management • Design and implement relevant programmes to train and develop our management team to generate productivity and performance

  26. Management – (Continued) • Develop and implement a new performance management system, relevant to the achievement of the Land and Agricultural Development Bank’s objectives and align the performance outputs of staff to those of the bank. • Design and implement (after approval by the board), a new reward and incentive programme for management and staff, to align the interest of staff • Create an enabling, energizing and motivating environment in which our staff works ,eg check and manage morale issues via staff climate audits, surveys on best company to work for, etc

  27. Systems • Implement the new IT system architecture throughout the bank – Financial system finally goes live 15 Nov 2005 & Banking system on 1 April 2006. • Manage the risk of failure of the new IT systems by resourcing and training our staff adequately • Provide recognizable and comprehensible reports to the board on progress re the implementation of SAP

  28. Risk Management • Develop and implement a bank wide enterprise risk management framework and adopt via board resolution. • Develop the various board and sub committee charters • Implement the new management structures to fulfill the ERMF. • Recompose the risk policies for Credit, Asset and Liability Management Treasury, Market and Interest rate risk, Operational Risk, Compliance and get board and internal and external audit approval

  29. Revenue & Cost Model • Develop both a revenue and cost model strategy appropriate to a DFI. • Cost to income ratios, margins, interest and non interest expenses, in all our various segments, ie corporate, equity finance, retail and development.

  30. Capital • Design and implement the turnaround strategy with Mckinsey and convince funders and the shareholder of the Landbank’s investment case. • Manage the bank’s capital ratio within acceptable parameters. • Improve or maintain the bank’s credit rating, eg Fitch rating, etc

  31. Thank you

  32. Funding

  33. Factors affecting cost of funds & Interest charged to Land Customers: • Credit Rating • Quality of loan book • Profitability • Capital adequacy

  34. Balance Sheet Liquidity Profile

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