The Land and Agricultural Development Bank

1. The Land and Agricultural Development Bank Annual Financial Results Presentation 2002-2003

2. Agenda

3. 1. Overview of the year Jethro Mbau Chairperson of the Board

4. Overview • Windfall year for sector • Volatile rand and producer price increases • Inflation and input costs • Deregulation (international & domestic) • Strategic plan adopted for sector • Legislative changes • Strauss implementation progress and shareholder support • Business improvement initiatives • Financial results summary

5. 2. Operational Overview Monwabisi Fandeso CEO

6. LAND BANK MISSION Agricultural development finance institution that supports economic growth through the provision of retail, wholesale, project and micro-financial services to agriculture and related rural services LAND BANK VISION To be the leading provider of world-class agricultural financial services to agriculture and related rural sectors in South Africa

7. The State is the only shareholder represented by the Minister for Agriculture and Land Affairs • Currently governed by the Land and Agricultural Development Bank Act, 2002 (Act no. 15 of 2002) and guidelines provided by the Public Finance Management Act (Act no. 29 of 1999) • Exempt from the payment of income tax and currently not paying dividends to the State

8. Benchmarking our progress • New legislation provides the benchmark against which we measure progress • Land and Agricultural Development Bank Act outlines 11 key objectives for bank • This section of presentation reports back on progress against those objectives

9. 1. Equitable ownership Objective: Equitable ownership of agricultural land, in particular the increase of ownership of agricultural land by historically disadvantaged persons Achievements • Agency agreement with DLA on LRAD • Over R100 million disbursed in grants • Over R300 million disbursed in production loans to beneficiaries • Special mortgage loans @ 10% advanced • Preferential access to bought-in properties • Partnership with National Youth Commission

10. 2. Promotion of reform Objective: Promotion, facilitation and support of agrarian reform, land redistribution or development programmes aimed at HDIs for the development of farming enterprises and agricultural purposes Achievements • Agency agreement on LRAD • Tripartite agreement with NDA, CRLR & LB re restitution programme • Valuations carried out by Land Bank for Land reform purposes • Preferential access to BIPs • Training, skills development under CSI

11. 3. Access to land Objective: Promotion, facilitation and support of land access for agricultural purposes Achievements • Special mortgage loans • Preferential access to BIPs (91 farms sold = 57k ha, to PDI’s) • Agency agreement with DLA on LRAD • Tripartite agreement with NDA, CRLR & LB re restitution programme • Youth farm projects with NYC

12. 4. Entrepreneurship Objective: Promotion, facilitation and support of agricultural entrepreneurship Achievements • Training and skills development (R5.3-m) • Developing grain producer of the year award (sponsorship) (R60k) • Sponsorships to organised agriculture for leadership development, international relations, specific projects etc NAFU, NERPO, Grain SA • Land Bank Agricultural Chairs at six universities (R1.7-m) • Bursaries to PDI students at tertiary level (R 1.3-m) • Linkages with CDI, Agri-link project • Sponsored female farmers on study tours to Spain, Kenya

13. 5. Redress Objective: Promotion, facilitation and support of the removal of the legacy of racial and gender and discrimination in the agricultural sector Achievements • Batho Pele adopted and internalised as policy • Land Bank brochures & radio shows in different languages • Step up (over 70% are women) • Female farmer of the year, Women in Agriculture Conference and international study trips sponsored • Client base • Employment equity plan advanced • 60% of top 45 managers are PDI • 25% of top 40 managers are Women • 60% of bursaries targeted at females

14. 6. Productivity and innovation Objective: Promotion, facilitation and support for the enhancement of productivity, profitability investment & innovation in the agricultural and rural financial systems Achievements • Improvement of financial service delivery reach mobile banking, satellite offices. Outlets increased from 27 to 80 • Intermediary financing R60-m to provincial DFI • Africare guarantee scheme (R 7m) • Financing appropriate technology for developing farmers • Publication of Vukuzenzele – comprehensive guide to farming for small scale farmers • Publication of Animal Health guide for emerging farmers.

15. 7. Stimulating growth Objective: Promotion, facilitation and support of programmes to stimulate the growth of the agricultural sector and better use of land Achievements • 70% growth of the Development book • Outgrew the shrinking sector in the year • Microfinance expansion mainly through growth of existing clients. • Participate in the revival of schemes e.g Ncora, Qamata

16. 8. Promoting sustainability Objective: Promotion, facilitation and support of programmes to promote and develop the environmental sustainability of land and related natural resources Achievements • Alliance with ARC on Agricultural GIS • Flood relief programme in partnership with NDA & IDC • Assisted NDA with assessment of damage caused by veld fires & drought. • Financing of livestock done on the basis of carrying capacity • Participation in the WSSD

17. 9. Rural development and job creation Objective: Promotion, facilitation and support of programmes that contribute to agricultural aspects of rural development and job creation Achievements • Social accounting introduced to track impact of Bank’s lending activities • Social investments e.g Qamata school in Elliotdale • Special focus on financing projects in the presidential nodal points in conjunction with IDT • Compulsory in-service training and internship for bursars

18. 10. Commercial agriculture Objective: Promotion, facilitation and support of commercial agriculture Achievements • Maintained 50% share of commercial agriculture • Financing of agricultural companies/co-ops for on-lending purposes - (R7-bn) • Financing of agribusinesses • Sponsorship to AGRISA, ABC

19. 11. Food security Objective: Promotion, facilitation and support of food security Achievements • MoU concluded with NDA to distribute security “Veggie Packs” • Promotion of vegetable gardens • Grain financing options advanced

20. The Development Imperative • The holistic approach to development finance • Access to Skills and Capacity Building • Access to Technology and Information • Access to Markets • Access to Land • Access to Finance • Success will be determined by the • Partners and Alliances we can mobilise • Resources that can be mobilised into the sector • Enabling environment to play our role • Efficient and effective Bank operations to enhance the institutions ability as a delivery vehicle

21. Achieving our Purpose • In order to achieve our vision, mission and mandate we required: • Legislative change • Business process improvements to enhance performance • Enhance competitive advantage as a specialist provider of agricultural financial services The solution: BPR (Project Gateway)

22. Objectives of BPR • Clarify procedures and ensure compliance leading to better management of the risk profile of loan book • Accelerate arrear recovery performance and improve insolvency collection rates • Identify opportunities for profitable loan book growth, including product offering and customer service enhancement • Improved reporting and control systems • Elimination of non value adding activities (process refinement) • Promote active management and supervisory style Deliver quantifiable and measurable performance improvement R200 million within the year

23. Areas of focus • Customer service and sales orientation • Structure & productivity improvements • Process improvements, including loan book analysis

24. Results: customer service & sales • Non interest income products implemented • New management control system implemented for sales function • New loan products designed • Branch remodeling for enhanced client service • Days in pipeline reduced • Database of prospective clients developed

25. Results: structure & productivity • Branch structure analysed and new branch model piloted • Core business activities restructured to focus on sales, account management and recoveries • Management control systems installed to increase accountability • Increased supervisory positions planned to increase level of control

26. Results: process improvements • New process flows designed • Loan application & approval • Loan processing • Account management • Recoveries & arrears management

27. Understanding our loan book • Specialised techniques employed • Discovery of a more acute level of arrears and insolvencies than was previously identified and classified as a result of . • Uncertainty around Constitututional Court judgement • Weak and bureaucratic recovery mechanisms due to constraints of old Act; compounded by • Deregulation of sector, and past natural disasters • Result: Significant bad debt provision charge

28. Arrears management • New mechanisms put in place in December 2002 • Arrears of R350-million already recovered • Ongoing attention being paid to enhancing quality of loan book • ‘Loans at risk’ reduced from R5-bn in September 2002 to R2.8-bn in March 2003 • Specialist collection agencies being appointed to maximise recovery • Current provision for doubtful debt is adequately provided for

29. 3. Financial results Kgosi Tshikare General Manager: Finance

30. Outline • Income statement highlights • Balance sheet salient features

31. Income statement highlights • Net interest income 18.6% • Non interest income 73.9% • Net operating profit before provisions 18.4% • Efficiency ratio within target 38.7% • Net interest income margin 4.3% • Provision impact on profitability R1 429 million

32. Net Interest Income up 18.6% to R882 m

33. Non interest income up 74% to R38.9-m

34. Operating income up by 19.9%

35. Efficiency ratio of 37.8% compares favourably with desired target of below 40%

36. Operating profit before provisions of R 574-m (2001: R485-m)

37. Acute arrears resulted in bad debts provision charge of R1776-m Resulting in reported loss of R1 429-m Provisions for non performing loans: Impact on profitability

38. Balance Sheet: Salient features • Development loan book increased by 71% • Loan portfolio down 3.8% to R16 260-m against 8% decline in agricultural debt • Loan approval up by 4% to R8 722-m • Arrears reduced by 36% to 9.6% • Provision for doubtful debt up from R729-m to R1 530-m • Capital adequacy of 14.6% is above the benchmark of 11%

39. Provision as a % of loan book

40. 4. Prospects Jethro Mbau: Chairperson Monwabisi Fandeso: CEO

41. Shareholder support “Commendable progress has been made not only in implementing the recommendations of the Strauss Commission but also in transforming the bank into an institution that all South Africans can be proud of. “While further challenges still lie ahead for the Bank there is no doubt that tremendous progress has been made, and that the Bank continues to move in the right direction.

42. Shareholder support “On this basis I would like to express my continued support for the Board and Management of the Bank and to endorse their activities in the field of development finance. “The [Strauss] commission recommended direct grants to enable the Bank to meet its development mandate. This recommendation has been taken to heart by government and has resulted in a directive from the Ministry to expedite the transfer of funds from the former ACB to Land Bank in accordance with the provisions of the Agricultural Debt Management Act.”

43. The year ahead • Development: Holistic approach will be greatly enhanced by the transfer of funds to the Bank • Margin: Interest rate cycle and inflation could put pressure on margin • Continued growth: growth of 5.3% on the average gross loan book • Efficiencies: ratio set at 35% • Increased sales and customer orientation: new branch model to be implemented to enhance sales and account management function • Risk management: planned redesign of credit assessment and risk management evaluation methodology will enhance quality of loan book

44. Thank you