Corporate Plan 2006/7

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Corporate Plan 2006/7 BudgetPresentation to
Portfolio Committee on Agriculture Land Affairs
07 March 2006
2
PRESENTATION OUTLINE

• Introduction Mr Lungile Mazwai Chairperson
• Turnaround Strategy Mr Alan Mukoki CEO
• Budget Mr Xolile Ncame CFO
• Question Answer Session
• Closure

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TURNAROUND STRATEGY

• Mr Alan Mukoki CEO

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Turnaround Strategy

• Improving management capacity from top to bottom
• Enhancing the Banks revenue cost models
• Installing information systems and processes
• Managing risk
• Managing and protecting capital
• Improving the Brand

Key Focus Areas
5
Progress Made
Management

• People and Culture revolution workshop was
  conducted across Land Bank
• 18 People and Culture revolution workshops
  conducted by the Brain Eyre Consultants.

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Progress Made
Management cont.

• Land bank has developed a clear defined HR
  strategy to
• be aligned to business strategy, focusing on
  building the capability required in pursuit of
  business objective
• Be line driven, emphasizing line accountability
• Exceed best practice and legislative
• requirements.
• Be more strategic and less operational.
• Addressing all fundamental issues raised by
  People and Culture revolution workshops

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Progress Made
Management cont.

• Appointment of Strategic Staff
• General Manager Credit
• Chief Risk Officer
• Chief Financial Officer

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Key Focus Areas
Management cont

• Enhance Reward and Recognition Program
• Enhance the Recruitment Selection Capability
• Organisational Development Employee wellbeing
  Initiatives
• Performance Management
• System need improvement

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Key Focus Areas
Management cont

• Human Resource Development
• Ensure Transformation embraced by all

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Revenue and Cost Model

• McKinsey and Letsema Blueshift was engaged
  to assist Land bank in developing a new business
  model to address the Land Banks organisational
  problems
• Land Bank consider the strategic options
  identified by McKinsey

• Land Bank should retain its corporate banking
  business under all scenarios
• and should consider building an agri-focused
  investment banking business
• The bank has three options for participating in
  the retail space
• retaining a branch infrastructure and forming
  alliances with others
• service provider

Progress Made
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Revenue and Cost Model cont
2. closing the retail branches and
becoming a focused, direct
mortgage provider 3. setting up a JV with
a selected group of agri-companies
Progress Made
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Revenue and Cost Model cont

• In assessing all three option Exco reviewed
• Banks current organisational challenges
• Land Bank is making substantial losses in its
• retail operations
• Loan book size and income are declining in
• retail operations
• Loan book quality is poor, even after
• substantial write-offs
• 2. Land Bank is being outperformed by
• competitors
• Value proposition lags that of competitors
• and brand and reputation are damaged
• in the market

Progress Made
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Revenue and Cost Model cont

• Development performance has been poor with
• low total value of disbursements,high levels
• of NPLs and few development success
• stories
• 4. Income is declining
• Loan book is constant (CFU growing but
• Retail declining)
• CFU margins are less than Retail
• Cost of funding is increasing
• Strong competition limits price increase
• potential
• 5. Organizational health is poor
• People, systems and processes ineffective
• Performance culture is weak
• Organization is inefficient

Progress Made
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Revenue and Cost Model cont

• Land Bank should retain its corporate banking
  business and should consider building an
• agri-focused investment banking business
• Retaining a Retail presence and form
• alliances with other service providers such as
  Coops, Postbank and a commercial bank.
• A three branch regional infrastructure should
• be implemented along with mini branches
• and disbursed sales staff in the various
• districts at Coops, Post Offices etc.
• Create a centralised Non Performing Loans
  Department

Key Focus Areas
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Revenue and Cost Model cont

• Development client serviced through the deployed
  staff.
• Build the Land Bank Brand
• Increase Network by deploying staff in various
  districts

Key Focus Areas
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Revenue and Cost Model cont

• Increase revenue
• Optimized Efficiencies
• Decrease Non-performing loans

Key Focus Areas
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Revenue and Cost Model cont

• Increase Revenue

• Increase revenue in 24 months through new
• loans and new products
• New retail loan volume
• Farm Housing Scheme
• Small Holding Finance
• CFU loans in retail

Key Focus Areas
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Revenue and Cost Model cont

• Increase Revenue

Get pricing right Price loans correctly and
adjusted for risk Generate more Non Interest
Revenue Build the Land Bank Brand Increase
footprint by disbursing sales functions Communica
te with target audience Customers Investors Employ
ees Stakeholders Politicians
Key Focus Areas
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Revenue and Cost Model cont

• Optimized Efficiency

• Regionalize back office functions into three
  Regional Offices
• Reduce turnaround time
• Make decisions close to customer
• Delegate significant responsibility and authority
• Credit score loans under R100k
• Reduce time and costs of loan approval
• Redeployment of current branch structure
• Reduce cost of current branch structure
• Reduce interest expense
• Deposit taking

Key Focus Areas
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Revenue and Cost Model cont

• Decrease Non performing Assets

• Stop inflow of bad loans
• Release written credit policies
• Improve credit process
• Consolidate and ring fence NPLs
• Create non performing loan department
• Consolidate Workout and Restructuring, Legal,
  Debt Collection, PIP,
• Insolvencies and Arrear Management together
  under new department
• All non performing accounts will be assigned to
  the new non performing loan department
• Achieve a 5 NPL ratio

Key Focus Areas
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Revenue and Cost Model cont

• Form Alliance with Co-ops and a Commercial Bank

• Certain Co-ops will sell Land Bank products
• Production loans
• Co-op manages crop cessions. In agreement with
  Co-op
• Pay origination fee to co-op
• Medium and ISF
• Pay origination fee to co-op
• Use credit scoring system
• Long Term
• Pay origination fee to co-op

Key Focus Areas
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Revenue and Cost Model cont

• Land Bank to sell certain Commercial Bank
  Products
• Credit cards
• Cheque books
• Foreign Exchange

Key Focus Areas
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Capital

• Current Capital Adequacy ratio is at 10.2
  forecasted 31 March 06
• Capital adequacy ratio to be achieved 15-20
• Fitch expectations
• Other DFIs have higher Capital adequacy ratios

Key focus areas
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Capital cont

• Letter of Support From National Treasury for 18
  months
• Presentation done to Minister for Agriculture
  Land Affairs and Minister of Finance
• Engaging National Treasury for Capital Injection

Key focus areas
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Progress Made
Systems Processes

• The objective of the SAP implementation
  programme is to develop and implement an
  Integrated Banking and Financial Package
  Solution, aligned with the streamlined business
  processes, so as to enable the Bank to achieve
• its strategic intent.
• The newer and technologically advanced
• system will allow for flexibility and
  scalability so that the Bank can conduct its
  operations more efficiently and effectively
  enabling rapid delivery
• of products to the market

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Progress Made
Systems Processes cont

• The Benefits of the SAP implementation
• Program (Kopano)
• Enable the bank to offer a broader customizable
  financial product range
• Bring about Improvements in customer
• service
• Enable optimal use of customer information
• Enable rapid product delivery
• Effect user friendly, simplified, accurate,
  consistent and system driven navigation
• Ensure integrity of data and information
  consolidation within a centralized environment
• Increase efficiency

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Progress Made
Systems Processes cont

• Programme Management Office established
  operational
• Vendor selected Software acquired SAP
• Hardware acquired Implementation partner
  appointed SAP Consulting
• SAP Financials completed realization live
• Core Banking Blue print completed
• Project Team training completed
• Change Agents appointed and mobilized

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Key Focus Areas
Systems Processes cont

• SAP HR Blue Print and Realization March 2007
• Blue print and implement Loan Origination
• system -Nov 2006
• Blue print and Implement Business Warehouse
  system -Nov 2006
• Blue print and implement Strategic Enterprise
  Management System Dec 2006

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Key Focus Areas
Risk Management

• Enterprise wide risk management Framework
• Approved by Board
• Risk Board Committee established
• - Risk Committee
• - Social and Environmental Committee
• - Audit Committee
• - Lending Committee
• - HR and Remunerations Committee
• - Chairpersons Committee
• Appointment of Chief Risk Officer
• Established Exco Committee (Risk Committees)
• ALCO Including Pricing Committee
• Credit Risk Monitoring Committee
• Operational Risk
• Credit Risk Management Committee
• Appointment of Skilled Credit and Risk management
  Staff
• Centralized credit function

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Key Focus Areas
Risk Management cont

• Updating of all credit policies and procedures
• Risk Based Pricing
• Appointment of Risk Staff
• - Market Risk
• - Compliance
• - Internal Audit
• Create New Mandates and Approval limits

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Building Brand and image

• Ensure the bank is seen in a favourable way by
  its customers stakeholders
• Presentations have been received from various
  advertising agencies
• Alignment with key pillars of the Turnaround
  Strategy
• Appointment of advertising agency by April 01,
  2006

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Key Focus Areas
Development

• Development Target markets
• - Micro-scale subsistence farmer
• - Small scale farmer
• - New commercial farmer
• - Established Commercial farmer (HDIs)
• Establishment of Equity Fund in Support of
  AgriBEE
• Continued support collaboration with NDA
  Programmes
• CASP
• LRAD
• MAFISA
• Capacity Building
• Chairs of Agriculture
• Bursaries
• Participation in upstream opportunities
• Franchise model
• AgriBEE contract opportunities

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BUDGET PRESENTATION
Mr Xolile Ncame - CFO
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BUDGET 2005/6 COMPARED TO FORECAST 2005/6
Rm Rm
Budget 2005/06 VS Forecast 2005/6
Profit (loss) before impairments (2.6) 85
Impairments (33) (600)
Bad Debts Recovered 290 75

Net non operating Income (loss) (182) 9
Net Profit (loss) 72 (431)
Mainly due to delay in incurring people
costs Couldnt collect on the debts given over
to the debts collectors as some had
prescribed Restructuring, Commission on bad
debts recoveries R 186 m
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SUMMARISED INCOME STATEMENT 2005/6 COMPARED TO
2006/7
R000 R000 R000
Budget 2006 Forecast 2006 Budget 2007

Operating Income 513 481 457 000 531 317
Operating Expenses 516 120 372 000 496 119
Operating Profit (loss) before Provision (2 639) 85 000 35 198
Doubtful debts provision (32 954) (600 000) (48 366)
Bad Debts recovered 289 758 75 000 57 700
Net non operating loss (182 205) 9 000 (66 139)
Net Profit (Loss) 71 960 (431 000) (21 607)
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TREND OF OPERATING PROFIT (LOSS)
March March March March March March March
2003 Actual 2004 Actual 2005 Actual 2006 F/Cast 2007 Budget 2008 Budget 2009 Budget
Rm Rm Rm Rm Rm Rm Rm
Operating (loss) profit after impairments (1201) 127 (444) (440) 44 345 355
AC 133 Adjustment made on opening retained Income - (348) - - - - -

Operating (loss) profit after impairments adjusted (1201) (221) (444) (440) 44 345 355
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TREND OF NET PROFIT (LOSS)
March 2003 March 2004 March 2005 March 2006 March 2007 March 2008 March 2009
Rm Rm Rm Rm Rm Rm Rm
Net Profit (loss) 1 280 101 (207) (431) (21) 337 346
AC 133 adjustment to opening retained income (348)
Dividends received from subsidiary - - (240) - - - -
Net Profit (Loss) (1 280) (247) (447) (431) (21) 337 346
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BUDGETED LOAN BOOK GROWTH 2006/7

• Retail to grow by 7.6 to R 6.75 bn (Forecast R
  6.27 bn)
• Wholesale budget growth of 10.8 to R 11.4 bn
  excluding new property division earning at R 1bn
• Total gross portfolio expected to grow by 15.7 R
  19.3bn

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IMPAIRMENTS VARIANCE
Forecast 2004/5 Budget 2005/6 Forecast 2005/6
Impairments (1 061) (33) (600)
Actual (637)
Difference 424
457 600
A

• 34.8 decline in net farm income in South Africa
  for the year ended 30 September including
• 21.5Decline in Maize
• 17.7 decline in wheat
• 20 decline in deciduous fruit
• 16.2 decline in citrus fruit

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THANK YOU