Land Bank 2005 Annual Report Presentation: Portfolio Committee on Agriculture

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Land Bank 2005 Annual ReportPresentation
Portfolio Committee on Agriculture Land
Affairs12 October 2005
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Overview of presentation
Introduction Lungile Mazwai Chairperson
2. The year in review and development impact Alan Mukoki Chief Executive Officer
3. Financial review Xolile Ncame Chief Financial Officer
4. Going forward Alan Mukoki Chief Executive Officer
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• The year in review and development impact
• Alan Mukoki
• Chief Executive Officer

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Our Vision

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

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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.

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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
  nations farmers
• Championing their progress
• Cushioning their setbacks
• Celebrating their success

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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

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Review of Operations

• Banks 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

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Operational overview

• Lending by line of business

2004/5 2003/4 growth
Retail 6 544m 6 999m -6.5
CFU 11 733m 9 139m 28.3
Step Up 96m 69m 20
Gross Loan Book 18 373m 16 207m -13.4
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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

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• Developmental Impact

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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
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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.

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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

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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

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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
• Mentorships and Learnerships for 80 students of
  which 42 are women

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• Financial review
• Xolile Ncame
• Chief Financial Officer

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Income Statement
2005 Change 2004
Rm Rm
Net Interest Income 559 5.7 529
Non Interest Income 41 77.3 181
Operating Expenses (359) 17.7 (305)
Net non-operating income 107 4.9 102
Bad Debt Provision (678) 160.8 (260)
Net loss / profit (330) 247
Cost to income ratio 54.8 44.6
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Operating profit before impairments
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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 MECs regarding providing provincial
  challenges

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Equity to Total Assets Ratio
2005 2004 2003
Equity to total assets 9.6 11.8 14.5
Equity to total assets adjusted for National Treasury Dept. of Agriculture support shown below 17.8
Conversion of R 201m loan to equity R 1.5bn letter of undertaking
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NPL and Provisioning
2005 2004 2003

Total Gross loan book R 18.3bn R 16.2bn R 16.3bn
Non-Performing Loan (NPL) R 2.6bn R 3bn R 4bn
NPL as a of gross loan book 14.2 18.5 24.5
Loan provision R 1.2bn R 1.2bn R 1.5bn
Provision as a of total loan book 6.6 7.4 9.4


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• Going forward Deliver Banks Turn Around
• Alan Mukoki - CEO

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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 HDIs
• Schemes to develop skills in Agri by HDIs

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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

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Management (Continued)

• Develop and implement a new performance
  management system, relevant to the achievement
  of the Land and Agricultural
  Development Banks 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

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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

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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

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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.

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Capital

• Design and implement the turnaround strategy with
  Mckinsey and convince funders and the
  shareholder of the Landbanks
  investment case.
• Manage the banks capital ratio within acceptable
  parameters.
• Improve or maintain the banks credit rating, eg
  Fitch rating, etc

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Thank you
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Funding
Credit Rating Premium Charged above government bond
Land Bank AA- 0.73
DBSA AAA 0.40
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• Factors affecting cost of funds Interest
  charged to Land Customers
• Credit Rating
• Quality of loan book
• Profitability
• Capital adequacy

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Balance Sheet Liquidity Profile