Land Bank 2006 Annual Report Presentation: Portfolio Committee on Agriculture

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Land Bank 2006 Annual ReportPresentation
Portfolio Committee on Agriculture Land
Affairs10 October 2006
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• Financial review
• Xolile Ncame
• Chief Financial Officer

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BUDGET 2005/6 COMPARED TO FORECAST 2005/6
Rm Rm
Budget 2005/06 VS Forecast 2005/6
Profit 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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Income Statement - Group
2006 Change 2005
Rm Rm
Net Interest Income 415 26 559
Non Interest Income 293 388 60
Operating expenses (445) 7 (415)
Net non-operating income 72 30 103
Bad Debt Provision (320) 50 (637)
(Net loss) / profit 15 (330)
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Income Statement Land Bank
2006 Budget 2006 2005
Rm Rm
Net Interest Income Interest income non-performing loans Net Interest Income 584 (172) 412 414 - 414 557 ? 557
Non Interest Income 293 413 301
Operating Expenses (439) (722) (416)
Net non-operating loss (71) 0 (252)
Bad Debt Provision (320) (33) (637)
Net loss (125) 72 (447)
Dividend from SAVVEM Loss - (125) - 72 240 (207)
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Key financial issues

• Economy- wide
• Net Farm Income in the South African agricultural
  sector is down by 28.3
• Group Specific
• International Financial Reporting Standards
  (IFRS) was successfully rolled out to replace
  South African Generally Accepted Accounting
  Practice (GAAP)
• Profits improved by R345m from a loss of R330m in
  2005 to a profit of R15m in 2006.
• Provisions for loan losses improved by R317m from
  R637m to R320m

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Going concern

• The last five years have taken their toll on the
  banks capital levels
• For the financial year ended 2001, the Banks
  capital was at R3.4bn
• For the financial year ended 2006, the Banks
  capital was down to R1.096-bn
• AC133 and IAS 39 has resulted in provisions for
  loan losses of R3.5bn and fair value adjustments
  for the LB01 Bond of R353m
• R1.5bn letter of comfort has been extended to
  June 2007
• Replacement of the letter of comfort with capital
  injection

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NPL and Provisioning

2006 2005 2004

Total Gross loan book R16.3bn R18.3bn R16.2bn
Non-Performing Loan (NPL) R1.7bn R1.7bn R3bn
NPL as a of gross loan book 10.4 9.3 18.5
Loan provision R1.4bn R1.2bn R1.2bn
Provision as a of total loan book 8.6 6.6 7.4
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Equity to Total Assets Ratio
2006 2005 2004 2003
Equity to total assets 8.7 7.3 11.8 14.5
Equity to total assets adjusted for National Treasury R1.5bn letter of undertaking 16.4
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External Audit Issues affecting the Opinion

• 2005
• Nine issues were reported
• 2006
• Two issues were reported (re-reported)
• - Going Concern
• - Interest impairment calculation for the
  2005 comparative

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• The year in review
• Alan Mukoki
• Chief Executive Officer

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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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Capacity of the current Capital

• Current loan book R16b
• Land Banks Equity _at_ 20 CAD R3.2b
• 20 Return on R3.2b Equity R640m
• Of this R640m, R320m for 10 growth
• R320m leveraged at 20 for R1.6b loans

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Top 50 Client Statistics

• Land Bank total Exposure in Rand Value R12b
• Taxes paid past 3years(04,05,06) R600m
• VAT paid past 3 years R380m
• Employment Tax paid R500m
• Employment No. 10 000
• Procurement potential for SMME
• development R18b

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The agricultural sector

• Financial position of farmers has been
  deteriorating since 2001, when depreciating rand
  pushed up producer prices
• The rand has since strengthened, bringing down
  producer prices but input costs continue to
  rise
• Profit margins severely squeezed in the process
• Farm incomes down by 28.3 in last financial year
• Expenditure up 5.4
• Producer prices down 2.2
• Farmers therefore forced to cut input costs to
  the bone

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The Banks approach

• Two key focus areas
• Our commercial business activities (our context)
• Our development activities (our core business)
• Challenge get the commercial business right, to
  enable us to deliver on our development mandate
• Shanduka (turnaround strategy) put in place to
  ensure this happens

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Key internal achievements

• SAP IT system in place to assist with
• Financial management
• Core banking
• Integrated loan origination and debt collection
• Enterprise-wide risk management system in place
• Revenue and cost models improved
• Interventions planned to build the brand

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Development

• Step Up
• Disbursed R18million
• Sizable portion of funds not used for
  agricultural purposes
• Difficult to track development impact
• MAFISA
• Total Loans Disbursed-R19million
• Enhance distribution and outreach through other
  channels
• Senwes
• Cape Agri

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• Going forward
• Our turnaround strategy
• Alan Mukoki
• Chief Executive Officer

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Our response to the current challenges

• Our turnaround plan and is being implemented to
  ensure that
• profitability is maintained going forward
• sustainability is assured and
• capital adequacy is significantly strengthened
• The plan is the central feature of the 2006/7
  corporate plan to ensure the viability and
  sustainability of the Land Bank

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The turnaround plan

• People Ensure the bank has the properly skilled
  people in the right jobs, and there is proper
  selection, recruitment, training, development,
  coaching, mentorship and retention
• Systems Ensure the bank has proper information
  systems to assist management to have timeous
  relevant and reliable information to make
  management decisions
• Risk Ensure the enterprise-wide risks are
  properly monitored and managed
• Capital Ensure the bank has the right level of
  capital to perform its mandate and this capital
  is grown in a sustainable way
• Revenue costs Design and implement strategies
  on revenue and costs to ensure quality,
  consistency and sustainability of results
• Brand Image Ensure the bank is seen in a
  favourable way by its stakeholders

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Systems

• SAP Finance module went live in November 2005
• Banking solution to be rolled out in the current
  financial year

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Capital

• Discussions held with National Treasury and
  Department of Agriculture on capital injection
• In the meantime, letter of comfort to the amount
  of R1.5bn has been given to the bank as a
  guarantee to creditors should the banks
  liabilities exceed its assets
• Turnaround will not be successful without an
  injection of capital from the National Treasury
  as reserves will not be enough for the bank to
  successfully fund operations and growth

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Revenue and costs

• Re-looking the Distribution Model
• Dedicated credit department established

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Brand and image

• New advertising agency has been appointed and
  briefed
• New series of campaigns due to begin in coming
  months

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Thank you