DEPARTMENT: AGRICULTURE Corporate Plan 2006/7 & Budget Presentation to Portfolio Committee on Agriculture & Land Affairs – 07 March 2006

PRESENTATION OUTLINE  Introduction – Mr Lungile Mazwai: Chairperson  Turnaround Strategy – Mr Alan Mukoki: CEO  Budget – Mr Xolile Ncame: CFO  Question & Answer Session  Closure

TURNAROUND STRATEGY Mr Alan Mukoki: CEO

Key Focus Areas Turnaround Strategy  Improving management capacity from top to bottom  Enhancing the Bank’s revenue & cost models  Installing information systems and processes  Managing risk  Managing and protecting capital  Improving the Brand

Management Progress Made  People and Culture revolution workshop was conducted across Land Bank  18 People and Culture revolution workshops conducted by the Brain Eyre Consultants.

Management cont. Progress Made 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

Management cont. Progress Made Appointment of Strategic Staff General Manager Credit Chief Risk Officer Chief Financial Officer

Management cont Key Focus Areas  Enhance Reward and Recognition Program  Enhance the Recruitment & Selection Capability  Organisational Development & Employee wellbeing Initiatives  Performance Management System need improvement

Management cont Key Focus Areas  Human Resource Development  Ensure Transformation embraced by all

Progress Made Revenue and Cost Model McKinsey and Letsema Blueshift was engaged to assist Land bank in developing a new business model to address the Land Bank’s 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: 1.retaining a branch infrastructure and forming alliances with others service provider

Progress Made 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 Revenue and Cost Model cont In assessing all three option Exco reviewed Bank’s current organisational challenges: 1.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 Revenue and Cost Model cont 3.Development performance has been poor with low total value of disbursements,high levels of NPL’s 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

Key Focus Areas 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 Coop’s, 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 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 Revenue and Cost Model cont Increase revenue Optimized Efficiencies Decrease Non-performing loans

Key Focus Areas 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

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 Communicate with target audience Customers Investors Employees Stakeholders Politicians Key Focus Areas

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

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 NPL’s 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

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

Revenue and Cost Model cont Land Bank to sell certain Commercial Bank Products Credit cards Cheque books Foreign Exchange Key Focus Areas

Key focus areas 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 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

Systems & Processes Progress Made  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

Systems & Processes cont Progress Made  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

Systems & Processes cont Progress Made  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

Systems & Processes cont Key Focus Areas  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

Risk Management Key Focus Areas  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

Risk Management cont Key Focus Areas 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

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

Development Key Focus Areas  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

BUDGET PRESENTATION Mr Xolile Ncame - CFO

BUDGET 2005/6 COMPARED TO FORECAST 2005/6 * Mainly due to delay in incurring people costs **Couldn’t collect on the debts given over to the debts collectors as some had prescribed *** Restructuring, Commission on bad debts recoveries = R 186 m Rm Budget 2005/06 VSForecast 2005/6 Profit (loss) before impairments (2.6)85* Impairments(33)(600) Bad Debts Recovered29075** Net non operating Income (loss) (182)***9 Net Profit (loss)72(431)

SUMMARISED INCOME STATEMENT 2005/6 COMPARED TO 2006/7 R000 Budget 2006 Forecast 2006 Budget 2007 Operating Income Operating Expenses Operating Profit (loss) before Provision (2 639) Doubtful debts provision(32 954)( )(48 366) Bad Debts recovered Net non operating loss( )9 000(66 139) Net Profit (Loss)71 960( )(21 607)

TREND OF OPERATING PROFIT (LOSS) March 2003 Actual 2004 Actual 2005 Actual 2006 F/Cast 2007 Budget 2008 Budget 2009 Budget Rm Operating (loss) profit after impairments (1201)127(444)(440) AC 133 Adjustment made on opening retained Income -(348)----- Operating (loss) profit after impairments adjusted (1201)(221)(444)(440)

TREND OF NET PROFIT (LOSS) March 2003 March 2004 March 2005 March 2006 March 2007 March 2008 March 2009 Rm Net Profit (loss) (207)(431)(21) AC 133 adjustment to opening retained income (348) Dividends received from subsidiary --(240)---- Net Profit (Loss) (1 280)(247)(447)(431)(21)337346

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

IMPAIRMENTS VARIANCE Forecast 2004/5Budget 2005/6Forecast 2005/6 Impairments(1 061)(33)(600) Actual(637) Difference A A.34.8% decline in net farm income in South Africa for the year ended 30 September including: 21.5%Decline in Maize 17.7% decline in wheat 20% decline in deciduous fruit 16.2% decline in citrus fruit

DEPARTMENT: AGRICULTURE THANK YOU