Land Bank 2005 Annual Report Presentation: Portfolio Committee on Agriculture & Land Affairs 12 October 2005

2 Overview of presentation 1.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

The year in review and development impact Alan Mukoki Chief Executive Officer

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

5 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.

6 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 nation’s farmers: Championing their progress Cushioning their setbacks Celebrating their success

7 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

8 Review of Operations Bank’s 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

9 Operational overview Lending by line of business 2004/52003/4% growth Retail6 544m6 999m-6.5 CFU11 733m9 139m28.3 Step Up96m69m20 Gross Loan Book18 373m16 207m-13.4

10 Evolution of the Bank since 1998 Pre-1998: Defaulters transferred to ACB; no effect on Land Bank balance sheet : New mandate (Strauss Commission); new Act; transformation begins to address development challenges : Re-engineering of business processes; some process improvements and change management 2005: Comprehensive turnaround strategy begins, with emphasis on banking and financial management systems

Developmental Impact

12 Development Mandate SMME, Agri BEE No Security, No own Contribution, No market no skill Commercial Business Consolidate Compose Insource Out Task Scale up CORE CONTEXT Standardisation Commoditisation Differentiation Innovation Invention

13 Loans to emerging farmers We continue to lead the sector with the number of development loans now at , compared to 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.

14 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 Supporting AgriBEE

15 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 AgriBEE and Empowerment of Women

16 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 Mentorship’s and Learnerships for 80 students of which 42 are women

Financial review Xolile Ncame Chief Financial Officer

18 Income Statement 2005% Change2004 R’m Net Interest Income Non Interest Income Operating Expenses(359)17.7(305) Net non-operating income Bad Debt Provision(678)160.8(260) Net loss / profit(330)247 Cost to income ratio54.8%44.6%

19 Operating profit before impairments

20 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 MEC’s regarding providing provincial challenges

21 Equity to Total Assets Ratio Equity to total assets9.6%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

22 NPL and Provisioning Total Gross loan bookR 18.3bnR 16.2bnR 16.3bn Non-Performing Loan (NPL)R 2.6bnR 3bnR 4bn NPL as a % of gross loan book14.2%18.5%24.5% Loan provisionR 1.2bn R 1.5bn Provision as a % of total loan book6.6%7.4%9.4%

Going forward – Deliver Bank’s Turn Around Alan Mukoki - CEO

24 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 HDI’s Schemes to develop skills in Agri by HDI’s

25 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

26 Management – (Continued)  Develop and implement a new performance management system, relevant to the achievement of the Land and Agricultural Development Bank’s 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

27 Systems Implement the new IT system architecture throughout the bank – Financial system finally goes live 15 Nov 2005 & Banking system on 1 April 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

28 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

29 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.

30 Capital Design and implement the turnaround strategy with Mckinsey and convince funders and the shareholder of the Landbank’s investment case. Manage the bank’s capital ratio within acceptable parameters. Improve or maintain the bank’s credit rating, eg Fitch rating, etc

31 Thank you

32 Funding Credit RatingPremium Charged above government bond Land BankAA-0.73% DBSAAAA0.40%

33  Factors affecting cost of funds & Interest charged to Land Customers: Credit Rating Quality of loan book Profitability Capital adequacy

34 Balance Sheet Liquidity Profile