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The Land and Agricultural Development Bank

Annual Financial Results Presentation

2002-2003

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Agenda

1 Overview of the year Jethro Mbau

(Chairperson of the Board)

2 Operational overview Monwabisi Fandeso (CEO)

3 Financial results Kgosi Tshikare (GM: Finance)

4 Prospects Monwabisi Fandeso (CEO)

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1. Overview of the year

Jethro MbauChairperson of the Board

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Overview Windfall year for sector Volatile rand and producer price increases Inflation and input costs Deregulation (international & domestic) Strategic plan adopted for sector Legislative changes Strauss implementation progress and

shareholder support Business improvement initiatives Financial results summary

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2. Operational Overview

Monwabisi FandesoCEO

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LAND BANK MISSIONAgricultural development finance institution that supports

economic growth through the provision of retail, wholesale, project and micro-financial services to

agriculture and related rural services

LAND BANK VISIONTo be the leading provider of world-class agricultural

financial services to agriculture and related rural sectors in South Africa

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The State is the only shareholder represented by the Minister for Agriculture and Land Affairs

Currently governed by the Land and Agricultural Development Bank Act, 2002 (Act no. 15 of 2002) and guidelines provided by the Public Finance Management Act (Act no. 29 of 1999)

Exempt from the payment of income tax and currently not paying dividends to the State

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Benchmarking our progress

New legislation provides the benchmark against which we measure progress

Land and Agricultural Development Bank Act outlines 11 key objectives for bank

This section of presentation reports back on progress against those objectives

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Objective: Equitable ownership of agricultural land, in particular the increase of ownership of agricultural land by historically disadvantaged persons

Achievements Agency agreement with DLA on LRAD

Over R100 million disbursed in grants Over R300 million disbursed in production loans to beneficiaries

Special mortgage loans @ 10% advanced Preferential access to bought-in properties Partnership with National Youth Commission

1. Equitable ownership

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Objective: Promotion, facilitation and support of agrarian reform, land redistribution or development programmes aimed at HDIs for the development of farming enterprises and agricultural purposes

Achievements Agency agreement on LRAD Tripartite agreement with NDA, CRLR & LB re restitution

programme Valuations carried out by Land Bank for Land reform purposes Preferential access to BIPs Training, skills development under CSI

2. Promotion of reform

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Objective: Promotion, facilitation and support of land access for agricultural purposes

Achievements Special mortgage loans Preferential access to BIPs (91 farms sold = 57k ha, to PDI’s) Agency agreement with DLA on LRAD Tripartite agreement with NDA, CRLR & LB re restitution

programme Youth farm projects with NYC

3. Access to land

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Objective: Promotion, facilitation and support of agricultural entrepreneurship

Achievements Training and skills development (R5.3-m) Developing grain producer of the year award (sponsorship) (R60k) Sponsorships to organised agriculture for leadership development, international relations, specific projects etc NAFU, NERPO, Grain SA• Land Bank Agricultural Chairs at six universities (R1.7-m)• Bursaries to PDI students at tertiary level (R 1.3-m)• Linkages with CDI, Agri-link project• Sponsored female farmers on study tours to Spain, Kenya

4. Entrepreneurship

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5. RedressObjective: Promotion, facilitation and support of the removal of the legacy of racial and gender and discrimination in the agricultural sector

Achievements Batho Pele adopted and internalised as policy Land Bank brochures & radio shows in different languages Step up (over 70% are women) Female farmer of the year, Women in Agriculture Conference and international study trips sponsored Client base Employment equity plan advanced

60% of top 45 managers are PDI25% of top 40 managers are Women

60% of bursaries targeted at females

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Objective: Promotion, facilitation and support for the enhancement of productivity, profitability investment & innovation in the agricultural and rural financial systems

Achievements Improvement of financial service delivery reach mobile banking, satellite offices. Outlets increased from 27 to 80 Intermediary financing R60-m to provincial DFI Africare guarantee scheme (R 7m)Financing appropriate technology for developing farmers Publication of Vukuzenzele – comprehensive guide to farming for small scale farmersPublication of Animal Health guide for emerging farmers.

6. Productivity and innovation

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Objective: Promotion, facilitation and support of programmes to stimulate the growth of the agricultural sector and better use of land

Achievements 70% growth of the Development book Outgrew the shrinking sector in the year Microfinance expansion mainly through growth of existing

clients. Participate in the revival of schemes e.g Ncora, Qamata

7. Stimulating growth

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Objective: Promotion, facilitation and support of programmes to promote and develop the environmental sustainability of land and related natural resources

Achievements Alliance with ARC on Agricultural GIS Flood relief programme in partnership with NDA & IDC Assisted NDA with assessment of damage caused by veld

fires & drought. Financing of livestock done on the basis of carrying

capacity Participation in the WSSD

8. Promoting sustainability

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Objective: Promotion, facilitation and support of programmes that contribute to agricultural aspects of rural development and job creation

Achievements Social accounting introduced to track impact of Bank’s lending activities Social investments e.g Qamata school in Elliotdale Special focus on financing projects in the presidential nodal points in conjunction with IDT Compulsory in-service training and internship for bursars

9. Rural development and job creation

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Objective: Promotion, facilitation and support of commercial agriculture

Achievements Maintained 50% share of commercial agriculture Financing of agricultural companies/co-ops for on-lending

purposes - (R7-bn) Financing of agribusinesses Sponsorship to AGRISA, ABC

10. Commercial agriculture

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Objective: Promotion, facilitation and support of food security

Achievements MoU concluded with NDA to distribute security “Veggie

Packs” Promotion of vegetable gardens Grain financing options advanced

11. Food security

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The holistic approach to development finance Access to Skills and Capacity Building Access to Technology and Information Access to Markets Access to Land Access to Finance

Success will be determined by the Partners and Alliances we can mobilise Resources that can be mobilised into the sector Enabling environment to play our role Efficient and effective Bank operations to enhance the

institutions ability as a delivery vehicle

The Development Imperative

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In order to achieve our vision, mission and mandate we required:• Legislative change• Business process improvements to enhance performance• Enhance competitive advantage as a specialist provider of agricultural financial services

Achieving our Purpose

The solution: BPR (Project Gateway)

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• Clarify procedures and ensure compliance leading to better management of the risk profile of loan book

• Accelerate arrear recovery performance and improve insolvency collection rates

• Identify opportunities for profitable loan book growth, including product offering and customer service enhancement

• Improved reporting and control systems• Elimination of non value adding activities (process

refinement)• Promote active management and supervisory style

Deliver quantifiable and measurable performance improvement R200 million within the year

Objectives of BPR

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• Customer service and sales orientation• Structure & productivity improvements• Process improvements, including loan book

analysis

Areas of focus

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• Non interest income products implemented

• New management control system implemented for sales function

• New loan products designed

• Branch remodeling for enhanced client service

• Days in pipeline reduced

• Database of prospective clients developed

Results: customer service & sales

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• Branch structure analysed and new branch model piloted

• Core business activities restructured to focus on sales, account management and recoveries

• Management control systems installed to increase accountability

• Increased supervisory positions planned to increase level of control

Results: structure & productivity

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• New process flows designed

• Loan application & approval

• Loan processing

• Account management

• Recoveries & arrears management

Results: process improvements

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Understanding our loan book

Specialised techniques employed Discovery of a more acute level of arrears and insolvencies

than was previously identified and classified as a result of . Uncertainty around Constitututional Court judgement Weak and bureaucratic recovery mechanisms due to

constraints of old Act; compounded by Deregulation of sector, and past natural disasters

Result: Significant bad debt provision charge

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Arrears management

New mechanisms put in place in December 2002 Arrears of R350-million already recovered Ongoing attention being paid to enhancing quality

of loan book ‘Loans at risk’ reduced from R5-bn in September

2002 to R2.8-bn in March 2003 Specialist collection agencies being appointed to

maximise recovery Current provision for doubtful debt is adequately

provided for

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3. Financial results

Kgosi TshikareGeneral Manager: Finance

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Outline

Income statement highlights

Balance sheet salient features

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Income statement highlights

Net interest income 18.6%

Non interest income 73.9%

Net operating profit before provisions 18.4%

Efficiency ratio within target 38.7%

Net interest income margin 4.3%

Provision impact on profitability R1 429 million

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2.32.4

2.32.1

2.9

1.7 1.7 1.61.4

2.1

0.580.78 0.73 0.74

0.88

1998 1999 2000 2001 2002/3

R bn

Interest income Interest expense Net Interest Income

Net Interest Income up 18.6% to R882 m

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Non interest income up 74% to R38.9-m

0

10

20

30

40

*1998 1999 2000 2001 2002-3

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586 788 743 769923

-

200

400

600

800

1,000

*1998 1999 2000 2001 2002-3

Operating Income

Operating income up by 19.9%

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Efficiency ratio of 37.8% compares favourably with desired target of below 40%

Operating Expenses

151 157 161 173 169

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82

111 110.40

34.0%

24.7%

32.8%

36.9% 37.8%

-

50

100

150

200

250

300

1998 1999 2000 2001 2002/3Annualised

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Personnel Other Efficiency ratio : (Cost to Income)

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Operating profit before provisionsR'millions

387

593

499 485

574

*1998 1999 2000 2001 2002-3

Operating profit before provisions of R 574-m (2001: R485-m)

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Provisions for non performing loans: Impact on profitability

Acute arrears resulted in bad debts provision charge of R1776-m Resulting in reported loss of R1 429-m

15 months ended 31

March 2003

12 months ended 31

December 2001

`Operating profit before provisions 574 485

Bad debt provisions (1,776) (213)

Operating loss after provisions (1,202) 272

Net non-operating (loss) / income (227) 72

Net (loss)/profit for the period (1,429) 344

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Balance Sheet: Salient features

Development loan book increased by 71% Loan portfolio down 3.8% to R16 260-m against

8% decline in agricultural debt Loan approval up by 4% to R8 722-m Arrears reduced by 36% to 9.6% Provision for doubtful debt up from R729-m to R1

530-m Capital adequacy of 14.6% is above the

benchmark of 11%

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Provision as a % of loan book

Provision as a % of Gross Loan Book

9%

91%

Provision Gross Loan Book

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4. Prospects

Jethro Mbau: Chairperson

Monwabisi Fandeso: CEO

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Shareholder support

“Commendable progress has been made not only in implementing the recommendations of the Strauss Commission but also in transforming the bank into an institution that all South Africans can be proud of.

“While further challenges still lie ahead for the Bank there is no doubt that tremendous progress has been made, and that the Bank continues to move in the right direction.

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Shareholder support

“On this basis I would like to express my continued support for the Board and Management of the Bank and to endorse their activities in the field of development finance.

“The [Strauss] commission recommended direct grants to enable the Bank to meet its development mandate. This recommendation has been taken to heart by government and has resulted in a directive from the Ministry to expedite the transfer of funds from the former ACB to Land Bank in accordance with the provisions of the Agricultural Debt Management Act.”

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The year ahead Development: Holistic approach will be greatly enhanced

by the transfer of funds to the Bank Margin: Interest rate cycle and inflation could put pressure

on margin Continued growth: growth of 5.3% on the average gross

loan book Efficiencies: ratio set at 35% Increased sales and customer orientation: new branch

model to be implemented to enhance sales and account management function

Risk management: planned redesign of credit assessment and risk management evaluation methodology will enhance quality of loan book

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Thank you