Post on 28-Dec-2015
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
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Turnaround StrategyTurnaround 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 Management Pro
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People and Culture revolution workshop was conducted across Land Bank
18 People and Culture revolution workshops conducted by the Brain Eyre Consultants.
Management Management cont.cont.
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e 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 Management cont. cont.
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e Appointment of Strategic Staff
• General Manager Credit
• Chief Risk Officer
• Chief Financial Officer
Management Management contcont
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Enhance Reward and Recognition Program
Enhance the Recruitment & Selection Capability
Organisational Development & Employee wellbeing Initiatives
Performance Management
System need improvement
Management Management contcont
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Human Resource Development Ensure Transformation embraced
by all
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eRevenue and Cost ModelRevenue 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 businessThe bank has three options for participating in the
retail space:
1. retaining a branch infrastructure and forming alliances with others
service provider
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eRevenue and Cost ModelRevenue and Cost Model
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2. closing the retail branches and becoming a focused, direct mortgage provider; 3. setting up a JV with a selected group of
agri-companies
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eRevenue and Cost ModelRevenue and Cost Model
contcontIn 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-offs2. Land Bank is being outperformed by
competitors– Value proposition lags that of competitors
and brand and reputation are damaged in the market
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eRevenue and Cost ModelRevenue and Cost Model
contcont3. 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
potential5. Organizational health is poor
– People, systems and processes ineffective– Performance culture is weak– Organization is inefficient
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Revenue and Cost ModelRevenue and Cost Model contcont
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
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Revenue and Cost ModelRevenue and Cost Model contcont
Development client serviced through the deployed staff.
Build the Land Bank Brand
Increase Network by deploying staff in various districts
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Revenue and Cost Model Revenue and Cost Model
contcont Increase revenue
Optimized Efficiencies
Decrease Non-performing loans
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Revenue and Cost ModelRevenue and Cost Model contcont
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 ModelRevenue and Cost Model contcont
Increase RevenueGet pricing right
Price loans correctly and adjusted for riskGenerate more Non Interest Revenue
Build the Land Bank Brand
Increase footprint by disbursing sales functions
Communicate with target audienceCustomersInvestorsEmployeesStakeholdersPoliticiansK
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Revenue and Cost Model Revenue and Cost Model
contcont 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 takingK
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Revenue and Cost ModelRevenue and Cost Model contcont
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
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Revenue and Cost ModelRevenue and Cost Model contcont
Form Alliance with Co-ops and a Commercial BankCertain 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-opK
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Revenue and Cost ModelRevenue and Cost Model contcont
Land Bank to sell certain Commercial Bank Products
• Credit cards • Cheque books• Foreign Exchange
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Capital 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
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Capital contCapital contLetter 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 & ProcessesSystems & Processes Pro
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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 & ProcessesSystems & Processes contcont
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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 & ProcessesSystems & Processes contcont
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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 Systems & Processes
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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 Risk Management
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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 ManagementRisk Management contcont
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•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
DevelopmentDevelopmentK
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- 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 Rm
Budget 2005/06
VS Forecast
2005/6
Profit (loss) 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)
SUMMARISED INCOME STATEMENT 2005/6 COMPARED TO 2006/7
R000 R000 R000
Budget
2006
Forecast 2006
Budget 2007
Operating Income 513 481 457 000 531 317
Operating Expenses 516 120 372 000 496 119
Operating Profit (loss) before Provision
(2 639) 85 000 35 198
Doubtful debts provision (32 954) (600 000) (48 366)
Bad Debts recovered 289 758 75 000 57 700
Net non operating loss (182 205) 9 000 (66 139)
Net Profit (Loss) 71 960 (431 000) (21 607)
TREND OF OPERATING PROFIT (LOSS)
March March March March March March March
2003
Actual
2004
Actual
2005
Actual2006
F/Cast2007
Budget
2008
Budget
2009
Budget
Rm Rm Rm Rm Rm Rm Rm
Operating (loss) profit after impairments
(1201) 127 (444) (440) 44 345 355
AC 133 Adjustment made on opening retained Income
- (348) - - - - -
Operating (loss) profit after impairments adjusted
(1201) (221) (444) (440) 44 345 355
TREND OF NET PROFIT (LOSS)
March
2003
March
2004
March
2005
March
2006
March
2007
March
2008
March
2009
Rm Rm Rm Rm Rm Rm Rm
Net Profit (loss)1 280 101 (207) (431) (21) 337 346
AC 133 adjustment to opening retained income
(348)
Dividends received from subsidiary
- - (240) - - - -
Net Profit (Loss) (1 280) (247) (447) (431) (21) 337 346
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 2004/5 Budget 2005/6 Forecast 2005/6
Impairments (1 061) (33) (600)
Actual (637)
Difference 424
457 600
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