DEPARTMENT: AGRICULTURE Corporate Plan 2006/7 & Budget Presentation to Portfolio Committee on...

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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contcont

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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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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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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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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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


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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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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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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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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reas 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 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

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