Land Bank Annual l Repor ort FY201 016 Launch: 14 September 2016 - PowerPoint PPT Presentation

Land Bank Annual l Repor ort FY201 016 Launch: 14 September 2016

CONTENT ENT 1. Opening Remarks by Programme Director, Mrs. Loyiso Ndlovu 2. Presentation by the CEO, Mr. TP Nchocho 3. Presentation by the CFO, Mr. Bennie van Rooy 4. Q & A 5. Cocktail Land Bank Presentation 2

REPORT OF THE CHIEF EXECUTIVE OFFICER PRESENTER: Mr. TP Nchocho

Commit mitted d to to good d Governa vernance nce and Deve velopment opment Manda ndate Alignment to the NDP • Stimulates growth, drives solid performance and spurs innovation • Work with all stakeholders to build an adaptive and competitive • Development agricultural sector Promote Transformation (Sector Inclusivity) Mandate • Increase emphasis on environmental and developmental sustainability • National Treasury is the Executive Authority of the Bank • The board has a Code of Conduct which is aligned to best practice • Independent Credit and Investment Committee consisting of an • Governance independent non-executive Chairman Four individual non-executive members supports the independence of • credit granting decisions A policy on lending to Politically Exposed Persons has been approved by • the Board A strong domestic AA credit rating assigned by Moody’s Investment • Services Land Bank Presentation 4

Operat rating ng En Environ onment ment Tough operating environment characterised by low growth and drought Domestic GDP growth 2016 financial year 0.62 % (2015: 1.8%) • Agricultural GDP growth 2016 financial year declined by 8.75 % (2015: • The General 9.6% increase) Economy of Global export of Agricultural commodities for the 2015 calendar year was • 34% (2014: 12%) Agriculture Aggregate Farm Income increased by 5.6% for the 2016 financial year • (2015: 14.2%) Drought Important to note differences in impact by Regions & Access to Irrigation • Grain Crops: Estimated 20% decline in hectares planted during the 2016 A significant • calendar year factor Livestock: •  Approximately R485 million of Forced Stock Sales Revenue deposited at year end  A 8% increase in feed costs for the 2016 financial year (2015: 8%) Horticulture: Mostly under irrigation & Export oriented • Average Food Inflation during the 2016 financial year 5.7% • The imperative for an all- inclusive National Insurance Scheme • Land Bank Presentation 5

Inves vestment ment Trends nds Profitability is improving but Fixed Capital Formation is flat/declining • Ratio of investment to debt has steadily declined since 2007 • From 2004 to 2013, investment in the sector by 5.9 per cent compared to 19.8 and 11.9 per cent for net farm income and total farming debt respectively. Source: BFAP Land Bank Presentation 6

Suppor pporting ng Trans ansforma formation on Development finance strategy that is driven by Growth & Inclusivity Crucial assumption (Hope): Improvement in rain conditions • Land Reform to be reinvigorated to succeed: •  Focus on sector growth & productivity  Partnerships driven models Sector Growth Prospects: Investment in Infrastructure • Realising the NDP  Particularly water, to enable expanded irrigation Objectives Communal land development for Commercial-scale production •  Community leadership  Long Term lease structures to attract capital investment Cross-sector synergies required •  Land & Water & Environment & Agricultural Policy & Trade Policy Reshaping the future of Sector Growth • South African Agriculture Inclusivity • Sustainability • Strategic Objectives Land Bank Presentation 7

Orga gani nisa sationa onal Review Post the Org Review of last year, we continue to invest in enhancing the Bank During the previous Results Presentation, I mentioned that the Bank was • to engage in a wide-ranging Organisational Review Process:  Development Impact effectiveness  Strengthening financial sustainability  Modernisation of operations for better customer service New Corporate Strategy: Sector Growth, Inclusivity, Sustainability • Institution Organisational structure Re-Configuration: Front line Divisions & Portfolio • Building Management Rolling out Medium term Organisational Strengthening Plan •  Skills enhancement  Modernisation of Risk Management  Addressing the Capital Structure (Funding Profile)  Revamping the Client Service Model  Managing the Cost Structure prudently My sincere appreciation: The Board of Directors ……. Custodians of Governance • Conclusion The National Treasury ……. Guidance and Support • DRDLR & DAFF ……. Ever -growing Cooperation • Land Bank Presentation 8

REPORT OF THE CHIEF FINANCIAL OFFICER PRESENTER: Mr. Bennie van Rooy

CONTENT ENT 1. Salient features 2. Early adoption of IFRS 3. Statement of Profit & Loss and Other Comprehensive Income 4. Statement of Financial Position Land Bank Presentation 10

Salient Features Land Bank Presentation 11

Salie ient Featur atures es Group Published basis Like-for-like basis Salient features Var % FY2016 FY2015 Var % FY2016 FY2015 Net interest margin - 3.0% 3.0% - 3.0% 3.0% Impairments (55.5%) R 74.2m R 166.7m (55.5%) R 74.2m R 166.7m Operating expenses 31.5% R 695.5m R 528.8m 0.8% R 532.8m R 528.8m Cost-to-income ratio 31.7% 73.9% 56.1% 0.9% 56.6% 56.1% Profit for the year (41.6%) R 182.0m R 311.5m 27.0% R 395.5m R 311.5m - Banking Operations (excl. R200m intergroup div) (78.6%) R 94.0m R 239.6m 28.3% R 307.5m R 239.6m - Insurance Operations 22.3% R 88.0m R 71.9m 22.3% R 88.0m R 71.9m Cash 55.9% R 2.51bn R1.61bn 55.9% R 2.51bn R1.61bn Net loans and advances 4% R 36.4bn R 35.0bn 4% R 36.4bn R 35.0bn Impairment ratio 7.4% 7.3% 6.8% 7.4% 7.3% 6.8% Non-performing loans (9.3%) 8.8% 9.7% (9.3%) 8.8% 9.7% NPL coverage ratio 3.2% 77.2% 74.8% 3.2% 77.2% 74.8% Total assets 6.4% R 41.37bn R 38.87bn 2.7% R 41.37bn R 38.87bn Land Bank Presentation 12

Salie ient nt Feat atur ures es Bank Published basis Like-for-like basis Salient features Var % FY2016 FY2015 Var % FY2016 FY2015 Net interest margin - 3.0% 3.0% - 3.0% 3.0% Impairments (55.5%) R 74.2m R 166.7m (55.5%) R 74.2m R 166.7m Operating expenses 32.8% R 678.0m R 510.5m 0.9% R 515.2m R 510.5m Cost-to-income ratio 34.2% 73.7% 54.9% 2% 56.0% 54.9% Profit for the year (78.6%) R 94.0m R 439.6m 28.3% R 307.5m R 239.6m Total comprehensive income (82.9%) R 71.8m R420.5m 28.6% R 283.5m R 220.5m Cash 54.9% R 2.12bn R1.37bn 54.9% R 2.12bn R1.37bn Net loans and advances 4% R 36.4bn R 35.0bn 4% R 36.4bn R 35.0bn Impairment ratio 7.4% 7.3% 6.8% 7.4% 7.3% 6.8% Non-performing loans (9.3%) 8.8% 9.7% (9.3%) 8.8% 9.7% NPL coverage ratio 3.2% 77.2% 74.8% 3.2% 77.2% 74.8% Total assets 2.7% R 39.8bn R 38.76bn 2.7% R 39.8bn R 38.76bn Total CAR – Basel Standardised Approach (28.0%) 18.8% 26.1% (28.0%) 18.8% 26.1% Land Bank Presentation 13

Early adoption of IFRS 9 Land Bank Presentation 14

IFRS S 9 vs. IAS39 S39 A primary target of IFRS 9 is to introduce a more forward looking component into impairments calculation – in particular in the application of IRB parameters Calculation of impairments IAS 39: Incurred loss approach IFRS 9: Three stage approach; (lifetime) expected loss Backward looking perspective: Forward looking perspective:  Impairments are recognised only if objective evidence for an  Stage 1 (12-month EL): impairment exists Assets measured at amortised costs, if there is no explicit expectation of loss  If any such evidence exists, an entity is required to calculate  Stages 2 and 3 (lifetime EL): a detailed impairment [IAS 39.58] Assets that fulfil both of the two criteria  The amount of the loss is measured as the difference – More than insignificant deterioration in credit between the asset's carrying/ outstanding amount and the present value of estimated cash flows discounted at the quality financial asset's original effective interest rate [IAS 39.63] – Reasonable possibility that the contractual cash flows may not be fully recoverable Use of Basel II risk measures: Use of Basel II risk measures:  PD – as per Basel II  PD – estimated as PIT-PD over multiple years  LGD – based on discounted expected cash flows  LGD – based on discounted expected cash flows  EaD – only current exposure  EaD – taking into account a multi-year profile  LIP – additional factor to adjust Basel parameters from expected loss to incurred loss 1 Assets in stage 2 are assessed collectively while assets in stage 3 are assessed individually 2 The assessment of the transfer of assets to stage 2 or 3 will generally be based on the probability of default Land Bank Presentation 15