Financial review Xolile Ncame Chief Financial Officer

1. Land Bank 2006 Annual ReportPresentation: Portfolio Committee on Agriculture & Land Affairs10 October 2006

2. Financial review Xolile Ncame Chief Financial Officer

3. 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

4. Income Statement - Group

5. Income Statement – Land Bank

6. Key financial issues Economy- wide • Net Farm Income in the South African agricultural sector is down by 28.3% Group Specific • International Financial Reporting Standards (IFRS) was successfully rolled out to replace South African Generally Accepted Accounting Practice (GAAP) • Profits improved by R345m from a loss of R330m in 2005 to a profit of R15m in 2006. • Provisions for loan losses improved by R317m from R637m to R320m

7. Going concern • The last five years have taken their toll on the bank’s capital levels: • For the financial year ended 2001, the Bank’s capital was at R3.4bn • For the financial year ended 2006, the Bank’s capital was down to R1.096-bn • AC133 and IAS 39 has resulted in provisions for loan losses of R3.5bn and fair value adjustments for the LB01 Bond of R353m • R1.5bn letter of comfort has been extended to June 2007 • Replacement of the letter of comfort with capital injection

8. NPL and Provisioning

9. Equity to Total Assets Ratio

10. External Audit Issues affecting the Opinion 2005 • Nine issues were reported 2006 • Two issues were reported (re-reported) - Going Concern - Interest impairment calculation for the 2005 comparative

11. The year in review Alan Mukoki Chief Executive Officer

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

13. Capacity of the current Capital • Current loan book R16b • Land Bank’s Equity @ 20% CAD R3.2b • 20% Return on R3.2b Equity R640m • Of this R640m, R320m for 10% growth • R320m leveraged at 20% for R1.6b loans

14. Top 50 Client Statistics • Land Bank total Exposure in Rand Value R12b • Taxes paid past 3years(04,05,06) R600m • VAT paid past 3 years R380m • Employment Tax paid R500m • Employment No. 10 000 • Procurement potential for SMME development R18b

15. The agricultural sector • Financial position of farmers has been deteriorating since 2001, when depreciating rand pushed up producer prices • The rand has since strengthened, bringing down producer prices – but input costs continue to rise • Profit margins severely squeezed in the process • Farm incomes down by 28.3% in last financial year • Expenditure up 5.4% • Producer prices down 2.2% • Farmers therefore forced to cut input costs to the bone

16. The Bank’s approach • Two key focus areas: • Our commercial business activities (our context) • Our development activities (our core business) • Challenge: get the commercial business right, to enable us to deliver on our development mandate • Shanduka (turnaround strategy) put in place to ensure this happens

17. Key internal achievements • SAP IT system in place to assist with: • Financial management • Core banking • Integrated loan origination and debt collection • Enterprise-wide risk management system in place • Revenue and cost models improved • Interventions planned to build the brand

18. Development Step Up • Disbursed R18million • Sizable portion of funds not used for agricultural purposes • Difficult to track development impact MAFISA • Total Loans Disbursed-R19million • Enhance distribution and outreach through other channels • Senwes • Cape Agri

19. Going forward: Our turnaround strategy Alan Mukoki Chief Executive Officer

20. Our response to the current challenges • Our turnaround plan and is being implemented to ensure that: • profitability is maintained going forward • sustainability is assured and • capital adequacy is significantly strengthened • The plan is the central feature of the 2006/7 corporate plan to ensure the viability and sustainability of the Land Bank

21. The turnaround plan • People – Ensure the bank has the properly skilled people in the right jobs, and there is proper selection, recruitment, training, development, coaching, mentorship and retention • Systems – Ensure the bank has proper information systems to assist management to have timeous relevant and reliable information to make management decisions • Risk – Ensure the enterprise-wide risks are properly monitored and managed • Capital – Ensure the bank has the right level of capital to perform its mandate and this capital is grown in a sustainable way • Revenue & costs – Design and implement strategies on revenue and costs to ensure quality, consistency and sustainability of results • Brand & Image – Ensure the bank is seen in a favourable way by its stakeholders

22. Systems • SAP Finance module went live in November 2005 • Banking solution to be rolled out in the current financial year

23. Capital • Discussions held with National Treasury and Department of Agriculture on capital injection • In the meantime, letter of comfort to the amount of R1.5bn has been given to the bank as a guarantee to creditors should the bank’s liabilities exceed its assets • Turnaround will not be successful without an injection of capital from the National Treasury as reserves will not be enough for the bank to successfully fund operations and growth

24. Revenue and costs • Re-looking the Distribution Model • Dedicated credit department established

25. Brand and image • New advertising agency has been appointed and briefed • New series of campaigns due to begin in coming months

26. Thank you