Wrap Text
BILB- Financial Results
The Land and Agricultural Development Bank of South Africa
(JSE Code: BILB)
(“the Land Bank”)
The Land and Agricultural Development Bank of South Africa: Audited annual financial
results for the year ended 31 March 2019
Overview
The Land Bank is a state owned, agricultural development finance institution, whose only shareholder is
the Government of the Republic of South Africa. The summary of Annual Financial results is published on
SENS to provide information to holders of the Land Bank’s debt instruments. The full set of financial
statements is available on the Land Bank website at: www.landbank.co.za
Preparation of the financial statements
The Annual Financial Results have been prepared under the supervision of the Acting Chief Financial
Officer, Mr. Yatheen Ramrup CA (SA).
The directors take full responsibility for the preparation of the summary of annual financial results and for
correctly extracting the financial information from the underlying audited financial statements for inclusion
in the SENS announcement.
Basis of preparation
Accounting policies adopted and methods of computation are consistent with those applied to the Annual
Financial Statements at 31 March 2018. The Annual Financial Statements are prepared on the historical
cost basis except for the following assets and liabilities which are stated at their fair value: financial assets
or financial liabilities held-for-trading; financial assets or financial liabilities designated at fair value through
profit or loss; financial assets or financial liabilities designated at fair value through other comprehensive
income; investment properties; and post-retirement medical benefit which are measured at actuarial
values.
The Annual Financial Statements have been prepared in accordance with the recognition, measurement
and disclosure requirements of International Financial Reporting Standards (“IFRS”), Public Finance
Management Act of South Africa (“PFMA”), Section 27 to 31 of the Companies Act of South Africa and
the Land Bank Act, 2002.
The Preparation of Annual Financial Statements requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and reported amounts of assets and liabilities,
income and expenses. Actual results may differ from these estimates.
Audit of the financial results
The Annual Financial Results of the Land Bank for the year ended 31 March 2019 have been audited by
Auditor-General of South Africa. In their audit report, which is available for inspection at the Company's
Registered Office, the Auditor-General stated that their audit was conducted in accordance with
International Standards on Auditing, and has expressed an unqualified audit report on the year-end financial
statements.
Sector outlook and economic conditions
Land Bank found the external environment extremely difficult during the past financial year. Slow economic
growth, weak performance in the agricultural investment space combined with wide-spread drought and
other sector-specific events had a negative effect on our ability to increase revenue with a concomitant
impact on non-performing loans as clients face significant challenges.
The health of the agricultural sector is the most significant contextual influence on our ability to create
value and to deliver development impact. Sector growth declined (-4.8% year-on-year) due to sustained
drought in several areas, a late start to the grain planting season and diseases in various livestock sectors.
After being severely depressed for the first half of the year, agriculture’s contribution to GDP showed a
sharp recovery in in the second half of 2018. The sector grew by 13.7% in Q3 and 7.9% in Q4 following
massive contractions of -42.3% in Q2 and -33.7% in Q1. However, the negative trend returned in Q1 in
2019 as the sector again contracted by -13.2%.
Simultaneously, the South African economy has been struggling to gain momentum despite political
changes, an economic stimulus and recovery plan as well as an investment drive, as businesses and foreign
investors seek real reforms. Stagnant growth, political uncertainty, the weakened reputation of state-
owned entities and subsequent sovereign credit downgrades have resulted in higher costs of funding.
Uncertainty around regulatory proposals for land expropriation without compensation remains a strategic
risk for the Bank. The regulatory proposal regarding Expropriation without Compensation that was
instigated on 27 February 2018, remains unresolved. The report by the Advisory Panel on Land Reform
and Agriculture that was released by the President on 28 July 2019 pointed towards a holistic approach
to land reform. In our opinion, if the proposal is well executed as part of the broader land reform
programme, expropriation (with or without) compensation has the potential for some significant
economic and social benefits for the economy of South Africa and to the agricultural sector in particular.
We responded to these external issues by increasing the pro-active monitoring of our loan book and
investing in the assessment of environmental and social risks in our credit process. Moreover, we are co-
operating with stakeholders and clients, identifying actions to adapt and mitigate climate risk and develop
a more resilient institution.
In the aftermath of the 2015/16 drought, Land Bank and IDC partnered to create a R400 million drought
relief fund for affected farmers that provided low-interest rate loans. The fund was extended to cater for
the subsequent drought in the Western Cape and applications were considered from other drought-
affected areas during FY2019. As at 31 March 2019, R377.4 million (FY2018: R344.0 million) had been
approved for 258 applicants under the facility with a further R57.5 million in applications under
consideration.
Development outcomes
The Bank continued to balance its financial sustainability and development mandate during FY2019. The
absolute value of transformational loans on our book has increased to R7.9 billion, which represents 17%
of the loan book, up from 12% in FY2018. This is according to our definition of transformation as any
entity that is majority Black-owned (51% or more Black ownership; or BBBEE level 4 and at least 30%
Black shareholding). We recognise that this definition is broad and does not always contribute to the
development of the sector in terms of advancing smallholder farmers.
We disbursed loans for transformation to the value of R5.07 billion, thereby contributing to the
achievement of Sustainable Development Goal (SDG) 10. We seek to support gender inclusivity in the
sector, by entering into transactions with women-owned enterprises and some that allow female
employees to become shareholders. We provided financing to 33 women-owned enterprises in 64
transactions through our CDBB division to the value of almost R103 million. We provided financing to
youth-owned enterprises through 17 transactions to the value of R19 million. One of our greatest
challenges to growing the development book has been the shortage of funding to subsidise development
interest rates. The Bank forfeited R56.0 million in income by providing subsidised interest rates to these
farmers.
Land Bank provided R1.9 billion in loan funding and invested a further R231.0 million of proprietary funds
in a transformation transaction with Afgri Grain Silo Company. This involved the transfer of 5 million tons
of grain storage and handling capacity from Afgri Operations to a consortium of investors. The transaction
created the first majority Black-owned grain management company in South Africa in one of the largest
transformation deals ever concluded in the agricultural sector.
In partnership with the Jobs Fund and Deciduous Fruit Producers Trust, we launched the R600 million
Hortfin Fund, which will provide loans to majority Black-owned smallholder and medium scale commercial
farmers in the deciduous fruit sector. We also received approval from the Jobs Fund to launch a R300
million mezzanine fund to provide subordinated mezzanine debt to medium-scale Black commercial
farmers.
The insurance subsidiary (Land Bank Insurance Company) launched the country’s first Black crop insurance
assessor programme in conjunction with Walter Sisulu University and enrolled 20 Black learners for the
two-year programme. The Black insurance broker training programme that was first launched in 2016 is
ongoing and continue to create a network of Black agricultural insurance brokers.
The insurance company is a partner to the Public Private Partnership project through SAIA which is
looking at various means, products and funding to make Agriculture insurance affordable and accessible
to smallholder farmers.
During the year the Bank started a sinking fund with an initial investment of R500 million, and currently
stands at R1.0 billion with the primary objective of ensuring liquidity in respect of future debt maturities.
As part of our commitment to development and transformation, the funds under management were
invested with four emerging black-owned asset managers.
Key impressions of the financial results and activities
The 2019 financial results of the Group and Bank have been impacted by a number of events which affected
the Bank’s interest income and other key ratios in FY2020. Our financial performance reflects this context
with profit of R130.6 million, primarily because of increasing impairments. Increased impairments and
Non-Performing Loans bears testimony to the challenges facing the sector and more specifically our
clients’ difficulties. Moreover, we have a significant exposure to Tongaat Hulett, which we moved from
“Stage 1: Performing” to “Stage 2: Under-performing” at year-end as a conservative credit risk
management measure based on the developments there.
Some further challenges arose due to the sovereign credit rating downgrades. The Bank quickly responded
to challenges by prepaying some liabilities linked to sovereign downgrades to reduce our exposure to
high-interest liabilities. While these prepayments position our liabilities at a lower future cost of funds, we
incurred penalties for early settlement with a consequent effect on the income statement. We have
managed our cost-to-income ratio closely in FY19 resulting in an improved ratio of 57.1%
A strong balance sheet counter-balances our income statement, which reflects our ability to respond
quickly and effectively to mitigate unexpected negative impacts. Liquidity remains excellent and our access
to funding continues along a positive trend. Fundraising efforts have been very successful, with
oversubscribed offerings. We appreciate our investors’ trust, particularly within the South African
background for state-owned-entities. We acknowledge that just a few years ago such levels of investor
support and confidence was rare.
During the final quarter of FY2019, the Bank received approval from the Competition Commission to
conclude the sale of an asset that had been in distress for a number of years. The Bank had been seeking
a solution that would allow the company to remain in business thus protecting both creditors and job
opportunities for a number of years. However, the ultimate sale of the asset resulted in a significant
reduction in the Bank’s gross loan book of R2.3 billion. In addition, in March 2019 the Afgri Grain Silo
Company transaction had the effect of reducing the Bank’s gross loan book by a further R600 million. The
reduction in assets will result in a concomitant reduction in income during FY2020 and beyond.
The reduction on the gross loan book will also negatively impact the non-performing loan ratio over the
short term. There has been an increase in non-performing loans since the start of the 2019, with the
majority of the increase stemming from the drought affected North-West and surrounds. The Bank is
closely monitoring this situation and will focus on growing the loan book sustainably to off-set the loss in
income while actively managing operational costs. Removing the above effects, our non-performing loans
would have been reported at 8.3% instead of the current 8.8%.
Land Bank’s challenge remains to balance our financial sustainability with the Bank’s development mandate
and expectations from its shareholder to increase support to smallholder farmers. Our aim is to ensure
that we remain a financially sustainable Development Finance Institution in order to support sector
transformation and development whilst crowding-in funds from various sources in support of the sector.
We consciously make certain trade-offs in pursuit of this objective where we choose to forego some
profit and reduce our potential equity by extending loans at lower interest rates than required by our risk
models for developmental purposes.
The key financial performance indicators include the following:
- Sound capital adequacy position: CAR of 16.4% (FY2018: 17.3%)
- Strong liquidity position: LCR of 549.8% (FY2018: 214.3%)
- Stable funding position: NSFR of 102.0% (FY2018: 108.6%)
- Acceptable levels of short term funding: 50.0% (FY2018: 43.2%)
- Stable loan book: Gross Loans of R45.2bn (FY2018: R45.5bn)
- Non-performing loans: NPL of 8.8% (FY2018: 6.7%)
- Net interest income: R1.20bn (FY2018: R1.26bn)
- Impairment charges: R324 m (FY2018: R55 m)
- Profit from continuing operations: R130.6m (FY2018: R278.7m)
Events after financial year-end
The following management changes occurred post year end:
• Mr BJ van Rooy who was Acting CEO resigned from the Bank with effect 30 June 2019
• Ms K Gugushe was appointed as Acting CEO with effect 14 May 2019
• Mr YA Ramrup was appointed as Acting CFO with effect 14 May 2019
• Ms NV Mtetwa who was a non-executive director resigned from the Board with effect 31 August
2019
• The Bank has successfully renegotiated the Cost to Income (CTI) covenant level from 65% to 70%
with all of its bilateral funders, save for two investors who were not amenable to the revised level of
70%.
- These two funders hold bilateral Step Rate Notes as follows:
o Funder 1: R1.046 billion for which the facilities expire in totality in November 2019; and
o Funder 2: R1.56 billion for which one facility of ca. R0.56 billion expires in November
2019, while the other expires in May 2022.
- The Bank has engaged with these funders on the way forward given that they were not amenable
to revise the covenant levels and both indicated that whilst not changing the covenants, they are
comfortable with the Bank’s CTI levels.
• Land Bank and 29 other Banks from across the globe under the auspices of the UNEP-FI have
developed the Principles for Responsible Banking (PRB) which represents the most progressive
and comprehensive framework to guide banks towards a sustainable future. The PRBs are
aligned with the SDGs, Paris Agreement and regional and national frameworks. On 29 July
2019 the Land Bank Board approved Land Bank becoming a signatory to the PRB on 22
September 2019.
Outlook
The health of the agricultural sector is the most significant contextual influence on the Bank’s ability to
create value and to deliver development impact. Sector growth declined (-4.8% year-on-year) due to
sustained drought in several areas, a late start to the grain planting season and diseases in various livestock
sectors.
The prevailing economic and weather conditions, are expected to impact on the Land Bank’s business in
the new financial year. We will continue to monitor the policy uncertainty regarding Land Expropriation
without Compensation to determine if there will be any adverse impact on the Land Bank.
The Bank is however well positioned to navigate these stormy waters through its strong balance sheet,
healthy liquidity and access to funding together with strong risk management practices; and a renewed
focus on partnerships throughout the agricultural value chain and key stakeholders.
Statement of Financial Position as at 31 March 2019 (R’000)
Group Bank
FY2019 FY2018 FY2019 FY2018
Assets
Cash and cash equivalents 3 213 121 2 421 069 3 202 568 2 362 130
Trade and other receivables 829 366 320 171 351 562 131 302
Short-term insurance assets 254 017 282 382 - -
Repurchase agreements 30 257 15 706 30 257 15 706
Investments 3 181 534 2 619 887 1 988 001 1 406 650
Derivative assets 80 587 8 106 80 857 8 106
Loans and advances 44 465 456 43 418 462 44 465 456 43 418 462
Assets of discontinued operations classified 6 259 147 328 6 259 147 328
as held-for-sale
Long-term insurance assets 8 287 10 753 - -
Non-current assets held-for-sale 163 036 10 085 163 036 10 085
Investment Property 15 250 174 590 15 250 174 590
Property and equipment 32 154 38 202 31 992 37 996
Right of use of Leased Assets 68 093 - 67 672 -
Intangible assets 13 548 20 279 13 548 20 279
Total Assets 52 360 587 49 487 020 50 416 188 47 732 634
Equity
Distributable reserves 6 720 931 6 547 725 5 581 484 5 445 930
Other reserves 93 467 100 978 93 467 100 978
Liabilities
Trade and other payables 499 079 355 404 72 645 160 715
Short-term insurance liabilities 329 860 398 859 - -
Long-term policyholders’ liabilities 47 124 55 939 - -
Funding liabilities 44 257 919 41 576 302 44 257 919 41 576 302
Lease liabilities 70 518 - 70 089 -
Provisions 40 373 82 632 39 268 79 528
Post-retirement obligation 301 316 369 181 301 316 369 181
Total Equity and Liabilities 52 360 587 49 487 020 50 416 188 47 732 634
Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 March 2019 (R’000)
Group Bank
FY2019 FY2018 FY2019 FY2018
Continuing Operations
Net interest income 1 206 038 1 278 405 1 201 101 1 261 391
Interest income 5 030 321 4 846 716 5 023 465 4 826 977
Interest expense (3 824 283) (3 568 310) (3 822 364) (3 565 586)
Net impairment charges, claims and (324 655) (55 524) (324 655) (55 524)
recoveries
Total income from lending activities 881 383 1 222 882 876 446 1 205 867
Non-interest expense (262 667) (313 627) (251 361) (308 015)
Non-interest income 113 977 89 855 105 452 85 727
Operating income from banking activities 732 693 999 110 730 537 983 579
Net insurance premium income 156 826 143 002 - -
Net insurance claims (165 886) (153 008) - -
Other costs from insurance activities (20 085) (41 073) - -
Investment income and fees 104 645 62 639 21 299 16 584
Interest in post-retirement obligation (22 533) (29 757) (22 533) (29 757)
Interest on lease liability (6 703) - (6 686) -
Fair value gains 90 208 34 027 83 275 7 219
Operating income 869 165 1 014 940 805 892 977 625
Operating expenses (628 341) (654 531) (602 845) (628 740)
Net operating income 240 824 360 409 203 047 348 885
Non-trading and capital items 634 (1 247) 634 (1 247)
Net profit before indirect taxation 241 458 359 162 203 681 347 638
Indirect taxation (73 170) (68 922) (73 045) (68 922)
Net profit from continuing operations 168 288 290 240 130 636 278 716
Net (loss) / profit from discontinued operations 12 930 (36 023) 12 930 (36 023)
Profit for the year 181 218 254 217 143 566 242 693
Other comprehensive income
Items that will be reclassified into profit or
loss
Net losses on financial assets designated at (279) (44 892) (279) (44 892)
fair value through other comprehensive
income
Cash flow hedges: (Release) / gains on cash (8 106) 8 106 (8 106) 8 106
flow hedging instruments
Items that will not be reclassified
subsequently to profit or loss
Actuarial loss on the post-retirement (8 012) (23 841) (8 012) (23 841)
obligation
Revaluation of land and buildings 874 269 874 269
Total other comprehensive income (15 523) (60 358) (15 523) (60 358)
Total comprehensive income for the year 165 695 193 859 128 043 182 335
Condensed statement of changes in equity as at 31 March 2019 (R’000)
Group Bank
FY2019 FY2018 FY2019 FY2018
Balance at the beginning of the year 6 648 703 6 454 844 5 546 908 5 364 573
Profit / (loss) for the year 181 218 254 217 143 566 242 693
Other comprehensive income for the year (15 523) (60 358) (15 523) (60 358)
Balance at the end of the year 6 814 398 6 648 703 5 674 951 5 546 908
Summarised Statement of Cash Flows for the year ended 31 March 2019 (R’000)
Group Bank
FY2019 FY2018 FY2019 FY2018
Cash flows from operating activities 3 443 754 3 827 271 3 625 105 3 811 150
Cash flows from operations (5 338 940) (6 040 830) (5 337 021) (6 038 106)
Cash flows from investing activities 33 132 (622 395) (101 829) (358 911)
Cash flows from financing activities 2 654 107 3 736 692 2 654 183 3 736 692
Net increase/ (decrease) in cash 792 052 900 738 840 438 1 150 825
and cash equivalents
Cash and cash equivalents at the 2 421 069 1 520 331 2 362 130 1 211 305
beginning of the year
Cash and cash equivalents at the 3 213 121 2 421 069 3 202 568 2 362 130
end of the year
3 September 2019
Enquiries
Land and Agricultural Development Bank of South Africa
Konehali Gugushe, Acting Chief Executive Officer
Yatheen Ramrup, Acting Chief Financial Officer
Rebecca Phalatse – Tel: 012 686 0921
Debt Sponsor
SBSA
Date: 03/09/2019 01:24:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
