Land Bank Annual Report 2005/2006 - Parliamentary Monitoring ...

Statement by the Minister of Agriculture and Land Affairs 2Report of the Chairperson 6Report of the Chief Executive Officer 10Report of the Audit Committee 16Report of the Board of Directors 19Review of Operations 32Report of the Auditor-General 44Financial Statements 46Board, Management and Structure 96Contents1

Thoko DidizaMinister for Agriculture and Land AffairsThe Land Bank is a major player in the realisation ofGovernment’s vision to create an enabling environment forthe provision of finance to the agricultural sector and facilitatea prosperous and united agricultural sector.Hence, Land Bank is required “to make a difference” in developmentand in poverty alleviation in South Africa. It is alsoexpected to play an active role within the NEPAD structureson the continent in order to ensure a better future for Africa’speople. The process began at the time of the birth of ourdemocracy when it was inevitable that we introduce fundamentalchanges in the political, administrative and deliverysystems that governed the Agricultural Sector then; changesthat conformed to the principles and ideals that are espousedin the Constitution.I am delighted that we can look back today and realise justhow much has been accomplished through the implementationof important policy and legislative initiatives. While somehave emanated from the Strauss Commission and otherreform measures such as the Strategic Plan for South AfricanAgriculture, they have helped to successfully streamline servicedelivery and equitable access to our people.The issue of the availability of land and land reform in generalis of extreme importance to the country. I am proud that theLand Bank has consistently been active in this regard and haschanneled vast financial resources through the distribution ofvarious programmes such as the LRAD grants and others. TheBank has ably demonstrated its commitment to ensuring that3

Government’s Land Restitution Programme is successful.Although, the year under review has been a challenging one,it has also presented the Land Bank with opportunities towiden its scope. It is a veritable highpoint for the Land Bankthat the business process review that was undertaken, willlead to operational improvements that will impact upon thelong term sustainability and viability of the Land Bank.I appreciate the fact that in the process of financial servicesreform, we have seen an encouraging increase in the numberof small and medium previously disadvantaged farmers especiallywomen. In these days when women-headed homes arebecoming a growing reality of our society’s social fibre, whateverassistance the Land Bank can give to qualifying women,becomes a source of national pride and joy.Building the capacity of farmers and their organisationsremain a critical challenge, particularly within the context ofthe Joint Initiative on Priority Skills Acquisition. I am delightedthat Land Bank has acquitted itself well in this regard, as indicatedby the various training programmes initiated by theorganisation. The partnerships with NAFU, the NationalAfrican Farmers Union and with AgriSouth Africa have beenmost beneficial in helping us collaborate across the entireagricultural value chain. The decision to form strategic partnershipsand leverage mutually beneficial results has been ahealthy one which the Bank proposes to take forward into thefuture.Agricultural Challenges in 2005/06is that of the decrease in the harvest of grapes which is attributedto the continuous drought and heat conditions that havenegatively affected the wine harvest. This has resulted in anestimated 1 245 182 tons for grape harvest in 2006, approximately2% less than the estimate of January 2006.A drought management plan, in line with the DisasterManagement Act, was approved and is being gazetted forpublic comment. This plan responds to disasters related todrought that affects more farmers and makes provision for animalfeed and water.I would like to take this opportunity to welcome the newMinister for Agriculture and Land Affairs, Ms. Lulu Xingwanawho gracefully accepted the position after the passing awayof the late Minister for Public Works, Ms. Stella Sigcau,whose Portfolio I have now occupied.I am confident she will rise with grace and honour to leveragingnew opportunities in the sector in order to fulfill the mandateof the Department.I will conclude by expressing my sincere and heartfelt gratitudeto the Board of Directors, previous and current, whouncompromisingly gave off their time and energy to executethe objectives of the Bank and of the agricultural sector as awhole. I would also like to thank the Executive Committee ofthe Bank, for providing guidance and leadership to the staff.My appreciation also goes to the loyal and dedicatedemployees who continue to contribute to the growth anddevelopment, not only of the Bank but also to the entire agriculturalsector.The agricultural sector is the most affected, especially in timesof droughts, severe rains and other natural disasters that hit acountry. The Taung disaster, which unfolded early 2006 as aresult of heavy rains that fell in the Vryburg catchment area,left enormous ruin and instability. The poultry and ostrichindustries which were faced with the threat of avian influenzawere greatly challenged. Another looming disruptive situationMs. Thoko Didiza (MP)Outgoing Minister: Agriculture and Land Affairs4

Report of the Chairperson“In addressing the pressing skillsconstraints within the country, asintended by the Deputy President’sJIPSA Initiative, Land Bank investedabout R3.2million to finance thetertiary education of 42 previouslydisadvantaged students...”Lungile Mazwai

L MazwaiChairperson of the Land BankThe foundation for the transformation of Land Bank and consequentlythe broad transformation of the agricultural sectorwas laid through the recommendations of the StraussCommission of Inquiry into the Provision of Rural FinancialServices. This broadening of Land Bank’s mandate has hadthe impact of effectively positioning the Bank as a major playerin the financial services sector, with particular emphasis ondevelopment.Key factors impacting on resultsThe primary agricultural sector has been under pressure forthe past three years resulting in a squeeze on profit margins.Growth in the sector, for the period under review, has as aresult been marginal in a macro-economic context.The key factors affecting the performance of the agriculturalsector, and with it, agricultural finance in the calendar yearended December 2005 are:■■■■■decline in net farm income by 22.8% year-on-year;5.5% decline in average producer prices for agriculturalproducts;decline in gross fixed capital investment in real terms by8% signifying reduced investment by farmers;fierce competition in the export market and strengtheningrand against US dollar affected operations exportorientated sectors of agriculture;and deliberate reduction of planting of summer graincrops due to surplus production in 2004/05 and lowmaize prices.7

MilestonesLand Bank has since crossed a number of importantmilestones in gearing ourselves for the realisation of a betterLand Bank. The key goals include the establishment of aharmonious corporate culture, a new business strategy, bettersystems, an improved brand and a better relationship with thestakeholders.Business processesOf course, the Bank is conscious of the need to improvebusiness processes to ensure that it is capable to better servethe agricultural sector. For this reason, the management of theorganisation is putting a lot of effort into improving the businessprocesses while at the same time promoting teamwork,participation and systematic improvements.Contribution to a Sustainable GrowthEconomyLand Bank, as an implementing agency for Government’sDevelopment Agenda, has successfully aligned its approachto a number of our national development objectives such asBroad-based Black Economic Empowerment (BBBEE),Accelerated Shared Growth Initiative for South Africa(ASGISA) and Joint Initiative on priority Skills Acquisition(JIPSA). It is therefore with a great sense of achievement thatwe state the fact that the Bank has provided financing to anumber of Black Economic Empowerment Consortia in theagricultural sector.BursariesIn addressing the pressing skills constraints within the country,as intended by the Deputy President’s JIPSA Initiative, LandBreak down of bursaries for the financial year 2005/6Province Race Gender Total NumberMaleFemaleEastern Cape African - 4 4Coloured 1 - 1Western Cape African - 1 1Coloured - - 0Limpopo African 3 1 4Coloured - - 0Mpumalanga African 4 - 4Coloured - - 0Free State African - 3 3Coloured 2 - 2KZN African - 4 4Coloured - - 0Indian 1 - 1Norhtern Cape African 0 0 0Coloured - - 0North West African 2 - 2Coloured - - 0Gauteng African 4 9 13Coloured 3 - 3Total Number of Students 20 22 428

Bank invested about R3.2million to finance tertiary educationof 42 previously disadvantaged students through the Bank’sBursary Scheme during the year under review.Future prospectsAlthough 2005/6 proved to be a difficult financial year forthe agricultural industry in general, there are indications that2006/7 will turn out to be more conducive to sound growthand financial recovery:■the country in general experienced good rains anddroughts are not expected to affect production in theyear ahead;■ the crisis which threatened the maize industry in 2005had been averted and stability in the industry had beenrestored as reflected in the higher SAFEX maize price;■■■the rand showed signs of weakening which should benefitexport industries such as the sugar, deciduous fruit, citrus,wool and also the grain industries (as import competitionwould be curbed);Total demand in the South African economy continues togrow robustly and the domestic demand for food productswhich is income sensitive remains strong.The risk is, however, that the high crude oil price couldcause inflation to accelerate later in the year and causefarming input costs to rise. A weaker rand will benefit theagriculture industry and help to increase the quality ofthe Bank’s loan book.farmers both developing and commercial. Over the years, theLand Bank has matched its operational policies within thecountry's economic transformation, especially to supportdevelopments in strategic and new growth areas within theagricultural sector.I, have, as Chairperson been privelaged to have the strongand diverse skill, expertise and depth of experience exhibitedby the members of the board, who have been instrumental inguiding the turnaround and affairs of the bank.I express my gratitude to the Land Bank management for theyhave steered the institution towards a brighter future, whilekeeping a close eye on growth of both the commercial anddevelopment farmers. We are certain that Land Bank will continueto deliver on its mandate and under the leadership ofMr Alan Mukoki, which has and continues to bring farreaching changes to the organisation in order to benefit thecountry and its economic competitiveness.Likewise, I must recognise the valuable contribution of the staffand employees of the Bank to its success. An organisation isonly as powerful or as strong as its people.Our Investors, bankers, strategic partners and our valuedclients and customers have been an important part of thebusiness during this financial year under review and beyond.I thank them for their unwaivering support and the confidencethat they have demonstrated towards the Land Bank.ConclusionWithin the growing and changing global economy, I have nodoubt that Land Bank will remain an important and essentialelement in meeting the increasing developmental needs ofChairman: Board of DirectorsLand Bank9

Report of the Chief Executive Officer“...these initiatives have beenidentified as key projects that wouldturn around the Bank and enhanceour position as a leader inagricultural financing, as well asharnessing other relatedopportunities for diversification”Alan Mukoki

Alan MukokiChief Executive Officer of the Land BankCEO’s Operational ReviewA review of the financial year, is significant for the opportunityto look back at our achievements and evaluate the impactof the challenges we have faced. We, at Land Bank, havedone this within the context of an organisation focused onachieving economic growth and prosperity for our clients andour country. Our response has been to seek and explore newstrategies and opportunities in order to stimulate the economicinfluence of the Land Bank.Defining Our Business VisionOn interrogating the efficiency of our business processes, inthe light of developments in the markets within which weoperate, we were led to define our business vision in terms oftwo important focus areas: (1) Our Context Business or OurCommercial Business Activities, (2) Our Core Business or OurDevelopmental Activities. The challenge facing the bank is tofirst get the context Commercial Business to enable the bankto generate sufficient capital resources to deliver on ourdevelopment mandate.Shanduka Project – Turnaround StrategyAfter extensive consultation within Government the Bank hasbegun the implementation of the business strategy to turnaround the fortunes of the Bank; and most importantly expeditethe Bank’s financial service delivery.11

The main challenge facing the bank at this time is to drivestrategies enabling the turnaround of the performance of theLand Bank. We have identified around six issues requiringfocused attention. These are building capacity in the peoplearea, especially in bringing in skilled and experienced personell;the implementation of a new IT System; a revenuemodel and customer engagement; our cost structure as wellas the implementation of best practice risk managementframeworks. This Turnaround project is referred to asShanduka – a Venda word meaning change. Indeed ourgreatest opportunity is in leading change and innovation.The following are the key pillars of this turnaround strategy:■■■■■People Management and EmpowermentCapital AdequacySystemsRiskRevenue & Cost ModelWith regard to the first pillar, that of people management, awell established consultancy firm was mandated to conducta number of people and culture revolution workshops withour staff including senior managers and executives.The following were the key focus areas identified in thisprocess:■■■■■■Enhance Reward and Recognition ProgramEnhance the Recruitment & Selection CapabilityOrganisational Development & Employee wellbeingInitiativesA new Performance Management System aligned to theobjectives of the bankTraining and DevelopmentEnsure that Transformation is embraced by allAn important achievement that emanated from the workshopswas recognition of a set of corporate values for Land Bank,namely;1. Integrity2. Innovation3. Excellence4. Equity5. Drive6. BambananiComplementary to the goal of people management, theLand Bank has developed a clearly defined Human ResourceStrategy which, while addressing all issues raised at thePeople and Culture workshops would ensure the appointmentof a number of strategic staff.Capital AdequacyNotwithstanding the fact that commercial banks in SouthAfrica operate within a capital adequacy ratio of 10% capitalto average risk weighted assets. Our aim is in the mediumterm to build a capacity to have a capital adequacy ratio of20%, purely because of the risk in the development section.SystemsThe SAP IT system is to assist us with implementing three criticalsystems, namely; the Financial Management System, thecore banking system as well as integrating Loan Originationand Debt collections systems. The new IT systems are criticalin managing the data as well as compliance process withinLand BankThe programme management office has been reconstitutedand is now operational. The SAP Financial Solutions wasimplemented in November 2005; the banking module willgo live on October 2006 while Loan Origination will go liveon November 2006. The new advanced technology willbring about change in the way business is conducted. Thesoftware tools together with trained staff will contributetowards customer relations, improved ManagementInformation and reporting.12

Risk ManagementAn Enterprise-Wide Risk Management Framework wasadopted by the bank covering risk management in the followingkey areas: Capital; Asset Quality; People Management;Earnings Quality and Consistency; Liquidity Managementand Market Risk.During the period under review a decision was taken todiscontinue the step up loan product. The Land Bank discontinuedgranting new step up loans in November 2005 andstepping up of existing loans stopped in May 2006. Theexposure (net of R16million client deposits) at 31 March2006 of R123 million was fully impaired for accounting purposes.Building Land Bank BrandRevenue and CostWe are also looking at our Revenue and Cost Model thatwill have a positive impact in the attainment of our strategicobjectives.Strategic Alliances and PartnershipsIn order to increase efficiencies, Land Bank has decided toform alliances with co-ops and strengthen its partnerships withcommercial banks. Certain co-ops will sell Land Bank productswhile Land Bank will sell certain commercial bankproducts.An important element of this process is the envisagedappointment an advertising agency to assist the bank inbuilding its brand and subsequently create brand equity.All these initiatives have been identified as key projects thatwould turn around the Bank and enhance our position as aleader in agricultural financing, as well as harnessing otherrelated opportunities for diversification. Black EconomicEmpowerment opportunities are becoming entrenched as anintegral part of our business and we are determined to beingat the forefront of servicing this important sector of our people.The Land Bank has every confidence of success.Step upFinancial Performance ReviewLoan portfolio performance:March 200613

Loan Portfolio by TermAs at 31 March 2006, the total loan portfolio of the Bankamounted to R16,4bn which represented a decrease of10.4% or R1,9bn over prior year. The relative share ofCorporate Finance Unit (CFU) and the Retail Unit of this portfolioremained largely unchanged compared to the previousyear’s with CFU holding 64% of the total exposure and theremaining 36% in Retail.The composition of the loan portfolio has shifted remarkablycompared to prior year. The long term portfolio hasdecreased by 19.7% or R1,4bn , from R7,1bn in 2004/05 toR5,8bn in 2005/06. This is due to the decline in the fixedcapital expenditure in the agricultural sector. Long term loansconstitute 34.8% of the total portfolio compared to 38.8% in2004/05. The short term portfolio decreased by 4.6% orR481m, from R10,3bn in 2004/05 to R9,9bn in 2005/06.ConclusionIt is appropriate that I thank the Board of Directors for theirstrong intellectual input, visionary thinking and wisdom inguiding the affairs of The Organisation. Their strategic leadershiphas certainly been of immense value to Land Bank.The improved performance whilst not yet at desirable levelswould never be attainable were it not for the dedication, hardwork and commitment of the management and staff.Mr. Alan MukokiCEO: Land Bank14

Report of the Audit Committee

Mr LM NyhonyhaChairperson: Audit CommitteeReport of the Audit Committee in terms of regulations27(1)(7)(b) and (c) of the Public Finance Management Actof 1999, as amended. For the purposes of this report, LandBank means Land and Agricultural Development Bank ofSouth Africa and Land Bank Group means Land Bank and itssubsidiary Suid Afrikaanse Verband Versekerings Maatsjapy(SAVVEM).In execution of its duties during the past financial year, theCommittee has;■Reviewed the procedures for identifying business risksand controlling their impact on Land Bank Group;■ Reviewed Land Bank’s Policies and procedures fordetecting and preventing fraud;■■■■■Reviewed the operational effectiveness of Land Bank’spolicies, systems and procedures;Considered whether the independence, objectives,organisational staffing plans, financial budgets auditplans and standing of the Internal audit function providedadequate support to enable the Committee to meetits objectives;Reviewed the results of the work performed by theInternal audit function regarding financial reporting, corporategovernance, internal control and any significantinvestigation and management response;Reviewed the co-ordination between the Internal auditfunction and the external auditors, and dealt with anyissues of significant dispute or concernReviewed significant transactions not directly related to17

■■■■■■■■■the Land Bank’s normal business as the Committeedeemed appropriate;Reviewed such significant cases of employee conflicts ofinterest, misconduct or fraud, or any other unethical activityby employees of Land Bank, as were brought to itsattention;Reviewed the controls over significant financial, and certainoperational risks;Reviewed any other relevant matters referred to it by theBoard;Reviewed the quality of financial information;Reviewed the annual report and financial statements,taken as a whole, to ensure they present a balanced andunderstandable assessment of the position, performanceand prospects of Land Bank and the Group;Reviewed the external auditors’ reportDiscussed problems and reservations arising from theexternal audit, and any matters the external auditorwished to discuss (in the absence, where requested bythe Committee, of Executive Management and any otherperson who is not a member of the Committee);Reviewed the external auditor’s management letter andmanagement’s response;Reviewed the credibility, independence and objectivityof the external auditor, taking into account the audit fees.Where weaknesses were identified in internal controls, correctiveaction has been recommended to eliminate or reducethe concomitant risks. Accordingly, in our opinion, the internalcontrols of Land Bank operated effectively throughout theyear under review to ensure the company’s assets weresafeguarded, proper accounting records were maintainedand resources were utilized efficiently.Following our review of the group annual financial statementsfor the year ended 31 March 2006, we are of the opinionthat, in all material respects, they comply with the relevantprovisions of the Public Finance Management Act of 1999,as amended, and statements of International AccountingStandards, and that they fairly present the results of theoperations, cash flow and financial position of Land Bankand the group. We therefore recommend the financialstatements as submitted to be approved.On behalf of the Audit CommitteeMr. LM NyhonyhaChairperson: Audit Committee18

Report of the Board of Directors

IntroductionThe Directors present their report and the annual financialstatements of the Land Bank Group for the year ended 31March 2006.Nature of BusinessThe Land and Agricultural DevelopmentBank of South Africa (‘Land Bank")Land Bank operates as a development finance institution withinthe agricultural and agri-business sectors. Its activities areregulated by the Land and Agricultural Development BankAct, 15 of 2002, (Land Bank Act) and the Public FinanceManagement Act, 1 of 1999 as amended (PFMA). LandBank provides a range of finance options to a broad spectrumof clients within the agricultural sector. Financing productscater for wholesale as well as retail financing for commercialand developing farmers, co-operatives and otheragriculture-related businesses.SubsidiaryLand Bank is the sole beneficial owner of Suid-AfrikaanseVerbandversekeringsmaatskappy Beperk (SAVVEM), whichprovides insurance cover to natural persons indebted to LandBank under mortgage loans.prices to rise sharply, but the subsequent strengthening of therand in the foreign currency markets has caused producerprices to decline in an environment where input costs continuedto rise. Profit margins in agriculture were severelysqueezed in the process. This is reflected in the fact that netfarm income in 2005/6 was 28,3 percent lower than in2004/5. Expenditure on intermediate goods and services in2005/6 increased by 5,4 percent, whereas producer priceson average declined by 2,2 percent. Farmers were thereforeforced to cut input costs to the bone in order to survive financially,which obviously impacted adversely on the turnoversand profit levels of input suppliers – such as agricultural cooperativesand agri-businesses which obtain most of the productioncredit they extend to grain farmers from the LandBank.Some agricultural industries were still able to show positivegrowth in 2005/6. Animal products recorded an averagerate of growth of 5,3 percent, but dairy production posted adecline of 8,2 percent. The beef industry performed well. Ofall the industries horticulture, with a decline of 10,7 percent,performed the worst. Gross income of the deciduous andother fruit and citrus fruit industries recorded negative rates ofgrowth of 27,7 percent and 31,0 percent respectively. Thestrong rand had a material impact on the poor performanceof these two industries as also competition in their traditionalexport markets.SAVVEM made a net profit of R140,782,841 (2005:R112,949,667) for the year ended 31 March 2006.Developments in the South AfricanAgricultural Industry in 2005/6The growth in the Land Bank’s loan book, the quality of itsdebtors and its realised profits depend to a great extent onthe performance of the agricultural industry. The financialposition of farmers on average has been deteriorating since2001/2, when the depreciating rand caused producerIn 2005/6 field crops, despite a bumper commercial maizecrop of 11, 45 million tons, recorded a decline of 5 percentin gross farm income – notwithstanding the increase of 27percent recorded by the sugar industry. The maize industryposted a decline in gross income of 5 percent. At one stageit faced a crisis after the SAFEX price for white maize haddeclined to R471 per ton in February 2005, which was farbelow the cost of production. Fortunately the policy advocatedby Grain South Africa that farmers should cut down onproduction in 2005/6 helped to restore stability in the industry.The maize price has staged a remarkable recovery since.20

of policies and practices for effective discharge of fiduciaryduties and efficient management of the Land Bank.The Minister responsible for Agriculture, who for the purposesof the PFMA is the Executive Authority, is responsible forthe appointment of the Directors and to ensure alignment, theMinister issues policy directives to the Board. In line with theprinciples of good governance as espoused in King II and asrequired by the Land Bank Act, a majority of the directors arenon-executive. The Board consists of eleven non-executivedirectors and one executive director who is the ChiefExecutive Officer of the Land Bank who have been appointedfor their collective wide range of skills, experience andqualifications. The Board members are collectively responsibleto the Minister.The Board, reviews performance of management to ensurethat the often very delicate balance between risk-taking venturesfor financial performance, attainment of the Land Bank’smandate and governance is maintained.SAVVEM, which acts as an insurer arm of the Land Bank, isgoverned in terms of and complies with the Companies Act61 of 1973 and the PFMA. SAVVEM Board of directors iscomposed of directors who are members of the Land BankBoard. The Board operates on the same philosophies asthose adopted by the Land Bank Board of Directors.The day-to-day management of the Land Bank and strategyimplementation is the responsibility of the Chief ExecutiveOfficer. The Chief Executive Officer is assisted by an executivemanagement team.Board and Committee Terms ofReference and MembershipThe Directors for the period to 30September 2005 were:Mr JPR MbauMr SM MkhabelaMr AT MukokiMs NJ CancaDr NP MakgalemeleAdv KD MorokaMr LG MazwaiMr MM MbongwaMr JRD ModiseDr CJ van Rooyen(Chairperson)(Deputy Chairperson)(Executive Director and ChiefExecutive Officer)(Non-Executive)(Non-Executive)(Non-Executive)(Non-Executive)(Non-Executive)(Non-Executive)(Non-Executive)The term of the Board expired during the financial year andnew directors were appointed for differing terms to allow forrotation over a five year period.The Directors for the period 01 October2005 to the year end were:Mr LG Mazwai (Chairperson)Ms NV Lila (Deputy Chairperson from 23December 2005)Mr AT Mukoki(Executive Director and ChiefExecutive Officer)Mr ER Bosman (Non-Executive)Ms SNO Choane (Non-Executive)Mr CP Davies(Non-Executive)Mr JJ Dique(Non-Executive)22

Mr SM Mkhabela (Non-Executive)Ms RK Morathi (Non-Executive)Ms NJ Nduli(Non-Executive)Mr LM Nyhonyha (Non-Executive)Ms MD Tlhagale (Non-Executive)The Board meets at least four times a year. Members of theexecutive management of the Land Bank are invited to attendboard meetings from time to time.Board CommitteesThe Board has established committees to assist it in dischargingits responsibilities. The Board committees during the financialyear were:■■■■Chairperson’s Committee;Audit Committee;Finance, Economic and Credit Committee (FECCommittee until 30 September 2005)Human Resources and Remuneration Committee (HR & RCommittee);■ Risk Committee (from 01 October 2005);■■Credit Risk Committee (from 01October 2005); andSocial and Environment Committee (from 01 October2005).The committees report at least quarterly to the Board.Chairperson’s CommitteeMr JPR Mbau(Chairperson to 30 September2005)Mr LG Mazwai (Chairperson from 01 October2005)Mr SM MkhabelaMs NJ Canca (To 30 September 2005)Adv KD Moroka (To 30 September 2005)Mr MM Mbongwa (To 30 September 2005)Mr JRD Modise (To 30 September 2005)Ms NV Lila (Deputy Chairperson from 23December 2005)Mr CP Davies (From 01 October 2005)Ms RK Morathi (From 01 October 2005)Ms NJ Nduli (From 01 October 2005)Mr LM Nyhonyha (From 01 October 2005)The Chairperson’s committee is responsible for Board governanceand the Land Bank’s development mandate. It is alsotasked with evaluating the effectiveness of the Board. Thecommittee convened on three occasions during the financialyear.Audit CommitteeMr JRD Modise (Chairperson to 30 September2005)Mr LM Nyhonyha (Chairperson from 01 October2005)Ms NJ Canca (To 30 September 2005)Mr LG Mazwai (From 01 October 2005)Dr NP Makgalemele (To 30 September 2005)Ms NV Lila (Deputy Chairperson From 01October 2005)Mr ER Bosman (From 01 October 2005)Ms SNO Choane (From 01 October 2005)Mr CP Davies (From 01 October 2005)The Audit committee oversees the Land Bank’s financial performanceand reviews its financial and operational reportingsystems, internal controls, and risk management processes. Italso reviews the annual financial statements before they arepresented to the Board.The Land Bank has an internal audit unit that reports directlyto the Audit Committee. Most of the internal audit functionsare outsourced to PriceWaterhouseCoopers (PwC). Theengagement of PwC is reviewed on an annual basis andtheir annual audit plan is approved by the Audit Committee.23

The committee convened on six occasions during thefinancial year.Finance, Economics and Credit CommitteeMs NJ Canca(Chairperson to 30 September2005)Adv KD Moroka (To 30 September 2005)Mr MM Mbongwa (To 30 September 2005)Dr CJ van Rooyen (To 30 September 2005)The FEC Committee was responsible for overseeing the assetand liability management of the Land Bank and developinginvestment strategies that are appropriate for the developmentmandate of the Board. The Committee met once duringthe course of the financial year and was replaced by the Riskand Credit Risk Committees on 01 October 2005.Risk CommitteeMr CP Davies(Chairperson from 01 October2005)Mr ER Bosman (Deputy Chairperson from 01October 2005)Ms SNO Choane (From 01 October 2005)Ms NV Lila (From 01 October 2005)Ms RK Morathi (From 01 October 2005)Ms NJ Nduli (From 01 October 2005)Ms MD Tlhagale (From 01 October 2005)The Risk Committee is responsible for monitoring operational,market and credit risk. It functions as the Enterprise-wide RiskCommittee of the Land Bank. As such it addresses all risks towhich the Land Bank is exposed as laid out in the EnterprisewideRisk Management Framework. The committee convenedtwice during the last six months of the financial year.Credit Risk CommitteeMs RK Morathi (Chairperson from 01 October2005)Mr ER Bosman (Deputy Chairperson from 01October 2005)Mr CP Davies (From 01 October 2005)Mr LG Mazwai (From 01 October 2005)Ms NJ Nduli (From 01 October 2005)Ms MD Tlhagale (From 01 October 2005)The Credit Risk Committee is responsible for monitoring creditrisk, reviewing and approving credit policies, credit limitsand guidelines as well as approving the adequacy of theyear end and interim provisions. In addition it approvesadvances in accordance with the authority levels in terms ofthe approved Delegation of Powers. The committee convenedtwice during the last six months of the financial year.Human Resources and RemunerationCommitteeMr SM Mkhabela (Chairperson)Mr JPR Mbau (To 30 September 2005)Adv KD Moroka (To 30 September 2005)Dr CJ van Rooyen (To 30 September 2005)Ms SNO Choane (Deputy Chairperson from 01October 2005)Mr ER Bosman (From 01 October 2005)Mr JJ Dique (From 01 October 2005)Mr LG Mazwai (From 01 October 2005)The HR & Remuneration Committee’s primary responsibility isthe review of all human resource and remuneration policymatters. The committee met on six occasions during the financialyear.SAVVEM BoardMr MM Mbongwa (Chairperson to 30 September2005)Dr NP Makgalemele (To 30 September 2005)Mr LG Mazwai (To 30 September 2005)24

Dr CJ van Rooyen (To 30 September 2005)Mr CP Davies(Chairperson from 01 October2005)Ms NV Lila (Deputy Chairperson from 01October 2005)Ms RK Morathi (From 01 October 2005)Ms NJ Nduli (From 01 October 2005)Mr LM Nyhonyha (From 01 October 2005)The SAVVEM Board convened on five occasions during thefinancial year.SAVVEM Audit CommitteeThe Audit Committee oversees the SAVVEM financial performanceand reviews SAVVEM’s financial and operationalreporting systems, internal control systems, audit programmesand the integrated risk management process.These activities are undertaken in terms of the AuditCommittee Charter, PFMA, Treasury Regulations and theCompanies Act. Representatives from the office of theAuditor-General, internal and external auditors attend themeetings by invitation.Mr JRD Modise (Chairperson to 30 September2005)Ms NJ Canca (To 30 September 2005)Mr LG Mazwai (To 30 September 2005)Dr NP Makgalemele (To 30 September 2005)Mr LM Nyhonyha (Chairperson from 01 October2005)Ms NV Lila (Deputy Chairperson from 01October 2005)Mr ER Bosman (From 01 October 2005)Ms SNO Choane (From 01 October 2005)Mr CP Davies (From 01 October 2005)The SAVVEM Audit Committee convened on five occasionsduring the period under review.Board and Committee Meeting AttendanceBoard for the six months to 30 September 2005NameLand BankBoardLand BankAuditFEC HR & R Chairperson’sSAVVEMBoardSAVVEMAuditNo. of Meetings held 5 4 1 4 1 2 3JPR Mbau 4 1* 3 1 1*SM Mkhabela 3 4 1AT Mukoki 5 2 1 1 2NJ Canca 3 2 1 1 2NP Makglemele 5 3 1 3LG Mazwai 2 1 1KD Moroka 3 4 2 3MM Mbongwa 2 1 1JRD Modise 3 4 3CJ van Rooyen 5 3 2* Attended by invitation25

Board for the six months from 01 October 2005NameLand BankBoardLand BankAuditRisk Credit Risk HR&R Soc & Env Chairperson’sSAVVEMBoardSAVVEMAuditNo. of Meetingsheld5 2 2 2 2 2 2 3 2LG Mazwai 5 2 2 2 2 3NV Lila 5 2 2 1 3 2AT Mukoki 5ER Bosman 5 2 2 1 1 2SNO Choane 3 2 2 1 2CP Davies 5 2 2 2 1 1 3 2JJ Dique 3 1 1SM Mkhabela 4 2 2 2RK Morathi 4 2 2 2 2 2NJ Nduli 3 1 2 2 2LM Nyhonyha 5 2 2 3 2MD Tlhagale 5 2 2Directors EmolumentsDirectors are paid a sitting allowance for their attendance atBoard and committee meetings. They are also reimbursed forreasonable out-of-pocket expenses incurred in dischargingtheir duties. The rates are determined by the Minister. Thedirectors’ emoluments are shown in note 23 of the financialstatements.Risk ManagementRisk philosophy, strategy and objectivesRisk management is an integral part of our business. We donot seek to avoid risk, but to understand it, manage iteffectively and evaluate it in the context of the reward that isbeing earned.Our philosophy is underpinned by the objective of creatingvalue for the shareholders through earnings that aresustainable and will ultimately attract premium rating for thegroup.Land Bank group has adopted an Enterprise-wide RiskManagement Framework (ERMF) that has been developedin accordance with:■■■best risk management practice locally andinternationally;the King Report on Corporate Governance for SouthAfrica – "King II";the requirements of the pending new Basel CapitalAccord (‘Basel II’).26

Broad risk management objectives and approachThe broad risk management objectives embodied in the ERMF are:Protect againstunforeseen lossesEnsure earningsstabilityMaximise earningspotential and opportunitiesMaximise stakeholderprotectionEnhance credit ratings anddepositor, analyst, investor andgovernment perceptionsEnhanceshareholder valueIn recent years the financial services industry has seenunprecedented levels of losses, uncertainty, volatility and reputationdamaging events resulting from risky transactions andinvestments, ill-advised credit granting, fraud, lack of independentcontrols and/or inadequate risk and governanceframework.However, risk management does not equate to risk avoidanceto create and enhance shareholder value, risk has to beborne. The key element in effective risk management is correctlybalancing risk and control.Risk management is a process that has to be continual andevolving in nature so that it remains dynamic and relevant tothe business of the group as the business changes over time.Risk as opportunity is implicit in the concept that there is a relationshipbetween risk and return. The greater the risk, thegreater the potential return and necessarily, the greater thepotential loss. In this context, managing risk means using techniquesto maximise the upside within the constraints of thegroup’s business environment.Risk as threat refers to potential negative events such as financialloss, fraud, damage to reputation or public image, loss ofkey staff and competitive advantage. Managing risk meansintroducing management techniques to reduce the probabilityof these negative events without incurring excessive costs orhampering the initiative, innovation and entrepreneurial flair ofthe organisation.Risk as uncertainty refers to the distribution of all possible outcomes,both positive and negative. In this context risk managementseeks to reduce the variance between anticipatedoutcomes and actual results.Successful long-term risk management involves the effectivemanagement of these opportunity, threat and uncertainty.Responsibilities of directors towards riskmanagementThe board of directors is ultimately responsible for any financialloss or reduction in shareholder value suffered by thegroup. It is therefore responsible for recognising all the risks towhich the group is exposed and ensuring that the requisiterisk management culture, frameworks, practices, policies27

esources and systems are in place. It is also responsible forallocating capital to business units in accordance with thegroup’s risk tolerance or appetite.Land Bank’s ERMF will continue to evolve and be enhancedto achieve:The board of directors has acknowledged its responsibility toestablish, maintain, operate and demonstrate an effectiveframework of business controls, risk management and corporategovernance.Risk cultureLand Bank group has adopted 7 risk culture attributesnamely:■■■■■■■Equal attention is paid to both quantifiable andunquantifiable risksRisks are identified, reported and quantified to thegreatest possible extentAn awareness of risk pervades the enterpriseRisk management is everyone’s responsibilityRisk managers have a power to veto and the power todrive risk awareness and management agendaUncertainty is accepted and managed accordinglyThe risk culture is defined and enshrinedEnterprise-wide Risk ManagementFramework (ERMF)Enterprise-wide risk management framework is about effectivelyintegrating risk management across an organisation’srisk universe (e.g. credit, market, operational and strategicrisks), business lines and operating divisions (e.g. CorporateFinance Unit and Retail) and geographical locations.Land Bank has designed its ERMF to achieve this and to:■■Ensure that the identification, evaluation, managementand monitoring of business risks throughout the groupoccur dynamically and within established risk philosophies,policies and the board’s appetite for risk; andProvide for consolidated risk measurement and portfoliorisk management analysis and strategy■■■■■integrated risk management systems and data;consistent risk measurement methodology;common risk language and culture;centralised risk management reporting; andfull compliance with separate legislations.Ultimately, the ERMF has been introduced and implementedto ensure that Land Bank’s risk philosophy lives as well as anoptimal risk/reward profile is strived for by the group, andthat the bank attracts a premium for excellent risk managementand corporate governance, which are now demandedby stakeholders in the corporate world.Land Bank’s ERMF includes graphical depictions in the formof detailed roadmaps, illustrating the risk universe comprisingof three distinct layers, namely:■Layer 1 the enterprise-wide risk management forumsand responsibilities;■ Layer 2 the risk management and corporategovernance committee structures; and■Layer 3 executive management responsibility by riskarea.The broad objectives and responsibilities of each of theabove layers are briefly explained below:Layer 1 The enterprise-wide risk management forums andresponsibilities■■■Address all categories of the key risk, and theircomponents, to which the group is exposed;Are concerned with significant/material risk exposures(individually or in aggregate) at a much higher level thanthe individual business units;Place the interest of what is best for the greater groupahead of individual business unit interest;28

■■■■Provide for and champion enterprise-wide risk management(as earlier defined) and achievement of thealliances and the group’s risk philosophy;Provide for consolidated supervision of the groups’ differentactivities and legal entities, alliances and joint ventures;Provide for formal interaction between business units andsharing of specialized knowledge/research for the mutualbenefit of all and the promotion of risk managementand corporate governance; andProvide assurance to shareholders, depositors, investors,rating agencies, analysts, regulators and others thatsound corporate governance and effective risk managementprevail throughout the group.Efficient and effective implementation of theERMFSignificant regard has been given in designing anddeveloping Land Bank’s ERMF to ensure it will be efficientand effective.Some examples of this are:Group Internal Audit and Group Compliance, who are independentof the business operations, will be present at all levelsto ensure that significant matters reach the Audit and RiskBoard Committees.Layer 2 The risk management and corporate governancecommittee structures■■■■Consist of specialised risk management committees thataddress a specific risk or category of specific risks andtheir components only;Are resourced with specialists in each specific areaProvide for interaction between the relevant businessunits and sharing of specialised knowledge/research formutual benefit of all; andProvide confirmation to the enterprise-wide risk managementforums in layer 1 that the specific risks are beingidentified, measured, evaluated, monitored and managedin accordance with the corporate governance andrisk management requirements of the board.Layer 3 Executive management responsibility by risk area■■The individual business units and/or group service functionshave primary responsibility for the comprehensivemanagement of risk arising from their activities.The heads of each of the business units are responsiblefor the risks they undertake, which has to be done withinthe boundaries of the ERMF and group policies andauthority levels.An independent Risk department has been established andthe key roles are:■■■■■Promoting the identification, evaluation and managementof all risks across the group;Monitoring all risks across the group;Championing the implementation of the enterprise-widerisk methodology across the group at all levels;Implementing an integrated risk management frameworkacross the group;Promoting risk awareness and providing education onrisk;Land Bank’s major risksThe group’s focus areas for enterprise-wide risk managementfor the year under review identify the following main risks:■■■■■Operational RisksMarket RisksLiquidity RisksCredit RisksStrategic RisksThese and other key risks of the group are detailed under the‘Risk Universe’ on the summarised ERMF roadmap. Each ofthe other key risks may be categorised under one or more ofthe above five major risks29

Operational RisksOperational risk is the risk of loss resulting from inadequate orfailed internal processes, people and systems or from externalevents. This definition includes legal risk.Market RisksMarket risk is the risk of a potential impact on the earnings ofunfavourable changes in foreign exchange rates, interestrates, equity prices, market volatilities and liquidity.Liquidity RisksLiquidity risk is the risk that the Group will encounter difficultyin raising funds to meet commitments to borrowers andlenders. The Group’s liquidity requirements are mainly for disbursingapproved loans, settling funding liabilities when theyfall due and for day to day operations.To manage this risk the Land Bank Group maintains funds incall and current accounts and has unutilised overdraft facilitieswith major South African Commercial Banks.Credit RisksCredit risk is the risk that counterparties will fail to honour theirfinancial obligations to the Land Bank Group on the originalcontracted dates. This includes managing concentration risk.Concentration risk is the formulation of concentration limits perindustry, sector and geographical area. Sector caps thatreflect risk appetite are set to monitor exposures to preventexcessive concentration of risk.The bank has a Credit Risk Committee and Credit RiskManagement Committee that approve loans to the Bank’sclients and to reduce credit risk to the Bank.Although not applicable to the Land Bank, the Bank’s Act limitsindividual exposures above 10% of a bank’s own equityand regards all exposures above 25% of the bank’s ownequity as an impairment against the equity of the bank. Thetop 20 CFU balances represent 73% of the total CFU loanbook. In the event of any of these clients becoming non-performing,it would have a significant impact on the capital ofthe Bank, especially if the security realisation is below theoriginal expectations of the Land Bank.Strategic RisksStrategic risk concerns the consequences that occur when theenvironment in which decisions that are hard to implementquickly and reverse result in an unattractive or adverseimpact.Ethical StandardsBoth Directors and employees of the Land Bank are obligedto comply with prescribed procedures pertaining to disclosuresof interests, and to adhere to practices on conflict ofinterest. The Land Bank keeps a record of all declarations ofinterest, and this record is regularly updated. Disclosure ofDirectors and Employees’ interests are disclosed in note 29 ofthe financial statements.The Land Bank has in place both Whistle-Blowing and Fraud-Prevention policies. These policies were revised during theyear. The Land Bank has developed a fraud prevention planas well as a risk plan. These plans continue to be reviewedon an annual basis.Overview of PerformanceCorporate key performance targets were set as part of theoverall business strategy for improvement on efficiency andprofitability and are incorporated in the approved corporateplan for the year under review. These objectives were communicatedthroughout the organisation with key performanceindicators periodically measured. The results of the set objectivesare reflected below:30

Objectives Key Performance Indicator Target Performanceresults1. Growth in value of loans:1.1 Commercial clientsValue of commercial loans over prior yearGrowth of 2.4%Declined by 10.2%1.2 Development clientsValue of development loans over prior yearGrowth of 19.1%Growth of 21.4%1.3 Step upValue of Step Up loans over prior yearGrowth of 15.2%2. Business efficiency Ratio of expense to income 1*Ratio below86%Growth of 45.3% *Ratio of 58.9%achieved3. Loan book quality Value of non-performing loans as a percentage oftotal Loan BookNPL’s of less than12.1%11.4%* The Step Up product was discontinued during the year under review. The net outstanding book is fully provided for at 31 March 2006.Contingent LiabilitiesContingent liabilities are reported in the annual financialstatementsGoing ConcernSignificant impairment provisions and bad debt write offs duringthe last five financial periods, as well as the classificationadjustment of LB01 bonds to held for trading through profitand loss (refer Note 32), contributed to a material reductionin the capital levels of the Land Bank from R3,162 million on31 December 2001 to R1,096 million on 31 March 2006.These conditions indicated the existence of uncertaintieswhich may cast doubt on the Land Bank’s ability to continueas a going concern.As indicated last year, the Land Bank has embarked on aprocess to strengthen its management, improve its managementinformation systems and improve its risk managementsystems. The Land Bank’s credit department has beenstrengthened to improve the quality of the loan book, SAPinformation system’s financial module has been rolled out toimprove the quality of the management information systemand an enterprise wide risk management system has beenrolled out. Discussions are being conducted with the shareholderto strengthen the Bank’s capital.The Minister of Finance has confirmed that the Governmentof South Africa see the Bank, a wholly owned subsidiary ofGovernment, as strategically important for the achievement ofGovernment’s socio-economic objectives in South Africa. Forthis reason the Minister of Finance concurred with the undertakingby the Minister for Agriculture and Land Affairs thatinsofar as the liabilities of the Land Bank exceed its assets,Government will make good the obligations of the Land Bankas and when they become due and payable up to anamount of R1,500 million until June 2007.The R1,096 million equity of the Land Bank at 31 March2006 together with the undertaking by Government tosupport the Land Bank to the amount of R1,500 million equalsR2,596 million or 13.6% if expressed as a percentage of riskweighted assets and contingencies as opposed to 6.7%excluding the letter of undertaking amount. Based on theabove the Directors of the Land Bank believe that the LandBank will continue as a going concern.31

Review of Operations

Overview of Financial ResultsRetail Loan BookOperational factors■■■■■SAP banking solution implementationRollout of SAP financialsImplementation of International FinancialReporting StandardsEstablishment of credit department for improved creditassessmentRetailThe retail division of the bank focuses on lending to individualfarmers. The bank has 27 branches located in different partsof the country with a presence in each of the nine provinces.These outlets serve both our commercial as well as developmentclients. In addition, the bank operates a number of satelliteoffices with the intention of bringing banking services closerto its client base.During the twelve month reporting period ended 31 March2006, the Retail Loan Book declined by 9.6% (R627 million)from R6,544 million to R5,917 million. This decline is in linewith the general performance of the agricultural sector duringthe reporting period.In addition to the agricultural sector specific challenges,intense competition from commercial banks eager to maketheir financial services charter targets impacted negatively onthe bank’s ability to retain and expand its client base.The biggest decline (R592.9 million) occurred in the longterm loan book of the Bank. This is attributed to the declinein the gross fixed capital investment in agriculture. In order tolimit the extent of the decline, emphasis was placed on theretention of existing business as well as reselling and crosssellingwith a key focus on relationship management.Lending by TermThe bank’s retail book showed a 9.6% reduction as shown in the table below.Loan Type 2006 2005 % ChangeLong Term R 4,417m R 5,010m -11.8%Medium Term R 931m R 924m 0.7%Short Term R 569m R 610m -6.7%Grand Total R 5,917m R 6,544m -9.6%33

Of the 9 provinces the Western Cape leads the Retail lending exposure with 18% share of our loan book, followed by Free Stateat 16%, the North West at 14% and the Eastern Cape at 11%.Although Western Cape has a relatively low number of loans at 2,866 on the existing loan book, it does, however, have a largeshare of the value of the book, standing at R1,036m. On our existing base, North West has an extensive spread of loans.34

Lending by IndustryRetail Sectorial Exposure (Top 15 Sectors)Sector 31 March 2005 31 March 2006 % ChangeCash CropsCattleCitrusDeciduous FruitFeedlotFodder CropsMaizePlantationsPoultrySheepSub TropicSugar CaneVineyardsWheat267,795,6361,423,067,828343,770,249285,469,414124,200,490556,074,958559,757,54090,278,078166,832,846876,216,662172,612,146368,755,903577,663,962141,383,874337,741,9371,327,609,423317,734,709253,272,780137,850,000536,115,982474,834,998103,808,523160,086,587737,124,937167,418,025398,957,398486,027,145124,107,22226.12%-6.71%-7.57%-11.28%10.99%-3.59%-15.17%14.99%-4.04%-15.87%-3.01%8.19%-15.86%-12.22%Grand Total 5,953,879,586 5,562,689,666 -6.57%35

Corporate Finance Unit (CFU)The total CFU lending book as at 31 March 2006 amountedto R10,5bn compared to R11,7bn as at 31 March 2005,but the average loan book forthe year under review of R10,8bn is 2.8% or R300m higherthan the average loan book for the 2004/05 financial year,which was R10,5bn.CFU Lending by TermR millionLoan Type 31 March 2006 31 March 2005 % ChangeLong Term 1,411 2,170 -35.0%Medium Term 1,259 1,367 -7.9%Short Term 7,885 8,196 -3.8%Grand Total 10,555 11,733 -10.0%Short term lending is done in line with the various business cycles of clients and exposure is at all times limited to availablesecurity cover, with provision for a safety margin.CFU Lending per IndustryR millionSector 31 March 2005 31 March 2006 % ChangeGrainWineManufacturingTradingSugarFruitOstrichLivestockTobaccoCitrusCottonWoolDairyTimberIrrigation BoardVegetableSeedTransportLogisticsPineappleFishingPoultryRaisonsJuiceInvestmentPeperdewOn Lending6,5369491,1876225013232062802381321039512387635150413929290080055,804919597679493409326248183163152752158615350544139334920101060-11.20-3.08-49.749.07-1.6226.5658.45-11.49-23.0723.2947.08-21.42-82.78-33.68-2.184.860.0132.006.3836.3314.20100.00100.0020.77100.00100.00-100.00Grand Total 11,699 10,555 -9.78%36

The largest concentration of lending currently lies with thegrain industry (56%), whilst the balance of lending (44%) isfairly evenly spread amongst diversified industries, mitigatingconcentration risk.The largest single concentration of debt outside of the grainsector lies within the wine industry (9%).The grain sector exposure decreased by 11.2%, from R6,5bnin 2005 to R5,8bn in 2006. Low commodity prices and thestrong rand against US dollar made farmers to reduce theirmaize plantings by 45%. This had a direct impact on theamount of financing taken up for grain crops.The wine industry has been going through challenging timesduring the past year, partly as a result of significant strengtheningof the rand against major currencies, together with alocal and international surplus in red wine cultivars. This hasto a large degree been mitigated by the fact that a shortagein quality white wines occurred simultaneously.Land Bank financing within the ostrich industry increased byapproximately R120m during the year under review, againstthe backdrop of a serious bout of bird flu within the industrywhich led to a government supported culling program togetherwith the closure of EU markets for fresh meat exports.Land Bank supported the industry by initiating a special loanfacility in order to finance a stockpile of "healthy" ostrichmeat, which could not be exported due to the embargo onexports. An enhanced local sales drive was successfullyimplemented by the industry in order to increase local salesduring this period. The EU export markets were reopened duringNovember 2005 and export market conditions are returningto normal levels. The stockpile of ostrich meat is beingphased out through local sales.37

Income statement analysisSummarised Income Statement (R million) FY 2005/06 FY 2004/05Group Land Bank Group Land BankNet Interest & Premium Income431412566557Non Interest Revenue29329360301Operating Income724705626858Operating expenses(445)(439)(416)(416)Fair value gains / (Losses)133414334Properties in possession fair valueadjustment(7)(7)(41)(41)Loss on sale of Properties in Possession(69)(69)(5)(5)Operating Profit Before Impairments335194307430Impairment Losses(320)(320)(637)(637)Net Profit/(Loss)15(125)(330)(207)ProfitabilityFor the year under review, Land Bank posted a loss of R125mcompared to R208m loss in FY2004/05 after a R240m dividendfrom the subsidiary, SAVVEM. Profitability of the bankremains under strain as a result of declining interest income.Impairment losses due to loan book quality have had anadverse impact on the results in the past three years. For theyear under review, R320m in impairment or credit losses wascharged to income compared to R637m in FY2004/05.The group, however, realised a net profit of R15m in2005/06 compared to a loss of R330m in 2004/05. Thiswas mainly as a result of reduced impairment or credit lossesincurred by Land Bank and net profit posted by SAVVEM ofR140, 8m (2004/05: R113m profit).38

Net interest income 25.9%Net interest income represents interest earned net of interest paid on loan portfolio and cash at bank. Net interest incomedecreased by 25.9% to R412,3m (2004/05: R557,1m). The decrease is mainly as a result of R172,8m interest income on nonperformingloans reversed in the year under review. In the prior year the interest income on non-performing loans could not bequantified in terms of the accounting standards, hence the audit qualification.The year under review has seen a 50 basis points reduction in prime at the beginning of the financial year. This resulted in adecrease in the bank’s average effective lending rate by 0.38%, from 10.4% to 10.0%.39

A high proportion of the bank’s income is interest related. For the year under review, interest income constitutes 85% of totalincome (FY2004/05: 86.0%). The contribution by segment remains dominantly in CFU, accounting for 56% (2004/05: 52%)as CFU also holds 64% of loan portfolio.The cost of borrowing decreased by 5.4% or R70,1m, from R1,295m in FY05 to R1,225m in FY06. The reduction in the interestexpense is a result of the following:■■general decrease in interest rates,interest rate risk management.40

Non-interest revenue 2.4%The non-interest revenue decreased by 2.4% or R7,2m, from R300,6m in FY05 to R293,4m in FY06. For the period underreview, reinstatement of loans previously written off in excess of security values amounted to R182,3m and recovery on bad debtand insolvencies amounted to R78,8m. Account administration fees increased by 2%, from R26,7m in FY05 to R27,2m in FY06.No dividend income from the subsidiary, SAVVEM, was received this financial year compared to the R240m received inFY2004/05.41

Operating expenses 5.7%Expenses increased by 5.7% from prior year, from R415,7m in 2004/05 to R439,4m in the year under review. Total employmentexpenses increased by 7.6% as a result of general salary reviews of 6.25% on average and the filling of vacancies, seniormanagement and credit department in particular.The ratio of cost to income increased from 48.5% in FY2004/05 to 62.3% in FY2005/06. This is a direct result of operatingincome reducing by 17.7% or R151,8m as a result of the reversal of interest income on non-performing loans of R172m(2004/05: R25m -Calculation thereof in 2004/05 could not be performed in terms of IAS39).IFRS conversion impact 100%The bank adopted and implemented International Financial Reporting Standards (IFRS) in the year under review. This resultedin charges to income of R69,8m relating to changes in accounting treatment of losses on sale of properties in possession.42

Report of the Auditor-Generalto Parliament on the Financial Statements and Group Financial Statementsof the Land and Agricultural Bank of South Africa (Land Bank)for the year ended 31 March 2006

1. Audit AssignementThe financial statements and group financial statements as setout on pages 18 to 30 and 46 to 95 for the financial yearended 31 March 2006, have been audited in terms of section188 of the constitution of the Republic of South Africa,1996 (Act No 108 of 1996), read with section 4 and 20 ofthe Public Audit Act, 2004 (Act No 15 of 2002). These financialstatements, the maintenance of effective control measuresand compliance with relevant laws and regulations are theresponsibility of the Board of the Land Bank. My responsibilityis to express an opinion on these financial statements,based on the audit.2. ScopeThe audit was conducted in accordance with InternationalStandards on auditing read with General Notice 544 of2006, issued in Government Gazette no 28723 of 10 April2006. and general notice 808 of 2006, issued inGovernment Gazette no. 28954 of 23 June 2006. Thosestandards require that I plan and perform the audit to obtainreasonable assurance that the financial statements are free ofmaterial misstatement.An audit includes:■■■Examining, on a test basis, evidence supporting theamounts and disclosure in the financial statements,Assessing the accounting principles used and significantestimates made by management, as well asEvaluating the overall financial statement presentationI believe that the audit provides a reasonable basis for myopinion.3. QualificationImpairment of loans and the interest on impaired loans-2005The Land Bank’s comparative income statement numbers donot comply with the requirement of IAS 39: FinancialInstruments- recognition and measurement, to determineimpairment of loan and interest income on the impaired valueof loans. The loans impaired movement in the incomestatement and the split between impairment and interestincome for 2005 financial year does not comply with therequirements of the standard. Owing to the nature of theshortcomings in terms of the systems and data availability atthe Land Bank, we were unable to perform alternative auditprocedures to determine the effect of this classification4. Audit OpinionIn my opinion, except for the effect on the financialstatements of the matter referred to in the precedingparagraph, the financial statements of the Land Bank and theGroup fairly present, in all material respects, the financialposition of the Land Bank and the Group at 31March 2006and the results of its operations and cash flows for the yearthen ended, in the accordance with International FinancialReporting Standards and in the manner required by the PublicFinance Management Act, 1999 (Act No.1 of 1999) asamended.5. Emphasis of MatterWithout further qualifying the audit opinion expressed above,attention is drawn to the following matter:Computer systemAs previously reported, there are still deficiencies in the bankingloan module, as well a certain inadequacies in eitherlogical or manual mitigating controls, which remainsunresolved. As a result of the loan module shortcomings, certainaccounting work is being performed outside the loan systemin order to comply with the requirements of the standards,specifically IAS 18: Revenue and IAS 39: Financial instrument– recognition and measurement. Our audit procedures wereplanned and performed to obtain reasonable assurance thatthe work being conducted outside the loan module, are freeof material misstatement.6. AppreciationThe assistance rendered by the staff of the Land Bank duringthe audit is sincerely appreciated.Auditor-GeneralPretoria31 July 200645

Annual Financial Statementsfor the Year Ended 31 March 2006ContentsDirectors’ Responsibility for the Annual Financial Statements 47Balance Sheet 48Income Statement 49Statements of Changes in Equity 50Cash Flow Statement 51Notes to the Financial Statements 52

Directors’ Responsibility for the Annual Financial StatementsThe directors are responsible for monitoring the preparationof and the integrity of the financial statements and relatedinformation included in this annual report.In order for the Board to discharge its responsibilities, managementhas developed and continues to maintain a systemof internal control. The Board has ultimate responsibility forthe system of internal control and reviews its operation, primarilythrough the audit committee and various other risk-monitoringcommittees.The internal controls include a risk-based system of internalaccounting and administrative controls designed to providereasonable but not absolute assurance that assets are safeguardedand that transactions are executed and recorded inaccordance with generally accepted business practices andthe Group’s policies and procedures. These controls areimplemented by trained, skilled personnel with an appropriatesegregation of duties, are monitored by managementand include a comprehensive budgeting and reporting systemoperating with strict deadlines and an appropriate controlframework.As part of the system of internal control, the Group internalaudit function conducts operational, financial and specificaudits. The external auditors are responsible for reporting onthe financial statements.The financial statements have been prepared in accordancewith International Financial Reporting Standards (IFRSs) forthe first time. The disclosures required by IFRS 1 concerningthe transition from SA GAAP to IFRSs are given in note 32.The financial statements have been prepared under the historical-costconvention, as modified by the revaluation of certainfinancial instruments and properties.The directors believe that the Group will be a going concernin the year ahead. For this reason they continue to adopt thegoing concern basis in preparing the Group annual financialstatements.The annual financial statements for the year ended 31 March2006 set out on pages 18 to 30 and 46 to 95 wereapproved by the board of directors on 6 July 2006 and aresigned on its behalf by:AT MukokiChief Executive OfficerLG MazwaiChairperson47

Balance Sheetat 31 March 2006Note Land Bank Group Land Bank2006R’0002005R’0002006R’0002005R’000ASSETSCash at bankTrade and other receivablesRepurchase agreementsDerivative assetsLoansIntangible assetInvestmentsInvestment propertyProperty and equipment34513.16.1789103,249,88449,916249,006223,99614,951,85213,071731,05582,614135,2351,660,73923,648134,061604,19017,101,911-722,704106,516134,9463,249,86833,716249,006223,99614,951,85213,071160,62082,614135,2351,660,722251,154134,061604,19017,101,911-121,939106,516134,946TOTAL ASSETS19,686,62920,488,71519,099,97820,115,439EQUITY AND LIABILITIESEQUITYRetained earningsRevaluation reserve11.111.21,721,4531,652,43869,0151,496,6121,436,09360,5191,096,5031,027,48869,0151,012,445951,92660,519LIABILITIESBank overdraftMarket making liabilitiesDerivative liabilitiesTrade and other payablesInsurance contractsFundingProvisionsPost retirement obligations31213.2141516171817,965,176208,53391,38730,953166,7473,85317,258,48224,000181,22118,992,1031,42957,00746,584207,5375,28518,478,97519,114176,17218,003,475208,53391,38730,953208,949-17,258,48223,950181,22119,102,9941,42957,00746,584239,249-18,563,43919,114176,172TOTAL EQUITY AND LIABILITIES19,686,62920,488,71519,099,97820,115,43948

Income Statementfor the 12 Months Ended 31 March 2006Note Land Bank Group Land Bank2006R’0002005R’0002006R’0002005R’000Interest incomeInterest expenseNet interest income19201,637,138(1,222,118)415,0201,852,008(1,292,970)559,0381,637,138(1,224,758)412,3801,852,008(1,294,898)557,110Impairment of loans6.3(319,844)(637,401)(319,844)(637,401)Income/(loss) from lending activities95,176(78,363)92,536(80,291)Net insurance incomeInsurance premium receivedInsurance premium ceded underreinsurance contractsInsurance claimsInsurance claims recovered fromre-insurers2115,65227,420(5,051)(11,373)4,6566,73029,905-(23,175)----------Income/(loss) from lending and insuranceactivities110,828(71,633)92,536(80,291)Non-interest income22292,88459,934293,441300,593Operating expenses23(444,600)(415,889)(439,479)(415,678)Fair value gains24132,528143,3874,35933,698Properties in possession fair valueadjustment(6,446)(41,033)(6,446)(41,033)Loss on sale of properties in possession(69,804)(4,868)(69,804)(4,868)Net Profit /(Loss)15,390(330,102)(125,393)(207,579)49

Statements of changes in equityfor the 12 Months Ended 31 March 2006Silver &BronzeDevelopmentFundRetained EarningsCapitalFundGeneralReserveInsuranceFundInterestRevaluationReserveR’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000Total1. LAND BANK GROUPBalance at 01 April 2004Effect of adopting IFRS (note 32.1)Prior year adjustments (note 32.1)388,382-317,834---747,71637,771(401,884)681,118-100,000-7,082-2,242,13237,771(401,884)At 1 April 2004 restatedProfit/(Loss) for the year as previously statedSurplus on revaluation of Land and BuildingsEffect of adopting IFRS (note 32.2)Prior year adjustments (note 32.2)Transfer from general reserve388,382----(55,409)317,834----(129,286)------383,603(443,127)-(11,185)(93,557)184,695681,118113,025----100,000-----7,08245,375-8,062-1,878,019(330,102)45,375(11,185)(85,495)-Balance at 31 March 2005 restated332,973188,548-20,429794,143100,00060,5191,496,612Balance at 01 April 2005Reclassification of Capital FundSurplus on revaluation of Land and BuildingsCurrent year (loss)/profitTransfer from general reserve332,973---(22,828)188,548---(53,264)-200,955---20,429--(123,310)76,092794,143--138,700-100,000----60,519-8,496--1,496,612200,9558,49615,390-Balance at 31 March 2006310,145135,284200,955(26,789)932,843100,00069,0151,721,4532. LAND BANKBalance at 01 April 2004Effect of adopting IFRS (note 32.1)Prior year adjustments (note 32.1)Retained EarningsSilver &BronzeDevelopmentFundDevelopmentFundGeneralReserveRevaluationReserveInterestEqualisationFundTotalTotalR’000 R’000 R’000 R’000 R’000 R’000 R’000388,382-317,834---822,14437,771(401,884)100,000-7,082-1,635,44237,771(401,884)At 1 April 2004 restated388,382317,834-458,031100,0007,0821,271,329Loss for the year as previously statedSurplus on revaluation of Land and BuildingsEffect of adopting IFRS (note 32.2)Prior year errors (note 32.2)Transfer from general reserve----(55,409)----(129,286)-----(207,579)-(11,185)(93,557)184,695------45,375-8,062-(207,579)45,375(11,185)(85,495)-Balance at 31 March 2005 restated332,973188,548-330,405100,00060,5191,012,445Balance at 01 April 2005Reclassification of Capital FundSurplus on revaluation of Land and BuildingsCurrent year lossTransfer from general reserve332,973---(22,828)188,548---(53,264)-200,955---330,405--(125,393)76,092100,000----60,519-8,496--1,012,445200,9558,496(125,393)-Balance at 31 March 2006310,145135,284200,955281,104100,00069,0151,096,50350

Cash Flow Statementfor the 12 Months Ended 31 March 2006Note Land Bank Group Land Bank2006R’000Restated2005R’0002006R’000Restated2005R’000Cash flow from operating activities25.22,435,288(2,767,608)2,674,753(3,097,342)Cash received from clientsCash paid to clients, employees and suppliers21,555,553(19,120,265)23,281,700(26,049,308)21,555,553(18,880,800)23,281,700(26,379,042)Cash flow from investing activitiesProceeds on disposal of property and equipmentProceeds on disposal of properties in possessionPurchase of property and equipmentPurchase of intangible assetPurchase of investments - SAVVEMProceeds on sale of investments167,2464,60934,258(12,669)(13,952)-155,000(306,295)4,49555,145(8,725)-(326,895)(30,315)12,2464,60934,258(12,669)(13,952)--20,6004,49555,145(8,725)--(30,315)Cash flow from financing activities(1,220,493)2,748,216(1,304,957)2,751,055Increase/(decrease) in long term fundingIncrease/(decrease) in medium term fundingIncrease/(decrease) in short term funding25.325.525.4(205,121)711,269(1,726,641)1,641,3081,974,862(867,954)(205,121)711,269(1,811,105)1,567,8281,974,862(791,635)Net increase/(decrease) in cash and cash equivalents1,382,041(325,687)1,382,042(325,687)Cash and cash equivalents at 1 AprilCash and cash equivalents at 31 March25.11,659,3103,041,3511,984,9971,659,3101,659,2933,041,3351,984,9801,659,29351

Notes to the Financial Statementsfor the 12 Months Ended 31 March 20061. GENERAL INFORMATION2.2 Basis of consolidationThe Land and Agricultural Development Bankof South Africa (‘Land Bank" or "the LandBank")Land Bank operates as a development finance institution withinthe agricultural and agri-business sectors. Its activities areregulated by the Land and Agricultural Development BankAct, 15 of 2002, (Land Bank Act) and the Public FinanceManagement Act, 1 of 1999 as amended (PFMA). LandBank provides a range of finance options to a broad spectrumof clients within the agricultural sector. Financing productscater for wholesale as well as retail financing for commercialand developing farmers, co-operatives and otheragriculture-related businesses. These financial statements arepresented in South African Rand because that is the currencyof the primary economic environment in which the Land Bankoperates. The financial statements were authorised for issueby the directors on 06 July 2006.2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIESThe principal accounting policies applied in the preparationof these financial statements are set out below. These policieshave been consistently applied to all years presented, unlessotherwise stated in the following text.2.1 Basis of presentation of financialstatementsThe financial statements have been prepared in accordancewith International Financial Reporting Standards (IFRSs) forthe first time. The disclosures required by IFRS 1 concerningthe transition from SA GAAP to IFRSs are given in note 32.The financial statements have been prepared under the historical-costconvention, as modified by the revaluation of certainfinancial instruments and properties.The consolidated financial statements incorporate the financialstatements of the Land Bank and any entities controlledby the Land Bank (its subsidiary) up to 31 March each year.Control is achieved where the Land Bank has the power togovern the financial and operating policies of an investeeentity so as to obtain benefits from its activities.On acquisition, the assets and liabilities and contingentliabilities of a subsidiary are measured at their fair values atthe date of acquisition. Any excess of the cost of acquisitionover the fair values of the identifiable net assets acquired isrecognised as goodwill. Any deficiency of the cost of acquisitionbelow the fair values of the identifiable net assetsacquired (i.e. discount on acquisition) is credited to profit andloss in the period of acquisition.The accounting policies of the subsidiary, Suid-AfrikaanseVerbandsversekeringmaatskappy (SAVVEM) are consistentwith those of the holding company. The financial position andperformance of SAVVEM up to 31 March 2006 has beenincluded in the consolidated financial statements. Inter-companybalances and transactions between and within thegroup of entities are eliminated in full on consolidation.2.3 Changes in accounting policiesThe accounting policies adopted are consistent with those ofthe previous financial year except that the Land Bank has chosento change those listed below to achieve fair presentation.The changes in accounting policies result from adoption ofthe following standards:■■IAS 40 Investment PropertyIAS 39 Financial InstrumentsThe principal effects of these changes are listed in Note 32.52

Notes to the Financial Statementsfor the 12 Months Ended 31 March 20062.4 Prior year errorsErrors in the application of applicable accounting standardsin prior years have been corrected retrospectively.The errors occurred in the application of the following standards:■■■IAS 18 RevenueIAS 17 LeasesIAS 39 Financial InstrumentsThe principal effects of these errors are listed in Note 32.2.5 Interest income and expenseInterest income and expense is recognised in the incomestatement for all relevant instruments using the effective interestrate method. The effective interest rate is the rate thatexactly discounts estimated future cash payments or receiptsthroughout the expected life of the financial instrument, or ashorter period where appropriate, to the net carrying amountof the financial instrument. When calculating the effectiveinterest rate, the Land Bank estimates cash flows consideringall contractual terms of the financial instrument.The calculation includes all fees and points paid or receivedbetween parties to the contract that are an integral part of theeffective interest rate, transaction costs and all other premiumsor discounts. Once a financial asset or a group of similarfinancial assets has been written down as a result of animpairment loss, interest income is recognised using the rateof interest used to discount the future cash flows for the purposeof measuring the impairment loss.2.6 Other revenueCommission receivedCommission income is recognised on an accrual basis overthe life of the underlying contracts.Dividends receivedDividends are recognised in the period when theshareholders’ right to receive payment is established.Penalty fee incomePenalty fee income is recognised when the event of defaultoccurs and it is probable that economic benefits associatedwith the event will flow to the Land Bank.2.7 Fruitless, wasteful and irregularexpenditureItems of expenditure that meets the requirements of the PFMAfor fruitless and wasteful as well as irregular expenditure areseparately disclosed in the notes to the financial statements."Fruitless and wasteful expenditure" means expenditure whichwas made in vain and would have been avoided had reasonablecare been exercised."Irregular expenditure" means expenditure, other than unauthorisedexpenditure, incurred in contravention of or that is notin accordance with a requirement of any applicable legislation.2.8 LeasesLeases are classified as finance leases whenever the terms ofthe lease transfer substantially all the risks and rewards ofownership to the Land Bank. All other leases are classified asoperating leases.Assets held under finance leases are recognised as assets ofthe Land Bank at their fair value or, if lower, at the presentvalue of the minimum lease payments, each determined at theinception of the lease. The corresponding liability to the lessoris included in the balance sheet as a finance lease obligation.Lease payments are apportioned between financecharges and reduction of the lease obligation so as to53

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006achieve a constant rate of interest on the remaining balanceof the liability. Finance charges are charged directly againstincome.Rentals payable under operating leases are charged to profitor loss on a straight-line basis over the term of the relevantlease. Benefits received and receivable as an incentive toenter into an operating lease are also spread on a straightlinebasis over the lease term.The Land Bank as LessorRental income from operating leases is recognised on astraight-line basis over the term of the relevant lease. Initialdirect costs incurred in negotiating and arranging an operatinglease are added to the carrying amount of the leasedasset and recognised on a straight-line basis over the leaseterm.2.9 Government GrantsGovernment Grants are recognised at their fair value wherethere is reasonable assurance that the grant will be receivedand all attached conditions will be complied with.Government grants towards expense items are recognised asincome over the periods necessary to match them with therelated costs and are deducted in reporting the relatedexpense. Government grants relating to assets are treated asdeferred income and released to profit and loss over theexpected useful lives of the assets concerned.2.10 Retirement benefits2.10.1 Short-term employee benefitsThe cost of all short-term employee benefits is recognised duringthe period in which the employee renders the related service.The provisions for employee entitlement to wages,salaries, annual and sick leave represents the amount whichthe Land Bank Group has a present obligation to pay as aresult of employees' services provided to the balance sheetdate. The provisions have been calculated at undiscountedamounts based on current wage and salary rates.2.10.2 Post Retirement BenefitsA defined benefit plan is a plan that defines a benefit that anemployee will receive on retirement, usually dependent onone or more factors such as age, years of service and compensation.A defined contribution plan is a plan under whichfixed contributions are paid into a separate entity. If the funddoes not hold sufficient assets to pay all employees the benefitsrelating to employee service in the current and prior periods,there is no legal or constructive obligation on theemployer to pay further contributionsRetirement fundThe Land Bank Retirement Fund which functions as a definedcontribution plan, and which is subject to the provisions of thePension Fund Act,1956 (Act No. 24 of 1956) came intooperation on 1 November 1994. The Fund still provides certainbenefits such as disability and death-in-service which providedefined benefits that are in the process of being phasedout. As a result of the defined benefits aspects of the Fund,the Land Bank is still at risk for shortfalls in the Fund.Consequently the Fund is accounted for as a defined benefitplan until these benefits are phased out at which time it willbe accounted for as a defined contribution plan.Membership of the fund is compulsory for all permanent staffmembers. Statutory actuarial valuations of the fund’s commitmentsare conducted every year. The last statutory valuationwas performed at 31 December 2005. The valuationmethod used is the Projected Unit Credit Method. The liabilityrecognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefitobligation at the balance sheet date.Payments made, including current service costs, to the definedbenefit plan are charged as an expense when they fall due.Actuarial gains and losses arising from experience adjust-54

52PflegeReferenten:Dr. med. Ottilie RandzioRoland BrembeckWinfried FischerDr. med. Wolfgang HellMichaele KnöferlCornelia KrügerAnna Leib-GerstnerRosa RössleinRolf ScheuDr. med. Elisabeth SchmidtDie Sicherstellung einer humanen und aktivierenden Pflegeist eine der großen Aufgaben unserer Gesellschaft.Wesentliche Bedingungen dafür sind Qualität und Transparenzin der Pflege.Der Bereich Pflege ist in allen Aufgabenfeldern der SozialenPflegeversicherung gutachterlich und qualitätssicherndtätig. Neben der Leitenden Ärztin Frau Dr. OttilieRandzio umfasst die Organisationseinheit 22 Mitarbeiter.Der MDK Bayern trägt der demografischen Entwicklungmit der Zunahme hochaltriger Menschen und der politischenForderung nach vernetzten Versorgungskonzeptendurch eine enge Zusammenarbeit zwischen dem BereichPflege und dem Fachbereich Geriatrie Rechnung. Ein konkretesBeispiel dafür ist die Einführung des ärztlichenGutachters Pflege- und Altersmedizin.Unsere Kurse geben einen umfassenden Einblick in diefachlichen und gutachterlichen Aspekte der Pflege.

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and thecarrying amount of the asset and is recognised in income.The Land Bank has elected to adopt fair value as deemedcost on transition to IFRS2.13 Investment PropertyIntangible assets with indefinite useful lives are tested forimpairment annually either individually or at the cash generatingunit level. Such intangibles are not amortised. The usefullife of an intangible asset with an indefinite life is reviewedannually to determine whether indefinite life assessment continuesto be supportable. If not, the change in the useful lifeassessment from indefinite to finite is made on a prospectivebasis.Investment property (properties not utilised for group operations),which is held to earn rental income or capital appreciation,is stated at its fair value at the balance sheet date.Gains or losses arising from changes in the fair value of investmentproperty are included in net profit or loss for the periodin which they arise. Fair value is determined using marketbasedvaluation performed by independent sworn appraisersat the balance sheet date.2.14 Properties in possessionUnsold properties in possession are recognised once ownershiphas been legally transferred to the Land Bank. Theseproperties are included under investment property and arevalued at fair value as determined using a market-based valuationperformed by a sworn appraiser at the balance sheetdate. Maintenance costs are expensed in the periodincurred. Realisable value is determined using market-basedvaluation performed by a sworn appraiser at the balancesheet date.Intangible assets with finite lives are amortised over the usefuleconomic life and assessed for impairment whenever there isan indication that they may be impaired. The amortisationperiod and the amortisation method for an intangible assetwith a finite useful life is reviewed at least at each financialyear end. Changes in the expected useful life or the expectedpattern of consumption of future economic benefitsembodied in the asset is accounted for by changing theamortisation period or method, as appropriate, and treatedas changes in accounting estimates. The amortisationexpense on intangible assets with finite lives is recognised inthe income statement in the expense category consistent withthe function of the intangible asset.Acquired capitalised computer software was determined tohave a finite life of 3 years at acquisition. The software isamortised using the straight line method over a period of 3years.2.16 Financial Instruments2.15 Intangible AssetsIntangible assets acquired separately are measured on initialrecognition at cost. Following initial recognition, intangibleassets are carried at cost less any accumulated amortisationand any accumulated impairment losses. The useful lives ofintangible assets are assessed to be either finite or indefinite.Financial assets and financial liabilities are recognised on theLand Bank’s balance sheet when the Land Bank becomes aparty to the contractual provisions of the instrument. Financialassets and financial liabilities are initially recognised at thefair value of the consideration given or received, and subsequentlymeasured according to requirements of the categoryinto which they are classified.56

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Financial AssetsThe Land Bank classifies its financial assets in the followingcategories: financial assets at fair value through profit or loss;available-for-sale and loans and receivables. Managementdetermines the classification of its investments at initial recognition.i) Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets held fortrading, and those designated at fair value through profit orloss at inception. The Land Bank has classified derivatives asheld for trading and investments as designated at fair valuethrough profit or loss. Financial assets through profit or lossare initially recognised at fair value excluding transactioncosts and are subsequently measured the same way. Gainsor losses arising from changes in the fair value of derivativesare recognised directly in profit or loss.ii) Loans and receivablesThe Land Bank has classified loans, trade receivables andcash at bank as loans and receivables. Loans and receivablesare non-derivative financial assets with fixed or determinablepayments that are not quoted in an active market.They arise when the Land Bank provides money, goods orservices directly to a debtor with no intention of trading thereceivable. Loans and receivables are initially recognised atcost, being the fair value including transaction costs, and subsequentlymeasured at amortised cost using the effective interestrate method.Where applicable, the Land Bank has adopted trade dateaccounting for ‘regular way’ purchases or sale of financialassets. The trade date is the date that an enterprise commitsto buy or sell an asset. A ‘regular way’ contract is a contractfor the purchase or sale of financial assets that requires deliveryof the assets within the time frame generally establishedby regulation or convention in the market place concerned.Financial assets, or a portion of financial assets, are derecognisedwhen the enterprise loses control of the contractualrights or has transferred substantially all risks and rewardsof ownership that comprise the financial asset. The enterpriseloses such control if it realises the rights to benefits specifiedin the contract, the rights expire, or if the enterprise surrendersthose rights.The nature of financial assets is such that the maximum potentialloss does not differ significantly from their carryingamount.Financial liabilitiesThe Land Bank classifies its financial liabilities in the followingcategories: financial liabilities at fair value through profit orloss and financial liabilities at amortised cost. Managementdetermines the classification of its investments at initial recognition.i) Financial liabilities at fair value through profit or lossThis category has two sub-categories: financial liabilities heldfor trading, and those designated at fair value through profitor loss at inception. The Land Bank has classified derivativesand funding for which it acts a market maker as held for trading.Where derivatives are traded to hedge interest rate risk,the related funding has been designated at fair value throughprofit or loss. Financial liabilities through profit or loss are initiallyrecognised at fair value including transaction costs andare subsequently measured at fair value. Gains or losses arisingfrom changes in the fair value of derivatives and designatedfunding are recognised directly in profit or loss.ii) Financial liabilities at amortised costThe Land Bank classifies all financial liabilities that are notderivatives or designated at fair value through profit or loss atamortised cost. The amounts include medium and short termfunding that consist mainly of promissory notes, Land Bankbills, zero coupon structured notes and call bonds as well as57

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006trade payable and bank overdrafts. Financial liabilities atamortised cost are initially recognised at fair value includingtransaction costs, and subsequently measured at amortisedcost using the effective interest rate method. The carryingamount of funding liabilities where there is no stated maturityis the amount repayable on demand.Market making instruments include debentures and othercapital market stock issued by the Land Bank both purchasedand sold in order to stimulate an active market in these instruments.Those liabilities repurchased are derecognised oneach repurchase. Fair value is determined directly by referenceto published price quotation in an active market.Financial liabilities are derecognised when they are extinguished,that is when the obligation specified in the contractis discharged, cancelled, or expires.Fair valueThe fair value of financial instruments traded in active marketsis based on quoted market prices at the balance sheet date.The Land Bank may from time to time trade in financial instrumentsthat are not traded in an active market (for example, inover-the-counter derivatives). The fair value of such instrumentsis determined by using valuation techniques. The Land Bankuses a variety of methods and makes assumptions that arebased on market conditions existing at each balance sheetdate. Valuation techniques used include the use of comparablerecent arm’s length transactions, discounted cash flowanalysis or pricing models.Impairment of financial assetsthat are individually significant, and individually or collectivelyfor financial assets that are not individually significant. If theLand Bank determines that no objective evidence of impairmentexists for an individually assessed financial asset,whether significant or not, it includes the asset in a group offinancial assets with similar credit risk characteristics and collectivelyassesses them for impairment. Assets that are individuallyassessed for impairment and for which an impairmentloss is or continues to be recognised are not included in a collectiveassessment of impairment.A financial asset or a group of financial assets is impairedand impairment losses are incurred if, and only if, there isobjective evidence of impairment as a result of one or moreevents that occurred after the initial recognition of the asset (a‘loss event’) and that loss event (or events) has an impact onthe estimated future cash flows of the financial asset or groupof financial assets that can be reliably estimated. Objectiveevidence that a financial asset or group of assets is impairedincludes observable data that comes to the attention of theLand Bank.If the Land Bank determines that there is objective evidencethat an impairment loss on loans and receivables carried atamortised cost has been incurred, the amount of the loss ismeasured as the difference between the asset’s carryingamount and the present value of estimated future cash flows(excluding future credit losses that have not been incurred)discounted at the financial asset’s original effective interestrate. The carrying amount of the asset is reduced directlyagainst the account and the amount of the loss is recognisedin the income statement.i) Assets carried at amortised costThe Land Bank assesses at each balance sheet date whetherthere is objective evidence that a financial asset or group offinancial assets is impaired and makes provision for suchimpairment. The Land Bank first assesses whether objectiveevidence of impairment exists individually for financial assetsii) Assets carried at fair valueThe Land Bank assesses at each balance sheet date whetherthere is objective evidence that a financial asset or a groupof financial assets is impaired. In the case of investments classifiedas available-for-sale, a significant or prolonged declinein the fair value of the investment below its cost is considered58

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006in determining whether the assets are impaired. If any suchevidence exists for available-for-sale financial assets, thecumulative loss, which is measured as the difference betweenthe acquisition cost and the current fair value, less any impairmentloss on that financial asset previously recognised in profitor loss is reclassified from equity to profit or loss in theincome statement. If, in a subsequent period, the fair value ofan investment classified as available for sale increases andthe increase can be objectively related to an event occurringafter the impairment loss was recognised in profit or loss, theimpairment loss is reversed through the income statement.2.17 DerivativesThe Land Bank’s activities expose it primarily to the financialrisks of changes in interest rates. The Land Bank uses interestrate swaps, forward rate agreements and option contracts tohedge these exposures. The Land Bank does not use derivativefinancial instruments for speculative purposes. The use offinancial derivatives is governed by the Land Bank’s policiesapproved by the board of directors, which provide writtenprinciples on the use of financial derivatives. The Land Bankdoes not apply hedge accounting to its economic hedgingactivities.Derivatives embedded in other financial instruments or otherhost contracts are treated as separate derivatives when theirrisks and characteristics are not closely related to those ofhost contracts and the host contracts are not carried at fairvalue with unrealised gains or losses reported in the incomestatement.2.18 Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amountreported in the balance sheet when there is a legally enforceableright to offset the recognised amounts and there is anintention to settle on a net basis or realise the asset and settlethe liability simultaneously.2.19 Sale and repurchase agreementsFinancial instruments sold under agreement to repurchase areretained, but reclassified in the financial statements aspledged assets when the transferee has the right by contractor custom to sell or repledge the collateral. The counterpartyliability is included in financial liabilities as appropriate.Financial instruments purchased under agreements to resell(‘reverse repos’) are recorded as financial assets as appropriate.The difference between sale and repurchase price istreated as interest and accrued over the life of the agreementsusing the effective interest method.2.20 Cash and cash equivalentsCash and cash equivalents includes cash in hand, bank overdraftsand deposits held on call with banks.2.21 ProvisionsProvisions are recognised when the Land Bank has a presentlegal or constructive obligation as a result of past events, it ismore likely than not that an outflow of resources will berequired to settle the obligation, and the amount can be reliablyestimated.2.22 Insurance contractsSAVVEM provides compulsory long-term life insurance contractswith fixed terms to cover natural persons who areindebted to the Land Bank under mortgage loans. Premiumsare recognised as revenue when they become payable bythe contract holder. Benefits are recorded as an expensewhen they are incurred.Past claims are used as the basis for determining the extent ofclaims incurred but not reported and these are provided foras a liability and reported gross of any reinsurance asset. Ateach balance sheet date, liability adequacy tests are per-59

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006formed to ensure the adequacy of the contract liabilities. Anydeficiency is immediately charged to profit or loss by establishinga provision for losses arising from liability adequacytests.2.23 Segment informationThe principal segments of the Land Bank have been identifiedon primary business lines, (namely retail banking, corporatefinancing and micro financing) and on secondary basis onsignificant geographical basis namely the nine provinces ofSouth Africa. These bases are representative of the internalstructure for management purposes. The source and natureof business risks and returns are segmented on the samebasis.2.24 Comparative figuresWhere necessary, comparative figures have been reclassifiedto conform with changes in presentation in the currentyear.The details of the restatement of comparative figures relatingto change in accounting policies and correction of prior yearerrors is disclosed in Note 32.2.25 Critical accounting judgments and keysources of estimation uncertaintyThe preparation of financial statements in conformity withIFRS requires management to make certain estimates,assumptions and judgments that affect the reported amountsof assets, liabilities, revenue and expenses as well as the disclosureof contingent liabilities. Actual results could differ fromsuch estimates. Estimates and judgements are continuallyevaluated and are based on historical experience and otherfactors, including expectations of future events that arebelieved to be reasonable under the circumstances. The mostsignificant judgment and estimates are summarized below:i) Impairment losses on loans and advancesThe Land Bank reviews its loan portfolios to assess impairmentat each financial reporting date. In determining whether animpairment loss should be recorded in the income statement,the Land Bank makes judgements as to whether there is anyobservable data indicating that there is a measurabledecrease in the estimated future cash flows from a portfolio ofloans before the decrease can be identified with an individualloan in that portfolio. This evidence may include observabledata indicating that there has been an adverse changein the payment status of borrowers in a group, or national orlocal economic conditions that correlate with defaults onassets in the group. Management uses estimates based onhistorical loss experience for assets with credit risk characteristicsand objective evidence of impairment similar to those inthe portfolio when scheduling its future cash flows. Themethodology and assumptions used for estimating both theamount and timing of future cash flows are reviewed regularlyto reduce any differences between loss estimates and actualloss experience.During the period under review, a decision was taken to discontinuethe step up loan product. Due to the product’s historicalloss experience and the fact that no further advanceswill be made, management has made an assumption thatrecoveries from this product will be minimal. The exposurewas fully impaired at 31 March 2006.ii) Fair values of financial instrumentsThe fair value of financial instruments that are not quoted inactive markets are determined by using valuation techniques.Where valuation techniques (for example, models) are usedto determine fair values, they are validated and periodicallyreviewed by qualified personnel independent of the area thatcreated them. All models are calibrated to ensure that outputsreflect actual data and comparative market prices. To theextent practical, models use only observable data, howeverareas such as credit risk (both own and counterparty), volatilitiesand correlations require management to make estimates.60

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Changes in assumptions about these factors could affectreported fair value of financial instruments.These bonds are classified as short-term funding as the LandBank acts as the guaranteed buyer of last resort.iii) Incurred but not reportedThe estimation of the incurred but not reported insurance liabilityis determined by using historical claim data.iv) Classification and measurement of LB01 bondsThe Land Bank has elected to classify the LB01 bonds as heldat fair value through profit and loss with all movements in thefair value being accounted for in the income statement.v) Basis of allocation of segment revenue, assets andliabilitiesFunding liabilities are allocated to segments as a percentageof the loans.2.26 IFRS applicable in the futureAt the date of authorisation of these financial statements, a number of International Financial Reporting Standards andInterpretations had been promulgated, but were effective for periods after 31 March 2006.Standard or interpretation Effective date Impact of adoptionIAS 39: Fair value option 1 April 2006 Limitations on classification of financial assets and financialliabilities at fair value through profit or loss.IAS 39: Financial guarantees 1 April 2006 Financial guarantee contracts must be recognised asfinancial instruments.IFRS 7: Financial instrument disclosures 1 April 2007 Disclosure of additional information on financialinstrumentsIAS 1: Presentation of financial statements 1 April 2007 Disclosure of information on the Land Bank’s objectives,policies and processes for managing capital.IAS 19: Employee benefits 1 April 2006 Option to recognise actuarial gains and losses outsideprofit or loss.Additional disclosure regarding Group Plans and relatedparties implications thereof.Disclosure of additional information on defined benefitplans.61

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’0003 CASH AND BANK3.1 Cash at bankCommercial Banks – Land BankCommercial Bank - SAVVEM3,249,868163,249,8841,660,722171,660,7393,249,868-3,249,8681,660,722-1,660,7223.2 Bank overdraft208,5331,429208,5331,429The carrying value of cash and bank approximates fair value.At 31 March 2006, the Group had available R461 million (2005: R318 million) of undrawn committed borrowing facilities in respectof which all conditions precedent had been met.4 TRADE AND OTHER RECEIVABLESAccrued IncomeHousing loans to employeesDividends receivable from SAVVEMStep up funds with administratorsReinsurance assetOther13,2412,681-5,2201,90226,87249,91614,6323,782-3,783-1,45123,6481,6962,681-5,220-24,11933,7168893,782240,0003,783-2,700251,154The reinsurance asset arising from life insurance contracts held by SAVVEM is calculated based on the incurred but not reported lossesthat would qualify for reimbursement under the reinsurance contracts. Amounts due from re-insurers in respect of claims alreadypaid by SAVVEM on contracts that are reinsured are included in other receivables.The carrying value of trade and other receivables approximates fair value.5 REPURCHASE AGREEMENTSDetails of financial instrumentspurchasedLand Bank LB 101Land Bank LB 107Transnet T011-141,597107,409249,00619,7466,371107,944134,061-141,597107,409249,00619,7466,371107,944134,061Fair valueFinancial instruments sold under agreement to repurchase are retained in the financial statements as trading assets or investments andare accounted for as appropriate. The liability to the counterparty is included under current liabilities.Financial instruments purchased under agreements to resell are recorded as loans granted against security and included underassets. The difference between the sale and purchase price is treated as interest and accrued over the life of the repurchase orresale agreements using the effective interest rate method.The Land Bank enters into sale and repurchase agreements for periods between 1 day and 1 month in order to cover any short positionsthat the bank may experience. At the financial year end there were no instruments purchased to resell outstanding and thereforeno security has been disclosed.62

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’0006 LOANS6.1 LOAN BOOK SUMMARYLong-term loansFarmersCo-operativesEmergency flood relief5,713,5804,241,0891,466,3096,1827,114,6884,932,6702,170,38211,6365,713,5804,241,0891,466,3096,1827,114,6884,932,6702,170,38211,636Medium-term loansFarmersInstalment sale loansEmergency flood relief839,429519,930309,9499,550852,599544,306296,44811,845839,429519,930309,9499,550852,599544,306296,44811,845Short-term loansFarmersCo-operativesStep upEmergency flood relief9,873,997693,6909,052,305126,9611,04110,354,579694,9929,563,00995,3581,2209,873,997693,6909,052,305126,9611,04110,354,579694,9929,563,00995,3581,220Total gross loan bookLess impairmentsLess arrear admin and penalty fees16,427,006(1,441,649)(33,505)18,321,866(1,219,955)-16,427,006(1,441,649)(33,505)18,321,866(1,219,955)-TOTAL NET LOAN BOOK14,951,85217,101,91114,951,85217,101,911Impairments include the full impairment of the Step Up book net of client deposits of R16 million(2005:R12 million)6.2 LOAN INFORMATIONLOAN TYPEType of securityNature ofinterest rateAverage term ofrepaymentAverage interest rateLong-term loansMortgage bondVariable20 years11,04%Medium-term loansNotarial bondsVariable5-10 years15,67%Short-term loansNoneVariable1 year8,17%63

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’0006.3 Movement in impairmentOpening balanceWrite-offsTransfer to profit and loss accountClosing balance1,219,955(98,150)*319,8441,441,6491,196,308(613,754)637,4011,219,9551,219,955(98,150)*319,8441,441,6491,196,308(613,754)637,4011,219,955* Included in write offs is an amount of R18,536,157, which has been classified as material loss in terms of section 55 (b)of the PFMA. The amount represents a write off of harvested crop that was bought by the Land Bank in terms of the purchaseagreement with the client. The crop was destroyed by fire on 06 February 2002 before it could be sold back tothe client in terms of the sale agreement. In terms of the agreement, the Land Bank was responsible for insuring the crop.This was not done and the Land Bank suffered the damages. No disciplinary action has been taken against staff membersresponsible for insuring the crop, as the responsible person had resigned.6.4 Classification of impairmentRetailStep-upCFUTotal767,001114,485560,1631,441,649956,48027,743235,7321,219,955767,001114,485560,1631,441,649956,48027,743235,7321,219,9557 INTANGIBLE ASSETComputer SoftwareCostAccumulated amortisationCarrying amount at beginning of theyearAcquired during the yearCurrent year amortisationCarrying amount at end of the year13,07113,952(881)-13,952(881)13,071-------13,07113,952(881)-13,952(881)13,071------The capitalised computer software was determined to have a finite life of 3 years at acquisition. The software is amortisedusing the straight line method over a period of 3 years. A portion of the cost of the software is not amortised as it relatesto the Land Banking module, which is not in a usable state yet.8 INVESTMENTS8.1 INVESTMENTS SUMMARYTOTAL INVESTMENTSMedical Aid FundSAVVEM InvestmentsInvestment in SAVVEMVleissentraal Limited731,055157,590570,465-3,000722,704118,909600,795-3,000160,620157,590-303,000121,939118,909-303,0008.2 DETAILED ANALYSIS OFINVESTMENTS8.2.1 Medical Aid Fund (Coronation AssetManagement (Pty)Ltd)Asset allocation:EquitiesBondsCashOffshore investments157,590109,33617,7138,98921,552118,90975,37311,95713,43718,142157,590109,33617,7138,98921,552118,90975,37311,95713,43718,14264

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’000The funds are entrusted to the above mentioned Portfolio Manager for investment purposes. The funds are earmarked tofund the medical aid contributions for past employees. The investments are classified as held for trading and are disclosedat fair value. Equity investments do not include any unlisted shares. These investments are exposed to interest rate andmarket risk. The risk is managed by an Investment Committee set up to monitor the performance and activities of portfoliomanagers. The post retirement medical aid fund liability is disclosed in note 18.8.2.2 SAVVEM INVESTMENTSTotalOld Mutual Asset Management(Pty)LtdPeregrinQuant Asset Management (Pty) LtdMetropolitan Asset Management LimitedCoronation Asset Management (Pty)LtdInvestec Asset Management (Pty)Ltd570,46583,90473,42276,852171,608164,679600,79559,972133,72861,231184,999160,865------------Asset allocation:EquitiesBondsCashProperty570,465274,823202,33793,305-600,795234,390248,573111,0556,777--------All surplus funds of SAVVEM are entrusted to the above-mentioned portfolio managers for investment purposes. The investmentsare classified as held for trading and are disclosed at fair value. Equity investments do not include any unlistedshares. These investments are exposed to interest rate and market risk. The risk is managed by an Investment Committeeset up to monitor the performance and activities of portfolio managers.8.2.3 Investment in SAVVEMSAVVEM Shares - 30 30The Land Bank is a sole beneficial shareholder of this unlisted company. The company provides life insurance cover on acompulsory basis to clients that are natural persons indebted to the Land Bank under mortgage loans. Land Bank guaranteesthe solvency of SAVVEM. The company’s actuarial value of the surplus as at 31 March 2005 amounted to R406million(2005 – R542 million). The reserves of SAVVEM amounted to R484 million (2005 – R681 million), as a result, thegroup does not expect to be called upon to perform under this guarantee.8.2.4 Vleissentraal LimitedCarrying ValueLess: ImpairmentFair Value3,000-3,0005,000(2,000)3,0003,000-3,0005,000(2,000)3,000The main business of Vleissentraal Limited, of which the Land Bank holds 25% of the shares in issue, is to act as auctioneersand do business in livestock and related products. Loans granted to Vleissentraal by the Land Bank were convertedto shares in November 2002. The basis of valuation is based on an offer to purchase ofR3 million received for the shares. The Land Bank does not have any significant influence on the operations ofVleissentraal.65

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’0009 INVESTMENT PROPERTYProperties in possessionRental property70,97411,64082,61481,79124,725106,51670,97411,64082,61481,79124,725106,516The rental property is an office building located in Polokwane, Northern Province. Properties in possession comprise ofproperties repossessed by the Land Bank from clients who have defaulted on their loans. There has been a change inaccounting policy whereby properties in possession were previously accounted for as in inventory. Details are disclosed inNote 32.1 (b).The fair value of the Group’s investment property at 31 March 2006 has been determined based on a valuation performedby independent valuers. The investment property was valued at open market value with current use as the valuationbasis. The valuation is done on an annual basis. The investment property was valued at 31 March 2006 at R82.6million (2005: R106.5 million). The current lease is on a month to month basis.Land Bank GroupCost orValuationR’000AccumulatedDepreciationR’000CarryingAmountR’00010 PROPERTY AND EQUIPMENT10.1 SUMMARY2006Owned AssetsLandBuildingsComputer EquipmentFurniture, Fittings and Office EquipmentMotor VehiclesTotal owned assets27,22077,48018,10623,2522,215148,273--6,6625,76161513,03827,22077,48011,44417,4911,600135,2352005Owned AssetsLandBuildingsComputer EquipmentFurniture, Fittings and Office EquipmentMotor Vehicles21,95375,79518,10623,2512,215--3,2892,79429121,95375,79514,81720,4571,924141,3206,374134,946Land and buildings are stated at their revalued amount, under the cost model the carrying amount would beR30.8 million (2005: R37,2 million).66

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006LandR’000BuildingsR’000ComputerEquipmentR’000Furniture,Fittings &OfficeEquipmentR’000MotorVehiclesR’000TotalR’00010.2 RECONCILIATION2006Opening balance at 1 April 2005AdditionsDisposalsDepreciationFair value adjustmentsClosing balance at 31 March 200621,953---5,26727,22075,795--(1,516)3,20177,48014,81711,796(3,694)(3,373)(8,102)11,44420,457873(472)(2,966)(401)17,4911,924-(773)(324)7731,600134,94612,669(4,939)(8,179)738135,2352005Opening balance at 1 April 2004AdditionsDisposalsDepreciationFair value adjustmentsClosing balance at 31 March 200510,720---11,23321,95334,877223-(1,509)42,20475,7952,1587,937(39)(3,289)8,05014,8173,543304(14)(2,794)19,41820,457100261(50)(291)1,9041,92451,3988,725(103)(7,883)82,809134,94610.3 LAND BANK AND GROUP PROPERTY VALUATIONSLand and buildings comprise the following properties that were independently valued during February 2006, on the basisof open market value for existing use. Valuations are performed at least every year. The previous valuation at January2005, valued land at R22million (2006: R27million) and buildings at R76million (2006: R77million).Carrying amount2005LandR’000Carrying amount2005BuildingsR’000Carrying amount2004LandR’000Carrying amount2004BuildingsR’0007303,6251,9151,0478,3002,1504,2551,2001,5601,7001,1601,1472,0003,9009432,5254,55082022,2236,8001,0208551,37075,795Erf 577 Beaufort WestErf 180.3 BethlehemErf 773 BloemfonteinErf 146 CalviniaErf 3865 Cape TownScheme 25/1979 Cape TownErf 3825 CradockErf 1926 ErmeloErf 2108 GeorgeErf 13 HeidelburgErf 7777 KroonstadErf 107.7 LichtenburgErf 978 MiddelburgErf 203 ModimolleErf 46 NelspruitErf 2413 PietermaritzburgErf 3127 Port ElizbethErf 132.1 PotchefstroomErf 3505 PretoriaErf 1480.1 RustenburgErf 2064 UpingtonErf 5825 VryburgErf 672.16 Vryheid310790510502,70001101,0003,2504503204501,6008905901,3503,0001,6703,2003,45055074024027,2201,4504,3602,9801,4002,1204,1005,4508901,0501,4502,7201,1508005,1101,7902,4106,2002,17022,9001,1502,9901,4801,36077,480214751,000127,2000955001,5005001901381,6005003724351,5009302,0001,50069034545021,95367

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00011 RESERVES11.1 RETAINED EARNINGSDistributableGeneral ReserveCapital FundInterest Equalisation fundSilver and Bronze Development FundInsurance FundDevelopment Fund(26,789)200,955100,000310,145932,843135,2841,652,43820,429-100,000332,973794,143188,5481,436,093281,104200,955100,000310,145-135,2841,027,488330,405-100,000332,973-188,548951,92611.2 REVALUATION RESERVENon-distributableRevaluation of property69,01560,51969,01560,519Total reserves1,721,4531,496,6121,096,5031,012,44511.3 DESCRIPTION OF EQUITYCOMPONENTSGeneral ReserveCapital FundInterest equalisation fundDevelopment FundSilver and Bronze Development FundInsurance fundRevaluation ReserveThe General Reserve is a component of retained earnings and represents theaccumulated net surplus of the Land Bank after allocation to other reserves withinretained earnings.The Capital Fund consists of appropriations by government to the Land Bank from1936 up to 1979 when they were discontinued. This was a loan with no fixedterms of repayment and fixed interest rates varying between 3.5% and 4.75% perannum. The loan was converted to equity in the financial year under review (referDirector’s Report: Going Concern for further details).The Interest Equalisation Fund is a component of retained earnings that was earmarkedto cover differences during periods of declining interest rates between theLand Bank’s long-term funding costs and interest earnings on long and mediumtermloan portfolios.The Development Fund is a component of retained earnings and arose through adecision by the Board of Directors to implement a notional tax deduction of 35%on net profit for the purpose of development funding. Movements in this fund forthe years ended 31 March 2006 and 2005 comprise development loans writtenoff and provisions for any such doubtful loans. The transfer to the DevelopmentReserve, when applicable, is done through the statement of changes in equity.The Silver and Bronze Development Fund is a component of retained earningsand arose through a decision by the Board of Directors to calculate a notionaldividend of 15% on "after tax" profits, as no dividends are paid to governmentwhich is the Land Bank’s sole shareholder. Movements in this fund for the yearsended 31 March 2006 and 2005 comprise silver and bronze loans written offand provisions for any such doubtful loans. The transfer to the Silver and BronzeDevelopment Fund, when applicable, is done through the statement of changes inequity.The Insurance Fund is a component of retained earnings and represents theaccumulated net surplus of SAVVEM from long-term insurance activities.The Revaluation Reserve represents the net surplus arising on the revaluation ofproperties.68

Notes to the Financial Statementsfor the 12 Months Ended 31 March 20062006R’000Land Bank Group2005R’0002006R’000Land Bank2005R’00012 MARKET MAKING LIABILITIESAt fair value91,38757,00791,38757,007Contractual amount payable (LB01)27,50813,79127,50813,79113 DERIVATIVE INSTRUMENTS13.1 DERIVATIVE ASSETSFair ValueInterest rate swaps223,996604,190223,996604,190Notional principalInterest rate swapsWithin 1 yearBetween 1 and 5 years1,871,469185,4481,686,0212,738,331525,8712,212,4601,871,469185,4481,686,0212,738,331525,8712,212,46013.2 DERIVATIVE LIABILITIESFair ValueInterest rate swapsOTC options30,95330,8599446,58446,584-30,95330,8599446,58446,584-Notional principalInterest rate swaps- within 1 year- between 1 and 5 years- greater than 5 years1,896,629200,0001,178,817517,812892,04056,83317,395817,8121,896,629200,0001,178,817517,812892,04056,83317,395817,812OTC options- within 1 year9494685685949468568514 TRADE AND OTHER PAYABLESGovernment grants for land distributionAccrued expensesInterest received in advanceLoan costs and fees received inadvanceDecimax depositFinance leasesSAVVEM – intercompany balancesOtherThe carrying value of trade and otherpayables approximates fair value.Finance leases are payable as follows:6,210154,415-5,543---579166,7479,834118,7466335,43262,8626,946-3,084207,5376,210157,476-5,543-39,141579208,9499,834118,7516336,68262,8626,94625,9387,603239,249Minimum lease paymentsPresent value of minimum leasepayments payablePayable within 1 year2 – 5 Years---6,9462,3884,558---6,9462,3884,55869

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00015 INSURANCE CONTRACTS15.1 Notified claimsIncurred but not reported3533,5003,8537854,5005,285------15.2 ACTUARIAL ASSUMPTIONS15.2.1 Process used to decide on assumptionsFor long-term insurance contracts estimates are made in two stages. At inception of the contract, SAVVEM's actuary determinesassumptions in relation to future deaths, investment returns and administration expenses. These assumptions are usedfor calculating the premiums payable during the life of the contract. A margin for risk and uncertainty is added to theseassumptions. These assumptions are ‘locked in’ for the duration of the contract.Subsequently, at each reporting date, an actuarial valuation of the liabilities under the in-force insurance contracts is done,using assumptions that are based on best estimates of the current and expected future economic and demographic environment.Margins are added to the valuation assumptions for risk and uncertainty. The actuarial valuation is used to determinewhether assets adequately cover the liabilities. Any change over the reporting year in the excess of assets over liabilitiesis analysed into the various components that gave rise to the change, which include differences between the actualand expected experience of the main actuarial assumptions regarding mortality, investment return and expenses. Theassumptions used for the valuation of the insurance contracts are as follows:• MortalityAn appropriate base table of standard mortality is used. Mortality rates are adjusted to allow for expected deteriorationin mortality experience as a result of AIDS.• Investment returnsThe investment return assumption is based on the weighted average of assumed future returns on a number of asset classesthat comprise a portfolio of investments that is considered appropriate for the underlying insurance business. Allowanceis made for investment expenses and taxation. The assumption used for the 31 March 2006 actuarial valuation was7.85% (2005: 8.1%) per annum. Currently SAVVEM is exempt from tax.• Administration expenses and inflationThe current level of expenses is considered when determining the expense assumption. Expense inflation is allowed forbased on current and expected future levels of inflation. The expense assumption used for the 31 March 2006 valuationwas 10% (2005: 11%) of current premiums, assumed to increase in line with inflation of 4.0% (2005: 4.5%) per annum.15.2.2 Change in assumptionsFor the 31 March 2006 actuarial valuation, the assumptions for investment return, mortality and expenses were changedto reflect current and expected future experience.70

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00015.3 Insurance contract reconciliationsNotified claimsIncurred but not reportedTotal at 1 April 2005Cash paid for claims settled in yearIncrease / (decrease) in liabilityTotal at 31 March 20067854,5005,285(12,019)10,5883,8543,961-3,961(17,889)19,2135,285------------Made up as follows:Notified claimsIncurred but not reported3,8543543,5005,2857854,500------15.4 Analysis of surplusThe excess of the assets over the liabilities amounted to R590,6 million as at 31 March 2006 (2005: R406.3 million). Thisrepresents an increase in the surplus of about R140,8 million from that at the previous valuation. The increase is analysed inthe table below.Surplus at 1 April406,330542,080--Plus: Surplus arising from:Investment incomeActual death claims being lessthan expectedEarly termination of policiesPolicy changes (e.g. mortgageinterest rate)Change in valuation basisCorrection to data that waspreviously wrongDecrease in IBNR203,224126,75912,5458,2742,90035,28716,4591,000124,239111,5977,30710,691(5,356)-------------------Less: Deficit arising from:Expenses being more thanexpectedNew business strainMargin in valuation for non-zeroreservesIncrease in reserve for dataerrorsDividend paymentOther factors18,9644,9303,3903,2735,000-2,371259,9894,932-3,421240,00011,636---------------Surplus at 31 March590,590406,330--71

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00016 FUNDING16.1 FUNDING SUMMARYShort term fundingMedium term fundingLong term fundingTotal Funding11,725,6865,511,96320,83317,258,48213,452,3274,800,694225,95418,478,97511,725,6865,511,96320,83317,258,48213,536,7914,800,694225,95418,563,439The carrying value of funding liabilitiescomprises of amounts measured atamortised cost and fair value. Thetotal funding fair value and contractualamounts owing are as follows:16.2 DETAILED ANALYSIS OF FUNDING16.2.1 Short-term fundingAt fair valuePromissory notes4,006,1822,068,6341,641,692295,8563,923,4422,072,4751,515,720335,2474,006,1822,068,6341,641,692295,8563,923,4422,072,4751,515,720335,247At amortised costPromissory notesBillsCall bondsCo-operative depositsSmall institutional depositsForced stock sale depositsNational Department of AgriculturedepositSAVVEM Call accountClients’ deposits7,719,5045,754,585670,892489,000297,833103,519341,62314,172-47,8809,528,8857,446,180814,473412,000322,715104,000388,60014,953-25,9647,719,5045,754,585670,892489,000297,833103,519341,62314,172-47,8809,613,3497,446,180814,473412,000322,715104,000388,60014,95384,46425,964Total short-term funding11,725,68613,452,32711,725,68613,536,791Average effective interest rate for theLand Bank and Land Bank GroupPromissory notesBillsCall bonds7.14%6.78%6.81%7.14%7.51%7.27%7.14%6.78%6.81%7.14%7.51%7.27%Land Bank DebenturesThe debentures are publicly traded on the Bond Exchange of South Africa. The LB101 is redeemable on 30 June 2010and pays interest at 11.5% per annum. The LB107 is redeemable on 15 August 2007 and pays interest at 11% per annum.The Land Bank acts as a buyer of last resort for the LB101 and LB107 debentures. The repurchased debentures are thenresold in the market to obtain further funding.The Land Bank has elected to carry the debentures at fair value through profit and loss.72

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00016.2.2 Medium-term fundingAt fair valueMedium-term promissory notesZero coupon structured notes676,169676,169-1,118,972682,574436,398676,169676,169-1,118,972682,574436,398At amortised costFloating rate promissory notes4,835,7943,681,7224,835,7943,681,722Total medium-term funding5,511,9634,800,6945,511,9634,800,694Average effective interest rate for theLand Bank and Land Bank GroupPromissory notesBills7.14%6.78%7.14%7.51%7.14%6.78%7.14%7.51%16.2.3 Long-term fundingCapital Fund (Note 11)Industrial Development Corporation-20,833200,95425,000-20,833200,95425,000Total long-term funding20,833225,95420,833225,954Industrial Development CorporationA loan of R25 million was obtained at an interest rate of 7.0% p.a. from the Industrial Development Corporation of SouthAfrica for assistance in the Land Bank’s emergency flood relief programme. The loan is repayable in 60 instalments overa period of 5 years, starting on 1 June 2005 and requires only interest repayments during the first 4 years. The loan isspecifically earmarked for the granting of special mortgage loans at a subsidised interest rate of 10% p.a.73

Notes to the Financial Statementsfor the 12 Months Ended 31 March 200617 PROVISIONS17.1 Land Bank Group2006 OpeningBalanceMovement forthe yearPaid outClosingbalancePerformance BonusAccumulated leave8,82210,29219,1142,7125 ,5258,237-(3,351)(3,351)11,53412,46624,0002005 OpeningBalanceMovement forthe yearPaid outClosingbalancePerformance BonusRestructuringAccumulated leave-5,7269,70415,4308,822-4,34613,168-(5,726)(3,758)(9,484)8,822-10,29219,114Land Bank2006 OpeningBalanceMovement forthe yearPaid outClosingbalancePerformance BonusAccumulated leave8,82210,29219,1142,7125,4758,187-(3,351)(3,351)11,53412,41623,9502005 OpeningBalanceMovement forthe yearPaid outClosingbalancePerformance BonusRestructuringAccumulated leave-5,7269,70415,4308,822-4,34613,168-(5,726)(3,758)(9,484)8,822-10,29219,114Accumulated leave is payable to employees when the leave is taken or on resignation.74

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00018 POST RETIREMENTOBLIGATIONS18.1 OBLIGATIONS SUMMARYMedical Benefit PlanPost Retirement Benefit PlanTotal post retirement benefit155,76225,459181,221153,17223,000176,172155,76225,459181,221153,17223,000176,17218.2 MEDICAL BENEFIT PLANValuation AssumptionsDiscount rateContinuation of membership at retirementAverage retirement age% P.A7.510065 years% P.A8.510060 years% P.A7.510065 years% P.A8.510060 yearsMembership dataNumber of members543555543555Pensioners:Number of pensioners340883348903340883348903Reconciliation of benefit obligationsDefined benefit obligation at 1 AprilService costsInterest costUnexpected actuarial (gain)/ lossExpected Employer Benefit PaymentsDefined benefit obligation at31 March153,1723,73812,694(6,192)(7,650)155,762147,6893,85813,008(5,080)(6,303)153,172153,1723,73812,694(6,192)(7,650)155,762147,6893,85813,008(5,080)(6,303)153,172Components of net periodic medicalbenefit costCurrent service costInterest costExpected Employer Benefit PaymentsRecognised actuarial gain / (loss)(3,738)(12,694)7,6506,192(2,590)(3,858)(13,008)6,3035,080(5,483)(3,738)(12,694)7,6506,192(2,590)(3,858)(13,008)6,3035,080(5,483)75

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00018.3 POST RETIREMENT BENEFIT PLANValuation AssumptionsDiscount RateConsumer price inflationExpected return on fund assetsPension increasesMembership dataActive members:NumberPensioners:NumberReconciliation of Benefit ObligationBenefit obligation at 1 AprilService costsInterest costMembership contributionActuarial lossBenefits paidBenefits obligation at 31 MarchReconciliation of Fund AssetsFair value of fund assets at 1 AprilExpected return on assetsEmployer contributionMember contributionActuarial loss/(gain)Benefits paidFair value of fund assets at 31 MarchValuation results at 31 March% P.A7.34.510.03.0625108191,11617,53113,9518,76640,496(21,655)250,205168,05317,03717,5318,76635,014(21,655)224,746% P.A7.94.010.02.7628110187,34415,77714,8007,88918,101(52,795)191,116170,44215,58815,7777,88911,152(52,795)168,053% P.A7.34.510.03.0625108191,11617,53113,9518,76640,496(21,655)250,205168,05317,03717,5318,76635,014(21,655)224,746% P.A7.94.010.02.7628110187,34415,77714,8007,88918,101(52,795)191,116170,44215,58815,7777,88911,152(52,795)168,053Fair Value of fund assetsFair value of benefit obligationBalance sheet liability at year endComponents of net periodic pensionbenefit costCurrent Service costInterest costExpected return on assetsRecognised actuarial (gains)/lossesPeriodic Pension costEmployer contributionsNet Periodic Pension Cost224,746(250,205)(25,459)17,53113,951(17,037)5,48219,927(17,531)2,396168,053(191,053)(23,000)15,77714,737(15,588)6,94921,875(15,777)6,098224,746(250,205)(25,459)17,53113,951(17,037)5,48219,927(17,531)2,396168,053(191,053)(23,000)15,77714,737(15,588)6,94921,875(15,777)6,09876

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00019 INTEREST INCOMERetailDevelopment projectsWholesaleTotal loansCommercial BanksOther597,82219,535909,2831,526,640107,2333,2651,637,138760,777114,544847,6761,722,997128,9091021,852,008597,82219,535909,2831,526,640107,2333,2651,637,138760,777114,544847,6761,722,997128,9091021,852,008Excluded from interest income isincome on impaired loans of R172 million.20 INTEREST EXPENSEFundingDeposits and credit balancesCapital fundCommercial banksGovernment guarantee1,165,10951,235-1,2244,5501,222,1181,221,13561,3958,9991,441-1,292,9701,165,10953,875-1,2244,5501,224,7581,221,15563,3038,9991,441-1,294,89821 PREMIUM INCOMEInsurance premiums receivedInsurance premiums accrued15,87511,54527,42016,16213,74329,905------22 NON-INTEREST INCOMEAccount administration feesMarket making gains/(losses)Rent received - Investment PropertyProfit / (Loss) on sale of property andequipmentInvestment property IncomeDividend receivedGovernment grantsLoans written off recoveredOtherCommission earnedLoans written off in excess of securityvalues reinstatedProperties in Possession written off inexcess of security values reinstated27,255-2,6483301,680-(529)78,8509724090,33391,980292,88426,0535,3102,569(4,598)-25320627,3961,4881,257-59,934-27,255-2,6483301,680-(529)78,85065424090,33391,980293,44126,7125,3102,569(4,598)-240,25320627,3961,4881,257-300,593-77

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00023 OPERATING EXPENSES23.1 LAND BANKAudit Fees (External)For auditUnder provisioning prior yearAudit fees (Internal)Commission paidDirector’s emoluments (note 23.2.1)Legal feesLicenceDepreciationAmortisation – computer softwareMarketingLeasesPersonnel costsContributions to Retirement FundContribution to Medical Aid FundSalariesPrintingProfessional feesRates and taxesProperty and equipment repairs andmaintenanceInvestment property repairs andoperating expensesSecurityPostage, telephone etc.Leave accruedRetirement fund shortfallMedical aid fund shortfallBusiness process re-engineeringRestructuring costsCorporate social investmentFixed asset scrappedManagement feesDispute settlement (Note 27)Insolvency costsAdministration costsComputer and data expensesTravel and accommodationCleaningBank chargesOther4,0253,8212042,4611,6724,82310,9072,8158,17988121,09810,263195,20717,9859,869167,3532,42334,6094,2442,8983,4461,2137,9835,7042,4592,590-10,9247,241-2,88131,7331,07817,29910,03511,2252,2951,006425,61718,983444,6004,0762,7871,2892,2024,0464,0929,0052,0945,097-15,8773,168180,80516,4358,929155,44131411,9783,7054,7563,2201,1777,9764,3256,0985,48334,7166214,519215,489-15,22711,30229,9578,0492,0421,028392,46523,424415,8893,9263,7222042,4611,6724,51810,9072,8158,17988121,09810,263194,62717,9309,845166,8522,41934,2004,2442,8983,4461,2137,9715,6392,4592,590-10,9247,241-17931,7331,07816,50210,03511,2142,2951,006420,61718,846439,4794,0762,7871,2892,2024,0463,9119,0052,0945,097-15,8773,168180,80516,4358,929155,44131411,9783,7054,7563,2201,1777,9764,3256,0985,48334,7166214,519215,489-15,22711,30229,9578,0492,0421,028392,28423,394415,678In the current year an amount of R36.480million was paid to Knox D’Arcy in settlement of their contract. An amount ofR34.716million was accrued in the previous year.78

Notes to the Financial Statementsfor the 12 Months Ended 31 March 200623.2 REMUNERATION23.2.1 Director’s emoluments2006LAND BANKSalaries Bonuses Fees Other TotalExecutive DirectorsAT Mukoki (CEO)2,006,0402,006,0401,000,0001,000,000----3,006,0403,006,040Non Executive DirectorsJPR Mbau *SM MkhabelaNJ Canca *NP Makgalemele *MM Mbongwa *LG MazwaiJRD Modise *CJ van Rooyen *Adv. KD Moroka *ER Bosman **CP Davies **SNO Choane **NV Lila **RK Morathi **MD Tlhagale **NJ Nduli **LM Nyhonyha **JJ Dique **--------------------------------------1,475,974133,998177,98360,08651,59437,906227,90889,33089,28041,00664,15698,86346,30093,92463,84653,56853,25874,12418,84336,2171,7749,469955284-2,5781,8451,665478---3,6893,4159453884,2104,5221,512,191135,772187,45261,04151,87837,906230,48791,17590,94541,48464,15698,86346,30097,61367,26154,51353,64678,33423,365Total2,006,0401,000,0001,475,97436,2174,518,231SAVVEMLG MazwaiCJ van Rooyen*NP Makgalemele *JRD Modise *NJ Canca *JPR Mbau *ER Bosman **CP Davies **SNO Choane **NV Lila **RK Morathi **NJ Nduli **LM Nyhonyha **--------------------------47,02610,58826,16021,50925,85010,27810,58831,14410,58841,11210,5885,29431,14471768284615478--18,920-473--1,13647,09711,35626,44422,12426,32810,27810,58850,06410,58841,58510,5885,29432,280Total--281,86922,745304,614Group directors’ emoluments2,006,0401,000,0001,757,84358,9624,822,845* Resigned 30 September 2005** Appointed 1 October 200579

Notes to the Financial Statementsfor the 12 Months Ended 31 March 20062005LAND BANKSalaries Bonuses Fees Other TotalExecutive DirectorsMP Fandeso (CEO) *AT Mukoki (CEO)**1,373,802539,525834,277---------1,373,802539,525834,277Non Executive DirectorsJPR MbauSM MkhabelaNJ CancaLA MakeneteNP MakgalemeleMM MbongwaLG MazwaiMM MbongwaJRD ModiseCJ van RooyenAdv. KD Moroka--------------------2,347,288405,177255,052306,654156,635195,016146,709245,706362,760101,280172,299190,05124,73638,13916,85112,8999,99245,3416,87212,06213,1999,9602,537,339429,913293,191323,505169,534205,008192,050252,578374,822114,479182,259Total1,373,802-2,347,288190,0513,911,141SAVVEMMM MbongwaLG MazwaiCJ van RooyenNP MakgalemeleJRD ModiseNJ CancaJPR MbauLA MakeneteAdv. KD Moroka--------------------20,55621,17610,58830,28115,57226,53524,74119,6936,281175,4231892131,1351,2195688591,135969716,35820,74521,38911,72331,50016,14027,39425,87620,6626,352181,781Group directors’ emoluments1,373,802-2,522,711196,4094,092,922* Resigned 31May 2004** Appointed 1 November 2004Details of service contracts of directorsThe Minister may, in terms of the provisions of the Land Bank Act, 15 of 2002 appoint a board member for such period as theMinister may determine in the case of each member but such period may not exceed five years. All directors, except the CEO, arenon-executive directors. The current non-executive directors were appointed on 1 October 2005 for a term between 2 to 5 yearswhich expires between 30 September 2007 and 30 September 2010.The Minister for Agriculture and Land Affairs must in consultation with the Minister of Finance determine the remuneration, allowancesand other benefits of the chairperson and the board members and that remuneration and those allowances must be paid out of thefunds of the Land Bank.80

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00023.2.2 Past directorsPensions paid to past directorsGeldenhuys IMalan EMVan der Walt HPSchoeman JCMaree FEBradley MMMartins BJFVan der Merwe SJNaude PB45,25741,27180,96258,82968,16255,790(589)106,366210,502666,55042,89839,11976,74255,76264,60848,47529,976100,821199,528657,92945,25741,27180,96258,82968,16255,790(589)106,366210,502666,55042,89839,11976,74255,76264,60848,47529,976100,821199,528657,929Pensions paid to past directors are included in the amount disclosed under personnel costs in note 23.1.23.2.3 Loans to DirectorsNo loans were advanced to current and past directors in the current year. (2005 – nil)23.2.4 Salaries paid to General Managers2006 Basic salaryRMedical,pension andothercontributionsRBonusRTotalRAlan MukokiXolile NcameSelby MokgothoVictor RamsinghHerman MoeketsiGeorge OrichoRoger Lawrence *Godfrey MasilelaPhumla Ramphele **Jabulani Sibisi ***Ntsietso Mofokeng ****Nkosinathi Mbetha *****Gerhard Hechter ******Nick Maredi *******CEOCFOGM OperationsGM Human ResourcesGM MarketingGM CEO’s OfficeGM Information TechnologyGM RiskGM CreditActing GM Human ResourcesGM LegalGM DevelopmentChief Risk OfficerGM Information Technology1,686,6451,128,0901,718,733825,788862,624845,355641,770680,0761,051,260663,363718,971277,303564,98287,71411,752,674319,395171,95087,591155,547130,544134,88390,690107,974148,740637105,63339,36460,01845,0651,598,0311,000,000390,000------------1,390,0003,006,0401,690,0401,806,324981,335993,168980,238732,460788,0501,200,000664,000824,604316,667625,000132,77914,740,705* GM Information Technology until 12 November 2005** GM Credit from 1 April 2005*** Acting GM Human Resources from 10 August 2005**** GM Legal from 1 December 2005***** GM Development from 1 December 2005******* Chief Risk Officer from 10 October 2005********* GM Information Technology from 20 February 200681

Notes to the Financial Statementsfor the 12 Months Ended 31 March 200623.2.4 Salaries paid to General Managers2005 Basic salaryRMedical,pension andothercontributionsRBonusRTotalRAlan Mukoki *Xolile Ncame **Kgosi Tshikare ***Selby MokgothoVictor RamsinghHerman MoeketsiGeorge OrichoRoger LawrenceMonwabisi Fandeso ****Godfrey MasilelaCEOCFOCFOGM OperationsGM Human ResourcesGM MarketingGM CEO’s OfficeGM Information TechnologyCEOGM Risk696,611283,701566,4771,082,504629,998742,959714,871700,097731,586640,625137,66641,56480,382123,983105,797114,433113,688104,43347,50093,875--165,666--59,625131,565111,360-51,234834,277325,265812,5251,206,487735,795917,017960,124915,890779,086785,7346,789,429963,321519,4508,272,200* CEO from 01 November 2004** CFO from 01 January 2005*** CFO until 31 October 2004**** CEO until 31 May 2004Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00024 FAIR VALUE GAINS/(LOSSES)Financial instruments – Mark to MarketInvesting activitiesVleissentraal investment(35,009)167,537-132,5282,790142,597(2,000)143,387(35,009)39,368-4,3592,79032,908(2,000)33,69825 CASH FLOW STATEMENT25.1 Cash & Cash EquivalentsCash and cash equivalents consist of cash on hand, demand deposits and high liquid investments that are readily convertibleto known amounts of cash and are subject to an insignificant risk in changes in value and comprises:Cash at bankBank overdraft3,041,3513,249,884(208,533)1,659,3101,660,739(1,429)3,041,3353,249,868(208,533)1,659,2931,660,722(1,429)82

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00025.2 Cash generated from operatingactivitiesNet Profit/(Loss)Adjusted for:Impairment of loansFair value adjustmentsDepreciationLoss /(Surplus) on sale of assetsSoftware amortisationNon cash incomeBond feesFair value losses on properties inpossessionLoss on sale of properties inpossessionOther15,390319,844(132,528)8,179(330)881(182,313)1,1536,44669,8048,337114,863(330,102)637,401(40,009)7,833(4,598)--6,169(15,387)4,86852,978319,153(125,393)319,844(4,359)8,179(330)881(182,312)1,1536,44669,8044,83798,750(207,579)637,40169,6807,833(4,598)--6,169(15,387)4,868(67,071)431,316Increase/(decrease) in loans2,150,059(2,751,250)2,150,059(2,751,250)Additions to properties in possession(55,077)(149,029)(55,077)(149,029)Movement in working capitalTrade and other receivablesRepurchase agreementsDerivative assetsMarket making liabilitiesDerivative liabilitiesTrade and other payablesInsurance contractsProvisionsPost employment obligations225,443(26,268)(114,945)380,19434,380(15,631)(40,790)(1,432)4,8865,049(186,482)14,764883,636(189,710)(911,069)(35,586)41,503(5,285)6,4318,834481,021217,438(114,945)380,19434,380(15,631)(30,300)4,8365,049(628,379)(229,097)883,636(189,710)(911,069)(35,586)(161,818)6,4318,8342,435,288(2,767,608)2,674,753(3,097,342)25.3 (Decrease)/increase in long-termfunding(205,121)1,641,308(205,121)1,567,82825.4 (Decrease)/increase in short-termfundingIncrease in debenturesIncrease/(decrease) in promissorynotesIncrease/(decrease) in bills payableIncrease in call bondsDecrease in OptionsIncrease/(decrease) in deposits(1,726,641)122,131(1,730,987)(143,581)77,000-(51,204)(867,954)(943,881)47,09030,000(1,422)259(1,811,105)122,131(1,730,986)(143,581)77,000-(135,669)(791,635)(943,881)47,09030,000(1,422)76,57883

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00025.5 Increase in medium-term fundingIncrease in medium-term promissorynotesIncrease/(decrease) in PromissorynotesIncrease in zero coupon structurednote(6,405)1,154,072(436,398)711,26916,8891,905,24952,7241,974,862(6,405)1,154,072(436,398)711,26916,8891,905,24952,7241,974,86226 COMMITMENTS & GUARANTEES26.1 COMMITMENTSLoans granted but not yet paid outIndividual farmersCooperatives382,6642,856,3693,239,033710,3415,171,7895,882,130382,6642,856,3693,239,033710,3415,171,7895,882,130Debentures/stock purchasedLand Bank debenturesNominal value 2006 –R Nil (2005:R10million)Other institutional stockNominal value – 2006 – R4million(2005: R Nil)-4,9014,90110,726-10,726-4,9014,901100-100Debentures/Stock soldLand Bank debenturesNominal value 2006 –R35million(2005: R24million)Nominal value 2006 –R83million(2005: R1,68million)143,701108,725252,42626,857199,713226,570143,701108,725252,42626,857199,713226,570The unrealised profit on unsettled trades at 31 March 2006 amounts to R247,525 million (2005: R215,844million)Capital projectsSAP Banking/Financial system 67,239 76,039 67,239 76,039The Land Bank has implemented SAP accounting system on 15 November 2005 and a new banking system to replacethe current system will be implemented on 01 October 2006.84

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006Land Bank GroupLand Bank2006R’0002005R’0002006R’0002005R’00026.2 GUARANTEESGuarantees in respect ofco-operativesGuarantees in respect of loans tofarmers281,02576,214357,239333,293101,205434,498281,02576,214357,239333,293101,205434,498These are amounts guaranteed but it is unknown when the guarantees will be presented for payment.27 CONTINGENT LIABILITIESLitigation against the Bank - 22,037 - 22,037A claim was brought by the liquidators of the Land Bank’s clients in respect of costs incurred in the maintenance and runningof the client’s properties during liquidation. The liquidators claimed that the Land Bank had mandated them to incurcosts to maintain the property to the value of R22million. The Land Bank had defended the claim but lost the appeal. TheLand Bank has paid R31,7million post year-end in respect of this litigation. This expense was accrued for at 31 March2006 (refer note 23.1).28 RELATED PARTY INFORMATION28.1 SUBSIDIARYSAVVEM is a subsidiary of the Land Bank. All the business of SAVVEM is administered by Land Bank at an agreedmonthly administration fee of R5.00 per policy.Balances at 31 MarchAmounts owed to SAVVEM byLand Bank- Current account- Deposits on call39,141-39,14125,93784,466110,403Transactions for the year ended31 MarchNet interest paid by Land BankPolicy administration fees received byLand Bank from SAVVEM2,640(557)2,08328.2 OTHER RELATED COMPANYThe Land Bank took 25% of the shares of Vleissentraal in lieu of a debt owed to it. During the year under review therewere no transactions entered into between the Group and Vleissentraal Limited.1,907(657)1,25085

Notes to the Financial Statementsfor the 12 Months Ended 31 March 200629 DIRECTORS AND KEY MANAGEMENT PERSONNEL2006R2005R29.1 Compensation of key management personnel of the GroupShort-term and post-employment benefits 18,140,495 10,751,759Included in the above amount is the compensation for the Directors, General Managers and other key management personnelof the Land Bank. The non-executive directors do not receive pension entitlements from the Group.29.2 Directors and key management interests29.2.1 Loan debtorsA General Manager and two Non- Executive Directors have interests in the entities below which have loans with the LandBank:Profert Eastcape (Pty) Ltd *Senwes Ltd **Julu Investments CC **** CP Davies, a non-executive director of the Bank is also a director of Profert Eastcape (Pty) Ltd** JJ Dique, a non-executive director of the Bank is a shareholder and Managing Director of Senwes Ltd*** GO Oricho, a General Manager of the Bank is a member of Julu Investments CC. This loan was re-paid before 31March 2006.29.2.2 Other interests• L Nyhonyha, a Non-Executive Director has an equity interest in FFO Securities Limited, which has a contractwith the Land Bank to trade in call bonds at normal market prices.• RK Morathi, a Non-Executive Director is the Chief Operating Officer of the Industrial Development Corporation(IDC). The Land Bank has a loan from the IDC for assistance in the Land Bank’s emergency flood relief programme.86

Notes to the Financial Statementsfor the 12 Months Ended 31 March 200630 RISK MANAGEMENTThe Group’s risk management objectives and strategies identify the following main risks:1. Credit risk2. Liquidity risk3. Interest Rate risk4. Price risks / Fair Value risks5. Insurance risk30.1 CREDIT RISKCredit risk is defined as the risk that counterparties will fail to honour their financial obligations to the Land Bank Group onthe original contracted dates.LoansThe Land Bank has a Credit Committee that approves loans to the Land Bank’s clients and the aim of this committee is toreduce the credit risk to the Land Bank.Investment and Derivative Financial AssetsThe Group limits counterparty exposure arising from financial instruments by only dealing with well established financialinstitutions of high credit rating.For transactions with counterparty with low credit ratings, daily cash flow margins are in place to mitigate counterpartyexposure.30.2 LIQUIDITY RISKLiquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments to borrowers andlenders. The Group's liquidity requirements are mainly for disbursing approved loans, settling funding liabilities when theyfall due and for day to day operations.To manage this risk the Land Bank Group maintains funds in call and current accounts. Cash flow is managed on a dailybasis by the Treasury department. The Land Bank has unutilized overdraft facilities of R461 million with major South Africancommercial banks. The Land Bank has arrangements with all major Banks to reduce the concentration risk of deposits.30.3 INTEREST RATE RISKCash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes inmarket interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because ofchanges in market interest rates.The Land Bank manages this risk by:a) Ensuring assets and liabilities are linked to floating ratesb) Entering into interest rate swaps, in which the Land Bank agrees to exchange, at specified intervals, the difference fixedand variable interest amounts calculated by reference to the agreed upon notional principal amount.c) An Interest Rate Committee, the aim of which is to reduce risk associated with the Land Bank’s on lending interest rates.d) An Asset and Liability Management Committee which utilises the ALMAN system for modelling. This committee isresponsible for the implementation and monitoring of risks management processes to ensure that the risks arising fromlending activities are effectively managed within approved risk parameters.The table below summarises the Group’s exposure to interest rate risks. Included in the table are the Group’s assets andliabilities at carrying amounts, categorised by the earlier of contractual re-pricing or maturity dates. The carrying amountsof derivative financial instruments, which are principally used to reduce the Group’s exposure to interest rate movements,are included under the heading ‘Non-interest bearing’. Interest rate risk is managed based on contractual cash flows andsince these do not differ significantly from expected cash flows.87

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006LIQUIDITY AND INTEREST RATE RISK PROFILE – GROUP2006 R m R m R m R m R mASSETSFixed rateRepurchase agreementsOn Demand249,006Within1 Year-1 – 5 Years Greater than5 Years--Total249,006Floating rateLoansCash and cash equivalents-3,249,8849,128,987-701,933-5,120,932-14,951,8523,249,884Non interest bearingTrade and other receivablesInvestmentsDerivative assetsIntangible assetInvestment propertyProperty and equipment-731,055----49,916-39,649-82,614---184,34713,071-------135,23549,916731,055223,99613,07182,614135,235Total assets4,229,9459,301,166899,3515,256,16719,686,629LIABILITIESFixed rateLong term fundingMedium term fundingShort term fundingMarket making liabilities--3,710,32691,387--8,015,360--5,511,963--20,833---20,8335,511,96311,725,68691,387Floating rateTrade and other payablesInsurance contractsBank Overdraft166,7473,853208,533---------166,7473,853208,533Non interest bearingDerivative liabilitiesReservesProvisionsPost retirement obligations--24,000181,221358---2,616---27,9791,721,453--30,9531,721,45324,000181,221Total liabilities4,386,0678,015,7185,514,5791,770,26519,686,629Net liquidity gapCumulative liquidity gap(156,122)(156,122)(1,285,448)1,129,326(4,615,228)(3,485,902)3,485,902-88

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006LIQUIDITY AND INTEREST RATE RISK PROFILE – GROUP2005 R m R m R m R m R mASSETSFixed rateRepurchase agreementsOn Demand-Within1 Year134,0611 – 5 Years Greater than5 Years--Total134,061Floating rateLoansCash and cash equivalents-1,660,73911,405,979-762,057-4,933,875-17,101,9111,660,739Non interest bearingTrade and other receivablesInvestmentsDerivative assetsIntangible assetInvestment propertyProperty and equipment-537,705---23,648184,999107,29981,791---407,134----89,75724,725134,94623,648722,704604,190106,516134,946Total assets2,198,44411,937,7771,169,1915,183,30320,488,715LIABILITIESFixed rateLong term fundingMedium term fundingShort term fundingMarket making liabilities--4,856,42757,007--8,595,900--4,800,694--225,954---225,9544,800,69413,452,32757,007Floating rateTrade and other payablesInsurance contracts1,4295,285------1,4295,285Non interest bearingDerivative liabilitiesReservesProvisionsPost retirement obligationsTrade and other payables--19,114176,172207,53728,375----4,901----13,3081,496,612---46,5841,496,61219,114176,172207,537Total liabilities5,322,9718,624,2754,805,5951,735,87420,488,715Net liquidity gapCumulative liquidity gap(3,124,527)(3,124,527)3,313,502188,975(3,636,404)(3,447,429)3,447,429-89

Notes to the Financial Statementsfor the 12 Months Ended 31 March 200630.4 PRICE RISKPrice risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices whetherthose changes are caused by factors specific to the individual security or its issuer or factors affecting all securities in themarket. The price risk relating to investments is dependent on the asset allocation of the various funds as detailed in note8.2.1 and 8.2.2 above.30.5 INSURANCE RISK30.5.1 Investment riskFor assets backing the policyholder liabilities, the risk to the business is that returns earned are lower than assumed by theCompany. On the other hand, a higher than assumed return will lead to a profit as evidenced during the year underreview.The investment objective is to ensure that the Company invests in assets that ensure its long-term objectives. The Companydoes not manage its investment portfolios, but employs outside experts to perform this function.The focus of investment risk measurement and management is to ensure that the potential risk inherent in an investment arereasonable for the future potential reward, exposure to investment risk is limited to acceptable levels, premium rates areadequate to compensate for investment risk and an adequate reserving policy is applied for long-term policy liabilities.30.5.2 Mortality risk and ReinsuranceThe risk to the business is that mortality rates in future are higher than provided for by the valuators in the valuation calculations.Higher than expected mortality will give rise to losses and will necessitate an increase in the valuation assumptions.The Company will be conducting a mortality investigation to determine its mortality risk in the next financial year.The Company has arranged for reinsurance cover for all policies on the books and all new business from 1 September2005. This is a risk premium quota share arrangement with a surplus layer. The reinsurance provides cover such that theCompany’s exposure to claim payments is 50% of the claim amount, up to a maximum of R500 000 per claim. This willsignificantly reduce the mortality risk but should be kept in mind that in the long term, all else being equal, reinsurance isexpected to cost the Company more than paying the claims directly.30.5.3 Terms and conditions of insurance contractsSAVVEM does not have the right to alter premiums for existing contracts, hence there is exposure to the risk that adeterioration in experience relating to investment return, mortality, administration expenses or inflation may lead to a loss.30.5.4 Capital adequacy riskCapital adequacy risk is the risk that there are insufficient reserves to provide for variations in actual future experience thatis worse than assumed in the financial soundness valuation.The valuators certified that SAVVEM was in a financially sound position at 31 March 2006, with a surplus of assets overliabilities of R590.6 million and surplus assets that were 46 times the Capital Adequacy Requirement (2005:30.2). TheCapital Adequacy Requirement (CAR) for SAVVEM was R4 million (2005:R13.5 million).90

Notes to the Financial Statementsfor the 12 Months Ended 31 March 200631 SEGMENT REPORTING31.1 PRIMARY SEGMENT REPORTING (BUSINESS SEGMENTS)2006 RetailREVENUEInterestR’000597,822CorporateFinanaceR’000909,283MicroFinanceR’00019,535OtherR’000110,499TotalR’0001,637,139RESULTProfit from operations213,039(199,475)(74,284)(64,673)(125,393)OTHER INFORMATIONImpairment losses recognised in income141,556(374,117)(87,283)-(319,844)DepreciationAdditions6511,0082133--7,50711,6288,17912,669BALANCE SHEETASSETSSegment assetsConsolidated total assets4,995,0714,995,0719,941,2229,941,22215,55915,5594,148,1264,148,12619,099,97819,099,978LIABILITIESSegment liabilitiesConsolidated total liabilities6,014,5486,014,54811,970,19211,970,19218,73518,7351,096,5031,096,50319,099,97819,099,9782005 RetailREVENUEInterestR’000626,361CorporateFinanaceR’000934,766MicroFinanceR’00027,338OtherR’000263,543TotalR’0001,852,008RESULTProfit from operations(481,035)6,6072,480264,369(207,579)OTHER INFORMATIONImpairment losses recognised in income(494,191)(130,497)(12,713)-(637,401)BALANCE SHEETASSETSSegment assetsConsolidated total assets5,496,5605,496,56011,537,73611,537,73667,61567,6153,013,5283,013,52820,115,43920,115,439LIABILITIESSegment liabilitiesConsolidated total liabilities6,139,7076,139,70712,887,76012,887,76075,52775,5271,012,4451,012,44520,115,43920,115,43991

Notes to the Financial Statementsfor the 12 Months Ended 31 March 200631.2 SECONDARY SEGMENT REPORTING (GEOGRAPHIC SEGMENTS)2006 ProfitR’000AssetsR’000LiabilitiesR’000Eastern CapeFree StateGautengKwazulu – NatalMpumalangaNorthern CapeLimpopoNorth WestWestern Cape22,95749,514(350,949)24,58621,69234,462(18,316)17,08873,573953,1351,036,8807,844,3281,403,9711,188,392541,9621,237,8821,705,1883,188,2411,147,6661,248,5045,547,0861,690,5171,430,939652,5751,490,5302,053,2113,838,951TOTAL(125,393)19,099,97819,099,9782005 ProfitR’000AssetsR’000LiabilitiesR’000Eastern CapeFree StateGautengKwazulu – NatalMpumalangaNorthern CapeLimpopoNorth WestWestern Cape(37,807)(40,979)125,884(31,400)(49,213)(1,306)(91,595)(48,285)(32,878)726,038942,64011,195,068586,415540,069828,013518,022523,8574,255,317810,9921,052,93710,151,301655,031603,262924,899578,635585,1534,753,229TOTAL(207,579)20,115,43920,115,43992

Notes to the Financial Statementsfor the 12 Months Ended 31 March 200632 IFRS FIRST TIME ADOPTIONThis is the first year that the Land Bank has presented its financial statements under IFRS. The following disclosures arerequired in the year of transition. The last financial statements under SA GAAP were for the year ended 31 March 2005and the date of transition to IFRSs was therefore 1 April 2004.The Land Bank has elected to designate certain financial instruments at fair value through profit or loss. These financialinstruments were previously recorded at fair value and the carrying amount is therefore the same as the previous financialstatements.32.1 RECONCILIATION OF EQUITYAT 1 APRIL 2004LAND BANKDescription Note PreviousGAAPR’000Effect oftransition toIFRSsR’000Effect of PriorYear AdjustmentR’000IFRSsR’000Property and equipment at costInvestment PropertyLoansOther Assets(a)(b)(e)51,398100,42815,010,4813,555,56337,771----21,121(45,584)-89,169121,54914,964,8973,555,563Total Assets18,717,87037,771(24,634)18,731,178FundingLease LiabilityOther liabilities(c)(d)15,435,385-1,647,043---376,999422-15,812,3844221,647,043Total Liabilities17,082,428-377,42117,459,849Retained earningsOther reserves(f)822,144813,29837,771-(401,884)-458,031813,298Total equity1,635,44237,771(401,884)1,271,329Total Equity and Liabilities18,717,87037,771(24,463)18,731,17893

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006AT 31 MARCH 2005LAND BANKDescription Note PreviousGAAPEffect oftransition toIFRSsEffect of PriorYear AdjustmentIFRSsProperty and equipment at costInvestment propertyLease prepaymentLoansOther assets(a)(b)(d)(e)R’000 R’000 R’000 R’000100,29845,283-17,153,6642,796,61026,586----8,06236,508181(51,753)-134,94681,79118117,101,9112,796,610Total Assets20,095,85526,586(7,002)20,115,439FundingOther liabilities(c)18,083,062539,555--480,377-18,563,439539,555Total Liabilities18,622,617-480,37719,102,994Retained earnings- 2004 Effect- 2005 Effect(f)614,565-614,56526,58637,771(11,185)(495,441)(401,884)(93,557)145,710(364,113)509,823Other reserves858,673-8,062866,735Total Equity1,473,23826,586(376,691)1,012,445Total Equity and Liabilities20,095,85526,586(7,002)20,115,439Notes to the reconciliation of equity at 1 April 2004 and 31 March 2005Transition to IFRSa) Property and equipmentThe Land Bank has elected, at the date of transition to IFRS, to use fair value as the deemed cost of items of property and equipment.Subsequent depreciation is based on that deemed cost and starts from the date on which the entity established the fair valuemeasurement or revaluation. Valuations were done by independent valuers.This resulted in an increase of R38million in the carrying value of property and equipment at 1 April 2004 (31 March 2005:R27million)with a corresponding increase in retained earnings of the same amount.Otherb) Investment propertyThe Land Bank has changed the accounting treatment of properties in possession from IAS 2 (Inventory) to IAS 40 (InvestmentProperty). The property is now carried at fair values rather than the lower of cost or net realisable value.The effect of the change is an increase of R21 million in the fair value of the investment property at 1 April 2004 (31 March2005:R37million), with a corresponding increase in retained earnings of the same amount.c) FundingPreviously, the Land Bank carried its LB01 debentures at amortised costs in terms of IAS 39. The debentures are now carried at fairvalue.The effect of the change is an increase of R377 million in the fair value of the funding liability at 1 April 2004 (31 March2005:R91million), with a corresponding decrease in retained earnings of the same amount.An error was made in calculating the fair value of medium term promissory notes at 31 March 2005. The correction of this errorresulted in an increase of R12 million in the fair value of the funding liability at 31 March 2005, with a corresponding decrease inretained earnings of the same amount.94

Notes to the Financial Statementsfor the 12 Months Ended 31 March 2006d) LeasesIAS 17 requires that lease expenses from operating leases that contain fixed escalation clauses be recognised on a straight linebasis over the lease term.This has resulted in a lease liability of R422 thousand at 1 April 2004 (31 March 2005: R181 thousand lease prepayment), with acorresponding decrease/increase in retained earnings of the same amount.e) LoansPreviously, the Land Bank recognised certain fees charged in the origination of loans immediately. IAS 18 requires that fees that areintegral to the origination of financial assets, be deferred and recognised as an adjustment to the effective interest rate. These feesare therefore recognised over the life of the loan.This has resulted in a R46million decrease in the carrying value of the loans at 1 April 2004 (31 March 2005:R52million), with acorresponding decrease in retained earnings of the same amount.f) Adjustment to retained earningsProperty and equipmentInvestment propertyLease liabilityLease prepaymentLoansLB01 fair value adjustmentPromissory notes fair value adjustment1 April 2004R’00037,77121,121(422)-(45,584)(376,999)-(364,113)31 March 2005R’000(11,185)15,387-603(6,169)(91,544)(11,834)(104,742)32.2 RECONCILIATION OF PROFIT OR LOSS FOR 2005Description Note PreviousGAAPR’000Effect oftransition toIFRSsR’000Effect of PriorYear AdjustmentR’000IFRSsR’000Operating Income593,179--593,179DepreciationLoss on sale of property and equipmentFair value adjustment to investmentpropertyOperating lease expenseBond feesNet other expensesFair value adjustment debentures(5,097)--(3,168)-(792,493)-(2,786)(8,399)-----15,387603(6,169)-(103,378)-(7,883)(8,399)15,387(2,565)(6,169)(792,493)(103,378)Net Profit/ (Loss)(207,579)(11,185)(93,557)(312,321)95

Board, Management and Structure

Board of DirectorsLungile Gcinumzi MazwaiChairperson of the Land BankMr. Mazwai, a practicing attorney and partner in the firm,Ledwaba Mazwai is Chairperson of the Land Bank Board ofDirectors.He holds a BA LLB from the University of Natal.Mr. Mazwai has a vast knowledge and great experience invarious areas of law; in drafting, commenting and reviewing legaland commercial documentation. He advises on statutory andregulatory requirements on labour aspects and on variouscommercial transactions.His firm, Ledwaba Mazwai are the attorneys for the NationalOlympic Committee of South Africa.Nopasika Vuyelwa LilaDeputy Chairperson of theLand BankMs. Lila, is the Deputy Chairperson of the Land Bank Board ofDirectors, the Head of Compliance and Corporate Governanceat the Public Investment Corporation. (PIC).She is a certified Chartered Accountant and holds, Cum Laude, aPost Graduate Certificate in Corporate Governance from theformer Rand Afrikaans University (RAU). She completed aManagement Development Programme (MDP) at the GordonInstitute of Business Studies (GIBS).Ms. Lila has in-depth knowledge and an appreciable experiencein the Financial Markets and Instruments arena, in InternationalTrade as well as in Auditing, Consulting and Project Management.Sam Mahosha MkhabelaDirector of the Land BankLitha Mveliso NyhonyhaDirector of the Land BankMr. Mkhabela is a Bachelor of Arts with Honours graduate of theUniversity of the Witwatersrand. He is currently studying towardsan MBA with De Montfort University.He has a very wide work experience, having worked mainly inthe Corporate Affairs and Human Resources Divisions in a numberof high profile companies such as Gold Fields, Gengold, Gencor.He is presently the General Manager: Human Resources andCorporate Operations at 3M South Africa.Mr. Mkhabela has a distinguished history of political involvementand community activism. He is an established researcher, a writerof note and has held a significant number of directorships andchairmanships.Mr. Nyhonyha is a qualified Chartered Accounted. In 1992 heestablished Thebe Investment Holdings with Mr. Vusi Khanyile. Heis credited with building the Financial Services Portfolio of ThebeInvestments as well as spearheading the entry of Thebe into banking.He is also credited with restructuring and developing thefinancial services strategy of Worldwide African Investments.Mr. Nyhonyha has concluded his mandate with Worldwide andis presently with Regiments Capital as Executive Director.He hold directorships of Worldwide, Energy Africa, South AfricanExpress Airways. He is Chairman of Plessey; and Chairman of theCouncil of the new North West University.97

Board of DirectorsE.R. Nallie BosmanDirector of the Land BankSarah Ntsau Olga ChoaneDirector of the Land BankMr. Bosman is a Director of Companies with prolific experience inthe banking sector where he first served as General Manager,Volkskas Bank Ltd, and finally was appointed ABSA Group Ltd,Group Chief Executive until his retirement in 2004.He holds a Diploma in Banking, B.Com and B.Com Honoursdegrees; MBL all from UNISA. He attended the StanfordExecutive Programme at Stanford University, California US.He has served as Chairman of the Banking Council of SouthAfrica as well as being appointed President of the Institute ofBankers and Chairman of the Afrikaanse Haandelse Institut.He is a nature conservationist and game farmer of note.Ms. Choane holds a Bachelor of Commerce degree, an Honoursin Accounting Science and has participated in the Wits andHarvard University sponsored Senior Executive Programme.She is widely experienced in Financial Management, Accountingand Auditing.Ms. Choane is presently the Deputy Director-General ofCorporate Services, Chief Financial Officer, in the Department ofLand Affairs. In this capacity, she is responsible for the effectivenessof financial management within the Department.In 2004 she was appointed Chairperson of the Institute for PublicFinance and Auditing (IPFA). She is also a member of the ChiefFinancial Officers Forum.Charles Peter DaviesDirector of the Land BankJohannes Jacobus DiqueDirector of the Land BankMr. Davies is well known and respected in the Financial Servicesindustry. He joined the industry in 1971 as a salesman establishinghis own broking firm in 1972.In 1978 he joined Norwich Union and later served in variousGeneral Management positions such as with Anglo American Lifeand Southern Life. On rejoining Norwich Life in 1989, and asChief Executive Officer of Norwich Holdings, he oversaw the successfullisting of the Company on to the Johannesburg StockExchange.He has served on various Insurance and Bank Boards; He waselected Chairman of Life Offices Association (LOA) and today,after his retirement, he still serves as Director on a number ofBoards.Mr. Dique is an experienced Charted Accountant who is extremelyknowledgeable about a broad spectrum of service industries aswell as the formulation and implementation of strategy.He is presently the Chief Executive Officer of Senwes Limitedwhere he has successfully implemented a significant turn aroundstrategy. He has also held leadership positions in a number ofhigh performance companies such as Tiger Brands, Epol, theNational Chamber of Milling, the Agricultural Business Chamberand many others.Mr. Dique is a member of the AgriBEE Steering Committee of theMinister of Agriculture. He has a B.Com Accounting degree andis a registered member of the South African Institute of CharteredAccountants (SAICA).He is presently dairy farming in the Eastern Cape.98

Board of DirectorsRaisibe MorathiDirector of the Land BankNjabulo NduliDirector of the Land BankRaisibe is Chief Operations Officer of the Industrial DevelopmentCorporation (IDC). She joined the IDC in June 2000 where shehas held the positions of Head of Empowerment in the StrategicBusiness Unit as well as Executive Vice President for the IndustrialSectors Division.Between October 2004 and March 2005 she was mandated toassume the position of Acting Chief Executive Officer and ChiefInformation Officer (CIO) of the IDC. Prior to that, she gainedsignificant investment banking experience having worked forNedcor, HSBC and AMB.Raisibe is a registered Chartered Accountant. She also holds aCertificate in Advanced Management from Insead (France) andhas a Higher Diploma in Taxation from Wits University.Ms. Morathi is also a director of companies such as Strate,Foskor, PBMR as well as being the Chairperson of Prilla 2000.Ms. Nduli is the current Deputy Director General responsible forAgricultural Production and Resource Management in theDepartment of Agriculture.She holds an MSC degree in Agricultural Science from Universityof Wales in the United Kingdom.Ms Nduli, has acquired a deep understanding of the technical,economic and social issues within the agricultural sector. As aresult she contributes significantly to the strategic leadership andthe management of policy processes not only for the Departmentbut also for and within various international, continental andintergovernmental programmes, organications and activities.Ms. Nduli is a sound administrator with proven leadership andorganizational skills.Moira TlhagaleDirector of the Land BankMoira Tlhagale is a Director of tmtj Consulting and Investments.She is a Quantity Surveyor by training, having obtained a BScHonours Quantity Surveying degree from the University of CapeTown. She also holds a Diploma in Building Surveying andCertificates in Property Intermediate Programme and in ShoppingCentre Management.She has worked extensively with companies such as PropnetWestern Cape, Mahlathi Ntene Liebetrau, the Department ofPublic Works and other important companies operating in thesector. She has done admirable work as a Quantity Surveyor aswell as being a Development Manager for a number ofdevelopment schemes.As Project Manager, Ms. Tlhagale has worked on some majorprojects valued at billions of rands; such as the refurbishment of theCarlton Centre, the International Departures Terminal in CapeTown, the Victoria Wharf Shopping Centre, Rwanda Hotels andothers.99

Executive ManagementAlan MukokiChief Executive Officer andExecutive Directorof the Land BankNtsietso MofokengGeneral Manager: LegalXolile NcameChief Financial Officerof the Land BankPhumla RampheleGeneral Manager: CreditHerman MoeketsiGeneral Manager:Marketing &CommunicationsGerhard HechterGeneral Manager:Chief Risk OfficerJabulani SibisiActing General Manager:Human ResourcesNick MarediGeneral Manager:Information TechnologyNkosinathi MbethaGeneral Manager:DevelopmentMakgale GwangwaHead: TreasuryJohn AcuttBoard SecretariatGodfrey MasilelaGeneral Manager: RiskDaryl RoseExecutive Assistant CEOOffice & Acting Head:Internal AuditGeorge OrichoActing General Manager:Operations/General Manager: Office ofthe CEO100

Group StructureBoard of DirectorsAudit CommitteeSAVVEM BoardBoard CommitteesChairperson’s CommitteeAudit CommitteeFinance, Economics& CreditHR & RemunerationManagement StructureAlan MukokiChief Executive Officer and Executive Director of the Land BankXolileNcameChiefFinancialOfficerNtsietsoMofokengHead:LegalHermanMoeketsiGeneralManager:Marketing &CommunicationsPhumlaRampheleGeneralManager:CreditJabulaniSibisiActing-GeneralManager:HumanResourcesNkosinathiMbethaGeneralManager:DevelopmentGerhardHechterGeneralManager:Chief RiskOfficerNickMarediGeneralManager:InformationTechnologyJohnAcuttBoardSecretariatMakgaleGwangwaHead:TreasuryGodfreyMasilelaGeneralManager:RiskDarylRoseExecutiveAssistantCEO Office &Acting Head:InternalAuditGeorgeOrichoActingGeneralManager:Operations/GeneralManager:Office of theCEOKumenderiPillaySeniorManager:Finance &AdministrationHarryMoengHead:CorporateFinanceWimAlbertsHead:RetailMarthinusPrinslooRegionalAccountExecutive:NorthernRegionPeterWieseRegionalAccountExecutive:SouthernRegionThandiMbabamaRegionalManager:NorthernRegionZilindeleMakapelaRegionalManager:SouthernRegion101

Regions and BranchesCorporate Finance Head OfficeRetail Head OfficeHarry MoengHead of Corporate FinanceHead Office:192 Visagie Street, TshwaneP.O. Box 375, Tshwane 0001Tel: 012 312 3777Wim AlbertsHead of RetailHead Office:192 Visagie Street, TshwaneP.O. Box 375, Tshwane 0001Tel: 012 312 3999102

Retail Regional OfficeZilindile MakapelaSouthern Regional ManagerRegional Office:54 Queen Victoria Street, Cape TownPO Box 2361, Cape Town 8000Tel: 021 424 9111Thandi MbabamaNorhtern Regional ManagerRegional Office:92 Visagie Street, TshwaneP O Box 375, Tshwane 0001Tel: 012 312 3999Southern RegionFerros LisaEast LondonPebble Mill House, Victoria,Crescent, The Quarry,Selbourne; P O Box 19297, Tecoma 5214Tel: 043 721 0710Cradock31 Beeren StreetP O Box 56, Cradock 5880Tel: 048 881 1135Arno CoetzeeUpington55 Schröder StreetP O Box 283,Upington 8800Tel: 054 331 1677Calvinia17 Stigling StreetPrivate Bag X22, Calvinia 8190Tel: 027 341 1400Andre Schriven(Acting)George55 York Street, P O Box 1133,George 6530; Tel: 044 874 5193Beaufort West74 Bird StreetP O Box 43,Beaufort West 6970Tel: 023 414 2104/5Abel ChendamudimaPaarl60 Brenda Street, P O Box 3621,Paarl 7620, Tel: 021 872 1519Worcester49 High Street, P O Box 28, Worcester 6849, Tel:023 347 6566/67Swellendam87C Voortrek Street, P O Box 665, Swellendam 6740Tel: 028 514 2468Keith ClowesBloemfontein78 St. Andrew Street,BloemfonteinP O Box 296,Bloemfontein 9300Tel: 051 404 1400Thabo MotsekiPort Elizabeth51 Newton Street, Newton ParkP O Box 34871, Newton Park 6055Tel: 041 365 1927(Acting) Johan van der MerwePietermaritzburg133 Church Street, P O Box 357,Pietermaritzburg 3200, Tel: 033 342 8961103

Northern RegionMartin ScholtzPolokwane69 Schoeman StreetP O Box 400,Polokwane 0700Tel: 015 295 2911015 291 3050/1/2Tzaneen6 Kew StreetP O Box 506, Tzaneen 0850Tel: 015 307 4954/55Raymond MogopodiNelspruit29 Bester StreetP O Box 101, Nelpruit 1220Tel: 013 752 3113/3/4/5Middelburg184 Jan van Riebeeck StreetP O Box 43, Middelburg 1050Tel: 013 282 7158Veronica MoosTshwane192 Visagie Street, P O Box 1406,Tshwane 0001, Tel: 012 312 3999Modimolle90 Church StreetP O Box 164, Modimolle 0510Tel: 014 717 5331HeidelbergC/o Marias & Ueckermann StreetP O Box 42, Heidelberg 1438.Tel: 016 341 3181/2Hendrik VenterLichtenburg28 Buchanan Street,P O Box 161,Lichtenburg 2740, Tel:018 632 5058/9Potchefstroom80 Church Street, Private Bag X44,Potchefstroom 2520, Tel: 018 294 5391Rustenburg169 Fatima Bhayat StreetP O Box 22, Rustenburg 0300 Tel: 014 592 2145Cornelia Duvenhage (Acting)Bethlehem16 Van der Merwe Street, P O Box 666,Bethlehem 9700, Tel: 058 303 5251Kroonstad138 Cross Street,P O Box 313,Kroonstad 9500, Tel: 056 212 1984Johan BronkhorstErmelo29 De Clercq Street, P O Box 46, Ermelo 2350Tel: 017 811 2015Vryheid144 President Street, P O Box 1212, Vryheid 3100Tel: 034 981 5112/3/4Sibongile MjangqekaVryburg39 Market StreetP O Box 85, Vryburg 8600Tel: 053 927 2105/6/7104