Letter to the Shareholders
LAAD is commemorating its 40th year of operations ,40 years of sustained commitment to growing Latin America’s agribusiness enterprises. Forty years ago, twelve multinational corporations came together to capitalize a new development financial institution designed to promote private agribusiness entrepreneurship and investment in Latin America.
In the early years, we teamed up with the U.S. Agency for International Development (USAID), which provided us with long-term loans at subsidized rates to fund a loan program to stimulate agribusiness investment in Central America. The purpose of this program was, primarily, to benefit small- and medium-sized farmers by promoting non-traditional exports, and create rural jobs.
Times were not the best back then. We had barely started operations when the first oil crisis destabilized Central American economies. Governments responded by imposing foreign exchange controls on international financial transactions. The region was further weakened by internal insurgencies politically opposed to the concept of a free market economy. Despite these drawbacks, we set out to find projects that met our twin goals of financial viability and high economic impact on the host economy.
As we learned more about the opportunities and risks facing our clients, we soon developed a long-term investment strategy that gave priority to non-traditional, high value-added, internationally competitive export crops. That strategy has served the region and LAAD well over the years.
LAAD has now matured from a subsidized and untested dream to a dynamic development corporation that obtains its funding from international capital markets at competitive rates, based on your Company’s financial performance.
Your management is proud of LAAD’s many accomplishments:
- Since its beginnings in 1970, your Company has invested over US$1 billion in over 2,700 export-oriented agribusiness projects in 20 Latin American and Caribbean nations, generating over 120,000 new jobs mainly in rural areas. LAAD chose these businesses because they were well-managed and internationally competitive, introduced new appropriate technologies, and trained a more productive labor force.
- From a modest starting capital of US$2.4 million, your Company’s net worth has grown more than 36 times to US$87.5 million. Although most of LAAD’s earnings have been reinvested in the business, your Company has paid a dividend every year since 1980.
- Despite investing in a high-risk industry with weather uncertainties and volatile international market prices, LAAD has prudently chosen its clients: annual write-offs over these past 40 years have averaged less than 1% per year.
- LAAD’s organization has expanded steadily over the years from a single regional office in Guatemala to ten offices serving most countries in Latin America and the Caribbean.
- LAAD played a key role in the development of new agro-industries in their risky early years and the introduction of new technologies:
- In Belize, we played a major role in consolidating that country’s growing citrus industry by financing growers and the establishment of a grower-owned juice concentrate plant.
- In Bolivia, we financed a generation of Brazilian soybean farmers, who bought land and brought their experience and technology to develop that country’s large soybean industry.
- In Brazil, LAAD supported newer, non-traditional crops such as table grapes in Petrolina and Juazeiro, as well as innovative papaya producers and exporters in Bahia.
- In Chile, we were an early driver in developing that country’s berry industry in addition to funding Chile’s many counter seasonal fruit growers.
- In Colombia, our financing was a key factor in the development of the organic banana industry in the Guajira region along that country’s northern coast.
- In Costa Rica and Guatemala, we financed the early producers of leather-leaf fern and other ornamental plants for American and European markets.
- In the Dominican Republic, we helped the local organic banana growers make that country the world’s largest exporter. In addition, we are now funding greenhouse-grown peppers for export in the highlands.
- In Ecuador, we participated actively in developing its flower industry, primarily roses and summer flowers. The cut-flower industry generates more jobs per hectare than any other crop. We have also significantly supported the banana growers, a major export sector in this country.
- In Peru, we funded that country’s pioneers in the fresh asparagus industry making Peru the world’s leading exporter of fresh and processed asparagus. More recently we have been supporting the expansion in the table-grape industry for export using primarily Chilean technology.
- In Uruguay, in addition to supporting the country’s traditional beef cattle, dairy and rice producers, we also funded less traditional export crops such as citrus, blueberries, and imitation crab (kanikama).
In highlighting these accomplishments, we would like to express our appreciation to several of our shareholders, who often help us find and assist new clients. While management bears responsibility for LAAD’s operations, its job has been greatly helped by having access to shareholders and directors with many years of experience and knowledge of Latin American agriculture.
Turning now to LAAD’s results for the year 2010, we are pleased to report continued progress in growing our loan portfolio and in improving our financial return.
Latin America on the whole showed a healthy rebound from the global recession in 2009. Most Latin American countries, except for Haiti and Venezuela, experienced positive economic growth. Agriculture also did well thanks to rising agricultural commodity prices.
LAAD benefitted from this recovery as it made record disbursements during the year. Your Company disbursed a total of $103.5 million to 149 projects in 14 Latin American and Caribbean countries, a significant 38% increase over 2009.
LAAD’s agribusiness portfolio increased 7% this year to US$305.4 million, a new record. Most new lending was committed to South America, which received nearly two thirds of total disbursements, or US$66.5 million. The most active countries in the region were Ecuador (US$17.4 million), Peru (US$15.7 million) and Brazil (US$12.3 million) with a combined total of 50 projects.
Among the 149 projects financed this year are:
In Minas Gerais, Brazil, LAAD lent US$1 million to Everaldo Peres Domingues for the expansion of his high-quality Arabica coffee plantation. Mr. Peres grows his coffee trees without a shade canopy and uses center pivot irrigation.
In Uruguay, your Company provided a US$350,000 permanent working capital loan to Viendal S.A., a producer of animal feed rations for beef and dairy cattle. The conversion of ranch land for agriculture in Uruguay has increased the demand for animal feed to fatten cattle at the expense of natural pastures.
In Ica, Peru, LAAD made a US$1 million loan to Viña Ocucaje S.A., a wine and pisco producer established in 1944 by the Rubini family. Over the years Ocucaje has succeeded in establishing a widely recognized brand of wine and pisco, primarily for the Peruvian market. The LAAD loan allowed Ocucaje to plant an additional 20 hectares of wine grapes, which will enable the company to expand its export sales as well as locally. LAAD has been supporting the Peruvian grape industry for many years, but only for table grapes.
Projects financed this year will make a significant contribution to the Latin American economy. They are expected to generate an additional US$117 million annually in foreign exchange earnings. They will also create close to 4,000 new full-time jobs and over 4,300 seasonal jobs, mainly in rural areas.
Your Company turned in a record year in terms of financial performance. Net earnings rose nearly 13% compared to 2009 to a record US$9 million for a 10.7% return on net worth. This year, earnings per share rose to US$18,798 from US$17,040 in 2009. These results were driven by continued growth in the Company’s loan business with a low level of write-offs, a lower cost of funding, and favorable interest rate spreads.
Your Company’s financial ratios reflect a strong liquidity position and a low debt/equity ratio of 2.5:1.
Management looks forward to a promising and exciting 2011 as Latin America builds on its strong economic performance in 2010. Some forecasts call for a slowing down in the region’s overall growth rate from 6% to 4.2%. However, countries with export-oriented economies like Brazil, Chile, and Peru are expected to do well as they benefit from growing demand for commodities from other developing countries, particularly China and India.
LAAD anticipates that agriculture will turn in another strong year of growth driven by continued high prices for agricultural commodities. This should lead to greater demand for funding agricultural investments.
The most important risk facing agricultural producers in Latin America today, aside from abnormal weather, is the continued rise in the relative strength of their national currencies, particularly the Brazilian real, and the Chilean and Colombian pesos. This development threatens the competitive position of their agricultural exports. The region’s monetary authorities are aware of this phenomenon, but it is not clear what they can do about it.
Finally, we again want to thank our clients for their hard work and risk-taking, our Directors for their continued involvement and support and, last but not least, to your Company’s management and staff for keeping LAAD on a steady course and allowing us to carry out our mission.
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| Benjamín Fernández |
| President |
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Frank Ravndal
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| Chairperson |
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