Letter to the Shareholders
As anticipated last year, 2009 proved to be one of the most challenging in your Company’s 40-year history. Early in the year, international financial markets froze up, making it very difficult for us to obtain the funding necessary to sustain our portfolio growth.
As the year progressed, governments took unprecedented steps to stem the crisis and Latin America demonstrated that it was weathering the storm with relatively minor economic damage. LAAD was able to line up new financial resources by the second half of the year, allowing us to continue to grow our portfolio.
Given the uncertainties in the financial markets, LAAD turned to developmental institutions, such as the IFC and DEG, as well as Rabobank, (all LAAD shareholders) and also three European government agencies: FMO in the Netherlands, Finnfund from Finland and Norfund of Norway.
Thanks to the support of these institutions, we were able to reestablish our normal funding from the international financial markets. Banks, including Bank of America, a LAAD shareholders, as well as Banco Internacional de Costa Rica-BICSA, Pacific National Bank and BAC Florida Bank resumed lending to LAAD.
Even though there was strong demand for our financing, we lost ground during the first months of the year and were only able to disburse US$75 million for the year, less than our budgeted goal. This still represents the third highest disbursement in LAAD’s history. The projects financed with our money will create 4,000 new full-time jobs, over 6,200 seasonal jobs and generate an additional US$75 million in foreign exchange earnings.
The agribusiness loan portfolio grew to US$288,000,000* 7.4% higher than last year.
The international financial crisis also challenged the Latin American economy. The region suffered a 1.8% economic contraction, with per capita GDP falling by 2.9%. Exports declined by 11% as pre-export financing temporarily dried up and global demand, particularly for natural resources, fell. Foreign investment plummeted by 37%, a consequence of a general fall in investor confidence. Poverty and unemployment in the region increased in 2009 for the first time since 2002. Unemployment is estimated to have increased to over 8%. On a more positive note, inflation was cut nearly in half to 4.5%.
Despite these setbacks, no Latin American government defaulted, no country experienced a collapse of its banking system, the region displayed no significant civil unrest and presidential elections produced democratic political transitions.
The global agricultural economy as reflected in LAAD’s market, behaved better, although unevenly, than the general macroeconomic figures. Agricultural commodity prices fluctuated greatly during the year, with some commodities benefiting from higher prices as others suffered.
The same irregular pattern occurred in horticultural products, which make up nearly half of LAAD’s portfolio. During the first half of the year, for example, the prices of bananas surged, while those of table grapes and asparagus plummeted. In the second half of the year, table grapes recovered and avocados fell—overall a difficult environment for many of our clients.
From our perspective, we trust the worst of the economic crisis is behind us. GDP growth in Latin America and the Caribbean is being projected at 4.1% for 2010, and the region may come out of the recession even stronger than expected. Improvements are not expected to be spread evenly among all countries. The same can be said for agricultural prices. Despite the many uncertainties, we expect that demand for our services will grow in the coming year to well above 2009 levels.
Given this challenging background, we are pleased to report that we turned in a positive financial performance for the year. We achieved record net earnings of US$8.2 million, a 14% improvement over the previous year. Earnings per share rose to US$17,040 from US$15,007 last year, yielding a return on net worth of 10.6%. Gross revenues grew to US$29 million, another record.
Our capital structure remains strong. As in previous years, we have reinvested the bulk of our earnings. The relatively slow growth in our portfolio allowed us to reduce our debt to equity ratio to a more conservative 2.5:1.
Not all our clients escaped unscathed. LAAD experienced an increased level of non-performing loans caused by disruption to international trade in agricultural products. Non-performing assets as a percentage of the portfolio increased to 5.5%, a level that we have not experienced for five years. We expect this ratio to fall gradually throughout 2010.
In this crisis environment, we also needed to increase our efforts to support existing clients and help them weather the financial storm. We did this and still managed to achieve portfolio growth, although at a slower rate than we had originally planned.
In 2009 we financed a total of 177 projects in 14 Latin American countries. Among the more innovative were:
- In Brazil, a US$1 million loan to CBC Produção de Bulbos de Ceará Ltda., a project sponsored by Dutch immigrants, who plan to Brazilian bulbs to substitute falling Dutch tulip bulb production caused by increasing local operating costs.
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In Peru, a US$700,000 loan to Mundaca S.A.C., the country’s first commercial grower of organic bananas. The organic banana industry is being developed there by the Dole Food Company, a LAAD shareholder. LAAD is financing those growers that are able to meet Dole’s international quality standards.
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In Chile, a US$300,000 loan to Javier Leon to plant 40 hectares of hazelnuts that will begin producing in 2012. Chile started exporting hazelnuts some 10 years ago, mostly to Italy. The country is becoming a major world supplier of hazelnuts.
We are also pleased to welcome our newest shareholder, the International Finance Corporation (IFC), the private arm of the World Bank group. Their many years of experience with private enterprise throughout the developing world will contribute invaluable expertise to our mission. IFC purchased its shares from Hexion Specialty Chemicals, Inc. As a result of this transaction, Hexion’s director, Ms. Colleen K. Nissl, resigned her position on the LAAD board. We would like to take this opportunity to recognize her many years of invaluable service. During her ten-year tenure, Ms. Nissl served on every committee and was elected Chairperson in 2009. We wish Ms. Nissl all the best in her future endeavors.
As always, we end this letter thanking our clients for their hard work, risk taking and performance; our board members for their continued dedication and guidance; and, last but not least, our loyal and hard working management team and staff, who together helped see us through a particularly difficult year.
*Including real estate owned and equity investments.
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| Benjamín Fernández |
| President |
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Guillermo G. Bilbao
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| Chairperson |
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