Letter to the Shareholders
We are pleased to report another very positive year for your Company. We achieved record operational and financial results despite having to confront the most unpredictable and turbulent global financial and economic crisis in living memory. Our loan disbursements increased to nearly US$100 million and our net earnings surpassed US$7 million, both record amounts.
Our strong operational performance was helped by continued strength in global agricultural prices. As expected, agricultural commodity prices remained firm for the first three quarters of the year, but began to weaken in the fourth quarter of 2008. High volatility makes it difficult to predict prices in the coming year, but they are generally expected to remain at historically high levels. Prices for the many horticultural products financed by LAAD continue to fluctuate in response to short-term changes in the supply and demand for perishable crops.
Although the current financial and economic crisis did not originate in Latin America, it has clearly spread across Latin America. Our region has turned in six years of strong growth fueled by sustained world demand and rising prices for agricultural crops and natural resources. However, everyone anticipates a more challenging economic environment in 2009. Economic growth rates are expected to fall markedly in the coming year for the region as a whole and may go into negative territory in a number of countries. Fortunately, external debt levels of many Latin American countries have generally been kept within manageable levels and a number of countries have accumulated substantial international reserves.
We are cautiously more optimistic about the near-term prospects of Latin America’s agricultural export sector and expect that it will perform better than most other economic activities in the region.
This year, LAAD encountered a strong demand for term financing from its clients, many of whom began to encounter difficulties obtaining funding from their traditional sources. This demand caused our agribusiness portfolio to grow at a record pace of 21% close to US$270* million by the end of the year. We expect international liquidity to tighten in 2009 leading to even stronger demand for our services from the region. In anticipation of this growing demand, we have decided to give first priority to our existing clients to help see them through to better times. While recognizing the severity of the current situation, LAAD fully intends to sustain its
mission of supporting Latin American agribusiness entrepreneurs as it has in previous crises. The amount of funding available for new clients in 2009 will depend on the price at which LAAD is able to borrow. In today’s turbulent markets, we are finding it increasingly difficult to borrow from commercial banks willing to provide loans at terms acceptable to LAAD. Consequently, we are shifting our funding strategy to various Development Financial Institutions.
Continuing our strategy of the past three decades, we lent mainly to farms serving the global export markets. We financed a total of 152 projects in 13 Latin American countries during the year. We expect that these businesses will generate an unusually high economic impact by creating over 16,000 new, mostly rural, jobs and generating over US$120 million in additional foreign exchange earnings.
Among the more innovative projects this year, we would like to highlight a US$3 million loan to finance Uruguay’s first plant to produce milk whey powder, a key ingredient in food products such as infant formulas, bakery items, ice creams, and yogurts. The new plant will process liquid whey, a byproduct from a local cheese producer and casein processing facility. The disposal of liquid whey had previously been regarded as environmentally unacceptable. The company will export to world markets and also sell locally.
We made a US$600,000 loan to a Peruvian producer of wax flowers. This novel company produces a line of different colored desert flowers from shrubs belonging to the myrtle family. The flowers are exported to the United States and Europe. Our money was used to rebuild a packing plant damaged in a strong earthquake in 2007 and for working capital to sustain continued growth. This company also packs and exports statice, hydrangea and other flowers from neighboring independent growers.
Faced with unprecedented challenges brought on by the global financial crisis, it is essential that LAAD maintain its traditionally strong financial ratios. The recent surge in demand for term financing created a record level of disbursements. Consequently, our debt/equity ratio rose by over 20% during the year to 2.8:1, the highest level in LAAD’s history. Although high in terms of our 40-year history, this ratio is still considered low given our positive current ratio, strong cash flow and low level of write-offs. During the year, our non-performing assets as a percentage of the agribusiness portfolio fell by 9% to a level below the average of the past two decades. Our write-offs this year amounted to a little over one half of one percent of the portfolio, a level even lower than our historical average of 0.6% annual write-off.
We do not want to underestimate the challenges LAAD will face in the coming year, but we ended this year on a note of record high revenue and record net earnings, with fewer problem loans than the previous year. This allows us to look ahead from a position of strength.
We would once again like to extend our sincere appreciation to our many clients for giving us the opportunity to work with them. We congratulate them on their many successes at expanding their business, even in challenging times. LAAD wants to assure them that we intend to continue supporting them through the difficult times to come. We also want to thank our Directors for their time, support and guidance in good times and bad. In particular, we want to recognize LAAD’s management and staff for their outstanding performance, loyalty and hard work. We will need help from all of our key players as we navigate the uncharted waters of this generation’s unprecedented financial crisis.
 |
| Benjamín Fernández |
| President |
 |
Colleen K. Nissl
|
| Chairperson |
|
