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Latin American Agribusiness Development Corporation S.A.
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Flexible
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to Develop
a Diverse
Latin American
Agriculture

A Single Mission, A Broad Focus

LAAD’s mission is to promote the economic and social development of Latin America by financing small and medium-sized agribusiness companies and projects in countries which encourage trade and investment.

On a broader scale, LAAD funds projects - but invests in the people who make those projects succeed.

Letter to the Shareholders

We are pleased to report that your Company achieved its fifth consecutive year of record earnings per share, disbursements and gross revenue. Our net worth passed the US$100 million mark and our key financial ratios all remained well within conservative levels. This success was achieved during a period of slow economic environment marked by a European debt crisis, slow American economy and a slowing growth rate in China. Although these are the main markets for Latin American agricultural products, Latin American farmers were able to secure markets for their increasing production at attractive prices.

As detailed later in this report, earnings per share rose by more than 18% compared to 2011; disbursements to Latin American agricultural projects rose to a record US$135 million, while gross revenue rose in tandem with the agribusiness portfolio by over 18%. These positive results reflect a sustained increase in agricultural investments throughout the countries in which we operate.

Our disbursements rose by 12% over those of 2011 and were made to 196 agribusiness projects in 15 countries. We anticipate that these projects will generate US$170 million in additional hard currency earnings per year. They are also expected to create some 5,700 new jobs, mostly in rural areas. To accommodate this growth and develop new business, we significantly expanded our network of offices in Latin America. This year, we opened three new offices and have hired an investment officer for a fourth.

As in the past few years, our main market was Brazil, where we lent US$28.1 million to 19 agricultural projects. Our portfolio there has increased rapidly to US$84 million, our highest single country exposure. Many of the projects in Brazil introduced innovative technologies this year, often improving the efficient use of water for irrigation. In view of the high demand for our services there, this year we opened a branch office in Cuiaba, in the state of Mato Grosso.

Colombia showed the greatest percentage increase in disbursements. Our agribusiness portfolio there surged 67%, reaching US$20 million during the year. The growing demand for funding in Colombia has led us to open our first office in Bogota. Although LAAD has operated in Colombia for over 30 years, we had been reluctant to open an office there due to security concerns. However, the situation has improved in recent years.

We are expanding our operations in Peru with its growing and diversified agriculture. This year our Peruvian portfolio expanded by 24%, to US$39 million. Many of these new projects are located in Peru’s northern valleys far from Lima. This year, we hired a new investment analyst in the northern coastal city of Trujillo, where we intend to open an office in 2013.

We resumed modest operations in Paraguay for the first time in over a decade. Agriculture is the foundation of the Paraguayan economy and has traditionally provided the bulk of the country’s exports. We are planning to open an office in Ciudad del Este, located near the border with Brazil and Argentina. This is a well-known area that is the heart of agribusiness development in this country. Our expectations in Paraguay are very promising as the country is growing significantly in terms of agribusiness.

We have also decided to reopen an office in Mexico City after nearly four decades of absence. In the past, we found it difficult to compete with subsidized government agricultural financing and the inability to secure farm mortgages due to land tenancy issues. Today, new laws have made it possible for us to secure our loans with mortgages as collateral. We are working on our first projects, primarily in the state of Chiapas along the border with Guatemala, and in the gulf state of Veracruz. We are optimistic that we will be able to build a meaningful portfolio there in the near term.

Our outlook for Latin American agriculture in 2013 is favorable. Although the region’s economy grew at a relatively slow rate this year, around 3%, the World Bank forecasts an improvement to 3.5% for next year and projects an average growth of 3.9% in 2014 and 2015. While the region produces the bulk of its own food, its fastest growing markets for its agricultural products are overseas and the outlook for those countries is one of continued growth. China’s remarkable transformation from a poor agricultural rural society to an urban industrial power is changing food consumption patterns there as urban development occupies growing swaths of farmland. China is a new, dynamic market opportunity for Latin American farm products.

We are watching, with great interest, the negotiations to create a Pacific-wide free trade zone known as the Trans Pacific Partnership. Although the United States is taking the lead in forging this new trading alliance, Latin America’s agriculture will certainly benefit when it goes into effect. While China is currently excluded, the agreement is expected to include the many prosperous nations in the Far East, including Japan, Korea, and Indonesia, as well as the Southeast Asia region. This trading bloc would benefit all of the Latin American nations along the Pacific coast.

This year, we again financed a broad range of agricultural projects. A few of them are highlighted below:

Our largest single loan this year was made to Nazario Rizek C por A, in San Francisco de Macoris in the Dominican Republic. The company is the country’s largest producer and exporter of organic cacao beans. LAAD’s US$4 million loan will be used to complete a processing facility that will allow the company to export processed organic cacao in the form of cocoa liquor, butter, and powder. Nazario Rizek will ship its production to international markets that are already familiar with the quality of its organic cacao. The new processing facilities will employ an additional 85 workers.

Also in the Dominican Republic, we disbursed a US$600,000 loan to Café Toral S.A. to refurbish and renovate a 110-hectare Arabica coffee farm in Barahona. The company will plant new disease-resistant varieties, which will produce high quality coffee for the European market. The company is a joint venture between a Dominican entrepreneur and a Spanish specialty coffee company. We expect that the company will hire an additional 60 full-time and 20 part-time workers once the refurbishment has been completed.

In Uruguay, we provided a US$1.8 million loan to Margaritas S.A., a family-owned dairy farm near La Estanzuela in the Department of Colonia. The company will use LAAD’s loan primarily to triple the size of its herd to 660 head. The owner has designed his own simpler, but efficient milking room. He sells fluid milk to a local processing plant, but most of his production goes to making mozzarella cheese for the pasta and pizza markets. The company will export its entire production of mozzarella cheese to Mexico and to several countries in Eastern Europe. The farm operates a novel closed-sanitation system, whereby all solid and liquid animal waste is removed and piped for processing into organic fertilizer, which is then spread over its pastures. In addition, the company has a very sophisticated management system in which the basic source of information is a chip attached to the leg of every single cow.

In Peru, we provided a US$500,000 working capital loan to Fruto del Monte S.A.C., an 80-hectare cacao farm near Oxapampa in the Department of Pasco, on the eastern slope of the Andes. The town was founded by German settlers in the 19th century. The company produces a high quality cocoa that is sold to an exporter. The farm is one of the few commercial operations located in this undeveloped jungle region. This is LAAD’s first cocoa project in Peru and the second one located in the remote valleys of the Department of Pasco.

In Honduras, we lent US$500,000 in working capital to MABO Plants, S.A., near El Progreso. The company has 56 hectares in production and is one of the country’s largest producers of ornamental plants, primarily Arica palms and Cycas. The company operates its own packing plant capable of shipping three million plants per year. MABO Plants exports its entire production to Europe. We project that the company will hire 50 additional workers.

LAAD’s financial results for 2012 showed steady growth and profitability as our assets exceeded US$400 million for the first time. Net income rose to US$12.3 million for a 12% return on average net worth. This is the highest percentage in five years. Our only source of income comes from our agribusiness loan portfolio, which grew by 14% this year.

As always, we continue to control the quality of our portfolio. The percentage of our portfolio on non-accrual status grew slightly from last year, but remains well below 4%. This year we took a net charge-off of US$1.4 million, equal to 0.38% of our agribusiness portfolio, one of the lowest percentage charge-offs in our history.

As we continue to grow our operations, it becomes increasingly challenging to borrow the funds to cover our disbursements. However, we continue to have very robust liquidity commitments from an ever increasing list of banking relationships. At year-end, we had outstanding borrowings of US$327 million, from 20 financial institutions, of which US$209 million were provided by commercial banks and US$119 by multilateral development agencies. The higher borrowings this year caused our net debt to equity ratio to increase marginally to 2.7:1, still within our normal conservative range.

We are pleased to report that Rabobank, a LAAD shareholder, renewed our revolving line of credit and doubled it from US$35 million to US$70 million. Bank of America, also a LAAD shareholder, approved a new term loan of US$15 million, bringing its total commitment to US$75 million.

We are also pleased to have initiated a new financial relationship with two multilateral institutions. The Österreichische Entwicklungsbank (ÖEB) and the OPEC Fund for International Development (OFID), both located in Vienna, each signed seven-year US$15 million loans with LAAD.

Within this context, we remain optimistic and expect your Company to continue growing its operational and financial results for the new fiscal year while achieving its corporate mission of helping our clients grow and prosper, creating jobs and alleviating poverty. We would like to thank our clients for their hard work and performance; our Board Members for their time, active role and leadership; and last but not least, our management team and staff who together enabled your Company to achieve this year’s accomplishments through their continued dedication and outstanding performance. It is this collaborative effort that has made LAAD’s continued success possible.

Benjamín Fernández
President
Guillermo G. Bilbao
Claudia Helguero
Chairperson

* Including real estate owned & equity investments.

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