Zambeef Prod. Regulatory News (ZAM)

6 June 2018

Zambeef Products plc

("Zambeef" or the "Group")

Interim results for the Half Year Ended 31 March 2018

RETAIL GROWTH DRIVES IMPROVED VOLUMES AND MARGINS

Zambeef (AIM: ZAM), the fully integrated cold chain foods and retail business with operations in Zambia, Nigeria and Ghana, today announces its unaudited interim results for the six months ended 31 March 2018.

Key Financial Highlights:

Performance Overview

· The Group has delivered a solid financial performance, driven by:

o Strong gross profit and volume growth in the Retail and Cold Chain Food Products division and the Stockfeed division

o Continued aggressive expansion of the retail network

o Robust operational performance from the farming operations

· Four Macro outlets opened with a further four expected to open this year

o Target to open 10 new Macro outlets each year

· Shoprite rollout of new stores continues

o Zambia - three more store openings expected in the second half

o Nigeria - one new store opened

o Ghana - one new store opened and one expected in H2 2018

· Second half of the year expected to see a significant number of key projects

o Continue to grow the retail network and drive retail revenue to increase demand from the CCFP and stock feed operations

o Commission new Copperbelt distribution hub which will increase capacity and improve efficiencies in the Copperbelt and North Western Province operations

o Complete expansion of breeding farm and hatchery to increase day-old chick production from 344,000 to 430,000 birds per week

o Complete new stock feed plant at Mpongwe to ensure additional stock feed capacity

· Continue to look at ways of strengthening our balance sheet through

o Disposal of non-core assets

o Continued focus on debt reduction

Commenting on these results, Chairman Dr. Jacob Mwanza said:

"The volatile economic conditions in Zambia over the previous two years, including sharp depreciation of the Kwacha against the US Dollar and relatively high inflation, presented challenges for the business. I am pleased to say that this period of uncertainty appears to be behind us. We are entering a period of relative stability in the economy, supported by tight fiscal and monetary control by Zambia's Ministry of Finance and the Bank of Zambia."

"Volume and margin growth in the Retail and Cold Chain Food products division and stockfeed division indicates that the worst of the economic hardship has dissipated."

"The Group will maintain its focus on expanding the retailing and distribution footprint and on improving margins and increasing profitability. We will continue to expand the Cold Chain Food Production capacity to meet increasing consumer demand; complete the build out of the new stock feed plant at Mpongwe and continue to strengthen our balance sheet, through the disposal of non-core assets."

Notes to Editors

The Zambeef Group is one of the largest integrated cold chain food producers in Zambia, involved in the production, processing, distribution and retailing of beef, chicken, pork, milk, eggs, dairy products, fish, flour and stock feed. The Group also has large cereal row cropping operations (principally maize, soya beans and wheat), with approximately 7,971 hectares of row crops under irrigation, which are planted twice a year and a further 8,623 hectares of rain-fed/dry-land crops available for planting each year.

Further information can be found on www.zambeefplc.com

The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014, and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

CHAIRMAN'S REPORT

THE ENVIRONMENT

The volatile economic conditions in Zambia over the previous two years, including sharp depreciation of the Kwacha against the US Dollar and relatively high inflation, presented challenges for the business. I am pleased to say that this period of uncertainty appears to be behind us and we are entering a period of relative stability in the economy, supported by tight fiscal and monetary control by Zambia's Ministry of Finance and the Bank of Zambia.

Volume and margin growth in the Retail and Cold Chain Food products division and stockfeed division indicates that the worst of the economic hardship has dissipated.

GDP grew by 3.9% in 2017, compared with 3.8% in 2016, attributed to a bumper crop harvest in the previous season, rising copper prices and moderating inflation.

The Kwacha strengthened marginally during the period with the exchange rate ending the period at around ZMW9.48/USD, having started the period under review at ZMW9.67/USD. Meanwhile, annual inflation continued its general downward trend and the Bank of Zambia reduced its Monetary Policy Rate by 50 basis points, from 10.25% to 9.75% in February 2018, enabling the Group to negotiate lower interest rates on both ZMW and USD short-term finance facilities.

An outbreak of cholera during the rainy December and January months caused the temporary closure of a number of Zambeef retail stores. The financial impact on the Group was negligible and Zambeef honoured its commitment to support local communities in partnering with the Ministry of Health to mitigate the disease by donating chlorine, other disinfectants and cleaning materials.

An outbreak of Foot and Mouth Disease was announced by the Ministry of Fisheries and Livestock on the 6th of April 2018. The Group's Kalundu Dairy was affected by the disease resulting in the biological value of the dairy cattle reducing by approximately USD 690,000. Also, the cost of processed milk production will increase by approximately USD 200,000 in H2 of 2018 due to the need to replace approximately 10,000 litres of reduced fresh milk production per day with more expensive reconstituted milk. The total financial impact of the disease has been provided for in the March 2018 results.

TRADING RESULTS

The Group achieved a Profit After Tax (excluding discontinued operations) of ZMW23 million (USD2.3 million) versus ZMW5.2 million (USD0.5 million) in the prior period. Volumes and gross margins have also increased in our core divisions of Retail and Cold Chain Food Products (CCFP) and Stockfeed.

This performance was particularly encouraging given the significant increase in overheads during the period as a result of the Government's move to eliminate subsidies on fuel and electricity. We have also seen an increase in labour costs and costs from road tolls, licence fees and levies on livestock and crops.

Retail and Cold Chain Food Products (CCFP)

Zambeef's chain of 205 retail outlets - both own-brand and within Shoprite supermarkets - remain at the heart of the business, with demand from consumers driving supply throughout the business.

During the period, four new Zambeef Macro retail stores were successfully opened in Zambia, with a further four Macro stores opening in the second half of the year.

The Group closed nine small retail stores as part of its ongoing drive to optimise revenue and efficiencies across the division.

The Retail and Cold Chain Food Products division has delivered a very satisfactory EBITDA of ZMW98.7 million versus ZMW72.8 million in the same period last year (USD9.97 million compared with USD7.4 million), generating an EBITDA margin of 10.5% versus 8.5% last year.

The Group will continue the focus on this division and will continue to drive Cold Chain Food Products volumes through the expanding Retail stores network.

Stockfeed

The new Novatek stockfeed plant in Mpongwe has already reached 42.6% capacity, compared with a target of 30%, and is making a significant contribution to the division's profitability and overall Group performance. The Stockfeed division increased Gross Profit margins from 19.4% to 26.9% compared to the prior period, which resulted in an increase in Gross Profit from ZMW62.8 million to ZMW82.8 million (USD6.4 million to USD8.4 million).

Cropping

The Group is one of the largest cereal row cropping operations in Zambia, with approximately 7,787 hectares of row crops under irrigation, which are planted twice a year, and a further 8,694 hectares of rainfed/dry-land crops available for planting each year. The Mpongwe estate has performed well during the first six months and we expect yields for the summer crop to be ahead of budget.

Soya and maize prices have reduced from USD 430 per ton and USD 230 per ton respectively in March 2017 to USD 415 per ton and USD 165 per ton in March 2018. The soya price in particular is still well below the price achieved in March 2016 of USD 530 per ton. The reduced commodity prices in March 2018 have contributed to the gross profit in 2018 being 2.1% behind the gross profit achieved in March 2017.

Overall, the cropping division has delivered a strong EBITDA of ZMW23.9 million versus ZMW19.4 million in the same period last year (USD2.4 million compared with USD2 million). This is due largely to overheads reducing in March 2018 due to a reduction in manpower costs.

INVESTMENT

Zambeef spent USD7.5 million on capital investment for continuing operations in the first half of the year.

USD2.9 million was spent on the continued roll-out of new modern Macro retail outlets across Zambia, with four stores opened in the six months. The Company plans to open a further four Macro retail outlets in the second half of the year. Heroes Macro

is the first of these and it opened in May 2018.

Outlets in border towns have also flourished, enabling the Company to capitalise on its long-held strategy of meeting growing regional demand.

These new world-class outlets are proving popular, with like-for-like sales increasing from the prior period. Their success has accelerated our review of legacy stores with a view to phasing out poorer performing outlets to optimise marginal contribution. This approach will also help improve efficiencies in distribution and reduce some of the additional overheads mentioned earlier.

In October 2017, Zambeef welcomed the Zambian President, H.E. Edgar Chagwa Lungu, as he formally commissioned the Company's USD30 million hatchery and stockfeed mill at Mpongwe Farm on the Copperbelt. This was the largest agricultural investment in the province to date.

Zambeef completed the sale of 90% of Zambeef's shareholding in its wholly owned subsidiary Zampalm Limited, to the state-owned Industrial Development Corporation (IDC) for a cash consideration of USD16 million on 6 April 2018, in line with the Group's ongoing strategic focus on reducing Group debt. Zambeef continues to oversee the operation under a management agreement that includes a rollout of an outgrower scheme to develop further the remote rural communities of Muchinga, where the plantation is located.

Group capital expenditure in the full year is budgeted at USD16.0 million, rather than the USD14.5 million originally projected, due to the additional floor space needed at its new Kitwe beef processing plant, which is expected to open in the second half of the 2018 financial year, and several new retail Macro outlets, as set out below.

BOARD CHANGES

Finally, as we enter into a renewed period of growth for Zambeef, I would like to thank Co-founder and former Joint Chief Executive Officer Dr Carl Irwin, who retired from the Group on 31 March 2018 after 23 years of service, during which time he and Francis Grogan grew the Company to the impressive heights it has reached today.

On 24 May 2018, subsequent to the period end, Tim Pollock, Joint Chief Executive Officer announced his resignation from the Board for personal reasons. We wish to thank Tim for his contribution to the Company.

OUTLOOK

Zambia's GDP is expected to grow by 5.5% in 2018. The clearance of government arrears and continued close attention to monetary policy conditions are likely to strengthen the position of the financial sector and spur confidence in consumption and investment lending. Equally, firm international copper prices and improved domestic production from newer and recently refurbished mines are expected to support exports.

We expect this economic strengthening to continue to boost consumer demand across all sectors, with a firm trickle-down to our core target consumers in lower-income markets.

Dr Jacob Mwanza

Chairman

5 June 2018

CHIEF EXECUTIVES' REVIEW

OVERVIEW

In 2014, Zambeef set out a strategy of retail growth in order to drive cold chain food and stockfeed production. We have remained steadfast in this vertical integration approach, capitalising on the previous two years of sluggish economic growth to build a firm foundation from which to project the business on to a new level.

With signs of economic recovery now evident, we are pleased to report that this strategy has started to generate improved returns on the capital investment we have made in recent years.

The Group has achieved a Profit After Tax (excluding discontinued operations) of ZMW23 million (USD2.3 million) versus ZMW5.2 million (USD0.5 million) in the prior period. Volumes and gross margins have increased in our core divisions of Retail and Cold Chain Food Products (CCFP) and Stockfeed, and the Cropping division has performed well operationally.

The pleasing Group performance was achieved in spite of a significant increase in overheads during the period as a result of the Government's move to phase out subsidies on fuel and electricity, with overheads increasing by 18.8% in ZMW (17.7% in USD) during the period We have also seen an increase in manpower costs and costs from road tolls, license fees and levies on livestock and crops.

STRATEGIC FOCUS

Zambeef remains unwavering in its strategic focus on the core operations in which it is best-in-class: retail and cold chain food products, stockfeed and cropping.

As a result, we continued our divestment of non-core assets to reduce our debt further and generate additional cash, concluding the 90% sale of our shareholding in Zampalm Limited to the Industrial Development Corporation (IDC) for a cash consideration of USD16 million during the period, as previously announced.

Retail and Cold Chain Food Products

It is the retail demand that continues to drive Zambeef's production along the value chain, reinforcing our position linking the country's farmers with consumers.

Zambeef's retail operations are growing from strength-to-strength, with four new Macro retail stores and one Shoprite store opening in Zambia and in Nigeria in the first half of the financial year.

This growth emphasises the Group's market-driven approach, through which retail demand drives production along our value chain.

The Macro stores, which sell our full range of cold chain food products, along with Novatek stockfeed, and in some instances Zamleather's Zamshu brand footwear, are bringing world-class standards of hygiene, service, security and affordability to our traditional markets in low- and medium-density urban and peri-urban areas.

Revenue from Macro outlets grew 66% in Kwacha terms (65% in USD) compared with the previous year.

The new outlet in Nakonde is in line with our approach of also targeting border towns to tap into the growing regional demand for our products.

Our Zambeef branded outlets account for 82% of retail sales, while our operation of in store butcheries at all Shoprite supermarkets across Zambia accounts for 18% of retail turnover. This balance has remained relatively unchanged in recent years and ensures a diversification of exposure across retail segments.

The Group closed nine small retail stores during the period in its ongoing drive to optimise its real estate.

The growth in market demand, and associated development of Zambeef's retail chain, continues to drive cold chain food production as we add value and provide linkages between small-scale, emerging and commercial farmers and end consumers.

Cold chain food product volume increased by 6.7%, driven by strong performance in the chicken and beef sectors.

Beef volumes increased by 10.6% from 8.5 million kgs to 9.4 million kgs.

Chicken volumes rose by 14.3% from 5.6 million kgs to 6.4 million kgs, with some 70% of chickens supplied by outgrower farmers. Demand outstrips supply as Zambeef continues to formalise a market that remains largely driven by the informal sector, presenting significant opportunities for growth.

Dairy volumes increased by 9.3% from 9.3 million litres to 10.2 million litres.

Pork volumes declined from 5.5 million kgs to 5.3 million kgs during the period under review.

Stockfeed

Zambeef's stockfeed operation trades under the brand name Novatek. Its second stockfeed plant was commissioned at Mpongwe Farm on the Copperbelt in October 2017. It has already produced 25,584 tons (42.6% of capacity) of the total of 94,203 tons produced during the six months.

Zambeef is one of the largest buyers of soya beans and maize from local farmers. The Company bought 75,000 tons last year as inputs into the stockfeed operations. We predict that 110,000 tons will be required this year.

20% of the stockfeed production is sold through Zambeef outlets, versus 11% in 2017. The strategy of expanding the Retail infrastructure to increase demand for stockfeed is clearly working. A further 30% of the stockfeed production is consumed in the Company's Zamhatch and Zamchick divisions. The other 50% is sold to third-party distributors. Chicken feed accounts for three quarters of stockfeed production, creating an opportunity for growth linked to the chicken segment.

Cropping

Zambeef's Mpongwe Farm is the heart of the Group's farming operations, and continues to live up to its reputation as one of the best farms in the region.

The Group harvested 44,730 tons of soya beans during the period, versus 43,000 in 2017, with EBITDA increasing by 22.8%.

Zamhatch

Demand for day-old chicks from Zambeef's Zamhatch subsidiary is exceeding supply. This reinforces the fact that Zambeef is an integral part of the nation's agricultural supply chain, with more than half of our chicks sold to small-scale farmers and entrepreneurs who then serve the traditional live-bird market, which still accounts for 75 percent of poultry market share.

Zamhatch incubates 400,000 eggs a week, with an industry-standard 86 percent success rate, producing 344,000 day-old chicks. We are working on increasing capacity to 500,000 eggs per week in 2019 and then 600,000 eggs per week in 2020 in order to meet demand. The cost of this expansion will be approximately USD 2 million per year.

Outlook

Zambeef's clear long-term strategy is translating into improved results. We will remain steadfast in our plans going forward, which include:

· Consistent revenue growth through expansion of our retail network, driving our cold chain food product and stockfeed operations;

· Margin improvements leveraged from continued capital investment in high margin areas of the business coupled with stringent control of administration costs;

· Cash generation through improved margins, cost control, inventory management and prudent capital expenditure;

· De-risking the business by maintaining prudent gearing levels; and

· Divestment of non-core assets.

· The continued execution of the above strategy, together with capital expenditure being more focused on higher returning segments of the Group, should result in operating free cash flow being generated from 2018, and the Group returning to a policy of paying dividends.

As the macro-economic environment improves, we expect volumes to continue their upward trend. The continued rollout of Macro retail stores should also continue to grow revenue and margins.

Four additional Macro stores are scheduled to open in the second half of the year, including the flagship Heroes Macro in Lusaka, which opened in May 2018. Some 14 sites have been bought and await development, keeping us on target to open 10 new Macro outlets every year.

In addition, Shoprite continues to roll-out new stores, with three expected in Zambia in the second half of 2018. One new store opened in both Nigeria and Ghana, and a further store is planned in Ghana for the second half of the year.

The Mpongwe stockfeed mill continues to perform ahead of expectation. The stockfeed division will undoubtedly continue to increase volumes and contribute materially to the Group.

The Cropping division continues to perform well operationally and is an integral part of the business.

We have entered the second half of the financial year with a renewed sense of optimism that the difficult times of recent years are behind us. We have used that time productively to establish a solid base from which to move forward now that market conditions have started to improve.

The continued dedication of our management and staff, supported by a strong Board, remain key to this as we progress into an exciting new phase of growth.

Chief Executive Officer

5 June 2018

FINANCIAL REVIEW

The first six months of the 2018 financial year have seen the Zambeef Group continue to grow. Good revenue and strong margin growth have been the main contributors. Revenue for the Group increased by 5.6% in ZMW and 4.6% in USD, while Gross Profit margins increased from 32.5% to 37.6%, resulting in Gross Profits increasing by 22.1% in ZMW from ZMW378m to ZMW461m (21% in USD from USD38m to USD47m). Overheads increased by 18.8% in ZMW (17.7% in USD) from ZMW293m to ZMW348m (USD30m to USD35m). The strong Gross Profit performance enabled the Group to achieve Operating profits of ZMW62m versus ZMW44m (USD6.3m vs USD4.5m) which represents a 41.1% increase in ZMW and a 39.9% increase in USD. 

Interest costs reduced by 9.9% in ZMW (10.7% in USD) as a result of lower interest rates, largely due to the reduction in the Bank of Zambia Policy Rate, which decreased our ZMW interest rates significantly compared with the prior period. As a result, Zambeef's PAT excluding discontinued operations increased from ZMW5.2m to ZMW23.0m (USD0.5m to USD2.3m).

The highlights of this period were the 9.9% (in ZMW) revenue growth in the Retail and Cold Chain Food Products (CCFP) division with a strong increase of 28.3% (in ZMW) in gross profits. Gross margins increased from 25.9% in 2017 to 30.3% in 2018. Zambeef continues to establish itself as best-in-class in terms of its production, distribution and retailing of the Cold Chain Food Products delivering a very satisfactory EBITDA margin of 10.5% compared to 8.5% in 2017. In addition the Stockfeed division delivered an excellent gross profit of ZMW82.8m versus ZMW62.8m in the prior period, representing a 31.8% increase.

The focus for the next six months will be on:

· Consistent revenue growth through expanding the retail network and addressing supply constraints in the CCFP and stockfeed operations;

· De-risking the business through reducing gearing and dollar debt and E&S/Food Safety strategies; and

· Improving cash conversion from strong working capital control and tight control on Capex with effective managerial responsibility.

Exchange rate movements

This period has seen a 2% appreciation of the ZMW with the exchange rate, starting the period at 9.67 ZMW/USD and closing the period at 9.48 ZMW/USD. The table below shows the comparative exchange rates over the periods:

The appreciating currency has resulted in the Group reporting realized exchange gains of ZMW4.2m (USD0.4m) for the first 6 months.

ADMINISTRATION AND OVERHEAD COSTS

As mentioned above, overheads have increased by 18.8% (in ZMW). The following are contributing factors:

· Fuel prices increased from ZMW10.72/l in September 2017 to ZMW11.09/l and again to ZMW12.01/l in January 2018 representing a total increase of 12%;

· Electricity tariffs were increased by 50% in May 2017 and a further 15% in September 2017;

· With inflation at approximately 7%, an average increase of approximately 10% was agreed for all union workers resulting in higher payroll costs;

· Levy and slaughter fees have continued to increase during the year;

· Road toll fees, which were introduced in the previous financial period, are increasing as more toll gates are opened; and

· Repairs and Maintenance costs were incurred in Zambeef Outlets as a result of the outbreak of Cholera in January 2018.

CAPITAL EXPENDITURE

Total capital expenditure on continuing operations during the period was ZMW74.3 million (USD7.5 million) against a anticipated capital expenditure of ZMW157.3 (USD16m) for the year.

The main capital expenditure during the period included:

· USD2.9m on rollout of new Zambeef Macro outlets

· USD1.1m on new Mpongwe stockfeed plant

· USD1.1m on expansion of Zamhatch hatchery and breeder farm

· USD0.9m for expansion of Zam Chick processing plant

· USD0.3m for farming replacement Capex

· USD0.5m on the new processing and distribution hub in Kitwe

The capex to be incurred in the second half of 2018 is being focused towards:

· The expansion of the retail network (four Zambeef Macros and three Shoprite stores to open before the end of 2018);

· The commissioning of the new Copperbelt processing and distribution hub which will increase capacity and improve efficiencies in the Copperbelt and North Western Province operations;

· Completing the expansion of the breeding farm and hatchery to increase day-old chick production from 344,000 to 430,000 birds per week; and

· Completing the new stock feed plant at Mpongwe to ensure additional stock feed capacity.

TERM FINANCE

No additional term finance was sourced during the period under review.

DIVISIONAL PERFORMANCE

Table 1: Segmental Financial summary in ZMW'000s

DIVISIONAL PERFORMANCE

Table 2: Segmental Financial summary in USD'000s

RETAIL AND COLD CHAIN FOOD PRODUCTS

Revenue in the Retail and Cold Chain Food Products division increased by 9.9% in ZMW and 8.9% in USD. Gross profit grew by 28.3% in ZMW and 27.2% in USD.

Overhead costs increased by 24.8% in ZMW and 23.6 per cent in USD mainly due to rises in transport, energy and employment costs.

EBITDA in ZMW rose 35.6% from ZMW72.8m to ZMW98.7m, whilst in USD it increased by 34.4% from USD7.4m to USD10.0m. The business has generated a pleasing EBITDA margin of 10.5 per cent. (compared to prior year period 8.5%).

The Retail and Cold Chain Food Products division includes the beef, chicken, pork, dairy, egg and fish production and processing activities which primarily supply the Zambeef and Shoprite retail chains.

The division delivered strong volume growth of 6.7% while increasing gross profits.

Highlights:

- Good volume Growth

- Strong GP Growth

- Strong EBITDA growth

Challenges: An outbreak of Cholera in January 2018 led to a number of outlets being closed for a period due to their proximity to the epidemic. The epidemic had a negative effect on the sale of beef heads, bones and offal fat, but overall the financial impact on the Group was immaterial.

RETAIL EXPANSION

During the period four Zambeef Macro outlets were opened with a further four expected to open this year. Fourteen further sites have been purchased and will be developed. Zambeef plans to open 10 new Macro outlets every year.

STOCK FEED (NOVATEK)

The Stockfeed division has increased its market share and market leadership with volumes increasing by 27.9% from 73,679 M.T. to 94,203 M.T. Gross profit margins have increased from 19.4% to 26.9% due mainly to low raw material prices from the 2017 crop. We expect the margins to reduce slightly in the second half as a result of the new season raw material prices increasing. However, with the Mpongwe plant continuing to perform ahead of expectation, the stockfeed division is expected to exceed its budget in H2 of 2018.

Overheads increased by 88% due mainly to the new stockfeed plant in Mpongwe.

However, the Mpongwe plant is operating well ahead of expectation and the division has delivered improved EBITDA of ZMW44.9m compared with ZMW42.7m in the prior period.

The Mpongwe plant produced 25,584 tons of 94,203 tons during the period. This represents approximately 42.6% of the capacity of the plant.

CROPPING

The Cropping division has delivered pleasing results in the first six months. Soya and maize prices have reduced from USD430/M.T. and USD230/M.T. respectively in March 2017 to USD415/M.T. and USD165/M.T. in March 2018. However, yields are predicted to be ahead of budget with over 44,500 M.T. of Soya Beans and 18,000 M.T. of Maize expected to be harvested. This has resulted in gross profit being ahead of budget and slightly behind 2017.

Overheads decreased by 8.9%, mainly as a result of reduced manpower costs. This resulted in EBITDA increasing from ZMW19.4 in 2017 to ZMW23.9 in 2018 (USD2m to USD2.4m).

The winter crop, which has recently been planted, comprises 7,296 Ha of wheat, 451 Ha of winter maize and 50 Ha of Lucerne. The wheat price has increased from USD410/M.T. in September 2017 to approximately USD430/M.T. and the maize price has increased from USD115/M.T. in September 2017 to approximately USD150/M.T.

FINANCIAL REVIEW OTHER BUSINESSES (continued operations current and prior year)

The Other divisions delivered an increase in EBITDA of 101.6% from ZMW3m to ZMW6m (USD0.3m to USD0.6m) compared to the prior period.

Flour Milling:

The mill performance was satisfactory with sale volumes stable as Zambeef continues to retail flour through its retail network.

Zamleather: 

The shoe division performed well. However, there was a decrease in world-wide hide prices and the market for lower-grade hides is sluggish.

REPORT OF THE DIRECTORS

In compliance with Division 8.3 of the Companies Act, the Directors submit their report on the activities of the Group for the six month period ended 31 March 2018.

1. Principal activities

Zambeef Products PLC and its subsidiaries ("Group") is one of the largest agri-businesses in Zambia. The Group is principally involved in the production, processing, distribution and retailing of beef, chicken, pork, milk, dairy products, eggs, edible oils, stock feed and flour. The Group also has large row cropping operations (principally maize, soya beans and wheat), with approximately 7,971 Ha of irrigated row crops and 8,623 Ha of rain-fed/dry-land crops available for planting each year. The Group is also in the process of rolling out its West Africa expansion in Nigeria and Ghana.

2. The Company

The Company is incorporated and domiciled in Zambia.

Business address Postal address

Plot 4970, Manda Road Private Bag 17

Industrial Area Woodlands

Lusaka Lusaka

ZAMBIA ZAMBIA

3. Share capital

Details of the Company's authorised and issued share capital are as follows:

4. Results

The Group's results are as follows:

Unaudited Audited

5. Dividends

There was no dividend paid or proposed for the six month period ended 31 March 2018.

6. Management

The Senior Management team comprise the following:

7. Directors and Secretary

The directors in office during the financial period and at the date of this report were as follows:

8. Directors' interests

The directors held the following interests in the Company's ordinary shares at the reporting date:

9. Directors' fees and remuneration

In October 2016, the Board approved a retirement package for the Chairman, Dr. Jacob Mwanza of USD330,000. An advance of USD110,000 was paid about the same time, and the full payment will be paid towards the end of 2018.

In addition to the above, all Executive Directors are also entitled to a gratuity of 10 per cent. of their gross basic salary paid over the two-year contract term, less statutory deductions for tax.

The Long Term Incentive Plan 2 ("LTIP 2") has the following key terms/conditions:

a) Structure: market value option shares ("Options");

b) Exercise price: 15 pence;

c) Maximum shares: The annual award base value (number of shares multiplied by the share price on the date of grant plus number of Options multiplied by the exercise price) may not exceed three times the Executive's base salary; and

d) Vesting period: three years from 2015 to 2018; exercisable from 1 March 2018:

e) The Options can only be exercised if Zambeef achieves the following targets:

I. If the share price reaches 40 pence, then 25 per cent. of the Options become exercisable.

II. If the share price reaches 48 pence, a further 25 per cent. of the Options become exercisable.

III. If the share price reaches 56 pence, a further 25 per cent. of the Options become exercisable.

IV. If the share price reaches 65 pence, the final 25 per cent. of the Options become exercisable.

V. Zambeef achieving a debt-to-equity (gearing) ratio of less than 35 per cent. in the audited accounts immediately prior to exercising the options.

VI. Zambeef achieving a current ratio (current assets divided by current liabilities) of 1.5 in the audited annual accounts immediately prior to the exercising of the options.

VII. Zambeef generating free cash flow.

VIII. The Zambeef share price triggers set above will be considered achieved if in the 14 days immediately prior to exercising the Options, the shares have traded continuously at not less than these prices for 14 days.

IX. The Options will be exercisable at any time for 2 years after the 3-year period from the issue of the Options have lapsed.

X. The Options can only be exercised if the relevant executives are still employed by the Company.

10. Significant Shareholdings

As at 31 March 2018, the Company has been advised of the following notifiable interests in its ordinary share capital:

CDC Group Plc. holds 100,057,658 convertible redeemable preference shares.

 11. Employees

The Group employed an average number of employees of 7,734 (30 September 2017 - 7,068; 31 March 2017 - 6,854) and total salaries and wages were ZMW197,954 million (USD20 million) for the six month period to 31 March 2018 (30 September 2017 - ZMW357 million [USD28.3 million], 31 March 2017 - ZMW173 million [USD17.7 million]).

The average number of persons employed by the Group in each month of the 6 month period is as follows:

12. Safety, Health and Environmental issues

As part of some of the Group's term loans, the Group signed up to an Environmental and Social Action Plan ("ESAP"), which requires the Group to meet both local Zambian standards as well as international standards relating to the environment.

The Group provides healthcare services to its employees. The Group also supports various community activities in the areas that it operates from.

13. Legal matters

There are no significant or material legal or arbitration proceedings (including to the knowledge of the Directors, any such proceedings which are pending or threatened, by or against the Company or any subsidiary of the Group) which may have or have had during the 12 months immediately preceding the date of this document a significant or material effect on the financial position or profitability of the Company or any member of the Group.

14. Gifts and donations

The Group made donations of ZMW1.5 million (USD0.15 million), (30 September 2017 - ZMW2 million [USD0.2 million], 31 March 2017 - ZMW1.23 million [USD0.13 million]) to a number of activities.

15. Export sales

The Group made exports of ZMW27 million (USD2.8 million) during the period (30 September 2017 - ZMW24.5 million [USD2.6 million], 31 March 2017 - ZMW14 million [USD1.4 million]).

16. Property, plant and equipment

Assets totalling ZMW80.3 million (USD8.1 million) were purchased by the Group during the period (30 September 2017 - ZMW209.4 million [USD22 million], 31 March 2017 - ZMW126.5 million [USD12.9 million]) which included expenditure on the palm plantation development during the period of ZMW6 million (USD0.6 million) (30 September 2017 - ZMW13.8 million [USD1.5 million], 31 March 2017 - ZMW8.8 million [USD0.9 million]).

17. Interim report

The interim report set out below has been approved by the directors.

By order of the Board

Company Secretary

Date: 5 June 2018

6 June 2018

The Directors

Zambeef Products PLC

Plot 4970, Manda Road

Industrial Area

Lusaka

Dear Sirs

INDEPENDENT REVIEW REPORT OF ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

Introduction

We have been instructed by the Directors of the Company to review the financial information set out on pages 19 to 50 and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the Directors. The Listing Rules of the Lusaka Stock Exchange and International Accounting Standard 34 require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual financial statements except where changes, and reasons for them, are disclosed.

Review of work performed

We conducted our review in accordance with guidance contained in the International Standards on Auditing. A review consists principally of making enquiry of Group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as test of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information.

Review conclusion

On basis of our review we are not aware of any material modifications that should be made to the consolidated financial information as presented for the six month period ended 31 March 2018.

Chartered Accountants

Christopher Mulenga (AUD/ F000178)

Name of Partner signing on behalf of the Firm

Lusaka

Date: 5 June 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2018

The accompanying notes form part of the financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2018

The accompanying notes form part of the financial statements.

CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2018

CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2018

 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ‑ 31 MARCH 2018