Zambeef Prod. Regulatory News (ZAM)

For Immediate Release 16 June 2014

Zambeef Products plc

("Zambeef" or the "Group")

Unaudited Results for the Six Months Ended 31 March 2014

Zambeef (AIM: ZAM), the fully integrated agri-business with operations in Zambia, Nigeria and Ghana, is pleased to announce its results for the six month period ended 31 March 2014.

Financial Performance Summary

* adjusted to exclude unrealised foreign exchange differences

Key Points

· Financial performance adversely impacted by macro-economic challenges, increased competition and external events. 

· Gross margins decreased from 36.3 per cent. for March 2013 to 32.7 per cent. for March 2014.

· Good performances from the cropping, milk/dairy and West Africa divisions.

· The two JVs with Rainbow (Zam Chick and Zamhatch) are progressing smoothly and we expect to see the full benefits over the next 12 months, when Zamhatch becomes operational.

· Export sales grew 27.8 per cent. to ZMW 123.4 million (USD 20.2 million) in H1 - now represent 15.6 per cent. of revenues.

· Net Cash Inflow Before Financing of ZMW 22.5 million (USD 4.0 million) and administration expenses (excluding depreciation) in USD terms being 1.5 per cent. lower than 2013.

· Acceleration of longer term strategy to position Zambeef as a regional food producer - to generate geographically diversified revenue streams and leverage significant growth opportunity.

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

"Our financial performance has been adversely impacted by macro-economic challenges and external events. These factors, together with increased competition, have resulted in the Group recording a loss before tax for the first half of the year. This is despite tight controls on costs. However, it was encouraging to see a positive net cash inflow before financing of USD 4.0 million. With the operational platform which we have established over the last few years and the demographic drivers for growth in Southern Africa, we believe that Zambeef is well placed to become a regional food player. With this goal in mind, we are actively looking at forging strategic alliances and partnerships with global industry players, as well as unlocking value from within the Group."

For further information, please contact:

Notes to Editors

The Zambeef Group is one of the largest integrated agri-businesses in Zambia, involved in the primary production, processing, distribution and retailing of beef, chickens, pork, milk, eggs, dairy products, fish, flour, edible oils and stock feed, throughout Zambia and the surrounding region, as well as Nigeria and Ghana. The Group is also one of the largest cereal row cropping operations in Zambia, with approximately 8,000 Ha of irrigated land and approximately 8,000 Ha of rain-fed/dry land, available for planting each year.

The Group employed an average of 5,500 employees in the period.

Further information can be found on www.zambeefplc.com

This publication is in line with standard practice for London Stock Exchange.

CHAIRMAN'S REPORT

Overview

Our performance during the first half of the financial year has been adversely impacted by macro-economic challenges, increased competition and external influences, which have resulted in the Group announcing an adjusted loss before tax of ZMW 18.2 million (USD 3.2 million) for the first half of the year. The Board is focused on turning the business around and we are taking decisive action, not only maintaining a tight control of costs but also moving to accelerate our long-term growth strategy to establish Zambeef as a regional food provider.

Some of the macro-economic challenges during the period included the depreciation of the Zambian Kwacha by over 15 per cent. versus the US dollar; local ZMW interest rates (Bank of Zambia Policy Rate) increasing from 9.75 per cent. to 12.0 per cent.; and upward pressure on inflation, which increased from 7.0 per cent. to 7.7 per cent.

Several external events also affected our performance: the outbreak of African Swine Fever from November 2013 to February 2014; the overhang from last year's imported beef issue; and the continued depressed commodity prices. In addition, margins have come under pressure from increased new entrants into the market.

As a result of these challenges, revenue in USD terms was 9.0 per cent. lower than the same period last year (2 per cent. lower in ZMW terms) and gross margins decreased from 36.3 per cent. to 32.7 per cent., resulting in an adjusted loss before tax of ZMW 18.2 million (USD 3.2 million).

Despite the above challenges, it was encouraging to see the Group generating a Net Cash Inflow Before Financing Activities of ZMW 22.5 million (USD 4.0 million) which was aided by administration expenses (excluding depreciation) being 1.5 per cent. lower in USD terms than 2013. Good performances were recorded by the cropping, milk/dairy and West Africa divisions.

We believe that there is a significant opportunity to use our established operations to become a leading regional food provider, which will also enable us to balance out the impact of external events and country-specific factors. Exports already account for over 15 per cent. of total revenues and the strategic relationships with Rainbow Chickens Limited ("Rainbow"), one of the largest chicken producers in Sub-Saharan Africa, which we announced last year is starting to deliver good results. We intend to build on these foundations to drive Zambeef's regional presence and below we set out in more detail how we aim to achieve this.

Strategic Priorities

In order to address the domestic challenges being faced by the Group, we have decided to focus on our strengths, re-aligning and accelerating our medium-to-long term strategy, to diversify the business outside of our core Zambian market.

As indicated above, we have already successfully built exports in the SADC region from USD 5.4 million in 2011 to USD 30.3 million in 2013, and for H1/2014, export sales were USD 20.2 million, accounting for over 15 per cent. of Group revenues. Outside of the SADC region, our West Africa operations continue to contribute positively to our African growth story, driven by our relationship with Shoprite. Our West Africa operations now account for more than 5 per cent. of Group revenues.

We intend to build on this early success, with the acceleration of our strategy based on three key priorities:

· Make Zambeef a regional food player rather than just a Zambian business;

· Forge strategic alliances and partnerships with global industry players; and

· Unlock value and capital gains from within the Group and reduce debt/gearing.

Feeding the region

It is our strategic intention to make Zambeef a regional food player within the Sub-Saharan Africa ("SSA") region, and, specifically, within the 15 member states that make up the Southern Africa Development Community ("SADC") region (comprising Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe), as trade within the SADC region benefits from a number of tax, customs and excise duty benefits.

The SADC region is a net importer of food and the dynamic nature of the region presents significant opportunities for the consumer driven food sector. With a population of over 280 million, this region is one of the fastest growing regions in the world, with GDP growth (excluding South Africa) averaging over five per cent. over the last four years and expected to grow at over five per cent. over the next three years. A rapidly expanding consumer base, fuelled by an emerging middle class, increasing per capita income, rapid population growth and high levels of urbanisation, present significant and tangible opportunities.

Zambia is ideally and centrally located within the SADC region and has the potential to expand agricultural production, given its considerable resources in terms of land, labour and water.

Within the SADC region, we believe that Zambeef is well placed to become a regional food player, in view of our well diversified and vertically integrated ("farm-to-fork") business model. In particular, Zambeef's large economies of scale and capacity will allow us to expand regionally, building on the progress which we have made in the last three years with export sales. We are initially focusing our sales efforts on establishing relationships with the key distributors and importers within the eight SADC countries immediately adjacent to Zambia to maximise the benefits of our existing footprint.

By focusing on our position as a regional food player, we will have access to a significant growth opportunities across a broader geographic footprint, generate geographically diversified revenue streams and enable valuable foreign exchange earnings to be achieved, reducing exchange rate risks. Whilst this should result in higher volumes, it will be at the expense of some margin dilution.

Strategic partnerships/alliances

In order to drive forward our regional expansion plan, we believe that it will be beneficial to form strategic alliances and partnerships with global industry players, who can provide both the financial support and technical expertise.

This process started in 2013, when we partnered with Rainbow through two joint ventures, Zam Chick Limited and Zamhatch Limited.

The Zam Chick JV is allowing Zambeef to leverage Rainbow's vast experience and impressive track record in the poultry industry, with a key focus on value added and processed chicken products, where Rainbow has demonstrated significant capabilities in the South African market.

The Zamhatch JV to establish a broiler parent stock rearing, laying and hatching operation for the supply of day old chicks enables Zambeef to manage the quality and quantity of supply of day old chicks to its broiler division as well as create opportunities to generate revenue from the sale of day old chicks to third parties.

Both JVs are progressing smoothly. The support from Rainbow is proving valuable in helping us to launch new products and improve efficiencies and we expect to see the full benefits of the JVs coming through over the next 12 months as the Zam Hatch operations come on stream.

In this vein, we are actively exploring other alliances and partnerships.

Realising value

In our 2013 audited accounts, we announced a significant capital gains resulting from the revaluation of our assets. This was a pleasing reflection of the investment we have made over the past few years to establish Zambeef as a leading agricultural producer.

We are actively looking at ways of realising some of this value, which should result in cash inflow. This will allow us, inter alia, to reduce USD denominated debt, thereby reducing exchange rate risks and interest costs.

Our position as a leading Zambian agricultural business represents an attractive proposition for establishing strategic partnerships and as part of this process, there is an opportunity for us to unlock some of this value in order to strengthen our financial position.

Board of Directors

As was announced to the market on 28 January 2014, Charles Mpundu was appointed as Non-Executive Director of the Company with effect from 1 February 2014. Charles has diverse expertise and a successful track record of achievements in both the private and public sectors. His experience and relationships with Zambian institutional investors is expected to be of value to Zambeef and we look forward to working with him to further increase shareholder value.

Conclusion and outlook

Based on the Group's current trading, the Board anticipates that the second half performance will be broadly similar to that in the first half.

Nevertheless, whilst this has been a challenging six months for the Group, we remain confident that the Group is sufficiently robust and diversified to weather this period of turbulence. Further, we believe that the positive measures being adopted by the

Board will serve to strengthen the business model and will underpin an improved performance as we move into the 2015 financial year.

Dr Jacob Mwanza

Chairman

16 June 2014

CHIEF EXECUTIVE'S REVIEW

Overview

This has been a challenging six month period for Zambeef, with performance impacted by a number of external factors and events as reported in more detail below.

Exchange Rate Volatility

The Zambian Kwacha has depreciated significantly during the period. Compared to a depreciation of 4.3 per cent. for the whole of 2013, the first six months of this financial year saw the exchange rate depreciate by over 15 per cent. This has resulted in an escalation in Zambeef's dollar-denominated operating costs, particularly in the edible oils, stock feed and cropping divisions, thus impacting negatively on the Group's financial performance. The total reduction in the gross profit of these divisions was ZMW 19.7 million (USD 3.2 million). Group exchange losses for the six months ended 31 March 2014 was ZMW 29.5 million (USD 5.2 million).

Increased Competition

Increased competition into a highly price-sensitive market have put further pressure on margins, meaning additional costs, particularly feed and imported raw materials such as chemicals and fertilisers, cannot readily be passed on to consumers. This has been a particular issue in the edible oils division, where competition has become very intense, exacerbated by the continued flooding of cheap and unregulated oil imports into the country.

African Swine Fever

Whilst the Group's animals were not affected by the outbreak of African Swine Fever in Zambia, the government imposed restrictions on the movement of pigs and the sale of pork products, which lasted for approximately three months until mid-February 2014, as a result, Masterpork was closed for three months, which significantly impacted performance at Masterpork, where profits reduced by ZMW 6.1 million (USD 1.0 million).

Commodity Prices

With increased soya production in the country, the price of soya beans decreased by ZMW 612 (USD 100) per ton in H1 2014, and this impacted Group profits by ZMW 22.7 million (USD 3.7 million).

Imported Beef Products

There is still an "overhang" from the imported beef products issue last year, and in order to regain market share, the beef division has operated in this period at reduced margins, resulting in profits being behind the previous year's results.

OPERATIONAL REVIEW

The two tables below provide a summary of the segmental and divisional performance.

Table 1: Segmental and Divisional Turnover

 Table 2: Segmental and Divisional Gross profit

Capital expenditure

During the period, we invested ZMW 41.2 million (USD 7.3 million) of capital in the business. This capital expenditure has primarily been on farm equipment in the cropping division (ZMW 6.6 million / USD 1.1 million), pelleting line at Novatek stock feed (ZMW 5.2 million / USD 0.8 million), cow sheds at Kalundu dairy (ZMW 4.6 million / USD 0.8 million), and the palm project (ZMW 6 million / USD 1.7 million).

DIVISIONAL REVIEW

Taking each of our business areas in turn as follows:

Edible oils

Competition from unregulated imported edible oils has impacted the market, putting pressure on margins that have also been depressed by exchange rate movements and increased competition. This has resulted in a significant reduction in edible oil margins and therefore lower profits. In addition, the high cost soya beans bought last year have also affected margins.

For the six months to 31 March 2014, Zamanita crushed 25,789 tons of soya beans, compared to 27,133 tons for the same period last year, and expects to crush approximately 65,000 to 70,000 tons in total this year, compared to 60,000 tons last year. Of this, approximately 38,000 tons of soya beans have been sourced internally within the Group from Zambeef's farming division.

Soya meal continues to be in high demand across the region, however, the supply of soya meal into the market has increased significantly. This has put downward pressure on prices and margins. Currently, 55 per cent. of Zamanita's turnover is derived from soya meal. Soya meal volume sales increased from 31,632 tons last period to 32,111 tons for this period.

However, edible oil volume sales for this period decreased to 9,378 tons, compared to 10,208 tons for the same period last year.

Zamanita has made good progress in driving export sales as it aims to become a regional rather than just a domestic distributor and is now exporting into Zimbabwe, South Africa, Botswana and Namibia. Exports now account for 36.2 per cent. of Zamanita's revenue.

In view of the increased competition, Zamanita has embarked on expanding its product range. Currently, Zamanita is one of only three companies in Zambia able to produce Solvent Extracted soya meal and has already begun production of Full Fat soya meal. We intend to start production of Mechanically Extracted meal in 2014, which will make Zamanita a supplier of all the different varieties of soya meal for use in the manufacture of animal feeds.

Beef

Beef demand remained stagnant for the first three months of the year, before improving slightly in the second quarter. There is still an "overhang" from the imported beef products issue last year, and in order to regain market share, this division has operated in this period at reduced margins, resulting in profits being behind the previous year's results.

The division slaughtered 30,856 (9,571 commercial and 21,285 traditional) cattle during the period, compared to approximately 50,629 for the whole of last year, and whilst supply of commercial beef was adequate, increasing demand for traditional animals put pressure on supply lines at the satellite abattoirs, necessitating increased purchase pricing.

Given the challenging market conditions, including competition for Zambian animals from neighbouring countries, management has adopted a strategy focused on improved efficiencies and closer supplier relationships. Nevertheless, the pronounced growth of the regional market also presents exciting opportunities for this division.

Stock feed (Novatek)

Following the capacity and efficiency enhancements carried out last year, Novatek was able to increase sales volumes, supported by to the wider product offering available to our customers. For the six months to 31 March 2014, Novatek produced 53,730 tons of animal feed, compared to 45,634 tons for the same period last year, and expects to produce approximately 117,000 tons overall this year, compared to 89,701 tons last year.

In May 2014, a second pelleting line was commissioned, which increased Novatek's capacity to produce pelleted feed by 50 per cent. Pelleted feed is largely used by the poultry industry, which is showing good growth, and we therefore expect Novatek's revenue to increase further during the second half of this financial year. The increased production capacity for pelleted feed will also underpin our supply chain for Zam Chick and Zamhatch.

Restrictions on the availability of day old broiler chicks in the market had a negative impact on feed sales. However, this should improve during the remainder of the year as recent hatching capacity investments within the industry come on line.

A combination of US dollar-denominated inputs and Kwacha-based sales, along with increased competition in the Zambian market, has affected Novatek's margins, as we have not been able to pass on these increased costs to livestock producers, due to competitive pressures.

This is being mitigated as the benefits of Zambeef's shift in emphasis towards a more regional market approach begin to be reflected in performance. Zimbabwe and Namibia are already proving attractive markets for the Company's products; we have also started exporting to Malawi and export earnings now account for 9.0 per cent. of Novatek's turnover.

Cropping

Despite good yields (especially at Mpongwe farm, which continues to achieve market-leading yields), the cropping division has seen a reduction in profits, largely due to a reduction in soya bean prices from USD600/ton to USD500/ton over the last year, whilst input costs, a number of which are US dollar denominated, have increased.

Total arable land available for planting in the two cropping seasons was 24,156 Ha; 16,199 Ha for the summer cropping season (November-March) and 8,118 Ha for the winter cropping season (April-September).

The summer crops consisted of 11,361 Ha soya beans, which produced 38,627 tons of soya beans at an average yield of 3.4 tons/Ha; 2,890 Ha maize, which produced 26,588 tons of maize at an average yield of 9.2 tons/Ha; and the balance of 1,948 Ha being made up of other crops such as maize silage, pasture and sunhemp, which produced a total of over 23,000 tons of forage.

For the winter cropping season, we have planted 6,384 Ha wheat (estimated to produce 44,500 tons at an average yield of 7 tons/Ha); 258 Ha of barley (estimated to produce 2,200 tons at an average yield of 8.5 tons/Ha); 975 Ha of winter maize (estimated to produce 8,500 tons at an average yield of 8.75 tons/Ha) and a further 175 Ha of pastures (estimated to produce 1,600 tons of forage).

Chicken & Egg

A large stock holding position of chicken products in a competitive market resulted in discounted selling prices to move this stock, which caused a drop in revenue and gross profits.

However, the division is beginning to see the benefits from its joint venture with Rainbow and has started to expand its value added range. Since January 2014, following the installation and commissioning of our new Gyro Freezer, market demand has increased considerably due to the launch of our new Individually Quick Frozen portions.

One of the initial plans agreed with Rainbow was to convert the present broiler houses into a semi-controlled environment, which has the scope to increase production volumes with a reduced cost of production. The first three broiler houses have been modified into semi-controlled units, which have created a 50 per cent. increase in their stocking capacity with improved efficiencies as compared to the original open sided houses. Conversion of more of the existing open sided houses will continue in the latter half of 2014.

For the six months to 31 March 2014, Zam Chick produced 2,907,000 broiler chicks,increased from 2,552,300 for the same period last year, and expects to produce approximately 6,150,000 broiler chicks this year, compared to 5,349,300 last year.

Zamhatch is targeting the supply of day old chicks from our new breeder operation for which construction has already begun and which should be fully operational within the next 12 months.

The egg market has continued to expand and following the construction of two new layer houses last year, which increased layers in production from 126,000 to 156,000, the egg division increased egg production from 14,282,040million eggsfor the first six months of last year to 19,112,760 million for the same period this year. We expect to produce approximately 36.5 million eggs this whole year, compared to 33.5 million last year.

Pork

Masterpork had a difficult start to the current financial year, when an outbreak of African Swine Fever ("ASF") was detected in Lusaka Province. The government banned all movement of live pigs and pork products in and out of Lusaka Province. This lasted for three months from November 2013 to February 2014.

Whilst the Group's animals were not affected by the outbreak of ASF, the government-imposed restrictions on the movement of pigs and the sale of pork products resulted in Masterpork being closed for three months, thus significantly impacting performance.

Once the Masterpork plant was re-opened, there was still a restriction in the movement of pigs and pork products, which led to a shortage of pigs, and Masterpork had to use more expensive ingredients as a substitute ingredient in all its processed products. This significantly affected margins and gross profits of Masterpork. Margins and gross profitability have also been affected by the depreciating local currency (as this increased the US dollar denominated input costs such as spices and feed) as well the impact of some cheap and unregulated imported pork products entering the market.

For the six months to 31 March 2014, Masterpork slaughtered 13,751 pigs, compared to 26,507 for the same period last year, and expects to slaughter approximately 32,000 pigs this year, compared to 54,000 last year.

Since the ban was lifted in March 2014, we have seen demand and sales increase and we anticipate a return to normal trading and profitability in the second half of the year.

West Africa

Zambeef's West Africa operations continue to grow in line with Shoprite's increasing footprint in the region, as the West African operations continue to be driven largely by the roll out of Shoprite stores. Following the opening of two new Shoprite stores in Kano and Abuja, and two new self-operated retail outlets, there has been a resulting increase in revenue across the operations. We now have nine Shoprite stores and six self-operated outlets in Nigeria, and three Shoprite stores in Ghana.

Shoprite's aim is to continue a programme of opening at least three to four new stores every year. In Nigeria, new stores planned to open in H2/2014 include Ibadan (July 2014) and Apapa/Lagos (August 2014). Shoprite expects to open four new stores in 2015 and a further five in 2016. In Ghana, Shoprite plans to open two new stores in Accra by December 2014.

The abattoir and processing plant in Ikenne (Lagos) and the processing plant in Accra, Ghana, have provided the Group with an enormous advantage and range of value add higher margin products. In Nigeria, we have now successfully started the feedlotting of cattle, goats and lamb. This has improved the quality and consistency of supply of meat products.

As a result, continued growth is expected in Zambeef's West African operations.

Milk and Dairy

Demand for milk and dairy products remains buoyant and we have made good progress with improving our yields, herd health conditions and the number of milking cows, supported by increased sourcing from third party suppliers. Cows in milk have increased from an average of 731 in 2013 to 800 in 2014 and we expect to have over 900 cows in milk in 2015.

The factors contributing to improving yields include the improved feed efficiencies and fodder quality (feeding the cows on home grown Lucerne and silage from Zambeef's farms), strong partnerships with small scale outgrowers and improved herd health management (through construction of two new 320 cow freestall barns). Conception rates also continue to improve, resulting in increased milk production.

For the six months to 31 March 2014, the dairy farm sold 3,263,175 litres of milk, compared to 2,772,646 litres for the same period last year, and expects to sell 6,350,000 litres this year, compared to six million litres last year.

In November 2013 Zambeef trebled its milk processing capacity with the opening of a new plant. This division is performing very well and ahead of management expectations.

With the commissioning of the new milk processing plant in November 2013, which increased milk processing capacity from 25,000 litres per day to 65,000 litres per day, we expect this division to continue on its positive growth trend.

Mill and Bakery

This is a highly competitive sector and in order to retain our market share, we had to reduce our biscuit flour prices, which accounts for 75 per cent. of our flour business.

The Zambeef retail framework will allow us to continue being a national distributor of flour.

We also took the decision to close our bakery in October 2013, as transporting a perishable product over long distances in a highly competitive market was not viable.

Other Divisions (Fish, Zamchick Inn & Leather)

Fish:

Turnover decreased by 32 per cent., gross margins increased from 29.9 per cent. to 30.8 per cent. and gross profits decreased by 30 per cent.

Fish continues to be an attractive substitute for meat protein, however, the key to success lies in a good supply base, an efficient distribution network and a quality product. Despite sustained demand, this sector's performance has previously been hampered by poor supply from our existing suppliers. In the first half, we have started new relationships with two additional suppliers, whose contracts provide more competitive pricing linked to bulk purchases, as well as the potential to expand into other fish and seafood offerings, across both our existing sales channels and the retail chains.

Zamchick Inn:

Turnover decreased by 3.8 per cent., gross margins decreased from 53.6 per cent. to 45.6 per cent. and gross profits decreased by 18.1 per cent.

We now have seven Zamchick Inns, having closed one outlet during the period. There is enormous competition in this sector and as such, our aim is to maintain market share, revenues and margins through improving quality and efficiency.

Zamleather:

Turnover increased by 6.2 per cent., gross margins decreased from 35.4 per cent. to 34.8 per cent. and gross profits increased by 4.4 per cent.

Wet blue leather production and sales increased by over 10 per cent., however, there was a drop in demand and sales for finished leather from the regional market.

Zamleather is now tanning an average of 7,800 hides per month (compared to 7,000 hides per month last year), owing to an increase in supply of raw hides from both Zambeef and from third party suppliers. However, higher hide prices and contract tanning resulted in a slight dilution of margins.

Zampalm 

The palm project, which was commenced in 2009, is making good progress. Zampalm currently has 326,600 palms planted over an area of 2,132 Ha in the main plantation, with another 108,000 seedlings in the main and pre-nurseries.

The intention is to plant another 700 Ha in 2015, taking the total plantation size to 2,832 Ha, and construct a crushing mill. The first mill will be established in 2014/15 and an additional mill will be established in 2017. The total investment to date is c.USD 16million.

Conclusion and outlook

Our business performance has been negatively impacted by a number of factors, many of which have been outside our control. The sudden and unexpected volatility in the Zambian Kwacha, together with an outbreak of disease, has had a considerable impact on Zambeef's business. Whilst competitive pressures remain for a number of our divisions, we believe that our focus on developing our offering, and value-added products in particular, will help to underpin our long-term performance.

In addition, we believe that our platform, with established operations and capacity, will enable Zambeef to take advantage of the significant growth opportunities presented by the region, rather than Zambia alone. Therefore, we look forward to making continued progress towards our strategic aim of becoming a major regional food producer.

Francis Grogan

Chief Executive Officer

Date: 16 June 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS PERIOD ENDED 31 MARCH 2014

The accompanying notes form part of the financial statements.

CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY

FOR THE SIX MONTHS PERIOD ENDED 31 MARCH 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION ‑ 31 MARCH 2014

The accompanying notes form part of the financial statements. The interim financial statements on pages 19 to 48 were approved by the Board of Directors on and were signed on its behalf by

)

)

) DIRECTORS

)

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS PERIOD ENDED 31 MARCH 2014

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS ‑ 31 MARCH 2014

1. The Group

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, flour and bread. The Group also has large row cropping operations (principally maize, soya beans and wheat), with approximately 8,350 Ha of irrigated row crops and 8,650 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, as well as a palm project within Zambia.

2. Principal accounting policies

The principal accounting policies applied by the Group in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(a) Basis of consolidation

The consolidated financial statements include the financial statements of the parent Company and its subsidiary companies made up to the end of the financial year. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date of their acquisition or up to the date of their disposal. Intercompany transactions and profits are eliminated on consolidation and all income and profit figures relate to external transactions only.

Non-controlling interests, presented as part of equity, represent the portion of a subsidiary's profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. Losses incurred are allocated to the non-controlling interest in equity until this value is nil, at which point any subsequent losses are allocated against the interests of the parent.

(b) Going Concern

At the balance sheet date the current portion of long term loan amounts repayable amount to ZMW166.6 million (USD27.2 million) [30 September 2013: ZMW219.6 million (USD41.3 million)]. After reviewing the available information including the Group's strategic plans and continuing support from the Group's working capital funders, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. All current liabilities will be settled from the continued liquidation of stock and expected increase in income from the capital expenditure carried out.

(c) Basis of presentation

The alphabetic currency code, ZMK, is no longer in use effective 1 January 2013 and hence the financial statements are presented in the new alphabetic currency code for the Zambian Kwacha (ZMW). The comparatives have been rebased by dividing the nominal value of the existing currency by a multiplicand of 1,000 and are also presented in the new alphabetic currency code for the Zambian Kwacha (ZMW).

The information for the period ended 31 March 2014 and 31 March 2013 do not constitute statutory accounts. The figures for the year ended 30 September 2013 have been extracted from the 2013 statutory financial statements. The auditors' report on those financial statements was unqualified.

The financial statements are prepared in accordance with the provisions of the Companies Act and International Financial Reporting Standards (IFRS). The financial statements are presented in accordance with IAS 1 "Preparation of financial statements" (Revised 2007). The Group has elected to present the "Statement of Comprehensive income" in one statement namely the "Statement of Comprehensive Income".

The financial statements have been prepared under the historic cost convention, as modified by the revaluation of property, plant and equipment, and financial assets and liabilities at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.

 (d) Foreign currencies

(i) Presentational and functional currency

Zambeef Products PLC as a company has ten operating branches of which nine have a historical functional currency of Zambian Kwacha (ZMW) and one (the Mpongwe Farm Branch) has a functional currency of United States Dollars (USD) being an operational branch set up during the financial year ended 30 September 2012. Management have chosen a variant on the functional currency of Mpongwe due to the following factors:

§ the majority of farm input costs (fertilizer, farming chemicals, agricultural machinery spares, etc.), which are primarily sourced from overseas, are driven by USD to ZMW exchange rate due to origin prices being USD;

§ the pricing of Mpongwe's principal outputs (wheat, soya and maize) are significantly influenced by world USD denominated grain
prices;

§ the capital raised attached to the acquisition of the Mpongwe assets was denominated in foreign currency;

§ the Mpongwe assets were purchased in USD;

§ upon admission and dual listing on the AIM market of the London Stock Exchange (LSE), Zambeef was required to report in USD in
addition to reporting in ZMW for the LuSE listing; and

§ majority of financial liabilities associated with working capital funding and capital expenditure are sourced in USD and repayable
in USD, with a substantial portion of the Company's term liabilities secured on the assets of Mpongwe.

In light of this, Mpongwe's assets and liabilities are translated to ZMW and consolidated with other branches of the Company for reporting and tax purposes in Zambia, with any differences arising out of translation posted as a capital reserve item and a non-distributable reserve.

The Group's reporting currency in Zambia is ZMW and the presentation of financial statements to Non-Zambian shareholders and for the purposes of being listed on the AIM market of the London Stock Exchange also necessitate the presentation of the financial statements in United States Dollars (USD).

(ii) Basis of translating presentational currency to USD for the purposes of supplementary information

Statement of comprehensive income items have been translated using the average exchange rate for the period as an approximation to the actual exchange rate. Assets and liabilities have been translated using the closing exchange rate. Any differences arising from this process have been recognised in other comprehensive income and accumulated in the foreign exchange reserve in equity.

Equity items have been translated at the closing exchange rate. Exchange differences arising on retranslating equity items and opening net assets have also been transferred to the foreign exchange reserve within equity.

The following exchange rates have been applied:

ZMW:USD Average Closing

exchange rate exchange rate

6 months ended 31 March 2013 5.277 5.410

Year ended 30 September 2013 5.31 5.32

6 months ended 31 March 2014 5.63 6.12

All historical financial information, except where specifically stated, is presented in Zambian Kwacha rounded to the nearest ZMW'000s and United States Dollars rounded to the nearest USD'000s.

(iii) Basis of translating transactions and balances

Foreign currency transactions are translated into the functional currency using the rates of exchange prevailing at the date of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in statement of comprehensive income.

Non-operating foreign exchange gains and losses mainly arise on fluctuations of the exchange rate between United States Dollars and Zambian Kwacha. Due to the instability of the exchange rate, which may result in significant variances of foreign exchange related assets and liabilities, these gains and losses have been presented below operating profit in the statement of comprehensive income.

(iv) Basis of translating foreign operations

In the consolidated financial statements the financial statements of the foreign subsidiaries originally presented in their local currency have been translated into Zambian Kwacha. Assets and liabilities have been translated into Zambian Kwacha at the exchange rates ruling at the period end. Statement of comprehensive income items have been translated at an average monthly rate for the period. Any differences arising from this procedure are taken to the foreign exchange reserve.

The following exchange rates have been applied:

Average Closing

ZMW:Nigeria Naira exchange rate exchange rate

6 months ended 31 March 2013 29.72 29.02

Year ended 30 September 2013 29.76 30.08

6 months ended 31 March 2014 28.51 26.63

Average Closing

ZMW:Ghana Cedi exchange rate exchange rate

6 months ended 31 March 2013 0.366 0.357

Year ended 30 September 2013 0.412 0.377

6 months ended 31 March 2014 0.425 0.441

(e) General information and basis of preparation

The condensed interim consolidated financial statements are for the six months ended 31 March 2014 and are presented in Zambian Kwacha and United States Dollars. They have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required in annual financial statements in accordance with IFRS and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 September 2013.

(f) Significant accounting policies

The interim financial statements have been prepared in accordance with the accounting policies adopted in the Group's last annual financial statements for the year ended 30 September 2013.

3. Critical accounting estimates and judgements

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In the process of applying the Group's accounting policies, management has made judgements in determining:

(a) the classification of financial assets;

(b) whether assets are impaired;

(c) estimation of provision and accruals;

(d) recoverability of trade and other receivables; and

(e) valuation of biological assets and inventory.

4. Significant events and transactions

The Group's management believes that the Group is well positioned in an improving economy. Factors contributing to the Group's strong position are:

(a) Growth in the Zambian economy leading to higher disposable incomes.

(b) High copper prices leading to higher inflow of foreign exchange and trickle-down effect to end consumers.

(c) Increase in the retail foot print of the Group.

(d) Increase in production facilities of the Group leading to higher volumes available for retail.

(e) Improvements in the management team across various areas of the Group leading to positive reinforcement of strong operational synergies.

Overall, the Group is in a strong position and has sufficient capital and liquidity to service its operating activities and debt. The Group's objectives and policies for managing capital credit risk and liquidity risk should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 September 2013.

5. Segmental reporting

An operating segment is a distinguishable component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group's Board of Directors ('BoD') to make decisions about the allocation of resources and assessment of performance about which discrete financial information is available. Gross margin information is sufficient for the BoD to use for such purposes. The BoD reviews information regarding the operating divisions which match the main external revenues earned by the Group, and management information regarding the operating assets and liabilities of the main business divisions within the Group.

During the six month period to 31 March 2014, there have been no changes from prior periods in the measurement methods used to determine operating segments and reported segment profit or loss.

The revenues and gross profit generated by each of the Group's operating segments and segment assets are summarised as follows:

Period ended 31 March 2014

(ii) in US Dollars

Period ended 31 March 2013

(ii) in US Dollars

Year ended 30 September 2013

(ii) in US Dollars

The Group's revenue from external customers and its geographic allocation of non-current assets may be summarised as follows:

6. Taxation