Zambeef Prod. Regulatory News (ZAM)

8 June 2016

Zambeef Products plc

("Zambeef" or "the Group")

SIGNIFICANT OPERATIONAL IMPROVEMENT SHOWS STRENGTH OF ZAMBEEF'S CORE BUSINESS

Unaudited Results for the Six Months ended 31 March 2016

Zambeef (AIM: ZAM), the fully integrated agri-business with operations in Zambia, Nigeria and Ghana, announces its results for the six month period ended 31 March 2016.

Key Financial Highlights:

Highlights:

· Significant improvement in operational performance, driven by:

o Continued focus on the core business: production, processing, distribution and retailing of cold chain food products

o Aggressive expansion of the retail network

o Effective cost control

· Operating profit increased over 200% to ZMW 155.3m (2015: ZMW 51.4m), an increase of 72% in USD terms to USD 13.7m (2015: USD 8.0m)

· Final settlement reached with the Zambian Revenue Authority (ZRA) over the historical disputed Zamanita tax liability, leading to a write-back to the Profit and Loss Account of approximately ZMW34 million (USD3.5 million)

· Investment of ZMW 84 Million (USD7.4million) in the Zamhatch breeder farm and new stock feed facility, eliminating supply bottlenecks in the egg, pork, beef and chicken divisions and expanding the retail store network

· Two new macro outlet stores opened during the period and a further two stores have been upgraded and renovated to Zambeef macro outlet standards. A further five sites are currently under construction and another five sites have been acquired and are awaiting planning permission

· The Group continued to benefit from its concession agreement with Shoprite for in-store Meat Market butcheries in Zambia and West Africa. Shoprite has expanded with seven new stores in Zambia and West Africa. A further seven Shoprite stores are due to open before the end of the year

"The excellent interim operating performance, achieved within a challenging macro-economic environment, is a tribute to the hard work, skill, dedication and professionalism of all management and staff. I would like to register our gratitude. Their efforts, driven by the Board's clear strategic focus, will enable Zambeef to achieve its vision of becoming a major provider of cold chain food products to Zambia and the region.

"With the strong focus on the retailing operations, Zambeef is confident that this robust performance will continue, demonstrating the resilience of the Group's business model. As a consequence of this strong operational performance, the Board is confident of meeting full year expectations."

About Zambeef Products Plc

Zambeef Products Plc is the largest integrated agribusiness and food processor in Zambia, involved in the primary production, processing, distribution and retailing of beef, chickens, pork, milk, eggs, dairy products, fish, flour and stock feed throughout Zambia. The Group has one of the largest cereal row cropping operations in Africa, with a total of 24,174 hectares planted during FY2015. The group is also in the process of rolling out its West Africa expansion in Nigeria and Ghana.

The Group has approximately 6,200 employees.

Further information can be found on www.zambeefplc.com

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS - 31 MARCH 2016

CHAIRMAN'S REPORT

Overview

I am pleased to report that the six-month period ended 31st March 2016 has seen the continuation of the improved operational performance reported in last year's Annual Financial Statements. This has been brought about by:

· Continued focus on Zambeef's strategic core business: the production, processing, distribution and retailing of its cold chain food products;

· Aggressive expansion of its retail network;

· Effective cost control throughout the Group.

As a result, operating profit has increased three-fold in Zambian Kwacha terms (72 per cent in US Dollar terms), from ZMW51.4 million to ZMW155.3 million (USD8.0 million to USD13.7million). Administrative costs as a percentage of turnover dropped to 24.6 per cent compared with 31.5 per cent in the same period in 2015, resulting in profit after tax of ZMW101.7 million (USD9 million), compared with a loss after tax in 2015 of ZMW21.7 million (USD3.4 million).

These results have been helped by the final settlement reached with the Zambian Revenue Authority (ZRA) over the historical disputed Zamanita tax liability, leading to a write-back to the Profit and Loss Account of approximately ZMW34 million (USD3.5 million).

Operating Environment

The global economic slowdown and decrease in demand for commodities such as copper, led to a lower Zambian GDP growth rate of 5 per cent in 2015 (5.6 per cent for 2014). This decline is expected to continue to around 3.3% for 2016 before increasing again in 2017.

After a highly volatile performance in the 2015 financial year, the Zambian Kwacha has shown stability during the period under review closing at ZMW11.16/USD on 31st March 2016 compared with ZMW12.02/USD at 30th September 2015. However, the average rate for the half-year was ZMW11.35/USD, compared with ZMW6.46/USD in 2015, which has had a significant negative impact on the Group's US Dollar turnover and gross profit growth comparisons against last year, for this period.

Inflation rates in Zambia have been running in single digits for a number of years. In the first half of this financial year we saw a rapid increase in inflation peaking at 22.9% in April 2016 before beginning to reduce. This has impacted spending power and it is encouraging to see this figure again falling.

The reduced rainfall in the last year has resulted in Zambia's hydroelectric power stations operating at well below capacity. This has resulted in load shedding which has impacted the economy in general. New capacity from a new Thermal power plant is expected to come on line in 2016 which will improve the power deficit.

Despite the challenges in the operating environment outlined above, the increase in operating profit and profit after tax is an indicator of the fundamental strength of Zambeef, and confirmation of the efficacy of the Group's strategic priorities.

Exercise of Put Option by RCL Foods Ltd.

As announced on 23rd March 2016, RCL Foods Ltd., Zambeef's joint venture partner in the Group's chicken operation, Zam Chick Ltd and the Group's day-old chick hatchery, Zamhatch Ltd exercised their put options in the two companies.

Under the terms of the options, Zambeef is obliged to purchase all of the partner's shares in the two companies. Once it does so, it will own 100 per cent of both companies. The put options must be settled by Zambeef by no later than 23rd September 2016.

The settlement consideration can, at the sole discretion of the Board, and subject to shareholder approval, be made wholly in cash, or by the issue of new Zambeef shares, or through a combination of the two methods.

If the settlement consideration is paid in cash, this will require a payment of USD16.25 million and the US Dollar equivalent of ZMW24.8 million and EUR3.3 million.

If the settlement consideration is met by the issue of new Zambeef shares, the number of which will be based on the share price at the time of settlement, this will result in a dilution of existing Zambeef shareholders.

The Zambeef Board will, in due course, advise shareholders as to how it proposes to pay the settlement consideration, and will call a meeting of shareholders in order to request the necessary approval.

Both Zam Chick and Zamhatch are important parts of Zambeef's core strategic operational strategy, and are expected to be significant contributors to future Group profitability.

Strategic Priorities

Zambeef's vision is to become a major provider of cold chain food products in Zambia and the Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA) region. In pursuit of this vision, the Group is pursuing a number of strategic priorities:

1. Expanding the production, processing, distribution and retailing of a range of cold chain products.

To this end, ZMW84 million (USD7.4 million) was invested in the period under review. Expenditure was made for the completion of Zamhatch's breeder farm and new stock feed facility; eliminating supply bottlenecks in our egg, pork, beef and chicken divisions; and expanding our retail store network.

In the six-month period, Shoprite, with which Zambeef has a concession agreement for their Meat Markets in Zambia and West Africa, opened three new stores in Zambia, and four in West Africa. Before the end of the financial year, a further three stores are expected to open in Zambia, and four in West Africa. In addition, four new Zambeef Macro Outlet stores have been opened, with a further five due to open before the end of the current financial year.

2. Reducing gearing, particularly exposure to US Dollar debt.

With the current high cost of Zambian kwacha debt, and the vulnerability of US Dollar debt to currency fluctuations, the reduction of gearing remains a priority.

This is being addressed through a two-pronged strategy of disposal of non-core assets, and the forging of strategic alliances and partnerships with industry leaders.

Conclusion and Outlook

Zambeef operates in a region (SADC/COMESA) with a population of 450 million. Its broad range of cold chain food products, distributed through a growing network of well-located stores, has positioned the Group to take advantage of this dynamic consumer market.

The excellent interim operating performance, achieved within a challenging macro-economic environment, is a tribute to the hard work, skill, dedication and professionalism of all management and staff. I would like to register our gratitude. Their efforts, driven by the Board's clear strategic focus, will enable Zambeef to achieve its vision of becoming a major provider of cold chain food products to Zambia and the region.

I would like to thank Adam Fleming, who retired from the Board during this period. Adam has been a non-executive director of Zambeef for 12 years. His valued contribution over this period has been greatly appreciated, and we wish him well in the future.

I would like to welcome Graham Clark, whose appointment to the Board was made during this period. Graham brings with him many years of experience in a wide range of industries, and is also familiar with Zambia, having served as CEO of Illovo Sugar Ltd during the period in which they acquired Zambia Sugar Plc. I look forward to working with Graham and to benefitting from his considerable knowledge and experience.

Finally, I would like to thank the entire Board for their support and commitment, as we begin to emerge from what has been a difficult period.

Dr Jacob Mwanza

Chairman

6 June 2016

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

JOINT CHIEF EXECUTIVES' REVIEW

Overview

The first six months of the 2016 financial year have seen a continuation of the strong operational performance of 2015. All parts of the business have performed well, resulting in an increase in operating profit by 202 per cent (USD72 per cent) from ZMW51.4 million to ZMW155.3 million (USD8.0 million to USD13.7 million). This has been achieved by maintaining margins while reducing administration costs as a percentage of turnover from 31.5 per cent in the same period in 2015 to 24.6 per cent in the current period, resulting in the Group's operating margin increasing from 7.8 per cent to 13.9 per cent. The Group will continue to pay strong attention to cost control.

The period has seen a stable exchange rate with the Kwacha appreciating from ZMW12.02/USD at 30th September 2015 to ZMW11.16 at 31st March 2016. This has helped Zambeef record a profit after tax of ZMW101.7 million (USD9 million), compared with a loss after tax in 2015 of ZMW21.7 million (USD3.4 million) for the 6 months to 31st March 2016. These outstanding results confirm the rationale of Zambeef's strategic focus on its core business of production, processing, distribution and retailing of cold chain food products, as well as the aggressive expansion of its retail network. This approach has been coupled with strong cost control at all levels of the business.

The strong results have been further buoyed by the settlement of a past disputed tax liability on its former Zamanita business. The settlement with the Zambian Revenue Authority (ZRA) resulted in a write-back of some ZMW34 million (USD3.5 million) in the Profit and Loss Account.

The continued focus and expansion of the Zambeef retailing network through the roll out of its new Zambeef macro outlets has resulted in significant growth in volumes in the cold chain food product divisions with beef volumes up 23 per cent, pork volumes up 21 per cent and dairy product volumes up 9 per cent. The roll out of these combined one-stop shopping complexes with multiple product ranges, including butchery, stockfeed and day-old chick points, is gaining momentum and puts the Zambeef Group in an exciting space; making it one of the fastest growing retailers in the region.

Expansion of Retail Network

In line with the strategic priorities set out in our 2015 Annual Report, the key capital expenditure item remains the roll out of the new Zambeef macro outlet stores. The performance from these store openings has exceeded our expectations and, since August 2015 two new macro stores have been completed and two other stores have been upgraded and renovated to Zambeef macro outlet standards. Five further sites are under construction, and an addition five sites have been acquired and are awaiting planning permission. Seven more sites are being considered. Once this phase has been completed, the number of macro outlets will have jumped from the current level of four to 25.

In addition to the expansion of the Zambeef retailing network it is pleasing that Shoprite, the South African supermarket giant with whom Zambeef has a concession agreement for its in-store Meat Market butcheries in Zambia and West Africa, has continued its rapid expansion programme. In the six month period under review, Shoprite has opened a further three stores in Zambia, taking the total stores in Zambia to 28, and a further four stores in West Africa, taking West Africa to 23 stores. A further three Shoprite stores are due to open before the end of the year in Zambia and a further five during 2017. In West Africa we expect a further four stores to open in 2016 with a further three in 2017.

Retailing is the key focus of Zambeef and the engine room that will be used to drive the business.

Settlement of Zamanita Tax Liability

On 31st March 2016, Zambeef and the Zambia Revenue Authority ("ZRA") entered into an agreement to settle a disputed tax liability at Zamanita which dates back to 2010. On the disposal of Zamanita to Cargill in 2015 this potential liability remained the responsibility of Zambeef and was fully provided for in the Zambeef accounts for the amount of ZMW49.15 million (approximately USD9.7 million at the time of assessment). Zambeef appealed against the assessment to the Tax Appeals Tribunal, which ruled in favor of Zambeef in November 2015. ZRA subsequently appealed to the Supreme Court.

The agreement provides that Zambeef will pay the ZRA a total of ZMW14.4 million (approximately USD1.5 million) in six equal monthly instalments beginning 30 April 2016. Approximately ZMW2 million of the ZMW14.4 million is recoverable VAT. So long as Zambeef adheres to this payment schedule, interest and penalties totalling ZMW3.1 million (approximately USD0.3 million) will be waived. This settlement has resulted in a write back of approximately ZMW34 million (USD3.5 million) to the Profit and Loss Account.

New Breeder Farm and Hatchery

The new breeder farm and hatchery, built under a joint venture with RCL Foods Ltd of South Africa, came on line in September 2015. This operation complements the existing Zambeef business well, with all day-old chicks for the Zamchick broiler operations now coming from this hatchery. In addition, day-old chicks are being sold alongside Novatek stock feed to both the formal and informal sector. This will be an exciting business going forward.

Exercise of Put Option by RCL Foods Ltd

Zambeef received formal notification from Rainbow Farms Investments Proprietary Limited ("RCL FOODS") on 23rd March 2016, that it wished to exercise the put options granted to it when it entered into two separate transactions with Zambeef relating to Zam Chick Limited ("ZamChick") and Zamhatch Limited ("Zamhatch") that were announced on 4 February 2013 and 30 May 2013 respectively.

Details of the put options were set out in the shareholders agreements between RCL FOODS and Zambeef, in respect of ZamChick on 1 February 2013 and RCL FOODS and Zamhatch on 29 May 2013.

Under the agreement, Zambeef is required to settle the put options, after which it will own 100 per cent of Zamhatch and ZamChick. The Board of Zambeef, with shareholder approval, has the choice as to whether to pay the settlement consideration in cash, new Zambeef shares, or a combination of the two. If the Board decides to pay the settlement consideration in cash then Zambeef calculates that it will be required to pay RCL FOODS USD16.25 million, the US Dollar equivalent of ZMW24.8 million and EUR3.3million on the date of settlement. If Zambeef settles the put options in shares, it will result in a dilution of Zambeef shareholders. The Board will advise shareholders as soon as it has a firm position on how it plans to settle these options.

OPERATIONAL REVIEW

Zambeef performed well for the six months to 31st March 2016 with EBITDA, excluding the ZRA write back, increasing by 88.5 per cent in Kwacha terms (7.3 per cent in US Dollar terms) from ZMW75 million to ZMW142 million (USD11.6 million to USD12.5 million) while the EBITDA margin increased from 11.4 per cent to 12.6 per cent. Operating profit margins, excluding the ZRA write-back, increased from 7.8 per cent to 10.8 per cent and the net profit margin increased to 6.1 per cent from a loss of 3.3 per cent in the same period of last year.

Zambeef hopes to build on these strong results by continuing to increase volumes and turnover, while maintaining gross profit margins and controlling administration costs in order to grow both operating profit margins and net profit margins. The strong performance, excluding the Zamanita tax write-back, is shown in the table below:

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

JOINT CHIEF EXECUTIVES' REVIEW (CONTINUED)

ADMINISTRATION COSTS

A key focus during this period has been strong administration cost control. The administration costs, excluding the ZRA write-back, increased by 37 per cent in Zambian Kwacha, from ZMW237 million to ZMW324 million. However in USD terms these costs reduced by 22 per cent from USD37m to USD29m. It is pleasing to see the administration cost, excluding depreciation, as a percentage of turnover reducing from 31.5 per cent to 25.6 per cent. This has been achieved by strong cost control across the business ensuring that the growth in administration costs is well below the growth in revenue of 70 per cent.

INTEREST COSTS

This period has seen a large increase in interest costs for the Group. The average Kwacha exchange rate depreciated by 76 per cent from ZMW6.46K/USD in 2015 to ZMW11.35K/USD in 2016. This depreciation resulted in the US Dollar debt interest increasing significantly in Kwacha terms. At the same time the Bank of Zambia policy rate increased from 12.5 per cent at 31st March 2015 to to 15.5 per cent at 31st March 2016 and interest rate on Zambeef's Kwacha debt increased from between 14 per cent and 15.5 per cent to between 20 per cent and 25 per cent as of 31st March 2016. During this period Zambeef also converted US Dollar debt to Kwacha debt at significantly higher interest rates. The impact of these events has been for Zambeef's interest charge to increase by 126 per cent in Kwacha (29 per cent in US Dollars) from ZMW 27 million to ZMW 60 million (USD4.1 million to USD 5.3 million). The strategic objective of the Group remains to reduce gearing in the business going forward.

EXCHANGE RATES

After the rapid depreciation of the Zambian Kwacha in the second half of the 2015 financial year, it is pleasing to report that we have seen a period of relative stability in the currency for the second quarter of the 2016 financial year. The average exchange rates and exchange rates at the different period ends are detailed below:

After 30th September 2015 the Kwacha continued to depreciate and peaked at just under ZMW15K/USD in November 2015. Since then we have seen an increase in Kwacha interest rates coupled with a reduction in Kwacha liquidity resulting in an appreciation of the Zambian Kwacha, which ended up at 31st March 2016 at ZMW11.16/USD. Since the end of the half-year the Kwacha has recorded a gradual appreciation. This period of stability has been welcomed and has allowed prices to readjust to the new exchange rate level.

The depreciation of the average exchange rate by 61 per cent from ZMW6.46/USD in the six months ended 31st March 2015 to ZMW11.35/USD for the six months ended 31st March 2016 has distorted the results when reported in US Dollars. The result is that our strong volume growth, is not accurately reflected in the US Dollar figures. On the positive side it must be noted that the depreciation of the currency has made our products more competitiveness across the region.

Capital expenditure

During the period, Zambeef invested ZMW84.0 million (USD7.4 million) of capital in the business. The largest area of capital expenditure during this period was in Zamhatch Ltd, where ZMW 26.0 million (USD2.3 million) was spent on the breeder farm and new stock feed plant operations.

The second largest amount of capital expenditure was spent on expanding our egg layer operations, with three new houses being completed, increasing point-of-lay birds from 153,000 to 273,000 and ensuring Zambeef can meet the strong increase in demand for eggs in its retailing operations. The expansion of this division further benefits the stock feed operations through increased stock feed use.

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

JOINT CHIEF EXECUTIVES' REVIEW (CONTINUED)

ADMINISTRATION COSTS

Zambeef's expanding retail network accounted for the third largest amount of capital expenditure, with a total of ZMW7.3 million (USD0.6 million) invested in expanding and updating the Zambeef retail network. Other material expenditure included ZMW5.5 million (USD0.5 million) on Masterpork, ZMW6.7 million (USD0.6 million) on ZamChick, ZMW4 million (USD0.3 million) on Mbala abattoir, and ZMW6.5 million (USD0.6 million) on Zampalm.

The Group will continue a clear focus on investing capital expenditure on high yielding parts of the business including the retailing network.

DIVISIONAL PERFORMANCE

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

Table 1: Segmental and Divisional Turnover

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

JOINT CHIEF EXECUTIVES' REVIEW (CONTINUED)

Table 2: Segmental and Divisional Gross Profits

DIVISIONAL REVIEW

Taking each of our business areas in turn as follows:

Cold Chain Food Products

The cold chain food products divisions of Zambeef remain a key focus area and the strategic drive is to continue to grow these operations through the expansion of Zambeef's retail network with the rolling out of the new Zambeef macro outlets as well as continuing to run the butcheries within Shoprite supermarkets in Zambia and West Africa as Shoprite continues to roll out new stores.

The cold chain food products operations reduced in both turnover and gross profits in US Dollar terms by 22 per cent and 21 per cent respectively. However, in Kwacha the period saw strong growth, with turnover up by 37 per cent and gross profits up by 39 per cent accounting for 41 per cent of the Group's gross profits. The softening in US Dollar-denominated performance was due to the average exchange rate for the period depreciating by 61 per cent. These divisions have performed well despite the depreciation of the Kwacha, with margins being maintained and volumes growing. These divisions will continue to be a key focus of Zambeef.

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

JOINT CHIEF EXECUTIVES' REVIEW (CONTINUED)

The divisions making up the cold chain food products are looked at in more detail below.

Beef

The beef division has performed well during the period, with volumes up by 22.5 per cent from 6.4 million kgs to 7.8 million kgs, while margins were maintained at 36 per cent. During this period beef prices fell in real terms due to the depreciation of the Kwacha from ZMW6.46/USD to ZMW11.35/USD. This made our beef more competitive in the wider SADC/COMESA region and contributed strongly to the increase in volumes.

This has resulted in turnover in the beef division increasing in Kwacha terms by 36 per cent but decreasing in US Dollars by 23 per cent. Similarly gross profits increased by 19 per cent from ZMW183 million to ZMW249 million while decreasing in US Dollars by 22 per cent from USD10.1 million to USD7.9 million.

Demand for beef remains strong both in Zambia and the region and supply of beef also remains solid. As a result, beef volumes are expected to continue to grow. This will result in beef prices starting to increase in real terms as well. The outlook for the beef division remains strong and has been helped by the opening of Mbala abattoir in March 2016 which has further increased supply. The continued expansion of the Zambeef distribution and retailing network will continue to drive growth in this division.

Chicken & Egg

Demand for chicken remains strong and ZamChick Ltd has been operating close to full capacity for the last year. As a result, volumes have remained fairly constant with around 5.1 million chickens being slaughtered in both the current period and the same period last year. Margins have increased from 26 per cent to 30 per cent while chicken prices have reduced in real terms from the rapid depreciation of the Kwacha. As a result, turnover and gross profit increased strongly in Kwacha by 36 per cent and 54 per cent respectively while reducing in US Dollar terms by 22 per cent and 12 per cent

Once RCL Foods Ltd has exercised its put option, ZamChick Ltd will become a 100 per cent subsidiary of Zambeef once more. Zambeef then intends to increase the capacity of ZamChick Ltd in order to get volume growth back into this business and meet the increased demand both in Zambia and neighboring countries. As a result, this division is expected to show modest growth for the next six months until new capacity comes on line.

Demand for eggs remains very strong and Zambeef has been unable to meet demand. During the next six months we will increase our layer numbers from 165,000 to 285,000, which will result in strong growth in the egg operations. This will also increase demand for stockfeed from Novatek and hence will help the Novatek operations as well.

Demand for eggs has exceeded expectations and Zambeef has been unable to meet the surge in demand. During the next six months we will increase our layer numbers from 165,000 to 285,000, which will result in strong growth in the egg operations. Consequently this will result in increased demand for stockfeed from Novatek and further supporting operations.

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

JOINT CHIEF EXECUTIVE'S REVIEW (CONTINUED)

Pork

Masterpork has continued to grow, with volumes increasing by 21 per cent from 3.8 million kgs to 4.6 million kgs. Despite this strong growth in volumes, turnover and gross profit have decreased in US Dollar terms by 16 per cent and 21 per cent respectively while increasing strongly in Kwacha terms by 48 per cent and 39 per cent. The decrease in US Dollar figures can again be attributed to the depreciation of the Kwacha.

The Masterpork processing plant has seen a large increase in capacity and is now a world-class facility with cutting-edge technology. As a result, this division can look forward to strong growth and is looking to increase its volumes both within Zambia and into the region.

Milk and Dairy

The milk division continues to perform strongly with volumes increasing by 8.9 per cent from 6.0 million litres to 6.5 million litres. This division has again been impacted by the rapid depreciation in the Zambian Kwacha resulting in prices coming down in real terms. As a result, turnover and gross profit were up in Kwacha by 24 per cent and 26 per cent respectively while down in US Dollars by 30 per cent and 29 per cent.

The milk processing plant expansion is nearing completion and this has dramatically increased capacity in the plant. At the same time, milk production at Kalundu dairy continues to increase as the herd grows and the milk yield per cow improves. This dairy operation is now a world-class operation and Kalundu Dairy will be one of the lowest-cost dairy operations in the region. A new rotary parlor is being built that will not only increase the yield per cow but also ensure that Kalundu Dairy has the milking capacity to allow for the continued increase in the herd size. In addition, Zammilk has increased the volume of milk bought from third parties. The outlook for the dairy division remains positive, with increased volumes expected both within Zambia and into the region.

Fish

Fish volumes fell for the period from 1.1 million kgs to 0.9 million kgs due to the rapid rise in imported fish prices. This drove a consumer shift from fish to the other proteins, where prices came down in real terms following the devaluation of the Kwacha.

With the more recent stabilization of the Kwacha fish demand is again increasing. Zambeef has also expanded its own fish farming operations at Chiawa Farm using the large water storage facilities for irrigation at the farm. It is expected that the next six months will again see growth in demand for fish. 

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

JOINT CHIEF EXECUTIVES' REVIEW (CONTINUED)

Stock feed (Novatek)

Novatek has continued to grow and increase its market share by providing top quality stock feed at competitive prices. This division continues to widen its product range and its fish feed is now the fastest growing part of the business. Novatek has created a strong brand name not only in Zambia but in the surrounding region. Novatek is exporting stock feed into Zimbabwe, Botswana, Namibia, Democratic Republic of Congo and Malawi, and has received its first orders from Mozambique. The division benefited from the Zamhatch hatchery coming into operation in September 2015,enabling Zambeef to market stock feed and day-old chicks together. With the drought elsewhere in the region it is likely that demand for Novatek stock feed outside Zambia will remain strong.

During this period volumes increased from 64,500 tons to 72,700 tons and gross profits increased from USD4.0 million (ZMW25.6 million) to USD9.2 million (ZMW104.8 million). The outlook for this division remains positive and this is now the largest Zambeef division in terms of turnover and the second biggest in terms of gross profits. This division will be further strengthened by the new stock feed plant that has been constructed at Mpongwe coming on line later this year. The new stock feed plant has been built by Zamhatch Ltd. However, with RCL Foods Ltd having exercised its put option and thus Zambeef soon to own 100 per cent of Zamhatch Ltd, it is likely the new stock feed plant will become part of the Novatek operation.

Cropping

The cropping division remains the largest contributor to profits in Zambeef, accounting for 23 per cent of the Group's gross profit. The period saw gross profit fall in US Dollar terms by 38 per cent from USD15 million to USD9 million while in Kwacha terms gross profit increased by 8 per cent from ZMW98 million to ZMW106 million.

The reduction in revenue and gross profit in US Dollars reflected the impact of Zambeef selling a lot of its wheat before 30th September 2015 whereas in the previous year it was sold after 30th September 2014. Hence this results in the sale falling into a different accounting period. In addition the rapid depreciation of the Kwacha after 30th September 2015 resulted in a lot of the input costs being incurred at a very high exchange rate with the Kwacha reaching almost ZMK15/USD in November 2015. The Kwacha then appreciated to end at 31st March 2016 at ZMW11.16/USD. This resulted in input costs being inflated and the closing value of the summer crop being deflated.

The Zambeef farms performed well during this period despite a late start to the rains and power shortages. The soybean yields were ahead of forecasts, with the largest increase in yields being recorded at Kampembe and Chiawa Farms. Maize yields are expected to be on target, demonstrating a particularly outstanding performance in the context of the drought experienced elsewhere in the region. This performance demonstrates the quality of Zambeef farming assets and expertise, and the value of quality irrigation farming assets with secure water supplies.

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

JOINT CHIEF EXECUTIVES' REVIEW (CONTINUED)

Commodity prices are strong with the regions summer crop having been badly affected by drought. Zambeef planted 11,780 hectares of soybean yielding around 40,000 tons of soyas; 2,002 hectares of maize producing around 16,000 tons of maize, 864 hectares of maize silage producing around 27,000 tons of silage and 537 hectares of green crops consisting of Rhodes grass, sun hemp and pearl millet.

The farms are fully mechanised, using the latest precision farming techniques and are world-class farming assets. Zambia's abundance of water has enabled Zambeef to develop the irrigation potential of these farms and reduce the weather risk. Mpongwe Farm continues to produce yields comparable with any part of the world and these are operations which give Zambeef a competitive advantage in the region.

West Africa (Master Meats Nigeria and Master Meats Ghana)

Zambeef's West Africa operations continue to grow despite a challenging macroeconomic environment. Nigeria has seen a devaluation of its currency, severe fuel shortages and a shortage of foreign exchange, with revenue increasing by 0.5 per cent in US Dollars (77 per cent in Kwacha) from USD9.5 million (ZMW61 million) to USD9.6 million (ZMW108 million). During the period three new Shoprite stores have opened, with a further store opening in April 2016, taking the total Shoprite stores in West Africa to 23 stores (18 in Nigeria and five in Ghana), for which Zambeef operates the in-store butcheries. A further four stores are expected to open before the end of 2016 and Master Meats Nigeria has opened a further outlet of its own taking its outlets to seven.

Despite the challenging environment, Zambeef can be pleased with the performance of its West African operations. These operations are well positioned in this the largest market in Africa. These operations will continue to benefit from Shoprite's continued aggressive roll-out of new stores.

Other Divisions (Mill, Leather and edible oils)

Mill:

Milling gross profits increased in US Dollar terms by 1.53 per cent (ZMW 78.4 per cent) from USD0.99 million to USD1.01 million (ZMW6.4 million to ZMW11.5 million). This good performance was based on lower volumes being milled at a higher margin. The decision was made to sell larger volumes of wheat early as attractive prices were offered resulting in milling volumes being reduced.

Zamleather:

Zamleather profits were down in US Dollars by 62.8 per cent (ZMW 34.6 per cent) from USD0.9 million to USD0.3 million (ZMW5.6 million to ZMW3.7 million). This reduction was mainly due to a drop in international leather prices that affected margins. Zamleather continued to operate at close to capacity during this period with 50,720 hides processed, up from 48,999 in the same period in 2015. In addition, 42,564 shoes were sold, up slightly from 42,022 the previous year. Hide prices are expected to continue to be weak, however, with margins continuing to be tight as a result. 

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

JOINT CHIEF EXECUTIVES' REVIEW (CONTINUED)

Edible Oils

Since the sale of Zamanita to Cargill in 2015, Zambeef has continued to sell Zamanita oil through its retail network taking a 4 per cent commission for the oil sales, which are rising. In addition, the reversal of the Zamanita tax provision, explained above, has contributed a further USD2 million (ZMW23 million) to gross profit in the sector.

Zampalm 

The palm project continues to make good progress. Zampalm currently has 2,773 hectares planted with a further 100 hectares due to be planted at the end of this year. The mill has been commissioned and the first 168 hectares of palms planted in 2011 are starting to fruit. Oil sales will commence in the second half of the current financial year.

Conclusion and outlook

Zambeef is pleased to have continued the strong operational performance of 2015, which has resulted in record interim results, giving a profit after tax of USD9.0 million (ZMW102 million). These record results have resulted from a strong operational performance across all divisions together with good cost control across the business.

The key focus remains the expansion of the retail network both through the rolling out of the new Zambeef macro outlets as well operating the in-store butcheries in the new Shoprite supermarkets opening in both Zambia and West Africa. This is having a strong pull effect on all the vertically integrated business units within Zambeef.

The new chicken breeder farm and hatchery have started production and this will be a good new profitable business, while the new stock feed plant will provisionally start operation before the end of the current financial year. Despite the drought and power shortages in the region, Zambeef farms have continued to perform well with yields slightly ahead of forecast.

During the period RCL Foods Ltd exercised its put options enabling Zambeef to acquire its entire shareholdings in ZamChick Ltd and Zamhatch Ltd either through the issue of Zambeef shares or cash. The Board is currently evaluating the optimal approach to settling these options, which fall due on 23rd September 2016.

With the strong focus on the retailing operations, Zambeef is confident that this robust performance will continue, demonstrating the resilience of the Group's business model. As a consequence of this strong operational performance, the Board is confident of meeting full year expectations for the current year.

Carl Irwin Francis Grogan

Joint Chief Executive Officer Joint Chief Executive Officer

Date: 6 June 2016

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

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 2016.

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 8,120 Ha of irrigated row crops and 8,480 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.

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

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

REPORT OF THE DIRECTORS (CONTINUED)

5. Dividends

There was no dividend paid or proposed for the six month period ended 31 March 2016.

6. Management

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

REPORT OF THE DIRECTORS (CONTINUED)

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:

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

REPORT OF THE DIRECTORS (CONTINUED)

9. Directors' fees and remuneration

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.

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

REPORT OF THE DIRECTORS (CONTINUED)

10. Significant Shareholdings

As at 31 March 2016, the Company has been advised of the following notifiable interests in its ordinary share capital:

.

11. Employees

The Group employed an average number of employees of 6,200 (30 September 2015 - 6,251; 31 March 2015 - 6,236) and total salaries and wages were ZMW139.3 million (USD12.3 million) for the six month period to 31 March 2016 (30 September 2015 - ZMW231 million [USD32.7 million], 31 March 2015 - ZMW112.18 million [USD17.4 million]).

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

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

REPORT OF THE DIRECTORS (CONTINUED)

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, except the outstanding tax liability, which the Company entered into a formal settlement agreement with ZRA dated March 31, 2016. The agreement provides that the Company pays ZMW14.4m in six equal instalments in settlement of the disputed tax assessment of ZMW49.15m and about ZMW2m of this settlement amount is recoverable as Vat. This agreement will result in the writing back of ZMW33.6m which was provided in the books as a result of the court process.

14. Gifts and donations

The Group made donations of ZMW1.27 million (USD0.11 million), (30 September 2015 - ZMW2.1 million [USD0.3 million], 31 March 2015 - ZMW1.19 million [USD0.19 million]) to a number of activities.

15. Export sales

The Group made exports of ZMW59.3 million (USD5.2 million) during the period (30 September 2015 - ZMW120.1 million [USD17 million], 31 March 2015 - ZMW61 million [USD9.4 million]).

16. Property, plant and equipment

Assets totalling ZMW84 million (USD7.4 million) were purchased by the Group during the period (30 September 2015 - ZMW246.7 million [USD34.9 million], 31 March 2015 - ZMW140.1 million [USD21.7 million]) which included expenditure on the palm plantation development during the period of ZMW6.5 million (USD0.57 million) (30 September 2015 - ZMW11.7 million [USD1.7 million], 31 March 2015 - ZMW9.059 million [USD1.4 million]).

17. Interim report

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

By order of the Board

Company Secretary

Date: 6 June 2016

6 June 2016

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 21 to 52 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.

INDEPENDENT REVIEW REPORT OF ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES (CONTINUED)

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 2016.

Chartered Accountants

Christopher Mulenga (AUD/ F000178)

Name of Partner signing on behalf of the Firm

Lusaka

Date: 6 June 2016

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2016

The accompanying notes form part of the financial statements.

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2016

The accompanying notes form part of the financial statements.

23.

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2016