Results for the Year Ended 30 September 2014

For Immediate Release                                                                                                                                      26 November 2014

Zambeef Products plc

("Zambeef" or the "Group")

Results for the Year Ended 30 September 2014

Zambeef (AIM: ZAM), the fully integrated agri-business with operations in Zambia, Nigeria and Ghana, is pleased to announce its results for the year ended 30 September 2014.

Financial Performance Summary

* adjusted to exclude unrealised foreign exchange differences

Key Points

·    2014 financial year has been a year two very different halves.

·    In H1 2014, the Group recorded a loss before tax of USD6.3 million; however, in H2 2014, the Group recorded a profit before tax of USD2.7 million.

·    H1 2014 performance adversely impacted by macro-economic challenges and external influences, however, H2 2014 saw a strong turnaround of the business, led by the Group's core cold chain food product divisions.

·    Gross margin decreased from 34.7 per cent. for September 2013 to 33.8 per cent. for September 2014; however, robust cost control measures resulted in the cost/income ratio improving from 26.6 per cent. (2013) to 26.3 per cent. (2014).

·    Net cash inflow from operating activities was a creditable USD13.8 million.

·    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.

·    Acceleration of our strategic priorities, which include: the retailing of cold chain food products; forging strategic alliances and partnerships with acknowledged industry players; unlocking value and capital gains from within the Group (and to reduce debt/gearing); and developing the business into a regional food supplier.

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

"We are pleased to say  that following a difficult year in 2013, which continued into the first half of the current financial year, the business has moved forward strongly in the second half of 2014, and we are hopeful that this situation will continue throughout the 2015 financial year.

We believe that the continued execution of our strategy will position us strongly to take advantage of the growth opportunities available. There remain a number of key long-term growth drivers for our business which present significant and tangible opportunities: a rapidly expanding consumer base, fuelled by an emerging middle class, increasing per capita income, rapid population growth and high levels of urbanisation. 

Therefore we look forward to making continued progress towards our aim of becoming a leading regional food supplier."

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 8,120 Ha of irrigated land and approximately 8,480 Ha of rain-fed/dry land, available for planting each year.

The Group employed an average of 5,861 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

Overall, the year under review has been challenging. The Group recorded a loss before tax of USD3.6 million (ZMW21.2 million). Adjusting for unrealised foreign exchange losses, this translates to a loss before tax of USD0.3 million (ZMW1.8 million).

The 2014 financial year has been a year of two very different halves for Zambeef.

As previously reported, our performance during H1 2014 was adversely impacted by macro-economic challenges and external  influences, which included the depreciation of the Zambian Kwacha by over 15 per cent. versus the US Dollar, the outbreak of African Swine Fever ("ASF"), lower soya bean prices and a reduction in sales of Zambeef's cold chain food products through its retail network.

As a result, in H1 2014, the Group recorded a loss before tax of USD6.3 million (ZMW36.8 million).

However, during H2 2014, the Group recorded a profit before tax of USD2.7 million (ZMW15.6 million). Factors contributing to an improved second half performance include the relatively stable exchange rate, resolution of the ASF outbreak by the Zambian government, a good wheat harvest and strong growth in sales of our cold chain food products through Zambeef's retail network. The relatively stable exchange rate has resulted in reduced foreign exchange losses (compared with H1 2014) and has also contributed to an improvement in the Group's gross profit margin from 32.7 per cent. in H1 2014 to 34.8 per cent. in H2 2014. It is encouraging that the trend from the improved second half has continued into the current financial year.

In addition, it is pleasing to note that net cash inflow from operating activities was a creditable USD13.8 million (ZMW81.6 million) (2013: USD20.5 million; ZMW108.7 million).

Strategic priorities

Zambeef has an established and proven strategy of providing high quality end products to its customers. Over the past ten years, we have built the Group into a broad, vertically integrated retail and agricultural business with a robust supply chain which creates added value and reduces financial volatility.

Our priorities, continue to be focused on:

·     the retailing of cold chain meat and dairy products;

·     where appropriate, forging strategic alliances and partnerships with acknowledged industry players;

·     unlocking value and capital gains from within the Group and reducing debt/gearing; and

·     developing the business into a regional food supplier.

Retailing of cold chain meat and dairy products

The retailing of cold chain meat and dairy products (beef, chickens, pork, milk, dairy and eggs), directly to the end consumer, in a value added form, has always been at the heart of Zambeef's growth strategy, delivered through the Group's extensive retailing and distribution network. These core divisions are also less capital intensive, have a shorter working capital cycle and are less prone to exchange rate fluctuations.

Our retail presence is a key differentiator for our business, both through our own network of stores and wholesale outlets or through our long-standing partnership with Shoprite. We have built this network to total 146 stores, not only in Zambia but also Nigeria and Ghana.

Our emphasis will be on growing this segment of our business, as there continues to be significant opportunities, underpinned by the increasing urbanisation and improving prosperity, in our markets. A key focus will be keeping pace with consumer demand and further enhancing the profitability of our retail outlets.

Strategic partnerships/alliances

In order to drive forward our growth plan, we continue to believe that it will be beneficial to form strategic alliances and partnerships with acknowledged industry players, who can provide both the financial support and technical expertise in areas that would otherwise require significant time and cost commitments by the Group.

This process started in 2013, when we partnered with RCL Foods Limited ("Rainbow"), one of the largest chicken producers in Sub-Saharan Africa ("SSA"), through two joint ventures ("JV"), Zam Chick Limited ("Zam Chick") and Zamhatch Limited ("Zamhatch").

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.

Similarly, the Zamhatch JV, to establish a broiler parent stock rearing, laying and hatching operation for the supply of day old chicks, will enable 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 their sale 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 both JVs being reflected in Zambeef's performance over the next financial year as the Zamhatch operations come on stream.

Our partnership with Shoprite also continues to perform well. Shoprite is Africa's largest retailer and has chosen Zambeef as its strategic partner to run and manage its own in-house butcheries in Zambia, Nigeria and Ghana.

In this vein, we will continue to explore further strategic alliances and partnerships where we consider that they will be value enhancing for the Group.

Realising value

In our 2013 audited accounts, we announced significant capital gains resulting from the revaluation of our assets. This was a pleasing reflection of the investment we have made in recent years to establish Zambeef as a leading agricultural producer and we are continually looking at ways of realising some of this value, in order to achieve a cash inflow. This will allow us, inter alia, to reduce USD denominated debt, thereby reducing exchange rate exposure 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.

Feeding the region

Our longer term strategic ambition, as previously indicated, is to build on the Group's sound domestic business in order 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, as trade within the SADC region benefits from a number of tax, customs and excise duty benefits, as well as a fast growing population offering an expanding consumer base.

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. We believe that Zambeef is well placed to become a regional food player, in particular, thanks to our strong existing distribution network and footprint. By building our position as a regional food player, we will have access to significant growth opportunities across a broader geographical footprint, generate geographically diversified revenue streams and enable valuable foreign exchange earnings to be realised, potentially mitigating exchange rate risks.

Dividend

The Board of Directors does not anticipate paying a dividend in respect of 2014. We are hopeful that the business will continue to progress to a stage where it is able to pay dividends and we intend to keep the dividend policy under review with the aim of achieving a balance between providing returns to shareholders and maintaining suitable levels of investment in the business.

Senior management changes

On 23 September 2014, the Board approved the appointment of Carl Irwin (previously Director of Strategy and Development) to the position of Joint Chief Executive Officer. Carl, as well as retaining his existing responsibilities, will oversee Zambeef's Head Office function, whilst Francis Grogan will retain responsibility for the operational aspects of the Group. This senior management change was made on the basis of the Board wishing to re-align the organisational structure of the Group with that which drove the period of strongest growth in the business and will free up Francis to concentrate on driving the operational growth of Zambeef's core business divisions.

Conclusion and outlook

We are pleased to say that following a difficult year in 2013, which continued into the first half of the current financial year, Zambia's macro-economic conditions recently stabilised and we are hopeful that this situation will continue throughout the 2015 financial year.

We believe that the continued execution of our strategy will position us strongly to take advantage of the growth opportunities available. In the short term our focus will be on maintaining the improvement in performance in Zambia, with our aspiration to become a regional player supporting our longer term growth ambitions. In addition, our decision to grow and develop our business through partnerships with acknowledged industry leaders is a further step forward in the Board's strategy of managed growth.

There remains a number of key long-term growth drivers for our business which present significant and tangible opportunities: a rapidly expanding consumer base, fuelled by an emerging middle class, increasing per capita income, rapid population growth and high levels of urbanisation.

The operational platform which we have established over the last few years, our focus on developing our offering generally, and value added products in particular, and our geographic footprint will all help to underpin our longer term performance as we take advantage of the opportunities that exist.

Therefore we look forward to making continued progress towards our aim of becoming a leading regional food supplier.

Dr. Jacob Mwanza

Chairman

24 November 2014

Joint Chief Executive Officers' Review

Overview

After a difficult start to the financial year, as discussed in the Chairman's Statement, it is pleasing to report that H2 2014 saw a strong rebound in our business. The improved operational performance during H2 2014 was driven by Zambeef's traditional core cold chain food products business and we achieved significant percentage increases in gross profit in USD terms versus H1 2014 in a number of these divisions including beef, chicken, pork, dairy and eggs.

The percentage increase in gross profit in USD, H2 2014 versus H1 2014, for these divisions was as follows:

In addition, the Group's gross profit margin increased from 32.7 per cent. in H1 2014 to 34.8 per cent. in H2 2014, the highest half-yearly gross margin recorded on a Group-wide basis since 2008.

The focus will remain on driving growth in Zambeef's traditional core cold chain food products business, which is the foundation on which the Company was originally built and from which it has continued to grow. Although the overall loss for the year is disappointing, it is pleasing to report that the results for the second half show that the business is firmly back on track.

Key operational drivers

Retail sales

It is pleasing to report that the focus and effort that has been placed on the traditional Zambeef core cold chain food products business and the retail and distribution network which Zambeef operates to market these products, has shown profitable growth. In H2 2014, revenues from the core cold chain food products of beef, chicken, pork, dairy and eggs were up in USD terms by 13.4 per cent. from USD57.8 million (ZMW339.9 million) in H1 2014 to USD65.5 million (ZMW385.3 million) in H2 2014, while the related gross profit was up 41.5 per cent. from USD14.9 million (ZMW87.9 million) to USD21.1 million (ZMW124.2 million).

The table below shows retail gross profit increasing by 19.9 per cent. (USD) and 32.7 per cent. (ZMW) between 2013 and 2014.

The public has responded positively to Zambeef's commitment to sell only Zambian beef in its outlets in a market which has seen a continuing influx of foreign products. Zambeef will remain committed to supporting Zambian farmers in their efforts to breed and rear quality cattle, develop their animal husbandry and buy their animals.

The Zambeef Group's retail network is currently is follows:

This retail network remains the engine room that drives the sales of Zambeef's core cold chain food products. It allows Zambeef to add value via its primary production before branding these products and selling them to the end consumer in a value added form. This will remain a key focus area for the business in the future.

Exports

We continue to expand exports in the region. Export earnings have increased from USD5.4 million (ZMW25.7 million) in 2011 to USD30.2 million (ZMW177.5 million) in 2014, and now account for 10.8 per cent. of total revenues, with most of this growth being exports into the SADC region.

In addition, our West Africa operations continue to grow with revenues increasing from USD16.1 million (ZMW85.4 million) in 2013 to USD19.8 million (ZMW116.2 million) during the year and now represents  six per cent. of the Group's revenue.

Our expanding regional reach helps position the Group for continuing growth and to achieve our longer term ambition of making Zambeef a regional food player.

African Swine Fever

Following the outbreak of African Swine Fever in Zambia from mid-November 2013, the Zambian government imposed restrictions on the movement of pigs and the sale of pork products for a three month period to February 2014. Whilst the Group's animals were not affected by this outbreak, the ban significantly impacted the performance of Master Pork during H1 2014. Despite this setback, the pork division's gross profit for the year improved by 36 per cent. (USD0.88 million) compared with 2013. This division is seen as a core part of Zambeef's future plans and its performance is expected to continue to show strong growth.

Market overview

The Zambeef platform in Africa

Zambeef operates in some of the fastest growing parts of the world where demand for food continues to increase rapidly.

Zambia

Zambia remains one of the fastest growing economies in Sub-Saharan Africa. GDP growth has averaged more than 6.5 per cent. per annum over the last five years and is forecast to grow at around six per cent. per annum over the next three years. It has one of the fastest growing populations in the world at around 2.5 per cent. per annum. These factors have contributed to a rapidly expanding consumer base, driven by an emerging middle class and high levels of urbanisation.

Nigeria

This is the largest economy in Africa and has recorded average GDP growth exceeding six per cent. per annum over the last three years and is forecast to grow by around 6.5 per cent. per annum for the next three years. GDP per capita has doubled from USD1,400 in 2000 to USD2,800 in 2012. Nigeria is Africa's most populous country (160 million) and it also has a rapidly expanding consumer base.

Ghana

Ghana is also one of the fastest growing economies in Sub-Saharan Africa and is West Africa's second largest economy after Nigeria. GDP has grown on average by more than six per cent. per annum over the last five years and is expected to grow at around six per cent. per annum over the next three years.

As this demonstrates, Zambeef is operating in areas of the continent where the demand for food is expected to continue to grow at a rapid rate. The challenge for Zambeef will be to continue to expand its core operations in line with this increased demand and we believe that our business priorities will support our ability to take advantage of the considerable opportunities which exist for the Group.

Staff and Board of Directors

Zambeef is committed to attract, retain and motivate top quality staff in all of the areas in which it operates. We would like to thank all our staff in Zambia, Nigeria and Ghana for their contribution to the Company in the last year.

We would also like to thank our Board for its continued advice, guidance and encouragement. We are fortunate to have a Board with a wide range of experience both in the private and public sector both within Zambia and internationally.

Conclusion and outlook

After a difficult first six months to the year, the business has moved forward strongly and we have confidence that this trend will continue into the future. In particular, significant attention will be paid to the ongoing organic growth of Zambeef's core cold chain food product divisions and the marketing of their products through the Group's distribution and retail network which remains the Group's engine room.

Mpongwe Farm ("Mpongwe") continues to provide Zambeef with a competitive advantage over its peers and, in 2014, continued the trend of increasing yields as it has done annually since its acquisition in 2011. Mpongwe has been established as a consistent low cost producer of staples such as maize, wheat and soya and these will continue to flow through Zambeef's vertically integrated model into its core cold chain value added food products in the future.

Additionally, Mpongwe is now providing the base for all further poultry expansion, maximising the use of previously unused land.

Zambeef can look forward to the future with confidence. We have an experienced management team with a proven track record for doing business in Africa. We are operating in parts of the continent where the demand for its products is increasing at a rapid rate. The strategic focus on growing the sales of its traditional core cold chain food products, namely beef, chicken, pork, dairy and eggs, through its own retail network, and continuing to control overheads, we are confident that Zambeef will achieve its goal of becoming one of the leading food suppliers in Sub Saharan Africa.

Carl Irwin/Francis Grogan

Joint CEOs

24 November 2014

Financial Review

Overview

After a difficult start to the financial year, it has been encouraging to see the strong turnaround of the business in H2 2014, led by Zambeef's traditional core cold chain food product businesses. The chicken, pork, dairy and eggs divisions all increased gross profitability in both USD and ZMW terms when comparing 2014 with 2013, whilst the beef division was up in Kwacha terms but down in USD terms. Other divisions have reported decreasing gross profits in both USD and ZMW, with our edible oils business Zamanita showing the biggest decrease in gross profit followed by stockfeed, milling and cropping, where strong competition is reducing margins.

Revenue

Revenue increased by three per cent. in ZMW terms from ZMW1,595.1 million in 2013 to ZMW1,643.3 million in 2014. However, in USD terms, the revenue reduced by seven per cent. from USD300.4 million in 2013 to USD279.5 million in 2014. The main contributors to the reduction in revenue in USD were the 17.9 per cent. depreciation of the ZMW against the USD and reduced revenue from Zamanita and our milling and cropping operations. The fastest growing divisions were Nigeria, dairy, leather and eggs. The segmental revenues are shown below and are discussed in more detail by division.

Exchange rate volatility

The ZMW depreciated against the USD by 15 per cent. in H1 2014 versus 2.9 per cent. in H2 2014. Consequently, the business incurred an exchange loss for the year of USD5.8 million (2013: USD3.0 million), of which USD3.3 million is unrealised (2013: USD1.6 million). Over USD5.0 million (85 per cent.) of this year's exchange loss arose in the first half of the year.

It is pleasing to see the ZMW having returned to relative stability and we hope this will continue into the future.

Gross profit

Gross profit increased by 0.4 per cent. in ZMW terms from ZMW552.8 million in 2013 to ZMW555 million in 2014 and reduced by nine per cent. in USD terms from USD104.1 million in 2013 to USD94.4 million in 2014. The picture is similar to that for revenue with gross profits having increased in both USD and ZMW terms for chicken, pork, dairy and eggs whilst in our beef and cropping divisions there was an increase in ZMW terms but a decrease in USD terms. The largest decrease was represented by performance at Zamanita followed by stockfeed and milling.

Although, overall, the gross profit margin decreased from 34.7 per cent. in 2013 to 33.8 per cent. in 2014, it is pleasing to report that there was an increase from 32.7 per cent. in H1 2014 to 34.8 per cent. in H2 2014. The strong second half performance is further demonstrated by the fact that it accounted for more than 68 per cent. of the Group's EBITDA for the year.

The gross profit by division is shown in the table below.

Administration costs

Another key focus during the year has been cost control and it is encouraging to report that administration costs, excluding depreciation, reduced by USD6.3 million or 7.8 per cent. from 2013 to 2014 (an increase of ZMW8.7 million or 2.1 per cent. in Kwacha terms). This resulted in the cost to income ratio reducing marginally from 26.6 per cent. to 26.3 per cent. in USD terms.

With the strong growth in the second half of the year expected to continue into 2015, these cost saving measures are expected to flow into net profit as revenue increases.

Finance costs and exchange losses

Finance costs increased by 23.8 per cent. in ZMW terms largely due to the Board's decision to convert some of the Group's USD denominated working capital facilities to Kwacha. Interest costs on Kwacha facilities are approximately 10 per cent. more expensive than for USD facilities, and during the first half of the financial year, local Kwacha interest rates (Bank of Zambia Policy Rate) increased from 9.75 per cent. to 12.0 per cent. However, this decision was taken to better balance the Group's debt portfolio between USD and Kwacha facilities, representing a reasonable trade-off between higher interest costs and lower exchange rate risks.

Capital expenditure

During the year, we invested USD13.7 million of capital in the business mainly in the hatchery project, upgrading the stock feed plant, Zamanita soya crushing plant and the palm project. We anticipate further investment of USD14.0 million in the new financial year.

We will continue to make targeted investments in infrastructure and plant and equipment to keep pace with consumer demand, drive revenue, enhance margins and generate cash. Long-term investment will also be aimed at reducing, wherever desirable, costs of production and processing.

Below we provide a more detailed overview of the Group's operational performance.

Cropping

Zambeef's cropping division has had a credible year despite gross profit reducing in 2014 by 9.3 per cent. in USD (an increase of 0.4 per cent. in ZMW). This result was impacted by lower commodity prices which were only partially offset by higher yields.

Cropping performed below expectations in H1 2014 with soya bean prices falling by around USD100 per ton (to USD500 per ton) while H2 2014 performance was ahead of expectations with wheat prices slightly ahead of budget and excellent yields.

This division has consolidated Zambeef's position as one of the largest row cropping operations on the continent with a total of 23,515 Ha being planted over the summer and winter cropping seasons, producing, in aggregate, around 120,000 M.T. of maize, soya beans, barley and wheat.

This division capitalises on Zambia's fertile soils, excellent cropping climate and its abundant water reserves.

Edible oils

Zamanita's gross profit was down USD8.1 million (42 per cent.) and ZMW36.9 million (36 per cent.). Revenue was lower by USD15.9 million and ZMW53.7 million due to reducing the crush of soya beans from 86,495 M.T. (2013) to 58,747 M.T. (2014).

During 2014, we stopped all crushing in third party plants, as soya meal and edible oil prices were reducing and hence toll crushing ceased to be a sufficiently profitable activity.

Since August, we have upgraded the crushing plant to its working capacity of 8,500 M.T. per month. This will allow Zamanita to increase its crushing up to 100,000 M.T. per annum over the next two years. However the short-term effect was a large reduction in sales in 2014.

The decrease in gross profit was due to the decrease in revenue and the high price of soya beans in the 2013 buying season compared to the decrease in prices in 2014. The expensive beans were all crushed out by August 2014 and hence Zamanita had only two months in this year crushing the 2014 soya crop.

As a result of having cheaper beans to crush for the 2015 year and increased crushing capacity, Zamanita can look forward to a better 2015.

Beef

Beef revenue and gross profits were down in USD terms by four per cent. and seven per cent. respectively while up in Kwacha terms by seven per cent. and three per cent. respectively.

The division recorded an excellent performance over the last six months with gross profits increasing by USD3.8 million and by ZMW22.4 million compared with H1 2014. This represented a 53 per cent. increase in gross profit, which was made up of volume and margin increases, with gross profit margins increasing from 25 per cent. to 37 per cent. between the first and second six months.

Total cattle slaughtered increased from 50,600 in 2013 to 59,000 in 2014, representing a 17 per cent. increase.

Zambeef's commitment to buying only Zambian beef has been well received and, with the increased focus being given to the beef division, as the largest contributor to cold chain food products, this division is expected to continue to grow in 2015.

Stock feed (Novatek)

Novatek increased sales volumes and market share, following the addition of a second pelleting line commissioned in May 2014. This year, Novatek produced 118,885 M.T. of animal feed, compared to 89,701 M.T. last year, which represents 33 per cent. volume growth. This resulted in revenue increasing by 16 per cent. in USD and 28 per cent. in Kwacha. However this increased revenue was on lower margins with the gross profit percentage decreasing from 22 per cent. in 2013 to 16 per cent. in 2014.

This drop in margin can largely be attributed to the lag in passing on the increase in input costs following the rapid devaluation of the Kwacha in the first half of the year. The main inputs are maize and soya meal, which are USD based, whilst sales are in Zambian Kwacha.

Novatek continues to increase its exports which now account for 8 per cent. of revenue and with the economies of scale from the increase in production Novatek expects to continue to increase its market share both within Zambia and regionally.

With the exchange rate having stabilised, margins have improved and this division can look forward to 2015 with renewed confidence.

Chicken and egg

The chicken and egg operations have performed well during the year, with broiler production increasing from 5.1 million birds in 2013 to 6.2 million birds in 2014, representing a 21 per cent. volume increase.

Egg production volumes increased by 15 per cent. from 40 million eggs in 2013 to 46 million eggs in 2014.

This has resulted in gross profit increasing in USD by USD0.6 million, representing an increase of 8.7 per cent. and increasing in Zambian Kwacha by ZMW7.3 million, representing an increase of 20.3 per cent.

It is pleasing to see that these operations increased, in gross profit terms, in H2 2014 by 15 per cent. versus H1 2014.

Zamhatch has started the construction phase of a breeder farm and hatchery at Mpongwe and is targeting the commencement of supply of day old chicks in H2 2015.

These operations are a core part of Zambeef's operations and as a result these operations will continue to grow in 2015.

Pork

The pork division's performance this year was adversely affected by the outbreak of ASF in Zambia, which lasted for three months from November 2013 to February 2014.

Whilst Master Pork's animals were not affected by this outbreak, the government imposed restrictions on the movement of pigs and the sale of pork products during this three month period, which significantly impacted performance at Master Pork during the first half of the financial year.

Since the lifting of the ASF ban, we have seen a significant improvement in the demand for all our pork products, such that in spite of the ASF outbreak, the gross profit for the whole year improved in USD by 36 per cent. (USD 0.88 million) compared to 2013 and in Zambian Kwacha by 51 per cent. (ZMW6.5 million).

This division is considered a core part of Zambeef's operations and focus will be given to increasing volumes and margins during 2015.

Milk and dairy

This division has delivered another excellent year, with gross profit up in USD by 44 per cent. (USD2.2 million) and in Kwacha by 60 per cent. (ZMK15.7 million).

Our dairy produced 6.5 million litres of milk this year, compared to 6 million last year and milk sourced from the small scale dairy sector increased significantly, from 952,000 litres (2013) to more than 2.4 million litres (2014).

Cows in-milk now average 850 (2013: 800) and the average daily yield per cow has increased from 21 litres (2013) to 27 litres (2014).

The factors contributing to these results include improved feed efficiencies and fodder quality, strong partnerships with small scale outgrowers, improved herd management and investment in a new feeding shed.

The new milk processing plant (commissioned in November 2013) has increased daily milk processing capacity from 25,000 litres to 65,000 litres and is currently running at 35,000 litres per day. The new plant has allowed Zambeef to target supply growth more aggressively and increase the number of value added products, which now include 40 product lines, and which earn better margins.

This division will continue to be a key focus area and continued growth is expected in 2015.

Mill and bakery

Wheat milled during the year under review amounted to approximately 22,550 M.T. as opposed to 26,400 M.T. in 2013. This reduction in milling resulted in both revenue and gross profits reducing in both Zambian Kwacha and USD.

This year saw a strategic shift away from competitive, high volume, low margin biscuit flour sales towards higher margin retail bread flour sales through our internal retailing and distribution channels, as well as through Shoprite. It is pleasing that more than 50 per cent. of flour sales are now through our own retailing network.

During the year, we also made a strategic decision to close the bread division, as this division was low-margin and non-core. During 2015 the focus will remain on selling flour through our own retail network.

Leather and shoe

Although this division is small it has been one of our top performing divisions in terms of growth in 2014 and the management of this operation must be complimented on an outstanding year.

The wet blue unit processed 100,510 hides in 2014 compared to 79,851 in 2013 (over 25 per cent. volume growth), achieved largely through running our own tannery at full capacity (6,000 hides per month), with the balance being contract/toll tanning.

Wet blue production was ramped up in 2014 due to an improvement in the wet blue market; as a result, we purchased more third party hides (40,977 in 2014 versus 28,792 in 2013) for processing.

The finished leather and shoe units have continued to perform steadily with local demand for our leather and shoes remaining strong.

Zamleather provides an important market for Zambeef's hides and is now the only operational tannery in Zambia.

West Africa

Zambeef's West Africa operations are gaining momentum in line with Shoprite's increasing footprint in the region, driven largely by the roll out of Shoprite stores. During the year, revenue increased in USD by 22.9 per cent. (USD3.7 million) and in Kwacha by 36.1 per cent. (ZMW30.8 million) and gross profit increased in USD by 29.0 per cent. (USD1.1 million) and in Kwacha by 43.0 per cent (ZMW8.6m).

During 2014, four new Shoprite stores were opened in Nigeria and a further store in Ghana. We now have 11 Shoprite stores and six self-operated outlets in Nigeria, and four Shoprite stores in Ghana.

In Nigeria, Shoprite expects to open three new stores in 2015 and a further eight in 2016. In Ghana, Shoprite plan a further two stores in 2015.

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.

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 SEPTEMBER 2014

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 SEPTEMBER 2014 (CONTINUED)

ZAMBEEF PRODUCTS PLC AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 SEPTEMBER 2014