Zambeef Products
Annual Report 2019

Plain-text annual report

The Zambeef Group Robust business model of vertical integration Zambeef Products PLC (“Zambeef”) is the largest integrated cold chain food products and agribusiness company in Zambia and one of the largest in the Southern Africa region. Zambeef is quoted on both the Lusaka Stock Exchange and the Alternative Investment Market (AIM) of the London Stock Exchange. It is involved in the primary production, processing, distribution and retailing of beef, dairy, chicken, pork, eggs, dairy, fish, flour, stockfeed and day-old chicks throughout Zambia and the surrounding regions, including Nigeria and Ghana. Zambeef has one of the largest row cropping operations in Zambia, growing maize, soya beans and wheat. It plants nearly 25,000 ha annually, with most of the resulting crops being used in the Zambeef animal feed and flour milling businesses. Our Purpose Zambeef’s vision is to be one of the most accessible, affordable and quality cold chain food providers in the region, delivered through their extensive retail and distribution network of retail outlets throughout Zambia and West Africa. Our Business Model Our vertically integrated business model provides strong foundations for growth and: • Underpins margin capture and value add; • Secures supply chain; • Reduces risk and earnings volatility. 2019 Highlights Contents Cropping - Operating Profit h 173% (USD) h 177% (ZMW) 2019: ZMW101.1m (USD8.2m) 2018: ZMW29.4m (USD3.0m) Stockfeed - Operating Profit h 7% (USD)  14% (ZMW) 2019: ZMW73.1m (USD5.9m) 2018: ZMW68.3m (USD6.9m) Other businesses - Operating Profit h 80% (USD) h 123% (ZMW) 2019: ZMW15.4m (USD1.24m) 2018: ZMW6.9m (USD0.69m) Good performance from Cropping with record wheat yields attained during a devastating regional drought Agreement reached to sell Sinazongwe Farm for a consideration of USD10 million Stockfeed sales volumes increased 9%. Recorded a 46% increase in exports to 11 African countries Turn around of Masterpork, West African Retail and Flour milling contributing to operational profits this year 2019 Challenges Combined Retail & CCFP - Operating Profit  41% (USD)  26% (ZMW) 2019: ZMW107.7m (USD8.7m) 2018: ZMW146.2m (USD14.7m) Weakening of the Kwacha against the USD of 24% Customers disposable income under pressure from serious macro economic headwinds Reduced electricity availability due to an El-nino induced regional drought and a 19% increase in the cost of Diesel Regional drought had increased the cost of maize and its products as the staples to human and animal nutrition Overview 2 Zambeef at a glance 4 History and key milestones 5 Feeding a growing region Strategic report 6 Chairman’s report 8 Chief Executive Officer’s review 12 Divisional performance Retail Cold Chain Food Products Stock Feed Cropping Other businesses 20 Sustainability Report Corporate governanace 26 Corporate governance 30 Board of directors 32 Report of the directors 37 Statement of directors’ responsibilities Financial Statements 42 Report of the independent auditors 47 Consolidated Statement of comprehensive income 48 Consolidated statement of changes in equity 50 Company statement of changes in equity 52 Consolidated statement of financial position 54 Company statement of financial position 55 Consolidated statement of cash flows 56 Company statement of cash flows 57 Notes to the financial statements 118 Notice of AGM and agenda 119 Proxy form Zambeef at a glance Robust business model of vertical integration Retail and distribution Zambeef’s products are retailed through a total of 226 outlets (2018: 206) directly to end-consumers, in a value-added form, either through the Zambeef concession agreement to operate Shoprite’s in-store butcheries (69 in 2019; 65 in 2018) or through Zambeef’s own retail and wholesale distribution network in Zambia (157 in 2019; 141 in 2018). • • • • • • • 65 Zambeef retail outlets (2018: 67) 35 Zambeef Macros (2018: 29) 28 Novatek retail outlets (2018: 24) 28 Zamshu outlets (2018: 19) 1 Bakery 38 Shoprite butcheries in Zambia (2018: 34) 31 Shoprite butcheries in West Africa: 25 in Nigeria and 6 in Ghana (2018: 31) Zambeef also operates one of the largest transport and trucking fleets in Zambia (230 Trucks), giving them control over its logistics and distribution. Cold Chain Food Products • • The largest processor of beef in Zambia. Five beef abattoirs (capacity to slaughter 230,000 head p.a.) and three feedlots located throughout Zambia (standing capacity 11,000 head). • Meat processing plant with a capacity to process over 100,000 cattle p.a. • One of the largest chicken processors producing fresh and frozen products (capacity 8.8m broilers p.a.) and a table egg producer (285,000 layers). The Group’s breeding and hatchery operations also supply large quantities of day-old broiler chicks (capacity 22.4m p.a.) to small and medium scale poultry producers. • One of the largest piggeries and pork processing plants in Zambia, producing bacon, pork sausages and other meat products. (capacity to slaughter 75,000 head p.a.) • Dairy farm with approximately 2,738 cows and a dairy parlour milking capacity of 2,000 cows per day. • Dairy processing plant (capacity 120,000 litres/day) to process milk, allowing Zambeef to add value by producing yoghurt, drinking yoghurt, cheese, butter and milk based juice). 2 Zambeef Products PLC Annual Report 2019 Stockfeed • • • The leading stockfeed producer in Zambia, operating two feed mills, in Lusaka and Mpongwe, with a capacity of 300,000 tonnes p.a. Novatek products are certified by the Zambia Bureau of Standards (ZS 017, ZS 018 and ZS 019) and the company is the only stockfeed producer in Zambia with ISO 22,000 Food Safety Management certification. Novatek supplies 50% of the feed produced to Zambeef livestock farming and retail operations, and supplies 132 branded shops owned by external agents (2018: 119). Cropping • • • • • • One of the largest row cropping operations in Zambia. 7,973 ha of irrigated and 8,776 ha of rainfed, arable land. Double cropping of irrigated land means Zambeef plants 24,750 ha p.a. Crop production focuses on soyabeans and maize during summer and wheat during winter. 170,000 M.T. storage capacity [2018:125,000 M.T.] Cropping division provides raw materials input (wheat, soya, and maize) for further value add processing within the Group. Other • Wheat mill with a capacity to mill 26,000 MT of wheat p.a. • • The largest tannery in Zambia, with a processing capacity of 130,000 hides p.a. The largest shoe manufacturing plant in Zambia, with a production capacity of 110,000 pairs p.a. (forecast to increase to 215,000 pairs p.a. in 2020) One bakery with the capacity to bake 1.2 million loafs of bread p.a. • 3 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019 History & Key Milestones 1994 Zambeef Products Ltd. incorporated with 60 staff, a rented abattoir & 2 butcheries, delivering 180 beef cattle per month in 3 land rovers 1996 Acquired Huntley Farm (abattoir and feedlot) 2004 Acquired Sinazongwe Farm, Shoprite expansion into Nigeria & Ghana 2008 First equity capital raise (Acquired Masterpork, Chiawa Farm, Zamanita Soya crushing and refining plant) Entered into JV’s with RCL Foods on Zamchick & Zamhatch 2013 CDC Group PLC acquires 38% Zambeef equity for US$65million. Put option settled to RCL Foods for full interests in Zamchick & Zamhatch IDC Zambia acquires 90% of Zampalm ltd for US$16million 2016 2018 2011 Listed on the London Stock exchange (AIM). Acquired Mpongwe Farms 2015 Disposal of Zamanita Ltd to Cargill for US$26million 2017 Commissioning of US$30million hatchery and stockfeed mill at Mpongwe Farm 1995 Secured concession to operate the butcheries in all Shoprite stores in Zambia 2003 Listed on Lusaka Stock Exchange. Dr Jacob Mwanza became chairman. 2005 Sinazongwe Abattoir built 2009 Zampalm and Novatek Animal Feeds established 4 Zambeef Products PLC Annual Report 2019Feeding a growing region Zambia Zambeef Outlets Zambeef Macros Novatek Bakery Zamshu Outlets Total Zambeef Outlets Shoprites Total Zambia Nigeria Shoprites Master Meats Outlets Total Nigeria Ghana Shoprites Total Ghana 2019 2018 2017 65 35 28 1 28 157 38 195 25 0 25 6 6 67 29 24 1 19 140 34 174 25 1 26 6 6 81 19 17 0 12 129 31 160 23 6 29 6 6 2019 2018 2017 Total Zambeef Total Shoprites Total Retail Network 157 69 226 141 65 206 135 60 195 5 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Chairman’s Report Dear Shareholders, I am pleased the Chairman’s Report with respect to the financial year ended 30 September, 2019. to present to you electricity generation. The Kwacha weakened during the period, with the exchange rate ending the period at around ZMW13.20/USD, having started the period under review at ZMW12.24/USD. As we had anticipated, 2019 proved a challenging year for the Group, driven by difficult economic and market conditions that impacted negatively on the Group’s in financial performance, particularly the first half of the year. Despite these challenges, the Group still generated a profit after tax of ZMW18.5 million (USD1.5 to ZMW10.5 million million) compared (USD1.1 million) in the prior financial year. This achievement, in the face of such economic and market difficulties, illustrates the Group’s fundamental strengths as a diversified and resilient business. The Board remains committed to achieving the strategic priorities set out in 2014, with a key focus on the core divisions that generate sustainable and strong cashflows, particularly through our Retail and Cold Chain Food Products and Stockfeed divisions. Another significant cornerstone of our strategy is our divestment of non-core assets, with realised proceeds used to reduce debt levels. Much progress has been made on this, with the disposal of Zamanita Ltd to Cargill Holdings BV in 2015, followed by the sale of our 90% shareholding in Zampalm Ltd to the Industrial Development Corporation in 2018. During the year we entered into a binding sale and purchase agreement with Chenguang Biotech (Zambia) Agri-Dev Limited for the disposal of Sinazongwe Farm. experienced The Economic Environment Zambia challenging a macroeconomic climate during the course of the Group’s 2019 financial year, which impacted on consumer spending power. The Minister of Finance stated when delivering his National Budget speech, that economic growth was expected to slow down to 2% by the end of 2019, compared with a target of 4% and growth of 3.7% in 2018. The slowdown in economic growth was primarily attributed to the severe drought the region was experiencing, and debt servicing challenges. The previous poor 2018/2019 rainy season led to poor agricultural production and constrained The Board remains committed to achieving the strategic priorities that we set in 2014, with a key focus on the core divisions that generate sustainable and strong cashflows, particularly through our Retail and Cold Chain Food Products and Stockfeed divisions. 6 this reassuring, especially Trading Results Set against challenging macro economic backdrop, the Group’s results the were second half of the year, as management took proactive steps to deal with these challenges in both the short and long term, underpinned by continued focus on key strategic initiatives. in for (USD2.4 million) The Group achieved profit after tax (from continuing operations) of ZMW35.9 million (USD2.9 million), compared with ZMW23.8 million the same period in the previous year. The increase in profitability was mainly driven by cropping, increased volumes and margins in the Stockfeed division and Retail and Cold Chain Food Products, in line with our strategic imperative of consistent revenue growth through expansion of our retail network. Net debt at the end of the period was ZMW 886.3 million (USD67.1 million) compared with ZMW684.9 million (USD55.9 million). Stockfeed The stockfeed operations continued to grow during the year, against the backdrop of the drought, and the division remains a significant contributor to the Group. The division produced 218,762 tonnes of feed in 2019, compared to 200,846 tonnes in 2018, with Mpongwe producing 24.5% more than the previous year. Retail and Cold Chain Food Products Zambeef’s chain of 226 retail outlets - both own-brand and within Shoprite supermarkets - remain at the heart of the business, with demand from consumers driving supply. The Group’s focus continued with the successful roll out of seven new Macro outlets in strategic locations across Zambia and the closure of seven small retail stores as part of its ongoing drive to optimise revenue and efficiencies across the division. Cropping Cropping performed The division exceptionally well, despite the severe drought in summer, constrained electricity supply, and water shortages in the winter. Zambeef Products PLC Annual Report 2019 Yields for all crops were above management expectations, and thus the division contributed positively to profitability. Disposal of non-core assets The Group has entered into a binding sale and purchase agreement with Chenguang Biotech (Zambia) Agri-Dev Limited for the sale of Sinazongwe Farm, subject to the fulfilment of certain conditions precedent. This disposal is expected to complete by March 2020 for a cash consideration of USD10 million. DIVIDEND While we are steadfast in our dedication to enhance shareholder value, in view of the financial performance and debt levels of the Group, no dividend will be paid in respect of this financial year. We will continue to monitor and review our dividend policy. OUTLOOK The macro-economic climate is expected to remain challenging for Zambia in 2020, characterised by high national debt levels, a volatile Kwacha and continued electricity supply constraints, negatively affecting business activity across the economy and in all sectors. This will impact growth of the Zambian economy and have a significant knock-on effect on our customers’ disposable incomes. Despite these continued problems, the Group is committed to strengthening its earnings potential and unlocking value through reducing debt levels in the medium term, which will mitigate foreign exchange and interest rate risk exposures. ACKNOWLEDGEMENT I express my sincere thanks to my fellow Board members for leading the Group through this challenging year. To our management and staff, I express our utmost appreciation for your dedicated efforts. As a Board we would like to express our deepest gratitude to the Chief Executive Officer, Mr Francis Grogan, who will be retiring effective 31st December 2019. His leadership and profound business acumen have enabled the Zambeef Group to grow by leaps and bounds during his tenure. He has played a significant role in the Group and we all wish him all the very best. Mr. Grogan will be succeeded from 1 January 2020 by Mr Walter Roodt, who was appointed to the Zambeef Board on 5 February 2019. Mr Grogan has been working closely with Mr Roodt and Mr Mike Lovett, the Group’s Chief Operating Officer, since January 2018 in a well-planned succession to ensure a successful and smooth transition. On behalf of the Group, a warm welcome to our newest Board members, Mr Michael Mundashi, who was appointed as an Independent Non-Executive Director effective 11 September 2019, and Ms Faith Mukutu, the Chief Financial Officer, as an Executive Director of the Board. Their established professional backgrounds and valuable expertise will be an asset to the Group. We would also like to thank our shareholders, for their continued support of the Group. Our appreciation goes as well to our other stakeholders such as financiers, business associates and consultants for all their support. Dr. Jacob Mwanza, Chairman 6 December 2019 7 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Chief Executive Officer’s Review Overview The financial year ended 30 September 2019 proved to be a challenging year amidst a regional drought and macroeconomic headwinds. The weakening of the Zambian Kwacha against the USD by approximately 24% over the period, an increase in the cost of fuel by 19% together with constrained electricity supply, due to reduced electricity generation arising from low water levels in the country’s major water reservoirs, impacted Zambeef’s only performance but also on our customers’ spending power. The inadequate supply of electricity has resulted in Zambeef running diesel powered generators, significantly increasing operational costs. not on Zambeef’s management remains committed in focusing on core divisions to generate cash flow that will be channelled towards de-risking the business. Despite the challenges noted above, Zambeef achieved a Profit After Tax (from continuing operations) of ZMW35.9 million (USD2.9 million), compared with ZMW23.8 million (USD2.4 million), for the same period last year driven by good performance from the Cropping and Stockfeed divisions. Our revenue ended at ZMW3.1 billion (USD254.5 million), whilst we achieved a gross profit of ZMW1.1 billion (USD87.8 million), which were respectively 12.7% and 12.8% above prior year in Kwacha terms, but both down by 9.2% in USD terms. to be one of Zambeef continued the largest employers in Zambia with our total headcount averaging 7,407 per month at an average wage bill of ZMW38 million (USD3.5 million) per month. Strategic focus area Zambeef’s remains management committed in focusing on core divisions to generate cash flow that will be channelled towards de-risking the business. Our plans are underpinned by: • Consistent revenue growth through retail network, expansion of our driving our cold chain food products and stockfeed operations; Continued capital investment in the highest performing areas of the business; Cash generation through improved margins, cost control, working capital management and prudent capital expenditure; Continued divestment of non-core assets; and Environmental and improvement projects. safety food • • • • 8 During the year, Zambeef entered into a binding sale and purchase agreement with Chenguang Biotech (Zambia) Agri-Dev Limited for the sale of Sinazongwe Farm for a consideration of USD 10 million. This disposal is expected to be completed by March 2020 and the funds will be used to reduce our debt levels. Whilst Zambeef recorded a loss after tax in the first half of the year, the second half was particularly pleasing as management managed to stabilise operations and the Group ended the year on a positive note. The cost to income ratio decreased from 26.4% (2018) to 25.1% (2019). However, due to the cash flow pressure arising from the steep increase in input costs, our net debt increased from ZMW685 million (USD56 million) to ZMW886 million (USD67 million). Retail and Cold Chain Food Products The disposable income of our customers was constrained during the financial year driven by the tough economic climate which resulted in a subdued performance. The constrained ability of the livestock production divisions to pass on the extra costs of inputs, such as feed prices and the cost of production, to the Zambian consumer was evident in the stagnant market selling prices of products in Kwacha terms. Broiler day old chick prices reduced by 7% due to the pressure on the poultry value chain caused by the steep increase in feed prices. The chicken live market sales prices increased only 6% and whole frozen chicken prices increased by 7%. Market retail prices for a tray of 30 eggs increased by only 8%. Beef prices remained under pressure due to the regional drought and escalating costs of feed forced farmers to sell more cattle. The prohibitive cost of finishing cattle for marketing due to shortages of maize bran, the main feed ingredient, and a 109% increase in its price impacted negatively on performance - the sales price for mixed beef increased by a mere 2%. Stockfeed Zambeef’s Stockfeed division trades under the brand names Novatek and Zamfeed, with a 300,000 tons annual manufacturing capacity based in Lusaka and Mpongwe. Approximately 50% of all sales are generated through Zambeef macros and livestock operations. Zambeef internal Zambeef Products PLC Annual Report 2019 The balance is sold through Novatek’s 132 branded external agency outlets (2018: 119) throughout Zambia and direct accounts held by livestock farmers. A major drought in Southern Africa during the 2018 summer rain season resulted in maize prices in USD terms increasing by 28% and solvent extracted cake also increased by 22%. These materials represent the highest inclusions in stockfeed which led to the feed prices in Kwacha terms increasing on average by 34% for pig and broiler feeds, and 42% for layer feeds. The division performed pleasingly in spite of the very difficult operating environment. Cropping The Zambeef cropping division had an exceptional year despite operating in a challenging business environment owing to a severe drought in the summer, inadequate electricity supply and water shortages in the winter. In spite of this, the Farms produced exceptionally good yields. The Farms increased the production of fodder by 34% (25,490 tons) and grains by 7% (119,830 tons) this year compared to 16,736 tons of fodder and 112,027 tons grains in the prior comparable period. Zambia had a large soya bean crop which was in excess of local solvent extracted soya cake requirements, which resulted in a 4% reduction in soya bean prices. Wheat prices on the other hand were 3% higher than the previous year thus contributing positively to our profitability. Capital Expenditure The capital expenditure for 2019 was at a record low of ZMW113.8 million (USD 9.2 million) with a focus on completing expansion projects started in previous reporting periods; Outlook Zambeef’s management will continue to focus its efforts on de-risking the business, cost control, and margin enhancement. Zambeef’s performance will be under pressure from escalating costs emanating from inadequate electricity supply resulting in higher diesel usage costs, pending increase in electricity tariffs as well as the constrained disposable income of our customers. However, despite the negative effects of the challenges noted above, the likelihood of a normal summer rain season is considered high which will result in higher crop yields of maize and soya beans in the region. This expected higher harvested yield should result in a reduction in the commodity prices which will cascade through the food value chain, impacting Zambeef positively. As part of Zambeef’s on-going process to de-risk the business, CAPEX will be restricted to high performing areas of the business. • o o o • • • • completion USD5.02 million on Retail and Cold Chain Food Products with the addition of Retail: 7 new Macro outlets and the expansion of the logistics fleet. Zamhatch: of the the hatchery and expansion of breeding farm capacity from 400,000 to 500,000 hatching eggs per week. Zamchick: completion of 2 ton/hour gyro freezer to double Individually Quick Frozen (IQF) chicken production. USD1.03 million on Stock Feed logistics, material storage and replacement of equipment. USD0.76 million on equipment replacement. USD0.72 million on milling and leather, doubling the shoe manufacturing capacity from 500 to 1,000 pairs per day. USD1.67 million on environmental & safety improvements and contingency spending. Cropping Francis Grogan Chief Executive Officer 6 December 2019 9 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Key Market Indicators Reporting period market comparatives Economy 2019 2018 Change ROE (ZMW/USD) Copper ($/Ton) Breakfast Maize meal (K/25kg) Annual Inflation rate (%) Overhead Costs TBS 364day (Yield %) Fuel Pump Price - Diesel ZMW/Litre Commodities Maize ($/ton) Wheat ($/ton) Soya Beans ($/Ton) Solvent Extracted Soya Cake ($/ton) Input Prices Maize Bran (K/ton) Broiler Grower feed (K/50kg) Pig Grower feed (K/50kg) Layer feed (K/50kg) Day-Old Chick (K/DOC) Selling prices Beef Mixed Cut (K/Kg) Chicken Frozen (K/Kg) Chicken Live Market (K/Chicken) Egg Tray (K/Tray of 30 Eggs) 12.32 6102 101.8 8.4 24.7 13.9 207 447 400 442 1434 242 200 175 5.9 35.8 28.9 38.2 28.0 9.92 6726 73.7 7.1 17.4 11.7 161 433 417 363 686 181 149 123 6.4 35.0 26.9 35.9 25.8 -24% -9% 38% 18% 42% 19% 28% 3% -4% 22% 109% 34% 34% 42% -7% 2% 8% 6% 8% 10 Zambeef Products PLC Annual Report 201911 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Divisional performance Table 1: Segmental Financial summary in ZMW’000s Table 1: Segmental Financial summary in ZMW’000s Division Revenue 2019 ZMW'000 Revenue 2018 ZMW'000 Gross Profit 2019 ZMW'000 Gross Profit 2018 ZMW'000 Overheads 2019 ZMW'000 Overheads 2018 ZMW'000 Operating Profit 2019 ZMW'000 Operating Profit 2018 ZMW’000 Retailing 2 038 675 1 693 234 213 502 199 117 CCFP 1 388 492 1 313 052 367 657 379 870 Less Interco (1 303 519) (1 001 575) Combined Retail & CCFP Stock Feed Cropping Others Total Less: Intra/ Inter Group Sales Central Overhead 2 123 648 2 004 711 581 159 578 987 (419 417) (385 484) 107 744 146 215 986 075 474 202 210 348 706 008 515 585 141 452 191 011 270 116 39 261 163 442 189 601 27 129 (103 751) (82 460) (126 413) (118 729) (21 930) (18 521) 73 092 101 082 15 361 68 264 29 380 6 885 3 794 273 3 367 756 1 081 547 959 159 (671 511) (605 194) 297 279 250 744 (659 306) (587 167) (136 070) (129 907) (136 070) (132 474) Group Total 3 134 967 2 780 589 1 081 547 959 159 (807 581) (735 101) 161 209 118 270 12 Zambeef Products PLC Annual Report 2019Divisional performance (continued) Table 2: Segmental financial summary in USD’000s Revenue 2019 USD’000 165 477 112 702 Revenue 2018 USD’000 Gross Profit 2019 USD’000 Gross Profit 2018 USD’000 Overheads 2019 Overheads 2018 USD’000 USD’000 Operating Profit 2019 USD’000 Operating Profit 2018 USD’000 170 689 132 364 17 330 29 843 20 071 38 293 (105 805) (100 965) 172 374 202 088 47 173 58 364 (34 043) (38 859) 8 745 14 739 80 039 38 490 17 074 71 170 51 974 14 259 307 977 339 491 (53 515) (59 190) 15 503 21 925 3 187 87 788 16 476 19 113 2 736 (8 421) (10 262) (1 780) (8 313) (11 969) (1 867) 5 933 8 205 1 247 6,881 2 962 694 96 689 (54 506) (61 008) 24 130 25 276 (11 045) (13 095) (11 045) (13 354) Division Retailing CCFP Less Interco Combined Retail & CCFP Stock Feed Cropping Others Total Less: Intra/ Inter Group Sales Central Overhead Group Total 254 462 280 301 87 788 96 689 (65 551) (74 103) 13 085 11 922 13 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019 Retail and Cold Chain Food Products DIVISIONAL REVIEW Taking each of our key business areas performance in turn as follows: Table 3 (ZMW) and Table 4 (USD) below provides each key business area performance of the combined Retail and Cold Chain Food Products divisions. Table 3: Retail and Cold Chain Food Products ZMW’000 Division 2019 ZMW'000 2018 ZMW'000 2019 ZMW'000 2018 ZMW'000 2019 ZMW'000 2018 ZMW'000 2019 ZMW'000 2018 ZMW'000 Revenue Gross Profit Overheads Operating Profit Retailing Zambia 1 853 721 1 548 421 Retailing West Africa 184 954 144 813 Total Retailing 2 038 675 1 693 234 CCFP Less Interco Combined Retail & CCFP 1 388 492 1 313 052 (1 303 519) (1 001 575) 2 123 648 2 004 711 581 159 578 987 (419 417) (385 484) 107 744 146 215 Table 4: Retail and Cold Chain Food Products USD’000 Division Retailing Zambia Retailing West Africa Total Retailing CCFP Less Interco Combined Retail & CCFP Revenue Gross Profit Overheads Operating Profit 2019 USD’000 2018 USD’000 2019 USD’000 2018 USD’000 2019 USD’000 2018 USD’000 2019 USD’000 2018 USD’000 150 464 15 013 165,477 112 703 156 091 14 598 170 689 132 364 (105 806) (100 965) 172 374 202 088 47 173 58 364 (34 043) (38 859) 8 745 14 739 We continued with the successful roll out of 7 new Macro outlets across Zambia in strategic locations and the closure of 2 retail outlets as part of our ongoing drive to optimise revenue and efficiencies across the Retail division. Shoprite also expanded their footprint with another 4 outlets in Zambia. Net sales in the combined Retail and Cold Chain Food Products (“CCFP”) divisions increased by 6% to ZMW2,124 million (2018: ZMW2,005 million) and decreased by 15% to USD172 million (2018: USD 202 million), the difference owing to the weakening of the Kwacha. The Gross Profit margin decreased slightly in Kwacha terms to 27.4% (2018: 28.9%), with a 9% increase in overheads to ZMW419 million 14 Zambeef Products PLC Annual Report 2019(2018: ZMW385 million) or a 12% reduction to USD34 million (2018: USD39 million). The combined Retail and CCFP divisions have still generated a satisfactory 5.1% Operating Profit margin (2018: 7.3%). The weak economy and the increase in costs from the inputs into the livestock divisions and the fuel costs used in transport and electricity generation could not be passed on to our customers through the retail network. The Operating Profit decreased by 27% to ZMW107 million (2018: ZMW146 million) in Kwacha terms and 41% to USD8.8 million (2018: USD14.7 million) in USD terms. Zambia Retail Zambia Retail revenue increased 20% to ZMW1,854 million (2018: ZMW1,548 million) whilst the Gross Profit increased by 4%. However due to the depreciation in the Kwacha relative to the USD, the revenue decreased by 3% to USD165 million (2018: USD171 million). Strong revenue growth of 82% in the stockfeed, flour, cooking oil and other dry goods increased this segments contribution to 17% in the retailing sales mix from the previous two years contributions of 11%. Difficult trading conditions saw a decline in revenue growth on CCFP for most of the year, with a good comeback on CCFP revenue growth in the last quarter of the year. CCFP increased its revenue by 12% from the previous year. This change in the mix of products had degraded the average Gross Profit margin by 1.4%. (via in West Africa West Africa Retail Sales the Nigeria and Ghana Shoprite concessions) have increased 28% from ZMW145 Million to ZMW185 million. The turnaround of the Group’s operations in the region started showing positive results in the latter part of the previous reporting period and continued through this year. During the current period the overhead costs in Kwacha were reduced by a further 14%, although this was negatively impacted by the recent xenophobic attacks that were directed at South African businesses in Nigeria towards the end of the financial year (Shoprite has its origins in South Africa). Stock losses and the shutdown of the majority of the outlets during September detracted from the positive anticipated results from this business for the year. West African retail only contributes 9% to the retail revenue, it has however turned cash flow positive and marginally contributed to the Operating Profit in the division. Beef Beef is the largest contributor to revenue in the CCFP. Beef sales volumes increased by 4% compared to the financial year 2018, with the number of cattle slaughtered reducing 4% due to foot and mouth disease outbreaks restricting the movement of cattle from affected areas in Zambia to our slaughter facilities, but the average slaughter weight increased by 5%. Revenue increased by 4% whilst the Gross Profit only marginally increased by 2% from ZMW125 million in 2018 to ZMW128 million in 2019. Poultry (Zamchick, Zamhatch and ZamEgg) Revenue of the poultry business increased by 3% in 2019. It is the second largest revenue contributor to the CCFP business. Gross profits decreased by 12% from ZMW143 million in 2018 to ZMW126 million in 2019, mainly due to the higher input costs which could not be passed on to the customers. in for to excel The Zamhatch Breeder Farm and Hatchery, based on the Mpongwe Farms in the north of Zambia, continued its expansion programme, with a further investment of USD2 million during the period, ramping up the production capacity to 430,000 day-old chicks per week by year end. The day-old chick sales increased by 13% as a result of further investments into the logistics fleet as well as expansion of the Zambeef retail network which allowed the Zamhatch distribution footprint to expand to all provinces of the country. Zamhatch continued its production efficiency and was the proud recipient of the Cobb Champion Awards for best Breeder Performance for 2018 for the EMEA region (Europe, Middle East and Africa). Increased stockfeed prices were cushioned somewhat by a reduction in day-old chick prices, with the Novatek stockfeeds and Zamhatch day-old chick basket continuing to offer an attractive opportunity for growth in this important sector of the market. The informal and small scale chicken farming sector was much more resilient and competitive than the formal poultry sector as the cost and availability of electricity had a lower impact on this sector. This positively contributed to the volumes of sales for Zamhatch and Novatek stockfeeds that are receiving the bulk of their sales from the informal sector. The year under review was a challenging one for Zamchick with volumes increasing by 1% compared to the prior year. Multiple stockfeed price increases had a significant negative impact on margins. Operational challenges were also experienced during the 2018/2019 summer rain season as the industry faced widespread dysbacteriosis, which negatively impacted broiler growth performance. Despite a challenging economic climate, Zamchick continued its investment into production infrastructure, with commissioning of an additional spiral freezer which allowed for increased production of Individually Quick-Frozen chicken portions, to meet the increasing demand for these products. relatively Demand constant during the year, while egg production dropped marginally by 3% in 2019 compared to 2018. for eggs remained Pork (Masterpork) The pork division has seen a number of improvements during the year with a focus on merchandising and brand building activities undertaken. The Kwacha overhead costs were held flat (with only a 1.6% increase) together with a 5% increase in sales volumes being recorded. The revenue increased 13% and the Gross Profit increased 12% from ZMW35 million to ZMW39 million. The division was turned around from a loss making Operating Profit in 2018 to a marginal Operating Profit in 2019. Management focus was on passing on input costs effectively to its customers by ensuring cost reflective prices of its goods. Improving the carcass quality of pigs slaughtered in the grading and pricing system, resulted in 3% fewer pigs being slaughtered and increased the average pig weight by 4%, with an 8% increase in slaughtered carcass prices. through advances Milk (ZamMilk) Milk revenue increased 16% with the Gross Profit remaining flat at ZMW67 million (2018: ZMW66 million. Sales volumes increased 8% from 19 million litres (2018) to 21 million litres processed. The Kalundu dairy herd has had a very good year in contrast to the previous year’s challenge with a foot and mouth disease outbreak. The average milk production increased by 12% from 23.7 litres/day in 2018, to 26.6 litres/day, with 1,222 cows daily being milked at the year end. The feed cost of the milking herd increased by 48% due to the price increase in maize ingredients (maize meal, maize bran and maize silage) included in the dairy feeds. 15 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019 Stockfeed (Novatek) Revenue Gross Profit Overheads Operating Profit 2019 ZMW'000 986,075 USD’000 80,039 2018 ZMW'000 706,008 USD’000 71,170 2019 ZMW'000 2018 ZMW'000 2019 ZMW'000 2018 ZMW'000 2019 ZMW'000 2018 ZMW'000 191,011 163,442 (103,751) (82,460) 73,092 68,264 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 15,503 16,476 (8,421) (8,313) 5,933 6,881 Stockfeed increased sales volumes by 9%, producing 218,762 tons of stock feed compared to 200,846 tons in 2018. The sales volumes have again grown ahead of expectations at the Mpongwe Mill with an increase of 25% year on year. Although revenue in Kwacha terms grew by 40% (12% in USD terms), the operating profit was only able to slightly increase by 7% to ZMW73 million (2018: ZMW68 million), or stated in USD terms, a decrease of 14% to USD6 million (2018: USD7 million). The Gross Margin reduced to 19% from 23% in the previous reporting period. Increased production costs due to running backup diesel generators for prolonged periods to generate electricity and the 19% increase in diesel costs also impacted on the logistics fleet. The large and growing poultry sector in Zambia consumes 75% of the feed sales generated by Zambeef. The stockfeed division recorded a 46% increase in export sales with 12,718 tons having been exported to 11 neighbouring and other African countries, generating revenues in hard currencies. Although a small part of the total sales mix, the aquaculture feed sales segment recorded an impressive increase of 39% in sales volumes. 16 Zambeef Products PLC Annual Report 2019Cropping Revenue Gross Profit Overheads Operating Profit 2019 ZMW'000 474,202 USD’000 38,490 2018 ZMW'000 515,585 USD’000 51,974 2019 ZMW'000 2018 ZMW'000 2019 ZMW'000 2018 ZMW'000 2019 ZMW'000 2018 ZMW'000 270,116 189,601 (126,413) (118,729) 101,082 29,380 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 21,925 19,113 (10,262) (11,969) 8,205 2,962 Zambeef’s cropping division provides a currency risk hedge against the depreciation of the Kwacha, due to the crops being traded and financed in USD terms. It is pleasing to report that this division produced company record yields whilst the region experienced a devastating drought. The revenue decreased 8% to ZMW474 million (2018: ZMW516 million) with an increase in overheads of 6% to ZMW126 million (2018: ZMW119 million). Pleasingly the Gross Profit was up 42% to ZMW270 million (2018: ZMW190 million) and the resulting operating profit increased 248% to ZMW101 million (2018: ZMW29 million) due to the exceptional wheat yield. Due to the ZMW weakening to the USD the revenue decreased 27% to USD38 million (2018: USD52 million) and the overheads decreased 16% to USD10 million (2018: USD12 million). The Gross Profit was up 16% to USD 22 million (2018: USD 19 million) and the resulting operating profit increased 166% to USD 8 million (2018: USD3 million). The summer harvest for soya beans totalled 44,982 tons versus 44,730 tons in 2018. Maize contributed 19,233 tons of grain together with 22,000 tons of silage for the dairy and beef operations. A 14% increase in the wheat winter crop resulted in a harvest of 50,398 tons (2018: 44,300 tons) which had been planted on 7,047 hectares, which represents a yield of 7.15 tons/hectare and a new Zambeef record in both total tonnage and yield for the crop. 17 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Other businesses Revenue Gross Profit Overheads Operating Profit 2019 ZMW'000 210,348 USD’000 17,074 2018 ZMW'000 141,452 USD’000 14,259 2019 ZMW'000 2018 ZMW'000 2019 ZMW'000 2018 ZMW'000 2019 ZMW'000 2018 ZMW'000 39,261 27,129 (21,930) (18,521) 15,361 6,885 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 3,187 2,736 (1,780) (1,867) 1,247 694 Total revenue from the other business units increased by 49% from ZMW141 million in 2018, to ZMW210 million this financial year. The Gross Profit increased by 45% and Operating Profit increased by 123% in ZMW terms. Flour Milling The milling division performed above expectations, increasing sales volumes by 29% from 13,165 tons in 2018 to 16,966 tons in 2019. The milling division had absorbed the weaker exchange rate with higher selling prices. Higher volumes were achieved by producing consistently high quality flour. Zamleather 2019 has been one of the toughest years in recent times for Zamleather. The global wet blue market, which is the main channel of revenue for Zamleather, continued on a multi-year downward trend, weakening further during the financial year on the back of already record low prices. Only 84,657 hides were processed, a reduction of 31% from the prior year, with stricter focus on only sourcing higher quality grades of hides. Shoe sales at 79,396 pairs were almost in-line with the prior year. The doubling of the shoe manufacturing factory capacity for Zamshu is in progress as part of the turnaround strategy for the Zamleather business. The Capacity of the shoe plant is being doubled from 500 pairs per day to 1,000 pairs per day to be able to value-add all the cattle hides being processed into leather at Zamleather, with a view of attaining higher margin shoe products. The new shoe factory is expected to be commissioned in the 2020 financial period and will focus on increasing the supply of school shoes to the market. 18 Zambeef Products PLC Annual Report 201919 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Sustainability Report Zambeef takes a ‘triple bottom line’ approach to its sustainability Zambeef takes a ‘triple bottom line’ approach to the sustainability of its operations, to help deliver a positive economic, social, and environmental impact. We believe that economic sustainability is not simply our traditional corporate capital, but is measured by the impact our business has on its economic environment. We believe that our business’ sustainability is rooted in the economic and social success of the local economy. We believe that we can deliver positive financial results whilst concurrently delivering sound social and environmental performance. Zambeef is committed to providing a safe and healthy workplace for its employees and contractors, protecting the environment and being a responsible corporate citizen in the communities in which it operates. This commitment is enshrined in our Environmental & Social and Health, Safety & Welfare Policies. Zambeef upholds the principles set out in the International Finance Corporation Performance Standards on environmental and social sustainability. The Board of Directors provides oversight through the Environmental and Social Committee. Through this committee, the Board provides strategic advice and guidance regarding systemic and strategic environmental and social issues. The committee ensures that the Company has adequate and robust systems in place for monitoring the environmental, health and safety and social management and performance, in accordance with applicable legislation and Good International Industry Practice (“GIIP”). Zambeef has an Environmental and Social Action Plan (“ESAP”) that has been agreed on with its development finance partners to help ensure continuous performance improvement at an operational level. The committee also monitors the adequacy of the resources devoted/allocated to the implementation of the ESAP. Zambeef has a dedicated environmental and social corporate team of ten people, dedicated to the compliance and improvements in the operational Divisions. Across business activities, there are 25 people who are dedicated to environmental and social activities at the operational level. Environmental performance Zambeef aims to work towards international good practice, by implementing a process of continual improvement in environmental and social management. During the year under review, the Company submitted five Environmental Project Briefs (EPB) to the Zambia Environmental Management Agency (ZEMA), as governed by Statutory Instrument No. 28 of 1997 ‘Environmental Impact Assessments Regulations’ read together with the Environmental Management Act (EMA) No. 12 of 2011. The underlisted projects were allowed by the ZEMA Board; 20 Zambeef Products PLC Annual Report 2019 1. Replacement of old incinerator at Huntley processing complex with 600 kg/hour animal incinerator unit whose emissions are compliant with EU standards. 3. 2. Construction of new shoe/footwear factory by Zamleather near the Head Office premises. Installation of 22,500 ground diesel tank at Masterpork. Installation of 39,000 litre above ground diesel tank at Novatek Lusaka plant. litre above 4. Zambeef carried out several other upgrades in improving environmental compliance. its operations aimed at Social performance Zambeef continues its social investments to meet the United Nations Sustainable Development Goals (UN SDGs). to align Inclusive business model: Zambeef believes it continues to source the bulk of its raw inclusivity, consequently, in from rural communities materials in Zambia. 100% of the beef processed by the business is sourced from local farmers, 85% of the pork handled by Masterpork is externally supplied from local farmers. Out- growers supply 70% of the broiler chickens processed by Zamchick. 85% of the maize used at Novatek Animal Feeds is externally supplied, predominantly by small scale rural farmers. This strong linkage to rural based suppliers helps fight poverty in these otherwise communities, excluded’ ‘economically meeting the aspirations of UN SDG 1, of ‘ending poverty in all its forms everywhere’. Community engagement: Zambeef continues engaging with neighbouring communities in the areas where we operate. Consultations are held on a regular basis and every time developmental projects are initiated at company sites. Zambeef fully complies with IFC PS 5 in all its land related engagements. Support to vulnerable communities/ groups through foodstuff donations: The Company renders support to the vulnerable care (hospices/hospitals, orphanages, homes) through donations of foodstuffs. This is done on a weekly or monthly basis, for those institutions with adequate storage facilities. There are currently 21 institutions hosting vulnerable people that the company supports through the food supply program. This gesture by the Company aligns strongly with UN SDG 2, whose main aspiration is to ‘end hunger, achieve food security and improve nutrition ….’ Support to educational and health- care institutions: Zambeef continues to fund educational and healthcare institutions. This includes institutions like Mpongwe School and the nearby medical clinic, wholly owned by the company, where teachers, teaching aids, healthcare workers, equipment and facilities are fully funded by the Company. Zambeef Products PLC Annual Report 2019 21 CorporategovernanceFinancialstatementsOverviewStrategicreportSustainability report continued to The Mpongwe expenses amounted US$165,000.00 in the year under review. The company also supports community/ schools and healthcare government institutions the communities where it operates. These company activities align with UN SDG 3 and 4, whose aspirations are to ‘ensure located in healthy lives and promote well-being for all at all ages’ and ‘ensure inclusive and equitable quality education and promote lifelong for all’, learning opportunities respectively. Zambeef also supports a number of traditional sporting ceremonies and activities. Economic performance Zambeef is a significant contributor to the country’s economic activities, with a turnover of more than 1% of the national GDP. elite Million Dollar Club of leading exporters. Skills development • The Group is fully committed to developing and training its employees at all levels. During the year, specific trainings in food safety, occupational health and safety and, safe handling of hazardous materials (asbestos, chemicals) were offered to employees. The Group’s continual reinvestment in human resources has resulted in many senior positions being held by Zambians. Food security • Zambeef plays a pivotal role in the national food security of Zambia, ensuring that the country has sufficient capacity to feed its growing population as well as a surplus for export to help feed neighbouring countries. The company produced over 120,280 metric tonnes of grains (50,380 MT of wheat, 44,400 MT of Soya beans and 25,500 MT of maize) in the year under review. Employment • Zambeef continues to be one of the largest employers in the country, with an average of 7,407 staff, 14.5 % of whom are women. Over 99.5% of employees are Zambian. The Group’s cropping division provides significant employment to rural communities, where poverty levels are higher than in urban areas. • • • • • Most of Zambeef’s raw material suppliers are located in, and provide employment to communities in rural areas. Taxes The Group is a significant contributor to government revenues. Local capital markets • A significant percentage of the Group’s shareholding is owned by local institutional investors and pension funds, including the National Pension Scheme Authority (NAPSA), which means every working Zambian has a stake in the Company. Export Earnings • The Group is a member of the Zambia Development Agency’s 22 Zambeef Products PLC Annual Report 2019 Building a nation 23 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 201924 Zambeef Products PLC Annual Report 2019Corporate Governance 25 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Corporate governance High ethical standards in the conduct of business, and a verifiable framework of corporate governance policies and procedures, underpin all Zambeef’s decision-making and management. that the current Directors, annual updates on its compliance with the QCA Code in its Annual Report and website (www.zambeefplc.com). Board of Directors The Board is responsible for the performance and direction of Zambeef, through the establishment of strategic objectives and key policies, as well as approving major business decisions, in accordance with its charter. The Board comprises 13 directors, of whom ten are Non Executive Directors, and three are Executive Directors. Seven Non-Executive Directors are considered to be independent by the Board in terms of the guidelines prescribed in the QCA Code. They are Dr Jacob Mwanza, Dr Lawrence Sikutwa, John Rabb, Margaret Kunda Chalwe Mudenda, Prof. Enala Lyson Tembo-Mwase,Michael Mundashi, and Jonathan Andrew Kirby. Details of their roles and background are set out in the Company’s website at zambeefplc.com its overall The Board believes is appropriate, with no composition individual or group dominating the decision-making process, and with a good balance between knowledge, experience and independence. The role of Chairman is a separate role and position from that of the Chief Executive Officer. The Chairman is considered to be independent. The role of the Chairman is to provide leadership to the Board and ensure its effectiveness on all aspects of its remit, in addition in to providing corporate governance implementation and practice. The role of the Chief Executive Officer is the the strategic development of Group and its clear communication to the Board, and once approved by the Board, its implementation. In addition, the Chief Executive Officer is responsible for overseeing the management of the Group and its executive management. Interaction with Stakeholders un- der QCA Application Zambeef shareholder meetings, formally through annual AGMs (and EGMs where required) and informally leadership several has the principles Zambeef Products PLC (“Zambeef” or the “Company”) values excellence in corporate governance, and that enhance openness, integrity, transparency and accountability. High ethical standards in the conduct of business, and a verifiable framework of corporate governance policies and procedures, underpin all Zambeef’s decision-making and management. The Board of Directors believes that good corporate governance must be demonstrated and verifiable. This fosters trust and confidence in the management of our business, among all our stakeholders. that complies with Exchange Corporate Governance codes The Board has a Corporate Governance Code the Lusaka Securities (LuSE) Corporate Governance Code. Further to this, it has formally adopted the Quoted Companies Alliance QCA Corporate Governance Code (“QCA Code”) on a ‘comply or explain’ basis, as required by the AIM Rules for Companies. The Chairman of the Board acknowledges his leadership role and responsibility in promoting good corporate governance for Zambeef. The Board is confident that it is applying the QCA Code across the main areas of delivering growth, maintaining a dynamic management framework and building trust. The Company will provide 26 for through biennial, quarterly or monthly institutional shareholders. meetings Shareholders’ views are shared in an open and frank manner, with senior management taking due note of their concerns. The Board believes that this has proved successful as their views have fed into the current corporate strategy. The CFO, CEO, and Deputy Managing Director meet and conduct formal result presentations with shareholders on a biannual basis in Zambia, South Africa and the UK. The Group publishes the outcome of all shareholder resolutions immediately after each AGM/EGM. As required under the AIM Rules, Zambeef maintains all market announcements and Annual Reports on its website for the last 10 years. The Zambeef business model has identified and understands importance of maintaining strong working relationships with: • key small-scale suppliers across grains and livestock; larger commercial raw material/input suppliers and livestock suppliers; • wide customer base across stockfeed, cold chain food products, and other products; regulators such as the Zambia Environmental Management Agency (ZEMA), Patents and Companies (PACRA), Registration Water Resources Management Agency (WARMA), Lusaka Securities Exchange Securities and Exchange Commission (SEC), and AIM Nominated Advisor; financiers; and social communities. responsibility partners Agency (LuSE), • • the in • • Their feedback is received through face- to-face meetings, customer care hotlines, technical advisor meetings and written communication. In the case of customer feedback, products have been developed in to the stockfeed division according customer for example. Product improvement programmes have been adopted in production of certain cold requirements, Zambeef Products PLC Annual Report 2019of standards chain food products based on customer feedback. Corporate Governance in Action Being listed on exchanges in both Lusaka and London, the Company is required to comply with LuSE code and the QCA code. The UK Corporate Governance Code does not apply to companies floated on AIM, the market on which Zambeef is listed. For the purposes of being listed on AIM, the Company has agreed to maintain appropriate corporate governance. In this regard, and bearing in mind the size and scale of the operations of the Company, the Company has used the QCA Code and the earlier QCA guidelines as the base of its corporate governance standards. Further and where appropriate, the Company has introduced features from the UK Corporate Governance Code. The Company’s corporate governance practices were put all together in the Corporate Governance Handbook that was approved by the board in September 2019. In doing this, the Company has had regard to the provisions contained in the Articles of Association and Investment Agreement. The Handbook will be updated from time- to-time as necessary. The Handbook contains aspects: - - - - - - - - - - Share Dealing Code Disclosure Policy AIM Rules Compliance Policy LuSE Listing Rules Compliance Policy Anti-Corruption and Bribery Policy Social Media Policy Related Party Transactions Policy Delegation of Authority Board Charter Terms Remuneration Committee Terms of Reference for the Audit and Risk Committee Terms of Reference for the AIM and MAR Compliance Committee Terms Environmental and Social Committee the Succession Reference and Reference following - - - the the for for of of - Memorandum on Inside Information and; Group Code of Ethics - Some of the above mentioned policies are outlined below: Risk Management An effective Group Risk Assessment/Risk Management tool, based on recommended best practice and regular inputs from senior management, is formally reviewed on a quarterly basis. Formal risk assessments are carried out at group level, and are carried out per company and division, in conjunction with respective Heads of Business Units/ General Managers, every quarter. This provides the Audit and Risk Committee and directors with regular updates and mitigating action plans for all the major risks facing the Group. The Group risk assessment is used by the Board to execute and deliver strategy. For example, the Group risk assessment has highlighted foreign exchange and interest rate risks as high-impact risk areas, and this has been noted in the Company’s debt reduction and efficient cash management strategy, which forms part of the current business plan and corporate strategy. Assurance is gained from Internal Audit. its framework/ Internal Audit The dedicated and independent Internal function, operating under an Audit Internal Audit Charter, reports directly to the Audit Committee of the Board, independence and to maintain objectivity. It independently reviews and monitors governance processes, the risk management processes, related mitigating action plans and implemented by Management. It also provides objective assurance of the operation and validity of the systems of its regular compliance audit programmes, making recommendations improvement as for required. The Board requires competitive bidding for significant purchases and contracts, above determined thresholds, through a formal Board-approved Delegations of Authority policy that covers the Board and senior management. internal control through Share Dealing Code The Company has adopted a share-dealing code for dealings in shares by Directors and senior employees that is appropriate for an AIM-listed company. The Directors ensure that they comply with Rule 21 of the AIM rules for Companies relating to Directors’ dealings and take all reasonable the to ensure compliance by steps Company’s relevant employees, including obtaining the advice and opinion of its AIM Nominated Advisor. In compliance with the Market Abuse Regulation (MAR),the Directors during the year appointed Non- Executive Director Margaret Mudenda as the person responsible for share dealings by the Directors, assisted by the Company Secretary as the Compliance Officer. Incident Reporting, Anti Bribery/ Corruption, and Whistleblowing policies and procedures The Company has detailed policies and (CDC), reports procedures covering Incident Reporting, Anti Bribery and Corruption (“ABC”), and Whistleblowing. The Group’s ABC programme has been formulated in conjunction with CDC Group PLC international following best practice. It is well structured, documented and rigorously monitored. There is a dedicated internal Whistleblowing Manager, managing and complaints. These complaints can be made in various forms, and anonymously, without fear of adverse consequences. This policy has active senior management encouragement and has had widespread communication within the Group, with a verifiable and transparent process of handling complaints. This has resulted in valuable information being obtained for further action. Internal Audit closely monitors, reviews and reports on all of these policies to the Audit and Risk Committee of the Board. to achieve the organisation Group Code of Ethics and Conduct The Company has implemented, and widely disseminated to all stakeholders including suppliers, a Group Code of Ethics and Conduct, in line with the LuSE Corporate Governance Code section on Organizational Integrity. This Code of Ethics covers the important principles and more detailed ethical guidelines, with respect to responsibility, accountability, transparency, and fairness. The Board firmly believes that a culture based on ethical values and behaviour is cardinal to achieving Zambeef’s objectives. Without sound ethical behaviour, it would be difficult for stakeholders to retain trust in these objectives. The expected behaviours are clearly detailed in the Group Code of Ethics. The Board monitors, via its Audit and Risk Committee, that management have widely disseminated the Group Code of Ethics among all stakeholders. The Audit and Risk Committee of the board has the remit to review any cases of ethical misconduct against directors or senior management. Such cases may be reported through the Group’s Whistleblowing Policy, incident reporting, or direct reports to the Audit Committee or Board. Monitoring of compliance further provided by the internal audit department’s review work on from disciplinary proceedings, management and staff conflict of interest reports, control procedures and anti-corruption and bribery matters. In the Board’s opinion there have been no significant ethical issues noted and it believes that the corporate culture, as a incident reports the Code to is 27 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Board engagement The attendance by the Directors during the year was as follows: Main Board Audit and Risk E&S Remuneration Non-Executive Dr. Jacob Mwanza Dr. Lawrence Sikutwa John Rabb David Osborne Yollard Kachinda Margaret Mudenda Enala Mwase Frank Braeken Micheal Mundashi # Jonathan Kirby Executive Francis Grogan Faith Mukutu # Walter Roodt # Danny Museteka A 5 5 5 5 5 5 5 5 1 5 5 1 2 5 B 5 4 4 5 2 5 3 5 1 5 5 1 2 5 A - 4 - 4 - 4 - - 4 - - - 4 B - 4 - 3 - 3 - - 4 - - - 4 A - - 4 4 - - 4 - - - 4 - - 4 B - - 4 3 - - 3 - - - 4 - - 4 A - - 3 3 3 3 - 3 - 3 - - - 3 B - - 3 - 2 3 - 3 - 3 - - - 3 Notes # Director joined during the year A indicates the number of meetings held during the period in which the Director was a member of the Board and/or Committee. B indicates the number of meetings attended during the period in which the Director was a member of the Board and /or Committee. whole, is healthy. Board evaluation Every year the Board undertakes a self- assessment of its performance, based on its Charter’s objectives, with the Company Secretary collating and reporting on the findings from each Board member. Board evaluation details and updates are provided in the Annual Report and website. Areas covered include: • Management of Board meetings and the self-assessment in Board and internal discussions; External relationships; Skills of Board members; Reaction to events; Chairman; Chairman and CEO relationships; contribution Attendance and meetings; Open channels of communication; Risk and Control frameworks; Composition; Terms of reference; Committees of the Board; Company Secretary; Timeliness of information; Board agenda; • • • • • • • • • • • • • • • • • • AGM; External stakeholders; Induction and training and Succession planning. Board committees During the year, the Board reconstituted the three principal standing committees, led by a chairman who is a Non-Executive Director in each instance, and with written terms of reference. The terms of reference are in line with recommended best practice for AIM-quoted companies under the QCA code, and also per requirements from co- operating partners. Remuneration and Succession Committee Chairman - David Osborne Members Yollard Kachinda, Jonathan Kirby, Margaret Mudenda and Frank Braeken in Responsibilities: • To regularly review the structure, size, knowledge, experience and diversity of the Board, as well as the sub- committees of the Board, and make recommendations to the Board with regard to changes. • • • • for To be responsible identifying, evaluating and nominating for the approval of the Board, candidates to fill Board vacancies, as and when they arise. To give full consideration to succession for Directors and other planning senior executive management, and in particular, for the key roles of Chairman and Chief Executive Officer of the Company. The appointment of CEO and directors can only be made following a formal, rigorous assessment by this committee and its formal recommendations being made to the Board, having also evaluated the balance of skills, knowledge, experience and diversity on the Board. To determine and agree with the Board the framework or broad policy for the remuneration of the Chief Executive, the Chairman of the Board, the Executive Directors, the company secretary, and such other members the executive management of of the Group to whom the Board has extended the remit of the committee. In determining the remuneration policy, take into account all factors which it deems necessary including relevant 28 Zambeef Products PLC Annual Report 2019  of ensures committee legal and regulatory requirements, the provisions and recommendations of the QCA Code and associated guidance. The objective of this policy shall be to ensure that executive management the Group are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Group. clear, The the reporting transparent Remuneration Committee’s agreed fees and for both remuneration, the executive directors and non- executive directors, formal Report of the Directors in the Annual Report. This requires formal approval by the shareholders in an AGM. The Chairman ensures he is available to answer any questions/comments put forward by the shareholders in the AGM regarding directors’ fees and remuneration. Perform evaluations of the Board, their Board constituents), and recommend training where necessary. Committees (and the of in • • • Monitor and the the LuSE of corporate governance matters in accordance with relevant frameworks including Corporate Governance Code and the QCA Code. reports review and function of the internal audit department, its own charter, which requires systematic evaluation of the effectiveness of risk management, control, compliance and governance processes for the Group. line with in • Monitor and the reports review of the external auditors and their performance. At least once a year, the members of the committee should meet the external auditors without the presence of any Executive Director. The committee should also consider and make recommendations to the Board, to be put to shareholders for approval at the Annual General Meeting, as regards the appointment and/or the reappointment company’s external auditor. of • • • Monitor the ethical conduct of the Company, its executives and senior officials. Environmental and Social Committee • Audit Committee Chairman - Lawrence Sikutwa Members Margaret Mudenda, David Osborne and Jonathan Andrew Kirby Environmental and Social Committee Chair - Professor Enala Lyson Tembo- Mwase Members John Rabb and David Osborne and advisor co-opted Independent member- Hastings Mtine (QCA Code principle 6: He has extensive experience as a Chartered Accountant in the fields of financial reporting, external audit, internal audit, corporate governance and risk management gained in public practice as well as on various corporate boards. He is a former Senior Partner for KPMG Zambia. He provides a detailed review and advisory service to the Audit Committee across each of these areas.) • Responsibilities: • the to ensure integrity of The primary role of the audit committee is the financial reporting and audit process, including review of the interim and annual financial statements before they are submitted to the board for final approval. sound risk To ensure internal control management and system is maintained as well as reviewing the system for monitoring compliance with applicable laws and regulations. To give due consideration and review that a • • Responsibilities: • (“E&S”) Provide strategic advice and guidance to the Board in relation to systemic and strategic environmental and issues which affect social the Company’s business model and strategy. Ensure that the Company has in place adequate and robust systems, policies and procedures for monitoring the E&S management of the Company, applicable in accordance with legislation and Good International Industry Practice (“GIIP”), defined by IFC Performance Standards. • • Monitor the implementation of the Environmental and Social Action Plan and any corrective action plans that may be developed in due course. Oversee any Company investigations relating to breaches of E&S laws, regulations and standards and/or the Company’s E&S policies, management systems and plans. Ensure good corporate citizenship through equality, prevention of unfair discrimination and reduction of corruption. promotion of • • Ensure contribution to development of the communities in which its activities are predominantly conducted, or within which its products or services are predominantly marketed. Directors’ interests in other companies In compliance with Section 110 of the Companies Act of Zambia, all Directors are required to declare to the Board their interests in other companies, and this is taken into account in the event that any such company enters into any contract with any Group company. The Group has a Related Parties Transactions policy which aims to ensure transparency in related party transactions as well as appropriate management of any approved transactions. Directors’ shareholdings In compliance with Sections 30, 110 and 195 of the Companies Act of Zambia, all Directors are required to disclose their shareholdings in the Company and any related companies. Company Secretary The Board appoints the Company Secretary, and all Directors have access to his services. If deemed necessary, the Board may seek independent professional advice on some matters. • The Company Secretary ensures the following: Sufficient and timeous information is provided to all the Directors prior to Board and sub-committee meetings. Promotion Corporate of Good Governance, and related frameworks and standards. Good relations and liaison with the Security and Exchange Commission (SEC), the Lusaka Securities Exchange (LuSE), and Patents and Companies Registration (PACRA). • • • • Maintenance of statutory registers. • Key liaison for investors and contact point for shareholders. Providing updates on relevant statutory amendments and developments. • During the year, the Board constituited a Search Committee, the mandate of which was to search, interview and recommend to the Board a suitable candidate to replace Dr Jacob Mwanza, who is due to retire on December 31, 2019. The Committee was comprised of Dr Jacob Mwanza, Frank Braeken, John Rabb, Prof. Enala Mwase, Margaret Mudenda and Yollard Kachinda. Over a period of six months, the Committee interviewed various individuals and elected to nominate Mr Michael Mundashi as a suitable candidate to replace Dr Mwanza. 29 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Board of Directors Francis Grogan (age 58) CEO Nationality: Irish Walter Roodt (age 43) Deputy Managing Director Nationality: Namibian Faith Mukutu (age 39) Chief Financial Officer Nationality: Zambian Qualifications: BSc Agriculture (Ireland) Experience: Over 22 years’ experience in agriculture and meat, both in Ireland and Zambia. Co-founder of Zambeef. External appointments Other directorships include Chisamba Ranching and Cropping Ltd, Fraca Meat Company Ltd and Tractorzam Ltd. Qualifications: BSc. (Agric.) Animal Science (University of Pretoria, RSA); MSc. (Agric.) Nutrition Science (University of Pretoria, RSA); Senior Executive Programme (London Business School, UK) Experience: Over 15 years of experience in Agriculture in Southern Africa. External appointments: Director of City Dental Ltd. Qualifications: A.C.C.A. (Chartered Certified Accountant) – Zambia Centre for Accountancy Studies, Zambia; Certified Accounting Technician – Zambia Centre for Accountancy Studies, Zambia Experience: Over 15 years experience in senior finance positions of major corporates, including Zambia Sugar Plc and Zambian Breweries (part of SABMiller Group) External appointments Current directorships include: Bayport Financial Services Ltd; National Breweries Plc. John Rabb (age 76) Non-Executive Director Nationality: South African Qualifications: BSc (Agriculture) MBA (RSA). Experience: Over 30 years’ business management experience. Formerly Managing Director of the Wooltru Group in South Africa, which was listed on the Johannesburg Stock Exchange. External appointments Has served on, and is currently serving on, several boards, including Wellspring Ltd. Margaret Chalwe-Mudenda (age 47) Non-Executive Director Nationality: Zambian Qualifications: LLB (University of Zambia); postgraduate diploma in legislative drafting (Zambia Institute of Advanced Legal Education); LLM in Information Technology and Telecommunications (Southampton University, UK). Experience: Over 10 years’ legal experience including finance, banking and labour law. Over seven years’ experience in ICT and telecommunications. Former Director General of Zambia Information and Communications Authority. External appointments Currently serving on the Boards of Madison Financial Services Plc, Medical Stores Ltd and MCK Legal Practitioners. Prof. Enala Tembo- Mwase (age 60) Non-Executive Director Nationality: Zambian Qualifications: BSc Biological Sciences (University of Zambia) MSc Medical Parasitology (University of London, UK) PhD in Zoology – Entomology (University of London, UK) Experience: Over 30 years’ research and teaching experience. Associate Professor at University of Zambia. A founding member of the Zambia Association of Women in Science and Technology. Has previously served on a number of boards and technical committees. External appointments Deputy Vice Chancellor of University of Zambia (UNZA) Dr. Jacob Mwanza (age 83) Non-Executive Chairman Nationality: Zambian Qualifications: PhD (Cornell University, (USA) MA Economics (W. Germany). Experience: Over 30 years’ business management experience, both in the public and private sectors. Previously Governor of the Bank of Zambia, currently Chancellor of the University of Zambia. External appointments Has served and is currently serving on several boards, including IMF Advisory Group on Sub-Sahara African Economic and Social Affairs, Pangaea Securities, David Shepard Foundation and Kafue Sanctuary. 30 Zambeef Products PLC Annual Report 2019Yollard Kachinda (age 56) Non-Executive Director Nationality: Zambian Dr. Lawrence Sikutwa (age 65) Non-Executive Director Nationality: Zambian Qualifications: BSc (Ed.) Mathematics and Statistics (University of Zambia) MSc Social Protection Financing (Maastricht University, Netherlands) Qualifications: MBA FCII Post Grad Diploma in Insurance (UK). Honorary doctorate (University of Lusaka) Experience: Over 25 years’ experience at the Zambian National Pension Scheme Authority (NAPSA), Zambeef’s biggest local shareholder. Experience: Over 30 years’ experience in business management. Previously General Manager of Zambia State Insurance Corporation Limited. External appointments Director General of NAPSA. Currently serving on the Board of Trustees of NAPSA Lusaka Trust Hospital Staff Pension Scheme. External appointments Currently Chairman of Lawrence Sikutwa Associates Ltd Group of Companies. Jonathan Kirby (age 57) Non-Executive Director Nationality: South African Qualifications Bachelor of Accounting (University of the Witwatersrand, RSA) Higher Diploma in Tax Law (Rand Afrikaans University, RSA) CA (RSA) Experience: Over 30 years’ business management and banking in London, Hong Kong, Singapore and South Africa. Previously Vice President (Finance) of AB Inbev Africa and CFO of SABMiller Africa. External appointments Currently on the board of Delta Corporation, Zimbabwe and Consol Holdings (Pty) Ltd, South Africa. David Osborne (age 55) Non-Executive Director Nationality: British Frank Braeken (age 59) Non-Executive Director Nationality: Belgian Michael Mundashi (age 61) Non-Executive Director Nationality: Zambian Qualifications: Cambridge University; Trinity College (Natural Sciences). Experience: Over 30 years’ investment experience in private equity and infrastructure in UK, Europe, Africa and Asia. Previously Managing Partner and Head of the Islamic Infrastructure Fund at CapAsia. External appointments Director of Direct Equity Team and Head of Portfolio Management with CDC Group PLC. Qualifications: MBA in Finance (Leuven University, Belgium) Degree in Law with major in Corporate Law (Catholic University Lueven, Belgium) Adavanced Management Program (Wharton Penn University, USA) Experience: Over 30 years of experience in the Fast-Moving Consumer Goods (@FMCG@) industry. Previously head of Unilever Africa and Chief Investment officer of Amatheon Agri Holding External appointments Currently serving on the boards of Feronia Inc., Buhler AG, Alliance for a Green Revolution in Africa, F.M.B BWC- LLC, Marie Stopes International and Seven Hills Ranch Limited. Qualifications: Bachelor of Laws Degree (University of Zambia); Post Graduate qualification as an Advocate of the High Court of Zambia Experience: Over 30 years post qualification experience in both the public and private sectors. Served as Chairman of the Zambian Tax Appeals Court and as Independent Non- Executive Chairman of Standard Chartered Bank Zambia Plc. External appointments Currently serving as Chairman of British American Tobacco Zambia Plc and Sanlam Insurance; Director of Nico General Insurance. Also, full time Managing Partner of the law firm of Mulenga Mundashi Legal Practitioners. 31 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Report of the Directors In compliance with Section 275 of the Zambian Companies Act, the Directors submit their report on the activities of the Group for the year ended 30 September 2019. 1. Principal activities Zambeef Products PLC and its subsidiaries (“The Group”) is one of the largest agri-businesses in Zambia. The Group is principally involved in the production, processing, distribution and retailing of beef, chicken, pork, milk, dairy products, eggs, edible oils, stock feed and flour. The Group also has large row cropping operations (principally maize, soya beans and wheat), with approximately 7,973 Ha of row crops under irrigation and 8,776 Ha of rain-fed/dry-land crops available for planting each year. The Group also has operations in West Africa in Nigeria and Ghana. 2. The Company The Company, Zambeef Products Plc, is a public limited company incorporated and domiciled in Zambia. Business address Plot 4970, Manda Road Industrial Area Lusaka ZAMBIA Postal address Private Bag 17 Woodlands Lusaka ZAMBIA 3. Share capital Details of the Company’s authorised and issued share capital are as follows: Authorised 700,000,000 ordinary shares of ZMW0.01 each 7,000 938 7,000 938 30 September 2019 30 September 2018 ZMW'000s USD'000s ZMW'000s USD'000s Issued and fully paid Ordinary shares 300,579,630 of ZMW0.01 each Preference shares – Convertible Redeemable 100,057,658 of ZMW0.01 each 4. Results The Group’s results are as follows: Group Revenue Profit before taxation Taxation charge Loss from discontinued operation Group profit for the year Group profit/(loss) attributable to: Equity holders of the parent Non-controlling interest 3,006 1,000 449 100 3,006 1,000 449 100 2019 2019 2018 2018 Note ZMW’000s USD’000s ZMW’000s USD’000s 5 10 3,134,967 254,462 2,780,589 280,301 38,653 (2,780) (17,379) 18,494 18,100 394 18,494 3,138 (226) (1,411) 1,501 1,469 32 1,501 28,011 (4,257) (13,261) 10,493 10,601 (108) 10,493 2,823 (429) (1,337) 1,057 1,068 (11) 1,057 32 Zambeef Products PLC Annual Report 2019 5. Dividends There has been no dividend proposed for the year ended 30 September 2019 (2018: ZMW nil). 6. Management The senior management currently comprises: Francis Grogan Walter Roodt Faith Mukutu Mike Lovett Danny Museteka Yusuf Koya Felix Lupindula Pravin Abraham Ebrahim Israel Murray Moore Lewis Potgieter Robert Hoskins Davies Francis Mondomona Richard Franklin Harry Hayden-Payne Mathews Ngosa Willem Abraham Vorster Alun Maskell Christian Engelbrecht Theo de Lange Bartholomew Mbao Lenard Mwanamumbula Charles Milupi Ivor Chilufya Justin Rust Basil Webber Phillip Diedericks Niyaas Dalal Simon Nkhata Winston Magutswi Baron Chisola Shadreck Banda Chizola Daka Gbenga Ibitoye Caroline Mulaga Anthony Seno Mathews Mbasela Eddie Tembo Jones Kayawe Field Musongole Ernest Gondwe Francis Mulenga Noel Chola Rodgers Chinkuli Hillary Anderson Lufeyo Nkhoma Clement Mulenga - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Chief Executive Officer Deputy Managing Director Chief Financial Officer Chief Operating Officer Company Secretary Group Head – Banking & Administration Corporate Affairs Manager Chief Internal Auditor General Manager – International Retailing General Manager – Beef and Dairy General Manager – Sinazongwe Farm General Manager – Chiawa Farm General Manager – Huntley Farm General Manager – Zamleather Limited General Manager – Zampalm Limited General Manager – Zam Chick Limited, Zamhatch Limited General Manager – Dairy General Manager – Masterpork Limited General Manager – Stock Feed Group Technical Manager Dairy Processing Manager Piggery Manager Poultry Manager Group Financial Controller Commercial Manager Commercial Manager Commercial Manager Finance Manager – Zambeef Products Plc, Zam Chick Limited, Zamhatch Limited Finance Manager – Zambeef Retailing Limited Finance Manager – Masterpork Limited Finance Manager – Zamleather Limited, Zampalm Limited, Group Inventory Financial Controller – Group Fixed Assets Financial Controller – Group Suppliers Financial Controller – West Africa Group Head – Debtors and Credit Control Head of IT Head of Payroll Processing Chief Security Manager Head of Environment, Health and Safety Maintenance Manager Regional Manager – Shoprite & Excellent Meats Regional Manager – Shoprite Regional Manager – Shoprite Regional Manager – Zambeef Outlets National Retail Manager - Shoprite General Manager – Master Meats Ghana General Manager – Master Meats Nigeria 33 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019 Report of the Directors continued 7. Directors and Secretary The Directors in office at the financial period and at the date of this report were as follows: Chairman Dr. Jacob Mwanza Dr. Lawrence S. Sikutwa Non-Executive Director Non-Executive Director John Rabb Yollard Kachinda Non-Executive Director Non-Executive Director Prof. Enala Mwase Non-Executive Director David Osborne Margaret Mudenda Non-Executive Director Non-Executive Director Jonathan Kirby Frank Braeken Non-Executive Director Chief Executive Officer Francis Grogan Executive Director (Resigned on 4 February 2019) Yusuf Koya Executive Director (Appointed on 5 February 2019) Walter Roodt (Appointed on 11 September 2019) Michael Mundashi Faith Mukutu (Appointed on 11 September 2019) Company Secretary Danny Museteka - - - - - - - - - - - - - - - 8. Directors’ Interests The Directors held the following interests in the Company’s ordinary shares at the reporting date: 30 September 2019 30-September-2018 Direct Jacob Mwanza (Dr) 1,399,629 Francis Grogan 995,000 John Rabb Yusuf Koya Frank Braeken - 245,482 375,000 3,015,111 Indirect - 3,596,631 14,000,000 - - 17,596,631 Direct 1,100,000 995,000 - 245,482 375,000 2,715,482 9. Directors’ fees and remuneration The Remuneration Committee has agreed the following gross annual packages. Salary Bonus Allowance Car Allowance Allowance Medicals Housing Air Fares Indirect - 3,596,631 14,000,000 - - 17,596,631 Long Term Incentive Plan 2 (Shares) ZMW NON-EXECUTIVE Jacob Mwanza Yollard Kachinda Margaret Mudenda Lawrence Sikutwa Enala Mwase Jonathan Kirby John Rabb Frank Braeken Michael Mundashi EXECUTIVE Francis Grogan Walter Roodt Faith Mukutu 946,461 296,774 341,521 325,991 296,774 341,521 356,131 296,774 200,000 - - - - - - - 6,235,869 4,734,496 2,583,413 575,040 301,669 - Danny Museteka 3,036,977 383,360 34 - - - - - - - - - - - - - - - - - - - - - - Company Car 584,640 Company Car Company Car - - - 584,640 - - - - - - Yes Yes Yes Yes - - - - - - - - - - Zambeef Products PLC Annual Report 2019 9. Directors fees and remuneration (continued) In October 2016, the Board approved a retirement package for the Chairman, Dr. Jacob Mwanza of USD330,000. An advance of USD110,000 was paid about the same time. The full payment was settled during the current financial year. In addition to the above, all Executive Directors are entitled to a gratuity of 10 per cent of their gross basic salary paid over the contract term. Further, the Board co-opted Mr. Hastings Mtine into the Audit Committee as an expert advisor. Mr. Mtine’s remuneration was ZMW168,690 for the year under review. The Long-Term Incentive Plan 2 (“LTIP 2”) had the following key terms/conditions: Exercise price: 15 pence; a) Structure: market value option shares (“Options”); b) 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 (this term/condition does not apply to the CEO under the JCEO LTIP Scheme) and d) Vesting period: three years from 2015 to 2018; exercisable by June 2018. e) The Options could only be exercised if Zambeef achieved the following targets: i) ii) iii) iv) v) If the share price reaches 40 pence, then 25 per cent. of the Options become exercisable. If the share price reaches 48 pence, a further 25 per cent. of the Options become exercisable. If the share price reaches 56 pence, a further 25 per cent. of the Options become exercisable. If the share price reaches 65 pence, the final 25 per cent. of the Options become exercisable. 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 or higher in the audited annual accounts immediately prior to the exercising of the options. vii) Zambeef generating free cash flows. viii) The Zambeef share price triggers set above were to be considered achieved if in the 14 days immediately prior to exercising the Options, the shares had traded continuously at not less than these prices for 14 days. The Options would be exercisable at any time for 2 years after the 3 year period from the issue of the Options have lapsed. The Options could only be exercised if the relevant executives were still employed by the Company. ix) x) The options lapsed in June 2018. There were no options granted or exercised during the reporting period. 10. Significant Shareholdings As at 30 September 2019, the Company has been advised of the following notable interests in its ordinary share capital: Investor Name CDC Group Plc M & G Investment Management Africa Life National Pension Scheme Authority (Zambia) Sussex Trust Eastspring Investment Artio Global Investors Rhodora Red Fort Partnership Current Position % of Shareholding 52,601,435 46,304,408 42,413,679 24,797,819 14,000,000 11,995,062 9,360,000 8,639,374 8,175,000 17.5% 15.4% 14.1% 8.2% 4.7% 4.0% 3.1% 2.9% 2.7% CDC Group Plc are also the holders of 100,057,658 convertible redeemable preference shares. These shares have four voting rights for every five preference shares held resulting in CDC having 34.85% of the voting rights. 35 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019Report of the Directors continued 11. Employees The Group employed an average of 7,407 (30 September 2018 – 7,555) employees and total salaries and wages were ZMW453.7 million (USD36.8 million) for the year ended 30 September 2019 (30 September 2018 – ZMW420.8 million [USD42.4 million]). The average number of persons employed by the Group in each month of the financial year is as follows: Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Headcount 7,166 7,023 7,132 7,379 7,744 7,488 7,491 7,361 7,511 7,643 7,508 7,434 12. Safety, Health and Environmental issues As part of some of the Group’s term loans, as well as the CDC Group PLC equity investment, the Group has 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 education and 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 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 effect on the financial position or profitability of the Company or any member of the Group. 14. Gifts and donations The Group made donations of ZMW2 million (USD0.165 million) (30 September 2018: ZMW2.6 million [USD0.259 million]) to a number of activities. 15. Export sales The Group made exports of ZMW46.5 million (USD3.8 million) during the period (30 September 2018: ZMW48.5 million [USD4.9 million]). 16. Property, plant and equipment Assets totalling ZMW113.8 million (USD9.2 million) were purchased by the Group during the period (30 September 2018 – ZMW144 million [USD14.5 million]). 17. Other material facts, circumstances and events The Directors are not aware of any material fact, circumstance or event which occurred between the accounting date and the date of this report which might influence an assessment of the Group’s financial position or the results of its operations. 18. Events since the Year-End There have been no significant events affecting the Group since the year-end. 19. Annual financial statements The annual financial statements set out on pages 47 to 114 have been approved by the directors. 20. Auditor In accordance with the provisions of section 257(1) of the Zambian Companies Act, the auditors, Messrs Grant Thornton, will retire as auditors of the Company at the forthcoming Annual General Meeting, and having expressed their willingness to continue in office a resolution for their re-appointment will be proposed at the Annual General Meeting. By order of the Board Danny Shaba Museteka Company Secretary Date: 6 December 2019 36 Zambeef Products PLC Annual Report 2019Statement Of Directors’ Responsibilities Section 265 of the Zambian Companies Act 2017 requires the Directors to prepare financial statements for each financial year which give a true and fair view of the financial position of Zambeef Products PLC and its subsidiaries and of its financial performance and its cash flows for the year then ended. In preparing such financial statements, the Directors are responsible for: • designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error; selecting appropriate accounting policies and applying them consistently; • • making judgements and accounting estimates that are reasonable in the circumstances; and • preparing the financial statements in accordance with the applicable financial reporting framework, and on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Zambian Companies Act 2017. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board of Directors confirm that in their opinion: (a) the financial statements give a true and fair view of the financial position of Zambeef Products PLC and its subsidiaries as at 30 September 2019, and of its financial performance and its cash flows for the year then ended; (b) at the date of this statement there are reasonable grounds to believe that the Group will be able to pay its debts as and when these fall due; and (c) the financial statements are drawn up in accordance with the provisions of the second schedule to Section 164 of the Companies Act and International Financial Reporting Standards. This statement is made in accordance with a resolution of the Directors. Signed at Lusaka on 6 December 2019 Dr. Jacob Mwanza Chairman Francis Grogan Chief Executive Officer 37 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 2019 Approval of annual Financial Statements The annual financial statements that appear on pages 47 to 114 were approved by the Board of Directors on 6 December 2019 and signed on its behalf by: Dr. Jacob Mwanza Chairman Signed in Lusaka on 6 December 2019 Fracis Grogan Chief Executive Officer Annual compliance certificate Pursuant to the requirements of schedule 18 to the rules of the Lusaka Stock Exchange, I the undersigned Danny Museteka being the duly appointed and registered Secretary certify to the Lusaka Securities Exchange that Zambeef Products Plc has during the twelve months ended 30 September 2019, complied with every disclosure requirement for continued listing on the Lusaka Stock Exchange imposed by the Board of the Exchange during that period. In addition, I hereby confirm that for the year ended 30 September 2019, the Company has lodged with the Registrar of Companies all such returns as are required by a public company in terms of the Zambian Companies Act 1994 and that all such returns are true and correct. Danny Museteka Company Secretary 6 December 2019 38 Zambeef Products PLC Annual Report 201939 CorporategovernanceFinancialstatementsOverviewStrategicreportZambeef Products PLC Annual Report 201940 40 Zambeef Products PLC Annual Report 2015 Zambeef Products PLC Annual Report 2019Financial statements 41 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019Report of the Independent Auditors to the Members of Zambeef Products PLC and its Subsidiaries Opinion We have audited the consolidated financial statements of Zambeef Products PLC (the ‘Company’) and its subsidiaries (the ‘Group’), which comprise the consolidated and separate statements of financial position as at 30 September 2019, and the consolidated statement of profit or loss and other comprehensive income, consolidated and separate statement of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements give a true and fair view of the consolidated and company financial position of Zambeef Products PLC as at 30 September 2019, and of its consolidated and company financial performance and its consolidated and company cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and the requirements of the Companies Act and the Securities Act of Zambia. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group and Zambeef Products PLC in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (IESBA Code) together with ethical requirements that are relevant to our audit of the financial statements in Zambia, and we have fulfilled our other ethical responsibilities in accordance with these Description of matter How the matter was addressed in our audit Valuation of biological assets The valuation of biological assets is determined through use of estimates and category of the animals. Due to the judgements required in arriving at biological assets values, the valuation of biological assets was considered a key matter. We counted the livestock at the year-end and engaged an expert to review the categorization and quality of the animals. We also measured the crop fields, checked the yields and engaged experts to check the quality of the crop. We also checked the valuations of biological assets. Classification, measurement and impairment of financial assets IFRS 9 was implemented during the financial year under review. The directors are required to review the classifications of assets and align the classifications to the requirements of the financial reporting standards. The directors also reviewed the fair valuations and impairment model. Due to the complex and subjective judgements required in estimating the timing and valuation of impairment and in estimating the fair value of assets, this was considered a key audit matter. Valuation of goodwill Goodwill amounting to K167 million (USD 12.6 million) was carried in the statement of financial position. Under IFRS, the Company is required to test the amount of goodwill for impairment at least annually. In case of impairment triggers, goodwill requires impairment testing as well. The impairment tests were significant to our audit due to the complexity of the assessment process and judgements and assumptions involved which are affected by expected future market and economic developments. 42 We reviewed the classification of the financial assets for compliance with the reporting standards. In considering the reasonableness of the impairment provision, we tested the aging of the outstanding receivables to determine those that were overdue. We further assessed their recoverability through testing of subsequent receipts. We challenged the cash flow projections included in the annual goodwill impairment tests. For our audit we furthermore critically assessed and tested the assumptions and methodologies used by management. Zambeef Products PLC Annual Report 2019Deferred tax assets The group has a significant amount of deferred tax assets, mainly resulting from net operation losses. The risk exists that future (fiscal) profits will not be sufficient to fully recover the deferred tax assets. The valuation of deferred tax assets is significant to our audit because the assessment process is complex and is based on estimates of future taxable income. In this area, our audit procedures included, among others, using our own tax specialists to assist us in assessing the appropriateness of the level of deferred tax asset balance recognized in the statement of financial position and reviewing management assumptions relating to projections of the deferred tax asset utilization. requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Information Other than the Financial Statements and Auditor’s Report Thereon Management is responsible for the other information. The other information comprises the information included in the Chairman’s report, Directors’ report, Chief Executive Officer’s review, Sustainability report and Corporate Governance Statements, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act and the Securities Act of Zambia and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Group’s and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group and/or the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s and Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • • • • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence 43 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019 obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and/or the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. • • We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements In our opinion, the financial statements of Zambeef Products PLC and its subsidiaries as at 30 September 2019 have been properly prepared in accordance with the Zambian Companies Act 2017, and the accounting and other records and registers have been properly kept in accordance with the Act. Grant Thornton Chartered Accountants Christopher Mulenga (AUD/F000178) Name of Partner signing on behalf of the firm Lusaka Date: 6 December 2019 44 Zambeef Products PLC Annual Report 201945 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201946 Zambeef Products PLC Annual Report 2019Consolidated Statement of Comprehensive Income For the year ended 30 September 2019 Group Revenue Net gain/(loss) arising from price changes in fair value of biological assets Cost of sales Gross profit Administrative expenses Other income Operating profit Share of loss equity accounted investment Exchange gains on translating foreign currency transactions and balances Finance costs Profit before taxation Taxation charge Group income for the year from continuing operations Loss from discontinued operations Group income for the year Group income attributable to: Equity holders of the parent Non-controlling interest Other comprehensive income: Items that will not be reclassified subsequently to profit or loss Exchange (loss)/gains on translating presentational currency Remeasurement of net defined benefit liability Total comprehensive (loss)/ income for the year Total comprehensive (loss)/ income for the year attributable to: Equity holders of the parent Non-controlling interest Earnings per share Basic earnings per share – continued operations Basic earnings per share – discontinued operations Total Basic earnings per share Diluted earnings per share Diluted earnings per share – continued operations Diluted earnings per share – discontinued operations Total Diluted earnings per share Note 2019 2019 2018 2018 ZMW’000s USD’000s ZMW’000s USD’000s 5 3,134,967 254,462 2,780,589 280,301 16(a) 10,284 835 (15,245) (1,537) (2,063,704) (167,509) (1,806,185) (182,075) 1,081,547 (920,771) 433 161,209 (3,036) (36,730) (82,790) 38,653 (2,780) 35,873 (17,379) 18,494 18,100 394 18,494 106,391 8,829 133,714 129,935 3,779 133,714 Ngwee 11.80 (5.78) 6.02 8.86 (4.34) 4.52 6 7 9 10 34 12 12 12 12 12 12 87,788 (74,738) 35 13,085 (246) (2,981) (6,720) 3,138 (226) 2,912 (1,411) 1,501 1,469 32 1,501 959,159 (841,319) 430 118,270 (742) (19,302) (70,215) 28,011 (4,257) 23,754 (13,261) 10,493 10,601 (108) 10,493 96,689 (84,810) 43 11,922 (75) (1,946) (7,078) 2,823 (429) 2,394 (1,337) 1,057 1,068 (11) 1,057 (10,553) 206,425 (46,089) 717 - - (8,335) 216,918 (45,032) (8,367) 32 217,297 (379) (45,021) (11) (8,335) 216,918 (45,032) Cents 0.96 (0.47) 0.49 0.72 (0.35) 0.37 Ngwee 7.90 (4.41) 3.49 5.92 (3.31) 2.61 Cents 0.80 (0.44) 0.36 0.60 (0.33) 0.27 47 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019Consolidated Statement of Changes in Equity For the year ended 30 September 2019 Issued share capital ZMW’000s Share premium ZMW’000s Preference share capital ZMW’000s Foreign exchange reserve ZMW’000s Revaluation reserve ZMW’000s Retained earnings ZMW’000s (i) In Zambian Kwacha Total attributable to owners of the parent ZMW’000s Non- controlling interest ZMW’000s Total equity ZMW’000s At 1 October 2017 3,006 1,125,012 1,000 72,227 1,252,142 445,090 2,898,477 (8,281) 2,890,196 Profit for the year Transfer of surplus depreciation Other comprehensive income: Exchange gain/ (loss) on translating presentational currency Total comprehensive income - - - - - - - - - - - - - - - 10,601 10,601 (108) 10,493 (23,418) 23,418 - - - 206,696 - - 206,696 (271) 206,425 206,696 (23,418) 34,019 217,297 (379) 216,918 At 30 September 2018 3,006 1,125,012 1,000 278,923 1,228,724 479,109 3,115,774 (8,660) 3,107,114 Profit for the year Transfer of surplus depreciation Other comprehensive income: Exchange gain/ (loss) on translating presentational currency Remeasurement of net defined benefit liability Total comprehensive income - - - - - - - - - - - - - - - - - - 18,100 18,100 394 18,494 (29,666) 29,666 - - - 103,006 - - - - 103,006 3,385 106,391 8,829 8,829 - 8,829 103,006 (29,666) 56,595 129,935 3,779 133,714 At 30 September 2019 3,006 1,125,012 1,000 381,929 1,199,058 535,704 3,245,709 (4,881) 3,240,828 48 Zambeef Products PLC Annual Report 2019Consolidated Statement of Changes in Equity (continued) For the year ended 30 September 2019 Issued share capital USD’000s Preference Share capital USD’000s Share premium USD’000s Foreign exchange reserve USD’000s Revaluation reserve USD’000s Retained earnings USD’000s (ii) In US Dollar Total attributable to owners of the parent USD’000s Non- controlling interest USD’000s Total equity USD’000s At 1 October 2017 449 100 185,095 (140,641) 177,978 76,759 299,740 (856) 298,884 Profit for the year Transfer of surplus depreciation Other comprehensive income: Exchange gains on translating presentational currency Total comprehensive income At 30 September 2018 Profit for the year Transfer of surplus depreciation Other comprehensive income: Exchange gains on translating presentational currency Remeasurement of net defined benefit liability Total comprehensive income At 30 September 2019 - - - - - - - - - - - - - - - 1,068 1,068 (2,361) 2,361 - (11) - 1,057 - (46,248) - - (46,248) 159 (46,089) (46,248) (2,361) 3,429 (45,180) 148 (45,032) 449 100 185,095 (186,889) 175,617 80,188 254,560 (708) 253,852 - - - - - - - - - - - - - - - - - - 1,469 1,469 (2,408) 2,408 - 32 - 1,501 - (10,859) - - - - (10,859) 306 (10,553) 717 717 - 717 (10,859) (2,408) 4,594 (8,673) 338 (8,335) 449 100 185,095 (197,748) 173,209 84,782 245,887 (370) 245,517 49 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019Company Statement of Changes in Equity For the year ended 30 September 2019 (i) In Zambian Kwacha At 1 October 2017 Profit for the year Transfer of surplus depreciation Other comprehensive income: Exchange gains on translating presentational currency Total comprehensive income At 30 September 2018 Profit for the year Transfer of surplus depreciation Other comprehensive income: Exchange gain on translating presentational currency Total comprehensive income At 30 September 2019 Issued share capital ZMW’000s Preference share capital ZMW’000s Share premium ZMW’000s Revaluation reserve ZMW’000s Retained earnings ZMW’000s Total equity ZMW’000s 3,006 1,000 1,125,012 917,897 511,607 2,558,522 - - - - 3,006 - - - - - - - - - 1,000 - - - - - - - - - 1,125,012 - - - - - 3,006 1,000 1,125,012 (27,562) 14,413 27,562 14,413 - - 217,367 217,367 (27,562) 890,335 - (28,183) - - (28,183) 862,152 259,342 231,780 770,949 2,790,302 4,225 28,183 - 92,385 124,793 4,225 - - 92,385 96,610 895,742 2,886,912 50 Zambeef Products PLC Annual Report 2019 Company Statement of Changes in Equity For the year ended 30 September 2019 Issued share capital USD’000s Preference share capital USD’000s Share premium USD’000s Revaluation reserve USD’000s Foreign exchange reserve USD’000s Retained earnings USD’000s Total equity USD’000s 449 100 185,095 122,600 (120,385) 76,725 264,584 - - - 1,453 3,904 1,453 - - (ii) In US Dollars At 1 October 2017 Profit for the year Transfer of surplus depreciation Other comprehensive income: Exchange gain on translating presentational currency Total comprehensive income - - - - - - - - - - - - - - - At 30 September 2018 449 100 185,095 Profit for the year Transfer of surplus depreciation Other comprehensive income: Exchange gain on translating presentational currency Total comprehensive income - - - - - - - - - - - - - - - - (3,904) - - (3,904) 118,696 - (2,288) - - (2,288) (38,071) (38,071) (158,456) - - - (9,603) (9,603) At 30 September 2019 449 100 185,095 116,408 (168,059) - (38,071) 5,357 82,082 342 2,288 - - 2,630 84,712 (36,618) 227,966 342 - - (9,603) (9,261) 218,705 51 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019 Consolidated Statement of Financial Position For the year ended 30 September 2019 ASSETS Non-current assets Goodwill Property, plant and equipment Investment in associate Deferred tax asset Current assets Biological assets Inventories Trade and other receivables Assets held for disposal Amounts due from related companies Income tax recoverable Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Preference share capital Share premium Other reserves Non-controlling interest 2019 2019 2018 2018 Note ZMW’000s USD’000s ZMW’000s USD’000s 13 14 15(e) 10(e) 16 17 18 34 19 10(c) 21 21 22 166,801 2,841,824 12,376 56,525 12,636 215,290 938 4,282 166,801 2,902,221 15,412 47,854 13,628 237,110 1,259 3,910 3,077,526 233,146 3,132,288 255,907 170,417 941,159 98,025 135,357 41,554 2,767 12,910 71,300 7,426 10,254 3,148 210 181,674 639,811 156,314 - 50,272 3,885 1,389,279 105,248 1,031,956 4,466,805 338,394 4,164,244 3,006 1,000 1,125,012 2,116,691 449 100 185,095 60,243 3,245,709 245,887 (4,881) (370) 3,006 1,000 1,125,012 1,986,756 3,115,774 (8,660) 14,843 52,272 12,771 - 4,107 317 84,310 340,217 449 100 185,095 68,916 254,560 (708) 3,240,828 245,517 3,107,114 253,852 52 Zambeef Products PLC Annual Report 2019Consolidated Statement of Financial Position (continued) For the year ended 30 September 2019 Non-current liabilities Interest bearing liabilities Obligations under finance leases Deferred liability Deferred tax liability Current liabilities Interest bearing liabilities Collateral management agreement Obligations under finance leases Trade and other payables Provisions Amounts due to related companies Taxation payable Bank overdrafts 2019 2019 2018 2018 Note ZMW’000s USD’000s ZMW’000s USD’000s 23 24 25 10(e) 23 23 24 26 27 28 10(c) 20 228,099 17,280 308,312 25,189 19,297 16,362 9,138 1,462 1,240 692 20,163 22,611 6,909 1,647 1,847 565 272,896 20,674 357,995 29,248 130,661 212,381 21,487 259,585 52,914 251 1,377 274,425 953,081 9,899 16,089 1,628 19,665 4,009 19 104 20,790 72,203 95,247 107,213 18,248 297,390 42,137 232 2,925 135,743 699,135 7,782 8,759 1,491 24,294 3,443 19 239 11,090 57,117 Total equity and liabilities 4,466,805 338,394 4,164,244 340,217 The financial statements on pages 47 to 114 were approved by the Board of Directors on 6 December 2019 and were signed on its behalf by: Dr. Jacob Mwanza Chairman Francis Grogan Chief Executive Officer 53 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019Company Statement of Financial Position For the year ended 30 September 2019 ASSETS Non-current assets Property, plant and equipment Investments in subsidiaries Investment in associates Deferred tax asset Current assets Biological assets Inventories Assets held for disposal Trade and other receivables Amounts due from related companies Income tax recoverable Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Preference share capital Share premium Other reserves Non-current liabilities Interest bearing liabilities Obligations under finance leases Deferred liability Deferred tax liability Current liabilities Interest bearing liabilities Obligations under finance leases Trade and other payables Provisions Amounts due to related companies Bank overdrafts Total equity and liabilities Note 2019 ZMW’000s 2019 USD’000s 2018 ZMW’000s 2018 USD’000s 14 15(b) 15(e) 10(e) 16 17 34 18 19 10(c) 21 21 22 23 24 25 10(e) 23 24 26 27 28 20 2,060,110 245,807 12,376 - 156,069 18,622 938 - 2,154,822 245,807 15,412 24,792 176,048 20,082 1,259 2,025 2,318,293 175,629 2,440,833 199,414 137,215 683,600 135,357 28,153 1,078,745 1,529 2,064,599 4,382,892 10,395 51,788 10,254 2,133 81,722 115 158,349 481,319 - 91,381 796,506 2,510 12,937 39,324 - 7,466 65,073 205 156,407 1,530,065 332,036 3,970,898 125,005 324,419 3,006 1,000 1,125,012 1,757,894 449 100 3,006 1,000 185,095 1,125,012 33,061 1,661,284 449 100 185,095 42,322 2,886,912 218,705 2,790,302 227,966 228,099 17,280 11,505 3,655 6,630 872 277 502 308,312 12,503 5,059 4,034 25,189 1,022 413 330 249,889 18,931 329,908 26,954 343,042 18,266 158,504 40,462 490,045 195,772 25,988 202,460 1,384 12,008 3,065 37,124 14,831 11,841 204,675 26,108 328,633 76,971 1,246,091 94,400 850,688 4,382,892 332,036 3,970,898 16,541 967 16,722 2,132 26,849 6,288 69,499 324,419 The financial statements on pages 47 to 114 were approved by the Board of Directors on 6 December 2019 and were signed on its behalf by: Dr. Jacob Mwanza Chairman Francis Grogan Chief Executive Officer 54 Zambeef Products PLC Annual Report 2019 Consolidated Statement of Cash Flows For the year ended 30 September 2019 Cash inflow from operating activities Profit before taxation Finance costs (Profit)/ loss on disposal of property, plant and equipment Depreciation Share of loss on equity accounted investment Loss on discontinued operations Loss on disposal of investment Fair value price adjustment Net unrealised foreign exchange losses Earnings before interest, tax, depreciation and amortisation, fair value adjustments and net unrealised foreign exchange losses (Increase)/decrease in biological assets Decrease/ (increase) in inventory Decrease / (increase) in trade and other receivables Decrease /(increase) in amounts due from related companies (Decrease)/ (increase) in trade and other payables Increase/ (decrease) in amounts due to related companies Increase/ (decrease) in deferred liability Income tax paid Net cash inflow from operating activities Investing activities Purchase of property, plant and equipment Proceeds from the sale of assets Proceeds from the sale of Zampalm Net cash (outflow)/ inflow (on)/ from investing activities Net cash (outflow)/inflow before financing activities Financing activities Long term loans repaid Receipt/(repayment) of short term funding Lease finance (repayment)/ obtained Finance costs Net cash outflow on financing activities (Decrease)/ increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Note 2019 ZMW’000s 2019 USD’000s 2018 ZMW’000s 2018 USD’000s 9 14 16 10(c) 14 9 38,653 82,790 (986) 121,921 3,036 (17,379) - (10,284) 7,153 3,138 6,720 (80) 9,896 246 (1,411) - (835) 581 28,011 70,215 (220) 105,789 742 - 52,265 15,245 22,343 2,823 7,078 (22) 10,665 75 - 5,269 1,537 2,252 224,904 18,255 294,390 29,677 21,541 1,748 (301,348) (24,460) 58,289 8,718 (27,028) 19 (6,249) (9,652) 4,731 708 (2,194) 2 (507) (783) (30,806) (2,500) (29,062) (123,393) (65,522) (38,850) 47,684 151 5,855 (11,618) 79,635 (2,930) (12,439) (6,605) (3,916) 4,807 15 590 (1,171) 8,028 (113,825) 11,776 - (102,049) (132,855) (96,913) 119,456 707 (82,790) (59,540) (192,395) (135,743) (9,239) (144,022) (14,518) 956 - (8,283) (10,783) (7,866) 9,696 57 (6,720) (4,833) (15,616) (11,090) 151,680 7,658 87,293 (79,873) 25,088 (12,044) (70,215) (137,044) (49,751) (105,148) 16,000 1,482 9,510 (8,052) 2,529 (1,214) (7,078) (13,815) (4,305) (10,874) Effects of exchange rate changes on the balance of cash held in foreign currencies 53,713 5,916 19,156 4,089 Cash and cash equivalents at end of the year 20 (274,425) (20,790) (135,743) (11,090) Represented by: Cash in hand and at bank Bank overdrafts 20 20 56,753 4,299 101,123 8,262 (331,178) (25,089) (236,866) (19,352) (274,425) (20,790) (135,743) (11,090) 55 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019Company Statement of Cash Flows For the year ended 30 September 2019 Note 2019 ZMW’000s 2019 USD’000s 2018 ZMW’000s 2018 USD’000s Cash inflow from operating activities Profit before taxation Finance costs Depreciation Fair value price adjustment (Profit)/ loss on disposal of property, plant and equipment Share of loss on equity accounted investment (Profit)/ loss on disposal of investment Loss on discontinued operations Net unrealised foreign exchange differences Earnings before interest, tax, depreciation and amortisation Decrease/ (increase) in biological assets Decrease/ (increase) in inventory Decrease/( increase) in trade and other receivables Increase in amounts due from related companies Increase/ (decrease) in trade and other payables Increase in amounts due to related companies Increase/ (decrease) in deferred liability Income tax paid Net cash inflow/(outflow) from/ (on) operating activities Investing activities Purchase of property, plant and equipment Movements in investments Proceeds from disposal of investment Proceeds from sale of assets Net cash inflow from investing activities Net cash inflow before financing activities Financing activities Long term loans repaid Short term funding (repaid)/obtained Lease finance (repayment)/ obtained Interest paid Net cash outflow on financing activities (Decrease)/ increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Effects of exchange rate changes on the balance of cash held in foreign currencies Cash and cash equivalents at end of the year Represented by: Cash in hand and at bank Bank overdrafts 14 16 10(c) 14 15 55,795 67,371 71,049 (10,162) 1,821 3,036 - (17,379) 6,223 177,754 31,296 (202,281) 63,228 (282,239) (31,817) 161,412 (1,404) (5,822) 4,529 5,469 5,767 (825) 148 246 - (1,411) 505 14,428 2,541 (16,419) 5,133 (22,910) (2,583) 13,102 (114) (473) (89,873) (7,295) (23,743) (1,927) - - 1,120 (22,623) (112,496) (96,913) 119,456 3,761 (67,371) (41,067) (153,563) (76,971) - - 91 (1,836) (9,131) (7,866) 9,696 305 (5,469) (3,334) (12,465) (6,288) 20 20 20 34,762 3,922 (195,772) (14,831) 11,844 (207,616) (195,772) 897 (15,728) (14,831) 22,877 54,900 61,376 15,299 1,457 - 1,431 - 19,255 176,595 (23,561) (69,478) (54,212) (141,446) 65,940 84,757 1,400 (10,182) 29,813 (49,415) 41,423 144,161 345 136,514 166,327 (79,873) 25,559 (10,415) (54,900) (119,629) 46,698 (25,435) (98,234) (76,971) 54,357 (131,328) (76,971) 2,307 5,534 6,187 1,542 147 - 144 - 1,941 17,802 (2,375) (7,004) (5,465) (14,259) 6,647 8,544 141 (1,026) 3,005 (4,982) 4,176 14,532 35 13,761 16,766 (8,052) 2,576 (1,050) (5,534) (12,060) 4,706 (2,631) (8,363) (6,288) 4,441 (10,729) (6,288) 56 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements For the year ended 30 September 2019 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 and flour. The Group also has large row cropping operations (principally maize, soya beans and wheat), with approximately 7,973 Ha of row crops under irrigation and 8,776 Ha of rain-fed/ dry-land crops available for planting each year. The Group also has operations in West Africa in Nigeria and Ghana. 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. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition or up to the effective date of disposal, as applicable. (b) Going Concern At the reporting date loans and other finance amounts repayable within twelve months amount to ZMW364.5 million (USD27.6 million) [2018: ZMW220.7 million (USD18 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 during the financial year. (c) Basis of presentation The financial statements are prepared in accordance with the provisions of the Zambian Companies Act 2017 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. Biological assets are measured at fair value less costs to sell. 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) Presentation and functional currency The Company has twelve operating branches, of which eleven have a functional currency of Zambian Kwacha (ZMW) and one (the Mpongwe Farms Branch) has a functional currency of United States Dollars (USD) being an operational branch set up during the 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 the 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. As a result of using a functional currency of USD for Mpongwe, there arose an exchange difference of ZMW92.4 million (2018: ZMW212 million) upon translating all assets and liabilities, which has been recognised as an unrealised gain in the statement of comprehensive income of the company and an exchange adjustment under property, plant and equipment. 57 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 20192. Principal accounting policies (continued) 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 presentation currency to USD for the purposes of supplementary information Income statement items have been translated using the average exchange rate for the year 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 been transferred to the foreign exchange reserve within equity. The following exchange rates have been applied: ZMW: USD Year ended 30 September 2018 Year ended 30 September 2019 Average exchange rate Closing exchange rate 9.92 12.32 12.24 13.20 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 the 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 unrealised 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 year end. Statement of comprehensive income items have been translated at an average monthly rate for the year. Any differences arising from this procedure are taken to the foreign exchange reserve. Average exchange rate Closing exchange rate 36.09 29.21 29.44 27.25 Average exchange rate Closing exchange rate 0.46 0.42 0.39 0.41 ZMW: Nigeria Naira Year ended 30 September 2018 Year ended 30 September 2019 ZMW: Ghana Cedi Year ended 30 September 2018 Year ended 30 September 2019 58 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 20192. Principal accounting policies (continued) (e) New Standards adopted as at 1 October 2018 IFRS 15 ‘Revenue from Contracts with Customers’ IFRS 15 ‘Revenue from Contracts with Customers’ and the related ‘Clarifications to IFRS 15 Revenue from Contracts with Customers’ (hereinafter referred to as ‘IFRS 15’) replace IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’, and several revenue-related Interpretations. The new Standard has been applied retrospectively without restatement. There were no incomplete contracts as at 1 October 2018 that would have required an adjustment to the opening balance of retained earnings as at that date. In accordance with the transition guidance, IFRS 15 has only been applied to contracts that are incomplete as at 1 October 2018. Contracts with multiple performance obligations The Group has a variety of grain contracts with several customers. Under IFRS 15, the Group must evaluate the separability of the promised goods or services based on whether they are ‘distinct’. A promised good or service is ‘distinct’ if both: • • the customer benefits from the item either on its own or together with other readily available resources, and it is ‘separately identifiable’ (i.e. the Group does not provide a significant service integrating, modifying or customising it). IFRS 9 replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an ‘expected credit loss’ model for the impairment of financial assets. When adopting IFRS 9, the Group has applied transitional relief and opted not to restate prior periods. Differences arising from the adoption of IFRS 9 in relation to classification, measurement, and impairment are recognised in retained earnings. The adoption of IFRS 9 has impacted the following areas: • • The equity investment in Zampalm Limited classified under IAS 39 is measured at fair value through profit or loss as the cash flows are not solely payments of principal and interest (SPPI). The Group did not elect to irrevocably designate any of the equity investments at fair value with changes presented in other comprehensive income. The impairment of financial assets applying the expected credit loss model. This affects the Group’s trade receivables and investments in debt- type assets measured at amortised cost. For contract assets arising from IFRS 15 and trade receivables, the Group applies a simplified model of recognising lifetime expected credit losses as these items do not have a significant financing component. 59 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 20192. Principal accounting policies (continued) On the date of initial application of IFRS 15, 1 October 2018, the impact to retained earnings of the Group is as follows: Measurement category Carrying amount Original IAS 39 category New IFRS 9 category Closing balance 30 September 2018 (IAS 39) Adoption of IFRS 9 (ZMW’000s) (ZMW’000s) Opening balance 1 October 2018 (IFRS 9) (ZMW’000s) Non-current financial assets Other long term financial assets Investment in Zampalm Limited Sub-total Current financial assets Trade and other receivables Amounts due from related companies Sub-total Total financial asset balances FVTPL FVTPL Amortised cost Amortised cost Amortised cost Amortised cost 15,412 15,412 156,314 50,272 206,586 221,998 - - - - - - 15,412 15,412 156,314 50,272 206,586 221,998 There have been no changes to the classification or measurement of financial liabilities as a result of the application of IFRS 9. Reconciliation of statement of financial position balances from IAS 39 to IFRS 9 at 1 October 2018: IAS 39 carrying amount 30 September 2018 (ZMW’000s) Reclassification (ZMW’000s) Remeasurement (ZMW’000s) IFRS 9 carrying amount 1 October 2018 (ZMW’000s) Retained earnings effect (ZMW’000s) 15,412 - - 206,586 221,998 - - - - - - - - - - 15,412 - - 206,586 221,998 - - - - - Fair value through profit and loss FVTPL in IAS 39 From available for sale Total change to fair value through profit or loss Amortised cost (including held to maturity in IAS 39) Total financial asset balances, reclassification and remeasurement at 1 October 2018 60 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 2019 2. Principal accounting policies (continued) (f) Standards, amendments and Interpretations to existing Standards that are not yet effective and have not been adopted early by the Group: At the date of authorisation of these financial statements, several new, but not yet effective, Standards, amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards, amendments or Interpretations have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations neither adopted nor listed below have not been disclosed as they are not expected to have a material impact on the Group’s financial statements. IFRS 16 ‘Leases’ IFRS 16 will replace IAS 17 ‘Leases’ and three related Interpretations. It completes the IASB’s long running project to overhaul lease accounting. Leases will be recorded in the statement of financial position in the form of a right-of-use asset and a lease liability. There are two important reliefs provided by IFRS 16 for assets of low value and short-term leases of less than 12 months. IFRS 16 is effective from periods beginning on or after 1 January 2019. Early adoption is permitted; however, the Group have decided not to early adopt. Management is in the process of assessing the full impact of the Standard. So far, the Group: • has decided to make use of the practical expedient not to perform a full review of existing leases and apply IFRS 16 only to new or modified contracts. As some leases will be modified or renewed in 2019, the Group has reassessed these leases and concluded they will be recognised on the statement of financial position as a right-of-use asset. believes that the most significant impact will be that the Group will need to recognise a right of use asset and a lease liability for the office and production buildings currently treated as operating leases. At 30 September 2019 the future minimum lease payments amounted to ZMW28.9m (USD2.4m). This will mean that the nature of the expense of the above cost will change from being an operating lease expense to depreciation and interest expense. concludes that there will not be a significant impact to the finance leases currently held on the statement of financial position. • • The Group is planning to adopt IFRS 16 on 1 October 2019 using the Standard’s modified retrospective approach. Under this approach the cumulative effect of initially applying IFRS 16 is recognised as an adjustment to equity at the date of initial application. Comparative information is not restated. Choosing this transition approach results in further policy decisions the Group need to make as there are several other transitional reliefs that can be applied. These relate to those leases previously held as operating leases and can be applied on a lease-by-lease basis. The Group are currently assessing the impact of applying these other transitional reliefs. IFRS 16 has not made any significant changes to the accounting for lessors, and therefore the Group does not expect any changes for leases where they are acting as a lessor. (g) Business combinations On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net asset acquired is credited to the statement of comprehensive income in the period of acquisition. Changes in the Group’s ownership interest that do not result in a loss of control are accounted for as equity transactions. Purchase of non-controlling interests are recognized directly within equity being the difference between the fair value of the consideration paid and the relevant share acquired of the carrying value of the net assets to the subsidiary. Contingent and deferred consideration arising as a result of acquisitions is stated at fair value. Contingent and deferred consideration is based on management’s best estimate of the likely outcome and best estimate of fair value, which is usually, but not always, a contracted formula based on a multiple of net profit after tax. All acquisition expenses are recognised in the statement of comprehensive income. (h) Discontinued operations A discontinued operation is a component of the entity that has been disposed of. A component can be distinguished operationally and for financial reporting purposes if: • • • its operating assets and liabilities can be directly attributed to it its income (gross revenue) can be directly attributed to it at least a majority of its operating expenses can be directly attributed to it. Profit or loss from discontinued operations, including prior year comparatives, is presented in a single amount in the income statement. This amount comprises the post-tax profit or loss of discontinued operations and the post-tax gain or loss resulting from the disposal of the Group’s share of the entity’s net assets. The disclosures for discontinued operations in the prior years relate to all operations that have been discontinued by the reporting date for the latest period presented. 61 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 20192. Principal accounting policies (continued) (j) Goodwill Goodwill represents future economic benefits arising from a business combination that is not individually identified and separately recognized. Goodwill is carried at cost less accumulated impairment losses and is tested annually for impairment. Refer to the note for a description of impairment testing procedures. (j) Revenue recognition Revenue comprises the sale of goods as shown in note 5. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyers and no significant uncertainties remain regarding the derivation of consideration, associated costs or the possible return of goods To determine whether to recognise revenue, the Company follows a 5-step process: Identifying the contract with a customer Identifying the performance obligations 1. 2. 3. Determining the transaction price 4. Allocating the transaction price to the performance obligations 5. Recognising revenue when/as performance obligation(s) are satisfied. Revenue comprises the fair value of consideration received or receivable for the sale of the Group’s products in the ordinary course of the Group’s activities. Revenue is shown net of trade allowances, duties and taxes paid and after eliminating sales within the Group. Revenue from sale of agricultural commodities Revenue for the agribusiness division includes the invoice value of goods transferred to the customers. There are no discounts or other arrangements that create uncertainty over the level of revenue recognised. Revenue from retail sales Revenue from the sale of products produced and supplied via Zambeef’s retail outlets and to external parties is recognised on delivery to customers either by way of cash sales or credit sales. The Group often enters into transactions involving a range of the Group’s products. In all cases, the total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties. Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods to its customers. The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. (k) Property, plant and equipment All classes of property, plant and equipment are stated at valuation except for plantation development expenditure and capital work in progress which are stated at historical cost. Capital work in progress relates to internally constructed building parts and plant and machinery and are categorised as such on completion. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss in the statement of comprehensive income during the financial year in which they are incurred. The Group has adopted a policy of revaluing all classes of property, plant and equipment, excluding capital work in progress and plantation development expenditure. Revaluations are conducted with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Increases in the carrying amount arising on revaluation of property, plant and equipment are recognised in other comprehensive income and accumulated in the revaluation surplus in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against the revaluation surplus in shareholders’ equity; all other decreases are charged to the statement of comprehensive income. Each year, the difference between depreciation based on the revalued carrying amount of the asset charged to the statement of comprehensive income and depreciation based on the asset’s original cost, net of any related deferred income tax, is transferred from the revaluation surplus to retained earnings. 62 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 20192. Principal accounting policies (continued) (k) Property, plant and equipment (continued) Depreciation is calculated to write off the cost of property, plant and equipment on a straight line basis over the expected useful lives of the assets concerned. The principal annual rates used for this purpose are: Buildings Motor vehicles Furniture & equipment Plant & machinery Aircraft 2% 20% 10% 10% 10% Land and capital work in progress is not depreciated. The assets’ residual values and useful lives are reviewed at each reporting date and adjusted where appropriate. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in the statement of comprehensive income in other income. When revalued assets are sold, the amounts included in the revaluation surplus relating to these assets are transferred to retained earnings. (l) Leased assets Where property, plant and equipment are financed by leasing agreements which give rights approximating to ownership (finance leases) the assets are treated as if they had been purchased and the capital element of the leasing commitments is shown as obligations under finance lease. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged to the statement of comprehensive income over the period of the lease so as to produce a constant periodic rate of interest in the remaining balance of the liability under the lease agreement for each accounting period. Rentals payable under operating leases are charged to profit or loss in the statement of comprehensive income over the term of the relevant lease and in accordance with the terms of the relevant leases. (m) Financial assets Classification and initial measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories: • • • amortised cost fair value through profit or loss (FVTPL) fair value through other comprehensive income (FVOCI). In the periods presented the corporation does not have any financial assets categorised as FVOCI. The classification is determined by both: • • the entity’s business model for managing the financial asset the contractual cash flow characteristics of the financial asset. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Subsequent measurement of financial assets Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount • outstanding After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments as well as listed bonds that were previously classified as held-to-maturity under IAS 39. 63 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019 2. Principal accounting policies (continued) (m) Financial assets (continued) Financial assets at fair value through profit or loss (FVTPL) Financial assets that are held within a different business model other than ‘hold to collect’ or ‘hold to collect and sell’ are categorised at fair value through profit and loss. Further, irrespective of business model financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVTPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply (see below). The category also contains an equity investment. The Group accounts for the investment at FVTPL and did not make the irrevocable election to account for the investment in Zampalm Limited at fair value through other comprehensive income (FVOCI). The equity investment in Zampalm Ltd was measured at cost less any impairment charges in the comparative period under IAS 39, as it was determined that its fair value could not be estimated reliably. In the current financial year, the fair value was determined in line with the requirements of IFRS 9, which does not allow for measurement at cost. Assets in this category are measured at fair value with gains or losses recognised in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists. Financial assets classified as available for sale (AFS) under IAS 39 (comparative periods) AFS financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets (FVTPL or held to maturity and loans and receivables). The Group’s AFS financial assets include an equity investment in Zampalm Limited. All AFS financial assets except for the investment in Zampalm Limited were measured at fair value. Gains and losses were recognised in other comprehensive income and reported within the AFS reserve within equity, except for interest and dividend income, impairment losses and foreign exchange differences on monetary assets, which are recognised in profit or loss. When the asset was disposed of or was determined to be impaired, the cumulative gain or loss recognised in other comprehensive income was reclassified from the equity reserve to profit or loss. Interest calculated using the effective interest method and dividends were recognised in profit or loss within finance income. (n) Impairment of assets (i) Financial assets carried at amortised cost Impairment of financial assets IFRS 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. This replaces IAS 39’s ‘incurred loss model’. Instruments within the scope of the new requirements included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss. Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. In applying this forward-looking approach, a distinction is made between: • • financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’). ‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date. ‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. Previous financial asset impairment under IAS 39 In the prior year, the impairment of trade receivables was based on the incurred loss model. Individually significant receivables were considered for impairment when they were past due or when other objective evidence was received that a specific counterparty will default. Receivables that were not considered to be individually impaired were reviewed for impairment in groups, which are determined by reference to the industry and region of the counterparty and other shared credit risk characteristics. The impairment loss estimate was then based on recent historical counterparty default rates for each identified group. (ii) Impairment of goodwill For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill. 64 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 20192. Principal accounting policies (continued) (n) Impairment of assets (continued) Cash-generating units to which goodwill has been allocated (determined by the Group’s management as equivalent to its operating segments) are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount. (o) Financial liabilities Classification and measurement of financial liabilities As the accounting for financial liabilities remains largely the same under IFRS 9 compared to IAS 39, the Group’s financial liabilities were not impacted by the adoption of IFRS 9. However, for completeness, the accounting policy is disclosed below. The Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments). All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. (p) Biological assets (i) Current assets Biological assets are valued at their fair values less estimated point of sale costs as determined by the Directors. The fair value of livestock is determined based on market prices of animals of similar age, breed and genetic merit. Standing crops are revalued to fair value at each reporting date based on the estimated market value of fully grown standing crops adjusted for the age and condition of the crops at the reporting date. Feedlot, standing and dairy cattle, chickens (broilers and layers), and pigs have been classified as current biological assets based on Directors’ expectation of their useful economic life. Upon maturity of biological assets, they are transferred to inventory through harvest and culling. Net gains and losses arising from changes in fair value less estimated point of sale costs of biological assets are recognised in profit and loss in the statement of comprehensive income. (q) Inventory Inventory is stated at the lower of cost and net realizable value. Cost is determined on a first in first out basis and includes all expenditure incurred in the normal course of business in bringing the goods to their present location and condition, including production overheads based on normal level of activity. Net realizable value takes into account all further costs directly related to marketing, selling and distribution. Biological assets are transferred to inventory at the point of harvest/slaughter at fair value in accordance with IAS 41. (r) Cash and cash equivalents Cash and cash equivalents include cash in hand, bank overdrafts, deposits held at call with banks, structured agricultural finance, other short-term highly liquid investments and balances held with banks. Bank overdrafts are defined as facilities which are repayable on demand and classified as current liabilities. 65 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 20192. Principal accounting policies (continued) (s) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to be prepared for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognized within ‘finance costs’ in profit or loss in the statement of comprehensive income in the period in which they are incurred. (t) Interest bearing liabilities Short term interest bearing liabilities include all amounts expected to be repayable within twelve months from the reporting date, including instalments due on loans of longer duration. Long term interest bearing liabilities represent all amounts payable more than twelve months from the reporting date. (u) Other income Other income is income not related to the operation or management of the specific business activities of the Group, but which arises from the function of operating an agri-business. Other income comprises the fair value of the consideration received or receivable. (v) Taxation Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with investments in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets and liabilities are offset only when the Group has a right and intention to set off current tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively. (w) Employee benefits (i) Pension obligations The Group has a plan with National Pension Scheme Authority (NAPSA) where the Group pays an amount equal to the employee’s contributions. Employees contribute 5 per cent. of their gross earnings up to the statutory cap. (ii) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. (x) Dividend distributions Dividend distributions to the Company’s shareholders are recognised as a liability in the financial statements in the year in which the dividends are approved by the Company’s shareholders at a general meeting. (y) Equity and reserves Share capital represents the nominal value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. The revaluation reserve within equity comprises gains and losses due to the revaluation of property, plant and equipment. This reserve is non- distributable. 66 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 20192. Principal accounting policies (continued) (y) Equity and reserves (continued) Foreign currency translation differences arising from translating to presentational currency and translating foreign operations are included in the foreign exchange reserve. These reserves are non-distributable. Retained earnings include all current and prior period results as disclosed in the statement of comprehensive income. All transactions with owners of the parent are recorded separately within equity. (z) Segmental reporting IFRS 8 requires segments to be identified on the basis of the internal reports about operating units of the Group that are regularly reviewed by the Chief Executive Officer of and the Chief Financial Officer who are the Chief Operating Decision Makers (CODMs) to allocate resources and to assess their performance. The Group operates 14 main reportable divisions which match the main external revenues earned by the Group: • • • • • • • • • • • • • • Beef Chicken Pork Crops Stockfeed Eggs Retailing Fish Milk and dairy Edible oils Mill and bakery Leather and shoe Master Meats (Nigeria) Master Meats (Ghana) Due to the nature of the Group’s operations, namely that groups of assets and liabilities are each used to generate a number of the revenue streams above, balance sheet items cannot be discretely allocated to the above components, and the CODM also review management information regarding the operating assets and liabilities of the main reporting entities within the Group as follows: • • • • Zambeef Retailing Masterpork Other The ‘Other’ segment includes the foreign subsidiaries, Zamleather Limited and Zamhatch Limited. Foreign subsidiaries include the Group’s two majority- owned subsidiaries in Nigeria and Ghana. Inter and intra-divisional, and inter-company sales are recognised based on an internally set transfer price. The prices are reviewed periodically and aim to reflect what each Business segment could achieve if it sold its output to external parties at arm’s length. (aa) Provisions (Restructuring costs and legal claims) Provisions for restructuring costs and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. (bb) Share-based employee remuneration The Group operates equity-settled share-based remuneration plans for its employees. None of the Group’s plans are cash-settled. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair value of employees’ services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example profitability and sales growth targets and performance conditions). All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to retained earnings. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any adjustment to cumulative share-based compensation resulting from a revision is recognised in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period. 67 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 20192. Principal accounting policies (continued) (z) Segmental reporting (continued) Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, are allocated to share capital up to the nominal (or par) value of the shares issued with any excess being recorded as share premium. 3. Critical accounting estimates and judgements The preparation of financial statements in conformity with adopted IFRS requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income, expenses and contingent liabilities. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. Significant management judgements Recognition of deferred tax assets Management applies judgement in assessing whether a deferred tax asset is recognised on carried forward trading losses based on anticipated future profits. Estimation Uncertainty Information about estimates and assumptions that may have the most significant effects on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different. (i) Investments in associates Investments in associates are accounted for using the equity method. The carrying amount of the investment in associates is increased or decreased to recognise the Group’s share of the profit or loss and other comprehensive income of the associate adjusted, where necessary to ensure consistency with the accounting policies of the Group. Unrealised gains and losses on transactions with the Group and its associates are eliminated to the extent of the Group’s interest in those entities where the unrealised losses are eliminated. Management exercises judgement in determining the impairment of the underlying asset. (ii) Translating to the presentational currency Management have applied the average exchange rate as an approximation to the actual exchange rate for the purposes of translating the Group’s consolidated financial statements into USD. The Directors have conducted an exercise to evaluate the impact of these fluctuations on the presentation of the Group’s results and has concluded that the application of the average exchange rate is a reasonable approximation to the actual rate. The Group has long-term borrowings denominated in USD and management has conducted sensitivity analysis on the Group’s reported profits and equity for the periods reported (see note 29). (iii) Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the present value of future cash flows generated from the cash generating units to which the goodwill has been allocated. The present value calculation requires an estimation of the future cash flows expected to arise and a suitable discount rate in order to calculate present value (see note 13). (iv) Valuation of biological assets and inventory Biological assets are measured at fair value less estimated costs to sell. In estimating fair values and costs to sell, management takes into account the most reliable evidence at the times the estimates are made. The most significant estimate relates to management’s assessment of anticipated yield per hectare for establishing the fair value of standing crops. This assessment takes into account historic yields, climate conditions and certain other key factors. Realisation of the carrying amounts of biological assets of ZMW170.4 million (USD12.9 million); ZMW10.3 million (USD0.8 million) (2018: ZMW181.7 million [USD14.8 million]; ZMW15.2 million [USD1.5 million]) is affected by price changes in different market segments, and ZMW613.5 million (USD49.8 million) (2018: ZMW634.9 million [USD64 million]) is affected by physical changes in different segments. Refer note to 16. Inventories are measured at the lower of cost and net realizable value. In estimating net realizable values, management takes into account the most reliable evidence available at the times the estimates are made. Future realization of the carrying amounts of inventory assets of ZMW941.2 million (USD71.3 million) (2018: ZMW639.8 million [USD52.3 million]) is affected by price changes in different market segments. (v) Deferred liability The deferred liability is estimated on an actuarial basis. In estimating the liability, the actuarial assumptions include the discount rate (the rate used to discount post-employment benefit obligation), rate at which salaries increase into the future and the mortality (deaths) expected of the members in the fund before retirement. 68 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 20193. Critical accounting estimates and judgements (continued) 4. Management of financial risk The Group’s Board of Directors 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) (c) (d) Increase in the retail foot print of the Group. Increase in production facilities of the Group leading to higher volumes available for retail. 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. 4.1 Financial risk The Group is exposed to a range of financial risks through its financial assets and financial liabilities. The most important components of this financial risk are cash flow risk, interest rate risk, foreign exchange risk and credit risk. These risks are exposed to general and specific market movements. The Group manages these positions with a framework that has been developed to monitor its customers and return on its investments. 4.2 Credit risk The Group has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The area where the Group is exposed to credit risk is amounts due from customers. The Group structures the levels of credit risk it accepts by placing limits on its exposure to the level of credit given to a single customer. Such risk is subject to an annual or more frequent review. Limits on the level of credit risk by category and territory are approved annually by the Board of Directors. 4.3 Interest risk The Group has exposure to both variable and fixed interest rates on its borrowings. The area where the Group is exposed to interest risk is where the variable rate benchmark such as LIBOR, Zambian Treasury Bill rate, or the Bank of Zambia Policy rate may change. The Group structures its debt with low spreads over the variable rate benchmark and protects itself with matching fixed interest rates on its borrowings. Management periodically review economic conditions relating to such variable benchmarks and is allowed to consider alternate debt structures where the need may arise. 69 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 20194. Management of financial risk (continued) 4.4 Capital management The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Group sets the amount of capital in proportion to its overall financing structure. The Group manages the capital structure and makes adjustments to it in the light of the economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of the dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Capital structure (i) In Zambian Kwacha Cash and cash equivalents Interest bearing liabilities Equity (ii) In United States Dollars Cash and cash equivalents Interest bearing liabilities Equity 2019 ZMW’000s 2018 ZMW’000s (274,425) (611,925) 3,245,709 (135,743) (549,183) 3,115,774 2,359,359 2,430,848 2019 USD’000s 2018 USD’000s (20,790) (46,358) 245,887 178,739 (11,090) (44,868) 254,560 198,602 The Directors define capital as equity plus cash less borrowings and its financial strategy in the short term is to minimize the level of debt in the business whilst ensuring sufficient finances are available to continue the Group’s business activities. 4.5 Foreign exchange risk The Group is exposed to foreign exchange risk arising from exchange rate fluctuations. Foreign currency denominated purchases and sales, together with foreign currency denominated borrowings, comprise the currency risk of the Group. These risks are minimized by matching the foreign currency receipts to the foreign currency payments as well as holding foreign currency bank accounts and export sales. 4.6 Agricultural risk Agricultural production by its nature contains elements of significant risks and uncertainties which may adversely affect the business and operations of the Group, including but not limited to the following: (i) any future climate change with a potential shift in weather patterns leading to floods or droughts and associated crop losses; (ii) potential insect, fungal and weed infestations resulting in crop failure and reduced yields; (iii) wild and domestic animal conflicts and crop raiding; and (iv) livestock disease outbreaks. Adverse weather conditions represent a significant operating risk to the Business, affecting the quality and quantity of production and the levels of farm inputs. The Group minimises these risks through a robust insurance policy on biological stock (crop and livestock) and grain inventory. 70 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 2019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 Chief Operating Decision Maker (‘CODMs’), which is the Chief Executive Officer and Chief Financial Officer, 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 CODM to use for such purposes. The CODM 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. Year ended 30 September 2019 (i) In Zambian Kwacha Segment Retailing – Zambia Master Meats Nigeria Master Meats Ghana Retailing West Africa Total Retailing Beef Chicken Zamhatch Pork Milk and dairy Fish Eggs Total Cold Chain Food Production Gross Combined Retail and CCFP Less: Intra/Inter Sales Combined Retail & CCFP Stock Feed Crops Mill and Bakery Leather and shoe Total Other Total Less: Intra/Inter Group Sales Group total Central operating costs and other income Operating profit Foreign exchange losses Finance costs Share of loss on equity accounted investment Profit before tax Revenue ZMW’000s Revenue ZMW’000s Gross Profit ZMW’000s Gross Profit ZMW’000s 1,853,721 172,031 27,381 14,090 127,946 52,405 60,310 38,642 67,409 7,180 13,765 30,517 8,744 138,732 46,222 474,941 247,580 112,665 252,952 206,531 36,612 57,211 183,520 26,828 184,954 2,038,675 1,388,492 3,427,167 (1,303,519) 2,123,648 986,075 474,202 210,348 3,794,273 (659,306) 3,134,967 41,471 213,502 367,657 581,159 581,159 191,011 270,116 39,261 1,081,547 1,081,547 (920,338) 161,209 (36,730) (82,790) (3,036) 38,653 71 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019Zambeef ZMW’000s Retailing ZMW’000s Master Pork ZMW’000s Other ZMW’000s Total ZMW’000s 2,060,110 777,065 (195,772) 209,897 70,921 (96,500) 84,443 19,195 1,461 487,374 200,645 16,386 2,841,824 1,067,826 (274,425) Revenue ZMW’000s Revenue ZMW’000s Gross Profit ZMW’000s Gross Profit ZMW’000s 1,548,421 166,053 22,088 10,976 125,148 60,124 66,792 34,610 66,160 10,631 16,405 19,810 7,319 109,798 35,015 456,613 243,472 103,779 223,085 178,684 49,354 58,065 110,713 30,739 144,813 1,693,234 1,313,052 3,006,286 (1,001,575) 2,004,711 706,008 515,585 141,452 3,367,756 (587,167) 2,780,589 33,064 199,117 379,870 578,987 578,987 163,442 189,601 27,129 959,159 959,159 (840,889) 118,270 (19,302) (70,215) (742) 28,011 5. Segmental reporting (continued) Operating assets/(liabilities) Property plant and equipment Biological assets and inventories Cash, cash equivalents and bank overdrafts Year ended 30 September 2018 Segment Retailing – Zambia Master Meats Nigeria Master Meats Ghana Retailing West Africa Total Retailing Beef Chicken Zamhatch Pork Milk and dairy Fish Eggs Total Cold Chain Food Production Gross Combined Retail and CCFP Less: Intra/Inter Sales Combined Retail & CCFP Stock Feed Crops Mill and Bakery Leather and shoe Total Other Total Less: Intra/Inter Group Sales Group total Central operating costs and other income Operating profit Foreign exchange losses Finance costs Share of loss on equity accounted investment Profit before tax 72 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 20195. Segmental reporting (continued) Operating assets/(liabilities) Property plant and equipment Biological assets and inventories Cash, cash equivalents and bank overdrafts Year ended 30 September 2019 (ii) In US Dollars Segment Retailing – Zambia Master Meats Nigeria Master Meats Ghana Retail – West Africa Total Retailing Beef Chicken Zamhatch Pork Milk and dairy Fish Eggs Total Cold Chain Food Production Gross Combined Retail and CCFP Less: Intra/Inter Sales Combined Retail & CCFP Stock Feed Crops Mill and Bakery Leather and shoe Total Other Total Less: Intra/Inter Group Sales Group total Central operating costs and other income Operating profit Foreign exchange losses Finance costs Share of loss on equity accounted investment Profit before tax Zambeef ZMW’000s Retailing ZMW’000s Master Pork ZMW’000s Other ZMW’000s Total ZMW’000s 2,154,822 639,665 (76,971) 196,004 61,984 (66,994) 85,302 20,408 1,099 466,093 2,902,221 99,429 7,123 821,486 (135,743) Revenue USD’000s Revenue USD’000s Gross Profit USD’́000s Gross Profit USD’́000s 150,464 13,964 2,222 1,144 10,385 4,254 4,895 3,137 5,472 583 1,117 2,477 710 11,261 3,752 38,550 20,096 9,145 20,532 16,764 2,972 4,644 14,896 2,178 15,013 165,477 112,703 278,180 (105,806) 172,374 80,039 38,490 17,074 307,977 (53,515) 254,462 3,366 17,330 29,843 47,173 - 47,173 15,503 21,925 3,187 87,788 87,788 (74,703) 13,085 (2,981) (6,720) (246) 3,138 73 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 20195. Segmental reporting (continued) Operating assets/(liabilities) Property plant and equipment Biological assets and inventories Cash, cash equivalents and bank overdrafts Year ended 30 September 2018 (i) In US Dollars Segment Retailing – Zambia Master Meats Nigeria Master Meats Ghana Retail – West Africa Total Retailing Beef Chicken Zamhatch Pork Milk and dairy Fish Eggs Total Cold Chain Food Production Gross Combined Retail and CCFP Less: Intra/Inter Sales Combined Retail & CCFP Stock Feed Crops Mill and Bakery Leather and shoe Edible oils Total Other Total Less: Intra/Inter Group Sales Group total Central operating costs and other income Operating profit Foreign exchange gains Finance costs Share of loss on equity accounted investment Profit before tax 74 Zambeef USD’000s Retailing USD’000s Masterpork USD’000s Other USD’000s Total USD’000s 156,069 58,867 (14,831) 15,901 5,373 (7,311) 6,397 1,454 111 36,923 15,200 1,241 215,290 80,894 (20,790) Revenue USD’000s Revenue USD’000s Gross Profit USD’000s Gross Profit USD’000s 156,091 16,738 2,227 1,106 12,615 6,061 6,733 3,489 6,669 1,072 1,654 1,997 739 - 11,068 3,530 46,029 24,543 10,462 22,488 18,013 4,975 5,853 11,161 3,099 - 14,598 170,689 132,363 303,052 (100,965) 202,087 71,170 51,974 14,260 339,491 (59,190) 280,301 3,333 20,071 38,293 58,364 58,364 16,476 19,113 2,736 96,689 96,689 (84,767) 11,922 (1,946) (7,078) (75) 2,823 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 20195. Segmental reporting (continued) Operating assets/(liabilities) Property plant and equipment Biological assets and inventories Cash, cash equivalents and bank overdrafts Zambeef USD’000s Retailing USD’000s Master Pork USD’000s Other USD’000s Total USD’000s 176,048 52,260 (6,288) 16,013 5,064 (5,473) 38,080 8,124 581 237,110 67,115 (11,090) 6,969 1,667 90 2018 2019 Geographical Zambia West Africa Rest of world ZMW’000s Revenues ZMW’000s Non-current assets USD’000s Revenues USD’000s Non-current assets ZMW’000s Revenues ZMW’000s Non-current assets USD’000s Revenues USD’000s Non-current assets 2,903,553 3,054,396 235,679 231,394 2,587,262 3,110,257 184,954 46,460 23,130 - 15,013 3,770 1,752 - 144,813 48,514 22,031 - 260,814 14,598 4,889 254,107 1,800 - 3,134,967 3,077,526 254,462 233,146 2,780,589 3,132,288 280,301 255,907 6. Other income Other income is derived from rental income received by the letting out of guest houses on Mpongwe farm. 7. Operating profit 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s Operating profit is stated after charging/(crediting): Depreciation – Owned assets – Leased assets Staff costs Legal and other professional fees Directors’ remuneration – Executive – Non-Executive Auditors’ remuneration – Audit services – Non audit services Impairment of trade receivables Profit/(loss) on disposal of property, plant and equipment Rentals under operating leases 109,453 12,468 453,701 7,178 19,020 4,727 23,747 2,104 - 2,259 1,201 986 12,842 64,766 6,283 250,627 3,065 19,020 4,727 23,747 1,303 - 1,458 652 1,821 - 102,708 3,081 420,787 25,741 13,237 2,699 15,936 2,494 - 2,494 2,863 (220) 10,583 58,295 3,081 234,758 18,248 13,237 2,699 15,936 2,460 - 2,460 205 1,457 - 75 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019 7. Operating profit (continued) Operating profit before taxation is stated after charging/(crediting): 2019 2018 Group USD’́000s Company USD’000s Group USD’000s Company USD’000s Depreciation – Owned assets – Leased assets Staff costs Legal and other professional fees Directors’ remuneration – Executive – Non-Executive Auditors’ remuneration – Audit services – Non audit services Impairment of trade receivable Profit/(loss) on disposal of property, plant and equipment Rentals under operating leases 8,884 1,012 36,826 583 1,543 384 1,927 171 - 184 97 80 1,042 5,257 510 20,346 249 1,543 384 1,927 106 - 119 53 147 - 8. Staff costs The Group employed an average of 7,407 employees during the year ended 30 September 2019 (2018: 7,555). Zambeef Products PLC, Zambeef Retailing Limited, Zam Chick Limited, Zamhatch Limited & Zamleather Limited Master Pork Limited Foreign Subsidiaries Total Employee costs for all employees of the Group, including Executive Directors, were: 10,354 311 42,418 2,595 1,335 269 1,604 251 - 251 289 (220) 1,067 5,876 311 23,665 1,840 1,335 269 1,604 248 - 248 21 - - 2019 Number 2018 Number 6,803 284 320 7,407 6,935 275 345 7,555 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 436,227 12,856 4,618 453,701 35,408 1,043 375 36,826 370,158 31,506 19,123 420,787 37,314 3,176 1,928 42,418 Salaries and wages Social security costs Pension costs 76 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 20198. Staff costs (continued) 2019 Short term benefits Salary and fees Bonus Pension contributions Airfare Allowance Employment taxes Total 2019 Short term benefits Salary and fees Bonus Pension contributions Airfare Allowance Employment taxes Total 2018 Short term benefits Salary and fees Bonus Pension contributions Airfare Allowance Employment taxes Total 2018 Short term benefits Salary and fees Bonus Pension contributions Airfare Allowance Employment taxes Total Details of Directors’ contracts may be found in the Directors’ Report. Francis Grogan ZMW’000s Walter Roodt ZMW’000s Faith Mukutu ZMW’000s Danny Museteka ZMW’000s Total ZMW’000s 3,995 2,959 - 365 4,236 11,555 1,545 359 10 - 1,244 3,158 201 - 1 - 100 302 1,821 240 10 365 1,569 4,005 7,562 3,558 21 730 7,149 19,020 Francis Grogan USD’000s Walter Roodt USD’000s Faith Mukutu USD’000s Danny Museteka USD’000s Total USD’000s 324 240 - 30 344 938 125 29 1 - 101 256 16 - - - 8 24 148 19 1 30 127 325 613 288 2 60 580 1,543 Francis Grogan ZMW’000s Yusuf Koya ZMW’000s Danny Museteka ZMW’000s Total ZMW’000s 3,655 2,198 3 11 225 2,307 6,201 3 11 178 1,405 3,795 1,550 199 11 285 1,196 3,241 7,403 205 33 688 4,908 13,237 Francis Grogan USD’000s Yusuf Koya USD’000s Danny Museteka USD’000s Total USD’000s 368 - 1 23 233 625 222 - 1 18 142 383 156 20 1 29 121 327 746 20 3 70 496 1,335 77 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 20198. Staff costs (continued) Share based employee remuneration Share options and weighted average exercise prices were as follows for the reporting periods presented: Outstanding at 30 September 2017 Granted Forfeited Exercised Outstanding at 30 September 2018 Exercisable at 30 September 2018 Exercisable at 30 September 2019 LTIP 2 Number of shares Weighted average exercise price per share 13,050,000 - (13,050,000) - - - - 0.15 - 0.15 - - - - The options lapsed in June 2018. There were no options granted or exercised during the reporting period. The Long-Term Incentive Plan 2 (“LTIP 2”) had the following key terms/conditions: a) b) Structure: market value option shares (“Options”); 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 (this term/condition does not apply to the two CEO under the JCEO LTIP Scheme) and d) Vesting period: three years from 2015 to 2018; exercisable by June 2018. e) The Options could only be exercised if Zambeef achieves the following targets: xi) If the share price reached 40 pence, then 25 per cent. of the Options become exercisable. xii) If the share price reached 48 pence, a further 25 per cent. of the Options become exercisable. xiii) If the share price reached 56 pence, a further 25 per cent. of the Options become exercisable. xiv) If the share price reached 65 pence, the final 25 per cent. of the Options become exercisable. xv) Zambeef achieving a debt-to-equity (gearing) ratio of less than 35 per cent. in the audited accounts immediately prior to exercising the Options. xvi) Zambeef achieving a current ratio (current assets divided by current liabilities) of 1.5 or higher in the audited annual accounts immediately prior to the exercising of the options. xvii) Zambeef generating free cash flows. xviii) The Zambeef share price triggers set above would have been considered achieved if in the 14 days immediately prior to exercising the Options, the shares had traded continuously at not less than these prices for 14 days. xix) The Options were exercisable at any time for 2 years after the 3 year period from the issue of the Options have lapsed. The Options could only be exercised if the relevant executives were still employed by the Company. 78 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 20199. Finance costs Interest on bank loans and overdrafts Finance lease cost Total 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 79,296 3,494 82,790 6,436 284 6,720 65,777 4,438 70,215 6,631 447 7,078 10. Taxation The Group has various tax rates applicable on the basis of individual entities being defined as agricultural entities or divisions (income tax rate of 10%) or manufacturing entities or divisions (income tax rate of 35%). The Group has further obtained tax holidays through investment incentives offered by the Zambian Government. (i) In Zambian Kwacha (a) Tax charge Current tax: Tax charge Deferred tax: Deferred taxation (note 10(e)) Tax charge/(credit) for the year (b) Reconciliation of tax charge Profit/(loss) before taxation Taxation on accounting (loss)/profit Effects of: Permanent differences: Disallowable expenses Timing differences: Capital allowances and depreciation Livestock and crop valuations adjustment Other income Unrealised exchange (gains)/ losses Unrealised tax losses Tax charge for the year (c) Movement in taxation account Taxation recoverable at 1 October Charge for the year Taxation paid Taxation payable/(recoverable) as at 30 September Analysed as follows: Taxation payable Taxation recoverable Tax returns for the year ended 30 September 2019 will be made on the due date. 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 9,222 6,803 9,046 6,084 (6,442) 2,780 27,388 34,191 (4,789) 4,257 1,638 7,722 38,653 (24,681) 55,795 6,805 28,011 (15,231) 22,877 5,822 3,774 533 4,353 680 22,375 1,924 1,342 (903) (1,051) 2,780 (960) 9,222 (9,652) (1,390) 1,377 (2,767) (1,390) 31,047 1,923 4 (834) (5,287) 34,191 (2,510) 6,803 (5,822) (1,529) - (1,529) (1,529) (9,420) 176 59 (997) 25,317 4,257 1,612 9,046 (11,618) (960) 2,925 (3,885) (960) (428) 486 39 2,101 (978) 7,722 1,588 6,084 (10,182) (2,510) - (2,510) (2,510) 79 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201910. Taxation (continued) (e) Deferred taxation Represented by: Biological valuation Accelerated tax allowances Provisions Tax loss Analysis of movement: Deferred tax asset as at 1 October Charge/(credit) to profit and loss account (note 10(a)) Deferred tax asset as at 30 September Deferred tax asset Deferred tax liability (ii) In US Dollars (a) Tax charge Current tax: Tax charge Deferred tax: Deferred taxation (note 10(e)) Tax charge/ (credit) for the year (b) Reconciliation of tax charge Profit/(loss) before taxation Taxation on accounting profit/(loss) Effects of: Permanent differences: Disallowable expenses Timing differences: Livestock and crop valuations adjustment Other income Unrealised exchange (gains)/losses Unrealised tax loss Tax charge for the year 80 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 14,162 58,464 (8,736) (111,277) (47,387) (40,945) (6,442) (47,387) (56,525) 9,138 (47,387) 13,716 60,872 (2,783) (65,175) 6,630 (20,758) 27,388 6,630 - 6,630 6,630 13,444 38,384 (6,019) (86,754) (40,945) (36,156) (4,789) (40,945) (47,854) 6,909 (40,945) 13,012 32,733 (1,808) (64,695) (20,758) (22,396) 1,638 (20,758) (24,792) 4,034 (20,758) 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 749 553 912 614 (523) 226 2,223 2,776 (483) 429 165 779 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 3,138 (2,003) 4,529 552 2,823 (1,535) 2,307 587 306 156 109 (73) (85) 226 43 156 1 (67) (429) 2,776 440 18 6 (100) 2,550 429 68 49 4 212 (98) 779 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201910. Taxation (continued) Capital allowances and depreciation Livestock and crop valuations adjustment Other income Unrealised exchange (gains)/losses Unrealised tax loss Tax charge for the year (c) Movement in taxation account Taxation recoverable at 1 October Charge for the year Taxation paid Foreign exchange differences Taxation payable /(recoverable) as at 30 September Analysed as follows: Taxation payable Taxation recoverable (d) Tax returns for the year ended 30 September 2019 will be made on the due date. (e) Deferred taxation Represented by Biological valuation Accelerated tax allowances Provisions Tax loss Analysis of movement: Deferred tax asset as at 1 October Charge/(credit) to profit and loss account (note 10(a)) Foreign exchange Deferred tax asset as at 30 September Deferred tax asset Deferred tax liability 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 1,816 2,520 156 109 (73) (85) 226 156 1 (67) (429) 2,776 (950) 18 6 (100) 2,550 429 (43) 49 4 212 (98) 779 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s (78) 749 (783) 6 (106) 104 (210) (106) (205) 553 (473) 10 (115) - (115) (115) 167 912 (1,171) 14 (78) 239 (317) (78) 164 614 (1,026) 43 (205) - (205) (205) 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 1,073 4,429 (662) (8,430) (3,590) (3,345) (523) 278 (3,590) (4,282) 692 1,113 4,941 (226) (5,326) 502 (1,695) 2,223 (26) 502 - 502 1,098 3,136 (492) (7,087) (3,345) (3,739) (483) 877 (3,345) (3,910) 565 1,312 3,300 (182) (6,125) (1,695) (2,316) 165 456 (1,695) (2,025) 330 81 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201910. Taxation (continued) (e) Deferred taxation 11. Equity dividends Dividends declared or paid 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s (3,590) 502 (3,345) (1,695) 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s - - - - There has been no dividend paid or proposed for 2019 (2018: ZMW nil). 12. Earnings per share Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of the parent company as the numerator, i.e., no adjustments to profit were necessary in 2018 or 2019. For diluted earnings per share, the number of shares used in the calculation of EPS includes preference shares and outstanding options awarded to management. Basic earnings per share have been calculated in accordance with IAS 33 which requires that earnings should be based on the net profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the period. The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. Basic earnings per share Profit/(loss) for the year Weighted average number of ordinary shares for the purposes of basic earnings per share. Weighted average number of ordinary shares for the purposes of diluted earnings per share. Basic earnings per share (ZMW ngwee and US cents) – Continued operations Basic earnings per share (ZMW ngwee and US cents) – Discontinued operations Total Basic earnings per share (ZMW ngwee and US cents) Diluted earnings per share Diluted earnings per share – continued operations Diluted earnings per share – discontinued operations Total Diluted earnings per share 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 26,929 2,186 10,601 1,068 300,580 300,580 300,630 300,630 400,638 Ngwee 400,638 US cents 401,238 Ngwee 401,238 US cents 11.80 (5.78) 6.02 8.86 (4.34) 4.52 0.96 (0.47) 0.49 0.72 (0.35) 0.37 7.90 (4.41) 3.49 5.92 (3.31) 2.61 0.80 (0.44) 0.36 0.60 (0.33) 0.27 82 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201913. Goodwill Cost and Net Book Value At 1 October 2017 Arising during the year Foreign exchange difference At 30 September 2018 Arising during the year Foreign exchange difference At 30 September 2019 Masterpork Limited Zam Chick Limited Zamhatch Limited ZMW’000s USD’000s 166,801 17,249 - - 166,801 - - 166,801 - (3,621) 13,628 - (992) 12,636 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 15,699 141,786 9,316 166,801 1,189 10,741 706 15,699 141,786 9,316 12,636 166,801 1,283 11,584 761 13,628 The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired. The recoverable amounts of the cash generating unit (CGU) is determined from value in use calculations. The Board’s key assumptions are based on their past experience and future expectations of the market over the longer term. The Board estimates a discount rate of 15 per cent. post tax derived from the Group’s cost of external borrowing and dividend payment history, adjusted to reflect currency risk and price risk, in accordance with IAS 36 ‘Impairment of Assets’. Master Pork Limited, Zam Chick Limited and Zamhatch Limited are expected to achieve a minimum growth rate of Zambian inflation which was at 10.5% at the report date plus Zambian GDP growth, in light of continued increase in protein consumption in the domestic market. Due to the significant headroom within historical impairment calculations (approximately 2 times utilising a discounted cash flow for a period of three years), assumptions including growth rates of cash flows and changes to selling prices and direct costs have not been sensitised. The Board is not aware of any other changes that would necessitate changes to its calculations. 83 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201914. Property, plant and equipment (i) In Zambian Kwacha (a) Group Cost or valuation As at 1 October 2017 Exchange differences Additions Disposals Transfers Leasehold land and buildings ZMW’000s Aircraft ZMW’000s Plant and machinery ZMW’000s Motor vehicles ZMW’000s Furniture and equipment ZMW’000s Capital work in progress ZMW’000s Total ZMW’000s 1,772,708 865 600,082 47,350 16,416 186,914 2,624,335 181,928 59,129 - 38,863 - - - - 61,939 58,748 (1,399) 96,276 (2,042) 19,947 (3,753) 4,103 (790) 6,198 (87) 1,570 - - - (140,812) 241,035 144,022 (5,239) - As at 30 September 2018 2,052,628 865 815,646 65,605 23,307 46,102 3,004,153 Exchange differences Additions Disposals Transfer to held for sale Transfers 71,470 13,868 (2,030) (116,020) 23,136 - - - - - 20,871 15,621 (7,108) (27,547) 57,482 (194) 7,399 (2,505) (876) 7,099 61 4,948 (280) (420) 4,001 As at 30 September 2019 2,043,052 865 874,965 76,528 31,617 110 71,989 - (698) (91,718) 25,785 92,318 113,825 (11,923) (145,561) - 3,052,812 - - - - - - - - - - 13,847 (17,016) 105,789 (688) 101,932 (1,528) 121,921 (1,133) (10,204) 210,988 1,688 (2,113) 17,397 - 16,972 539 18,232 (77) (4,630) 31,036 - - 86 - 86 - 87 - - 7,118 (10,945) 70,775 (128) 66,820 (2,044) 83,340 (222) (5,255) 4,028 (3,206) 15,187 (552) 15,457 3 17,459 (814) (246) 173 142,639 31,859 1,013 (752) 2,344 (8) 2,597 (26) 2,803 (20) (73) 5,281 2,012,016 2,035,656 692 779 732,326 748,826 44,669 50,148 26,336 20,710 25,785 46,102 2,841,824 2,902,221 Depreciation As at 1 October 2017 Exchange difference Charge for the year Disposals As at 30 September 2018 Exchange difference Charge for the year Disposals Transfer to held for sale As at 30 September 2019 Net book value At 30 September 2019 At 30 September 2018 84 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 2019 14. Property, plant and equipment (continued) (ii) In US Dollars (a) Group Cost or valuation As at 1 October 2017 Foreign translation Additions Transfers Disposals As at 30 September 2018 Foreign translation Additions Transfers Disposals Transfer to held for sale As at 30 September 2019 As at 1 October 2017 Charge for the year Disposals Foreign Translation As at 30 September 2018 Charge for the year Disposals Transfer to held for sale Foreign Translation As at 30 September 2019 Net book value At 30 September 2019 At 30 September 2018 Leasehold land and buildings USD’000s Aircraft USD’000s Plant and machinery USD’000s Motor vehicles USD’000s Furniture and equipment USD’000s Capital work in progress USD’000s Total USD’000s 187,537 (28,988) 5,961 3,918 - 168,428 (7,701) 1,126 1,878 (165) (8,789) 154,777 3,229 1,754 - (9,969) (4,986) 1,480 (6) (351) 6,214 2,351 152,426 173,414 91 (20) - - - 71 (5) - - - - 66 - 9 - (2) 7 7 - - (1) 13 53 64 62,891 (11,045) 5,922 9,705 (141) 67,332 (4,317) 1,267 4,666 (577) (2,087) 66,284 2,751 7,135 (13) 1,022 10,895 6,764 (18) (397) (6,437) 10,807 55,477 56,437 4,902 (1,538) 2,011 414 (378) 5,411 (521) 601 576 (203) (66) 5,798 417 1,531 (56) (243) 1,649 1,417 (66) (19) (568) 2,413 3,385 3,762 1,708 (548) 625 158 (9) 1,934 (210) 402 325 (23) (32) 19,328 (3,264) - (14,195) - 1,869 1,739 5,843 (7,445) - (53) 276,457 (45,403) 14,519 - (528) 245,045 (11,015) 9,239 - (968) (11,027) 2,396 1,953 231,274 102 236 (1) 33 370 228 (2) (6) (190) 400 - - - - - - - - - - 6,499 10,665 (70) (9,159) 7,935 9,896 (92) (773) (982) 15,984 1,996 1,564 1,953 1,869 215,290 237,110 (a) The Group’s property, plant and equipment situated in Zambia were revalued as at 30 September 2017 by Messrs Fairworld Properties Limited, Registered Valuation Surveyors, on the basis of market value. The surplus on valuation totalling ZMW790 million (USD82 million) was transferred to a revaluation reserve. (b) The depreciation charge for the year includes ZMW29.7 million (USD2.4 million) (2018: ZMW23.4 million [USD2.4 million]) which relates to the surplus over the original cost of fixed assets shown at a valuation. As this amount should not be taken to reduce the Group’s distributable reserve, an equivalent amount has been transferred to distributable reserve from revaluation reserve. The carrying value of the Group’s property, plant and equipment includes an amount of ZMW55.6 million (USD4.2 million) (2018: ZMW23.4 million [USD2.5 million]) in respect of assets held under finance leases. The depreciation charged to the income statement in respect of such assets amounted to ZMW12.5 million (USD1 million) (2018: ZMW3.1 million [USD0.31 million]). (c) (d) The capital work in progress depicts all capital expenditure items on projects that are yet to be completed. (e) In the opinion of the Directors, the carrying values of property, plant and equipment stated above are not higher than their fair values. 85 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019Leasehold land and buildings ZMW’000s Plant and machinery ZMW’000s Motor vehicles ZMW’000s Furniture and equipment ZMW’000s Capital work in progress ZMW’000s Total ZMW’000s 1,431,292 429,952 16,823 189,491 - 8,590 - 61,140 1,024 20,311 (984) 1,629,373 511,443 70,294 2,121 3,107 (1,675) (116,020) 1,587,200 - 10,564 - 10,564 11,003 (66) (4,630) 16,871 20,195 2,264 23,238 (1,160) (27,547) 528,433 - 45,397 (90) 45,307 53,302 (223) (5,255) 93,131 1,758 3,971 2,427 (1,005) 23,974 249 1,766 1,984 (421) (876) 26,676 - 4,306 (184) 4,122 5,299 (125) (246) 9,798 414 1,856 691 (72) 27,895 1,915,760 - 42,564 (32,019) - 252,803 49,415 - (2,061) 12,687 38,440 2,215,917 154 1,032 2,796 (118) (420) 16,131 - 1,109 (7) 1,102 1,445 (19) (73) - 16,560 (31,125) - (698) 23,177 - - - - - - - - 90,892 23,743 - (3,374) (145,561) 2,181,617 - 61,376 (281) 61,095 71,049 (433) (10,204) 121,507 9,050 2,455 1,570,329 1,618,809 435,302 466,136 17,626 19,852 13,676 11,585 23,177 38,440 2,060,110 2,154,822 14. Property, plant and equipment (continued) (i) In Zambian Kwacha (b) Company Cost or valuation At 1 October 2017 Exchange differences Additions Transfers Disposals As at 30 September 2018 Exchange differences Additions Transfers Disposals Transfer to held for sale As at 30 September 2019 Depreciation As at 1 October 2017 Charge for the year Disposals As at 30 September 2018 Charge for the year Disposals Transfer to held for sale As at 30 September 2019 Net book value At 30 September 2019 At 30 September 2018 86 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201915. Investments in subsidiaries, associates and minority interests (continued) (ii) In US Dollars (b) Company Cost or valuation As at 1 October 2017 Exchange differences Additions Transfers Disposals Foreign translation As at 30 September 2018 Exchange differences Additions Transfers Disposals Transfer to held for sale Foreign translation As at 30 September 2019 Depreciation As at 1 October 2017 Charge for the year Disposals Foreign translation As at 30 September 2018 Charge for the year Disposals Transfer to held for sale Foreign translation As at 30 September 2019 Net book value At 30 September 2019 At 30 September 2018 Leasehold land and buildings USD’000s Plant and machinery USD’000s Motor vehicles USD’000s Furniture and equipment USD’000s Capital work in progress USD’000s Total USD’000s 148,014 19,102 - 866 - (34,863) 133,119 5,706 172 252 (136) (8,789) (10,081) 120,243 - 1,065 - (202) 863 893 (5) (351) (122) 1,278 44,466 1,740 1,013 5,689 104 2,047 (99) (10,504) 41,703 1,639 184 1,886 (94) (2,087) (3,198) 40,033 - 4,576 (9) (878) 3,689 4,326 (18) (397) (544) 7,056 108 400 245 (101) (365) 2,027 20 143 161 (34) (66) (230) 2,021 - 434 (19) (79) 336 430 (10) (19) (52) 685 41 188 70 (8) (267) 1,037 12 84 227 (10) (32) (97) 1,221 - 112 (1) (21) 90 118 (2) (6) (14) 186 2,885 - 4,290 (3,228) - (807) 3,140 - 1,344 (2,526) - (53) (149) 1,756 - - - - - - - - - - 198,118 24,940 4,982 - (208) (46,806) 181,026 7,377 1,927 - (274) (11,027) (13,755) 165,274 - 6,187 (29) (1,180) 4,978 5,767 (35) (773) (732) 9,205 118,965 132,256 32,977 38,014 1,336 1,691 1,035 947 1,756 3,140 156,069 176,048 (a) The Company’s property, plant and equipment situated in Zambia were revalued as at 30 September 2017 by Messrs Fairworld Properties Limited, Registered Valuation Surveyors, on the basis of market value. The surplus on valuation totalling ZMW651 million (USD54.1 million) was transferred to a revaluation reserve. (b) The carrying value of the Company’s property, plant and equipment includes an amount of ZMW30.9 million (USD2.3 million) (2018: ZMW5 million [USD0.4 million]) in respect of assets held under finance leases. The depreciation charged to the income statement in respect of such assets amounted to ZMW6.3 million (USD0.5 million) (2018: ZMW0.8 million [USD0.083 million]). In the opinion of the Directors, the carrying values of property, plant and equipment stated above are not higher than their fair values. (c) 87 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201915. Investments in subsidiaries, associates and minority interests The principal subsidiaries and associates of the Company, their country of incorporation, ownership of their issued, ordinary share capital and the nature of their trade are listed below: (a) Directly owned: Country of incorporation Proportion of all classes of issued share capital owned by the Company 2019 Proportion of all classes of issued share capital owned by the Company 2018 Zambeef Retailing Limited Zamleather Limited Master Meat and Agro Production Co of Nigeria Limited Master Meat (Ghana) Limited Masterpork Limited Zampalm Limited Zam Chick Limited Zamhatch Limited Zambia Zambia Nigeria Ghana Zambia Zambia Zambia Zambia 100 100 80 90 100 10 100 100 100 100 80 90 100 10 100 100 Principal activity Retailing of Zambeef products Processing and sale of leather and production and sale of shoes Processing and sale of meat products Processing and sale of meat products Processing and sale of pork and processed products Palm tree plantation Processing and sale of poultry products Chicken breeding, rearing and production of stock feed The proportion of voting rights held is the same as the proportion of shares held. (b) Movement at cost: At beginning of the year Foreign translation At end of the year (c) The Company’s interests in its subsidiaries, which are unlisted, are as follows: 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 245,807 - 245,807 20,082 (1,460) 18,622 245,807 - 245,807 25,420 (5,338) 20,082 Name of company Zambeef Retailing Limited Zamleather Limited West Africa Operations Masterpork Limited Zam Chick Limited Zamhatch Limited Total at the end of 30 September 2019 Zambeef Retailing Limited Zamleather Limited West Africa Operations Masterpork Limited Zampalm Limited Zam Chick Limited Zamhatch Limited Country of Incorporation Assets ZMW’000s Liabilities ZMW’000s Revenues ZMW’000s Profit/(loss) ZMW’000s 983,478 1,853,720 (53,340) Zambia Zambia Nigeria & Ghana Zambia Zambia Zambia Zambia Zambia Nigeria & Ghana Zambia Zambia Zambia Zambia 899,371 91,242 21,158 234,170 854,449 654,402 63,868 68,093 142,910 633,437 444,883 26,828 184,954 252,952 247,580 420,633 2,754,792 2,336,669 2,986,667 726,987 64,292 43,911 246,924 247,996 671,584 427,465 757,746 1,584,421 30,464 83,154 155,738 79,026 473,602 275,265 30,739 144,813 223,085 424 243,472 297,476 (6,453) 2,592 (49) 23,030 57,319 23,099 (63,952) (5,286) (12) (5,771) (18,581) 34,672 48,255 Total at the end of 30 September 2018 2,429,159 1,854,995 2,524,430 (10,675) 88 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201915. Investments in subsidiaries, associates and minority interests (continued) Name of company Zambeef Retailing Limited Zamleather Limited West Africa Operations Masterpork Limited Zam Chick Limited Zamhatch Limited Total at the end of 30 September 2019 Zambeef Retailing Limited Zamleather Limited West Africa Operations Masterpork Limited Zampalm Limited Zam Chick Limited Zamhatch Limited Country of Incorporation Assets USD’000s Liabilities USD’000s Revenues USD’000s Profit/(loss) USD’000s Zambia Zambia Nigeria & Ghana Zambia Zambia Zambia Zambia Zambia Nigeria & Ghana Zambia Zambia Zambia Zambia 68,134 73,543 150,464 6,912 1,603 17,740 64,731 49,576 4,838 5,158 10,827 47,988 26,494 2,178 15,013 20,532 20,096 34,142 208,696 168,848 242,425 59,394 5,253 3,588 20,174 20,261 54,868 34,924 61,907 159,720 2,489 6,794 11,201 6,456 38,692 22,488 3,099 14,598 22,488 43 24,543 29,987 (4,330) (524) 210 (4) 1,869 4,653 1,874 (6,446) (533) (1) (582) (1,873) 3,495 4,864 Total at the end of 30 September 2018 198,462 150,027 254,478 (1,076) Name of company Zambeef Retailing Limited Zamleather Limited Master Meat and Agro Production Co of Nigeria Limited Master Meat (Ghana) Limited Masterpork Limited Zampalm Limited (note 15 (e)) Zam Chick Limited Zamhatch Limited 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 31 1,477 216 1,310 26,601 - 158,230 57,942 245,807 2 112 16 99 2,015 - 11,988 4,390 18,622 31 1,477 216 1,310 26,601 - 158,230 57,942 245,807 3 121 17 107 2,173 - 12,927 4,734 20,082 d) In the opinion of the Directors, the value of the company’s interests in the subsidiary companies is not less than the amounts at which they are stated in these financial statements. (e) As at the reporting date, the Group has a 10% equity interest in Zampalm Limited. The company has significant influence over Zampalm in that, it has a management contract and it is responsible for day to day management of Zampalm. The investment is accounted for using the equity method. Summarised financial information of the Group’s share in the associate is as follows: Opening balance Arising during the year Loss from continuing operation Foreign exchange difference Total comprehensive income 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 15,412 - (3,036) - (3,036) 1,259 - (246) (75) (321) - 16,154 (742) - (742) - 1,334 (75) - (75) Carrying amount of the Group’s interest 12,376 938 15,412 1,259 89 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019 16. (a) Biological assets – Group Biological assets comprise standing crops, feedlot cattle, dairy cattle, pigs and chickens. At 30 September 2019 there were 12,335 cattle (9,229 feedlot cattle and 3,106 dairy cattle) and 900,349 chickens (587,815 layers and 312,534 broilers), and 5,014 pigs. A total of 43,711 feedlot cattle, 642 dairy cattle, 9,430 pigs and 7,997,076 chickens were culled during the year. Gains/ (losses) arising from fair value attributable to physical changes ZMW’000s Gains arising from fair value attributable to price changes ZMW’000s Decrease due to harvest/ transferred to inventory ZMW’000s 178,652 158,018 140,024 2,237 134,586 613,517 6,097 2,019 - 122 2,046 (583,985) (486,535) (206,532) (12,872) (417,455) As at 1 October ZMW’000s Increase due to purchases ZMW’000s 42,419 56,750 48,336 4,431 29,738 181,674 384,077 312,626 67,939 10,637 297,042 1,072,321 As at 30 September ZMW’000s 27,260 42,878 49,767 4,555 45,957 10,284 (1,707,379) 170,417 As at 1 October USD’000s Foreign exchange USD’000s 3,466 4,636 3,949 362 2,430 (169) (263) (295) (27) (265) Increase due to purchases USD’000s 31,175 25,375 5,515 863 24,111 14,843 (1,019) 87,039 Gains/ (losses) arising from fair value attributable to physical changes USD’000s Gains arising from fair value attributable to price changes USD’000s Decrease due to harvest/ transferred to inventory USD’000s 14,501 12,826 11,366 182 10,924 49,799 495 164 - 10 166 835 (47,402) (39,491) (16,764) (1,046) (33,884) (138,587) As at 30 September USD’000s 2,066 3,247 3,771 344 3,482 12,910 (i) In Zambian Kwacha Standing Crops Feedlot Cattle Dairy Cattle Pigs Chickens Total (ii) In US Dollars Standing Crops Feedlot Cattle Dairy Cattle Pigs Chickens Total 16. (b) Biological assets – Company Biological assets comprise standing crops, feedlot cattle, dairy cattle, and chickens. At 30 September 2019 there were 12,335 cattle (9,229 feedlot cattle and 3,106 dairy cattle), and 352,673 chickens (352,673 layers). A total of 43,711 feedlot cattle and 642 dairy cattle were culled during the year. Gains/ (losses) arising from fair value attributable to physical changes ZMW’000s 178,652 158,018 140,024 23,811 Gains arising from fair value attributable to price changes ZMW’000s Decrease due to harvest/ transferred to inventory ZMW’000s 6,097 2,019 - 2,046 (583,985) (486,536) (206,532) (57,211) As at 30 September ZMW’000s 27,260 42,878 49,767 17,310 As at 1 October ZMW’000s Increase due to purchases ZMW’000s 42,419 56,751 48,336 10,843 384,077 312,626 67,939 37,821 158,349 802,463 500,505 10,162 (1,334,264) 137,215 (i) In Zambian Kwacha Standing Crops Feedlot Cattle Dairy Cattle Chickens Total 90 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201916. (b) Biological assets – Company (continued) As at 1 October USD’000s Foreign exchange USD’000s 3,465 4,637 3,948 887 12,937 (169) (263) (294) (101) (827) Increase due to purchases USD’000s 31,175 25,375 5,515 3,070 65,135 (ii) In US Dollars Standing Crops Feedlot Cattle Dairy Cattle Chickens Total 17. Inventories (i) In Zambian Kwacha Trading stocks Abattoir stocks Raw materials Stock feed Consumables Raw hides and chemicals (ii) In US Dollars Trading stocks Abattoir stocks Raw materials Stock feed Consumables Raw hides and chemicals Gains/ (losses) arising from fair value attributable to physical changes USD’000s Gains arising from fair value attributable to price changes USD’000s Decrease due to harvest/ transferred to inventory USD’000s 14,501 12,826 11,366 1,933 40,626 495 164 - 166 825 As at 30 September USD’000s 2,066 3,247 3,771 1,311 (47,401) (39,492) (16,764) (4,644) (108,301) 10,395 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 406,602 345,724 580 228,885 139,018 163,167 2,907 - - 220,250 117,626 - 941,159 683,600 272,763 7,018 116,884 49,496 190,396 3,254 639,811 215,648 - - 116,841 148,830 - 481,319 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 30,803 44 17,340 10,532 12,361 220 71,300 26,192 22,285 17,618 - - 16,685 8,911 - 51,788 573 9,549 4,044 15,555 266 52,272 - - 9,546 12,160 - 39,324 A total of ZMW2,166.7 million (USD175.9 million) (2018: ZMW1,806.2 million (USD182.1 million]) was included in profit and loss as an expense within cost of sales. Inventory was turned every 127 days (2018: 117 days). Biological assets totalling ZMW1,707.4 million (USD138.6 million) (2018: ZMW1,553.1 million [USD156.6 million]) were transferred to inventories during the year. 91 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201918. Trade and other receivables (i) In Zambian Kwacha Gross trade receivables Less: provision for impairment of trade receivables Trade receivables Prepayments Other receivables (ii) In US Dollars Gross trade receivables Less: provision for impairment of trade receivables Trade receivables Prepayments Other receivables 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 55,758 (4,910) 50,848 18,024 29,153 18,820 (1,913) 16,907 11,246 - 122,237 (4,822) 117,415 13,444 25,455 59,710 (1,331) 58,379 33,002 - 98,025 28,153 156,314 91,381 2019 2018 Group USD’000 Company USD’000 Group USD’000 Company USD’000 4,224 (372) 3,852 1,364 2,210 7,426 1,426 (145) 1,281 852 - 2,133 9,987 (394) 9,593 1,098 2,080 12,771 4,878 (109) 4,769 2,697 - 7,466 (a) Provision for impairment of trade receivables The Directors have made a provision against some of the trade receivables that are long standing. Before accepting any new customer, the Group assesses the potential customer’s credit quality and defines credit limits by customer. The fair value of these short term financial assets is not individually determined as the carrying amount is a reasonable approximation of fair value. Movements on the Group’s provision for impairment of trade receivables are set out in the table below: 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 4,822 (1,113) 1,201 4,910 1,331 (70) 652 1,913 4,786 (2,827) 2,863 4,822 2,254 (1,128) 205 1,331 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 394 (29) (90) 97 372 109 (11) (6) 53 145 466 (76) (285) 289 394 233 (32) (113) 21 109 (i) In Zambian Kwacha At 1 October Utilised Charge for the year At 30 September (ii) In US Dollars At 1 October Foreign exchange Utilised Charge for the year At 30 September 92 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 2019 18. Trade and other receivables (continued) Some of the unimpaired trade receivables are past due as at the reporting date. Financial assets past due but not impaired are shown below: (i) In Zambian Kwacha More than 3 months but not more than 6 months More than 6 months but not more than a year More than one year Total (ii) In US Dollars More than 3 months but not more than 6 months More than 6 months but not more than a year More than one year Total 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 2,147 - - 2,147 315 - - 315 2,345 - - 2,345 341 - - 341 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 163 - - 163 24 - - 24 192 - - 192 34 - - 34 Management reviews recoverability of trade receivables on a continuous basis and where necessary makes provision for impairment on long outstanding receivables. The matrix for the calculation of the expected credit losses is as detailed below. 30 September 2019 Trade receivable days past due Expected credit loss rate Gross carrying amount - ZMW'000 Lifetime expected credit loss - ZMW'000 Current More than More than More than Total 2.5% 45,719 1,137 30 days 60 days 90 days 4.7% 774 36 17.1% 4,268 731 60.1% 4,998 3,006 55,758 4,910 1 October 2018 Trade receivable days past due Expected credit loss rate Gross carrying amount - ZMW'000 Lifetime expected credit loss - ZMW'000 Current More than More than More than Total 30 days 60 days 90 days 1.5% 105,912 1,552 4.5% 8,670 388 11.4% 3,811 435 63.6% 3,843 2,447 122,237 4,822 30 September 2019 Trade receivable days past due Expected credit loss rate Gross carrying amount - USD'000 Lifetime expected credit loss - USD'000 Current More than More than More than Total 2.5% 3,464 86 30 days 60 days 90 days 4.7% 59 3 17.1% 323 55 60.1% 379 228 4,224 372 1 October 2018 Trade receivable days past due Current More than More than More than Total Expected credit loss rate Gross carrying amount - USD'000 Lifetime expected credit loss - USD'000 1.5% 8,653 127 30 days 60 days 90 days 4.5% 708 32 11.4% 311 36 63.6% 314 200 9,987 394 93 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201919. Amounts due from related companies (i) In Zambian Kwacha Chisamba Ranching and Cropping Danny Museteka Tractorzam Limited Tembilo Farms Limited Wellspring Limited Lilian Limbuka Zamleather Limited Zampalm Limited Master Meat & Agro Production Co. of Nigeria Limited Zam Chick Limited Master Meat (Ghana) Limited Zamhatch Limited (ii) In US Dollars Chisamba Ranching and Cropping Tractorzam Limited Danny Museteka Tembilo Farms Limited Wellspring Limited Lilian Limbuka Zamleather Limited Zampalm Limited Zam Chick Limited Mastermeat & Agro Production Co. of Nigeria Limited Master Meat (Ghana) Limited Zamhatch Limited 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 258 70 - 59 5,624 508 - 35,035 - - - - 601 70 - - 5,624 - 40,154 20,184 60,977 534,335 2,728 414,072 - - 1,321 174 889 - - 47,888 - - - - 41,554 1,078,745 50,272 - - 1,321 - 889 - 19,821 32,732 60,168 421,639 2,076 257,860 796,506 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 20 - 5 4 427 38 - 2,654 - - - - 3,148 45 - 5 427 - 3,042 1,529 40,479 4,619 207 31,369 81,722 - 108 14 73 - - 3,912 - - - - 4,107 - 108 - 73 - 1,619 2,674 34,448 4,915 169 21,067 65,073 The above balances relate to arm’s length transactions between the transacting parties. External parties that fall under the ‘Related Party’ disclosure is with respect to all common shareholding companies of the Board of Directors of the Group. Unless otherwise stated, none of the transactions incorporate special terms and conditions and no guarantees were given or received. Outstanding balances are usually settled in cash. 94 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201920. Cash and cash equivalents (i) In Zambian Kwacha Cash in hand and at bank Bank overdrafts (note (b)) (ii) In US Dollars Cash in hand and at bank Bank overdrafts (note (b)) (a) Banking facilities 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 56,753 (331,178) 11,844 101,123 (207,616) (236,866) (274,425) (195,772) (135,743) 54,357 (131,328) (76,971) 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 4,299 (25,089) (20,790) 897 (15,728) (14,831) 8,262 (19,352) (11,090) 4,441 (10,729) (6,288) The Group has overdraft facilities totalling ZMW74.6 million (2018: ZMW74.6 million) and USD5 million (2018: USD5 million) with Citibank Zambia Limited. The Citibank overdrafts bear interest rates of Bank of Zambia Policy rate plus 4.5 per cent. on the Kwacha facility and 3 month USD LIBOR rate plus 4 per cent. on the USD facility. During the period under review the Group obtained an additional headroom overdraft facility totalling USD2.3 million with Citibank Zambia Limited which bears an interest rate of 3 month USD LIBOR rate plus 5 per cent. The Group has overdraft facilities totalling ZMW30 million (2018: ZMW30 million) and USD2 million (2018: USD2 million) with Standard Chartered Bank Zambia Plc. The Standard Chartered Bank overdrafts bear interest rates of Bank of Zambia Policy rate plus 4.5 per cent. on the Kwacha facilities and 1 month USD LIBOR rate plus 4 per cent. on the USD facilities. The Group has overdraft facilities totalling ZMW118.3 million (2018: ZMW98.3 million) with Zanaco Bank Plc. The Zanaco Bank overdraft bears an interest rate of Bank of Zambia Policy rate plus 4.5 per cent. on the Kwacha facility. The Group has overdraft facilities totalling ZMW57.5 million (2018: ZMW57.5 million) and USD2 million (2018: USD2 million) with Stanbic Bank Zambia Limited. The Stanbic Bank overdrafts bear interest rate of Bank of Zambia Policy rate plus 5.5 per cent. on the Kwacha facility and 3 month USD LIBOR rate plus 4 per cent. on the USD facility. (b) Bank overdrafts (i) In Zambian Kwacha Zanaco Bank Plc Citibank Zambia Limited Stanbic Bank Zambia Limited Standard Chartered Bank Zambia Plc (ii) In US Dollars Zanaco Bank Plc Citibank Zambia Limited Stanbic Bank Zambia Limited Standard Chartered Bank Zambia Plc 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s (114,029) (119,071) (69,060) (29,018) - (109,538) (69,060) (29,018) (95,709) (57,022) (56,935) (27,200) - (47,193) (56,935) (27,200) (331,178) (207,616) (236,866) (131,328) 2019 2018 Group USD’000 Company USD’000 Group USD’000 Company USD’000 (8,638) (9,021) (5,232) (2,198) - (8,298) (5,232) (2,198) (7,819) (4,659) (4,652) (2,222) - (3,855) (4,652) (2,222) (25,089) (15,728) (19,352) (10,729) (i) The Zambeef Products Plc Company bank overdrafts are secured by a first floating charge/debenture over all the assets of the Company. The floating charge/debenture ranks pari passu between Standard Chartered Bank Zambia Plc (USD5 million), Citibank Zambia Limited (USD16.3 million and ZMW8 million), Zanaco Bank Plc (ZMW118.3 million), and Stanbic Bank Zambia Limited (ZMW132 million). All overdrafts are annual revolving facilities. 95 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019 Notes to the Financial Statements (continued) For the year ended 30 September 2019 21. Share capital (a) Ordinary share capital Authorised 700,000,000 ordinary shares of ZMW0.01 each (2018: 700,000,000 ordinary shares of ZMW0.01 each) Issued and fully paid At 1 October Issued during the year At 30 September 300,579,630 ordinary shares of ZMW0.01 each (2018: 300,579,630 ordinary shares of ZMW0.01 each) (b) Preference share capital Issued and fully paid At 1 October Issued during the year At 30 September 100,057,658 preference shares of ZMW0.01 each (2018: 100,057,658 preference shares of ZMW0.01 each) 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 7,000 938 7,000 938 3,006 - 3,006 1,000 - 1,000 449 - 449 100 - 100 3,006 - 3,006 1,000 - 1,000 449 - 449 100 - 100 The preference shares are convertible in whole or in part by CDC into ordinary shares on a one-for-one basis for the first eight years and thereafter on a basis of 3.0833 ordinary shares for each preference share. These shares have four voting rights for every five preference shares held. Zambeef has the right to redeem all or part of the preference shares at the redemption price, which will give CDC a 12% compounded return on investment. The zero-coupon preference shares pay a dividend only if a dividend is paid to ordinary shareholders, and in such cases, the dividend per share will be the same as that for ordinary shares. 22. Share premium At 1 October Arising during the year At 30 September 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 1,125,012 185,095 1,125,012 185,095 - - - - 1,125,012 185,095 1,125,012 185,095 Proceeds received in addition to the nominal value of the shares issued have been included in share premium. 96 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201923. Interest bearing liabilities (i) In Zambian Kwacha DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH (note (a)) Zanaco Bank Plc (note (b)) Standard Chartered Bank Zambia Plc (note (c)) IFC – International Finance Corporation (note (d)) Stanbic Bank Zambia Limited (note (e)) 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 197,604 13,286 212,381 118,870 29,000 571,141 197,604 13,286 212,381 118,870 29,000 571,141 231,413 19,929 107,213 152,217 - 231,413 19,929 107,213 152,217 - 510,772 510,772 Less: Short term portion (repayable within next 12 months) (343,042) (343,042) (202,460) (202,460) Long term portion (repayable after 12 months) 228,099 228,099 308,312 308,312 (ii) In US Dollars DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH (note (a)) Zanaco Bank Plc (note (b)) Standard Chartered Bank Zambia Plc (note (c)) IFC – International Finance Corporation (note (d)) Stanbic Bank Zambia Limited (note (e)) Less: Short term portion (repayable within next 12 months) Long term portion (repayable after 12 months) 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 14,970 1,006 16,090 9,005 2,197 43,268 (25,988) 17,280 14,970 1,006 16,090 9,005 2,197 43,268 (25,988) 17,280 18,907 1,628 8,759 12,436 - 41,730 (16,541) 25,189 18,907 1,628 8,759 12,436 - 41,730 (16,541) 25,189 (a) (i) DEG Term Loan 3 The Group has a loan facility of USD4.97 million (2018: USD6.39 million and original amount of USD10 million) from DEG. Interest on the loan is 4.25 per cent. above the 6 month USD LIBOR rate per annum payable 6 monthly in arrears. The capital is repayable in 14 biannual instalments of USD710,000 commencing May 2016 and expiring in November 2022. The DEG term loan 3 is secured by: • • First ranking legal mortgage over R/E of Farm No. 4906, Lot No. 18835/M and Lot No. 18836/M (Sinazongwe farm); and First ranking legal mortgage over Farm No. 10097, R/E of Farm No. 5063 and Lot No. 8409/M (Chiawa farm). (ii) DEG Term Loan 4 The Group has a loan facility of USD10 million (2018: USD12.5 million and the original amount of USD15 million) from DEG. Interest on the loan is 5.75 per cent. above the 6 month USD LIBOR rate per annum payable quarterly in arrears. The capital is repayable in 12 quarterly instalments of USD1,250,000 commencing March 2018 and expiring in September 2023. The DEG term loan 4 is secured by: • • Second ranking legal mortgage over R/E of Farm No. 4906, Lot No. 18835/M and Lot No. 18836/M (Sinazongwe farm); and Second ranking legal mortgage over Farm No. 10097, R/E of Farm No. 5063 and Lot No. 8409/M (Chiawa farm). (b) Zanaco Bank Plc The Group has a loan facility of ZMW13.3 million (2018: ZMW19.9 million and original amount of ZMW46.5 million) with Zanaco Bank Plc. Interest on the loan is 4.5 per cent. above the Bank of Zambia policy rate per annum payable monthly in arrears. The principal is repayable in 7 annual instalments of ZMW6,642,857 commencing December 2014 and expiring in December 2020. The loan is secured by a first ranking legal mortgage over Stand No. 4970, Industrial Area, Lusaka (Head Office). (c) Standard Chartered Bank Zambia Plc The Group has a structured agricultural facility with an annual revolving limit totalling USD20 million (2018 – USD20 million) with Standard Chartered Bank Zambia PLC. The purpose of the facility is the financing of wheat, soya beans, and maize under collateral management agreements and is for 270 days. The balance on the facilities at year end was USD16.1 million (2018: USD8.8 million). Interest on the facility is 3 month USD LIBOR plus 3.25 per cent. per annum calculated on the daily overdrawn balances. 97 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201923. Interest bearing liabilities (continued) (d) International Finance Corporation Loan 2 The Group has a loan facility of USD7.6 million and ZMW18.8 million (2018: USD10.3 million and ZMW25.7 million and original amount of USD20 million and ZMW49.6 million). Interest on the loan is 4.75 per cent. above the 6 month USD LIBOR rate per annum for the USD facility and 4.45 per cent. above the 91 day Treasury Bill rate plus a variable swap margin for the Kwacha facility payable quarterly in arrears. The principal is repayable in 29 equal quarterly instalments of USD689,655 and ZMW1,710,345 commencing June 2015 and expiring in June 2022. The loan is secured through a first ranking legal mortgage over R/E of Farm No. 4450, R/E of Farm No. 4451 & R/E of Farm No. 5388 (Mpongwe farm). (e) Stanbic Bank Zambia Limited During the period under review the Group obtained a seasonal loan facility with an annual revolving limit totalling ZMW29 million from Stanbic Bank Zambia Limited. The balance on the facility at year end was ZMW29 million. Interest on the facility is 5.75 per cent. above the Bank of Zambia policy rate per annum payable monthly in arrears. This facility is secured by a first floating charge/debenture over all the assets of the Company. The floating charge/debenture ranks pari passu between Standard Chartered Bank Zambia Plc (USD5 million), Citibank Zambia Limited (USD16.3 million and ZMW8 million), Zanaco Bank Plc (ZMW118.3 million), and Stanbic Bank Zambia Limited (ZMW132 million). 24. Obligations under finance leases (i) In Zambian Kwacha Freddy Hirsch Group Zambia Limited (note (a)) Stanbic Bank Zambia Limited (note (b)) Less: Payable within 12 months Repayable after 12 months (ii) In US Dollars Freddy Hirsch Group Zambia Limited (note (a)) Stanbic Bank Zambia Limited (note (b)) Less: Payable within 12 months Repayable after 12 months The ageing for the finance leases is as detailed below: (i) In Zambian Kwacha 2019 Lease payments Finance charges Net present values 2018 Lease payments Finance charges Net present values 98 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 11,013 29,771 40,784 (21,487) 19,297 - 29,771 29,771 (18,266) 11,505 14,067 24,344 38,411 (18,248) 20,163 - 24,344 24,344 (11,841) 12,503 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 835 2,255 3,090 (1,628) 1,462 - 2,256 2,256 (1,384) 872 1,149 1,989 3,138 (1,491) 1,647 - 1,989 1,989 (967) 1,022 Within 1 year ZMW’000s 1 to 5 years ZMW’000s After 5 years ZMW’000s Total ZMW’000s 22,018 (531) 21,487 18,678 (430) 18,248 20,295 (998) 19,297 21,179 (1,016) 20,163 - - - - - - 42,313 (1,529) 40,784 39,857 (1,446) 38,411 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201924. Obligations under finance leases (continued) (ii) In US Dollars 2019 Lease payments Finance charges Net present values 2018 Lease payments Finance charges Net present values Within 1 year USD’000s 1 to 5 years USD’000s After 5 years USD’000s Total USD’000s 1,668 (40) 1,628 1,526 (35) 1,491 1,538 (76) 1,462 1,730 (83) 1,647 - - - - - - 3,206 (116) 3,090 3,256 (118) 3,138 (a) Masterpork Limited, a subsidiary of the Group, has hire purchase facilities of ZMW11.013 million (2018 – ZMW14.067 million) with Freddy Hirsch Group Zambia Ltd. The following equipment is on hire purchase and are interest free: HirschPro 400, Ulma, Cozzini Blender, 2 x Smokehouse machines and Spiral Dryer. The principle on the Kwacha hire purchase facilities is repayable in 48 equal monthly instalments totalling ZMW0.29 million (USD0.02 million). (b) The Stanbic Bank Zambia Limited finance lease relates to the purchase of motor vehicles and agricultural machinery with terms of 48 months. The Group has a facility of USD2 million and ZMW 25million. The interest on the finance lease is charged at 3 month USD LIBOR plus 4 per cent on the USD facility and the Bank of Zambia Policy Rate plus 6.75 per cent. on the Kwacha facility. The obligations under finance leases are secured by the lessor’s absolute ownership over the leased assets comprehensively insured with the bank’s interest noted as first loss payee. 25. Deferred liability Under the terms of employment, employees are entitled to certain terminal benefits. Provision has been made during the year towards these benefits. This statutory entitlement, which is lost if the employee is summarily dismissed, becomes payable only when the employee retires after attaining the age of 55 years and that employee has been employed for more than ten years. Uncertainty exists over the amount of future outflows due to staff turnover levels, but are not considered material to the Group. (i) In Zambian Kwacha At 1 October Provision/ (movements) during the year Payments made during the year At 30 September 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 22,611 (4,673) (1,576) 16,362 5,059 (836) (568) 3,655 16,756 7,557 (1,702) 22,611 3,659 2,319 (919) 5,059 The company engaged a professional actuary, Quantum Consultants & Actuaries, to perform an actuarial valuation of the liability arising from the employee defined benefit plan as at 30 September 2019. As of the report date, the actuary had finalised the report and the provision was adjusted to agree to the report. (ii) In US Dollar At 1 October Provision/ (movements) during the year Payments made during the year Foreign translation At 30 September 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 1,847 (379) (128) (100) 1,240 413 (67) (46) (23) 277 1,733 762 (172) (476) 1,847 378 234 (93) (106) 413 The assumptions developed by management with the assistance of independent actuaries. Discount factors are determined close to each year- end by reference to market yields of bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension obligation. Other assumptions are based on current actuarial benchmarks and management’s historical experience. 99 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201925. Deferred liability (continued) (ii) In US Dollar Defined benefit obligation 1 October Current service cost before deduction of beneficiary contributions Interest expense Remeasurement - actuarial losses from changes in demographic assumptions Remeasurement - actuarial losses from changes in financial assumptions Experience (gains)/Losses Benefits paid Translation Difference Past Service cost Defined benefit obligation 30 September Unfunded Partly or wholly funded 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 22,611 887 3,850 - (3,097) (5,731) (2,158) - 16,362 - 16,362 1,847 72 313 - (251) (465) (175) (101) - 1,240 - 1,240 16,756 1,300 3,313 - 3,113 (1,061) (810) 22,611 - 22,611 1,733 131 334 - 314 (107) (82) (476) - 1,847 - 1,847 The significant acturial assumptions for the determination of the defined obligation are the discount rate, the salary growth rate and the average life expectancy. The assumptions used for the valuation of the defined benefit obligation are as follows: Discount rate at date shown Salary growth rate Average life expectancies: - 25 years of age at reporting date - 30 years of age at reporting date - 35 years of age at reporting date - 40 years of age at reporting date - 45 years of age at reporting date - 50 years of age at reporting date Current service cost Past service cost Net interest expenses Total expenses recognised in profit or loss 30 September 30 September 2019 20% 14.50% 2018 17.50% 14.50% 47% 57% 66% 72% 78% 86% 47% 57% 66% 72% 78% 86% 2019 ZMW’000s 2019 USD’000s 2018 ZMW’000s 2018 USD’000s 887 - 3,850 4,737 72 - 313 385 1,300 - 3,313 4,613 131 - 334 465 Amounts recognised in other comprehensive income related to the group’s defined benefit plan are as follows; 100 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201925. Deferred liability (continued) Actuarial losses from changes in demographic assumptions Actuarial losses from changes in financial assumptions Experience (gains)/losses Return on plan assets (excluding amounts included in net interest) Total expenses recognised in other comprehensive income 26. Trade and other payables (i) In Zambian Kwacha Trade payables Accruals (ii) In US Dollars Trade payables Accruals 2019 ZMW’000s 2019 USD’000s 2018 ZMW’000s 2018 USD’000s - (3,097) (5,731) (8,829) - (251) (465) 0 (717) - 3,113 (1,061) 2,052 - 314 (107) 0 207 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 233,245 26,340 259,585 152,362 6,142 241,715 55,675 162,644 42,031 158,504 297,390 204,675 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 17,670 1,995 19,665 11,543 465 12,008 19,747 4,547 24,294 13,288 3,434 16,722 The average credit period taken in 2019 was 33 days (2018: 47 days). All amounts shown under trade and other payables fall due for payment within one year. The carrying value of trade and other payables are considered to be a reasonable approximation of fair value. 27. Provisions Group Carrying amount 1 October 2018 Additional provisions Amount utilised Foreign translation Staff ZMW’000 Others ZMW’000 Total ZMW’000 Staff USD’000 Others USD’000 Total ZMW’000s 39,188 30,367 (21,964) - 2,949 113,743 (111,369) - 42,137 144,110 (133,333) - Carrying amount 30 September 2019 47,591 5,323 52,914 Company Carrying amount 1 October 2018 Foreign translation Additional provisions Amount utilised Carrying amount 30 September 2019 10,971 - 23,818 (6,950) 27,839 15,137 - 92,305 (94,819) 12,623 26,108 - 116,123 (101,769) 40,462 3,202 2,465 (1,783) (278) 3,606 896 (156) 1,933 (564) 2,109 241 9,232 (9,040) (30) 403 1,236 (76) 7,492 (7,696) 956 3,443 11,697 (10,823) (308) 4,009 2,132 (232) 9,425 (8,260) 3,065 Staff provisions relate to gratuity, leave pay and other related claims. Other provisions relate to suppliers’ claims for goods and services provided. 101 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019 28. Amounts due to related companies (i) In Zambian Kwacha Zambian Pig Genetics Zambeef Retailing Limited Masterpork Limited Zambezi Ranching and Cropping Limited Tractorzam Non-current Current (ii) In US Dollars Zambian Pig Genetics Zambeef Retailing Limited Masterpork Limited Zambezi Ranching and Cropping Limited Tractorzam Non-current Current 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s - - - - 251 251 - 251 - 417,832 71,962 - 251 490,045 - 490,045 45 - - 187 - 232 - 232 - 261,466 67,035 132 - 328,633 - 328,633 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s - - - - 19 19 - 19 - 31,654 5,451 19 37,124 - 37,124 4 - - 15 19 - 19 - 21,362 5,477 10 - 26,849 - 26,849 The above balances relate to arm’s length transactions with the related parties. External parties that fall under the ‘Related Party’ disclosure are with respect to all common shareholding companies of the Board of Directors of the Group. Unless otherwise stated, none of the transactions incorporate special terms and conditions and no guarantees were given or received. 29. Financial instruments Financial assets The Group’s principal financial assets are bank balances and cash and trade receivables. The Group maintains its bank accounts with major banks in Zambia of high credit standing. Trade receivables are stated at amounts reduced by appropriate allowances for estimated irrecoverable amounts. Financial liabilities The Group’s financial liabilities are bank overdrafts, long term loans and trade payables. Financial liabilities are classified according to the substance of the contractual arrangements entered into. Trade payables and loans are stated at their nominal value. Monetary assets and liabilities in foreign currencies The tables below show the extent to which Group companies have monetary assets and liabilities in currencies other than their local currency: (i) In Zambian Kwacha Financial assets - Cash at bank - Trade receivables - Other receivables Financial liabilities - Bank overdrafts 102 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 30,575 58,257 3 3,115 52,372 - 95,129 61,539 8,890 49,978 39,376 4,342 (194,909) (71,329) (110,171) (4,634) Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201929. Financial instruments (continued) (i) In Zambian Kwacha - Trade and other payables - Bank loans - Finance leases Net exposure (ii) In US Dollars Financial assets - Cash at bank - Trade receivables - Other receivables Financial liabilities - Bank overdrafts - Trade and other payables - Bank loans - Finance leases Net exposure (i) In Zambian Kwacha 2019 - Group Financial Assets - Cash at bank - Trade receivables - Other receivables Financial Liabilities - Bank overdrafts - Trade and other payables - Bank loans - Finance leases Net exposure (ii) In Zambian Kwacha 2018 - Group Financial Assets - Cash at bank - Trade receivables - Other receivables Financial Liabilities - Bank overdrafts - Trade and other payables - Bank loans - Finance leases Net exposure 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s (138,151) (297,660) (19,423) (108,193) (297,660) (19,423) (211,769) (465,188) (19,140) (136,763) (465,188) (19,140) (561,308) (441,118) (640,710) (532,029) 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 2,316 4,413 - (14,766) (10,465) (22,550) (1,471) 236 3,968 - (5,404) (8,197) (22,550) (1,471) 7,772 5,028 726 (9,001) (17,301) (38,006) (1,564) 4,083 3,217 355 (379) (11,173) (38,006) (1,563) (42,523) (33,418) (52,346) (43,466) US Dollar ZMW’000s SA Rand ZMW’000s Other ZMW’000s Total ZMW’000s 2,578 55,191 - (80,589) (106,330) (297,660) (19,423) 1,303 1,984 3 - (10,458) - - 26,694 1,082 - (114,321) (21,362) - - 30,575 58,257 3 (194,910) (138,150) (297,660) (19,423) (446,233) (7,168) (107,907) (561,308) US Dollar ZMW’000s SA Rand ZMW’000s Other ZMW’000s Total ZMW’000s 51,393 40,083 4,566 (7,394) (116,969) (465,188) (19,140) 403 - 575 43,333 21,456 3,749 95,129 61,539 8,890 - (102,777) (110,171) (21,118) (73,682) - - - - (211,769) (465,188) (19,140) (512,649) (20,140) (107,921) (640,710) 103 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201929. Financial instruments (continued) (i) In US Dollars – Group - 2019 Financial Assets - Cash at bank - Trade receivables - Other receivables Financial Liabilities - Bank overdrafts - Trade and other payables - Bank loans - Finance leases Net exposure (ii) In US Dollars – Group - 2018 Financial Assets - Cash at bank - Trade receivables - Other receivables Financial Liabilities - Bank overdrafts - Trade and other payables - Bank loans - Finance leases Net exposure US Dollar USD’000s SA Rand USD’000s Other USD’000s Total USD’000s 195 4,181 - (6,105) (8,055) (22,550) (1,471) 99 150 - - (792) - - 2,022 82 - (8,661) (1,618) - - 2,316 4,413 - (14,766) (10,465) (22,550) (1,471) (33,805) (543) (8,175) (42,523) US Dollar USD’000s SA Rand USD’000s Other USD’000s Total USD’000s 4,199 3,275 373 (604) (9,556) (38,006) (1,564) (41,883) 33 - 47 - (1,725) - - 3,540 1,753 306 (8,397) (6,020) - - 7,772 5,028 726 (9,001) (17,301) (38,006) (1,564) (1,645) (8,818) (52,346) Exposure to currency exchange rates arise from the Group’s sales and purchases which are primarily denominated in US Dollar and South African Rand. It also arises from the retranslation of its foreign subsidiaries in West Africa. The Group activities expose it to a variety of financial risks. The main risks faced by the Group relate to foreign exchange rates, the risk of default by counter-parties to financial transactions and the availability of funds to meet business needs. These risks are managed as described below: (i) Currency risk Some of the interest bearing borrowings are denominated in foreign currencies and therefore lead to a risk of fluctuation of value due to changes in the foreign exchange rate. This risk is partially hedged by holding United States Dollar bank balances and United States Dollar denominated exports. The table below shows the extent to which Group companies have interest bearing liabilities in currencies other than their functional currency: DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH International Finance Corporation 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 197,604 100,056 297,660 14,970 7,580 22,550 231,413 126,562 357,975 18,907 10,340 29,247 (ii) Foreign currency risk sensitivity analysis Zambian Kwacha/United States Dollar exchange risk The following tables illustrate the sensitivity of the net result for the year and equity with regard to the Group’s foreign currency borrowings “with all other things being equal”. It assumes a +/-10 per cent. and 5 per cent., movement in the United States Dollar/Zambian Kwacha exchange rate for the year ended 30 September 2019. If the Zambian Kwacha had weakened against the United States dollar by 10 per cent. (2018: 10 per cent.) then this would have resulted in the following impact on net profit and equity: 104 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201929. Financial instruments (continued) Weakening of the Kwacha Net profit/(loss) Equity 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s (2,443) (180) (25,291) 3,215,943 221,484 3,079,990 (2,318) 228,757 If Zambian Kwacha had strengthened against the United States Dollar by 5 per cent. (2018: 5 per cent) then this would have resulted in the following impact on net profit and equity: Strengthening of the Kwacha Net profit/(loss) Equity 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 42,206 3,606 28,385 3,012 3,260,592 260,015 3,133,666 269,493 There is no material difference between the carrying value and the fair value of the Group’s financial liabilities. (iii) Interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from overdraft facilities and long-term borrowings. Borrowings issued at variable rates expose the Group to interest rate risk. The interest rates to which the Group is exposed are set out in notes 20, 23 and 24. The risk of interest rate movements is managed through on-going monitoring of the Group’s overdrafts and long-term borrowings, the spreading of debt between a number of financial institutions and the denomination of debt in Zambian Kwacha and USD. The Group’s term facilities are medium to long term with fixed spread over LIBOR. A 0.5 per cent. movement in the LIBOR rate would not have a material impact on the interest expense for the Group. (iv) Market risk The Group is not exposed to the risk of the value of its financial assets fluctuating as a result of changes in market prices. (b) Credit risk (i) Trade receivables The Directors believe the credit risk of trade receivables is low. The credit risk is managed by the selective granting of credit. (c) Liquidity risk Liquidity risk is the risk that the Group might be unable to meet its obligations associated with its financial liabilities. The Group monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on any undrawn borrowing facilities so that the Group does not breach limits or covenants (where applicable) on any of its borrowing facilities. The maturity of the Group’s financial liabilities with respect to borrowings is set out in notes 20, 23 and 24. 30 September 2019 Interest bearing liabilities Other bank borrowings Finance lease obligations Trade and other payables Current Non-current Within 6 months 6 to 12 months 1 to 5 years later than 5 years ZMW’000 ZMW’000 ZMW’000 ZMW’000 50,830 - 10,743 312,499 50,831 241,381 10,744 - 228,099 - 19,297 - - - - - 105 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019 29. Financial instruments (continued) 30 September 2019 Interest bearing liabilities Other bank borrowings Finance lease obligations Trade and other payables Current Non-current Within 6 months 6 to 12 months 1 to 5 years later than 5 years USD’000 USD’000 USD’000 USD’000 3,851 - 814 23,674 3,851 18,286 814 - 17,280 - 1,462 - - - - - 30. Fair value measurement Fair value measurement of financial instruments Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three Levels of a fair value hierarchy. The three Levels are defined based on the observability of significant inputs to the measurement, as follows: • • • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: unobservable inputs for the asset or liability. The following table shows the Levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis at 30 September 2019, 30 September 2018, and 1 October 2017. Level 1 Level 2 Level 3 Total ZMW’000 ZMW’000 ZMW’000 ZMW’000 - - - - - - - 88,874 88,874 88,874 88,874 (297,660) (297,660) (297,660) - - (297,660) (297,660) 88,874 (208,786) Level 1 Level 2 Level 3 Total ZMW’000 ZMW’000 ZMW’000 ZMW’000 - - - - 117,415 117,415 117,415 117,415 (465,188) (465,188) - - (465,188) (347,250) (465,188) 117,415 (347,773) 30 September 2019 Financial assets Trade receivables Total Assets Financial liabilities US-dollar loans Total Liabilities Net fair value 30 September 2018 Financial assets Trade receivables Total Assets Financial liabilities US-dollar loans Total Liabilities Net fair value 106 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201930. Fair value measurement (continued) 1 October 2017 Financial assets Trade receivables Total Assets Financial liabilities US-dollar loans Total Liabilities Net fair value 30 September 2019 Financial assets Trade receivables Total Assets Financial liabilities US-dollar loans Total Liabilities Net fair value 30 September 2018 Financial assets Trade receivables Total Assets Financial liabilities US-dollar loans Total Liabilities Net fair value Level 1 Level 2 Level 3 Total USD’000s USD’000s USD’000s USD’000s - - - - 61,651 61,651 61,651 61,651 - - - (407,498) (407,498) - - (407,498) (407,498) (407,498) 61,651 (345,847) Level 1 Level 2 Level 3 Total USD’000s USD’000s USD’000s USD’000s - - - - - - - 6,733 6,733 6,733 6,733 (22,550) (22,550) - - (22,550) (22,550) (22,550) 6,733 (15,817) Level 1 Level 2 Level 3 Total USD’000s USD’000s USD’000s USD’000s - - - - - - - 9,593 9,593 9,593 9,593 (38,006) (38,006) - - (38,006) (38,006) (38,006) 9,593 (28,413) 107 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201930. Fair value measurement (continued) 1 October 2018 Financial assets Trade receivables Total Assets Financial liabilities US-dollar loans Total Liabilities Net fair value Level 1 Level 2 Level 3 Total USD’000s USD’000s USD’000s USD’000s - - - - - - - 6,376 6,376 6,376 6,376 (42,140) (42,140) (42,140) - - 6,376 (42,140) (42,140) (35,764) There were no transfers between Level 1 and Level 2 in 2019 or 2018. Measurement of fair value of financial instruments The Group’s finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in consultation with third party valuation specialists for complex valuations. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. The finance team reports directly to the Chief Financial Officer (CFO) and to the audit committee. Valuation processes and fair value changes are discussed among the audit committee and the valuation team at least every year, in line with the Group’s reporting dates. The valuation techniques used for instruments categorised in Levels 2 and 3 are described below: Foreign currency forward contracts (Level 2) The Group’s foreign currency forward contracts are not traded in active markets. These have been fair valued using observable forward exchange rates and interest rates corresponding to the maturity of the contract. The effects of non-observable inputs are not significant for foreign currency forward contracts. US-dollar loans (Level 2) The fair values of the US-dollar loans are estimated using a discounted cash flow approach, which discounts the contractual cash flows using discount rates derived from observable market interest rates of similar loans with similar risk. The interest rate used for this calculation is 4.81% (2018: 4.81%). Contingent consideration (Level 3) The group did not have any contingent consideration during the year. 108 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201930. Fair value measurement (continued) Fair value measurement of non-financial assets The following table shows the Levels within the hierarchy of non-financial assets measured at fair value on a recurring basis at 30 September 2019, 30 September 2018, and 1 October 2017: 30 September 2019 Property, plant and equipment: Land held for production in Zambia Office building in Zambia 30 September 2018 Land held for production in Zambia Office building in Zambia 1 October 2017 Land held for production in Zambia Office building in Zambia 30 September 2019 Property, plant and equipment: Land held for production in Zambia Office building in Zambia 30 September 2018 Land held for production in Zambia Office building in Zambia 1 October 2017 Land held for production in Zambia Office building in Zambia Level 1 Level 2 Level 3 Total ZMW’000 ZMW’000 ZMW’000 ZMW’000 - - 1,166,494 48,856 - - 1,166,494 48,856 Level 1 Level 2 Level 3 Total ZMW’000 ZMW’000 ZMW’000 ZMW’000 - - 1,182,870 40,225 - - 1,182,870 40,225 Level 1 Level 2 Level 3 Total ZMW’000 ZMW’000 ZMW’000 ZMW’000 - - Level 1 1,178,526 39,407 Level 2 - - Level 3 1,178,526 39,407 Total USD’000 USD’000 USD’000 USD’000 - - Level 1 88,371 3,701 Level 2 - - Level 3 88,371 3,701 Total USD’000 USD’000 USD’000 USD’000 - - Level 1 96,640 3,286 Level 2 - - Level 3 96,640 3,286 Total USD’000 USD’000 USD’000 USD’000 - - 121,874 4,075 - - 121,874 4,075 Fair value of the Group’s main property assets is estimated based on appraisals performed by independent, professionally-qualified property valuers, Fairworld Properties Limited. The significant inputs and assumptions are developed in close consultation with management. The valuation processes and fair value changes are reviewed by the Board of Directors and audit committee at each reporting date. 109 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201930. Fair value measurement (continued) Further information is set out below. Land held for production in Zambia (Level 2) Land has been valued using the direct comparison method. This method has been adopted as the most appropriate for the purpose of this valuation as there are enough comparisons available on the open market for land. The land was revalued on 30 September 2017. The significant unobservable input is the adjustment for factors specific to the land in question. The extent and direction of this adjustment depends on the number and characteristics of the observable market transactions in similar properties that are used as the starting point for valuation. Although this input is a subjective judgement, management considers that the overall valuation would not be materially affected by reasonably possible alternative assumptions. The fair values of the office buildings are estimated by using the direct comparison method. This method has been adopted as the most appropriate for the purpose of this valuation as there are enough comparisons available on the open market for buildings. 31. Capital commitments Capital commitments entered into at the reporting date Not contracted for at the reporting date 32. Operating leases 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 15,008 50,992 1,137 3,863 24,296 85,864 1,985 7,015 The total value of future minimum annual lease payments under non-cancellable operating leases is as follows: (i) In Zambian Kwacha Within one year One to five years (ii) In US Dollars Within one year One to five years 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 12,842 11,871 - - 10,583 18,321 - - 2019 2018 Group USD’000s Company USD’000s Group USD’000s Company USD’000s 973 899 - - 865 1,497 - - The Company’s subsidiary, Zambeef Retailing Limited, has operating leases for its butcheries that are for a minimum period of 12 months and a maximum period of 5 years and renewable at the request of either party. There are no purchase options, contingent rent payments or restrictions arising on these leases. 110 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201933. Related party transactions Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of the significant transactions between the Group and other related parties during the year ended 30 September 2018 are as follows: (a) The Group made the following sales to related parties: Zambezi Ranching and Cropping Limited Chisamba Ranching and Cropping Danny Museteka Zambia Pig Genetics Limited Sale of Animal feeds/bran Animal feeds/bran Animal feeds/bran Animal feeds/bran 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s - 1,704 563 - 2,267 - 138 46 - 184 113 788 338 2 1,241 11 79 34 - 124 (b) The Group made the following purchases from related parties: Purchase of ZMW’000s USD’000s ZMW’000s USD’000s 2019 2018 Zambezi Ranching and Cropping Limited Cattle beef, wheat, soya beans Zambian Pig Genetics Wellspring Limited Tembilo Farms Tractorzam Limited Pigs Cattle beef Chickens Tractors/spares Chisamba Ranching and Cropping Beef Madison Insurance Lillian Limbuka Insurance Pigs - - - 2,054 7,205 13,814 8,114 5,873 - - - 167 585 1,121 659 477 1,422 5,321 1,469 5,597 2,232 11,594 505 37,060 3,009 84,987 143 536 148 564 225 1,169 51 8,567 56,847 5,731 (c) Sales of goods to related parties were made at the Group’s usual list prices. (d) Purchases were made at market price. (e) The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. (f) No expense has been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties. (g) The parties are related by virtue of certain Directors of the Group having a shareholding in the respective companies. (h) Directors of the Group have shareholdings in the Company as stated in the Report of the Directors. No dividends have been paid to the Directors via their direct and indirect shareholdings. (i) Key management compensation. 111 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201933. Related party transactions (continued) The remuneration of Directors and other members of key management during the year were as follows: Short-term benefits Post-employment benefits Other long-term benefits Short-term benefits Post-employment benefits Other long-term benefits 2019 2018 Group ZMW’000s Company ZMW’000s Group ZMW’000s Company ZMW’000s 96,315 84,197 76,767 71,159 - - - - - - - - Group USD’000s Company USD’000s Group USD’000s Company USD’000s 7,818 6,834 7,739 7,173 - - - - - - - - The remuneration of Directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends. 112 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 201933. Related party transactions (continued) (j) There were no loans to related parties and key management personnel. (k) The Company made the following sales to related parties: Zambeef Retailing Limited Zambezi Ranching and Cropping Limited Zambia Pig Genetics Limited Masterpork Limited Zam Chick Limited Zamhatch Limited Zamleather Limited Zampalm Limited Danny Museteka Chisamba Ranching and Cropping (l) The Group made the following purchases from related parties: Zambeef Retailing Limited Zambezi Ranching and Cropping Limited Zamleather Limited Zam Chick Limited Tractorzam Limited Masterpork Limited Zamhatch Limited Chisamba Ranching and Cropping Wellspring Limited 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 989,956 80,354 869,969 87,698 - 3,478 28,182 123,200 142,402 187 7 563 1,704 - 282 2,287 10,000 11,559 15 1 46 138 113 2 16,681 106,636 91,303 1,930 - 338 788 11 - 1,681 10,750 9,204 195 - 34 79 1,289,679 104,682 1,087,760 109,652 2019 2018 ZMW’000s USD’000s ZMW’000s USD’000s 2,326 - 846 264 7,205 44,027 25,148 7,831 - 87,647 189 - 69 21 584 3,574 2,041 636 - 7,114 6,629 13,070 714 123 5,597 56,082 13,490 2,232 5,321 668 1,318 72 12 564 5,653 1,360 225 536 103,258 10,408 113 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 201934. Assets held for sale During the year under review management decided to sell Sinazongwe Farm. As such the assets and liabilities of Sinazongwe are disclosed in accordance with IFRS 5. A shareholder’s agreement was signed during the period. Previously management decided to sell a majority stake of a 100% owned subsidiary, Zampalm Limited (Zampalm). The sale was concluded during the 2018 financial year. The income generated by assets held for sale was generated as follows: Revenue Cost of sales Administration costs Operating loss Finance Costs Exchange losses Loss from discontinued operation before tax Tax (expense)/credit Loss for the year The assets and liabilities of the unit held for sale are as follows: Property, plant and equipment Total non-current assets Biological assets Inventories Total current assets Assets classified as held for sale Total non-current liabilities Trade and other payables Cash and cash equivalents Total current liabilities The cash flow effects of the unit held for sale are as follows: Cash inflow from operating activities Cash outflow from investing activities Cash outflow from financing activities September 2019 ZMW’000 September 2019 USD’000 September 2018 ZMW’000 September 2018 USD’000 41,003 (34,307) (24,075) (17,379) - - (17,379) - (17,379) 3,328 (2,785) (1,954) (1,411) - - (1,411) - (1,411) 337 (8,128) (6,079) (13,870) - 609 (13,261) - (13,261) 34 (821) (614) (1,401) - 64 (1,337) - (1,337) September 2019 ZMW’000 September 2019 USD’000 September 2018 ZMW’000 September 2018 USD’000 135,357 135,357 10,254 10,254 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - September 2018 ZMW’000 September 2018 USD’000 September 2017 ZMW’000 September 2017 USD’000 (17,379) (1,411) - - - - - (6,034) - - (608) - 35 Events subsequent to reporting date No item, transaction or event of a material and unusual nature has arisen since 30 September 2019, which in the opinion of the directors would substantially affect the operations of the economic entity, the results of those operations or the state of affairs of the economic entity in the subsequent financial years. 114 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 2019115 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019116 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 2019117 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019Notice of Annual General Meeting and agenda Notice is hereby given that the 25th Annual General Meeting of Zambeef Products PLC will take place at the Taj Pamodzi Hotel, along Addis Ababa Drive, Lusaka, on Monday, December 30, 2019 at 09:00hrs AGENDA To read the Notice of the Meeting and confirm that a quorum is present To read and confirm the minutes of the 24th Annual General Meeting held on December 18, 2018. 1. 2. 3. Consider any matters arising from the minutes 4. 5. 6. To receive the report of the Directors, the Auditors report and the Financial Statements for the year ended September 30, 2019 (Resolution 1) To re-appoint Grant Thornton (Zambia) as Auditors for 2019/2020 and authorize the Directors to fix their remuneration. (Resolution 2) To Ratify the appointments of the following as Directors: a. Michael Mundashi Non-Executive Director (Resolution 3) b. Walter Roodt Executive Director (Resolution 4) c. Faith Mukutu Executive Director (Resolution 5) 7. 8. 9. In terms of the Companies Act, David Osborne and John Rabb retire but are eligible to offer themselves for re-election (Resolution 6 and 7). That pursuant to section 27 of the Companies Act, number 10 of 2017, the amended articles of association of the Company tabled at the meeting (new Articles), be adopted as articles of association of the Company. Further that the New Articles shall be effective from the date of the Annual General Meeting. (Special Resolution 1) To Consider any competent business of which due notice has been given. By order of the Board, Danny Museteka, Company Secretary Note: A Member is entitled to appoint one or more proxies to attend, speak and vote in his or her stead. A proxy need not be a member of the Company. Proxies must be lodged at the registered office of the Company at least 48 hours before the time fixed for the meeting. 118 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 2019 Proxy form I/We, …………………………………………………………….......................................................................................................................... of ……………………………………………………………................................................................................................................................ being a member/s of and the registered holder/s of .......................................................................................................................................... Zambeef shares hereby appoint ……………………………………………………………...………………................................................... of ........................................................................................................................................................................................................................... or, in his/her absence, the Chairman of the Company. As my/our proxy to vote for me/us on my/our behalf at the Annual/Extraordinary General Meeting of the Company at be held on the 30th day December 2019 and at any adjournment of that meeting. In Favour of/against (please tick) In Favour Against Resolution 1 To recieve, approve and adopt financial statements for the year ended 30 September 2019 Resolution 2 To re-appoint Grant Thornton as Auditors for 2019/20 and authorise the Directors to fix their remuneration. Resolution 3 To Ratify the Appointment of Michael Mundashi as a Non-Executive Director Resolution 4 To Ratify the Appointment of Walter Roodt as an Executive Director Resolution 5 To Ratify the Appointment of Faith Mukutu as an Executive Director Resolution 6 To re-elect Mr. David Osborne as a Non-Executive Director Resolution 7 To re-elect Mr. John Rabb as a Non-Executive Director Special Resolution 1 Pursuant to Section 27 of the Companies Act, number 10 of 2017, the amended articles of association of the company tabled at the meeting (new Articles), be adopted as articles of association of the Company. Further that the New Articles shall be effective from the date of the Annual General Meeting. Unless otherwise instructed, the proxy will vote as he/she thinks fit. Signed: ………………………………........................................................................................................…………………………..........................…….......... Name: ………………………………........................................................................................................……………………………..........................…........... Date: ………………………………................................................................................………………………………............................................................... Witnessed by: ………………………………........................................................... Signature: ………………………………................................................... Name: ………………………………........................................................................................................………………………………..................................... Address: ………………………………........................................................................................................………………………………................................. .......................................................................……………………………….................................................................................................................................. 119 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019 Notes to the Proxy Form 1. 2. 3. 4. 5. 6. A shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the space provided, with or without deleting “the Chairman of the Company”. The person whose name stands first on the form of proxy and who is present at the Annual General Meeting will be entitled to act as proxy to the exclusion of those whose names follow. Any such proxy, who need not be a shareholder of the Company, is entitled to attend, speak and vote on behalf of the shareholder. A proxy is entitled to one vote on a show of hands and, on a poll, one vote for each share held. A shareholder’s instructions to the proxy must be indicated in the appropriate spaces. If a shareholder does not indicate on this instrument that the proxy is to vote in favour of or against any resolution or to abstain from voting or gives contradictory instructions, or should any further resolution/s or any amendment/s which may be properly put before the Annual General Meeting be proposed, the proxy shall be entitled to vote as he/she thinks fit. This form of proxy must be received by the Company secretary at the registered head office, Plot 4970, Manda Road, Industrial Area, P/B 17, Woodlands, Lusaka, by no later than 09:30 on Monday, 26th December, 2018. Documentary evidence establishing the authority of the person signing the proxy in representative capacity must be attached hereto unless previously recorded by the Company’s transfer secretaries. The completion and lodging of this form of proxy will not preclude a shareholder from attending the Annual General Meeting and speaking and voting in person there at to the exclusion of any proxy appointed in terms of this proxy form. 7. signatory/ies. Any alteration or correction made to this form of proxy must be initialed by the 8. The Chairman of the meeting may accept or reject any form of proxy, which is completed and/or received other than in accordance with these notes. 120 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 2019121 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019122 Zambeef Products PLC Annual Report 2019Notes to the Financial Statements (continued)For the year ended 30 September 2019123 OverviewStrategicreportCorporategovernanceFinancialstatementsZambeef Products PLC Annual Report 2019

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