Agriterra : Annual Report and Accounts for the year ended 31 March 2022

AGRITERRA LIMITED

ANNUAL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE

YEAR ENDED

31 MARCH 2022

AGRITERRA LIMITED ANNUAL REPORT 2022

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AGRITERRA LIMITED ANNUAL REPORT 2022

CHAIR'S STATEMENT AND STRATEGIC REVIEW

I am pleased to present the annual report of the Company for the year ending 31 March 2022. During the year, the Company focused on improving the existing operating systems, improving sales and building the DECA Snax brand in the local market.

The Company continues to observe the principles of the QCA Corporate Governance Code (the "Code") to the extent that they consider them to be applicable and appropriate for a Company of Agriterra's size and stage of development, through the maintenance of efficient and effective management frameworks accompanied by good communication. Further details are available at: http://www.agriterra-ltd.com/investor-relations/corporate-governance/

Strategy and Business Model

The Company's strategy is to operate efficient, profitable businesses in Mozambique to create value for its shareholders and other stakeholders by supplying beef and milled maize products to the local market.

The Company continues to focus on adding value along the entire maize and beef value chain, by developing and offering new products to the market. It currently has three operating divisions:

• Beef, which sources cattle from local farmers and then processes them through its own feedlot, abattoir operations and retail units through Mozbife Limitada ('Mozbife')
• Grain, which operates maize purchasing and processing businesses through Desenvolvimento e Comercialização Agrìcola Limitada ('DECA') and Compagri Limitada ('Compagri').
• Snax, which sources maize grits from DECA, processing them into flavoured puffs and naks through DECA Snax, an operating entity that was commissioned in December 2020 to add value to our grain meal and sell as a snack.

These three divisions have built strong brands in Mozambique. During the year the Company secured additional debt funding of c.US$2.4m to secure the necessary maize quantities needed to meet the projected meal sales for this financial year.

The Company is aware of its environmental, social and governmental responsibilities and the need to maintain effective working relationships across a range of stakeholders. The major shareholder is represented on the Board ensuring their views are incorporated into the Board's decision-making process. In addition to the Company's staff and shareholders, the local community in Mozambique is a primary stakeholder. In purchasing maize and cattle directly from the local community, the Company plays an important role in local economic development, supporting small scale farmers and the developing commercial sector.

Mozambique overview

FY2022 has proven to be a very challenging year, with the continued impact of COVID-19 restrictions and the security situation in the North of the country.

The Central region was hit by a tropical storm in December 2021; Tropical Storm Anna, passed through destroying crops and flo oding fields in the main maize producing belt. Farmers were forced to replant, which in turn caused delays in the harvest and supply of grain to the market. The harvest period moved from April to June and as a result the yields were lower. The impact of the tropical cyclone will affect maize availability and prices for the 31 March 2023 financial year.

Mozambique continued with the COVID-19 lockdown until September 2021, but a further lock down was required from December 2021 to March 2022, as a response to the then new Omnicrom variant. The lockdown affected the economy generally, but in particular the hospitality industry which impacted the operating companies in both direct and wholesale sales.

National infection numbers appear to be under control and the vaccination rates are improving. Beaches, restaurants and general day to day life began to normalise in April 2022. The operating companies were affected in Q1-2022, when at least 10 Management and 60 general staff were infected, but everyone recovered. The companies continued with the training and awareness programmes implemented at the start of the pandemic.

The insurgency in Northern Mozambique (1,500km north of Chimoio) intensified, with SADC and Rwandan security forces assisting the Mozambican army since September 2021. They have had a positive impact in reducing the number of attacks around the O&G fields, but the war has moved further south, towards the town of Pemba. This continues to be a threat, but Total and ENI have indicated that they would be prepared to return in Q4-2022, if the situation improves. This will certainly offer the economy a boost and help move Mozambique forward.

During this same period the Metical remained steady against the US$, but strengthened vs the Rand. This meant that South African imports were slightly cheaper in the Maputo market. Annual inflation was higher at 5.7%, against 3.19% in 2020, in response to the increase in fuel and food prices,

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AGRITERRA LIMITED ANNUAL REPORT 2022

due to the Ukrainian war. In response to the inflation, the Bank of Mozambique increased its prime lending rate from 16% to 19%, forcing many business to slow down their growth plans.

Operations review

Grain division

The Grain division has become more efficient over these last 12 months: the mill upgrades have improved the overall extractio n rate from 76.7% in FY21 to 78.0%; and cheaper maize purchases have improved the overall gross margin to 26.7% vs the 15.41% achieved in prior period. These efficiencies have enabled the division to improve its overall performance per ton sold. However, volumes sold d eclined to 17,094 tons (2021: 25,389 tonnes) and average selling price decreased to MZN 26,983 per ton (2021: MZN 27,467).

The drop in sales is mainly due to the excessive volume of maize produced in and being informally imported from Malawi and Zambia, where favourable climatic conditions and government subsidised fertiliser schemes have resulted in exceptionally high maize production for that year. The supply was far greater than the local demand and hence the maize entering Mozambique and eventually making its way south to Chimoio, Beira and Maputo, thus requiring a reduction in price to compete with the cheaper maize available in the informal markets.

A total of $6.1m borrowings were secured from commercial banks, contributing towards the purchase of 29,264 tons of maize needed for this season. The business has in silo a total stock of 7,690 tons of maize at year end (2021: 2,044 tons), which has enabled grain division operations to mill through to June 2022, new crop was available to purchase in mid-June 2022.

Revenue for the year decreased to $7.1m (2021: $11.1m). Operating costs increased by $0.3m to $1.9m resulting from the appointment of

senior management and additional bush buying administrative and transport expenses. EBITDA increased to $0.54m (2021: EBITDA of $0.51m) due to extraction efficiencies and reduced maize cost as compared to the prior year. However, finance costs increased to $1.55m (2021: $1.07m) and the assets revaluation led to an increase in depreciation cost to $0.5m from $0.18m in 2021 resulting in a loss before tax of $1.41m (2021: loss $ 0.74m).

Loss after tax amounted to $1,515,000 (FY21: Loss after tax $742,000.

Beef division

The Beef division suffered a loss of business between March and April 2021, following the suspension of all oil and gas related activities by Total Energy and ENI, a response to the terrorist attacks in the north. The division has focussed on identifying new customers, improving operating margins and cutting overheads. Sales volumes were 24% below previous year (1,015 tons vs 1,331 tons in FY21).

The decrease in sales has been mitigated by improved Gross Margin of 23.87% (FY -2021: 9.62%) resulting from higher average selling price

of MZN 252 per kg (FY-2021: MZN 221) whilst the average dress out rate of 51.2% (FY-2021: 51.7%) remained the same for the year, improved cattle buying practises and training of small farmers (average quarter weight is now 50kg vs the historical average weight of 40kg) has allowed the business to improve quality and increase unit prices.

The Company has embarked on a right sizing strategy, we offered voluntary retrenchments and agreed not to replace staff that eith er resigned or whose contract came to an end. We still have the cost of the 3 farms that remain in care and maintenance whilst farming investment opportunities are being evaluated to maximise the utilisation of these farms.

Loss after tax amounted to $504,000 (FY21: Loss after tax $1,063,000).

Snax Division

DECA Snax, a 50:50 joint venture with Snax for Africa Limited has, in its second year of operations, managed to grow sales volumes by 500% to $1.5 million (FY21: $0.2 million) due to the successful launch of new products and creation of an efficient sales distribution network. DECA Snax sold 707,385 bales during the current year (FY21: 128,805 bales).

Production volume is exceeding 80% of the installed capacity and plans are in place to increase the production capacity of the Snax division in the next financial year by utilising internally generated funds. Management is encouraged by the positive demand for the products which is more than the production capacity.

Profit after tax amounted to $109,889 (FY21: Loss after tax - Nil)

Key Performance Indicators

The Board monitors the Company's performance in delivery of strategy by measuring progress against Key Performance Indicators (KPIs). These KPIs comprise a number of operational, financial and non-financial metrics.

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AGRITERRA LIMITED ANNUAL REPORT 2022

Financial Review

In FY 22 Group revenue decreased by 28% to US$10.28m (FY21: US$14.25m) mainly due to:

• Influx of maize from Malawi and Zambia which saturated the Mozambique market and maize meal sales volumes decreased by 33% to 17,094 tons (FY21: 25,389 tons). The strengthening of the Metical against other currencies offered Mozambique as an attrac tive market in Southern Africa. Grain division purchased 30,000 tons, milled out 23,000 tons and carried forward 7,000 tons into the next financial year.
• Reduction in beef demand during the peak of the pandemic and the loss of key contracts due to the conflict in the north, resulting in lower than budgeted beef sales by 17.5% to 734 tons (FY21: 890 tons). The decline in sales volumes was mitigated by 14.06% improvement in selling price.

Even though sales volumes decreased, the Group's gross profit improved by 25% to $2.6 million (FY21: Gross profit - $2.1 million) as a result operational efficiencies in all divisions which included but are not limited to:

• Improved maize meal extraction rate and low cost of maize in the Grain division.
• Low animal travel mass loss from buying points to the feedlot, management of farm cost and efficient slaughtering process in the

Beef division.

Despite the operating expenses increasing by 11% to $3.5 million (FY21: $3.2 million), the operating loss decreased by 17% to $821 000

(FY21: $987,000) even though low sales volumes were realised for the year. The Group operational performance is expected to be profi table if volumes improve by 25%.

Net Debt at 31 March 2022 was US$9.7m (FY21: US$4.3m). Poor group performance has resulted in the increase in debt due to high interest cost amounting to $1.6 million eroding the significant portion of the Group earnings and ultimately shareholder equity. Subsequent to the year end, the Group's debt has been refinanced by means of a shareholder loan from Magister Investments Limited (see note 26).

Risk management

The Company is subject to various risks and the future outlook for the Company, and growth in shareholder value should be viewed with an understanding of these risks. According to the risk, the Board may decide to tolerate it, seek to mitigate it through controls and operating procedures, or transfer it to third parties. The following table shows the principal risks facing the Company and the actions taken to mitigate these:

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