Annual Report and Accounts for the year ended 31 March 2021

AGRITERRA LIMITED

ANNUAL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE

YEAR ENDED

31 MARCH 2021

AGRITERRA LIMITED ANNUAL REPORT 2021

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AGRITERRA LIMITED ANNUAL REPORT 2021

CHAIR'S STATEMENT AND STRATEGIC REVIEW

I am pleased to present the annual report of the Company for the year ending 31 March 2021. During the year, following the appointment of Rui Sant'ana Afonso as Chief Executive Officer designate in April 2020, the Company focused on a review of all operations and improvement of the existing systems and controls. Mr Sant'ana Afonso was appointed as CEO and to the Board in April 2021.

The Group also had to navigate the downturn in the Mozambique economy caused by the COVID-19 pandemic.

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/corporategovernance.aspx.

Strategy and Business Model

The Company's strategy remains 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 chain, by developing and offering new products to the market. It now has three operational agricultural divisions:

• Beef, which sources cattle from local farmers and then processes them through its own feedlot, abattoir operation, retail units and to the wholesale market through Mozbife Limitada ('Mozbife')
• Grain, which operates maize purchasing and processing businesses through Desenvolvimento e Comercialização Agrìcola Limitada ('DECA') and Compagri Limitada ('Compagri') for sale to the retail and wholesale markets.
• Snax, which sources maize grits from DECA, processing this into flavoured puffs and naks for sale to the wholesale market through DECA Snax Limitada, an operating entity that was incorporated in December 2020. As set out in note 23, DECA has joint control and a 50% ownership interest in DECA Snax which has been accounted for as a joint venture in the consolidated financial statements.

These three divisions have built strong brands in Mozambique. During the period the Group secured new credit facility of US$3.7m to secure the necessary maize quantities needed to meet the projected meal sales for this financial year.

COVID-19 related issues in China resulted in a delay in the supply of the necessary equipment and commencement of operations at DECA Snax from March to December 2020. The production line has been commissioned and the first quarter has gone well with the products being well received by the consumer and DECA Snax sold 128 805 bales generating more than US$0.23 million revenue in that period.

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

Mozambique overview

FY2021 was a challenging year for Mozambique.

Following on from the cyclones Idai and Kenneth in March 2019, the Central region of Mozambique was hit by 2 further signific ant cyclones in December 2020, and again in January 2021. Crop losses were high, and farmers were forced to replant, which in turn caused delays to the harvest and supply of grain in the market.

Mozambique went into COVID-19 lockdown in April 2020 and restrictions remained in force until September 2020, when the national infection numbers appeared to be under control and general day to day life began to normalise. Following the Christmas holidays, movement of families for the holidays and an influx of tourists, the number of infections quadrupled in January 2021 and the Governmen t implemented new restrictions including a curfew. Although these actions reduced the infection rate, Mozambique entered its third wave in May 2021, which has seen numbers again increase, with restrictions again imposed. Currently, the government of Mozambique has eased many of the COVID-19 restrictive measures because of significant progress in the national vaccination campaign and the great improvement in all COVID - 19 indicators such as daily number of new cases, and of deaths.

The operating companies promptly put in place effective bio-security procedures from the outbreak of COVID-19 and did not have any infections in YE March 21. We have had a small number of infections during the third wave in August 2021, but everyone has recovered. The

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AGRITERRA LIMITED ANNUAL REPORT 2021

companies continue with the training and awareness programmes implemented at the start of the pandemic and we remain alert to the challenges of COVID-19 and are prepared to take mitigating actions as events develop.

The insurgency in northern Mozambique (1,500km north of Chimoio) has intensified and in February 2021 the engineering camps in Palma were attacked, displacing over 500,000 people and forcing TOTAL to cancel all supplier contracts, including the catering support fo r at least 7,000 staff. The oil and gas programs have been suspended until the Government is able to ensure security for the compan ies operating in those areas.

During this same period the Metical depreciated against the US$ going from 67.5 MZN in April 2020 to 75MZN in January 2021, ending at 68.78MZN to the US$ in March 2021. The Metical depreciated against the Rand, which contributed towards increasing the annual inflation to 3.14%, compared to 2.8% in 2019. The Central Bank had dropped the prime Metical lending rate by 3% in June 2020, but later returned it to the present rate of 18.9% in Q1-2021 in response to COVID-19 lockdown and other macro-economic pressures.

Operations review

Grain division

The division has performed better than the previous financial year, with sales exceeding the FY20 volumes by over 5,000 tons (25,389 tons vs. 19,926 tons in FY20). This has been driven by the ability to maintain our strong hold in the central region of Mozambique and the continued focus on efficiencies and service delivery to our customers. The re -commissioned 1kg bag packaging line and delivery directly to the retailers has begun paying off, as the monthly sales for this unit have increased from 1 ton per month ($538) in 2020 to a high of 20 tons per month ($10,769) in February 2021.

In early 2020, the division accepted pre-paid contracts to ease our short-term challenges of cash flow. This had an opportunity cost of selling the product to fulfil these contracts at a lower price than we would have ordinarily achieved in the last quarter of FY21 which resulted in bringing down the margin in this period. Milling yields have remained relatively constant and have not impacted margins compared to the prior year.

Total maize purchased for the year was 36,538 tons, which was processed into 28,025 tons of meal. Maize prices later in the season were driven up by a shortage in production caused by the cyclone in 2019.

Beef division

COVID-19 restrictions and a slowdown in the oil and gas sector has negatively impacted the Mozbife performance. Beef division sold more than 30 tons of beef per month to oil and gas companies in northern Mozambique which decreased to less than 10 tons per month by 31 March 2021. Sales volumes were 19% below the previous year (1,331 tons vs. 1,652 tons in FY20), however the bottom-line has improved 33% on FY20. The overall improvement is driven by the aggressive cost cutting and efficiency improvements that management implemented in mid-2020. These initiatives resulted in an 18% reduction in the cost of goods per ton of meat sold and an increase in the dress out % from 50% to 51.7% (equating to an increase in average meat price by 12%).

Mozbife implemented 3 new sales strategies in early 2020, which opened new markets and compensated for the negative impact of COVID-

19 and the slowdown in the oil and gas sector on the demand for our meat products:

• The Maputo depot opened in October 2020 and sales here have increased to an average of 16 tons per month of mainly carcasses, and larger supermarkets and restaurants are now ordering and collecting weekly from this facility.
• Sale of primal cuts to large processors in Maputo, who in the past relied on imports from South Africa for their meat. This action has resulted in an additional 10 tons of meat sales per month being processed and sold in the local restaurants and supermarkets.
• Upgrading the factory shop in Chimoio has built a greater awareness of our processed meat products, such as sausages and burg ers. This facility has doubled in size and sales now average US$3,000 per day, an increase from US$1,000 in the past.

At the farm level operations, new cropping programs improved our silage production from Banar grass, with yields exceeding 40 tons per hectare. This helped improve the performance of the feedlot.

Total animals bought for the year was 6,045 head resulting in 1,200 tons of beef being produced for sale into the local market.

Mozbife has completed the 9 Cattle Service Centres that were being built with the World Bank grant received in 2019. The centres are run in partnership with 9 different farmer associations that were created and received training through this initiative.

Snax Division

DECA Snax, sources maize grits from DECA and processes them into flavoured puffs and naks for sale to the wholesale market. DECA Snax began operating in December 2020 and has already gained traction in the market. Overall, the reaction has been very positive where demand is currently outstripping production. We are encouraged by the results to date and the feedback from consumers. We are confident with the growth envisaged going forward. Over the 4-month period December 20 to March 21, the operation sold a total of 128,805 bales and earned US$234 228 in revenue.

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AGRITERRA LIMITED ANNUAL REPORT 2021

The Company is looking forward to developing this opportunity further and building a well-recognised brand in the coming years.

Key Performance Indicators

The Board monitors the Group'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 and there is no explicit IFRS standard used in calculating the KPIs

Financial Review

In FY 21 Group revenue increased 11% to US$14.25m (FY20: US$12.9m). Despite the cyclones, the insecurity in northern Mozambique and the

COVID-19 pandemic sales were above budgeted revenue of US$14.1m. The Gross Margin of US $2.1m (FY20: US$1.8m) and EBITDA loss of US$(0.4m) vs. FY20 loss of US$(1.4m), reflects a marked improvement against FY20. These results were driven by two main challenges:

• the shortage of maize in the buying season, (a result of the cyclones and delayed disbursements) which forced us to buy the l ast 6,000 tons of maize in Q1-2021 at an average price of 20,000MZN vs. the budget of 15,000MZN per ton, effectively increasing the cost of maize by US$440,431; and
• The loss of US$440,000 of expected meat sales because of the lock down, which limited activities in tourism, the Oil and Gas sector, restaurants and general catering sectors.

In response to the general operating environment and the improvement in efficiencies, management have reduced the Company overheads by US$1.5m (US$3.2m in FY21 from US$4.7m in FY20). These savings were carried out through the following actions:

• Closure of non-performing meat retail centres
• Retrenchment and retirement of staff
• Improved milling and feed lot efficiencies to get more product out of each unit of grain or animal inputs

Finance costs remain high, reflecting the level of historical debt and local interest rates. In FY21 the total was US$1.2m (FY20: US$1.0m).

Depreciation charges were US$0.5m (FY20: US$0.6m) bringing the Loss attributable to Shareholders to US$2.2m (FY20: US$3.0m), an improvement ofUS$0.8m. The grain division accounted for 77.7% of the revenue and 35% of the overall loss, while the beef accounted for 65% of the overall loss.

Management realise that success will require the businesses to achieve a better balance between protecting the Gross Margin and achieving a sale, so in FY22 management will look to do so, whilst still improving efficiencies, securing finance to buy the maize earlier and to align the feed lot and abattoir operations with demand for meat.

As at 31 March 2021, an external real estate valuer was engaged to revalue property plant and equipment and this resulted in a revaluation gain of US$18,475,127. The Company revised its PPE accounting policy from a cost model to a revaluation model and these revaluations will be performed regularly every 3 years.

Net Debt at 31 March 2021 was US$ 6.2m (FY20: US$4.3m). Since the year-end, additional working capital facilities have been agreed, to enable the Grain division to secure sufficient grain to meet its operational targets in the 2022 season.

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