Zambian Breweries 2013 annual report

Annual Report | 2013

Zambian Breweries plc

Getting into our stride

Not for Sale to Persons Under the Age of 18.

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Zambian Breweries Plc Overview

Zambian Breweries Plc was established in Ndola as Castle Breweries in 1952. In 1968, Castle Breweries was taken over by Government as part of the nationilisation policy and the name changed to Zambia Breweries Limited. In August 1994, the Central Division of Zambia Breweries was privatized and changed its name to Zambian Breweries Plc. Since then, the company has under-gone tremendous transformation and is now a subsidiary of the London-listed SABMiller plc. Zambian Breweries Plc now sells world-class brands from other SABMiller subsidiaries including alcoholic beverages such as Peroni, Ohlssons, Redds and Miller Genuine Draft. Locally the product range has grown to include Mosi Lager (regular), Mosi Gold (Premium), Carling Black Label, Eagle, (Sorghum based) and Castle; for clear beers. After acquiring Zambia Bottlers and Copperbelt Bottling Company, Zambian Breweries Plc now produces soft drinks such as Coca-Cola, Sprite, Fanta and Schweppes, while the energy drink Burn is now distributed in Zambia. With the global expansion of SABMiller taking root and the harmonisation of processes in the subsidiaries now getting embedded, Zambian Breweries Plc is expected to reach even higher heights and maintain its position as a pace setter in the way business should be done in Zambia.

BUSINESS REVIEW

Company Financial Review 4

Chairman’s Statement 5

Managing Director’s Report 7

CORPORATE GOVERNANCE

Board Of Directors 10

Director’s Report 11

Corporate Governance Statement 13

FINANCIAL STATEMENTS

Statement of Director’s Responsibilities 18

Report of the Independent Auditor 19

Statement of Comprehensive Income 22

Statement of Financial Position 23

Statement of Changes in Equity 24

Statement of Cash Flows 25

Notes 26-52

This is the Annual Report of Zambian Breweries Plc for the year ended 31 March 2013. It includes information that is required by the Securities and Exchange Commission (SEC). This information may be updated or document with the SEC or later amended if necessary, although Zambian Breweries Plc does not undertake to update any such information. The Annual Report is made available to all shareholders on the Lusaka Stock Exchange website (www.luse.co.zm). This report includes names of Zambian Breweries Plc products, which constitute trademarks or trade names which Zambian Breweries Plc owns or which others own and license to Zambian Breweries Plc for use. In this report, the term ‘company’ refers to Zambian Breweries Plc and and its consolidated subsidiaries, except as the context otherwise requires. ZambianBreweriesPlc’sfinancialstatements have been prepared in accordance with International Financial Reporting Standards(IFRS) as endorsed and adopted for use inthe European Union (EU) and IFRS as issuedby the International Accounting StandardsBoard (IASB). References to IFRS hereafter should be construed as references to both IFRS as adopted by the EU and IFRS as issued by the IASB. Unless otherwise indicated, all financialinformationcontainedinthisdocumenthas been prepared in accordance with IFRS.

Zambian Breweries Plc Annual Report 20132

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INSTALLED CAPACITY - NDOLA BREWERY

Beer XX1,000,000 Hectolitres P/a

Soft Drinks X700,000 Hectolitres P/a

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Our new Ndola Plant’s higher capacity and efficiency puts us in

our stride to better serve and satisfy our customers


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(In Kwacha thousands) 2009 2010 2011 2012 2013

Company turnover (Incl. excise duty) 673,086 837,256 996,181 1,179,414 1,443,920

Company revenue (Excl. excise duty) 486,651 615,558 781,913 919,257 1,141,158

Operating profit 93,314 53,036 137,594 172,998 231,032

Profit before income tax 73,476 3,820 67,511 120,948 156,785

Profit/(loss) for the year 44,092 (720) 45,308 71,652 105,173

Total assets 706,455 981,159 989,717 1,419,036 1,580,094

Current liabilities 423,625 463,682 262,472 623,193 623,193

Shareholder’s funds 210,558 191,725 237,057 659,624 764,797

K1,141.1millionCompany revenue

Up 24% from 2012

K231.0million Operating profit Up 34% from 2012

K764.8million Shareholder’s funds

Up 16% from 2012

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a sales representative besides her delivery van after delivering stock

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The company has during the year continued to consolidate its performance platforms to deliver sustained future growth. We achieved market share growth in our key market categories, and key initiatives in Human Resources, Supply Chain and Technical departments have realigned company processes to increase efficiencyandproductivity.

During the year, we saw the departure of Mr Wes Tiedt from the board. Mr Tiedt was a member of the board for nine (9) years and I would like to thank him for the excellent service he rendered during this time. Mr Tiedt was replaced by Mr Trevor Sanderson and I would like to extend a very warm welcome to him.

We welcomed two new members to the Executive Committee; Mr. Luke Njovu (Corporate Affairs Director) and Mr. Meshack Tshekedi (Supply Chain Director).

Market Overview

Market conditions were generally favorable during the year. The economy continuedtogrowinlinewithmarketexpectationsandinflationwaswellcontained within single digit levels. However, the Kwacha came under pressure as high demand for the United States Dollar saw it depreciate by 2.5% year on yeartocloseat5.403(KwachaRebased).Intheirfirstfullannualbudget,thePF Government focused national resources on initiatives targeted at stimulating economic activity and growth. Massive investments have been made in infrastructuredevelopmentwiththeroadsectorbeingamajorbeneficiary.Thisshould improve access to all areas and allow us to be able to better serve our customers.

We were very pleased to note Government’s commitment to promoting the competitiveness of local manufacturing as demonstrated by the removal of excise tax on carbonated soft drinks and bottled mineral water. This allowed for fair comparative competition between locally produced and imported products and enabled us to make a 7% price reduction on our Coca-Cola, Fanta and Spritebrandsinthe500mlplasticPETbottles.Passingonthisbenefittoourconsumers will allow us to grow volume and subsequently generate more tax revenue for the Government.

Strategic Review

Wehavecontinuedtomakesignificantprogressinpositioningthebusinessona footing of sustained growth. The results for the year clearly show the outcome of the various prudential measures we implemented to grow capacity and put stockonthefloor.Ourbrandshavecontinuedtoenjoyhighdemand,cementingour belief in the growth prospects of our business. Price compliance challenges in our alcohol category were exacerbated by our production capacity limitation. The coming online of our new One million hectoliter Ndola Brewery in the second half of the year allows us to assure availability of our products across the country,

dear Shareholders,

We made strides in securing our agricultural input supplies through our comprehensive local sourcing programmes for maize, sorghum and barley

Volume share (alcoholic drinks)

CASTLE 58.12%

MOSI 32.48%

CASTLE LITE 3.9%

CARLING 3.4%

MOSI GOLD 0.28%REDDS 0.23%MILLER 0.05%OTHER 0.23%

of the US$750 million Eurobond has allowed for massive investment in infrastructure which will continue to spur economic activity and employment creation. Together with the highly anticipated increase in copper production following investmentintonewgreenfieldmining projects, this is expected to sustain the country’s GDP growth rate at around 7% for 2013. For our business this is good news as improved economic performance will lead to wealth creation and growth in disposable income.

Thelevelofinflationremainsa risk to pricing stability of our products. However, we remain confidentthat,overtheshorttomedium term, government policies willcontaininflationwithinsustainablelevels so as to lower the cost of doing business, leading to stability in pricing of our products.

We laud the government for maintaining a conducive environment that is supportive of private sector enterprise growth. The consistency and predictability of government policy has enabled us to take long term investment decisions that we will see us continue being the leading beverages company in Zambia.

Valentine Chitalu chairman


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Volume share (non-alcoholic drinks)

COKE 45.75%

FANTA 36.97%

SPRITE 14.98%

MINuTE MAID 0.24%SPAR-LETTA 0.01%

OTHER 2.06%TOP: Zambian Breweries Plc are working with stakeholders to safe guard the Itawa Water Springs in Chipulukusu ndola. BOTTOM: a farm worker checking his maize crop before harvest.

particularly to our consumers in the more remote areas.

We made strides in securing our agricultural input supplies through our comprehensive local sourcing programmes for maize, sorghum and barley.

Sustained focus on managementoffixedcostshadanotable impact on driving our strong performance. We continued to entrenchefficiencyandproductivitymeasures in our value chain allowing us to maintain competitive pricing in the face of increasing costs of doing business.

Significantcompetitivepressureremained in both the soft drink and beer categories.

Sustainable Development

We believe that the long-term sustainability of our business is premised on our being a good ‘corporate citizen’. Our commitment to therefore operate in a responsible, accountable and transparent manner remained unabated as we continued to implement programmes aimed at aligning our objectives with those

of the whole society to enable for equitable wealth creation and sustainable development.

Corporate Governance

We have continued to be steadfast in observing a strict compliance culture with regard to sound corporate governance. We were recognized with a Diamond award in the PMR Africa annual survey for a company that is doing the “most to demonstrate exceptional managerial and corporate governance qualities.” Whilst I am proud that we have continuedtorecordnilsignificantbreaches of corporate governance and anti-bribery codes over the past couple of years, it pleases me more that our exemplary performance is now being recognized by our peers as demonstrated by this award.

Future Prospects

WeareconfidentthatZambia’seconomy will continue on the growth trajectory we have witnessed over the past couple of years.

The securing by Government

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We had an exciting year in the last operating cycle and it gives me real pleasure to report on the key milestones that we achieved in the period to 31st March 2013. In spite of our constrained capacity, we delivered a strong performance for 2013 with a growth of 18% in total volumes for the year. We have reaped thebenefitofourearlierfocusonstrengtheningthefoundationofourbusinessthroughenhancementsinproductionefficiencyandcostmanagement.

Our overarching strategic priority for the year was to set the business on a path of sustained growth and superior performance by embedding a culture of performance and accountability in all our operations and processes. Anchoring ourbusinessonfirmergroundhasenabledustotakeboldleapsofinvestinginadditional capacity ahead of demand and opening up new markets.

Clear Beer

Our beer volume growth rate declined relative to prior year. However, given the capacity constraints under which we operated for most of the review period, the 12% growth recorded during the year was a commendable result. Our performance was largely driven by the continued strengthening of our brands,(with a 32% volume growth of Mosi lager), enhancements in manufacturingefficienciesensuringimprovedavailability,thecomingonlineofournew brewery in Ndola and the continuous improvement in market execution.

We made very good market share gains. Particularly pleasing were our gains in the premium category with Castle Lite growing its volumes by 75% over prior year.

Soft Drinks

Our 30% growth in soft drinks from prior year was driven by improved affordability, availability and aggressive market development efforts with respect to this category. Having proactively taken the critically important step of reducing the price of the 300ml RGB by 22% in the later part of prior year, excise tax on soft drinks was eventually removed in the last quarter of the review period thus resolving the serious structural problem in the soft drink market. Passing this benefittoourconsumersallowedustogrowvolumeandsubsequentlygeneratemore tax revenue for the Government.

Human Resources

We continued to entrench a culture that rewards and recognizes high performance in line with our aspirations and strategic objectives. We have re-aligned our HR function and introduced a business partnering model that has made the function more responsive to and supportive of the aspirations of our business.

Welaunchedthefirst-everManagingDirector’sAwardsforExtraOrdinaryAchievements which recognized and rewarded exceptional team performance.

In spite of our constrained capacity, we delivered a strong performance for 2013 with a growth of 18% in total volumes for the year

This is how we’re GETTING INTO OuR STRIDE

Investing in additional capacity ahead of demand

Gaining market share in premium category

Recognising exceptional team performance

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This was also an important step in enhancing our employee’s line of sight to our strategic imperatives.

We have continued to focus on our HIV/AIDS programme as part of our holistic Wellness Programme that aims to create a conducive work environment for our people. During the year, 82% of our people retested and we trained 118 employees to be peer educators.

STRATEGIC REVIEWBuilding Strong Brands and Improving Customer Service

We maintained our focus on building strong brands and delivering good customer service as the underpinning to our growth aspirations. The successful hosting of the inaugural Mosi Lager Zambian Music Awards wasasignificantmilestoneinourbrand building activities.

We achieved remarkable performance in our beer category driven by price restraint and a more effective execution strategy that resulted in double digit volume growths for our Mosi and Castle Lite brands and a 7% growth for Castle Lager.Wealsorecordedsignificantvolume growth in our soft drinks category following our proactive decision to roll back the price on our 300ml RGB towards the end of the financialperiodto31stMarch2012.

The price roll back was accompanied bysignificantinvestmentbehindourcore soft drink brands.

We continued to leverage our sponsorship of the national soccer team with Mosi Lager, and soccer development with Copa Coca-Cola. We are especially proud that the Zambian team emerged, for the second year running, as Champions in the Copa Coco-Cola International Tournament held in Pretoria, South Africa during September 2012.

In our continued efforts to provide the best service to our customers and respond to the needs of our customers, we invested KR13.4million kwacha in distribution vehicles during the year. We also made investments in new depot infrastructure. In Lusaka, we established a central telesales function servicing the entire southern region. We employed 15 extra people into our sales force and focused on capability development and disciplined application of routines andprocesses.Wealsosignificantlyincreased our fridge penetration, particularly for soft drinks where we deployed 2800 new fridges during the year.

Local Sourcing

Whilst we have progressed to a level ofself-sufficiencyinthequantity

of barley cultivated, we remained exposed to the challenges presented by the lack of a malting facility in the country as we continued to send our locally-grown barley to Zimbabwe for malting.

We successfully concluded an agreement to procure our entire preform requirement for the packaging of our PET packs from a locally based manufacturer with effectfromthefirstquarteroftheNewYear. This will not only deliver cost andsupplyreliabilitybenefitsforusbut will also increase our contribution to employment opportunities in the country.

Sustainable Development

Our sustainable development strategy ensures that we continue to make a meaningful contribution to the welfare of the communities where we operate. During the year, we supported various initiatives some of which were focused on providing clean drinking water and housing in Palabana, reducing the incidences of early marriages across the country, imparting business skills to young entrepreneurs and sharing information to combat the consequences of irresponsible consumption of alcohol, which includes underage drinking.

We remain focused on being a force for good in the conduct of our

lefT: Zambian Breweries Plc believes in local sourcing and Barley is one of the crops that is sourced locally. rIGhT: Partnerships are of essence in any business and ChC have partnered with the brewery to buy its local ingredients.

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business through strict adherence to ethical behavior in all our interactions with the various stakeholders across our entire value chain.

Capital Investment

The remarkable economic performance of the country has continuedtopresentsignificantopportunities for growth of our business. The Company continued with its capital investment program that was mainly funded by a Syndicated Bank loan facility. The syndicatedfacilitywasrefinancedin February 2013 and was partially paid down to K290 million at the year end. Our new Ndola Brewery was completed in record time and we achievedourfirstbrewinNovember2012. Our total capital expenditure during the year was K256 million.

Managing Costs

Sustained focus on management offixedcostshadanotableimpacton driving our performance. We continuedtoentrenchefficiencyandproductivity measures in our value chain that allowed us to maintain competitive pricing in the face of increasing costs of doing business.

LOOKING AHEADThe Zambian economy continues to grow and perform strongly

with key sectors such as mining, manufacturing, construction and social services all seeing massive investment and increased performance. The consensus is that this will continue to be the case in the short to medium term as government continues with its free market policies and the country maintains its status as an investor friendly destination.

Government’s investment in road infrastructure will increase accessibility across the country, allowing us to penetrate new markets in a bid to achieve our ambitious volume aspirations.

We will continue to invest in strengthening our brands and in ensuring that we have a strong and relevant brand portfolio. We have been in extensive consultation with relevant stakeholders and we are very hopeful of being able follow in the footsteps of our counterparts in Mozambique and Ghana in introducing a cassava based clear beer.

Our portfolio and brand building activities will be pursued together with continued efforts aimed at ensuring we deliver high levels of customer service.

Our focus on building capacity and capability will not abate as we continue with our capital investment programandwithourplanstofirmly

establisheffectiveandefficientmanufacturing and supply chain functions. We are excited at the prospect of building a malting plant and we will continue to explore further synergies with our sister companies.

It will be very important that we remain disciplined in executing our Human Resources management agenda to deliver a highly competent, motivated and engaged work force.

Our sustainable development priorities will continue to guide our actionsinseekingmutuallybeneficialgrowth avenues. As the leading producer of alcoholic beverages in Zambia, we continue to be concerned about the harmful effects of irresponsible consumption of alcohol. We will continue to implement programmes that are focused on meaningfully reducing irresponsible alcohol consumption and will seek more impactful collaborations with key stakeholders.

Anele Malumo managing director

The local ingredients have to be of high grade to be used by Zambian Breweries Plc Mosi lager is the flagship brand enjoyed by many Zambians


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Valentine Chitalu

Valentine (48) is an entrepreneur in Zambia and Southern Africa specializing in private equity and local private sector development. Until December 2003, Valentine worked for CDC/Actis in London and Lusaka specializing in deals origination throughout Southern Africa and portfolio management in Zambia and Malawi. Valentine was previously Chief ExecutiveOfficerattheZambiaPrivatisationAgency where he was responsible for the divestiture of over 240 enterprises. He also worked for KPMG Peat Marwick in the United Kingdom in the early part of his career. Valentine holds several board positions in Zambia South Africa and the United Kingdom and is Chairman of several corporate organizations.ValentineisaqualifiedAccountant and holds a Master’s Degree in Development Economics.

Anele Malumo

Anele (48) is the Managing Director of Zambian Breweries plc as well as an executive member of the Board. He worked at South African Breweries (SAB) Limited where he accumulated a wealth of experience forovertwelve(12)yearsinfinance,operations, sales and distribution. He holds a bachelor’s Degree in Accounting, an MBA and is a Fellow of the Association of Chartered CertifiedAccountants(ACCA).

George Sokota

George (65) is a professional accountant andfinancialconsultant.HeisaFellowofthe Institute of Chartered Accountants in England and Wales. He is also a Fellow of the AssociationofCertifiedAccountants,UnitedKingdom and Fellow of the Zambia Institute of CertifiedAccountants.Hesitsonanumberofnotable boards, several of which he chairs.

Annabelle Degroot

Annabelle (40) was appointed as the Finance Director of the Zambia Group in February 2012. She has over 15 years’ experience in auditandfinancefunctionsintheUKandZambia. Annabelle holds a BA MA (Cantab) inEconomicsandisaqualifiedACAwiththeInstitute of Chartered Accountants, England & Wales (ICAEW). She is a Fellow of ZICA.

Gert Nel

Gert (53) joined SABMiller in 1989. He has held several positions in SABMiller, including Senior VP Finance and Administration in Poland and Group Head of Finance Excellence before returning to the Africa Division in April 2011 as Senior Manager, Finance Operations. Gert holds various degrees including an MBA and PhD as well as a BA Degree in Psychology obtained in 2011.

Trevor Sanderson

Trevor (46) joined ABI Ltd (a subsidiary of SABMiller) in 1995, holding a variety of positions in Manufacturing. In 2009 Trevor joined SABMiller Africa where he was appointed as Manufacturing Director Africa and was recently promoted to Technical & Supply Chain Director Africa in September 2012. Trevor holds a BSc Mech Eng from the WITS University, BCom from University of SA and a MBA from WITS Business School.

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TheDirectorssubmittheirreporttogetherwiththeauditedfinancialstatementsfortheyearended31March2013,whichdisclose the state of affairs of Zambian Breweries Plc. (‘the Company’).

Principal activities

The principal activities of the Company are the production and distribution of clear beer and soft drinks. In the opinion of the directors, all the activities of the Company substantially fall within the beverage industry.

Share capital

The authorised share capital of the Company remained unchanged at 600,000,000 ordinary shares of each, of which 546,000,000 are issued and fully paid.

Results and dividends

2013 2012 K’000 K’000

Revenue 1,141,158 919,257

Profitfortheyear 105,173 71,652

The directors do not recommend payment of a dividend (2012: Nil).

Directors

Thedirectorswhoheldofficeduringtheyearandtothedateofthisreportwere:

Valentine Chitalu - ChairmanGeorge Sokota - Non – Executive DirectorAnele Malumo - Managing Director Gert Nel - Non – Executive Director Trevor Sanderson - Non - Executive Director (Appointed 7 November 2012)Wesley Tiedt - Non - Executive Director (Resigned 7 November 2012)Annabelle Degroot - Finance Director

Number of employees and remuneration

The total remuneration of employees during the year amounted to K99,598,000 (2012: K75,385,000) and the average number of employees was as follows:

Month Number Month Number

April 1,035 October 1,133

May 1,029 November 1,151

June 1,025 December 1,178

July 1,029 January 1,194

August 1,074 February 1,179

September 1,095 March 1,207

The Company recognises its responsibility regarding the occupational health, safety, and welfare of its employees and has put in place measures to safeguard them.


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Gifts and donations

During the year the Company made donations of K273,000 (2012: K256,000) to various charitable organisations and events.

Exports

The Company did not export any products during the year (2012: K 5,317,000).

Property, plant and equipment

The Company purchased property, plant and equipment and software amounting to K257.4 million (2012: K323.9 million) during the year. In the opinion of the Directors, the carrying value of property, plant and equipment is not more than its market value.

Research and development

No research and development costs were incurred by the Company during the year (2012: Nil)

Health and safety

The Company is committed to securing the reasonable health, safety and welfare of its employees at work and visitors against risks to health or safety arising out of or in connection with the activities of the Company.

Auditors

TheCompany’sauditor,PricewaterhouseCoopers,hasindicatedtheirwillingnesstocontinueinofficeandaresolutionfortheir reappointment will be proposed at next the Annual General Meeting.

Approval of financial statements

ThefinancialstatementswereapprovedbytheBoardofDirectorson21June2013.

By order of the Board

M M. MutimushiCompany Secretary21 June 2013

Castle lager has also proved to be the ‘Perfect Moment’ beer among many


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Getting into our stride is in itself a journey to becoming the World Class Beverage manufacturing Company that we intend to be. We, therefore, acknowledge that it is important that we continue to conduct our affairs to the highest standard of Corporate Governance and to demonstrate that we have earned our place, being the most admired and respected company in Zambia, as judged by our stakeholders. Winning two diamond awards this year, in the categories “companies/ institutions that are doing the most to demonstrate exceptionalmanagerialandcorporategovernancequalities”reaffirmsourcommitment to the principles of Corporate Governance.

The Directors strive to ensure that the leadership of company is transparent, answerable and accountable to its stakeholders.

The Board of Directors endorses the Lusaka Stock Exchange (LuSE) Code of Corporate Governance for listed and quoted companies and believes that in all respects, the Company has complied with the principles of the Code throughout the year under review.

Zambian Breweries Plc believes that a corporate culture of compliance with applicable laws, regulations, internal policies and procedures is a core component of good Corporate Governance. In light thereof, in the year under review, the Company continued to be compliant in areas of Corporate Governance and disclosure requirements.

THE BOARD

The Board of Directors has been appointed by the shareholders and is responsible to the shareholders for setting the direction of the Company through the establishment of strategic objectives and key policies.

The Board membership consists of six Directors, four of whom are non executive. The Company draws on the skills and experiences of the non executive directors who ensured impartial and objective viewpoints in decision-making processes and standards of conduct. The wealthy mix of technical, entrepreneurial,financialandbusinessskillsoftheDirectorsenhancetheeffectiveness of the Board.

The Board met formally three times during the year, as well as informally as and when required. Attendance at Board and committee meetings was 100% on the part of all Board members. The Board reserves for itself a formal schedule of matters on which it takes the ultimate decision. These include adopting the Company’s year strategic plan and the annual budget, approving all major capital expenditure and material contracts, acquisitions and disposals of businesses and other assets, appointment of senior executives and succession planning, reviewingmanagement’scorporateandfinancialperformance,andoverallreviewof the Company’s internal controls. Particular other matters are delegated to the Audit Committee of Board, the roles and responsibilities of which are set out below.

Continued strides to foster integrity within the organisation were made and achieved through the roll out of the Ethics and Anti-Bribery Policy Guidelines

Getting into our stride through responsible corporate citizenship

Won two diamond awards this year, in the categories “companies/ institutions that are doing the most to demonstrate exceptional managerial and corporate governance qualities”

Supported the launch of the SABMiller - Graca Machel Trust (GMT) Partnership that was founded in 2010 to promote and protect Women’s rights, Children’s rights, Democracy and Good Governance

Championing entrepreneurship development by partnering with the ILO and the Commonwealth Youth Centre to commemorate the 2013 Youth Week and the celebrations of Commonwealth Day whose theme was “Opportunity through enterprise”

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The Board is presided over by the Chairman who is assisted by the Company Secretary.

THE CHAIRMAN AND THE MANAGING DIRECTOR

The roles of the Chairman and the Managing Director are separate with responsibilities divided between them. This separation of responsibilities has been formalised in their respective letters of appointment.

THE CHAIRMAN

The role of the Chairman of the Zambian Breweries Plc. board is to promote the highest standards of corporate governance, which is meaningful, relevant and understood throughout the business so that we all do the right things at the time and in the right way.

Our Chairman also has the responsibility to be accountable to

shareholders for the effectiveness of the Board and that it builds a sustainable business through consistent,profitablegrowth,whiletaking account of the interests of wider stakeholders.

THE MANAGING DIRECTOR

The Managing Director continued to be responsible to the Board for all aspects of the performance and management of the Company. This included developing business strategies for Board approval and achieving timely and effective implementation whilst managing the risks.

AUDIT COMMITTEE

The Audit Committee chaired by a non-executive director, met regularly during the year and effectively performed its role with independence asdefinedbyitstermsofreference

and authority granted to it by the Board.

The Audit Committee is not awareofanysignificantcasesofnon-compliance with the group’s Code of Corporate Governance during the year under review, nor is it aware of any ascertainable risk from any litigation pending, in progress or threatened, which could be regarded asmaterialtotheCompany’sfinancialposition.

INTERNAL CONTROL, RISK MANAGEMENT AND INTERNAL AUDIT

The Board is responsible for the Company’s system of internal control and risk management and for reviewing its effectiveness. The Chief Internal Auditor has established the process necessary to implement clear operating procedures, lines of responsibility and delegated authority.

Mosi lager can be found in many stores country wide....


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The Chief Internal Auditor has direct access to the Chairman of the Audit committee.

EXTERNAL AUDITORS

External Auditors are appointed by the shareholders and are subject to reappointment at the AGM. The current external auditors of the Company are PricewaterhouseCoopers (PwC). TheAuditCommitteeissatisfiedthat for the period under review, the independence of the auditors has not been affected by provision of non- audit services.

COMMUNICATION WITH SHAREHOLDERS

Zambian Breweries Plc. places considerable importance in maintaining active investor relations through open, fair and transparent communications. The Company

ensures timely dissemination of information to its investors and other stakeholders through various media. A dedicated shareholders unit through the Transfer Secretaries is responsible for active interaction with the shareholders.

In addition, the Company encourages communication with all shareholders, and welcomes their participation at Annual General Meetings. All shareholders who attend the Company’s Annual General Meeting are given the opportunity to question the Chairman and other members of the Board, on any aspect of the Company’s business.

CORPORATE SOCIAL RESPONSIBILIY

In our desire to support programmes and activities that stimulate economic and social development targeted at reducing poverty in the communities

in which we operate, we supported the launch of the SABMiller - Graca Machel Trust (GMT) Partnership that was founded in 2010 to promote and protect Women’s rights, Children’s rights, Democracy and Good Governance. The SABMiller – GMT partnership in Zambia is focusing on addressing issues of Women’s rights including women’s empowerment and entrepreneurship development, and will work to encourage traditional rulers and civil society organisations to end child marriages. We expect thatthisinitiativewillnotonlybenefitthe girl child but society as a whole.

As the leading producer of alcoholic beverages in Zambia, we continue to be concerned about the unintended consequences of irresponsible consumption of alcohol and we actively supported efforts to reduce harmful drinking. It is for this reason that, working with various

Staff at the new ndola Brewery see the investment as a chance to also upgrade their skills

The company believes that alcohol abuse is an issue that needs addressing through various channels including phone-in radio Shows


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stakeholders, we have continued to implement programmes that are focused at reducing underage drinking and harmful alcohol consumption.

We are alive to the immense opportunities inherent in our value chain for entrepreneurship development, especially for the youths of our country. It is in this regard that we partnered with the International Labour Organisation and the Commonwealth Youth Centre in support of the activities of the 2013 Youth Week and the celebrations of Commonwealth Day whose theme “Opportunity through enterprise”, was in line with our 6th Sustainable Development Priority “Enterprise Development” under the SABMiller “Ten Priorities One Future” Sustainable Development Plan. Our involvement in the 2013 Youth Week celebrations was an opportunity for

us to aid the business development of young people through training of about 1,000 youths in aspects of entrepreneurship. We are convinced that our efforts continue to support the Government’s agenda on employment creation through the opportunities that we have created, in our value chain, for micro- and small-scale businesses.

ORGANISATIONAL INTEGRITY

The company has a zero tolerance policy towards bribery and corruption. To this end, continued strides to foster integrity within the organisation were made and achieved through the roll out of the Ethics and Anti-Bribery Policy Guidelines after the rigorous training of all members of staff on bribery and corruption.

Both employees and stakeholders have been encouraged to familiarise themselves with the

said guidelines and urged to actively adhere to the code and company values in pursuance of all activities and business endeavours.

M Mutimushicompany secretary

21 June 2013

lefT: Zambian Breweries is an equal employer encouraging women to explore their dream careers. rIGhT: Travolta (above) is one of the differently-abled persons that has been empowered to start a small business with the company, delivering soft drinks to nearby market places


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Twilile Co-operative works at the two breweries to sort bottles...a group of farmers being taught basic budgeting skills by Zambian Breweries Plc

Packaged Barley being loaded onto a truck for transportation to Zambian Breweries Plc


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TheZambiaCompaniesActrequiresthedirectorstopreparefinancialstatementsforeachfinancialyearthatgiveatrueandfairviewofthestateofaffairsoftheCompanyasattheendofthefinancialyearandofitsprofitorloss.ItalsorequiresthedirectorstoensurethattheCompanykeepsproperaccountingrecordsthatdisclose,withreasonableaccuracy,thefinancialposition of the Company. They are also responsible for safeguarding the assets of the Company.

TheDirectorsacceptresponsibilityfortheannualfinancialstatements,whichhavebeenpreparedusingappropriateaccounting policies supported by reasonable estimates, in conformity with International Financial Reporting Standards and withtherequirementsoftheZambiaCompaniesAct.ThedirectorsareoftheopinionthatthefinancialstatementsgiveatrueandfairviewofthestateoffinancialaffairsoftheCompanyandofitsprofitinaccordancewithInternationalFinancialReporting Standards. The directors further accept responsibility for the maintenance of accounting records that may be relieduponinthepreparationoffinancialstatementsandforsuchinternalcontrolasthedirectorsdeterminesisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Nothing has come to the attention of the directors to indicate that the Company will not remain a going concern for at least twelve months from the date of this statement.Signed on their behalf by:

__________________________________ _______________________________Valentine Chitalu Anele MalumoChairman Managing Director

21 June 2013


PricewaterhouseCoopers, PwC Place, Stand No 2374, Thabo Mbeki Road, P.O. Box 30942, Lusaka, Zambia T: +260 (211) 334000 , F: +260(211) 256474, www.pwc.com/zm A list of Partners is available from the address above

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF ZAMBIAN BREWERIES PLC Report on the financial statements We have audited the accompanying financial statements of Zambian Breweries Plc set out on pages 22 to 52, which comprise the statement of financial position as at 31 March 2013 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Directors’ responsibility for the financial statements The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and with the requirements of the Zambia Companies Act and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements that give a true and fair view 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion the financial statements give a true and fair view of the financial position of Zambian Breweries Plc at 31 March 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and with the requirements of the Zambia Companies Act.

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Report on other legal requirements The Zambia Companies Act requires that in carrying out our audit we consider whether Zambian Breweries Plc has kept proper accounting records and other records and other registers required by this Act. In our opinion, based on our examination of those records, Zambian Breweries Plc has maintained proper accounting records and other records and other registers as required by the Zambia Companies Act. PricewaterhouseCoopers Chartered Accountants 2013 Lusaka Nasir Ali Partner signing on behalf of the firm

Financial Statements 21

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Wiinners of Best Band in Zambia 2013 Award, Amayenge Cultural Ensemble’s Alice Chali leads the group’s performance at the 2013 Zambia Music Awards in a Truly Zambian way


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Zambian Breweries Plc Financial Statements For the year ended 31 March 2013 (all amounts are in thousands of Kwacha otherwise stated)

15

Statement of comprehensive income

Notes 2013

2012

Revenue 6 1,141,158

919,257

Cost of sales

(610,371)

(508,414)

Gross profit

530,787

410,843

Other operating (expense)/income 7 (6,999)

3,285

Distribution costs

(134,357)

(97,557)

Administrative expenses

(158,399)

(143,573)

Operating profit

231,032

172,998

Finance costs 8 (105,261)

(64,508)

Finance income 8 31,014

12,458

Profit before income tax

156,785

120,948

Income tax expense 11 (51,612)

(49,296)

Profit for the year

105,173

71,652

Other comprehensive income for the year

-

- Total comprehensive income for the year 105,173 71,652

Earnings per share for profit attributable to the equity holders of the Company

- Basic and diluted (Kwacha per share-

ZMW) 12 0.193 0.161

The notes on pages 26 to 52 are an integral part of these financial statements.

(All amounts are in thousands of Kwacha unless otherwise stated)


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Statement of financial position At 31 March Notes 2013 2012 Capital and reserves attributable to the company’s equity holders

Share capital 13 546 546 Share premium 13 450,207 450,207 Retained earnings 314,044 208,871 Total equity 764,797 659,624 Non-current liabilities Borrowings 14 290,383 -

Deferred income tax 15 175,614 136,219 Total non-current liabilities 465,997 136,219 Total equity and non-current liabilities 1,230,794 795,843

Non-current assets Property, plant and equipment 16 1,079,994 924,149 Intangible assets 17 78,837 72,335 Non-current receivables and prepayments 18 2,757 - 1,161,588 996,484 Current assets Inventories 20 273,540 203,459 Trade and other receivables 21 92,499 60,240 Current income tax 11 12,277 17,031 Cash and cash equivalents 22 39,966 141,822 418,282 422,552 Non-current assets classified as held for sale Property, plant and equipment 19 224 - 224 - Current liabilities Trade and other payables 23 306,970 242,324 Derivative financial liabilities 24 3,288 458 Borrowings 14 39,042 380,411 349,300 623,193 Net current assets/(liabilities) 68,982 (200,641)

1,230,794 795,843 The notes on pages 26 to 52 are an integral part of these financial statements. The financial statements on pages 22 to 52 were approved for issue by the Board of Directors on 21 June 2013 and signed on its behalf by: Valentine Chitalu

Anele Malumo

Chairman

Managing Director



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Statement of changes in equity

Share capital Share

Premium Retained earnings

Total

equity Year ended 31 March 2012 201220122012

At start of year 364 99,474 137,219 237,057 Comprehensive income Profit for the year

-

-

71,652

71,652

Total comprehensive income for the year

-

-

71,652

71,652

Transactions with owners: Rights issue 182 350,733 - 350,915

Total transactions with owners 182 350,733 - 350,915

At end of year 546 450,207 208,871 659,624

Share capital Share

Premium Retained earnings

Total

equity Year ended 31 March 2013 At start of year 546 450,207 208,871 659,624 Comprehensive income Profit for the year - - 105,173 105,173 Total comprehensive income for the year - - 105,173 105,173 At end of year 546 450,207 314,044 764,797 The notes on pages 26 to 52 are an integral part of these financial statements.


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Statement of cash flows

Year ended 31 March

Notes 2013 2012

Cash flows from operating activities

Cash generated from operations 26 288,120 236,941

Interest received 1,168 455

Interest paid (12,775) (12,695)

Income tax paid 11 (7,463) -

Net cash used in operating activities 269,050 224,701

Cash flows from investing activities

Purchase of property, plant and equipment (257,386) (323,920)

Proceeds from sale of property, plant and equipment 6,118 1,437

Purchases of Intangible assets (7,173) -

Net cash used in investing activities (258,441) (322,483)

Cash flows from financing activities

Interest paid (Arising on long term borrowings) (43,984) (51,813)

Proceeds from rights issue - 350,915

Proceeds from bank loans 290,383 -

Repayment of bank loans (352,847) (44,193)

Dividends paid to shareholders (6) (5)

Net cash (used in)/generated from financing activities (106,454) 254,904 Net (decrease)/Increase in cash and cash equivalents

(95,845) 157,122

Movement in cash and cash equivalents

Cash and cash equivalents at the beginning of the year 117,217 (52,363)

(Decrease)/Increase in cash and cash equivalents (95,845) 157,122

Exchange difference in cash and cash equivalents (17,489) 12,458

Cash and Cash Equivalents at end of the year 22 3,883 117,217

The notes on pages 26 to 52 are an integral part of these financial statements.


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Zambian Breweries Plc Financial Statements For the year ended 31 March 2013 (all amounts are in thousands of Kwacha unless otherwise stated)

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Notes

1 General information Zambian Breweries Plc. ( the “Company”) is incorporated in Zambia under the Zambia Companies Act as a public company, listed on the Lusaka Stock Exchange and is domiciled in Zambia. The address of the registered office is:

Plot Number 6438, Mungwi Road Heavy Industrial Area Lusaka Zambia. For Zambian Companies Act reporting purposes, the balance sheet is represented by the statement of financial position and the profit and loss account by the statement of comprehensive income , in these financial statements.

2 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (a) Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The measurement basis applied is the historical cost basis, unless otherwise stated in the accounting policies below. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires directors to exercise judgement in the process of applying the company‟s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 5 With effect from 1 January 2013, the Zambian Kwacha was rebased by dividing the currency by 1,000. As part of the process, the currency code was changed to ZMW from ZMK although the currency symbol "K" remained unchanged. These financial statements have been prepared in the rebased currency. Accordingly, the comparatives have been restated by dividing them by 1,000

Changes in accounting policy and disclosures (i) New and amended standards adopted

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on 1 January 2012 that would be expected to have a material impact on the Company


Financial Statem

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Zambian Breweries Plc Financial Statements For the year ended 31 March 2013 (all amounts are in thousands of kwacha otherwise stated) Notes (continued)

20

2. Summary of significant accounting policies (continued)

(ii) New standards and interpretations that are not yet effective and have not been early adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Company, except the following set out below: IFRS 13, „Fair value measurement‟, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The application of IFRS 13 may enhance fair value disclosures in certain circumstances IFRS 9, „Financial instruments‟, addresses the classification, measurement and recognition of financial assets and financial liabilities. Issued in November 2009 and October 2011, it replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity‟s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity‟s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The directors are yet to assess IFRS 9‟s full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2015. The directors will also consider the impact of the remaining phases of IFRS 9 when completed by the IASB. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company


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2 Summary of significant accounting policies (continued)

(b) (i) Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the company‟s activities. Revenue is shown net of value-added tax (VAT), excise duty and discounts. The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Company and when specific criteria have been met for each of the Company‟s activities as described below. Revenue is recognised as follows: Sales of goods are recognised in the period in which the Company has delivered products to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customers‟ acceptance of the products.

(ii) (ii) Other operating income

Interest income is recognised using the effective interest method.

(c) Foreign currency translations

(i) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates („the functional currency‟). The functional statements are presented in Zambian Kwacha which is the company‟s functional currency.

(ii) Transactions and balances Foreign currency transactions are translated into the functional currency of the Company using the exchange rates prevailing at the dates of the 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 recognised in profit or loss. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within „finance income or cost‟. All other foreign exchange gains and losses are presented in profit or loss within other operating income or other operating costs.


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(d) Trade receivables Trade receivables are amounts due from customers for merchandise sold in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment.

(e) Cash and cash equivalents

In the statement of cash flow, cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

(f) Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of the business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(g) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method; any differences between proceeds (net of transaction costs) and the redemption value are recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of reporting period.


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2. Summary of significant accounting policies (continued) (h) Property plant and equipment

All categories of property, plant and equipment are initially recorded at cost and are subsequently measured at historical cost less accumulated depreciation and any accumulated impairment losses. 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 Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to profit or loss during the financial period in which they are incurred.

Depreciation is calculated using the straight line method to allocate their cost less their residual values over their estimated useful lives, as follows:

Buildings 25 – 40 years Plant and containers 1.5 – 20 years Motor vehicles 5 years

The residual values and useful lives of the assets are reviewed, and adjusted if appropriate, at the end of each reporting period. Property, plant and equipment are reviewed 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 carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset‟s fair value less costs to sell, and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds to their carrying amount and are included in profit or loss. General and specific 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 get ready 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. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

(i) Intangible assets

(i) Goodwill

Goodwill arose on the acquisition of subsidiaries and represented the excess of the consideration transferred over the Company‟s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree. On hive-up of operations, the Company allocated the goodwill to the operating segment or the CGU at the entity level.


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24

2.

(i)

Summary of significant accounting policies (continued)

Intangible assets (continued) For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs, or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. Goodwill recognised has an indefinite useful life on which impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed. In determining the useful life of Goodwill, the Directors have taken into consideration the following factors;

The expected usage by the entity ; The entity expects to make us of asset for an indefinite period of time. In this regard, the entity has made massive investments in terms of plant and equipment over the years to ensure that the entity‟s operations continue

The typical product life cycle for the asset and published information about useful lives of similar assets that are used in a similar way. The treatment adopted by the directors is in line with companies in the similar businesses in the same industry

The stability of the industry in which the asset operates and changes in market demand for the products or services from or related to the asset. Directors are of the view that the industry in which the entity operates is stable and hence the asset is more likely to be of use in indefinite.

Expected actions by actual or potential competitors. There are no actual or potential competitors that will affect the market share of the entity

(ii) Computer software

Computer software is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Directly attributable costs that are capitalised as part of computer software include an approximate portion of overheads. The computer software is amortised over its useful life of 3 years.

(j) Inventories

Inventories are stated at the lower of cost and net realisable value. The cost of raw materials, work in progress (WIP) and finished goods is determined by the standard cost method less provision for impairment. Cost of engineering spares is measured at weighted average cost method less provision for impairment. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity), but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and applicable variable selling expenses.


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(k) Employee benefits Retirement benefit obligations

The Company operates defined contribution retirement benefit schemes for its employees. The Company and all its employees also contribute to the National Pension Scheme Fund, which is a defined contribution scheme. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The assets of all schemes are held in separate trustee administered funds, which are funded by contributions from both the Company and employees. The Company‟s contributions to the defined contribution schemes are charged to profit or loss in the year in which they fall due.

(l) Income tax

The tax expense for the period comprises current and deferred income tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity respectively. The current income tax charge is calculated on the basis of the tax enacted or substantively enacted at the reporting date. The directors periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying values in the financial statements. However, if the deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted at the reporting date and are expected to apply when the related deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to off set current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.


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Notes (Continued)


(m) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors that makes strategic decisions.

(n) Share capital

Ordinary shares are classified as „share capital‟ in equity. Any premium received over and above the par value of the shares is classified as „share premium‟ in equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction from share premium. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the company‟s holders.

(o) Derivative financial instruments

Derivatives, which comprise solely forward foreign exchange contracts, are initially recognised at fair value on the date the derivative contract is entered into and are subsequently measured at fair value. The fair value is determined using forward exchange market rates at the end of reporting period .The derivatives do not qualify for hedge accounting. Changes in the fair value of derivatives are recognised immediately in profit or loss. The derivatives are trading derivatives and are classified as a current asset or liability.

(p) Dividend distribution

Dividend distribution to the company‟s shareholders is recognised as a liability in the financial statements in the period in which the dividends are approved by the Company‟s shareholders.

(q) Financial assets (i) Classification

All financial assets of the Company are classified as loans and receivables, based on the purpose for which the financial assets were acquired.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of reporting period. These are classified as non-current assets. The Company‟s loans and receivables comprise „non-current receivables and prepayments‟, „trade and other receivables‟ and „cash and cash equivalents‟ in the statement of financial position.

(ii) Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade-date – the date on

which the Company commits to purchase or sell the asset. Loans and receivables are subsequently carried at amortised cost using the effective interest method.


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(iii) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

(iv) Impairment

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a „loss event‟) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

(r) Non-Current Assets held for Sale

Non-current assets (or disposal groups) are classified as held for sale if the carrying amount will be recovered principally through sale rather than through continuing use. This condition is regarded as met only when the sale is highly probable, the assets (or disposal groups) are available for immediate sale in its present condition and management is committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of the classification. Immediately prior to being classified as held for sale the carrying amount of assets and liabilities are measured in accordance with the applicable standard. After classification as held for sale it is measured at the lower of the carrying amount and fair value less costs to sell. An impairment loss is recognised in profit or loss for any initial and subsequent write-down of the asset and disposal group to fair value less costs to sell. A gain for any subsequent increase in fair value less costs to sell is recognised in profit or loss to the extent that it is not in excess of the cumulative impairment loss previously recognised. Non-current assets or disposal groups that are classified as held for sale are not depreciated

(s) Impairment of non-financial assets Assets that have an indefinite useful life – for example, goodwill, are not ready to use- are not

subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed 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 carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset‟s fair value less costs to sell and value in use.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there

are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.


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28

3 Financial risk management (continued)

The Company‟s activities expose it to a variety of financial risks: market risk (including, foreign exchange risk, interest rate risk), credit risk and liquidity risk. The Company's risk management framework and governance structures are intended to provide comprehensive controls and ongoing management of its major risks. The Board of Directors exercises oversight through delegation from the Board to various sub-committees, notably the Audit Committee and the Executive Committee, which are organised in line with risk management policies of SABMiller Plc, the ultimate parent company. Financial risk management is carried out by the finance department under policies approved by the board. An overview of the key aspects of risk management and use of financial instruments is provided below.

a) Market risk

The significant market risks to which the company is exposed are foreign exchange risk and interest rate risk. i) Foreign exchange risk The Company imports raw materials and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States Dollar (USD )and South African Rand (ZAR). Foreign exchange risk arises from future commercial transactions and cash and cash equivalents and payables. The Directors policy to manage foreign exchange risk is the use of forwards and to hold foreign currency bank accounts which act as a natural hedge for purchases of imported raw materials. At 31 March 2013, if the currency had weakened/strengthened by 10%(2012:10%) against the US dollar with all other variables held constant, post-tax profit for the year and shareholder equity would have been K5,031,000 (2012: K14,948,000) higher/lower, mainly as a result of US dollar denominated trade payables and bank balances. At 31 March 2013, if the currency had weakened/strengthened by 10%(2012:10%) against the ZAR with all other variables held constant, post tax profit for the year and shareholder equity would have been K9,435,000 (2012: K9,862,000) lower/higher, mainly as a result of ZAR denominated trade payables and bank balances. ii) Interest rate risk The Company‟s interest rate risk arises primarily from interest paid on floating rate borrowings. The floating rate borrowings expose the Company to cash flow interest rate risk. As at 31 March 2013, with other variables unchanged, a 1% (2012:1%) decrease / increase in the base interest rate (2012: 1%) would result in post-tax profit for the year and shareholder equity being K900,000 higher/lower (2012: K2,313,000 higher/lower).


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3 Financial risk management (continued) b) Credit risk

The Company does occasionally have funds on deposit at various banks but on those occasions when the amounts involved are material, the length of time that the funds are being held, is short. In addition, the Company only banks with reputable well established financial institutions. The Company‟s main credit risk therefore comes from its exposure to trade and other receivables mainly arising from balances outstanding from retail supermarkets during the year. Credit risk is managed by the Finance Director. The Finance Director assesses the credit quality of each customer before standard payment and delivery terms are offered, taking into account its financial position, past experience and other factors. Individual credit limits and terms are set based on limits set by the Board. The utilisation of credit limits and the adherence to settlement terms are constantly monitored. Bank guarantees and secured title deeds are obtained for the majority of credit customers.

All receivables that are neither past due nor impaired are within their approved credit limits, and

no receivables have had their terms renegotiated. The company does not use external credit ratings for the purposes of assessing credit quality. The credit quality of financial assets that are neither past due nor impaired is assessed by reference to historical information about counterparty default rates. All customers are existing customers with no history of default. None of the financial assets are past due or impaired except for the following amounts in trade receivables (which are due within 30 days of the end of the month in which they are invoiced):

2013 2012

Past due but not impaired:

- by up to 30 days 5,739 3,371 - by more than 31 to 60 days 515 1,425 -Above 60 days 9,706 7,736

Total past due but not impaired 15,960 12,532 Bank guarantees/title deeds 21,045 2,000

Gross trade receivables 50,720 31,717 Impairment provisions (4,373) (5,103) Carrying amount 46,347 26,614

All receivables subject to litigation or past due by more than 60 days are considered to be impaired, and are carried at their estimated recoverable value.


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3 Financial risk management (continued)

c) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk by maintaining cash and cash equivalent balances and available credit facilities to ensure that it is able to meet its short term and long term obligations as and when they fall due. Company-wide cash projections are managed centrally and regularly updated to reflect the dynamic nature of the business and fluctuations caused by exchange rate movements. The directors perform cash flow forecasting and monitor rolling forecasts of the Company‟s liquidity requirements to ensure it has sufficient cash to meet its operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity dates. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than

1 year Between

2 and 5 years

Total

At 31 March 2013: - borrowings 39,042 290,383 329,425 - trade and other payables (excluding statutory liabilities) - Interest on borrowing - derivative financial instruments

267,880

132,649

-

81,706 -

267,880

81,706 132,649

Total financial liabilities (contractual maturity dates) 439,571

372,089

811,660

At 31 March 2012:

- borrowings 442,632 - 442,632 - trade and other payables (excluding statutory liabilities) - derivative financial instruments

225,560

109,115

-

-

225,560

109,115 Total financial liabilities (contractual maturity dates) 777,307

-

777,307

d) Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or

liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level Inputs for the asset or liability that are not based on observable market data (that is,

unobservable inputs) (level 3).


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3 Financial risk management (continued) d) Fair value estimation (continued)

31 March 2013

Liabilities Level 2

Financial liabilities at fair value through profit or loss

– Trading derivatives 3,288

Total liabilities 3,288

31 March 2012

Level 2 Liabilities Financial liabilities at fair value through profit or

loss

– Trading derivatives 458

Total liabilities 458

e) Capital management

The company‟s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, issue new capital or sell assets to reduce debt. Consistent with others in the industry, the company monitors capital on the basis of a gearing ratio. This ratio is calculated as net debt divided by the total capital of the company in Zambia. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity plus net debt.

During the year, the Company‟s strategy was to maintain a gearing ratio less than 75%. The gearing ratio at 31 March 2013 and 2012 were as follows; 2013 2012 Total borrowings 329,426 380,411 Less: cash and cash equivalents (39,966) (141,822) Net debt 289,460 238,589 Total equity 764,797 659,624 Total capital 1,054,257 898,213 Gearing ratio 27% 27%


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4 Financial instruments by category

Liabilities at fair

value through profit or loss

Other financial liabilities at

amortised cost

Total

Liabilities as per the statement of financial position

Borrowings - 329,426 329,426 Derivative financial instruments 3,288 - 3,288 Trade and other payables (excluding statutory liabilities)

- 267,880

267,880

3,288 597,306 600,594

Liabilities at fair

value through profit or loss

Other financial liabilities at

amortised cost

Total

Liabilities as per the statement of financial position

Borrowings - 380,411 380,411 Derivative financial instruments 458 - 458 Trade and other payables (excluding statutory liabilities)

- 225,102

225,102

458 605,513 605,971

Loans and

receivables

At 31 March 2013 Assets as per the statement of financial position

Trade and other receivables (excluding pre-payments)

86,972

Cash and cash equivalents 39,966 Non-current receivable 2,757 129,695

Loans and receivables

At 31 March 2012 Assets as per the statement of financial position

Trade and other receivables (excluding pre-payments)

54,693

Cash and cash equivalents 141,822 196,515


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5 Critical accounting estimates and judgements (i) Critical accounting estimates and assumptions Estimates and judgements are continually evaluated and are based on historical experience and other factors, including experience of future events that are believed to be reasonable under the circumstances.

The directors make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. Impairment of goodwill The Company tests annually whether goodwill has suffered any impairment, in accordance with accounting policy stated in Note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. The assumptions used in the calculations are set out in Note 7.

Exposure arising on tax assessments The Company is subject to tax exposures. In determining the level to provide for, the directors have to make an estimate of the likely outcome of discussions with the tax authorities and therefore probability of loss.

6 Segment information

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The board considers the activities of the Company to substantially fall within the same product range. The Board assesses the performance of the Company based on EBITDA. The Company does not incur any non-recurring expenditure and therefore does not adjust EBITDA. The segment information provided to the Board of directors for the reportable segment is as follows;

2013 2012 Revenue from external customers: Alcoholic beverages: 793,423 619,781 Non Alcoholic 347,735 299,476 Total revenue 1,141,158 919,257 EBITDA 292,189 258,035 Interest income 1,168 455 Interest expense (56,759) (64,508) Depreciation (79,142) (72,166) Amortisation (671) (868) Income tax expense (51,612) (49,296) Profit after income tax 105,173 71,652 Total assets 1,580,094 1,419,036 Total liabilities 815,297 759,412


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6 Segment information (continued)

The amounts provided to the Board of directors with respect to total assets and liabilities are measured in a manner consistent with that of the financial statements.

The result of its revenue from external customers in Zambia is K1,141,158,000 (2012: K919,257,000). There was no revenue from external customers from other countries (2012: K5,317,000). All non-current assets are located in Zambia. As the company primarily sells to distributors, wholesalers and large retail outlets, it had two customers during the year who contributed 10% or more of the entity‟s total revenue. This amounted to K419,868,000 (2012: K340,480,000) in total.

7 Other operating (expense)/income 2013 2012

Interest income 1,168 455

Other income 406 746

Net foreign exchange gain other than on borrowings and cash and cash and equivalents

1,378 892

(Loss)/profit on disposal property, plant and equipment (9,951) 1,192

(6,999) 3,285

8 Finance income and costs 2013 2012 Finance costs Interest expense: - Overdrafts 12,775 12,695 - Syndicated loans 43,984 51,813 56,759 64,508 Foreign exchange loss on cash and cash equivalents 48,502 - 105,261 64,508 Finance income Foreign exchange gain on cash and cash equivalents (31,014) (12,458) (31,014) (12,458) 74,247 52,050


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9 Expenses by nature 2013 2012

The following notes have been charged/(credited) in arriving at the profit before income tax:

Raw materials and consumables used 523,602 429,930 Employee benefits expense (Note 10) 99,598 75,385 Depreciation on property, plant and equipment (Note 16) 79,142 72,166 Impairment loss on Ndola plant 6,257 - Auditor‟s remuneration 883 728 Provision for impairment losses on trade receivables (Note 21) 2,105 1,977 Transportation expenses 44,300 40,194 Maintenance 31,686 28,310 Marketing 27,861 26,122 Management fees 30,395 24,360 Other expenses 64,297 47,087 Total cost of sales, distribution and administrative costs. 910,126 746,259

10 Employee benefits expense

The following are included within the employee benefits

expense:

Wages and salaries 88,085

68,893 Defined contribution schemes – NAPSA and Saturnia 11,513

6,492

99,598

75,385

11 Income tax Current income tax 551 265 Under-provision of current income tax from prior years 11,666 3,000 Deferred income tax in current year 61,511 46,031 Prior year deferred tax (over)/underprovision (22,116) - Income tax expense 51,612 49,296 The tax on the Company‟s profit before income tax differs from the theoretical amount that would

arise using the statutory income tax rate as follows:

2013 2012 Profit before income tax 156,785 120,948

Tax calculated at the statutory income tax rate of 35% (2011: 35%) 54,875 42,332 Tax effects of: Income not subject to tax - - Under-provision in current income tax from prior years 11,666 3,000 Over-provision in deferred income tax from prior years (22,116) (3,556) Expenses not deductible for tax purposes 7,187 7,520 Income tax expense 51,612 49,296


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11 Income tax ( continued) 2013 2012

Current income tax movement in the statement of financial position

At start of the year (17,031) (20,296) Charge for the year 12,217 3,265 Paid during the year (7,463) -

At end of the year (12,277) (17,031)

The accumulated tax losses will expire as follows:

Year Loss available Year of expiry

31 March 2010 32,211 2014/15 31 March 2011 106,752 2015/16 138,963

12 Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the

Company by the weighted average number of ordinary shares outstanding during the year. 2013 2012 Profit attributable to equity holders of the Company 105,173 71,652

Number of ordinary shares in issue(millions) 546 546 Adjustment factor - 0.81 Weighted average number of ordinary shares in issue (millions) 546 444 Basic earnings per share (in Kwacha rebased) 0.193 0.161

There were no potentially dilutive shares outstanding at 31 March 2013 or 2012. Diluted earnings per share are therefore the same as basic earnings per share.

13 Share capital Number of

shares Ordinary

shares Share

premium

(K‟ millions)

(K‟ 000)

(K‟ 000)

Balance as at 1 April 2011 364

364

99,474 Rights issue 182

182

350,733

Balance at 31 March 2012 and 31 March 2013

546

546

450,207

The total authorised number of ordinary shares is 600,000,000 (2012: 600,000,000) with a par value of K1 per share. All issued shares are fully paid.


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14 Borrowings

The borrowings are made up as follows: 2013

2012

Non-current:

Syndicated loan – principal 290,383

-

Current:

Bank overdrafts 36,083

24,605 Syndicated loan - interest 2,959

355,806

39,042 380,411 Total borrowings 329,425

380,411

The Syndicated facility is secured by the backing of SABMiller Plc. The overdraft facilities from the various banks are all unsecured. Interest on the syndicated loan and bank overdrafts is payable at the prevailing Bank of Zambia (BoZ) Policy Rate rates plus a margin ranging from 1.00% to 2.75%. The effective interest rate on the facilities at the year end was 12.31% (2012:12%). The bank overdrafts expiring within one year are annual facilities subject to renewal at various dates during 2013.The syndicated loan is due for repayment on 26 February 2016. There were no facilities in default during the year. The carrying amount of the non-current and current borrowings approximates to the fair value, as the impact of discounting is not significant. All borrowings are in the Zambian Kwacha.

15 Deferred income tax

2013

2012

At start of the year 136,219

90,188

Over provisioning from prior year (22,116)

(3,556)

Charge for the year 61,511

49,587

At end of year 175,614

136,219

Deferred income tax assets and liabilities, deferred income tax charge/ (credit) in profit or loss are attributed to the following items:

Year ended 31 March 2013

1.04.2012 Charged/ (credited)

to profit or loss 31.03.2013 Deferred income tax liabilities Property, plant and equipment 193,415 31,046 224,461 193,415 31,046 224,461 Deferred income tax assets Other deductible temporary

differences

-

(211)

(211) Tax losses carried forward (57,196) 8,560 (48,636) (57,196) 8,349 (48,847) Net deferred income tax liability 136,219 39,395 175,614


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15 Deferred income tax (continued) Year ended 31 March 2012

1.04.2011 Charged/(credited)

to profit or loss

31.03.2012 Deferred income tax liabilities Property, plant and equipment 188,873 4,542 193,415 188,873 4,542 193,415 Deferred income tax assets Other deductible temporary

differences

43

( 43)

- Tax losses carried forward (98,728) 41,532 (57,196) (98,685) 41,489 (57,196) Net deferred income tax liability 90,188 46,031 136,219

16 Property, plant and equipment

Capital

Motor Plant & work in

Buildings Vehicles Containers progress Total

At 1 April 2011

Cost 67,537 47,169 786,947 12,437 914,090

Accumulated depreciation (7,228) (30,147) (204,075) - (241,450)

Net book amount 60,309 17,022 582,872 12,437 672,640


Opening net book amount 60,309 17,022 582,872 12,437 672,640

Additions - - 19,500 304,420 323,920

Disposals - (242) (3) - (245)

Transfers 903 15,010 12,657 (28,570) -

Depreciation charge (1,697) (7,063) (63,406) - (72,166)

Closing net book amount 59,515 24,727 551,620 288,287 924,149

At 31 March 2013

Cost 68,440 55,228 818,962 288,287 1,230,917

Accumulated depreciation (8,925) (30,501) (267,342) - (306,768)

Net book amount 59,515 24,727 551,620 288,287 924,149


Opening net book amount 59,515 24,727 551,620 288,287 924,149

Additions - - 34,763 222,623 257,386

Disposals (798) (646) (20,955) - (22,399)

Transfers 91,315 23,919 210,610 (325,844) -

Depreciation charge (1,905) (9,607) (67,630) - (79,142)

Closing net book amount 148,127 38,393 708,408 185,066 1,079,994

At 31 March 2013

Cost 158,795 78,501 1,043,380 185,066 1,465,742

Cost (10,668) (40,108) (334,972) - (385,748) Accumulated depreciation 148,127 38,393 708,408 185,066 1,079,994


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16 Property, plant and equipment (continued)

(i) Capital work in progress represents the on going rehabilitation/construction of the Ndola Plant.

(ii) The register showing the details of buildings and land, as required by the Section 193 of the Zambia Companies Act, is available during business hours at the registered office of the Company.

17 Intangible assets

Goodwill Software Licences Total

At 31 March 2011 Cost 71,987 2,084 74,071

Accumulated amortisation - (868) (868) Net book amount 71,987 1,216 73,203 Year ended 31 March 2012 At start of year 71,987 1,216 73,203 Amortisation charge - (868) (868) At end of year 71,987 348 72,335 At 31 March 2012 Cost 71,987 2,084 74,071 Accumulated amortisation - (1,736) (1,736) Net book amount 71,987 348 72,335

Year ended 31 March 2013 Opening net book amount 71,987 348 72,335 Additions - 7,173 7,173 Amortisation charge - (671) (671) At end of year 71,987 6,850 78,837 At 31 March 2013 Cost 71,987 9,257 81,244 Accumulated amortisation - (2,407) (2,407) Net book amount 71,987 6,850 78,837


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17 Intangible assets (continued)

(i) Goodwill

Goodwill is allocated to the Company‟s cash-generating units (CGUs) identified according to operating segment. The recoverable amount of the segment, Zambian Breweries Plc is determined based on value-in-use calculations. These calculations use post-tax cash flow projections based on financial budgets approved by the directors covering a three-year period. Cash flows beyond the three-year period are extrapolated using the estimated growth rates stated below. The growth rates do not exceed the long-term average growth rates for the respective business in which the CGU operates. The key assumptions used for value-in-use calculations are as follows: 2013 2012 Gross margin 45.00% 45.00% Growth rate 6.00% 3.00% Discount rate 13.51% 10.23% These assumptions have been used for the analysis of Zambian Breweries CGU. The directors determined budgeted operating margin based on past performance and its expectations for the market development. The discount rates used are post-tax and reflect specific risks relating to Zambian Breweries Plc.

(ii) Computer Software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire

and bring to use the specific software. These costs are amortised over their estimated useful lives of four years.

18 Non-current receivables and prepayments 2013 2012

Other non-current receivables 2,757 - 2,757 -

All non-current receivables are due within 5 years from the reporting date. The fair values of the non-current financial assets are as follows: 2013 2012 Other non-current receivables 3,355 - The fair values are based on cash flows discounted using a rate based on the average borrowing

rate of 12.67% (2012: nil).


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19 Non-Current Assets Held for Sale 2013 2012 Transfer from property, plant & equipment 6,481 - Impairment loss (6,257) - Fair value less costs to sell 224 -

Impairment loss on Ndola plant Cost 10,391 - Accumulated depreciation (4,061) - Net Book Value 6,330 - Fair Value of assets (224) - Loss on disposal of property, plant and equipment 6,106 - In March 2013, management approved the sale of old parts and spares resulting from the upgrade

of the brew house at the company‟s Ndola plant. The assets will be sold as scrap. Management expects to sell the assets before December 2013.

20 Inventories 2013 2012

Raw materials 188,475 122,572 Work in progress 9,013 7,600 Finished goods 46,781 51,328 General stores and consumables 29,271 21,959 273,540 203,459

The cost of inventories recognised as an expense and included in cost of sales amounted to K 523,602 000 (2012: K 429,930 000). Included in inventory are items of K 14,290 000 (2012: K 9,149 000) carried at their net realisable value.

21 Trade and other receivables 2013 2012

Trade receivables 50,720 31,717 Less: Provision for impairment losses (4,373) (5,103)

46,347 26,614

Amount due from related parties (Note 27) 2,574 426 Prepayments and accrued income 5,527 725 Other receivables 38,051 32,475 92,499 60,240

Movements on the provision for impairment of trade receivables are as follows:

2013 2012

At start of year 5,103

3,126

Provision in the year 2,105

1,977

Receivables written off during the year as uncollectible (2,835)

-

At end of year 4,373

5,103


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21 Trade and other receivables (Continued) The creation and release of provision for impaired receivables have been included in administrative expenses‟ in the statement of comprehensive income. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The company holds security in the form of bank guarantees and title deeds for a majority of the credit customers. The fair value of trade and other receivables approximates their carrying value.

22 Cash and cash equivalents 2013 2012

Cash at bank and in hand 39,966 141,822 Cash and cash equivalents include the following for the purposes

of the statement of cash flows

2013 2012 Cash at bank and in hand 39,966 141,822 Bank overdrafts (Note 14) (36,083) (24,605) 3,883 117,217

23 Trade and other payables 2013 2012

Trade payables 35,189 27,367 Amounts due to related companies (Note 27) 125,857 93,047 Accrued expenses 102,840 62,562 Dividends payable 312 318 Other payables 42,772 59,030

306,970

242,324

The carrying amount of the above payables and accrued expenses approximate to their fair value.

24 Derivative financial instruments

2013 2012 Forward exchange contracts - Liability 3,288 458

The derivative financial instruments comprise forward foreign exchange contracts that are not designated as hedging instruments and are considered as trading derivatives. Trading derivatives are classified as a current asset or current liability in the statement of financial position. Derivative financial instruments are presented within the section on operating activities as part of changes in working capital in the statement of cash flows. The notional principal amounts of the outstanding forward exchange contracts at 31 March 2013 were K 132,649,000 (2012: K 109,115,000).


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25 Dividends per share At the Annual General Meeting to be held on 15 July 2013, no final dividend in respect of the year ended 31 March2013 is to be proposed. There were no dividends paid during the year. Payment of dividends is subject to withholding tax at rates varying between zero and 15% depending on the resident status of the shareholders. Dividends declared by a company listed on the Lusaka Stock Exchange and payable to an individual are exempt from withholding tax.

26 Cash generated from operations Reconciliation of profit before income tax to cash generated from operations: 2013 2012 Profit before income tax 156,785 120,948 Adjustments for: Interest income (Note 7) (1,168) (455) Interest expense (Note 8) 56,759 64,508 Depreciation and container amortisation (Note 16) 79,142 72,166 Loss on sale of property, plant and equipment 9,951 (1,192) Amortisation of intangible asset (Note 17) 671 868 Impairment loss property, plant and equipment 6,106 - Foreign exchange differences 17,489 (12,458) Derivative financial instruments 2,830 123 - Non-current receivables (2,757) - Changes in working capital;

- Trade and other receivables (32,259) (8,454) - Inventories (70,081) (54,370) - Trade and other payables 64,652 55,257 Cash generated from operations 288,120 236,941

27 Related party transactions

The Company is controlled by SABMiller Africa and Asia BV (incorporated in the Netherlands). The ultimate parent and ultimate controlling party of the Company is SABMiller Plc (incorporated in England and Wales). There are other companies that are related to Zambian Breweries Plc through common shareholdings or common directorships.


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27 Related party transactions (continued)

i) Purchase of goods and services:

2013 2012

From fellow subsidiaries: SABMiller Africa& Asia (Pty) Limited 153,781 104,227 South African Breweries Limited 23,512 19,282 Sabmark International - a division of SABMiller Finance BV

(Royalties) 38,588 37,445

Bevman Services AG (Management fees) 28,905 24,360 Swaziland Breweries 1,577 5,985

Tanzania Breweries 3,050 87 Kgalagadi Breweries Plc 1,385 10,612 Mubex Ltd 134,479 300,486 385,277 502,484

ii) Directors' remuneration and key management compensation 2013 2012 Directors remuneration Non-executive Directors fees 147 122 Salaries and short term emoluments 1,663 1,429 Other emoluments 1,125 868 2,935 2,419

2013 2012

Other key management compensation

Salaries and short term emoluments 4,933 5,356 Other emoluments 1,979 1,353

Retirement benefits cost 114 76

7,026 6,785

iii) Outstanding balances from purchase of goods/services Due to fellow subsidiaries: SABMiller Africa &Asia (Pty) Limited 15,767 34,485 South African Breweries Limited 2,272 142 Sabmark International - a division of SABMiller Finance BV

(Royalties) 9,122 13,497

Bevman Services AG (Management fees) 7,273 - Swaziland Breweries Ltd 348 1,484 Tanzania Breweries Ltd 3,153 102 Kgalagadi Breweries Plc - 294 Mubex Ltd 13,989 28,694 51,924 78,698 Due from parent company: SABMiller Plc 11,473 820 63,397 79,518


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Zambian Breweries Plc Financial Statements For the year ended 31 March 2013

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Notes (Continued)

27 Related party transactions (continued)

iv) Outstanding balances from loans

2013 2012 Due to fellow subsidiaries: National Breweries Plc 4,771 4,940 Heinrich‟s Syndicate Ltd 57,689 8,589 62,460 13,529

v) Outstanding balances arising from sale and purchase of goods/services 2013 2012 Receivables from fellow subsidiaries: Kgalagadi Breweries Plc 40 - Malawi Beverages Ltd 465 426 Maluti Mount Brewery - Lesotho 2,069 - 2,574 426 The payables to related parties are unsecured and interest is charged based on the Bank of Zambia

lending rate at each month end payable monthly. The receivables from related parties arise mainly from sale transactions and are due one month after the date of sale. The receivables are unsecured and bear no interest. No provisions are held against receivables from related parties (2012: Nil).

vi) Management fees National Breweries Plc 11,696 6,904 Heinrich‟s Syndicate Ltd 2,314 411 14,010 7,315

The management fees relate to support function services provided to National Breweries Plc and

Heinrich‟s Syndicate Limited following the integration of these functions.

28 Contingent liabilities Zambian Breweries Plc had several pending legal proceedings at 31 March 2013. The Directors having obtained appropriate legal advice are of the opinion that there will be no material losses arising from the pending legal proceedings. The value of potential claims against the company is K31,757,000 (2012: K 35,032,000).

Zambian Breweries Plc Financial Statements For the year ended 31 March 2013

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Notes (Continued)

29 Commitments

Capital and operating expenditure contracted for at the end of the reporting date but not recognised in the financial statements is as follows:

Capital commitments 2013 2012 Property, plant and equipment 8,269 34,286

Operating commitments 2013 2012 Raw material commitments 36,542 62,441

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Zambian Breweries Plc Principal shareholders and share distribution For the year ended 31 March 2013

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Principal shareholders The ten largest shareholdings in the Company and the respective number of shares held at 31 March 2013 is as follows: # Name of shareholder

% Number of

shares 1. SABMiller B.V. 87.13 475,732,350 2. Standard Chartered Zambia Securities Nominees Ltd 9.55 52,167,100 3. Saturnia Regna Pension Trust Limited 1.29 7,027,322 4. KCM Pension Trust Scheme 0.34 1,829,835 5. SCBZ Nominees - BBZ Staff Pension Fund 0.20 1,079,507 6. Stanbic Nominees Zambia Limited 0.12 653,982 7. Standard Chartered Bank Pension Trust Fund 0.12 632,744 8. Zambia State Insurance Pension Trust Fund 0.11 592,886 9. ZSIC Life Policy Holders Fund 0.07 400,000 10. Stanbic Bank Pension Trust Fund 0.07 394,023 Total Selected 98.99 540,509,749 Not Selected 1.01 5,490,251 Issued Shares 100.00 546,000,000 Distribution of shareholders

Number of shareholders

% Number of shares

< 500 376 0.02 132,241 501-5,000 304 0.04 241,819 1,001 - 5,000 450 0.18 996,621 5,001 - 10,000 82 0.11 596,363 10,001 - 100,000 79 0.40 2,173,232 100,000 - 1,000,000 11 0.74 4,023,610 >1,000,001 5 98.50 537,836,114 1,307 100.00 546,000,000

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CHAIRMANV Chitalu

DIRECTORSG SokotaA MalumoT SandersonG NelA Degroot

COMPANY SECRETARYM M. Mutimushi

REGISTERED OFFICEPlot No 6438Mungwi RoadHeavy Industrial AreaP O Box 35135Lusaka

LEGAL ADVISORSTembo Ngulube & AssociatesPlot 34, Manda Hill RoadP. O. Box 37060Lusaka

Christopher RusselStand No. 4658/AChikwa RoadP O Box 34091Lusaka

BANKERSBarclays Bank Zambia PlcCitibank Zambia LimitedStanbic Bank Zambia LimitedStandard Chartered Bank PlcZambia National Commercial BankLusaka

AUDITORPricewaterhouseCoopersPricewaterhouseCoopers PlaceThabo Mbeki RoadP O Box 30942Lusaka

REGISTRARSCropserve Transfer Agents Ltd6 Mwaleshi Road,Olympia ParkLusaka

Corporate Information

Coporate Inform

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BEIA Before exceptional items and amortisation of acquisition related intangible assets.

Cash conversion ratio Freeoperatingcashflow/Netprofit(beia) before deduction of non-controlling interests.

Depletions Sales by distributors to the retail trade.

Dividend payout Proposed dividend as percentage of netprofit(beia).

Earnings per share Basic Netprofitdividedbytheweightedaverage number of shares – basic – during the year.

Diluted Netprofitdividedbytheweightedaverage number of shares – diluted – during the year.

EBIT Earnings before interest and taxes andnetfinanceexpenses.

EBITDA Earnings before interest and taxes andnetfinanceexpensesbeforedepreciation and amortisation.

Effective tax rate Income tax expense expressed as apercentageoftheprofitbeforeincome tax, adjusted for share of profitofassociatesandjointventuresand impairments thereof (net of income tax).

EIA Exceptional items and amortisation of acquisition-related intangible assets.

Fixed costs Fixed costs include personnel costs, depreciation and amortisation, repair and maintenance costs, energy andwater,andotherfixedcosts.Exceptional items are excluded from these costs.

Free operating cash flow This represents the total of cash flowfromoperatingactivities,andcashflowfromoperationalinvestingactivities.

Innovation Rate The Innovation Rate is calculated as revenues generated from innovations launched / introduced in the past twelve quarters divided by revenue

Net debt Non-current and current interest-bearing loans and borrowings and bank overdrafts less investments held for trading and cash.

Net debt/EBITDA (beia) ratio The ratio is based on a twelve month rolling calculation for EBITDA (beia).

Net profit Profitafterdeductionofnon-controllinginterests(profitattributableto equity holders of the Company).

Organic growth Growth excluding the effect of foreign currency translational effects, consolidation changes, exceptional items, amortisation of acquisition-related intangible assets.

Organic volume growth Increase in volume, excluding the effectofthefirsttimeconsolidationofacquisitions.

Operating profit Results from operating activities.

Profit TotalprofitoftheCompanybeforededuction of non-controlling interests.

@All brand names mentioned in this report, including those brand names not marked by an @, represent registered trademarks and are legally protected.

Revenue Net realised sales proceeds in Zambian Kwacha.

Top-line growth Growth in net revenue.

Volume 100 per cent of beer volume produced and sold.

Weighted average number of shares Basic Weighted average number of issued shares including the weighted average of outstanding ASDI, adjusted for the weighted average of own shares purchased in the year.

Diluted Weighted average number of issued shares including the weighted average of outstanding ASDI.

Glossary of Terms

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We took a bold stride into revitalising the Zambian music industry with the launch of the Zambia Music Awards

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Not for Sale to Persons Under the Age of 18.

Refreshing the Nation’s thirst

Zambian Breweries Plc Plot 6438 Mungwi Road Heavy Industrial Area, P O Box 31293 Lusaka, Zambia T: +260 211 246555 www.sabmiller.com

Investor Relations

Zambian Breweries 2013 annual report