Meat Corporation of Namibia

Annual General Meeting

Chief Executive Officer Report

22 June 2012

2011/12 Highlights

Highlights - Markets Further development of world class & unique Brand

Realised 50% growth in B grade returns from RSA market via Woolworths “Free Range” products

Obtained acceptance of NCA product as “Free Range”

Secured entry to retail market in Norway

Cost of re-allocated Norway quota amounted to N$ 1.35 kg

Further development of EU and Scandinavian markets;

Further creation of logistical and production capabilities to implement market-led strategy

Obtained market access to middle east, with other markets being pursued

Successfully completed audits by BRC, ISO, SABS, Heinz & Woolworths

Further enhancement of quality systems; and

Significant decrease in non-conformances and claims

Highlights - Operations Further improvements on plant flexibility

Radically improved marketing logistics through direct shipping and use of Walvis Bay

Improved yields and production efficiencies

Improved performance of Cannery

Integrated daily production and marketing planning

Live procurement in communal areas

Introduced world class precision feeding and controls.

Highlights - Performance Significant cost savings against prior year (N$ 27.8 m)

Improved stock control and stock management

Improved working capital management with the utilisation of only N$ 4.9 million for operational activities

Simplified group structure through the deregistration of two subsidiaries

Establishment of fully-fledged Internal Audit division

Refinement of Board and subcommittee charters

Commencement of Board evaluation process.

Highlights - Other Passed ethical audits

Received peer review awards for recognition of business practices

Utilised Meatco Foundation for the implementation of several major projects and by using donor funding completed water project amounting to approximately N$ 1 million

Successful completion of veld-lotting trials.

2010/11: OverviewThe Group reported a net profit for the year amounting to N$ 5.7 million.

Highlights are:• Increase of 9.95% in revenue;• Increase of N$ 3.76 / kg or 18.19% in producer prices;• Gross profit margin increased from 1.8% to 13.89%; • Producer payments above SARMAA = N$ 24.4 million;• Decrease in overall administration costs = N$ 27.8 million; and• Total cash generated from operating activities = N$ 59.1 million.

However,• Overall 7.1% decrease in slaughter numbers (11,890).

The annual financial statements will be discussed in more detail during the next session

2010/11 2011/12

Exchange rate similar to that of prior year – except for period Nov ‘11 & Dec ‘11

However, only 14.98% of our sales occurred during this period

Year Volume N$ / kg

1992/93 152,285 4.90

1993/94 168,463 5.00

1994/95 160,330 7.60

1995/96 158,958 7.80

1996/97 169,969 7.60

1997/98 91,435 8.15

1998/99 127,461 9.00

1999/00 158,073 9.75

Year Volume N$ / kg

2000/01 141,133 10.25

2001/02 143,161 12.20

2002/03 149,109 15.00

2003/04 142,843 11.80

2004/05 143,305 12.35

2005/06 138,949 12,85

2006/07 110,397 18.03

2007/08 109,468 17.93

2008/09 118,732 23.59

2009/10 117,567 22.29

2010/11 114,150 20.67

2011/12 102,680 24.43

R/Kg Difference

11.40 1.45 / kg

16.19 1.84 / kg

16.16 1.77 / kg

17.57 6.02 / kg

18.11 4.18 / kg

18.84 1.83 / kg

23.54 0.89 / kg

Change in average producer price (SVCF)

18.19 % increase

N$ 24.4 million in premiums

Volumes are major concern

Decrease during 2012/13 mainly due to change in sales mix

(8.95% more manufacturing cuts sold)

Number of units

Contribution to gross profit for 2011/12:

Ekwatho / Feedlot contribution

8,906 cattle

N$ 0.42 / kg

Ekwatho

18,330 cattle

N$ 0.42 / kg

Feedlot

These initiatives supported the producer price with N$ 0.84 / kg during the year under review.

Change in producer price structure• The target carcass weight amended

relate to a range of between 200 kg and 219.9 kg per carcass;

• Introduction of “Fat equalization premium”;

• Introduction of “Age Gap Adjustment”; and

• Off-season premium to also include cattle with 5-6 teeth as well as C-grade cattle (at 50% of premium).

Northern Communal AreasHighlights:

Losses in NCA decreased by 22.2% from N$ 29.3 million to N$ 23.3 million

Slaughter volumes increased by 2,771 (18.2%)

Food and Mouth Disease caused closure of Katima Mulilo

NCA product certified to be sold as “Free Range”

What are the CRITICAL issues?

Decrease in slaughter volumes

Declining slaughter numbers are not just a factor of producer price.

• Producer price cycles;

• Bush encroachment;

• Production diversification;

• Declining commercial productivity;

• Export of live animals;

• Competitiveness of farming system (cost of weaner production vs. slaughter ox production.

Namibia has been experiencing a consistent decline in slaughter cattle volumes since the early 1990’s

Feedlot unfair competitive advantages• Purchase of dry Namibian weaners• Use of growth stimulants• Relatively low feed cost• Purchase power (Karan = 500,000)• A Grade carcass market• Export weight cut-off (450 kg)• Weaner to carcass ratio• Increased live exports• Shortage of weaners in RSA

The main concern is that neither Meatco, nor Namibian ox farmers can compete with the production efficiencies of South African Feedlots.

Converting Namibian production to simulate South African production will further decrease producer value and add to market diversification risks.

Industry Dilemma / Challenge

Other key issuesOther key issues that has a significant impact on the financial results of the Corporation and, if left unattended, will continue to negatively affect the Corporation :

• Underutilisation of existing slaughter capacity

• Inflexible labour regime

• Relative strength and volatility of the ZAR/N$

• Decreasing commercial slaughter numbers

• Increasing local slaughter capacity / overcapacity in local market

• Perception of low slaughter prices despite benchmarking

• Constraints of the Namlits database

Other key burning issues• Government industry policy positions (Norway / imports / grading - standards

/ capacity / live exports)

• Namibia NETT EXPORTER but HIGH COST and LOW VOLUME

• Unfair South African Feedlot competitive advantage: Hormones etc

• financial , geographic and volume dominance of South African Feedlots/ geographic advantage

• Veterinary health status of NCA

• Ineffective control and monitoring over live exports (weights etc.)

What does 2012/13 hold?

2012/13 and beyond World Economy – very tough next 3 years

• ownership status of Meatco will be key to future success

• Focus on customer/market centric strategies in high value markets;

• Further develop logistical and operational capabilities

• Penetrate new high value markets (e.g. Iran and others )

2012/13 and beyondIn addition, to continue to:

• address the declining volumes & re-align capacity/utilization • maintain our cost saving and efficiency enhancement drive • unlock further commercial value through value addition • through the Meatco Foundation, make an impact on the developmental

challenges facing the agricultural sector, specifically the livestock industry – leveraged with donor funding

Thank you