Sephaku : FY 2022 Interim financial results announcement for the six months ended 30 September 2021

(Incorporated in the Republic of South Africa) (Registration number: 2005/003306/06) Share code: SEP

ISIN: ZAE000138459

Unaudited interim financial results

for the six months ended

30 September 2021

Sephaku Holdings Limited ("SepHold" or "the Company") is pleased to report on the group's interim financial results for the six months ended 30 September 2021. SepHold, Métier Mixed Concrete (Pty) Ltd ("Métier" or "the subsidiary") and Dangote Cement SA (Pty) Ltd ("SepCem" or "the associate") are collectively referred to as the group.

FORWARD-LOOKING STATEMENTS

Any forward-looking information is the board of directors' responsibility and has not been reviewed or reported on by the Company's external auditors.

INVESTOR RESULTS PRESENTATION CONFERENCE CALL

A results conference call for investors will be at 11:00hs SAST on 19 November 2021. Registration is required and can be done using the following link to obtain the dial-in details: Sephaku Holdings-InterimResults conference call.

The results presentation can be downloaded from the Company website from 17:00hs SAST on 18 November 2021 on the following link: https:// sephakuholdings.com/investor-centre/presentations/

CONFERENCE REPLAY

South Africa:	010	500 4108
UK:	0 203 608 8021
Australia:	073	911 1378
USA:	1 412 317 0088
International:	+27	10 500 4108
Replay Access Code:	40825

SALIENT POINTS

Group¹

• Group consolidated revenue: R411,8 million
  (H1 2021: R291,1 million)
• Net profit after tax: R17,8 million
  (H1 2021 net loss after tax R29,6 million)
• Basic earnings per share: 6.98 cents
  (H1 2021 basic loss per share: 11.65 cents)
• Headline earnings per share: 7.03 cents
  (H1 2021 headline loss per share: 13.47 cents)
• Net asset value per share: 447.81 cents
  (H1 2021: 421.08 cents)

Métier¹

• EBITDA margin: 10.8% at R44,6 million

(H1 2021: 9.4% at R27,4 million)

• EBIT margin: 7.6% at R31,4 million

(H1 2021: 5.5% at R15,9 million)

• Profit after tax: R20,1 million
  (H1 2021 profit after tax: R7,5 million)

SepCem²

• Sales revenue: R1 197,0 million

(H1 2020: R883,7 million)

• EBITDA margin: 12.4% at R148,8 million

(H1 2020: 6.8% at R59,8 million)

• EBIT margin: 5.7% at a profit of R67,7 million

(H1 2020 nil at a loss: R0,95 million)

• Net profit after tax: R7,7 million
  (H1 2020 net loss after tax: R83,7 million)
• SepCem 36% equity accounted profit: R2,8 million
  (H1 2020 equity accounted loss: R30,1 million)

1 Figures refer to the interim period ended 30 September 2021 for the financial year ending 31 March 2022, and H1 2021 refers to the six months ended 30 September 2020 for the financial year ended 31 March 2021.

2 SepCem has a December year-end as a subsidiary of Dangote Cement PLC. Therefore, the figures refer to the six months ended 30 June 2021, and H1 2020 refers to the figures for the interim ended 30 June 2020.

UNAUDITED INTERIM FINANCIAL RESULTS

for the six months ended 30 September 2021

Remarking on the results, Chief Executive Officer Neil Crafford-Lazarus said,

"As we get to the end of the 2021 calendar year, I am sure numerous management teams would echo my sentiment that the worst of the pandemic seems to be over. Although we lost valuable colleagues who were essential participants in our pursuit of group success, we have renewed focus and energy to achieve our goals going forward.

We continued to meet our bank debt obligations during the reporting period, thereby reducing the burden on our balance sheet. As at 30 September 2021, the capital balance on the SepCem project loan was R789 million and R55 million for the Métier loan with a target to reach balances of R670 million and R47 million respectively by 31 March 2022. Demand for cement has remained strong, albeit not at the levels of the surge that occurred in Q3 CY2020 following the pandemic- related national lockdown.

SepCem and the other cement manufacturers await the ITAC decision to impose effective tariffs against cement and clinker imports. If positive, the decision will provide much needed demand resulting in increased sales volumes for domestic producers who create employment for South Africans. The imports absorb approximately one million tonnes of demand annually, which would improve their financial performance if available for the incumbents. SepCem is well placed to benefit from the tariffs because the KZN market constitutes 15% - 20% of its annual sales volumes which is the port of entry for almost 70% of the imported cement.

Unfortunately, further downstream, the mixed-concrete demand remains constrained, which has placed downward pressure on volumes. We remain cautiously optimistic for the planned government infrastructure plans to stimulate the economy, which if implemented would provide impetus to the construction value chain. Métier's improved profitability margins demonstrate the benefits of the turnaround.

The July social unrest characterised by the looting and destruction of retail outlets impacted our performance during the interim period. Specifically, SepCem's bagged cement volumes were negatively impacted due to damaged hardware retail branches that were subsequently closed. Engagement with retail chains has revealed that several outlets have not reopened, but plans are to repair them soon. For Métier, there was an indirect impact mainly due to the rioting in the KZN province that resulted in downtime of 5 days and therefore a loss in revenue for this period.

As we enter the second half of the 2022 financial year, we continue to operate within the COVID-19 protocols and retain the cautious approach of implementing stipulated guidance from the government and own governance processes."

Unaudited interim financial results for the six months ended 30 September012021

COMMENTARY

MÉTIER

Revenue and profitability

Métier's revenue was 41% higher year-on-year(y-o-y) at R411,8 million (H1 2021: R291,1 million) due to a low comparative base impacted by the pandemic lockdown. However, compared to the interim period ended 30 September 2019 ("H1 2020"), the revenue was 3% lower, indicating a reversion to pre-COVID trading levels.

Métier's volumes were 36% higher y-o-y and 9% lower than the comparative period ended 30 September 2019. The EBITDA and EBIT increased to R44,6 million (H1 2021: R27,4 million) and R31,4 million (H1 2021: R15,9 million), respectively. The resultant profitability margins were 10.8% (H1 2021: 9.4%) for the EBITDA and 7.6% (H1 2021: 5.5%) for the EBIT. Relative to 31 September 2019,

the EBITDA increased by 49% despite a decrease in sales volumes. These higher profitability margins	are attributable to the
subsidiary's cost-saving measures. Métier's net profit after tax increased to R20,1 million (H1 2021: R7,5	million).

Métier has established its first plant in the Western Cape at Bellville and has started supplying customers, with sales expected to grow in the coming months. At the inception of the turnaround, assets that were considered excess based on the projected demand were disposed. However, with the expansion into Western Cape and updated analyses of medium and long term demand, Métier purchased several trucks to supplement the current fleet. The subsidiary has had to be dynamic in its fixed- assets management approach. Métier will be prudent in securing market share by leveraging its superior technical knowledge and service capabilities.

Debt management

The subsidiary resumed monthly repayment of both capital and interest in January 2021. The total repayments for the interim were R19,3 million, of which R16,5 million were capital repayments resulting in a capital balance of R55,4 million. Métier remains fully compliant with the debt conditions.

SEPHAKU CEMENT

Sales volume and pricing

SepCem's sales volumes were 22% higher y-o-y for the six months ended June 2021 and approximately 12% higher than 2019 for the comparative period. Competition in the 2021 calendar year ("CY") has heightened due to the recovery of the cement producers who had technical plant challenges that limited their ability to supply the market in the 2020 interim period. Furthermore, blender activity has normalised relative to their performance in 2020 when the shortage of extenders severely hampered them in May and June 2020. The imports mainly from Vietnam were approximately 901Kt (CY 2020: 733Kt) for the nine months ended 30 September 2021.

SepCem implemented price increases in February 2021 and August 2021. The bulk cement prices were sustained, but the price increases on bagged cement were discounted due to intense competition. The net selling price per tonne for six months ended 30 June 2021 was 8% - 12% higher y-o-y.

Revenue and profitability

SepCem's revenue increased to R1,190 million (H1 2020: R883,7 million) due to higher sales volumes and pricing.

The resultant EBITDA was R148,8 million (H1 2020: R59,8 million) at a margin of 12.4% (H1 2020: 6.8%). The shortage of clinker in the quarter ended 31 March 2021 during the scheduled maintenance of the kiln, impacted the EBITDA. The high demand in H2 2020 resulted in low clinker stockpiles into Q1 2021, necessitating SepCem to outsource at higher pricing. The profit after tax was R7,7 million compared to the net loss after tax of R83,7 million in the comparative six months ended 30 June 2020.

Debt management

The total debt service for the six months ended June 2021 was R168 million, including interest payment of R41 million. The total capital payment for the year ending 31 December 2021 will be approximately R360 million resulting in a capital balance of approximately R670 million. The DCP loan balance was R603 million as of 30 June 2021 at an interest of JIBAR plus 4%, which is accrued and capitalised against the loan. SepCem remained fully compliant with the debt conditions and paid the last instalment in November 2021 for its 2021 financial year. Management is engaging with the lenders to convert the project loan bullet instalment due in November 2022 into a revolving facility by mid-year 2022 calendar year.

02Sephaku Holdings Limited

POST-PERIOD

Following the DCP results announcement for the nine months ended 30 September 2021 released on 29 October 2021, SepCem's volumes were 6% higher than achieved for the nine months ended 30 September 2020. The revenue increased from R1.6 billion to R1.9 billion and EBITDA increased to R243 million (2020: R214 million) for the nine months. The EBITDA margin was comparatively flat at 13% due to the inflationary input cost increases and the impact of the clinker stock out in the first quarter ended 31 March 2021.

During the end of the third quarter and the beginning of the fourth quarter, SepCem experienced two unplanned outages on the kiln, each for ten days. Sephaku Cement resumed production as scheduled on 6 October 2021 following the unplanned plant outage in September. The outage had resulted from preheater refractory material damage caused by a corrosive element in one of the raw materials that was subsequently replaced with an alternative option that mitigates the risk of future damage. The second plant stoppage started on 16 October 2021 and was completed on 26 October 2021. The outage was necessitated by the requisite repair of the kiln internals to prevent damage to its major components. The kiln had been inspected and well- attended to in previous maintenance stoppages, therefore this damage was unexpected. Nonetheless, SepCem's management identified a long-term solution to this issue.

The outages will adversely impact SepCem's sales volumes and profitability for the full year financial performance. The SepCem full-year results for the period ending 31 December 2021 will be accounted for in the SepHold financial results for the twelve months ending 31 March 2022.

OUTLOOK

The mixed concrete sector's demand remains constrained, but the group is cautiously optimistic about the recently announced government-funded infrastructure projects whose implementation seems near-term. In October 2021, the Infrastructure Fund ("the Fund") reported that it had submitted four projects, collectively valued at R21 billion, for National Treasury ("Treasury") approval and will itself contribute R5,4 billion through finance from both public and private resources. Infrastructure South Africa that oversees the government's Infrastructure Investment Plan, has supposedly approved the projects. The Fund is apparently finalising four more projects valued at approximately R85 billion for submission in 2022.

The group is pleased with the recent Treasury directive for all government-funded infrastructure to utilise locally produced cement. The Treasury effectively banned imported cement in government-funded projects from 4 November 2021. The directive states that the cement has to be produced with locally sourced raw materials, which is a condition that eliminates competitors that import clinker. Importers have been increasing their market share since CY2017 due to the marginally higher cement pricing from local manufacturers as a consequence of the additional, non-negotiable costs for legislative compliance for businesses in South Africa. Although the absolute benefit may yet to be determined or realised through the implementation of the strategic infrastructure projects, the group believes that the directive signals the government's support for domestic producers. It is important to state that a clinker importer interdicted the directive and was subsequently granted a 12-month reprieve.

In the same vein, SepCem supports the industry's ITAC application for flat tariffs against imported cement and clinker, which could significantly improve the industry's sustainability that contributes to South Africa's employment and economic growth.

Unaudited interim financial results for the six months ended 30 September032021