Sephaku : SepHold FY 2021 financial results commentary

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

ISIN: ZAE000138459

Summarised provisional audited annual financial results

for the year ended

31 March 2021

Sephaku Holdings Limited ("SepHold" or "the company") hereby reports on the group's summarised provisional audited financial results for the year ended 31 March 2021. SepHold, Métier Mixed Concrete Proprietary Limited ("Métier" or "the subsidiary") and Dangote Cement SA (Pty) Ltd ("SepCem" or "the associate") are collectively referred to as the group.

The board of directors ("board") takes full responsibility for the preparation of the summarised provisional financial information and that it has been correctly extracted from the underlying annual financial statements. The summarised financial information included in this announcement is extracted from audited information but is not itself audited. The full annual financial statements are available on the company's website, www.sephakuholdings.com.

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

The underlying annual financial statements have been audited by the group's external auditors, BDO South Africa Incorporated who has issued an unqualified audit opinion. The auditor's report does not necessarily report on all of the information contained in this announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement, they should obtain a copy of the auditor's report together with the annual financial statements from the company's registered office. Alternatively, an electronic copy can be requested on [e-mail].

SALIENT POINTS

SepHold

• Group consolidated revenue: R634 million
  (FY 2020: R727 million)
• Group net profit after tax: R20 million
  (FY 2020 net loss after tax: R17 million)
• Basic earnings per share: 7.83 cents
  (FY 2020 basic loss per share: 8.12 cents)
• Headline earnings per share: 6.09 cents
  (FY 2020 headline loss per share: 7.97 cents)

Métier

• Sales revenue: R634 million
  (FY 2020: R727 million)
• EBITDA: R55 million
  (FY 2020: R35 million)
• EBITDA margin: 8.7%
  (FY 2020: 4.8%)
• Net profit after tax: R17 million
  (FY 2020 net loss after tax: R0,6 million)

SepCem1

• Sales revenue: R2,4 billion
  (FY 2020: R2,2 billion)
• EBITDA: R382 million
  (FY 2020: R359 million)
• EBITDA margin: 15.9%
  (FY 2020: 16.4%)
• Net profit after tax: R44 million
  (FY 2020: R1,3 million)

1 SepCem has a December year-end as a subsidiary of Dangote Cement PLC. The FY 2021 figures are for the 12 months ended December 2020, and FY 2020 figures are for the 12 months ended 31 December 2019.

SUMMARISED PROVISIONAL AUDITED FINANCIAL RESULTS

for the year ended 31 March 2021

Remarking on the results, chief executive officer ("CEO"), Neil Crafford-Lazarus said,

"The 2021 financial year has been a contrast of what I can term the pandemic hard lockdown and the post-hard lockdown phase. The Level 5 restrictions during the hard lockdown halted all our operations with limited administrative and maintenance activity throughout the group. The uncertainty of this initial phase led us to negotiate with the lenders on amending the debt repayment terms to accommodate the lack of activity. I am pleased to confirm that we successfully provided the prerequisite capital injections for both Métier and SepCem to enable the lenders to suspend capital repayments for nine months and five months of FY2021,

respectively.

By the time the pandemic hit our shores in March 2020, the board had decided to re-appoint Kenneth Capes on 1 April 2020 as CEO of Métier following a three-year hiatus, with the mandate to restructure the subsidiary's business model to better align with the prevailing trading environment.The severe macroeconomic impact of the pandemic accelerated the implementation of the restructuring process to ensure that Métier emerged a lean and profitable business by the end of the financial year. The improved comparative results bear

proof of quick action by Kenneth and the success of restructuring.

Unfortunately, the ready-mixed concrete sector continues to experience low demand and high competition as a result of the significantly lower cost base of the independent manufacturers and forward integration by the aggregates producers.

Nonetheless, we are confident that the restructured Métier is well positioned to be profitable and competitive in new markets such as the Western Cape, where a plant is being constructed with production targeted to commence during FY 2022.

On the cement front, we were pleasantly surprised by the surge in bagged cement demand in the post-hard lockdown phase, largely assumed to be an unexpected result of additional consumer discretionary income. The increase in cement demand appears to be linked to the increased home renovations as numerous people worked remotely during the year. The increase in the sales of other home improvement materials as reported by the major building materials merchants confirmed this possible trend. As detailed below, SepCem had a revenue increase of approximately 10% year-on-year("y-o-y"), mainly due to increased sales volumes. The unit price increase was unfortunately muted due to competition from other cement producers, blenders and imports. In the first quarter of the 2021 calendar year to 31 March 2021, SepCem's revenue was 16% higher y-o-y due to the combined effect of higher price increases and a 6% increase in sales volumes. We remain cautiously optimistic about the bagged cement uptrend but acknowledge that a longer-term trajectory will require impetus from civil infrastructure.

Sadly, we lost our SepCem CEO, Pieter Fourie, in May 2021 due to complications related to a stroke. Pieter was part of the SepHold founding management which dared to disrupt the long-standing cement industry oligopoly. He became CEO of SepCem in May 2007, following the company revising its initial minerals exploration model to one focused on selected downstream industries, including cement manufacturing to create long-term shareholder value. Pieter had successfully established SepCem as a formidable cement brand in South Africa at his passing. He will be sorely missed and will remain an indelible part of the company story of success. Duan Claassen, the operations executive who has been part of the executive team since inception, has been appointed the acting CEO. He is highly capable and experienced to lead SepCem to achieve its strategic objectives in the interim.

As we enter FY 2022, we continue to operate within the COVID-19 protocols that include rotational office attendance and remote working where appropriate throughout the group to mitigate workplace infections. We will retain the cautious approach by implementing stipulated guidance from government, own governance processes and progress in the national vaccination programme."

ANALYST RESULTS PRESENTATION

The results conference call will be hosted on Friday, 25 June 2021, at 10:00. All participants are required to pre-register at Sephaku FY 2021 YE Conference Callto receive unique access details. The results presentation will be available on the company's website 15 minutes before the event for downloading via the link: http://sephakuholdings.com/investor-centre/presentations/.

Provisional audited financial results for the year ended 31 March012021

COMMENTARY

SEPHOLD

Cost management

The company head office expenses were 24% lower y-o-y at R12,6 million from R16,6 million, mainly due to a 60% reduction in non- cash costs related to the vesting expenses and full depreciation of an intangible asset. The balance was due to a reduction and suspension of salary increases as well as bonuses to mitigate the impact of the COVID-19 pandemic on the group profitability. The real expenses are anticipated to remain at this level for the medium term as the group continues with austerity measures to support profitability.

Update on the dual executive role

SepHold successfully applied for a further extension on the special dispensation from the JSE to allow Neil Crafford-Lazarus, to hold the dual CEO and financial director roles. The extension was granted for an additional period of 24 months until 31 December 2022. The extension is subject to the board audit and risk committee providing an assessment report on the prevailing economic conditions by 4 January 2022, motivating if it warrants the continuation of the dual role for a further year.

MÉTIER

Sales volumes

The total sales volumes decreased by 15% y-o-y mainly due to the Level 5 lockdown restrictions. Sales volumes post the Level 4 lockdown had recovered to 2019 levels by December 2020 as customers accelerated delayed projects.

Revenue and profitability

Consequently, Métier's revenue decreased by 13% to R634 million (FY 2020: R727 million) mainly due to the combined effect of lower volumes and below inflation price increases. The subsidiary's timely turnaround programme supported profitability, as evidenced by the earnings before interest, taxation, depreciation and amortisation ("EBITDA") margin increasing from 4.8% to 8.7% and operating margin from 1.7% to 5.2%. Métier's net profit after tax was R16,6 million compared to the net loss of R0,6 million for the 12 months ended 31 March 2020. The improved profitability resulted from the combination of lower costs and the income from the disposal of under-utilised assets as part of the restructuring process.

Management of customer credit risk

The exposure to credit risk and the creditworthiness of customers are continuously monitored at Métier. The COVID-19 pandemic resulted in a marginally higher application for credit and/or payment by customers. To mitigate the risk of financial loss from defaults, the subsidiary was selective in transacting with customers with consistent payment history and ceased supply for late payment where appropriate. Métier terminated the CGIC insurance contract because the cover for construction value chain companies was significantly reduced. The subsidiary subsequently purchased insurance to partially hedge against potential bad debts. As at 31 March 2021, the loss allowance for trade and other receivables was reduced to R1,9 million (FY 2020: R2,9 million) mainly due to a R1 million provision reversal on settled trade receivables.

Bank debt management

Due to the COVID-19 impact on profitability, the lender agreed for Métier to pay the interest portion of the monthly instalments from April 2020 until December 2020, subject to a R15 million lump-sum payment to reduce the facility capital balance to R75 million in August 2020. The subsidiary resumed monthly repayments of both capital and interest in January 2021. The total interest payments for the 12 months ended 31 March 2021 were approximately R7,2 million.

The amortising facility balance was R71 million on 31 March 2021 (FY 2020: R92 million). The facility bears an interest rate of 3-month JIBAR plus 5%, which was 8.51% at year-end. The facility is repayable in varying instalments, with the final payment on 31 March 2023.

SEPCEM1

Sales volume

The sales volumes for the 12 months ended 31 December 2020 were 9% higher y-o-y. In the six months to June 2020, the volume was 8.5% lower due to the persistently weak demand during SepCem's first quarter ("Q1") ended 31 March 2020 and the impact of the COVID-19 related national lockdown restrictions in Q2. SepCem implemented price increases of between 5% and 9% in January 2020 and February 2020 for bulk and bagged cement, respectively. Although increases in bulk cement prices held, the price increases on bagged cement were discounted due to intense competition. The weighted average price per tonne for the second half ("H2") of 2020 was approximately 5% higher than for H1 2020.

1	SepCem has a December year-end as a subsidiary of Dangote Cement PLC. The FY 2021 figures are for the 12 months ended December 2020, and FY 2020

figures are for the 12 months ended 31 December 2019.

02Sephaku Holdings Limited

The significant increase in the H2 sales volumes was mainly due to the Q3 performance during which SepCem recorded its highest quarterly volume to date. As a result, the H2 sales contributed 62% to the associate's total annual volumes. After Level 5 lockdown, the increase in bagged cement demand can be attributed to several factors, including increased home improvement projects by individuals with additional discretionary income that would normally be used for other expenditures such as holidays and entertainment. SepCem's ability to ramp up its operations in response to increasing demand is credited for the exceptional performance during the second half of the year. Furthermore, some incumbents experienced technical plant challenges that limited their ability to supply the market, while blender activity was severely hampered by the shortage of extenders.

For the 12 months ended 31 December 2020, imported cement volumes decreased by 5% y-o-y to approximately 990 Kt due to the restrictive global lockdown conditions to limit the spread of COVID-19. The cement industry's application for a safeguard tariff from the International Trade Administration Commission of South Africa progressed well, but the COVID-19 pandemic seems to have delayed the decision timeline. If approved, the application will result in a non-country-specific flat tariff on all imported cement. In 2020 approximately 81% of the imported cement entered the country via the Durban port into KwaZulu-Natal , implying that SepCem is well positioned to benefit from the tariff application because KwaZulu-Natal is one of its key markets.

Revenue and profitability

SepCem's after-tax profit for the 12 months ended 31 December 2020 was R44,4 million compared to R1,3 million in 2019. The revenue increased by 9.8% to R2,40 billion (FY 2020: R2,18 billion) due to the relative increase in sales volumes. EBITDA increased to R381,4 million compared to R359,0 million in FY 2020, but the margin was relatively flat at 15.9% due to the weak H1 performance mainly as a result of COVID-19 compared to the 21% margin achieved in H2 2020. SepCem implemented various cost saving initiatives to mitigate the negative impact of lockdown restrictions and achieved savings of approximately 10%.

Debt management

In August 2020, Dangote Cement PLC ("DCP") contributed R125 million capital into SepCem's debt service reserve account ("DSRA"), increasing the balance to approximately R152 million. The funds in the DSRA were then applied as pre-payment to reduce the six capital instalments as of February 2021 on a straight-line basis. The capital contribution is currently defined as a deposit for equity to be converted into a shareholders' loan on the same terms as the existing DCP loan. Consequently, the capital repayments due in August and November 2020 were deferred to the final loan instalment in November 2022. The debt service cover and debt to EBITDA ratios were revised to align with the prevailing trading environment.

By 31 December 2020, the bank loan capital balance was R1,03 billion following the total repayment of R450 million. The interest rate on the loan is the preceding 3-month JIBAR plus 4.5%, equating to 7.8% by 31 December 2020 which is lower than the 11.3% in 2019 due to the lower interest rate regime. The DCP quasi-equity loan at an interest rate of JIBAR plus 4% had a balance of R581 million, interest accrued and capitalised by 31 December 2020. SepCem bank debt repayments are current, and the associate is in full compliance with the loan covenants.

POST-PERIOD

SEPCEM¹

Q1 2021 performance

Following the DCP results announced on 30 April 2021 for Q1 ended 31 March 2021, SepCem's revenue increased to R541 million (Q1 2020: R466 million). The quarterly sales volumes were 6% higher y-o-y attributed to the continued trend in home renovations. All cement manufacturers implemented price increases between January and February 2021, with SepCem price increases between 6% to 8% in the same period.

Interim management changes

SepCem's CEO, Pieter Fourie, was admitted to hospital on 9 May 2021 after suffering a stroke and sadly passed away on 19 May 2021. Pieter became CEO of SepCem in May 2007, and he was subsequently appointed a board director of SepHold on 20 November 2009 following the JSE listing. Pieter brought extensive experience in cement manufacturing defined by longevity and success throughout his career. His experience and deep industry knowledge spanned several decades and continents.

The operations executive, Duan Claassen, was appointed the acting CEO to lead the experienced SepCem executive team. Duan has been a member of the executive management in charge of operations since the inception of SepCem. He holds a Bachelor's degree in Metallurgical Engineering from the University of Pretoria. Duan completed his graduate engineer training at De Beers before joining Blue Circle Cement in 1997, where he was involved in Blue Circle Cement's integration into Lafarge in 1998. He subsequently worked for PPC before being appointed to SepCem on 1 January 2008.

1	SepCem has a December year-end as a subsidiary of Dangote Cement PLC. The FY 2021 figures are for the 12 months ended December 2020, and FY 2020 figures are
	for the 12 months ended 31 December 2019.

Provisional audited financial results for the year ended 31 March032021