QALA For Financial Investments : Annual Report 2022

AFRICAN LEADER IN

ENERGY & INFRASTRUCTURE

Building

while Transforming in	ANNUAL REPORT
2022
a Changing World

Building

while Transforming in

a Changing World

Underpinned by a transition to renewable energy sources, the circular model builds economic, natural and social impact.

CONTENTS

Chairman's Note	06
Our Heritage & DNA	10
Qalaa Holdings at a Glance	12
Our Strategy & Investment Thesis	14
2022 Financial Highlights	16
Sustainability & Responsible Investing	28
Our Corporate Governance Pillars	62
2022 Operational Highlights	76
Financial Statements	118

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ABOUT

QALAA HOLDINGS

A leader in energy and infrastructure

AFRICAN LEADER IN ENERGY & INFRASTRUCTURE

CHAIRMAN'S

NOTE

From a two-person partnership to Africa's leading private equity firm with diversified operations across strategic sectors in Egypt and Africa, Qalaa Holdings has been through a remarkable journey of growth and transformation spanning nearly two decades.

Fellow Shareholders,

Over the past year, we have witnessed one of the most difficult macroeconomic periods in recent memory. Despite this, Qalaa was able to negate the drawbacks and capitalize on the potential opportunities of an unprecedented global phenomenon thanks to our ingrained resilience, flexibility, and efficiency. Across the board, our portfolio companies continued to demonstrate their ability to withstand pressure, taking advantage of the new macroeconomic dynamics and reaping the rewards of Qalaa's carefully executed growth strategy.

Regionally, the situation is equally challenging. A new era is being ushered in with the emergence of new regional powers, alliances, and political models. Additionally, fault lines old and new are being exposed. It remains to be seen whether this will lead to further destabilization in the region or not.

Unprecedented Global and Domestic Challenges

Throughout the past decade, globalization has been put to the test by a succession of significant events and challenges that have offset the benefits it once provided. The most recent global challenges, namely the COVID-19 pandemic and the Russia-Ukraine conflict, have brought structural issues to the surface. Over the past year, debt levels worldwide have risen to record highs, and inflation and interest rates have reached previously unseen levels. The pace and magnitude of interest rate hikes has triggered a significant fear of financial institutions instability, which, coupled with recessionary headwinds, is ushering in a period of extreme global challenges

highlighted by anticipated long-term depressed economic growth, higher long-term interest rates, and an increased focus on relative deleveraging. Furthermore, China (which played a key role in getting the world out of the global financial crisis) has the added complication of poor demographics. Moreover, global geopolitical tensions are further accentuating the situation.

As a result, the global focus has shifted from openness and interdependency towards protec- tionism and nationalism, and we are now entering a period of long-term adjustment as nations attempt to safeguard and untangle themselves from global value chains. In parallel, the rise of trade tensions between the USA and China have sparked a rift between China and the Western world, with Western economies decoupling from their manufacturing hubs within the country.

On the local front, a multi-decade period of precarious economic policies centered around incorrect population and subsidy policies, as well as ill-chosen currency rigidity, has led to the decline and misplacement of investments targeting incorrect sectors and industries. Furthermore, the era of cheap money on the back of low interest rates, which began during the 2008 financial crisis, is behind us. This has exposed deep structural issues within the domestic economy and is forcing a multiyear period of painful adjustments. On that front, the government is taking serious measures to address the combined issue of both agricultural and energy deficits. Given the current repercussions of several decades worth of policies, it is unrealistic to expect a resolution in mere months.

Ahmed Heikal

Chairman and Founder

Despite the challenges, Qalaa Holdings has once	Egypt is currently ideally positioned to capitalize
again demonstrated its ability to deliver strong	on this global reengineering, serving as a viable
results regardless of the underlying conditions.	manufacturing hub for European economies,
Across the board, our portfolio companies continue	an entry point to	African markets, and a
to demonstrate their ability to withstand pressure,	non-aligned economic bridge between east and
taking advantage of the new macroeconomic	west. To that end, and as the country grapples
dynamics and reaping the rewards of Qalaa's	with energy and food security threats as a result
carefully executed growth strategy, and the Group	of a historic FX disequilibrium, the Egyptian
remains well-placed to capitalize on this global	government continues to strongly encourage
transition. Our performance in 2022 is a true	the private sector on all fronts. These dynamics
testament to our resilience and ability to react	present significant	investment opportunities
swiftly to unprecedented challenges during a	for local infrastructure and manufacturing
period of economic uncertainty, and the Group is	powerhouses like Qalaa.
well-positioned to continue delivering strong results
across our diverse markets and areas of operation.	Additionally, as the world is plagued by trade
Global Reengineering Benefits Emerging	bottlenecks and supply shortages brought about
by global conflicts and disruptions, an opportunity
Markets	arises for emerging markets to step up and fill the
With the current shift towards deglobalization and	supply gap by ramping up production, and setting
the reengineering of the international economic	themselves as regional hubs and exporters. On that
order, it is anticipated that we will begin witnessing	front, Qalaa is well-positioned, both geographically
a trade divide similar to the Cold War era. The	and operationally, to fill the gap of much-needed
decoupling of Western economies from China can	energy resources, both in African countries and
create opportunities for emerging economies to	developed economies.
establish themselves as viable alternatives, provided
they adopt the right policies.

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At Qalaa, we are proud to play an important role in supporting Egypt's national economic strategy, as we continue to be at the forefront of the country's private sector development efforts. Some of our major investments include the Egyptian Refining Company (ERC), Qalaa's leading energy subsidiary and Africa's largest privately-led infrastructure project, our mining subsidiary ASCOM, which continues to work towards penetrating new international markets and growing its export sales volumes, and National Printing, which through its various subsidiaries, continues to expand its international presence and currently exports its products to numerous countries worldwide.

Moving Forward

I firmly believe that, with the right policies in place, Egypt is well-positioned to capitalize on the ongoing global trends of deglobalization and the decoupling of Western economies from their Chinese manufacturing hubs and nearshoring to areas of operations closer to their markets. Additionally, the current shift towards 'reverse immigration' will create new pools of talent across a diverse range of local industries, and the influx of talent and expertise can help springboard the Egyptian economy, enabling the country to access new, untapped markets.

For our part, we will continue to leverage Qalaa's presence across a variety of promising sectors with high growth potential, and our focus will mainly be directed towards expanding and growing investments within our existing portfolio. TAQA Arabia in particular has witnessed several major investments during the past period, with the number of TAQA Gas' CNG stations nearly doubling during the past year, and TAQA Power's TAQA Photovoltaic (PV) completing its first year of operations. This comes after the establishment of TAQA Water in 2021 as a subsidiary of TAQA Arabia with the aim of developing a variety of water treatment solutions adapted and optimized to serve the industrial, agricultural, touristic, and real estate sectors.

As a driving factor for our investment	and
innovations, we aim to put economic,	social,

and environmental sustainability at the core of our business activities. Responsible investment is enshrined in our DNA. As such, we remain committed to our mission of reducing Qalaa's carbon footprint and contributing to Egypt's

transition towards clean energy. To that end, TAQA PV has signed an agreement with EBRD to finance a 7MW solar photovoltaic power plant in El Minya. Meanwhile, ERC prevents the discharge of tons of sulfur dioxide and 100,357 tons of sulfur into Cairo's air by converting waste emissions into Euro V diesel, considered to be the cleanest fuel of its type in the world.

Meanwhile, the USD-denominated nature of the revenues across a number of our subsidiaries continues to shield us from the impact of the EGP devaluation. Additionally, while elevated energy prices weigh on our costs, our strong presence within the energy sector means that higher energy prices reflect favorably on our revenues. On a separate note, as a result of our focus on reducing risk levels, Qalaa's debt restructuring process is progressing well. Going forward, we will continue to focus on reducing our debt levels, while also making prudent and value accretive investments when the opportunity arises.

All in all, Qalaa's performance during 2022 is a true testament to our resilience and our ability to react swiftly to unprecedented challenges during a period of economic uncertainty. Looking forward, we are positive that the Group is well-positioned to continue delivering strong results across our diverse markets and areas of operation. I am incredibly proud of the results we have achieved in the midst of these challenging conditions, which would not have been possible without the efforts of our incredible team of staff, employees, board members, and shareholders who works tirelessly to make our vision a reality. I look forward to reporting to you next year in this space on even more success, positive impact, and growth for our Group.

Ahmed Heikal

Chairman and Founder

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OUR

HERITAGE & DNA

From a two-person partnership to Africa's leading private equity firm with diversified operations across strategic sectors in Egypt and Africa, Qalaa Holdings has been through a remarkable journey of growth and transformation spanning over 18 years.

2004-2012

Qalaa's solid topline performance during 2022 demonstrated the Group's resilience and ability to continue delivering solid results

2015-2017		2018 - 2019
Strengthening portfolio and investment value	Upward Momentum

Our founders' vision

• Qalaa Holdings was founded in 2004 as Citadel Capital, a private equity firm with a capital of EGP 2 million by two entrepreneurs, Ahmed Heikal and Hisham El-Khazindar.
• Built up a diversified portfolio spanning 15 coun- tries and industries, including energy distribution, solid waste management, agrifoods, cement, refining, transportation, and glass manufacturing.
• By 2012, became the leading private equity firm in the Middle East, with 19 Opportunity- Specific Funds controlling platform companies with investments of USD 9.5 billion.

• Raised equity through Opportunity-Specific
	Funds that would in turn control a subsidiary
	company in a specific industry.
•	In 2012 reached financial close on the equity
	and debt components of the Egyptian Refining
	Company (ERC), Qalaa's flagship USD 4.3
	billion refinery, a co-investment made in part-
	nership with Gulf and international investors,
	global export credit agencies, and development
	finance institutions.
•	In 2007 established the Qalaa Holdings Schol-
	arship Foundation (QHSF), which has since

• Took considerable strides toward reshaping business model and positioning for future growth while creating shared value.
• Prioritized impact, alongside profit, across all our investments and actively encouraged other private sector companies in Egypt to do the same.
• Lead by example through taking concrete steps to become early adopters of the United Nations Sustainable Development Goals (SDGs).
• Commemorated 10th anniversary of QHSF, with a total of 156 scholarships awarded since inception.

• Maximized financial and operational efficiencies throughout the portfolio.
• In 2018 achieved critical preoperational mile- stones at ERC and entered pre-launch trial operations.
• At the end of 2019 began full commercial operations at ERC.
• Started full operations at TAQA Arabia's EGP 1.35 billion, 65 MW solar power plant in Benban, Aswan.

Taking the lead in African infrastructure investments

• Qalaa Holdings leveraged Egypt as its core market

and springboard to finalize over 80 acquisitions

grown into the largest private sector scholarship

foundation in Egypt providing scholarships to

Egyptian students pursuing graduate studies at

prestigious universities abroad.

2020 -2022

Resilience, Sustainability, and Prosperity

and new company formations, seeking con-

trolled investments covering the entire deal-type

spectrum, including turnarounds, buyouts, con-

solidations/industry roll-ups, and green-fields.

•	Continued product mix optimization at ERC to
	mitigate pressure on the gross refining margin
	and support profitability.
•	Increased subsidiary exports following gradual
	market recovery in the second half of 2020.

• In	2021 June	2021 reached	financial close on
the equity and debt components of the Egyptian
Refining Company (ERC), Qalaa's flagship
USD 4.3 billion refinery, a co-investment made
in	partnership	with Gulf	and international

2013-2014

•	Started negotiations for complete debt
	restructuring at ERC to hedge against market
	uncertainties.
•	ERC was officially inaugurated by H.E President

investors, global export credit agencies, and

development finance institutions.

• TAQA signed a memorandum of understanding

alongside its French partner Voltalia with the

Transformation and divestment plan

• Rebranded into Qalaa Holdings, with its busi- ness model transformed from private equity to conglomerate and investment holding.
• Tightened its focus to target strategic indus- tries, including energy, cement, agrifoods, transportation, and logistics and mining.

• Gradually divested non-core investments and in an orderly manner over a three-year period, with proceeds from these sales being reinvested to accelerate growth of core subsidiaries.

Abdel-FattahEl-Sisi as a keystone of Egypt's

energy security and sustainable economic growth.

• Qalaa's management took precautions and

measures to effectively preserve the health and

safety of its employees and business continuity,

while maintaining the full workforce and not

resorting to layoffs.

Egyptian government to develop, finance, and

operate a green hydrogen production facility near

Ain Sokhna port in the Suez Canal Economic

Zone in December 2022.

• As of the first quarter of 2023, ERC has

become current on all of its due interest pay-

ments as scheduled.

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AT A

GLANCE

80+	40,000
Businesses Founded & Developed	Jobs

18

Improving Lives and Livelihoods

At Qalaa Holdings, our main goal is to enhance lives and livelihoods by creating sustainable businesses for our employees and community while generating long-term value and prosperity for all our stakeholders.

Transformative Investments

Investing in and supporting a wide selection of companies that will facilitate sustainable economic growth and job creation in Egypt and across Africa is a main pillar of our mission.

+17K

Employees

Work each day to deliver energy to consumers and businesses alike; to provide reliable, fuel-efficient transportation solutions; to grow or manufacture safe, healthy food; to add value to natural resources; and to help build critical national infrastructure.

Years

Drawing on our roots as Africa's largest private equity firm, we have worked since 2004 to build world-class businesses that cater to the needs of more than 1.3 billion consumers across our footprint in Egypt, East, and North Africa.

Regional Footprint

We invest in high-growth markets across Africa and the Middle East

With landmark investments in 15 countries, we are a leading regional energy and infrastructure investor beyond our home market of Egypt.

We are dedicated to	25%
promoting diversity and
inclusiveness
Qalaa Holdings prides itself on the strength of its
of Qalaa's Board Members are Women
diverse management team. Our highly inclusive
work environment promotes female leaders across
our subsidiaries and our female CEOs, division
heads, and investment professionals are regionally and
locally recognized for their valuable contributions.

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OUR STRATEGY &

INVESTMENT THESIS

What differentiates us?

OUR SECTORS &

INVESTMENTS

In 2019, Qalaa reclassified some of its existing investments into new sectors that indicate a renewed focus on expanding into crucial segments of the economy.

Value building & market making investments

in infrastructure & manufacturing

Diversified business model

Shared value for all stakeholders

Value added exports

A focus on employee development, shareholder returns & community well-being

Strong regional portfolio with Egypt as a springboard and center of gravity

Triple bottom line approach

High quality import substitution footprint

Experienced management teams

Win-win partnerships

	Cement	Transportation
Energy	& Building	Agrifood	Mining
Materials	& Logistics

Printing &		Recycling	Medical	Chemical
Construction	& Waste
Packaging	Management	Industries	Industries

ASCOM Carbonate and Chemicals Manufacturing

Creating sustainable businesses, long-term value

& shared prosperity

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2022

FINANCIAL HIGHLIGHTS

Qalaa's performance was propelled by a continued focus on growing our businesses and enhancing operations in a manner that creates value for all our stakeholders

113%

Y-o-Y increase in revenues in FY22

AFRICAN LEADER IN ENERGY & INFRASTRUCTURE

MANAGEMENT DISCUSSION

& ANALYSIS

Qalaa's resilience and robust growth strategies across its subsidiaries - most significantly, ERC - allowed the Group to achieve a triple-digit increase in recurring EBITDA in 2022.

During the year, Qalaa expertly reacted to shifting macroeconomic dynamics, demonstrating its resilience and agility in the face of a challenging operating environment through strategic investment and efficient growth tactics. The company recorded consolidated revenue of EGP

97.7 billion, representing a 113% y-o-y increase, largely supported by ERC's contribution.

Qalaa's energy subsidiaries made up the lion's share of Group's total consolidated revenue, contributing 87 % to its top line, mainly on the back of impressive growth from ERC, which recorded EGP 74.7 billion in 2022, constituting 76% of the Group's top line for the year. ERC is the largest private sector-led infrastructure project in Africa and PPP megaproject in Egypt, playing a vital role in enhancing Egypt's energy security by providing a local alternative to imported diesel. TAQA Arabia continued to achieve strong results, recording a revenue increase of 18% y-o-y to EGP 10.7 billion during the year. Maintaining its position as Egypt's leading private sector one-stop- shop for energy distribution and utilities, TAQA Arabia's growth during the year came on the back of improved market conditions, with a strong performance across all business lines.

ASEC Holding, Qalaa's operational cement platform, recorded revenue of EGP 4.6 billion, increasing 48% y-o-y in 2022. The growth witnessed is primarily owed to stronger performance in the production segment. Widening demand gap drove volume and prices at Al-Takamol Cement, with prices further hiked up due to the devaluation and inflation of the Sudanese pound. The cement platform contributed 5% to the Group's total consolidated revenue for the year.

National Printing, Qalaa's subsidiary in the printing and packaging sector, recorded a solid 64% y-o-y growth in revenue to EGP 4.3 billion, contributing 4% to the Group's top line. One of Egypt's largest producers of packaging and printing products, the company operates four subsidiaries, Shorouk, El Baddar, Uniboard, and Windsor. higher volume at Shorouk and an optimized pricing strategy at both Shorouk and Uniboard reflected positively on National Printing's results

. Shorouk achieved an 86 % y-o-y increase in revenue during the year, meanwhile Uniboard's revenue grew 76% y-o-y in 2022. El Baddar's operations continued reaping the benefits of its new state-of-the-art facility, leading to an 18 % increase in sales volume and a 58 % y-o-y rise in revenue.

Regarding the Group's mining operations, ASCOM's revenue grew 45% y-o-y in 2022, reaching EGP 1.4 billion. Growth was supported by increased volume and higher prices at GlassRock and ACCM. GlassRock witnessed progress during the year, growing its volume and raising its prices, leading to a 58% y-o-y increase in revenue. Regarding ASCOM's quarry management services, which are heavily dependent on the cement sector, prolonged pressure on Egypt's cement industry due to oversupply and robust market competition continued to negatively affect the company's operating environment. The Group's mining platform contributed 1 % to the Group's total consolidated revenue.

144.8EGP

BN

consolidated assets in

FY22

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