Canaf Investments : Earnings Document

Management Discussion & Analysis

For the six months ended 30th April 2021

(Expressed in U.S. dollars)

(Unaudited - Prepared by Management)

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the 6-month period ended April 30, 2021

Expressed in U.S Dollars

INTRODUCTION

Date Prepared: 21st June 2021.

This Management Discussion and Analysis, ("MDA") covers the operations of Canaf Investments Inc. ("Canaf" or the "Corporation") for the six months ended April 30, 2021 and should be read in conjunction with the unaudited consolidated Financial Statements for the six months ended April 30, 2021 and audited consolidated Financial Statements for the year ended October 31 2020 and related notes. The Financial Statements are presented in accordance with International Financial Reporting Standards ("IFRS"). Canaf's accounting policies are described in Note 2 of the unaudited Financial Statements for the six months ended April 30, 2021. The financial statements together with this MDA are intended to provide investors with a reasonable basis for assessing the financial performance of the Corporation.

All dollar amounts are expressed in US dollars, the functional currency of the Corporation, unless otherwise stated. The Corporation's listing on the TSX-V however, is quoted in Canadian Dollars. Additional information relating to the Corporation is available on SEDAR at www.sedar.com. or at Corporation's website at www.canafinvestments.com.

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the 6 month period ended April 30, 2021

Expressed in U.S Dollars

DESCRIPTION OF BUSINESS

Canaf is incorporated in the Province of Alberta with two wholly owned subsidiaries in South Africa, Quantum Screening and Crushing (Pty) Limited ("Quantum"), and Canaf Investments (Pty) Ltd, ("Canaf Ltd").

Quantum, through its 70% owned subsidiary, Southern Coal (Pty) Ltd. ("Southern Coal"), processes anthracite coal into de-volatised anthracite (calcined anthracite) for sale mostly to steel and ferromanganese manufacturers as a substitute product for coke.

Canaf Investments (Pty) Ltd, incorporated in 2019, acts as Canaf's South African holding company with the intention of creating a diverse Corporation focused on sustainable and long-term growth sectors within South Africa. Canaf Investments (Pty) Ltd owns 100% of Canaf Estate Holdings (Pty) Ltd., ("CEH").

Southern Coal - Calcined Anthracite, South Africa

Southern Coal produces calcined anthracite, which is primarily sold as a substitute to coke in sintering processes, by feeding anthracite coal through its rotary kilns, at temperatures between 900 and 1100 degrees centigrade; the volatiles are driven off and the effective carbon content increased.

Southern Coal's clients are world leaders in steel and ferromanganese production. Southern Coal's three kilns operate near Newcastle, KwaZulu Natal.

Canaf Estate Holdings - Property Investments, South Africa

CEH is a property investment company focused on acquiring, redeveloping and renting properties primarily within the suburbs of the old Johannesburg CBD. CEH made its first property acquisition in August 2019.

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the 6 month period ended April 30, 2021

Expressed in U.S Dollars

OVERALL PERFORMANCE AND OUTLOOK

The Corporation reports a strong six months with Sales of US$6,292,558, a 15% improvement compared to the previous six months ended April 30, 2020 (US$5,490,982), and net income of US$440,206 (2020: US$285,684) or CAN$560,326 (2020: CAN$384,519). Gross margins continue to hold strong and currently sit at 11.8% for the six months.

Revenue is expected to further increase for Q3 as demand for Southern Coal's products remain strong.

As announced on 21 June 2021, management are pleased to confirm that Quantum has secured further land tenure, within close proximity to its existing premises in South Africa. The signing of the lease forms part of management's ambitions to improve security to its South African anthracite beneficiation business, as well as providing opportunities for future growth and diversification. The agreement allows for a due diligence until 31 July 2021, and the term of the lease is for five years, with an option to extend for a further four years and nine months.

The new premises will enable Quantum and its operating business Southern Coal (Pty) Ltd, to handle greater quantities of material as well as relocate some of its product sizing operations to the site. Furthermore, the site brings added capacity for growth and diversification which the management team is actively pursuing.

Canaf is also pleased to announce the launch of its new website, www.canafinvestments.com. Management are keen that the new site becomes a platform to continue to increase awareness of the Canaf operations and will be further developing the site and content over the coming months.

Covid-19

Whilst Covid-19 remains a constant concern, the board has taken steps to minimise the impact of the pandemic on the business of the company. The board believes that the company is well positioned in the market and is pleased to confirm that the pandemic thus far has not had a negative effect on the financial performance of the Company.

As of 30 April 2021, Canaf shareholder equity stood at US$5.084 million (CAN$6.354 million).

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CANAF INVESTMENTS INC.

Management Discussion and Analysis for the 6 month period ended April 30, 2021

Expressed in U.S Dollars

Selected Financial Information

Due to the Corporation being listed on the TSX-V and its share price being quoted in Canadian Dollars, the Corporation has converted some key financial information included in this report to Canadian Dollars. The following financial information is derived from the Corporation's un-audited financial statements for the quarter ended April 30, 2021, with a comparison in Canadian Dollars.

		6 Months Ended		6 Months Ended
			Apr 30		Apr 30
	2021	2020	2021	2020
	US$		US$	CAN$	CAN$
Conversion 1.00 US (av. 6 months)				1.273	1.346
Revenue from Sales	6,292,558	5,490,982	8,009,636	7,390,650
Cost of Sales	(5,552,670)	(4,921,993)	(7,067,852)	(6,624,812)
Gross Profit	739,888		568,990	941,784	765,838
Expenses	(246,954)	(259,904)	(314,342)	(349,821)
Interest Income	82,095	76,817	104,497	103,393
Other Income	24,081	9,528	30,652	12,825
Gain from Sale of Vehicle	0	0	0	0
Net Income for the year (before tax)	599,110	395,431	762,591	532,235
Income Tax Recovery (Expense)	(158,904)	(109,747)	(202,265)	(147,716)
Net Income for the year	440,206	285,684	560,326	384,519
Attributable to the Shareholders	357,373	216,019	454,891	290,754
Attributable to the Non-Controlling Interest	82,833	69,664	105,436	93,765
Adjusted EBITDA	602,572	433,085	766,998	582,916
Conversion 1.00 US (closing position Apr 2021)	2021	2020	1.250	1.273
Total Assets	6,614,317	5,580,049	8,267,678	7,103,230
Total Equity	5,313,654	4,353,015	6,641,892	5,101,399

Non- GAAP Performance Measures

The Corporation has included additional financial performance measures in this MD&A, such as adjusted EBITDA. The Corporation believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Corporation's underlying performance of its core operations and its ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

*Reconciliation of Adjusted EBITDA and Profit
		6 Months Ended		6 Months Ended
		Apr 30		Apr 30
	2021	2020	2021	2020
	US$	US$	CAN$	CAN$
Conversion 1.00 US Dollar Rate			1.273	1.346
Net Income for the year	440,206	285,684	560,326	384,519
Interest Paid	0	0	0	0
Interest Received	(82,095)	(76,817)	(104,497)	(103,393)
Foreign Exchange Gain/ (Losses)	(7,229)	8,414	(9,202)	11,326
Depreciation	92,786	106,057	118,106	142,748
Income Taxes	158,904	109,747	202,265	147,716
Adjusted EBITDA	602,572	433,085	766,998	582,916

Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, foreign exchange gain (loss) and other revenues (expenses) as historically calculated by the Corporation.

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